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Making Sense Out Of Strategy: Digital Technologies

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Question:

Discuss about the Making Sense Out of Strategy for Digital Technologies.

 

Answer:

The Effect of the Use of the Internet and Digital Technologies on the Five Competitive Forces

One and the biggest challenges facing business, whether small or big in the modern the world is competition. Businesses that have not been able to device practical competitive strategies have suffered low-profit volumes and eventual closure. As a result, therefore, it becomes imperative to explore and analyze competition (Porter, 2015). At its best, competition can be analyzed using Porter’s five forces model to be in a position to break them into five different categories that will help in giving an insight on the same.

This paper critically analyzes and discusses the impact of the internet and digital technologies on the five competitive forces of the Saudi Arabian Industry by a strategy specialist. This paper also critically highlights and discusses the entry to new entrants in a small scale entrepreneurship in Saudi Arabia as well as suggesting ways to overcome them.

The use of internet and digital technologies has variant effects on these competitive forces.

As mentioned earlier in this paper, competition is one of the major threats businesses are facing today. The same case applies to Saudi Arabian industry where businesses are trying as much as possible to stay relevant and progressing by formulating and implementing suitable competitive strategies (Greenspan, 2016). There are five competitive forces as stipulated by Porter. These are competitive rivalry, bargaining power of suppliers, bargaining power of customers, the threat of new entrants and the threat of substitute producers or services. The effect of the use of internet and new technologies to each of the five competitive forces is discussed below:

The first competitive force is competitive rivalry. This force explores the intensity of current competition in the marketplace. The intensity of competition is determined by the number of competitors existing in the industry as well as what each competitor is capable of doing. The rivalry competition is high where the number of business equally selling commodities is growing so that consumers can readily switch to the competitors who offer low costs

In Saudi Arabian industry, use of internet and new technologies has brought about increased product promotion and advertisement over the internet something that has resulted in price wars. Every business is, therefore, playing around with product prices in the attempt to outcome their opponents and attracts more customers leading to an increased rivalry.

 

The second competitive force is bargaining power of suppliers. This force looks at the magnitude of power that the supplies have and their potential in raising the prices which has a negative impact on business profits. In this case, fewer suppliers have more power as compared to more suppliers of commodities.

The use of internet and new technologies have several impacts on the power of suppliers. Online marketing and e-commerce have led to increased suppliers who do not physically transact with buyers but do it digitally (Obeng, 2015). This move has resulted in the presence of a multitude of suppliers thereby decreasing their bargaining power. Digital marketing has also enabled customers to shop outside their country of convenience and get quality goods and services. This step has further decreased the supplier’s bargaining power.

The third competitive force is consumer bargaining power. This force looks at the power that the customers have to be able to influence prices and quality of the goods and services offered. Customers have more power when they are many and when the supplier can hardly change from supplying one product to another. Customer’s power us usually low when the supplier’s commodities are different from its competitors.

Due to the use of Internet and modern technologies, customers have a vast market from where they can make purchases. Buyers have the ability if making purchases at the convenience of their workplace or even homes and still get them timely (Van Alstyne, 2017). As a result,, therefore, these buyers will hardly grow to an amount able to influence the prices of products. Due to digital trade, customers have different purchasing habits, and therefore their bargaining power is so much reduced.

The fourth competitive force is threats of new entrants. This force looks at how hard or easy it will be for competitors to join the existing industry of a particular country. In cases where there is an easy entry of competitors, the risk of market share depletion increases (Johnston, 2015). Some of the barriers to entry are economies of scale, access to inputs, well-recognized brands among other factors.

Most of the challenges faced by new entrants have been solved by the use of new technologies and internet thereby easing entry into an existing industry. For instance, new brands can promote their products online through their websites and placing unpaid advertisements on their social media platforms inviting new customers and growing the name of the company (Beiker, 2015). Businesses in the modern digital age do not need to start at the level of the existing competitors but have the capability of starting from as low as they would wish and make use of the new technologies to maneuver and cope with competition.

The threat of substitute commodities is the last competitive force. This force explores how it would be easy for customers to switch from consumption of certain business products to that if its competitor’s. It looks at the number of competitors, the comparison between their prices and quality, how much profit these competitors are earning and use this information to determine their likelihood of lowering their prices.

The use of internet and new technologies have enabled customers to have a wide range of choice in the industry. Buyers have the capability of deciding where to acquire commodities depending on the prices and quality offered by the suppliers as well as their tastes and preferences (Dobbs, 2014). As a result, suppliers have been forced to lower their prices and increase quality to attract and maintain buyers.

Threats of entrants are one of the five key competitive forces as put forward by Porter. It examines the ease of entry of new players in an existing industry. There are several threats associated with new entry as discussed below:

The first threat is Cost of switching These are the costs associated with switching from one company to another as incurred by the consumer. In cases where there are significant switching costs, the new entrant may not able to devise ways and strategies for removing them (Palacios-Marqués, 2016). As a result, the entrant will find it difficult to enter the market because of lack of assurance of buyers. Buyers will shy away from incurring additional charges in the form of switching cost to migrate to another supplier to get the same products without any added advantage.

