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LONT039 Global Business
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LONT039 Global Business
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Course Code: LONT039
University: Coventry University
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Country: United Kingdom
Question
How platforms destroy traditional industries or companies and how are they a opportunity for born global companies?
Answer
Introduction
There are various ways in which platforms have destroyed the traditional industries. They have taken advantage of technological advancement to create a competitive advantage over the traditional industries. These platforms have been a major boost to the born global firms as they have offered them different opportunities. This paper analyses the various ways in which the platforms have disrupted the traditional industries. It goes further to outline the various way in which the platforms have become an opportunity for the born global firms.
How platforms disrupt the traditional industries
Platforms, as described by Charles & Thomas (2017), refers to an enabled interaction between the producer and the consumer where business value is created. The role of the platform is to provide a participative and open infrastructure enabling the interactions to take place. It also creates value for all the stakeholders involved in the facilitated exchange of goods and services where the all the needs of the users are matched. There are various forms of platforms. There are multi-sided platforms, dual-sided platforms and also uni-sided platforms. Whereas the multi-sided platform brings more than two sides on board to facilitate interaction, the dual-sided platforms bring only two sides on board. Examples of a multi-sided platform include among others uber, Xbox, Airnd and eBay.
The contemporary world has seen a tremendous advancement in technology which has contributed to the internet’s paradigm shift from a mere online distribution channel to an avenue of infrastructure creation and coordination mechanism. The internet is no longer viewed as a marketplace where a firm could advantageously sell its products to millions of consumers with relatively lower investments. One of the advantages of the platforms in comparison with traditional businesses is that they enjoy a margin of economies of production and distribution. Taking uber as an example, the expansion rate of uber is less costly as compared to traditional tax which requires the owners to employ more drivers and add additional units of taxis. The user value creation in the platform is impacted by the network effects. The significant value of the user value created is determined by the magnitude of the platform community. The other notable advantage of these platforms is that they have successfully delinked values from assets. This means that the usage of a product does not necessarily require ownership. One can use a product which he does not own. One of the key elements of platforms is reintermediation. This aspect eliminates the need for middlemen in the channel of interaction. The producer is connected directly to the consumer. Additionally, the platforms have eliminated the non-scalable and inefficient agents with the embracement of automation. Hagui and wright (2015) concluded that in the contemporary industrial setting, a system tasks with the role of connecting two sides and which has failed to embrace technology is in the verge of been replaced by the platform.
According to Evans and Schmalensee (2018), the platform disruptions on traditional industries is necessitated by the consumer’s convenience in their busy lifestyle. An applicable example, in this case, is the Amazon which on its inception commenced as an online distribution business but later transformed into a platform connecting different users. Looking at the interaction channel where a manufacturer sells his mass production to the wholesaler, who then sell to the retailers and then the retailer deals with the customer is not only long and expensive but also very tedious. The application of a platform is not only shorter and cost-effective but also enables one to reach a wide range of consumers.
By eliminating the middlemen, Hanninen, Smedlund & Mitronen (2017) notes that the platforms have led to making the product cheaper as the remuneration cost run by the wholesaler as profit for distributing the product is eliminated. The producer through the platform deals directly with the consumer. In this case, the review system enabled by the platform allows the producer to understand what the consumer feels about the product. This helps the producer to modify the products in line with the needs and expectations of the consumer.
Comparing to a retail outlet, platforms gives a myriad of choices to the users. It only requires a click of the mouse and the product is delivered at the consumer’s doorstep. The consumer does not necessarily need to visit the shops and spend time choosing on the products they require. That time is actually consumed by the consumer’s busy lifestyle (Damanhouri, 2017). As opposed to traditional industries where the sales executive could solely give more information about a product, through the review and rating system, platforms allow customers to get more information about the product from fellow consumers. This was made possible by the element of network effects. With reference to Amazon, it is important to note that the number of sellers is directly proportional to the number of listed products. The more the sellers, the more the listed products. This also translates to the number of buyers where they are directly proportional to the number of sellers and the listed products.
