Fragmented and a Consolidated Industry

¶ … Fragmented and a Consolidated Industry

Probably one of the most important differences between a fragmented and a consolidated industry is given by the fact that in a fragmented industry, there tend to be a large number of small players, while in a consolidated industry, the major characteristic is the presence of a small number of big companies that generally share the market among themselves.

Indeed, a fragmented industry, even as the name points out, tends to offer more opportunities to a larger number of players by creating (or rather allowing these players to create) a large number of market shares and niches that each of these players can work in. On the other hand, a consolidated industry generally has very few niches, usually none, as the big players share both resources and clients among themselves and economically take the decisions to advantage such a consolidation.

Following these overarching comparison between the two, one can point out to several other important characteristics of the fragmented and consolidated industries and show how these two differ. The first difference is given by the market access and the ease of entry on the market. In a fragmented industry, because nobody really controls the market, the ease of access on the market is very high. Consider, for example, the software industry. Despite the presence of giants Microsoft or Google, the industry is far from being consolidated and the market continues to see minor players coming out on a certain niche that allows them to create software for a distinct group of customers, depending on their needs.

On the other hand, on a market such as the automobile market, the access on the market is almost impossible. New players are usually very slow to enter the market, not only because the market has been consolidated through various mergers and acquisitions, but also because of the high entry costs.

Another important difference is given by the access to capital. In a consolidated industry, the big players have access to capital and, generally, investors are deterred to investing in smaller companies simply because they don't truly believe in their capacity to fight with the larger players in the market, except perhaps on small niches. On the other hand, in a fragmented market, access to capital and resources in general is easier, because there are fewer influential players in the industry and larger possibilities for the smaller companies.