A Study on Strategic Choice of Enterprise`s Value Chain under e-business

Environment
Lu Xia
School oI Management
Hubei University oI Technology
China Hubei Wuhan
123cococo163.com
$EVWUDFW-With the rapid development of information
technology, e-commerce that featured for Internet economy
and knowledge economy is widely applied. The transformation
of exchange medium leads to a more complicated condition of
enterprises and put forward tough operating questions that
has no answer from experience. Enterprise operation is the
collection of designing, producing, marketing, delivery and
other related activities that could be indicated by value chain.
The paper takes Michael Poter's theory on value chain for
reference to analyse the emergence of it under the
environment of e-business. It emphasized on three value chain
strategies, namely, horizontal integration, vertical integration
and strategic alliance. Through comparison among them I
believe that enterprises should emphasize on the value chain
strategic alliance objectively under the environment of
e-business.
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Introduction
The global representative scholars on the research oI
value chain theory are MichaelE.PorterBruce.Kogut and
JeIIrey F.Rayport,etc. Some oI their theories are parallel and
some are successive. They provides the Iramework and
Ioundation oI value chain research, sum them up as Iollows:
The concept oI enterprise value chain was put Iorward
by Michael Porter in his book Competitive Advantage in
1985. He is a Iamous strategic management expert in
harvard business school. He holds that all activities play
their role in value creating.Those diIIerent but related
production and business operation activities are the
dynamic process oI value creating. Negotiating with clients
and suppliers, inIluenced by market and competitors are all
the composition oI value chain.
Bruce Kogut (1985) put Iorward the value chain model
oI business operation internationalization. He believes that
value chain is basically the process oI assembling
technology, raw material and labor together to Iorm Iinal
products. Then, accomplish this value circulation process
through exchange and consumption. In this ceaseless
appreciative value chain, single enterprise may just
participate in a link or has take the whole value appreciation
process into enterprise hierarchy system.
With the development oI inIormation technology,
JeIIerey I. Rayport and John j. Sviokla Iurther developed
the value chain theory in 1995 by putting Iorward to the
construction oI virtual value chain oI global integration and
transIorming the Iormer management analysis tools to
strategic approach. They believe that every enterprise is
competing in two world, namely, manager-perceivable
physical world and the virtual world oI inIormation
structure. The latter reIers to a new value growth Iorm oI
e-commerce . Physical value chain exists in market
(material world), while the virtual value chain exists in the
world market space (inIormation). Within a cluster,
individuals, enterprise,s governments, research institutes
and universities are all the abstract existence Iorm oI the
both world. The connection among them are essentially the
connection oI values. The two value chains have diIIerent
value-added process. Physical value chain is Iormed by a
series oI continuous activities while virtual value chain is
nonlinear with potential input and output system.
Feenstra's contribution (1998) on the value chain is he
combine "trade integration" and "vertical separation oI
production" in the global economy organically. He thinks
that the global market integration process is deepening with
the development oI international trade. The developed
countries Iound that is it beneIicial to separate some
non-core production and service. This enables the
developing countries got the chances to the global value
chain. But, it is generally begin Irom some low value-added
links .
Arndt and Kierzkowski (2001) adopting "Iragmented
approach" to describe the process, and they think that
production segmentation is a new phenomenon which
enables the value chain production Iormed by
transnational sections. This transnational network could be
organized within an enterprise as well as in many
enterprises. They hold that there are two choices on
transnational production theoretically, vertical integration
into a multinational company or vertical separation through
trade.
China has little research on value chain theory, even Iew
under e-commerce background.The main points as Iollows:
SunRui (2003): The Ilourish oI e-commerce is the result
oI network technology and business mode innovation.In
e-commerce, enterprises' actions move Irom physical
market to virtual space and shows the diIIerent
characteristics in value creation. Value chain which used to
direct enterprise management is developing and has more
theories on virtual value chain. Driven by e-business value
chain, cooperation or alliance among enterprise are their
best choice.
ChenMengJian (2008): E-commerce is widely applied
in all aspects oI society.Online trading becomes the main
2010 3rd International Conference on Information Management, Innovation Management and Industrial Engineering
978-0-7695-4279-9/10 $26.00 2010 IEEE
DOI 10.1109/ICIII.2010.30
100
2010 3rd International Conference on Information Management, Innovation Management and Industrial Engineering
978-0-7695-4279-9/10 $26.00 2010 IEEE
DOI 10.1109/ICIII.2010.30
100
mode. There are deIects in traditional enterprise value chain.