Consecutively, network effects cause industry disruptions as argued by Parker, Van Alstyne and Choudary (2016). Taking the example of Uber, they analyzed how it gives customers a smooth experience to use a taxi. Through the platform and unlike the traditional taxis where the passenger had to call a taxi driver and wait until he gets to them, the passenger only books a taxi using an app and he will know his location, the timeframe for him to reach where he is and the time frame to reach his destination only with a click of a button. It is the tracking system associated with the app that makes the experience safer. The reviewing and rating system helps uber to manage the drivers. Since the transactions are cashless, the platforms create a tension-free experience. The platform has a flexible working system. The rating and reviewing system allows the users (passenger and drivers) to know each other.
The platform disruptions affect the industries directly and the associated industries indirectly. Referring to the case of uber, the platform disrupts both the taxi industry and the car rental industry. Platforms cause a domino-effect through disrupting the related industries.
How platforms are an opportunity to Born Global
Coviello, Oviatt and McDougall (2011) described born-global firms as those business organizations whose aim is to derive a significant competitive advantage right from their inception arising from the utilization of resources and output sales in multiple states. For the firms to achieve this aim, Charles & hult (2017) suggested the use of the various platforms with a view to achieving internationalization. This means that the born global can use the platforms as a niche to their objective of internationalization.
An analysis by Plecinski (2017) opines that there has been an increasing trend where born-global are using multi-sided platforms to expand their international market. This translates into more sales by the born-global. It is evidence as argued by Hagiu & Julian (2015) that Multi-sided platforms create room for the motivation of unobservable effort by professionals and also ensures that the professionals adapt their decisions to their personal data. This leads to an increase and expanded business for the born-global. By utilizing a multi-sided platform, born global creates a unique business value. The value is created through the ease in the interaction between a diversified affiliated customer base.
Globalization has become an essential concept in the 21st century. This concept has been driven by progressive advancement in technology. It’s this technological improvement that has created online platforms that have brought people from all over the globe in a single village. Online platforms have been created where communication and interaction have been made simple. Business organizations have adopted the technological change by moving their businesses on these platforms. As Okazaki (2013) notes, communication is the backbone of born global success. He further states that social media (one of the online platforms) is one of the most powerful marketing tools where born global can present their products to the maximum consumers around the globe. Groen (2015) supports Okazaki assertions by noting that those born global firms employing old marketing methodologies and ignoring social media are destined to failure as they incur huge losses. The online platforms give born global an opportunity to increase their sales by accessing the maximum number of consumers in the world without incurring bloated costs. These online platforms allow firms to be cost-effective for sales and marketing expenditure, thereby, creating a competitive advantage. These platforms, additionally, helps the firm to minimize the costs and efforts of setting up a global supply chain.
Concurring with Okazaki (2013) assertion that effective communication is vital to the success of a business, Aka (2016) emphasized the importance of feedback in every communication. The online platforms are very democratic in that they allow free interaction where the consumers share their good and bad experiences with the product, environment, behaviour or quality of various born global firms. It is through those platforms that the business organization are able to seek the motives and perceptions of the customer’s comments. The review systems provided by those platforms act as a feedback avenue to the born global firms which are necessary for understanding how the customers view about their product around the world. Importantly, this serves as an insight to the company to formulate and implement actionable strategies to improve the quality of the product in line with the consumer’s expectations. Since the consumers hail from different countries, the feedback can be used to stratify products depending on the tastes and preferences of different customers in different countries in order to increase sales and subsequently increase the revenue.
In addition to connecting the born global firm to millions of consumers, the online platforms offer the firm an opportunity to advertise their products. Due to the concentrated population, there is a tremendous saving in the cost of advertising with the comparison to the use of old methods of advertising. These platforms give the firm an opportunity to advertise their new product to the customer base. Depending on the reviews, the firm may use the platform to advertise for a development made to a particular product. The platforms also allow the firm to target a particular set of audience depending on the nature of the product that is been advertised. Audience stratification depending on the product need remains a possibility in these platforms. Apart from that, the platform gives an opportunity to the firm to promote a given product to a particular set of audience. This cannot be achieved when employing the old methodologies of advertising. It is remarkable to note that the advertising opportunity that online platforms offer the born global firms are cost-effective with specialized elements of promotion and audience targeting which creates a competitive advantage against other firms.
