|Gaining a Competitive Edge by Predicting New Markets
In their book,
Next (2004, Harvard Business School Press), authors Clayton M.
Christensen, Scott D. Anthony and Erik A. Roth provide advice to senior managers
in large corporations about how to avoid disruptive technologies that could
threaten their companies. Their book is written from an “outside-in”
perspective, showing how executives, investors, and analysts can assess the
impact of innovation on the firms they manage or firms in which they have
invested. In the authors’ case, they examine individual companies and provides
microeconomic analysis at the level of an individual firm.
Another way of looking at technology would be to apply a macroeconomic analysis
on how technology causes entirely new markets to emerge. Predicting market
emergence is not a strong suit of existing economic theory, and most business
schools shy away from teaching their students about how to predict technology.
But, as every senior manager knows, companies exist within clusters of companies
and are members of networks of suppliers and service organizations. Competitive
analysis involves understanding your own strengths and your competitor’s market
strategies. If the market changes, each of you will be affected, so it may be a
good idea to have a framework for understanding how old markets die and new
New markets emerge when existing flows of income in an existing market are
disrupted. Market emergence is all about the creation of new incomes and new
wealth. The emergence of a new market is primarily a local or regional economic
phenomenon—not a national or global event—because the new products that lead to
new markets are so small and disorganized.
Often, the new product is born into a market environment that is hostile to its
survival. Some writers have called this the “valley of death” for new products
and new ventures. Very few consumers buy a new product when they first see it.
But, no matter how outlandish or unusual a new product looks to a CEO, it would
be a very good idea to watch who is buying the product and understand how it is
The leading indicators for new market emergence concern business events that
occur in many different metro regions, not just your metro region. In order to
predict the emergence of new markets, a senior executive would watch regional
income flows in different regions and look for rapid upward occupational
movement within the social structure of the region.
In addition to comparing incomes, the rate of investment in new product
development and new venture creation would be analyzed to see if the new incomes
were being spent again on a second generation of companies instead of lavish
changes in lifestyles of the newly rich.
Of particular interest to a corporate executive would be the growth of new firms
in the service and supply chains within the regional industrial clusters that
constitute the company’s own service and supply chain.
The very first place a new market emerges is in the supply chain, which leads to
an increased regional income multiplier effect. If a CEO notices that service
and supply vendors seem less interested in their existing product line, then it
may be a good idea to find out what and who else they are servicing.
The new markets emerge when a threshold number of consumers and vendors within
the regional industrial cluster become financially vested in the new products.
At the critical threshold, two important events are likely to occur. First,
companies within the region will seek larger markets to sell their products,
thus creating exports. Second, firms from outside the region will relocate
branch operations to obtain financial benefits of the new markets within the
From that moment on, the new market is on a pathway to extinction. The best way
to predict new markets is to appreciate that they are born; they exist for some
small period of time and then they die. Predicting new markets contains the
ironic outcome of also predicting how long a market may live, which depends not
so much on what consumers in the region or the world do with their incomes, as
what the owners of the new companies do with their capital gains when they exit
from the market.
About the Author
Thomas E. Vass is a regional economist and investment advisor from Raleigh,
North Carolina. He is one of the countries preeminent experts on the impact of
technological innovation. His latest book is
Predicting Technology: Identifying Future Market Opportunities and Disruptive
Technologies. Tom can be reached at
firstname.lastname@example.org. Readers can also visit his website at: