The European e-Business Report The European e ... - empirica

The European E-Business Report 2005
to classify products and components may increase market transparency and the negotiation power of
firms vis-à-vis the suppliers of such products.
Nevertheless, the empirical analysis and the case studies presented in the full sector reports did not
contain specific evidence that these strategic considerations are currently an important issue among
firms in the M&E sector. Furthermore the negotiation power of suppliers does not seem to be a major
issue for most firms in the sector either. However, to the extent that suppliers have some degree of
negotiation power, the dynamics and considerations outlined above could become more important in
the future when e-business solutions in this sector reach a higher degree of sophistication.
Negotiation power of customers
Similar arguments to those above apply with respect to the strategic implications of e-business on the
distribution of power between firms in the M&E sector and their customers. The degree to which
customers have negotiation power also varies greatly among sub-sectors of the industry. For example,
firms that primarily and frequently serve a small number of large companies (such as car
manufacturers) will be confronted with a substantial amount of negotiation power of their customers,
whereas others will not.
The power of customers is a concern for more companies in this sector than the power of suppliers.
Large customers with significant negotiation power could force their suppliers to use particular e-
business solutions in order to stay in business with them (“take IT or leave it”). The commitment to
such relationship-specific investments into ICT can result in lock-in scenarios and hold-up problems,
as argued above, although case study evidence and desk research did not indicate that these “battles
of power” are currently an important matter of concern for firms in the M&E sector. Nevertheless, the
issue could gain importance in the future when firms in this industry begin to adopt more advanced e-
business solutions that integrate business processes across company borders.
Another way in which e-business tools could affect the bargaining power of customers has quite an
opposite effect: firms in the M&E sector could use customer-oriented e-business solutions as an
instrument to tie customers to their business, using e-business to build long-lasting relationships with
clients and improve the competitive position of the enterprise. Thus, depending on the specific market
in which firms are operating and the type of customers that firms are primarily dealing with,
relationship-specific ICT and e-business investments can either improve or weaken the negotiation
position of companies.
In summary, for those companies that consider the negotiation power of customers as an important
aspect, the further development of e-business could significantly affect the “balance of power”
between the producers of machinery and equipment and their customers.
Rivalry in the market
By increasing market transparency and the geographical outreach of companies, the further
development and application of e-business could increase the degree of rivalry in some market
segments (e.g. those with low barriers to entry) in the M&E sector. In particular, it opens up new
opportunities to outsource specific production activities to other countries and to increase the sales
area of companies.
The case studies on Digital Parts Transfers and Fire Eater A/S (see Exhibit 2.5-4) provided real-life
examples of how e-business solutions can facilitate the geographic expansion and internationalisation
of firms in this industry. However, these developments also need to be put in perspective to the overall
nature of the sector: The majority of firms in the M&E sector are mostly small, specialised firms that
primarily serve their home markets and rely on long-standing relationships with their clients. Although
e-business can affect these traditional structures in some ways, it seems unlikely that it could cause
radical changes in the degree of rivalry in the M&E sector.
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