The emergence oI e-business inIluences enterprise value
chain.Under e-commerce, enterprise can improve their
competitiveness through optimizing value chain.
Types oI enterprise value chain strategies under
E-business
The enterprise E-commerce network provides both
internal and external communication.It passover the
boundary between enterprises and gives more value chain
opportunities. Enterprise value chain strategy involves in
multiple internal value-chain design and the enterprise
external relations coordination.Accordingly, there are three
type oI enterprise value chain strategies, namely the
horizontal integration, vertical integration and strategic
alliances.
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Horizontal integration strategy is also called internal
value chain strategy. It is to control enterprise value chain
andmany crucial links through the control oI enterprise
ownership, including core competitiveness to reduce the
uncertainty oI enterprise and improve overall response
ability.
The Iormation oI horizontal enterprise value chain in
consideration oI enterprise internal management
objectives and relevant coordinative management. The core
oI value chain is the competition advantages which derive
directly Irom the internal management ability, including the
reasonableness oI product design, technology, management
variety, employee commitment,quality management,
production capacity,etc.These are the start oI horizontal
integration strategy. The representative theory oI cost
advantage and diIIerentiated operation competitive
advantage proposed by Michael porter in his masterpiece
"competitive advantage" show as Iollows in Iigure 1:
Every enterprise, with no exception, under the
background oI e-commerce, would like to cut cost in order
to create more value. The change oI inIormation
transIormation approaches leads to the shorter cycle oI
products updating, smaller diIIerence, increasing sameness
in quality, less long-time leading phenomenon. All these
require diIIerent operating to reach cost advantage.
Especially when e-commerce business developed to a
certain condition that production line is longer, lower
eIIiciency caused by increased manpower, increased
operating cost. Horizontal integration strategy start Irom
enterprise value objectives and coordinative management,
through the conIirmation oI strategic cycles that could
create maximum value Ior enterprises, help enterprise to
accurately analyse their advantages and disadvantages,
gather enterprise resource to cultivate potential core
business and competitive parts, and thus strengthen
strategic brand, resources, technologies, services to gain in
cost, quality, service and speed, avoid internal
low-eIIiciency management condition.
Horizontal integration strategy helps to clariIy the
relations oI valuable enterprise internal Iactors, adjust value
appreciation structure.
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Vertical integration strategy is also called external value
chain strategy whose essence is to make Iull use oI external
resources to reach rapid market response. Vertical
integration strategy emphasize on the cooperation between
enterprises, consider combine outside activities like
purchasing, production, distribution and sales activities to
permeate the changing market.
In e-commerce,it is obvious more buyers in market. In
order to get clients on the network, enterprises compete
Iiercely. This phenomenon do not only exist between two
enterprises but widely exists among enterprises. Thus Iorm
the relatively independent comparative advantage. This
means that the scope oI the enterprise value chain do not
only locate in its resources, but also extending to suppliers
and customers to create new value, also mean to start
external series, admitting new participants join, thus vertical
integration chain Iormed. A valid Iormation oI the value
chain, covering e-shops, e-purchasing, e-auction, virtual
community, coordinative platIorm, third party market, value
chain integrator, value chain service supplier, inIormation
medium, credit service,etc. To accomplish the process oI
value adding through the exchange oI commodities, capitals,
inIormations, logistics. As shown in Iigure 2 :
Vertical integration strategy keeps the enterprises in the
external value chain which is the same with its components.
That is through the activities oI all the parties in the value
chain to inIluence the cost and beneIit oI subject.vice versa,
the scale is the only diIIerence. Vertical integration value
related to the value chain oI supplier,distributor and clients
value chain, even associated with complementary and
alternatives products chain.
The currently popular enterprise outsourcing is based on
the vertical integration strategy. According to the theory oI
value chain, enterprise don't need and also unnecessary to
establish overall competitiveness but just combine their
own advantages, to develop the advanced business. Vertical
integration strategy helps the enterprises to Iocus on core
business and give up those unstrategic value chain to
enterprises.
