The Internet Encyclopedia (Volume 3)

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E-COMMERCEVALUECHAIN 527

Barriers to Entry

• Entrants gain easy access to markets by
  providing information or sales
  opportunities.


• Established distribution infrastructure allows
  shipment to customers (UPS, FedX).

Power of

Buyers

• Access to multiple
  suppliers can
  lower the power
  of channels
  members.


• Lower switching
  costs.

Substitute Products

• Customer access to information on
  products and price allows for comparison-
  shopping.


• Greater efficiency allows for easier entry.

Power of

Suppliers

• Ability to sell to
  final customers can
  lead to dis-
  intermediation
  (bypassing channel
  members).


• Buyers access to
  large number of
  suppliers lowers
  power.

Factors Effecting Barriers to Entry

Lower Prices

Intensive

Competitive

Rivalry

Relationship

Development

Channel

Conflicts

Switching Costs

Figure 2: Information-technology-based competitive force analysis.

how to integrate information technologies within a firm’s

business model. Competitive advantages come not only

from Porter’s list of primary activities, but also from the

supporting activities of the firm. New business practices

require that the value chain disaggregation process iden-

tify new IT-based activities that add value to the firm. The

assessment of an e-commerce value chain is relevant not

only for pure-play Internet companies, but also for brick-

and-mortar-based businesses.

Five-Forces Concept

Many industries operate in rapidly evolving and highly

competitive environments that are forcing change in busi-

ness models, business strategies, and in the distinctive

competencies needed to compete. An analysis of an in-

dustry’s competitive structure must be undertaken before

assessing where a firm can gain sustainable competitive

advantages. Drivers leading to environmental turbulence

include the following:

Technological change:Computing power has increased

while costs have decreased, allowing technology to be

applied across a broader spectrum of products and

uses.

Changing customers:The Internet and online purchas-

ing are growing around the globe. Technology is an

enabler, allowing individuals to accomplish more. Ac-

cess to information has increased customers’ negotiat-

ing power.

Shorter product life cycles:Rapid development of new

technology, aggressive marketing, and buyers’ willing-

ness to try new products have increased new product

development.

Increasing number of competitors:The distance be-

tween competitors is vanishing. Online access has

increased the intensity of competition by allowing

competitors into new markets.

A need for speed:Instant connectivity is becoming the

norm in business-to-business applications as well as

in the way consumers shop (Chabrow, 2000; Kleindl,

2003; Rosenau, 1990).

Porter (1985) used a five-forces concept to evaluate

the competitive environment of an industry. Information

technology has reshaped industry structure. Figure 2 il-

lustrates how these forces interact within an e-commerce

competitive framework (Kleindl, 2000; Porter, 2001).

Firms face intensified competitive rivalry due to a number

of factors. Information technology has shifted power

for suppliers and buyers. Buyer power has increased

because of easy access to competitive information and

competitive products. Access to price information allows

customers to negotiate leading to dynamic pricing, or

the lack of fixed prices. Buyers’ power has also increased

because of the requirements that suppliers link through

extranets where they often must engage in competitive

bidding through online auction systems to win an order.

Supplies have found that they can increase margins by

using technology to bypass intermediaries. This has lead

to channel conflicts.

Threat of entry into markets has increased because

transaction costs have dropped. Low-cost and standard-

ized IP platforms have lowered barriers to entry and

switching costs for buyers. Potential entrants can use the

Internet to provide information or sales opportunities and

then use established distribution systems to deliver prod-

ucts to buyers. Buyers are able to use the Internet to find

and price substitute products. The increase in the number

of suppliers can lead to commoditization of markets with

resulting lowering of prices.

Porter (2001) views a migration to price-based com-

petition as one of the major outcomes of this chang-

ing industry structure. Firms can protect themselves by

gaining efficiency and lowering prices, increasing switch-

ing costs, limiting the chances for channel conflicts, and