Industry Structure and E-commerce

INDUSTRY STRUCTURE: industry structure refers to the nature of the players in an industry and their relative bargaining power E-commerce changes the structure of industries by shifting how businesses operate and interact with customers. Industry structure is all about understanding who the key players are in a particular industry and how much influence each player has over others. It looks at the relationships between these players and their relative power. Here's a simple breakdown: Key Players in Industry Structure: 1. Companies within the Industry (Competitors): These are the businesses that directly compete with each other to sell similar products or services. 2. Suppliers: These are the companies that provide the raw materials or components needed to produce goods. 3. Customers: These are the individuals or businesses that buy and use the products or services. 4. Potential New Entrants: These are new businesses that might enter the industry and compete with existing companies. 5. Substitute Products or Services: These are alternative products or services that customers might choose instead. This shift is more distinct in some industries than in others due to the nature of the products and services involved. Example: Books vs. Groceries 1. Books: o Before E-commerce: You’d go to a physical bookstore to buy books. o There were limited choices based on what the store could stock. o After E-commerce: Online bookstores like Amazon provide a vast selection of books and deliver them to your door. o The industry's structure changed because it’s easier to access a huge variety of books, and physical stores have to compete with online giants. An industry’s structure is characterized by five forces:      rivalry among existing competitors, the threat of substitute products, barriers to entry into the industry, the bargaining power of suppliers, the bargaining power of buyers. 1. Rivalry Among Existing Competitors This refers to how intense the competition is among companies already in the industry. High rivalry means companies are fiercely/severely competing for market share. Example: In the smartphone industry, companies like Apple, Samsung, and Google participate intensely. They release new models frequently, offer various features, and run promotions to attract customers. This fierce competition shapes the industry structure. 2. Threat of Substitute Products This is about how easy it is for customers to switch to different products that fulfill the same need. If substitutes are readily available and attractive, it can pressure companies to improve their offerings. Example: For the soft drink industry, bottled water and health drinks are substitutes. If consumers find these alternatives healthier or more appealing, soda companies might face reduced sales and have to innovate or lower prices to stay competitive. 3. Barriers to Entry These are obstacles/problems that make it hard for new companies to enter the industry. High barriers protect existing companies from new competition. Example: In the aerospace industry, barriers to entry are high because of the need for advanced technology, significant capital investment, and regulatory approvals. This makes it tough for new companies to start competing with established giants like Boeing and Airbus. 4. Bargaining Power of Suppliers This refers to how much power suppliers have over the companies in the industry. If there are few suppliers or if they provide crucial components, they can demand higher prices or better terms. Example: In the computer chip industry, companies like Intel and AMD are major suppliers. They have significant bargaining power because their chips are essential for many electronic devices. If these suppliers raise their prices, it can affect the whole tech industry. 5. Bargaining Power of Buyers This describes how much power customers have to influence prices and terms. If there are many alternatives and customers are pricesensitive, their bargaining power is higher. Example: In the airline industry, if there are many airlines flying similar routes, customers can compare prices and services easily. This gives them power to demand lower fares or better service, affecting how airlines set their prices and improve their offerings. Putting It All Together Imagine a new company wants to enter the smartphone market. They’d face high rivalry from established brands, competition from substitutes like tablets, high barriers to entry (like needing technology and manufacturing capabilities), powerful suppliers for key components, and demanding buyers who compare features and prices. Each of these forces affects how the new company might compete and succeed in this industry. OPERATIONS : • While an industry structural analysis helps you understand the impact of e-commerce technology on the overall business environment in an industry, a more detailed industry value chain analysis can help identify more precisely just how e-commerce may change business operations at the industry level. • One of the basic tools for understanding the impact of information technology on industry and firm operations is the value chain. INDUSTRY VALUE CHAINS: • A value chain is the set of activities performed in an industry or in a firm that transforms raw inputs into final products and services. • Each of these activities adds economic value to the final product; hence, the term value chain as an interconnected set of value-adding activities. Figure 2.4 illustrates the six generic players in an industry value chain example of buying a new laptop online to explain the six generic players in an industry value chain: 1. Suppliers Role: Provide the raw materials or components needed for the product. Example: Suppliers provide components like processors, memory chips, and screens that are essential for building laptops. 2. Manufacturers Role: Assemble the raw materials or components into a finished product. Example: A laptop manufacturer takes the processors, memory chips, screens, and other components to assemble and produce complete laptops. 3. Distributors Role: Purchase products in bulk from manufacturers and sell them to retailers or e-commerce platforms. Example: A distributor buys large quantities of laptops from the manufacturer and then sells them to various online retail sites or electronic stores. 4. Retailers Role: Sell the products directly to consumers through online or physical stores. Example: An online retailer like Amazon or a tech retailer’s website lists the laptops for sale, processes orders, and manages customer service. 5. Customers Role: Purchase and use the products. Example: A customer browses the online retailer’s website, selects a laptop, completes the purchase, and then uses the laptop for their personal or professional needs. Putting It All Together 1. Suppliers provide the essential components like processors and screens. 2. Manufacturers assemble these components into complete laptops. 3. Distributors buy large quantities of laptops and distribute them to online and physical retailers. 4. Retailers sell the laptops through their websites or stores, handling customer orders and support. 5. Customers purchase the laptops from the retailer and use them. Each player in this chain contributes to getting the laptop from its initial creation to the end consumer, ensuring a smooth process from production to purchase.