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Five Competitive Forces and their Impact

Discuss about the Critical Analysis Of The Impact Of Internet And Digital Technologies.

External business environment analysis is a vital strategy of the organizations that help them to identify and understand the potential opportunities and threats and take actions accordingly. One of many important and effective tools for external environment analysis is the Porter’s Five Forces Framework. This tool is beneficial for competition analysis, which addresses the factors, such as, industry rivalry, bargaining power of suppliers, bargaining power of buyers, threat of new entrants and threat of substitutes (Rothaermel 2015).

Industry rivalry refers to the competition from the existing rivals. This is a major factor that determines the organizational performance as well as competitiveness. A good understanding of the industry rivalry helps in adopting the most suitable marketing strategy. Competition may come from innovation, promotional activities, non-price competition, degree of transparency etc. (Grant 2016). Bargaining power of suppliers originates from the input market. All kinds of supplies can give the suppliers bargaining power with the firm that can have an influence on the business operation. The bargaining power of buyers originates from the output market and the behavior of the customers can shape the organizational performance through the demands and purchasing behavior. Threat of new entrants comes from new competitors in the market. When an industry becomes profitable, it attracts new entrants along with some other impacts. Lastly, threat of substitutes originates from substitute products or services and ease of switching (E. Dobbs 2014).

According to Benmamoun et al. (2016), the internet and digital technology sector of Kuwait has become increasingly significant for the economy in the last few years. The mobile and internet infrastructure and the services have presented the great potential for the organizations. However, as the competition is increasing not only in the domestic market, but also in the international market due to increased FDI and global business policies, the external environment analysis required to find out the impact of the digital technologies on the five competitive forces. The impact of internet and digital technologies of Kuwait on the each of the five competitive forces are as follows.

The digital business has changed the nature of the competition. Here the threats of new entrants not only come from the physical stores, but also from the digital platforms. The biggest example of this type of competition is the emergence and popularity of the e-commerce websites, such as, Amazon, Ebay and Souq. There are digital business models and platforms for new technology, that are available to every business in the industry and there can be arrival of new business entities in the digital world at any point of time due to reduced barriers to entry (Evans 2015). Digital businesses require less capital and can yield large economies of scale at a shorter time. There is also enhanced cyber security resulting in increased value proposition of the business. The nature of business is far more transitory and dynamic due to the enhanced internet and digital technology, which makes the competition intense (Pagani and Pardo 2017).

Threat of New Entrants

In the digital business, the threat of substitutes comes from either purely digital substitute products or from a hybrid digital or physical substitute. The example of hybrid digital business model is that of the taxi services, Uber, Abi Taxi and Q8 Taxi in Kuwait who provide a mobile app to the customers to book the physical service (kuwaitlocal.com 2018). The incidence is similar in case of home delivery services in Kuwait where people choose the app for convenience. The switching cost is less in case of digital business substitutes, for example, it takes smartphones and mobile internet and only a few second to download and install the app and start using the service.

Suppliers have a great bargaining power in the internet and digital business. They can either speed up or slow down the integration of the digital business model depending on its impact on their own business. If the suppliers follow traditional business model, they would not accept the digital business easily and would enforce their bargaining power for not using the new technology. In case of ride-sharing or room sharing businesses, which is supported by the new technology using businesses are promoted for convenience for both the supplier and the buyers, however, the traditional businesses do not support this type of business idea and hence, may not provide adequate support for the business establishment (Rothaermel 2015).

The consumers have immense bargaining power in the modern world due to instant access to the information through the internet, access to the social media, reviews, feedbacks, access to substitute products or services and price sensitivity (Evans 2015). It is the biggest force of competition as the digital businesses have emerged from the needs, demands and expectations of the customers. The level of convenience and quality of products and services are influenced by the bargaining power of the consumers.

All types of businesses face the challenge of industry rivalry as there are many existing firms in that industry. In case of internet and digital technology industry of Kuwait, there are multiple companies that are close rivals of each other. Some of the major telecom companies of Kuwait are  Qualitynet, Orbit Showtime Network (OSN), KIPCO, Mobile Telecommunications Co (MTC) / Zain, Ooredoo Kuwait, Kuwait Telecom Company (KTC) / Viva, FASTtelco, and CITRA (Palejwala 2013).  In the age of digital businesses, the intensity and degree of rivalry has increased considerably. The barriers to entry and exit have decreased due to low cost business models. Many times, the entrants do not have to own any physical asset, infrastructure or large capital and hence, they can give hard competition by spending on the quality of products and services and enhancing the customer experience (Palacios-Marqués, Soto-Acosta and Merigó 2015).

Internet and digital technologies have changed the course of business. These have widened the horizon of business from local to global. The five competitive forces are greatly influenced by the internet and digital technologies that have changed the way of business in Kuwait in the last few years.

