How the Internet May Change Michael Porters Five Competitive Forces - Essay Example

? How the Internet may change Michael Porter’s five competitive forces? Introduction According to Michael Porter, the five competitive forces that affect an organization are; Threat of substitute products, Threat of new entrants, Intense rivalry among existing players, Bargaining power of suppliers and Bargaining power of Buyers (Porter’s Five Forces Model, 2009). The figure given below explains Porter’s five forces theory. (Porter’s Five Forces Model, 2009) Dr. Singh (N.d., p.2) has argued that the WWW has changed the traditional landscape of the business environment from that of being a Market place to one that is more of a Market space. The introduction of computers and internet has significant effects on Porter’s five forces model. According to Poon (1997), global computer network has far-reaching abilities and is capable of reducing the normal business expenditure. This paper analyses how Internet may change Michael Porter’s five competitive forces. How the Internet may change Michael Porter’s five competitive forces? Internet and Threat of substitute products Threat of substitute products is increasing day by day in global market after the arrival of internet and the subsequent development of ecommerce. As per the statistics released by US Department of Commerce in May 2005, e-commerce sales in the first quarter of the year had been $19.8 billion (Eschen, 2005). In other words, business in the virtual world is increasing rapidly at present because of the arrival of internet. It should be noted that Chinese companies are manufacturing plenty of duplicate products in their country. It is easy for them to make a duplicate for iPhone 5 or Galaxy S4 and sell it at a cheaper rate. People in America or Europe can easily purchase these duplicate products with the help of internet. In short, threat of substitute products is increasing day by day because of the arrival of internet and subsequent development of ecommerce. Internet and Threat of new entrants Earlier, majority of the business activities took place in the real world whereas now a substantial portion of business activities are taking place in the virtual world. Retailers faced little challenges earlier from the virtual world. However, at present ecommerce companies such as Amazon, Ebay and Flipkart are causing huge challenges to retailers. As a result of that retailers forced to start business in the virtual world also. Wal-Mart and Tesco like prominent retailers have already started ecommerce because of the challenges facing by them from new entrants in the virtual world. Vitez (2013) pointed out that companies should implement current technologies in business. Otherwise competitors may use new Internet-based technology for creating a competitive advantage in the economic marketplace. For example, outsourcing is one of the latest business concepts developed in the corporate world with the arrival of internet. According to Thompson (2009), outsourcing is a business process in which a company contracts with another company to provide services that might normally performed by in-house employees. Because of manpower shortage, labor costs in America and Europe are extremely higher than that in Asian countries. Therefore, goods and services produced in these countries may struggle to compete effectively with Indian or Chinese products and services in the market. In order to avoid this problem, American and European companies are outsourcing their business to cheap labor oriented countries to compete effectively in the market. It should be noted that Indian or Chinese companies can sell cheaper products in American or European market through internet. As a result of that, American and European companies may struggle to sell their products even in the local market. “For existing businesses, these new online sellers represent a challenge to retain customers” (Hartman, 2013). To avoid this problem from new entrants, these companies are currently outsourcing and offshoring their business activities to cheap labor oriented overseas countries. Internet and Intense rivalry among existing players Rivalry among existing players is increasing because of the arrival of internet. It should be noted that existing players can use internet in different ways to boost their sales. They can spoil the reputation of competitors by spreading rumors through internet. For example, social networks are used extensively for the marketing purposes by prominent companies. According to a recent report, Social networking marketing spending has increased from $884 million to $2.34 billion in between the period 2007-2009 (Dickey & Lewis, 2010, p.140). A substantial portion of this expenditure is used for polishing own image and destroying the image of the competitors. According to Jaques (2009, p.20), “businesses are afraid of social networking because it represents a real and present danger to their corporate security”. Internet helps companies in conducting advertising campaigns. A substantial portion of the advertising campaigns are aimed to ridicule the competitors. For example, Microsoft has recently conducted an ad campaign to ridicule Apple’s iPhone. “Called "fly