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

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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. 111
The European E-Business Report 2005 Exhibit 2.5-4: Anticipated impact of e-business on the M&E industry Five forces shaping industry structure New entrants Substitution of products / services Negotiation power of suppliers Negotiation power of customers Rivalry in the market General importance in the sector Low: Mature industry with a majority of established, highly specialised firms that act mainly on national markets Medium: Most firms are highly specialised, which limits the ability to substitute products / services Medium: Strongly varies among different market segments Medium to high: Strongly varies among different market segments Impact of e-business Main arguments • • In this sector, e-business is mainly a tool for already existing firms to increase efficiency and to improve customer service • The availability and widespread diffusion of ICT in the sector provides little additional incentives for new firms to enter the market; the potential of internetbased business models in this sector is limited •• • E-business offers numerous opportunities for customised products / services, thus making imitation more difficult • Standardisation increases transparency and comparability, and could therefore increase the degree of substitution •• • E-business strategy of some firms is influenced by their suppliers • Commitment to common standards and integrative ICT solutions yields strategic partnerships with potential for lock-in scenarios and hold-up problems, which can limit competition and create barriers to invest • Higher market transparency can increase negotiation power vis-à-vis suppliers of standard components and products ••(•) • E-business strategy of many firms is influenced by their customers • Commitment to common standards and integrative ICT solutions yields strategic partnerships with potential for lock-in scenarios and hold-up problems, which can limit competition and create barriers to invest • Some large customers can force their suppliers to use particular e-business solutions in order to stay in business with them (“take IT or leave it”) • Higher market transparency on the customers’ side can increase their negotiation power vis-à-vis manufacturers of standard components and products Medium: •• • Increased market transparency Strongly varies among different market segments • Potential to internationalise production and sales, new competitors from other countries. Yet, most firms are still active on regional or national markets only. Impact of ICT and e-business: • = low; •••• = high 112
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