Case Scenario 1: Romulac, Inc.
Romulac Inc. (RI), a subsidiary of a large successful manufacturing conglomerate, supplies a key component in the assembly of residential cooling systems (air conditioning units, etc.). There has been tremendous consolidation in RI's industry, to the point where only five suppliers of this particular component account for nearly 90% of U.S. industry sales. Paralleling this trend, its customers - comprised of makers of branded residential air conditioning units like Carrier and Trane - have seen similar levels of consolidation in their own industry. Half of these firms produce all their components in-house, while the balance purchases them from specialized component manufacturers like RI. RI's business is extremely capital intensive, and their 40% share of the market allows them to also be the most profitable domestic player. Strong competitors exist in Europe and Asia. Although like RI, these foreign players' strongholds are their home regions, with negligible presence outside of the region. Some of the larger Asian manufacturers have signaled an interest in more aggressively pursuing the lucrative U.S. market. RI is presently considering a $400 million dollar investment in a new plant, which will create a component that is much quieter, more efficient, and is likely to satisfy future regulatory standards. While the core technology for the new component is very old, RI's engineering and design skills have allowed them to retain their low cost-advantage, even though the component will represent a significant improvement over products currently provided by its competition.
-(Refer to Case Scenario 1) Assume that you are a consultant and have been asked by the management at Romulac Inc. whether it should be a first mover with the new component technology. Romulac is leaning towards being a first mover because the general evidence is that first movers have greater survival rates than later market entrants. Is this true or false?

Question

Quizplus · Accepted Answer

The statement that first movers have greater survival rates than later market entrants is false. While being a first mover can have advantages such as establishing a brand and creating barriers to entry for competitors, it also comes with risks such as high development costs, uncertainty about market demand, and the possibility of being surpassed by later entrants who learn from the first mover's mistakes. In fact, studies have shown that later market entrants can often learn from the mistakes of first movers and create more successful products or services. Therefore, Romulac should consider the potential risks and benefits of being a first mover before making a decision.