HAVING CHANCES IN THE INDUSTRY
 

 

 

 

 

 

 

 

 

 

 

 

The question, then, was whether General Electric should gam- ble in an industry dominated by one large competitor (IBM) or invest its monies in fields where there was the probability of earning a return equal to or higher than returns in the computer field. General Electric decided to get out of the com- puter field. Fear of antitrust suits also prohibits the seeking of higher market shares. A number of corporations—Kodak, Gillette, Xerox, and IBM, for example—have been the target of such action. These reasons suggest that, although market share should be pursued as a desirable goal, companies should opt not for share maximization but for an optimal market share. Optimal market share can be determined in the following manner: The advantages of higher market share do not mean that a company with a lower share may not have a chance in the industry. There are companies that earn a respectable return on equity despite low market shares.

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

In the seventh year, however, market share fell so rapidly that, though efforts to hold profits were redoubled, they dropped sharply. Share was never regained. The manager had been highly praised and richly rewarded for his profit results up to 1990. These results, however, were achieved in exchange for a certain unreported damage to the firm’s long-term competitiveness. Only by knowing both and by weighing the gain in current income against the degree of market share liquidation that entailed could the true value of performance be judged. In other words, reported earnings do not tell the true story unless market share is constant. Loss of market share is liquidation of an unbooked asset upon which the value of all other assets depends. Gain in market share is like an addition to cost potential, just as real an asset as credit rat- ing, brand image, organization resources, or technology. In brief, market share guarantees the long-term survival of the business. Liquidation of market share to realize short-term earnings should be avoided. High earnings make sense only when market share is stable. An example of growth encouraged by corporate strength is provided by R.J. Reynolds Industries. In the early 1980s, the company was in an extremely strong cash position, which helped it to acquire Heublein, Del Monte Corp., and Nabisco. H. S. Geneen’s passion for growth led ITT into different industries (bakeries, car rental agencies, hotels, insurance firms, parking lots) in addition to its traditional communications business.