Threat of Substitutes

The major four threats of entry that the new entrants in the small scale entrepreneurship in Kuwait faces are the government regulations, switching cost, financial constraints, and economies of scale (Koch 2011).

Like the other Middle East countries, Kuwait’s economy is also heavily dependent on the oil production and export. Although the economy has developed significantly, yet the predominance of oil still exists. Kuwait is an expensive place for doing business. There is requirement to have a Kuwaiti agent for the business entities. The oil and gas production and exploration sector has a closed nature, and their aversion to risk have resulted in slow growth of the business sector, especially for the small scale entrepreneurship (Alhajeri 2012).

The small scale entrepreneurs face a lot of government regulations, that make their entry into an established market difficult. Being small in size, these businesses often face challenges to meet the business requirements set up by the government. Switching cost for the customers is high while changing the preference to established companies to new companies. The people in Kuwait mostly prefer to trust and do business with known firms, rather than with new firms. The most common problem for the small scale businesses is the lack of adequate capital (Burns 2016). The small businesses often cannot enter the market due to lack of capital and necessary infrastructure. Lastly, economies of scale is a major threat to entry to the small scale businesses. The sectors are already established and being small scale entrepreneurs, they cannot afford to produce on a large scale and enjoy the benefits of economies of scale.

To overcome the above mentioned constraints, firstly, the small scale businesses should focus on getting adequate capital through loans from the banks and other financial institutions. The complex business environment of Kuwait requires patience, persistence and flexibility and hence, to face the government relations, personal relations and careful planning are important in Kuwait (Kenny and Dyson 2016). The small scale businesses should focus on the market entry strategies that would minimize the switching cost of the consumers and should also focus on delivering the best quality of product and services at a lower cost. Once they capture the market share by building a close relationship with the customers, they should focus on expanding and enjoying economies of scale.

Thus, it can be said that, Kuwait being one of the most developed countries in the Middle East still has predominance over the oil industry for economic growth. The small businesses face the challenges of inadequate capital, government regulations, switching cost for the consumers and economies of scale that creates threats of entry into a new market. The small scale entrepreneurships in Kuwait must handle these challenges through building relationships and getting adequate finances to establish the businesses successfully in the market.

References

Alhajeri, A., 2012. The Financing and Success Factors of Small Business in Kuwait. [ebook] Available at: https://researchportal.port.ac.uk/portal/files/5315086/Small_BusinessPDF.pdf [Accessed 22 Mar. 2018].

Benmamoun, M., Sobh, R., Singh, N. and Moura, F.T., 2016. Gulf Arab E?Business Environment: Localization Strategy Insights. Thunderbird International Business Review, 58(5), pp.439-452.

Burns, P., 2016. Entrepreneurship and small business. Palgrave Macmillan Limited.

  1. Dobbs, M., 2014. Guidelines for applying Porter's five forces framework: a set of industry analysis templates. Competitiveness Review, 24(1), pp.32-45.

Evans, N., 2015. How digital business disrupts the five forces of industry competition. [online] CIO. Available at: https://www.cio.com/article/2976572/emerging-technology/digital-disruption-from-the-perspective-of-porters-five-forces-framework.html [Accessed 22 Mar. 2018].

Grant, R.M., 2016. Contemporary strategy analysis: Text and cases edition. John Wiley & Sons.

Kenny, B. and Dyson, K., 2016. Marketing in small businesses. Routledge.

Koch, D., 2011. Challenges to SME Development in Kuwait. [ebook] UNDP Kuwait. Available at: https://info.undp.org/docs/pdc/Documents/KWT/SME%20Challenges%20Final%20Report%20KUWAIT%20Nov%2011.pdf [Accessed 22 Mar. 2018].

kuwaitlocal.com, 2018. Kuwait Local | Q8 Taxi. [online] Kuwaitlocal.com. Available at: https://www.kuwaitlocal.com/business/q8-taxi [Accessed 22 Mar. 2018].

Pagani, M. and Pardo, C., 2017. The impact of digital technology on relationships in a business network. Industrial Marketing Management, 67, pp.185-192.

Palacios-Marqués, D., Soto-Acosta, P. and Merigó, J.M., 2015. Analyzing the effects of technological, organizational and competition factors on Web knowledge exchange in SMEs. Telematics and Informatics, 32(1), pp.23-32.

Palejwala, M., 2013. Kuwait Telecom Industry. [ebook] Capital Standards: Industry Report. Available at: https://www.infomercatiesteri.it/public/images/paesi/107/files/Kuwait%20Telecom%20Industry_pdf%202_13%20Capitalstandards.pdf [Accessed 22 Mar. 2018].

Rothaermel, F.T., 2015. Strategic management. McGraw-Hill Education.

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