Porters Five Forces

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The Strategic Impact of the Internet on the Tourism Industry Dimitrios Buhalis Marianna Zoge University of Surrey d.buhalis@surrey.ac.uk mariannazoge@y ahoo. gr

The emergence of the Internet ahered the structure of the tourism industry as it changed dramatically best operational and strategic practices. This paper aims at examining these changes by using Porter's model of industry analysis (5 Forces). It identifies how the Internet has changed the five forces and the competitive position of each of the key players and how the tourism industry is shaped. Data were collected by qualitative methods, as the study is exploratory in nature, and were analysed by content analysis. The results depicted the strategic impact of the internet primarily on tourism suppliers such as Hotels, Airlines, whilst intermediaries such as Travel Agencies (TAs) and Tour Operators (TOs) are also examined. The study concludes that rivalry has increased dramatically; bargaining power of both buyers (consumers) and suppliers (principals) has been strengthened due to their ability to communicate directly at the expense of the position of intermediaries. Keywords: Internet, Strategic analysis, industry structure, five forces, tourism

1 Introduction
Porter's (1979, 1980) model of industry analysis lies upon the existence of Five Forces that collectively determine the profitability and intensity of competition in the industry. The strength and impacts of these forces depend upon many factors. The rivahy among existing competitors and the bargaining power of suppliers and buyers represent the current situation in which an organisation is found, while the threat of new entrants and the threat of substitutes are based on future expectations. The emergence of the Internet affected all Five Forces as it changed the conditions of competition in the marketplace. As far as the threat of new entrants is concerned, the Internet had an effect on entry barriers as it altered economies of scale and the amoimt of capital required for competing within the industry. Rivalry among existing competitors was also affected as technology and the Internet affected differentiation and cost structures as well as switching costs (Porter, 1985). Changes also appeared to the bargaining power of buyers as the Internet introduced a much higher degree of transparency and lower switching costs. Similarly, a shift in the bargaining power of suppliers has been noticed, as the Internet provided alternatives and reduced the need to buy only from few powerful suppliers. Finally, the emergence of the Internet affected substitution as "h influences both the relative value/price and switchmg costs of substitutes" (Porter, 1985: 65).

482 The structure of the tourism industry has been affected dramatically by the Internet (Buhalis, 1998). The Internet changed the sources of competitive advantage, as it increasingly determines firms' cost and ability to differentiate. Tourism businesses may gain competitive advantage by managing information and knowledge through the Internet (Barnes, Mieczkowska, Hinton, 2003) whilst their strategic position has been influenced by the changes of their Five Forces. The Internet altered barriers to entry, minunised switching costs, revolutionised distribution channels, facilitated price transparency and competition, whilst enhancing production efficiency (Kim, Nam, Stimpert, 2004). The bargaining power of suppliers was also enhanced by allowing direct contact with consumers and decreasing distribution costs whilst creating the opportunity for partnerships with countless affiliates and other distributors. Consequently, tourism enterprises for the first time ever did not have to rely exclusively on powerful intermediaries, such as Tour Operators or Global Distribution Systems. As a result, the Internet changed dramatically the strategic position of tourism organisations and forced them to reconsider their strategy. It is only organisations that...
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