The aspect of competitive advantage is anchored on the business philosophy that to remain in the business market, one ought to know his competitors. The online platforms have given the born global forms an opportunity to know and study their competitors with ease. With only a mouse click, one can acquire the information of another company detailing its line of business, its products, and its location. This gives the born global form an opportunity to undertake product differentiation and modifications in situations where complementary products are produced. Its also gives the firm an opportunity to apply new tacts and strategies towards marketing its products. This will create a competitive advantage for the born-global firm.
Additionally, the online platforms give the born-global firm an opportunity to conduct research and development with ease. The firms can readily access data and information from the internet by using these platforms. The platforms offer a cheap method of conducting research. By use of online surveys and questionnaires, online tutors and researchers, the firm can readily and cheaply undertake a product research in order to improve the output (Anajat, Maryann, Saba, & Sarah, 2018). Researches are important in a firm as they outline the contemporary changes affecting the industry and how the firm should influence those changes in order to remain in the market. Those firms that do not utilize the platforms do not enjoy the cost-effectiveness, ease and speed of conducting and implementing research recommendations. Those that use the platforms enjoy a competitive advantage.
However, the platforms do not only provide positive opportunities to the born-global firms. There are drawback opportunities which if they are not mitigated can lead to the collapse of the firm. One of the drawbacks is that a product transacted through an online platform is delivered and received under the trust. The consumers cannot assess the quality of the product until the time he buys it. The limitation is that the consumer must buy the product first in order to review its quality. In case the quality is poor, the customer will have suffered a loss despite sending a negative review to the firm. This can lead to a bad business if for example a batch of poor quality is delivered to a significant number of buyers. The company will lose business and probably lose potential customers as a result of negative reviews by the customers who bought the poor-quality product. This cannot be the case in the event the customer first assesses the quality and if he notes the poor quality, the firm can take fast measures to modify the product to the best quality standards.
Conclusion
In summary, the study has outlined the various ways in which platforms have disrupted the traditional industries. The network effects which are associated with platforms enable them to enjoy the economies of production and distribution. The platforms delinked the asset from value. Additionally, conveniences associated with consumers lifestyles contribute to disruptions. The study has also revealed how the disruptions create a domino effect. Consequently, the paper analyzed the various opportunities created by the platforms that can be utilized by born global firms. Such opportunities include advertising, conducting research and development, giving access to a wide range of consumers, creates a positive customer relationship through the review system and enhance market expansion. The study concludes with a note that the platform also provides a drawback opportunity to the born-global firms.
References
Aka, D. O. Kehinde, O. J. & Ogunnaike, O. O. (2016) Relationship marketing and customer satisfaction: A conceptual perspective. Pearson
Anajat, A. Maryann, M. Saba, S. & Sarah, K. (2018) “How a born global firm does its international marketing through social media.” Journal of marketing and consumer research, vol 44(1): 29-35
Charles, W. L. H. & Thomas, M. H. (2017) International Business: Competing in the global market place. (11th edn.). McGraw Hill.
Damanhouri, D. (2017) “Are digital platforms companies like Uber and Airbnb disrupting traditional industries?” [Online]. The digital transformation peoples. Retrieved from https://www.thedigitaltransformationpeople.com/channels/the-case-for-digital-transformation/are-digital-platforms-companies-like-uber-and-Airbnb-disrupting-traditional-industries/ (Accessed 1st November 2018)
Evans, D. and Schmalensee, R. (2018). The Businesses That Platforms Are Actually Disrupting. [online] Harvard Business Review.
Hagiu, A. & Wright, J. (2015) “Multi-sided platforms”, International Journal of Industrial Organization, vol. 43, pp. 162-174.
Hänninen, M. & Smedlund, A. & Mitronen, L. (2017) Digitalization in retailing: Multi-sided platforms as drivers of industry transformation. Baltic Journal of Management. Doi 10.1108/BJM-04-2017-0109.
Okazaki, S. (2013) “Social media and international advertising: Theoretical challenge and future directions.” International marketing review, vol 30(1): 50 – 70
Parker, G.G. Van Alstyne, M.W. and Choudary, S.P. (2016) Platform Revolution: How Networked Markets Are Transforming the Economy and How to Make Them Work for You. WW Norton & Company.
Plecinski, K., M., (2017) The level of delivery in international market selection strategy: A look at multi-sided platform startup. School of business, Aalto university.
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