Why Market Fragmentation and Consolidation are Important in International Market
Written By: PROPMI - MARKETING & SALES PERFORMANCE CONSULTING on March 31, 2012
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Companies in international markets operate in an environment of opportunities and treats in which it is necessary to develop appropriate international marketing strategies configured to compete with other firms while providing value to customers. However companies respond by developing new products or by adapting existing products to the needs of customers in domestic and international markets.
Market Fragmentation and Consolidation
Market fragmentation is caused by low market entry cost and high exit cost, no experience curve effects, atypical cost structures and governmental interference in the market.
PROPMI - International Market Fragmentation and Forces For Consolidation
Highly culture-bound items such as food, clothing, and medicine are more likely to be sold in fragmented markets, whereas consumer electronics and music, especially music aimed at the youth market, will probably continue to serve a standardized consolidated market.
Summary: The reasons for international fragmentation are follow:
- Differences in tastes, languages, cultures and technical standards represent obstacles to market consolidation which force managers to think local. (Differentiation Strategy)
- Recognition of multilingual and multicultural societies forces many companies to develop niche strategies in coping with fragmentation.
- Retailers are still nationally focused.
- Large companies are deprived of a favourite competitive weapon – cost leadership arising from scale effects in manufacturing and marketing.
- Regulated markets, low industry entry costs and high industry exit costs.
- New information technologies may be used effectively to serve fragmented markets.
The consolidation of markets is achieved when low-cost standardized products are provided, marketing expenditures are systematically raised, a spate of acquisitions occurs and large capital investments raise the minimum scale to be efficient.
Summary: International markets may be consolidated when:
- Successful international firms introduce low-cost standardized products covering most market needs – this replace many specialized products;
- large marketing expenditures force less well-funded competitors to leave the market – this is a common strategy in packaged consumer goods markets;
- companies pursue policies of acquiring competitors and rationalising production capacity – a strategy often followed by alcoholic beverage and electrical products companies.
The continuous process of market fragmentation followed by consolidation presents firms with growth and development opportunities for international product-market development.
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