Lets know more about industry lifecycle stages

Any industry passes through various stages in its lifecycle. The performance of industries is related to the stage of the business cycle. Different industries perform differently in their respective stage of the business cycle. 

Let us try to understand these stages in detail: 

Introduction -

At this stage, at times, there can be only one firm/company in the industry, which is on its way to develop a unique product. As market acceptance is low, the industry generates zero or very low revenue and experience negative cash flows and profits. The market of the products of the industry is small and the firms in the industry may have high development costs. 

Growth -

During this stage, the market develops for the products or services of the industry. The number of firms in the industry is less during this phase and hence, they may have little competition. Complementary products start becoming available in the market, which further increases the demand. Thus, revenue continues to rise with the generation of positive cash flows and profits. 

Maturity -

This is generally the longest phase in the life cycle of the industry. During this stage, the growth rate in the industry normally is in line with the economy’s growth rate. Firms in the industry differ from one another, given their cost structure and ability to control costs. Competition is high during this stage, which reduces the profit margin to normal levels. Mergers and acquisitions of some firms can take place during this stage. 

Deceleration of growth and decline -

This stage observes a decline in sales due to a shift in demand. Profits margins are under pressure and some firms may even witness negative profits. Small firms, which are not able to sustain, are taken over by the larger firms. 

Also, during the inflation and recession cycles of the economy, various industries perform or react differently to these cycles. Oil or metals industry benefits from inflation as their cost of extracting is not impacted and can increase prices along with experiencing higher profit margins. Similarly, during a recession, industries such as pharmaceuticals or FMCG performs better as people spend money on necessities although the spending capacity is declining.