Impact of Internet and Digital Technologies on Competitive Forces

This paper critically analyzes and discusses the impact of the internet and digital technologies on the five competitive forces of the Saudi Arabian Industry by a strategy specialist. It also critically highlights and discusses the entry to new entrants in a small scale entrepreneurship in Saudi Arabia as well as suggesting ways to overcome them.

Making Sense Out of Strategy I
Making Sense Out of Strategy I
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Making Sense Out of Strategy I
The Effect of the Use of the Internet and Digital Technologies on the Five Competitive
Forces
One and the biggest challenges facing business, whether small or big in the modern the world
is competition. Businesses that have not been able to device practical competitive strategies
have suffered low-profit volumes and eventual closure. As a result, therefore, it becomes
imperative to explore and analyze competition (Porter, 2015). At its best, competition can be
analyzed using Porter’s five forces model to be in a position to break them into five different
categories that will help in giving an insight on the same.
This paper critically analyzes and discusses the impact of the internet and digital technologies
on the five competitive forces of the Saudi Arabian Industry by a strategy specialist. This
paper also critically highlights and discusses the entry to new entrants in a small scale
entrepreneurship in Saudi Arabia as well as suggesting ways to overcome them.
The use of internet and digital technologies has variant effects on these competitive forces.
As mentioned earlier in this paper, competition is one of the major threats businesses are
facing today. The same case applies to Saudi Arabian industry where businesses are trying as
much as possible to stay relevant and progressing by formulating and implementing suitable
competitive strategies (Greenspan, 2016). There are five competitive forces as stipulated by
Porter. These are competitive rivalry, bargaining power of suppliers, bargaining power of
customers, the threat of new entrants and the threat of substitute producers or services. The
effect of the use of internet and new technologies to each of the five competitive forces is
discussed below:
The first competitive force is competitive rivalry. This force explores the intensity of current
competition in the marketplace. The intensity of competition is determined by the number of

Making Sense Out of Strategy I
competitors existing in the industry as well as what each competitor is capable of doing. The
rivalry competition is high where the number of business equally selling commodities is
growing so that consumers can readily switch to the competitors who offer low costs
In Saudi Arabian industry, use of internet and new technologies has brought about increased
product promotion and advertisement over the internet something that has resulted in price
wars. Every business is, therefore, playing around with product prices in the attempt to
outcome their opponents and attracts more customers leading to an increased rivalry.
The second competitive force is bargaining power of suppliers. This force looks at the
magnitude of power that the supplies have and their potential in raising the prices which has a
negative impact on business profits. In this case, fewer suppliers have more power as
compared to more suppliers of commodities.
The use of internet and new technologies have several impacts on the power of suppliers.
Online marketing and e-commerce have led to increased suppliers who do not physically
transact with buyers but do it digitally (Obeng, 2015). This move has resulted in the presence
of a multitude of suppliers thereby decreasing their bargaining power. Digital marketing has
also enabled customers to shop outside their country of convenience and get quality goods
and services. This step has further decreased the supplier’s bargaining power.
The third competitive force is consumer bargaining power. This force looks at the power that
the customers have to be able to influence prices and quality of the goods and services
offered. Customers have more power when they are many and when the supplier can hardly
change from supplying one product to another. Customer’s power us usually low when the
supplier’s commodities are different from its competitors.
Due to the use of Internet and modern technologies, customers have a vast market from
where they can make purchases. Buyers have the ability if making purchases at the

Making Sense Out of Strategy I
convenience of their workplace or even homes and still get them timely (Van Alstyne, 2017).
As a result,, therefore, these buyers will hardly grow to an amount able to influence the prices
of products. Due to digital trade, customers have different purchasing habits, and therefore
their bargaining power is so much reduced.
The fourth competitive force is threats of new entrants. This force looks at how hard or easy
it will be for competitors to join the existing industry of a particular country. In cases where
there is an easy entry of competitors, the risk of market share depletion increases (Johnston,
2015). Some of the barriers to entry are economies of scale, access to inputs, well-recognized
brands among other factors.
Most of the challenges faced by new entrants have been solved by the use of new
technologies and internet thereby easing entry into an existing industry. For instance, new
brands can promote their products online through their websites and placing unpaid
advertisements on their social media platforms inviting new customers and growing the name
of the company (Beiker, 2015). Businesses in the modern digital age do not need to start at
the level of the existing competitors but have the capability of starting from as low as they
would wish and make use of the new technologies to maneuver and cope with competition.
The threat of substitute commodities is the last competitive force. This force explores how it
would be easy for customers to switch from consumption of certain business products to that
if its competitor’s. It looks at the number of competitors, the comparison between their prices
and quality, how much profit these competitors are earning and use this information to
determine their likelihood of lowering their prices.
The use of internet and new technologies have enabled customers to have a wide range of
choice in the industry. Buyers have the capability of deciding where to acquire commodities
depending on the prices and quality offered by the suppliers as well as their tastes and

