Revenue growth has been high, but has slowed

Symptom: Revenue growth over the last few years was high, but in the last year this growth slowed significantly, and is expected to fall further.

Implications for the market:

• The industry will be under enormous pressure to become hostile.

• Competitive hostility can occur even in periods of strong demand growth. This is because the cause of hostility is too many competitors rather than too few customers. Specifically, competitors' total capacity expansion exceeds demand growth, plunging the industry into a period of overcapacity.

• However, hostility is more likely, and more severe, in situations where real demand growth decreases or becomes negative. The decline of operating margins in the industry is evidence of the effects of this slowing demand growth on profitability.

• As company volume and operating margins decline, a few competitors will be tempted to discount to hold their volumes. To them, it appears easier to reduce financial setbacks by cutting price and holding or gaining volume than to cut costs by lowering head count.