Sunset industry strategy faces test of sustainability

M Rokonuzzaman | Monday, 13 September 2021

In pursuit of developing industrial economy, many developing countries are after sunset industries. Products of such sectors are mature and have proven markets. Advanced countries are desperate to part with these industries and sell off their production machinery, even at a very high discount. Besides, firms desperate to sell off the plants of sunset industries are also very much willing to open access to patents of the mature products. Hence, pursuing sunset industries appears to be a less risky and proven path for less developed to developing industrial economies. Unfortunately, the dynamics of the industrial economy offers a different lesson. This apparently less complicated path runs the risk of facing disaster for the reality of sudden evaporation of demand of proven products of sunset industries due to the emergence  of better alternatives.

Usually, the technology maturity of current products and the emergence of the next wave make the once-thriving incumbent industries sunset ones. For example, in the 1980s, film-based imaging or cathode ray tube-based displays became sunset industries. Among many limitations, in sunset industries, further value addition out of new idea is non-existent, environmental pollution is high, product life is short as the next wave in offering a better alternative. Most importantly, demand runs the risk of sudden disappearance before investment is recovered. It is a repeatable pattern of wealth creation dynamics out of technology possibilities in a competitive market. As Prof. Schumpeter observed, economic structure has been experiencing a constant revolution due to the creative destruction of the successive waves. As a result, the destruction of old ones due to the emergence of better alternatives has been incessantly taking place. Increasing prosperity in capitalism is due to the endless unfolding of this creative destruction-giving episodic nature of industrial dynamics.

EPISODIC MODEL OF INDUSTRIAL DYNAMICS: Starting from television to light bulbs, significant industrial products have been evolving in an episodic form. These products keep improving incrementally, reaching saturation. It happens due to the maturity of the technology core. Fortunately, profit-making competition in capitalism has been in constant pursuit of finding new technology cores for reinventing these products for opening the next wave of incremental advancement. Invariably, reinvented products begin the journey in primitive form. But the competition to keep advancing the adopted technology core leads to making the reinvented products better and cheaper alternatives to mature ones. Consequently, once the new waves reach the inflection point, previously dominant high-performing industries find them in the category of the sunset. Suddenly, demands for mature products disappear, leading to loss of jobs and destruction of firms. Such reality demands careful monitoring of subsequent waves and timely switching instead of hanging on to the matured ones.  Here are a few examples.

FILM BASED IMAGING: Since the invention of the portable camera by George Eastman in 1888, film-based imaging has kept improving. Along the way, Eastman Kodak kept growing as a globally dominant firm. Kodak kept generating ideas, filing patents, and turning those ideas into product and process features for incremental advancement to fuel its growth. Over a century, film-based imaging kept proving its profitable business power. But, the emergence of electronic image sensor-based cameras proved it wrong. Within 15 years, the mighty film-based imaging industry started experiencing rapid erosion in demand leading to becoming sunset industry and filing bankruptcy by Kodak in 2011. What could have been the fate of a new entrant from a less developed country like Bangladesh to get into this sunset industry in the 1980s, even if production machineries were given free?   

ELECTRIC LIGHT BULB: Similarly, since the invention of the light bulb by Edison in 1879, this remarkable invention kept improving leading to the saturation and emergence of new waves in the 1980s. The first one was compact fluorescent, followed by the LED (light-emitting diode) light bulbs. Within 20 years of breakthrough, the LED light bulb has grown as a robust creative wave of destruction to the filament and CFL light bulb industries. As a result, these industries were becoming sunset ones in the 2010s due to the LED bulbs. What could have been the fate of investment made, at the dawn of the 21st century, for establishing filament or CFL light bulb producing capacities? Hence, pursuing sunset industries does not sound smart.   

CATHODE RAY TUBE DISPLAYS: Another example of sunset industry is cathode ray tube (CRT)-based display production. Over 100 years, CRT-based display proved its might in serving customers and producing profitable revenue. Due to the emergence of liquid crystal display (LCD), the CRT producing industry became sunset in the 1990s. Unfortunately, some less developed countries were interested in relocating such firms from Malaysia and South Korea. But by 2010, the demand for CRT-based displays wholly disappeared due to the the next wave-the LCD.     

There has been a long list of examples to draw the lesson that sunset industries are on the path of extinction. Repeatedly these examples have been pointing to a common message: it's a wrong strategy to pursue them. 

In a globally connected competitive market economy, innovators are always after inventing, advancing, and leveraging alternative technology cores for fueling subsequent waves, making existing industries sunset. Sunset industries are bound to sink and disappear due to the rising waves, let alone offering the option of developing a sustainable industrial economy. Hence, the strategy of pursuing sunset industries appears to be highly detrimental to building an industrial economy. Instead, the strategy should be to pursue the next wave. For example, in building an industrial economy, Japan was after creating creative waves of destruction.  The strategy of pursuing the next wave will offer multiple critical advantages. It will provide a new wave of value creation out of ideas, lasting over decades. Developing countries must harness this opportunity to leverage the mental capacity of university graduates to create a sustained path of growth.

M Rokonuzzaman, Ph.D is academic and researcher on technology, innovation, and policy.

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