on the wall" - Microsoft's video series scrutinizes everything from the iPhone 5C's color range to the iPhone 5S's fingerprint scanner”(Betters, 2013). It should not be forgotten that it was Apple who started this blaming or ridiculing campaigns through internet. Their “I am a PC, I am a Mac” campaign caused immense damage to Microsoft’s reputation earlier. In short, internet is intensifying the rivalry between companies. Internet and Bargaining power of suppliers “The Internet is helping companies to lower costs dramatically across their supply and demand chains, take their customer service into a different league, enter new markets, create additional revenue streams and redefine their business relationships” (The Net Imperative, 1999). Supplier power increases when the number of suppliers decreases. With the arrival of internet, the number of suppliers started to increase dramatically and hence their power started to decrease drastically. For example, an American company can import raw materials from a Chinese company if the raw material cost in America is higher than that in China. Thus, American suppliers’ bargaining power will be reduced substantially because of the arrival of new suppliers. Internet and Bargaining power of Buyers A buyer can locate numerous sellers offering similar merchandise, similar prices and similar offers in a very short time period with the help of internet (The Influence of Internet on Modern Business, 2009). As a result of that bargaining power of the buyers is increasing day by day. For example, a buyer can purchase an iPhone either from E-bay or from Amazon. He can purchase it from company website also. In order to boost sales, these companies are offering plenty of discounts and offers. As a result of that, buyers are getting plenty of opportunities and offers from the sellers. Earlier, buyers forced to accept the price offered by a shop since visiting different shops for purchasing an item was difficult for them. At present it is easy for them to bargain with prominent companies in the virtual world with the help of a finger click. It is not necessary for them to travel different shops in the real world to get discounted prices now. In short, bargaining power of the buyers has increased a lot because of the arrival of internet. Conclusions Internet has the ability to affect the competitive power of the companies in many ways. It can increase the bargaining power of the buyers because of the variety of options received by the buyers through internet. It can reduce the bargaining power of the suppliers since buyers and companies are plenty of options from the internet. Threat from new entrants and substitute products are increasing since internet helps companies to sell their products all over the world. Rivalry among existing firms is increasing since internet helps firms to destroy the image of competitors and polish own image. References Betters, E. 2013. Microsoft ridicules Apple's new iPhones in 'fly on the wall' video campaign. [Online] Available at: http://www.pocket-lint.com/news/123658-microsoft-ridicules-apple-s-new-iphones-in-fly-on-the-wall-video-campaign-update [Accessed 11 December 2013] Dickey I.J & Lewis W.F. 2010. The Evolution (Revolution) of Social Media and Social Networking as a Necessary Topic in the Marketing Curriculum: A Case for Integrating Social Media into Marketing Classes. Society for Marketing Advances Proceedings, January pp. 140-143. Dr. Singh M. N.D., A Primer on Developing An E-Business Strategy, [Online] Available at: http://www.commerce.state.il.us/NR/rdonlyres/3608158F-181F-44A8-BC66-353CA27088ED/0/eCommerce.pdf[Accessed 11 December 2013] Eschen E. 2005, E-commerce - Reasons to sell online, [Online] Available at: http://www.monstersmallbusiness.com/ecommerce-strategy/article-reasons.asp [Accessed 11 December 2013] Hartman, D. 2013. Negative Impact of the Internet on Business. [Online] Available at:http://www.ehow.com/about_5336367_negative-impact-internet-business.html [Accessed 11 December 2013] Jaques, R. 2009. Anti Social. Financial Director. Sep2009, p20-20 For Marketing Learners Globally. N .d. [Online], Available at: http://www.learnmarketing.net/porters.htm [Accessed 11 December 2013] Poon, S. 1997. Determinants of Small Business Internet Usage: A Multi-method Investigation of Perceived Benefits. Proceedings of "Bled'97 - 10th International Conference on Electronic Commerce, Bled, Slovenia, June 9-11, 465-483. Porter’s Five Forces Model, 2009, [Online], Available at: http://notesdesk.com/notes/strategy/porters-five-forces-model-porters-model/ [Accessed 11 December 2013] The Net Imperative (1999). The Economist. June 26 to July 2, 1999 The Influence of Internet on Modern Business, 2009. [Online], Available at: http://www.articlesbase.com/internet-articles/the-influence-of-internet-on-modern-business-829891.html[Accessed 11 December 2013] Thompson T. 2009, What is Outsourcing? [Online], Available at: http://www.wisegeek.com/what-is-outsourcing.htm[Accessed 11 December 2013] Vitez,O. 2013. The Effect of the Internet on Modern Businesses & Corporations. [Online], Available at: http://smallbusiness.chron.com/effect-internet-modern-businesses-corporations-896.html[Accessed 11 December 2013] Read More