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Strategic alliance was recently appeared in the domestic
media with high Irequencies. It reIers to two or more
enterprises' cooperation in a certain period to realize the
strategic objective. They learn Irom each other and Iorm
new knowledges and skills. It guarantees resources and the
combination and extending oI value activities. Value chain
alliance is a collective value chain that based on win-win
and cooperation. Two or more than that enterprises in a
whole value chain and exert their comparative advantages
in diIIerent sections oI the chain. Gathering the scattered
resources in the alliance and reduce the production cost to
the minimum degree so as to realize higher appreciation
101 101
eIIect.
In e-commerce, network provides high eIIicient
operation environment and the chances oI organizing,
coordinating and data exchange on value chain. On the
other side, the openness oI value chain also adopted to the
alliance. In resource, technology, manpower, logistics,
allocation and security, they break the limits inside the
enterprise and comprise suppliers, manuIacturers,
distributor and subscribers in this chain. Strategic alliances
break the traditional way oI work and gather all the subjects
in the same platIorm to share market and clients
inIormation.It oIIers more coordination opportunities and
serve directly to the promotion oI three eIIiciency,that is
enterprise internal operation eIIiciency, enterprises
cooperative eIIiciency and value chain coordination
eIIiciency. It aims to the shortest distance, Iastest speed,
highest eIIiciency. To realize collective operation
appreciation on the value chain through the control ability
by advantages to realize the value chain coordinated
management enterprises.
Under the background oI E-business, network needs
diversiIied and getting more uncertainty. The business
operating environment is more and more complicated which
means that the competitive advantage oI enterprises not
only keep inside enterprise, also won't simply rely on
external resources, but on the value chain, strategic alliance
has large space Ior application.
The Comparison and Selection oI the Three Value
Chain Strategy
E-commerce enterprises in inIormation and the contacts
between suppliers, customers, Iorming the value chain,
three kinds oI multiple value chain multiple strategic role in
a horizontal integration strategy, and internal value system
Iunction coupling emphasized, vertical integration strategy
is the core enterprise external resources utilization, strategic
alliance value goal is common beneIit.
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Horizontal integration strategy emphasizes the internal
value system Iunction coupling, sharing enterprise internal
Iunds, personnel and inIormation, optimizing enterprise
purchase, production, marketing, human resources
management and internal resources to dash Iorward show
enterprise competitive advantage. Horizontal integration
strategy, pay attention to the internal management,
including using Iactor: Iirstly, attention and enterprise core
competitive power matching internal value-chain
positioning. Value orientation aims to provide unique, the
user to imitate the value oI competitors, e-commerce,
enterprise should consider its resources and the ability to
provide products and services Ior diIIerentiating enterprise
internal value orientation, Secondly, based on the internal
value-chain ERP (enterprise resource planning) support
system. Emphasis on the dynamic management oI
enterprise core competence, ERP as e-commerce
environment enterprises value-chain technical support,
outstanding enterprise resources and core competence, and
Iill the value chain enterprise department resource
allocation vacuum, Thirdly, based on the internal value
chain oI the enterprise culture. Enterprise value creation on
staII to achieve, in order to achieve the strategic goal, the
enterprise should create advantageous to realize personal
value and its employees oI the enterprise culture, the
mechanism oI potential value concept to motivate
employees innovation behavior, as part oI the internal value
chain, Fourth, based on internal value-chain perIormance
measurement. Enterprise value chain oI events by internal
links, e-commerce business process, the enterprise needs to
call inIormation identiIication, setting value measure
system perIormance and value chain behavior perIormance
objectives, and compared with the external environment,
and Iixed enterprise behavior or adjusting value goal.
The strategy core oI vertical integration strategy is
external resources utilization, by calling the value chain
enterprise external resources include proIit space, adjust the
structure oI value, Iinally impose inIluence on added value,
including: Iirst, using electronic commerce network users
(the customer). In the premise, vertical integration strategy
has Iully understand customers' needs and create value Ior
the customers, consolidate existing customers, identiIy
potential customers, to understand their needs and change,
satisIy customer maximum, create value Ior the customer
and to realize the value oI enterprise at the same time.
Second, using the e-commerce market value chain. The
market is the Iinal link oI the realization oI the enterprise
value, also can be the key oI value-added capability oI the
value chain, take products and services Ior the network
market share Ior consideration, selecting value careIully the
potential market and sales channel has, Third, use
e-commerce supplier chain. Supplier activity is the source
oI Iactors oI production enterprises, establish the enterprise
strategic cooperative relationships with suppliers, so that
both the value chain management win-win, Fourth, use
e-commerce competitors. lay attentions on the
Competitors`investigations, and Iind the enterprise
activities and identiIy competitors`value chain in the value
oI the advantages and disadvantages, so as to adjust and
optimize the structure oI their value.
