The Experience Curve concept was devised by the Boston Consulting Group.

 

From BCG's research into a major manufacturer of semiconductors, they found that the unit cost of manufacturing fell by about 25% for each doubling of the volume that it produced.

 

BCG concluded: the more experience a firm has in producing a particular product, the lower are its costs

The logic behind the Experience Curve is this:

• As businesses grow, they gain experience...

• That experience may provide an advantage over the competition...

• The “experience effect” of lower unit costs is likely to be particularly strong for large, successful businesses (market leaders)

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If the Experience Curve concept is valid, then it has some significant implications for growth strategy:

• Business with the most experience should have a significant cost advantage

• Business with the highest market share likely to have the most / best experience

Therefore:

• Experience is a key barrier to entry

• Firms should try to maximize market share

• External growth (e.g. takeovers) might be the best way to do this if a business can acquire firms with strong experience