It can be defined as a business environment with a majority of small, geographically dispersed firms. There are no market leaders, nor is there is a firm that has to power the shape the industry. The organizations in fragmented industry operate in a perfect competition market structure; there will not be entry barriers and exit barriers except few legal and government rules and regulations.
Example: Healthcare Industry, Hotels and Auto repair centers, firms manufacturing
The advantages of operating in fragmented industry are no big players, low entry barriers, investment is low, and the differentiation strategy can be implemented to over the competition. There are also few limitations to operate in the fragmented industry but they can be solved in the following way:
- Customer Relationship Management: Strong customer relationship should be maintained to meet the customer requirements to improve customer retention.
- Branding: Private labeling or branding should be used to increase the product image.
- Quality: The success of smaller firms operating in the fragmented industry completely depends upon the quality policy of the firm.
- Increase vertical integration: The organization operating in fragmented industry should consider vertical integration rather than horizontal integration.
- Specialization: The firm should continuously improve the customer satisfaction level with its specialized products which delight customers. The product specialty should be benchmarked with top brand in the industry.
- Cost Cutting Techniques: The firms should concentrate on cost cutting tools and techniques to increase the profit rather than price increasing of the product.
- Technology: The latest technology can be adopted and learned by the organization to improve the productivity of the organization.
The major advantage of firms operating industry is there is no single enterprise which directs the industry. The entrepreneurs can easily enter into fragmented industry initially to sustain in the business initially.