Hi friends, as we have seen earlier websites play an important role in E- business due to which E- commerce has a major impact on products and its capabilities.
Impacts of E – commerce
The major impact of E- commerce is on manufacturing sector. E-commerce has changed the way manufactures manage their assembly lines, production patterns and as well as distribution channels.
Among these one of the major impacts of E-Commerce is the contribution to competitive advantage (by offering greater value in terms of price or services or benefits).
Competition in E-Commerce is very intense because online transactions enables
- Customers with lower search costs
- Speeding up comparisons
- Helps in customization and personalisation
- Good customer service
- Provides greater value for money in other words reduces costs.
- And most importantly reduces barriers to entry.
If we look at points mentioned above it forces the business to analysis the industry and markets to over come this new problems.
Market analysis
Different analysis tools like “Poter’s Competitive Analysis”, PESTEL Analysis, SWOT Analysis and Generic Strategy Options Matrix helps to identify different environments of business and gives a hint to cope with it.
POTERS FIVE FORCES - Poter’s five forces helps to analysis micro environment of a business in other words internal factors which are directly linked to business performance, they are
- Competitive rivalry – Helps to analysis the level of competition in a particular industry.
- Potential entrants – Helps to analysis the level and form of access to markets.
- Bargaining power of suppliers – Reveals the power of suppliers in an industry. As in case of E-Commerce it is quite moderate because suppliers and business are now easily able to reach each other.
- Bargaining power of buyers – Helps to understand the purchasing power of customers. Taking E-Commerce into account buyers has high power in market because it reduces the switching cost.
- Threat to substitutes – Explains the level/ratio at which new substitutes products are being introduced in the market.
PESTEL – PESTEL analysis helps to analyse the macro environment of business in simple term the external factors which indirectly effects the business and its potential performance, they are
- P – Political Factors includes government policies and stability of government
- E – Economic factors include inflation and economies GDP and GNP.
- S – Socio/cultural factors include cultural, regional and language barriers.
- T – Technological factors include impact of new technology and switching cost to new technology.
- E – Environmental factors include business impacts on environmental issues like climate change, global warming and etc.
- L – Legal factors include rules and legislations like data protection act.
The PESTEL helps business to concentrate on the effects that different factors can bring to business.
SWOT – SWOT Analysis concentrates on micro environment of business and it helps to understand strengths, weakness, opportunities and threats of a business.
By reviewing and analysing the internal and external factors of business environment it helps to draw a strategy options for value creation and one of the strategies proposed by poter's is “Generic Strategy”. This strategy builds on the type of value a firm creates (what) and on the broadness of its target market (where).
- Cost leadership – Lower cost and broader market
- Differentiation – Differentiation and broad market
- Cost focus – Lower cost and narrow market
- Differentiation focus – Differentiation and narrow market
The cost leadership strategy focuses on getting the lowest cost for its products to gain the market leading position, where as differentiation strategy focuses on providing more consumer benefits then competitors in order to become market leader. Low cost usually impairs the ability to provide above average levels of consumer benefits and high levels of quality usually entail high costs. But firms that try both a quality and costs leadership at the same time tend to end up in the middle, however firms like amazon.com and eBay had outperformed in their sectors in terms of price and quality.
Even when the firms had outperformed in their sectors by implementing the above strategies some factors likes new technology development, economies of scale and firm’s allocation of recourses can hinder its development and performance. But a firm can gain its position back either by entering into the new market or by concentrating on
- Reducing cost
- Raising awareness
- Creating new products and services
Reflective report
After learning the impacts of E-Commerce I realised how intense the competition is in online business. Now it is clear to me that why business use continuously the analysis tools such as poter’s five forces, pestel, swot and generic strategy. Firms use these tools not only to stay competitive but also to gain profits and develop its business.
In order to stay competitive most firms uses more than one analysis tools as no one tool gives a complete picture of the market like poter’s five forces is very good to analysis competitiveness in the market but lacks external factors where as pestel covers the external factors but fails to analysis internal factors and swot helps to analysis internal factors but misses external and competitiveness factors. I would consider starting the analysis with pestel as it gives good knowledge of external factors of business, and then to continue with poter’s helps to understand competitiveness and finish analysis with swot to know internal factors. But knowing the factors, it is not sufficient as we require a strategy to implement this knowledge at this stage poter’s generic strategy helps firms to focus and concentrate on one of its 4 basic approaches as mentioned above.
But how far we use and analysis tools there are always some changes and developments factors occurs because of globalisation and we fail to acquire the complete picture of market.
As a whole, all the business need to re-evaluate their business and markets in regular intervals as done by Deutsche Bank in order to survive and stay competitive to the continuous changes brought by internet/E-Commerce.
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