Websites and small businesses in Australia
There is little doubt as to the international importance of recent advancements in communication technology. The fax machine, for instance, has historically been cited as a means for smaller businesses to compete more efficiently with larger competitors, and yet the opportunities offered by this technology are very small indeed when compared to those of the Internet. In fact, the Internet has been cited by many prominent business researchers (e.g. Rennie, 1993; Oviatt & McDougall, 1994; Madsen & Servais, 1997; Knight, Madsen & Servais, 2004) as one of the main underlying causes behind the “Born Global” (Rennie, 1993) phenomenon.
For those unfamiliar with the Born Global concept, it broadly refers to those firms which ‘internationalised on average within three years of founding and generate at least 25 percent of total sales from abroad’ (Knight et al., 2004), or more generally ‘a business organization that, from inception, seeks to derive significant competitive advantage from the use of resources and the sale of outputs in multiple countries’ (Oviatt & McDougall, 1994, p.49). While this concept applies to small firms across the world, it was originally noted by Australian researcher Michael Rennie (1993) who noted that small, recently started, Australian firms were not only competing with but indeed beating larger international competitors.
The question, then, is why and how this is occurring – and why is it a growing trend? The underlying factors can be broadly divided into two categories; those that affect small businesses ability to access customers, and those that affect small businesses ability to access suppliers. The internet has had a dramatic impact on both of these areas, as will be shown in the remainder of this article – perhaps somewhat counter intuitively, the first part of the article will focus on customers and the second on suppliers.
The Internet and Customers
It is easy to overlook the dramatic change brought around by the simple ability to upload a website onto a server and let customers find it; it may seem like a small thing at the time, but it would be foolish to overlook its importance. Speaking from the point of view of a modern small businesses with access to the Internet as it is today (and thus leaving history, as discussed briefly above, firmly behind us) there are numerous opportunities for cheap marketing, and thus making your customers aware of your existence.
Previously, in the pre- or early internet-era, small businesses would find it very difficult indeed to reach customers out with their geographical scope – true, it was possible for a Melbourne based small business to have marketing leaflets printed and delivered to addresses in Perth, but the chances of a customer placing an order would be very slim indeed, less your product was specialised to suit an extreme niche. Thanks to the internet and the possibility of making your businesses known through a website – which can be interactive, unlike traditional forms of marketing – businesses can now reach customers on a global level; it has also creates internationally similar tastes (Yip, 2000), and brings together customers with similar tastes and interest (i.e. through portals, discussion boards, chat rooms) making it easier to reach your desired market segment regardless of their physical location.
The Internet also allows the customer to be picky; that is, it has made it much easier for the customer to access the information he or she needs in order to make an informed decision prior to committing their hard earned money in purchase. Previously, bigger companies would have the advantage of being able to service their customers through convenient (and highly expensive) central locations, 24/7 telephone helplines, and expensive product catalogues in full-colour print. These were all luxuries that smaller businesses would find difficult to compete with. Through creating their own website, however, even small companies can offer full product descriptions, images, pricing and indeed instant messaging or e-mail support, which is much more cost efficient than previously used alternatives.
A classic and often cited example of the above can be found in Amazon, the online retailing giant, who started by selling books in America and rapidly became not just a but the major competitor for much larger book – and eventually music, electronics, office equipment, you name it – retailers. It is much due to the likes of Amazon that the retail giants of the past have fallen. Why? Because they were amongst the first small businesses (they were then, though certainly are not now) that offered customers a benchmark against which to measure their local alternatives.
Finally, but certainly not least importantly, the Internet has allowed small manufacturing firms to sell directly to their customers. While previously forced to sell their products through large retailers (who would eat up a lot of the profit, due to their strong bargaining power (see the work of Michael Porter, in particular on his Five Forces model, e.g. ‘Competitive Strategy’ published in 1980) ) – they are now able to set up an online sales facility at a comparatively cheap cost. Even Butchers are now trading online, bringing higher quality meat to their customers at the same price as in supermarkets – or indeed lower.
Access to Suppliers
Finally, the rise of the Internet has made it much easier for small businesses to access suppliers. Much like they were historically largely limited by geographical restrictions in terms of attracting customers, they were limited in their choice of suppliers. This was partly because of poor availability of reasonably priced transport (which has become available much thanks to the internet; demand leads to supply and competition, etc.) and partly because of the difficulty in finding suppliers in the first place.
Imagine, for instance, trying to locate and set up a supply arrangement with a south-east Asian or eastern European producer in the pre-Internet era. Where would you start? How would you keep track of your orders? Would you dare transfer the money without having first read about the company through online business portals? In short, it was no small task. Now, small businesses can not only search out and negotiate with suppliers worldwide with ease – it is increasingly common that suppliers will contact small businesses in order to extend their own network, offering increased value for both partners.
This leads to a further very profitable change in the Small Business world. While previously they would not have been able to significantly negotiate prices with local, or big, suppliers, simply because the supplier was well aware of their lack of alternatives, small businesses can now approach their current (or preferred) supplier with a list of competitors and their prices/terms – thus adding significant weight to their negotiations. Indeed, Porter (2001) noted that the bargaining power has shifted largely from the supplier, to the buyer.
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Rennie, M.W. (1993) ‘Born global’, The McKinsey Quarterly, vol.4, pp.45-52
Knight, G., Madsen, T.K. & Servais, P. (2004) ‘An inquiry into born-global firms in Europe and the USA’, International Marketing Review, vol.21, no.6, pp.645-665
Oviatt, B.M. & McDougall, P.P. (1994) ‘Toward a theory of international new ventures’, Journal of International Business Studies, vol.25, no.1, pp.45-64
Madsen, T.K. & Servais, P. (1997) ‘The Internationalization of Born Globals: an Evolutionary Process?’, International Business Review, vol.6, no.6, pp.561-583
Yip, G. (2000) ‘Global Strategy in the Internet Era’, Business Strategy Review, vol.11, no.4, pp.1-14
Porter, M.E. (2001) ‘Strategy and the Internet’, Harvard Business Review, March, pp.1-19