Emerging Industry

An industry that is just starting to be developed

What is an Emerging Industry?

An emerging industry is an industry that is just starting to be developed. Therefore, it is an industry that is not widely known by many people, as businesses begin to create a new product, service, or technology that’s not been created before.

 

Emerging Industry

 

Industry Life Cycle

The industry life cycle consists of five different stages – start-up, growth, shakeout, maturity, and decline. Emerging industries are part of the start-up stage because businesses generate minimal revenue, there is a lack of a consumer base, the supply chain is underdeveloped, and the public is unfamiliar with the new product.

 

Characteristics of an Emerging Industry

 

1. Minimal competition

An industry that is in its early stage of development will not consist of many businesses. As a result, competition among the businesses is minimal.

 

2. Lots of growth potential

New industries will expand the job market by offering many jobs for individuals. If the industry becomes profitable, it can generate profit in the long run as well. For example, 3D printers and autonomous vehicles are newly-created technologies and are considered one of the latest trends in the technological world that continue to demonstrate growth potential.

 

3. High risk and high volatility

Developing a business in an emerging industry is risky if it cannot secure enough funding to cover costs for operations. It is also risky to find clients or consumers because they are unfamiliar with the new product, which will make them hesitant to purchase or invest in it.

 

4. High prices due to the absence of economies of scale

Businesses can achieve economies of scale when the efficiency in their production processes allows them to produce more units of a product at a lower price. Businesses in an emerging industry lack economies of scale, as they are still in the process of creating an efficient supply chain and distribution channel.

 

5. Low barriers to entry

Entry into the market is easy because there are few competitors. As long as companies possess adequate financial resources and the knowledge to develop a new product, they are able to enter the market.

 

Barriers for Emerging Industries

 

1. Lack of consumer awareness and consumer loyalty

Many people do not have knowledge about new industries, so a lot of marketing is required to help potential consumers become familiar with the industry and be willing to purchase new products.

 

2. Lack of financing

Investors are usually reluctant to invest in an industry that is not yet fully developed, as there are many financial risks associated with it. It is because investors will be investing in something that’s not been created yet, so they do not know if the new product will be successful or not.

However, entrepreneurs are gaining access to a growing number of capital sources in recent years. For example, venture capital is a form of private equity financing that is popular for new businesses. Several exchange-traded funds (ETFs) are also established for the purpose of financially supporting emerging industries.

 

3. Restrictions and regulations

Since the industry is new and unfamiliar, the government may impose restrictions on business activities. It may prevent businesses from operating efficiently.

 

4. High costs of research and development

New businesses may not possess adequate personnel, resources, and knowledge to establish a new product. Therefore, they need to spend a lot on research and development.

 

5. Lack of suppliers

Depending on what the product is, it may be difficult for suppliers to find sufficient raw materials for businesses to make the product. Therefore, suppliers may be reluctant to work with a business due to the level of difficulty in sourcing the right raw materials.

 

Potential Strategies for Emerging Industries

 

1. Low-cost

A low-cost strategy for businesses to gain an advantage in the market by offering low prices in comparison to their competitors. Doing so can increase consumer demand, which can help the business increase revenue.

 

2. Differentiation

Companies can aim to provide products that are unique and different. It will set them apart from their competitors and gain a competitive advantage.

 

3. Strategic alliance

Two or more companies can form a partnership to produce a new product together. Instead of being a competitor with each other, companies can work with each other to increase profits.

 

4. Joint venture

A joint venture involves at least two companies coming together to form a separate business entity to combine assets, resources, and operations. Doing so allows companies to access a bigger market and share financial risks.

 

Examples of Emerging Industries

Nowadays, many emerging industries are putting their focus on new technologies. Examples include robotics, virtual reality, 5G networks, blockchain technology, artificial intelligence, and self-driving cars.

Also, emerging industries in the past are considered well-established industries today. In the 1990s, the internet was a new technology that became increasingly popular, creating the dotcom bubble.

However, many dotcom businesses generated very little revenue, and some went out of business after the burst of the dotcom bubble. The companies that overcame difficulties when the internet was an emerging industry are now well-established corporations, such as Google, eBay, and Amazon.

 

Related Readings

CFI is the official provider of the global Certified Banking & Credit Analyst (CBCA)™ certification program, designed to help anyone become a world-class financial analyst. To keep advancing your career, the additional resources below will be useful:

  • Industry Analysis
  • Threat of New Entrants
  • Industry Life Cycle
  • Blockchain

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Become a certified Financial Modeling and Valuation Analyst (FMVA)® by completing CFI’s online financial modeling classes and training program!