What is Defensive Industries?
Defensive industries refer to those types of specific industries whose production or distribution remains constant irrespective of economic fluctuations prevailing in the economy of the country because of the defensive nature of products like essential commodities and basic needs products and thus their demand does not decline even in situation of the recessions.
Characteristics
#1 – Non-Affected by Economic Fluctuations
These are unaffected by the economic fluctuations due to the nature of product dealings like medical products, necessities product like rice, wheat, etc. and defense industry product which is used as weapons in times of war or for self-defense by the military.
#2 – Inelastic Demand
The demand for products dealing by such industries is inelastic due to the nature of demand and supply is continuously increasing.
#3 – High Returns
This provides high returns on the investment due to a continuous increase in demand leads to more profits.
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#4 – Attract Investors
As the defensive industry provides continuous returns, and the market never faces a downturn. Hence it is the most attractive option for the investors, and investors prefer to invest in such industries.
#5 – Low Employee Turnover
It provides the security of jobs to the employees; hence the employee turnover in these types of industries is less, and job satisfaction is more.
#6 – Secured Business
The business done by these industries is a secured type of business as the products they deal with are long-lasting and not perishable products. Hence any person who wants to do a secured business with less risk can deal with the products manufactured or sold by defensive industries.
#7 – Operative in all Economic Situations
It is always operative even in the economic recession or downturn as people cannot live without essential commodities like food grains, medical products, etc.
Example of Defensive Industries
- There are many examples like food grain industries, medical industries, water service industries, etc.
- Water supply and irrigation systems are some of the effective examples in the US. During the recession period in the USA, it continues to grow despite even low consumer income.
- Online recruitment sites are also the best example as during the recession. Also, the unemployment rate increase, and online recruitment sites continue to grow as people search for jobs. Examples of online recruitment sites are LinkedIn, which boosted revenue from job seekers.
- The health care industry is also an example of a defensive industry as people who have a lower standard of living will opt for healthcare services as they are necessary services for living life.
- The government of every country also gives more attention to such industries and ensures it is available to the citizens at the affordable cost.
- Walmart is considered as defensive as it deals with necessities products.
Need
- To Provide Essential Services – These are necessary to provide essential and emergency services to the citizens of the country.
- For the Growth of the Economy – For the growth of the economy, there is a high need for defensive industries as they provide a stable return on investment and keep the investors attracted.
- To make Available Necessities Products at Affordable Rates – The reason behind protecting the defensive industry is to provide necessary goods at an affordable rate so that everyone can afford it.
Advantages
- Provide protection from global competition.
- Keeps the growth of the economy;
- Attract investors.
- Deals in the products with inelastic demand.
- The industry with lower employee turnover;
- Gives job security and job satisfaction to employees;
- Defensive companies are less volatile in nature.
Disadvantages
- Over protectionism leads to monopolistic situations.
- No global competition makes the industry sick.
- Prevents nature prevents the companies from expanding into products other than necessity products.
- Due to defensive nature, its growth is slow as compared to other fast-growing industries.
- Provide a low rate of return to the investors as compared to luxury industries.
- The profits of defensive industries are limited as there are continuous checks by the government.
- The legal formalities and licensing are more complex in these industries.
Conclusion
- These are dealing with daily necessity products and services like food grains, water, health care services, medical products, and defense products for the military, etc. the demand for goods supplied by defensive industries is inelastic. Hospitals, medical care services, transport industries can be considered examples of such industries.
- These industries provide secured jobs due to continuous profits by the companies. Employees working in these industries are more satisfied with their jobs. These industries attract more investors due to their continuous growth. But the rate of return provided by these industries is comparatively less as compared to other industries.
- These industries provide the basic goods; hence there are continuous checks on the price of the products; hence profits can be limited. Walmart is considered as the firm of the defensive industry as dealing in necessity products. Due to non-competition in this industry makes the companies sick and slow working.
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