Consolidation as Growth Slows

Recently, Vodapfone and Hutchison Whampoa announced that they will combine their Australian mobile telecommunications businesses into a joint venture. Currently, Vodapfone is the third ranked competitor in the Australian market, while Hutchison is the fourth. The combined subscribers of the new firm will still rank third in the market, but a relatively strong third.

This is a pattern common to an industry as its high growth begins to slow. Once an industry begins to slow down, the top competitors in the industry are usually capable players. These top competitors are unlikely, and unwilling, to cede share willingly to another competitor. In that situation, growth and market share is likely to come by way of consolidations, such as this one, or acquisitions.

A very important determinant of the success of these consolidations is whether the new company can retain all of the customers the two firms previously owned. (See the Perspectives, “Buying Share, Not Sand” and “Acquisitions: The Buy or Win Decision” on StrategyStreet.com.)