Emerging Industry: What Holds It Back?


An emerging industry must overcome three kinds of hurdles: vision, market, and government. The first one is the biggest handicap. If an investor thinks that something cannot fly, he won’t put in the money until another investor proves him wrong. The second hurdle relates to the lack of market demand, existing or potential. It also involves competition that may be so severe that the emerging industry won’t have a chance. The third hurdle is government regulation or policy. This may cut either way because government can kill or promote an emerging industry through taxes, regulations, or subsidies.

Depending on your view, anything can be seen as an emerging industry if you have a positive attitude. However, not everything has the same degree of difficulty. In a highly difficult environment, it takes a long time for a new industry to develop successfully. Three sectors deserve special attention:

First, a traditional sector with large-scale operation and high capital cost presents extra difficulties for a new industry to flourish. Examples are: oil, coal, raw materials, supermarket, banking, insurance, railroad, airline, and freight. On the other hand, a traditional small-scale sector with ease of entry such as restaurant, travel, and other retails are equally difficult for an emerging industry because of the severe competition.

Second, a business that is heavily regulated by government is not conducive to emerging industry because of the red tape involved. Examples are: pharmaceuticals, biotech, health care, defense contracts, and special professions such as medicine and law. New ideas or products in this sector are subject to stringent government control resulting in great uncertainties as to when they will be commercialized, despite all the research and development already invested.

The third sector, which is high tech, carries many disadvantages on the surface that can be overcome with less difficulty. High tech is intensely competitive. It also has the greatest ease of entry especially for software because a new piece of software is a new idea requiring brain work but less initial capital outlay. Rapid technological change promises constant revolution in the high tech sector where established companies cannot rest on their laurels else they will become obsolete. Herein lies the great advantage for emerging industry because no big competitors can stand in the way. No wonder most new industries are coming from the high-tech sector nowadays. In addition, technological innovation consistently brings down the price and increases efficiency, which attracts the mass markets of the world thus creating phenomenal growth.

All the three hurdles described above are not insurmountable, but are only relative in their degree of difficulty. They may delay but cannot prevent a good idea or product from gaining consumer acceptance in the marketplace. The breakthrough comes from the power of technology that makes existing ideas or products obsolete. How? Technology delivers the twin lethal weapons of lower prices and higher efficiency at the same time. The following lists some highly successful emerging industries that have really changed the world:

*Oil and automobile industry (emerged in early 1900s)

*Space industry (kick-started by the US government in early 1960s)

*Personal computer (1970s)

*Mobile phone (1980s)

*Internet (1990s)

*Social networking (2000s)

Note that technology is playing an ever-increasing role in fostering emerging industries. At present, the battleground is seen in the energy sector where renewable energy is gradually replacing oil and coal that have failed in delivering lower prices and higher efficiency. The following new industries have already emerged within the last few years:

*Solar and wind energy

*Electrification of the automobile

*Electric car battery

*Carbon fiber or other materials for lighter airplanes and cars

*Gasification of trucks and ships using liquefied or compressed natural gas (LNG or CNG).

Will these emerging industries explode like the Internet and the mobile phone? The market will decide based on the fundamental factors of price and efficiency. The threshold point lies in cost parity. That means, how fast will electricity generated from renewable sources equal in cost to fossil fuels? It probably has reached parity if you take pollution and health costs into account. However, if you ignore those two important factors, the time horizon is within this decade according to many experts. When simple economic parity is reached based on price alone, all the three hurdles described above will suddenly disappear and the mass market will switch over quickly.

(April 2012)

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About stockfessor

I like humors, music and karaoke.
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