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Internet technology is based on universal standards, making it easy for rivals to compete on price alone and for new competitors to enter the market.
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Because information is available to everyone, the Internet raises the bargaining power of customers, who can quickly find the lowest-cost provider on the Web. Some industries, such as the travel industry and the financial services industry, have been more impacted than others. However, the Internet also creates new opportunities for building brands and building very large and loyal customer bases, such as Yahoo!
The value chain model highlights specific activities in the business where competitive strategies can best be applied and where information systems are most likely to have a strategic impact. The value chain model views the firm as a series or chain of basic activities that add a margin of value to a firm's products or services.
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These activities can be categorized as either primary activities or support activities. Primary activities are most directly related to the production and distribution of the firm's products and services, which create value for the customer. Primary activities include inbound logistics, operations, outbound logistics, sales and marketing, and service.
Support activities make the delivery of the primary activities possible and consist of organization infrastructure administration and management , human resources employee recruiting, hiring, and training , technology improving products and the production process , and procurement purchasing input.
You can use the business value chain model to identify areas where information systems will improve business processes. You can also benchmark your business processes against your competitors or others in related industries, and identify and implement industry best practices. Benchmarking involves comparing the efficiency and effectiveness of your business processes against strict standards and then measuring performance against those standards. Industry best practices are usually identified by consulting companies, research organizations, government agencies, and industry associations as the most successful solutions or problem-solving methods for consistently and effectively achieving a business objective.
A firm's value chain is linked to the value chains of its suppliers, distributors, and customers.
Information systems can be used to achieve strategic advantage at the industry level by working with other firms to develop industry-wide standards for exchanging information or business transactions electronically, which force all market participants to subscribe to similar standards. Such efforts increase efficiency, making product substitution less likely and perhaps raising entry costs. A value web is a collection of independent firms that use information technology to coordinate their value chains to produce a product or service for a market collectively.
It is more customer-driven and operates in a less linear fashion than the traditional value chain. A large corporation is typically a collection of businesses. Information systems can improve the overall performance of these business units by promoting synergies and core competencies. Business models based on a network may help firms strategically by taking advantage of network economics. In network economics, the marginal costs of adding another participant or creating another product are negligible, whereas the marginal gain is much larger.
For example, the more people offering products on eBay, the more valuable the eBay site is to everyone because more products are listed, and more competition among suppliers lowers prices. Another network-based strategy is the virtual company , or virtual organization, which uses networks to link people, assets, and ideas, enabling it to ally with other companies to create and distribute products and services without being limited by traditional organizational boundaries or physical locations.
One company can use the capabilities of another company without being physically tied to that company. The traditional Porter model of competitive forces assumes a relatively static industry environment; relatively clear-cut industry boundaries; and a relatively stable set of suppliers, substitutes, and customers.
With the emergence of the digital firm and the Internet, some modifications to the original competitive forces model are needed. Some of today's firms are much more aware that they participate in business ecosystems, loosely coupled but interdependent networks of suppliers, distributors, outsourcing firms, transportation service firms, and technology manufacturers.
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In a business ecosystem , cooperation takes place across many industries rather than many firms. This represents the most comprehensive report to date in terms of number of countries included the —07 EOS covered countries. In addition, Serbia and Montenegro, previously analyzed as a single country, are now included separately. Two thirds of these variables come from the EOS and the remaining one-third from publicly available sources.
These categories as a whole provide a comprehensive picture of the competitiveness landscape in countries around the world at all stages of development. Certain categories are more important than others within different countries in determining their degree of competitiveness. For example, what generates productivity in Denmark significantly differs from what drives it in Cameroon. This is because the two countries are in different stages of economic development. Accordingly, the GCI separates countries into three specific economic stages according to per capita income.
In the factor-driven stage, countries compete based on their factor endowments, which are mainly unskilled labor and natural resources. Companies compete on the basis of prices of basic products or commodities and low productivity is accompanied by low wages.
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At this stage of development, competitiveness depends on a country having decent public and private institutions, acceptable infrastructure, a strong macroeconomic framework and good healthcare and basic education for its population. As wages rise with growing development, countries move into the efficiency-driven stage of development.
In this stage, they must begin to develop more efficient production processes and increase the quality of products they already make. At this point, competitiveness becomes increasingly driven by higher education and training, efficient markets, and the ability to harness the benefits of existing or impacted technologies. As countries eventually begin to compete through innovation, they are only able to support higher wages and a higher standard of living if their businesses are able to compete through product innovation as well as novel productivity-enhancing innovations.
Depending on which stage a country is in, the GCI for that country is calculated by giving greater weights to the more relevant pillars. The weights used are the values that best explain growth in recent years. For example, the sophistication and innovation factors contribute 10 percent to the final score in factor and efficiency-driven economies, but 30 percent in innovation-driven economies values between 10 percent and 30 percent are applied for those economies in transition between stages.
The GCR attributes this to its competitive economy, efficiency of its markets, sophistication of its business community, capacity for technological innovation, and its high-quality system of universities and research centers.
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Despite this ranking, the GCR notes that the United States has serious weaknesses in its macroeconomic structure as evidenced by the sub-prime mortgage crisis and the resulting credit crunch and shocks to the stock market. While Germany moved up in the rankings compared to —07, both the UK and France fell, suggesting that the United States has been moving ahead of western Europe in terms of overall competitiveness.
Estonia ranks the highest in eastern Europe 27th , followed by the Czech Republic 33rd.