The second threat is high initial costs. Some businesses require huge capital investment on the onset. This problem scares many entrants willing to enter into the industry who are not able to afford large amounts of capital in one go. This challenge is the biggest impediment that has discouraged entrants from entering the Saudi Arabian industry.

The third threat is availability of other differentiated products. Sometimes the product being sold by the existing company is highly differentiated or enjoys a strong brand loyalty. This situation acts as a strong barrier for new entrants (Fiorani, 2015). Like in Saudi Arabia, most of the firms in the industry have a big brand and therefore getting into the industry as a new brand is challenging. The new entrant will have to create newer and more quality products for effectively surpassing those supplied by the old company.

Economies of scale is yet another threat. At times manufacturing or selling at large-scale is economical and cost-advantageous because the per-unit cost of the commodities decreases. In this case, the more a particular company produces in quantity, the more the resultant benefit (Hove, 2016). This advantage acts as a barrier to new entry because new entrants will be forced to match the scale to enjoy the same advantages which are difficult in the initial stages. 

These threats have varying solutions. To deal with the threat of cost of switching, new entrants may choose to offer important advantages at their own cost to counter the switching cost. In this case, customers will have nothing to lose by changing from one company to the other (Porter, 2015). By so doing, customers will be attracted to the new company, and this will lead to secure establishment.

High initial cost is yet another barrier for new industry entrants that have discouraged many from entering an existing industry. However, individuals willing to come into a current industry ought to develop suitable strategies if raising capital for starting the business. These ways include borrowing, getting loans, selling shares among others.

To solve the challenge of the existence of a celebrated brand, new entrants ought to produce high-quality products that are unique and meet customer needs to be able to convince the customers that their products are the best. They also need to make use of the new technologies to promote their products online through friendly and convincing adverts.

Economies of scale are yet another challenge to new entrants (Safari, 2014). However, this challenge can be solved through several ways. Mergence and formation of cartels amongst small entrants will help to counter this challenge (Mathooko, 2016). Again, getting a more comprehensive market command through good branding and promotion strategies will enable an entrant to be in a position to produce in large-scale thereby enjoying economies of scale. Acquisition of enough starting capital will also help in this case.

Conclusion

It is evident that competition is one of the universal problems affecting both existing and new entrants all over the world, not even Saudi Arabia alone. In this regard, it is imperative to develop suitable and functional competition strategies to sustain a company. While small-scale entrepreneurs intending to enter the Saudi Arabian industry are afraid due to the advantages enjoyed by existing companies, it is essential to know that there is a wide range of solutions that can be employed to enable them successfully enter the industry. Therefore, new entrants should not shy away from joining the industry in fear of established companies because there is a solution for every barrier they may encounter. 

 

References

Beiker, S., 2015. Evolution–Revolution–Transformation: A Business Strategy Analysis of the Automated Driving Industry. In Road Vehicle Automation, 4(1), pp.43-50.

Dobbs, M., 2014. Guidelines for applying Porter's five forces framework: a set of industry analysis templates. Competitiveness Review, 34(12), pp.41-60.

Fiorani, G., 2015. Strategic perspectives on “Made in Italy”: an exploratory market analysis of professional espresso coffee machines according to Porter's five competitive forces. Economia agro-alimentary/Food Economy, IX(45), pp.9-17.

Greenspan, R., 2016. Walmart: Five forces analysis (Porter’s model). Five forces analysis, 6(4), pp.65-78.

Hove, P., 2016. Interaction of technological marketing and Porter's five competitive forces on SME competitiveness in South Africa. Mediterranean Journal of Social Sciences, 5(4), pp.56-77.

Johnston, M., 2015. Salesforce management: Leadership, innovation, technology. Routledge, 4(7), pp.37-60.

Mathooko, F., 2016. Porter’s five competitive forces framework and other factors that influence the choice of response strategies adopted. Moving forward with Strategies, 45(7), pp.54-60.

Obeng, E., 2015. Survival of The Fittest: How Competitive Service Overlap and Retail Format Impact Incumbents' Vulnerability to New Entrants. Journal of Retailing, 6(8), pp.34-40.

Palacios-Marqués, D., 2016. Analyzing the effects of technological, organizational and competition factors on Web knowledge exchange in SMEs. Telematics and Informatics, 7(8), pp.76-80.

Porter, M., 2015. How smart, connected products are transforming competition. Harvard Business Review, 3(6), pp.54-66.

Porter, E., 2015. The Five Competitive Forces That Shape Strategy. Harvard Business School Publishing Corporation, II(26), pp.6-14.

Safari, N., 2014. The study on the competitive status of construction companies based on Michael Porter's five competitive forces. Business competition, II(23), pp.54-70.

Van Alstyne, M., 2017. Pipelines, platforms, and the new rules of strategy. Harvard Business Review, 9(5), pp.55-60.

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