What Is Obsolescence Risk?

Obsolescence risk is the one that technology, product, process or a good by a firm for profit become obsolete; thus, remain uncompetitive in the Market. This decreases the profitability of the firm to a great extent.

Obsolescence risk is the most substantial for those companies that are technology-based or the ones that sell services or products on the Basis of technological benefits.

Explaining Obsolescence Risk

Obsolescence risk is an aspect for all the firms to some extent and is a required side effect of a progressive and thriving Economy. For instance, this risk comes under the highlight when a firm decides how much it will invest in the latest technology.

Is this technology going to stay latest and superior long enough for the company to get back its investment? Or, is it going to become obsolete soon, leaving the company under a loss? In a way, obsolescence risk also means that firms willing to stay in the competition and remain profitable are required to stay prepared so as to make larger Capital expenses any time a significant service, product or a production Factor goes obsolete.

Example of Obsolescence Risk

Let’s take an example of obsolescence risk. Publishing companies, usually, are the ones that have to face this risk much more than others. With smartphones, computers and tablets becoming affordable and popular, more and more consumers started reading books, newspapers and magazines on these devices; thus, supporting digital content more than paper prints.

Therefore, for publishing companies to stay in business and remain competitive, it is important to decrease investments in the paper publication and raise the bars by adopting new technologies. Also, while making this shift from paper to digital, the companies must stay alter to unimagined, new technologies that can surpass the current popular methods of reading, which may also need more investment.

On the stock market boards, you can easily find such companies that turned obsolete because of either the technologies they used or the products they sell.