Making Sense Out of Strategy I
preferences (Dobbs, 2014). As a result, suppliers have been forced to lower their prices and
increase quality to attract and maintain buyers.
Threats of entrants are one of the five key competitive forces as put forward by Porter. It
examines the ease of entry of new players in an existing industry. There are several threats
associated with new entry as discussed below:
The first threat is Cost of switching These are the costs associated with switching from one
company to another as incurred by the consumer. In cases where there are significant
switching costs, the new entrant may not able to devise ways and strategies for removing
them (Palacios-Marqués, 2016). As a result, the entrant will find it difficult to enter the
market because of lack of assurance of buyers. Buyers will shy away from incurring
additional charges in the form of switching cost to migrate to another supplier to get the same
products without any added advantage.
The second threat is high initial costs. Some businesses require huge capital investment on
the onset. This problem scares many entrants willing to enter into the industry who are not
able to afford large amounts of capital in one go. This challenge is the biggest impediment
that has discouraged entrants from entering the Saudi Arabian industry.
The third threat is availability of other differentiated products. Sometimes the product being
sold by the existing company is highly differentiated or enjoys a strong brand loyalty. This
situation acts as a strong barrier for new entrants (Fiorani, 2015). Like in Saudi Arabia, most
of the firms in the industry have a big brand and therefore getting into the industry as a new
brand is challenging. The new entrant will have to create newer and more quality products for
effectively surpassing those supplied by the old company.
Economies of scale is yet another threat. At times manufacturing or selling at large-scale is
economical and cost-advantageous because the per-unit cost of the commodities decreases. In

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this case, the more a particular company produces in quantity, the more the resultant benefit
(Hove, 2016). This advantage acts as a barrier to new entry because new entrants will be
forced to match the scale to enjoy the same advantages which are difficult in the initial
stages.
These threats have varying solutions. To deal with the threat of cost of switching, new
entrants may choose to offer important advantages at their own cost to counter the switching
cost. In this case, customers will have nothing to lose by changing from one company to the
other (Porter, 2015). By so doing, customers will be attracted to the new company, and this
will lead to secure establishment.
High initial cost is yet another barrier for new industry entrants that have discouraged many
from entering an existing industry. However, individuals willing to come into a current
industry ought to develop suitable strategies if raising capital for starting the business. These
ways include borrowing, getting loans, selling shares among others.
To solve the challenge of the existence of a celebrated brand, new entrants ought to produce
high-quality products that are unique and meet customer needs to be able to convince the
customers that their products are the best. They also need to make use of the new
technologies to promote their products online through friendly and convincing adverts.
Economies of scale are yet another challenge to new entrants (Safari, 2014). However, this
challenge can be solved through several ways. Mergence and formation of cartels amongst
small entrants will help to counter this challenge (Mathooko, 2016). Again, getting a more
comprehensive market command through good branding and promotion strategies will enable
an entrant to be in a position to produce in large-scale thereby enjoying economies of scale.
Acquisition of enough starting capital will also help in this case.
Conclusion

Making Sense Out of Strategy I
It is evident that competition is one of the universal problems affecting both existing and new
entrants all over the world, not even Saudi Arabia alone. In this regard, it is imperative to
develop suitable and functional competition strategies to sustain a company. While small-
scale entrepreneurs intending to enter the Saudi Arabian industry are afraid due to the
advantages enjoyed by existing companies, it is essential to know that there is a wide range of
solutions that can be employed to enable them successfully enter the industry. Therefore, new
entrants should not shy away from joining the industry in fear of established companies
because there is a solution for every barrier they may encounter.
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