E-Commerce Strategies
For achieving Comparative Advantage
Companies
have rapidly embraced internet technology, with business to business sales estimated
to be $6.1 trillion by the end of 2004. This is remarkable considering that B2B
sales generated less than $1trillion in 2000. Business to Consumer (B2C) sales
are also 
still
growing. In 2000 alone, despite the failure of many dot com companies that same
year, B2C sales grew 67%. In addition to sales, companies are capitalising on
cost-saving advantages. Despite this record of growth, there many who see the
Internet a little more than an enabling technology. It is not a new marketplace
as some have claimed. It is a new channel, but distributes only knowledge and
information on a digital form.
For
managers, perhaps the most important issue is how to strategize in the era of
the Internet. With rapid growth in global use of internet technologies,
increasing sales in both B2B and B2C markets and the potential for large cost
savings, many firms see the internet as a source of revenue and profit growth.
The
question is whether the traditional rules of creating and sustaining
competitive advantage, can be applied to internet-based firms.
We will examine how the internet is changing
our view of strategy and suggest ways the new technology can enhance strategic
initiatives. We also discuss the potential pitfalls associated with
internet-based strategies. As we will see, a combination of strategies may be
the better way to face these pitfalls.
The creation of CompaRATIVE ADVANTAGE
Primarily there are three strategies firms use to create
competitive advantage: overall cost leadership, differentiation, and focus.
Each strategy is uniquely implemented to overcome forces affecting competitive
advantage strategy including threats from substitute products and new entrants,
bargaining power of suppliers and buyers, and rivalry among existing
competitors.
An overall cost leadership strategy attempts to offer the
lowest cost product or service to customers relative to a firm’s rivals. This
low-cost position is contingent on the efficient management of the entire value
chain. Thus, costs must be rigorously controlled from raw materials purchases
to distribution channel delivery.
A differentiation strategy positions a company to compete
on the uniqueness and value of its products and services. Well-known brand
image, a strong reputation, and quality products and services are the
characteristics of a differentiation strategy. Gains, in image, reputation, and
quality come at a cost to consumers; they pay a premium compared to cost
leadership products and services
A focus strategy is used by companies to gain a position
in a market niche. They make no attempt to be all things to all consumers, but
rather concentrate on a narrow market segment. Within their particular niche,
they create competitive advantages over rivals through either cost leadership
or differentiation tactics.
The internet’s
Internet technology is changing the way firms operate.
These changes are forcing them to create new strategies and adopt new methods
of implementation. For example, computer hardware manufacturers like Cisco
Systems Inc. and Intel Corp. have transformed themselves internally by
embracing the technologies they sell. As a result, both companies have adopted
new strategic practices. Using the internet, they have:
·
Created
internet based knowledge management systems that make most employees only a few
clicks away from vital information;
·
Turned
customers into ad hoc research and development (R&D) teams by involving
them throughout the development, testing, and launch of new products;
·
Become
virtually paperless by relying on electronic purchase orders.
But along with these advantages, easy access to Internet
technology presents new challenges to competitive advantage. Because nearly all
firms have access to this relatively inexpensive technology, companies who
choose to compete in cyberspace must find ways to capture the potential while
sustaining competitive advantage over their rivals. This requires balancing a
firm’s market position against forces-substitute products, new market entrants,
supplier and bargaining power, and inter-firm rivalry- that can rapidly erode a
company’s competitiveness. These factors do not require strategies that are not
covered by the traditional competitive advantage theories. However, there are
important changes in how these strategies can best be deployed.
· Focus