Introduction:

i. Michael Porter’s classic model of five main competitive forces that affect a company provides a valid framework for reviewing threats arising in the e-Business era.

ii. It is instructive to assess how the internet may change the competitive environment.

Five Forces:

i. Bargaining power of buyers:

• The power of online buyers is increased since they have a wider choice and prices are likely to be forced down through increased customer knowledge and price transparency i.e. switching behaviour is encouraged.
• For a B2B organization, forming electronic links with customers may deepen a relationship and it may increase switching costs, leading to soft-lock-in.
• The bargaining power of customers is also described as the market of outputs: the ability of customers to put the firm under pressure, which also affects the customer's sensitivity to price changes. Firms can take measures to reduce buyer power, such as implementing a loyalty program.

ii. Bargaining power of Suppliers:

• When an organization purchases, the bargaining power of its suppliers is reduced since there is wider choice and increased commoditization due to e-procurement and e-marketplaces.
• The reverse arguments also apply as for bargaining power of buyers.
• The bargaining power of suppliers is also described as the market of inputs. Suppliers of raw materials, components, labour, and services (such as expertise) to the firm can be a source of power over the firm when there are few substitutes. If you are making biscuits and there is only one person who sells flour, you have alternative but to buy it from them. Suppliers may refuse to work with the firm or charge excessively high prices for unique resources.

iii. Threat of substitute products and services:

• Substitution is a significant threat since new digital products or extended products can be more easily introduced.
• The introduction of new substitute products and services should be carefully monitored to avoid erosion of market share.
• Internet technology enables faster introduction of products and services.
• The existence of products outside of the realm of the common product boundaries increases the propensity of customers to switch to alternatives. For example, tap water might be considered a substitute for Coke, whereas Pepsi is a competitor's similar product. Increased marketing for drinking tap water might "shrink the pie" for both Coke and Pepsi, whereas increased Pepsi advertising would likely "grow the pie" (increase consumption of all soft drinks), albeit while giving Pepsi a larger slice at Coke's expense. Another example is the substitute of traditional phone with VoIP phone.

iv. Barriers To Entry:

• Barriers to entry are reduced, enabling new competitors, particularly for retailers or service organizations that have traditionally required a high-street presence or a mobile sales force.
• New entrants must be carefully monitored to avoid erosion of market share.
• Internet services are easier to imitate than traditional services, making it easy for ‘fast followers’.
• The most attractive segment is one in which entry barriers are high and exit barriers are low. Few new firms can enter and non-performing firms can exit easily.

v. Rivalry amongst existing competitors

• The Internet encourages commoditization which makes it less easy to differentiate products.
• Rivalry becomes more intense as product lifecycle shortens and lead time for new product development decrease.
• The Internet facilitates the move to global market, increasing the number of competitors.
• For most industries the intensity of competitive rivalry is the major determinant of the competitiveness of the industry.