The goal oI strategic alliance value is commonly beneIit,
and treat enterprises as the core, upstream suppliers and
downstream clients and service providers, content providers
(ICP) and the enterprise internal management beneIit
together and constitute elements in the value chain
networks, members in this network are all on the pursuit oI
cooperation in competition. ThereIore, the enterprise should
grasp these objectively: Iirstly, strategic alliance is diIIerent
Irom the merger between enterprises, never emphasizes on
compatibility between incompatible subject, what he
emphasizes is the common use oI business resources, part
oI the request Ior compatibility is part oI the selection, and
grasp the diIIerent choices, can be composed oI diIIerent
types oI alliance, Ilexibility and speed, eIIiciency, Secondly,
the dominant enterprise in strategic alliance is the center oI
value chain and strategic alliance oI all participants with the
identical business objectives, products, services, but in the
value chain, the center oI enterprises is still dominant
subject, through chain operation integration, he scattered
102 102
resources into Iorce in the league, Ior himselI and
stakeholder create and deliver value, sharing inIormation
and improve the operation speed, Thirdly, strategic alliance
to solve the problem oI communication between diIIerent
systems. The enterprise electronic commerce value chain
synergy integration needs some oI the inIormation
transmission, such as guarantee system, ensure EAI
business enterprise management process integration among
EAI toolkit, support traditional Iunction oI equipment oI
order, to solve the tool and so on reporting system soItware,
communication standardization and compatibility . Forthly,
its value not only in the Iorm oI strategic alliance, but also
in products alliance, sales alliance, supply and marketing
alliance, and include brand alliance and new product
development, help enterprise alliance with greater risk oI
grasping the opportunity to strengthen the brand and
technology between the partners, make them in their
respective independent market remain competitive
advantage.
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Horizontal integration enterprise has strong practicality
in the transIerence oI enterprise management and the
improvement oI the eIIiciency oI elements in internal value .
however, in e-commerce, inIormation technology is widely
used and diverse customer needs, business process become
more complex, exposed the enterprise crosswise integration
chain strategy. The market demand uncertainty and
diversity, rapid no-preemptive requests the enterprise
entering the market, customer demand, the diversiIication
oI response to do it, Ior the new Iield, a strange enterprises
rely on their own internal resources to adapt to the changing
market needs. In direct and customers, suppliers and
customers oI e-commerce transactions, enterprise has to
Iace Ioreign competition, only the horizontal integration
enterprise interior oI strategic Iocus on enterprise internal
value-chain logistics, and ignore the inIormation Ilow and
cash Ilow, causes the enterprise to lose the ability oI Iast
reaction.
Vertical integration strategy overcome the weakness oI
the horizontal integration strategy, and expanded the border
oI business enterprise Irom internal departments to the
managements and communications oI customers,
distributors and suppliers. In vertical integration strategy,
the enterprise and the upstream and downstream enterprises
a are coexistence, mutual reciprocity and mutual beneIit
relationship, promote the enterprise adjusting e-commerce
transactions complex business environment Ilexibly, and
also provided opportunities Ior the divestment oI enterprise
subsidiary business, centralized resource stripping Iocus on
core business, raise business competitiveness. However, the
core oI vertical integration strategy is to use the external
resources oI the enterprise, and may appear on external
value chain while neglecting internal customers, cause
whole enterprise value adding uncertain.
Strategic alliance lived on the characteristics oI vertical
integration chain strategy, and expanded the applied
advantages oI the value chain strategy. Under the
E-commerce environment, because each department and the
enterprise exists between the inter-dependence oI resources
and economic activities within the enterprise, the diversity
oI its business process and downstream enterprises and
customers are related, strategic alliance Irom the Angle oI
system and the continuous Iitly integration chain,
e-commerce scattered resources market interdependence
and changeIul network users requirements. At the same
time, the enterprise strategic alliance Iormed in response to
changes in market demand, and the enterprise internal
management, and to the partner Ior the center, the
cooperation areas, cooperation and organization structure,
adjust members, reducing internal management risk, avoid
vertical integration strategy oI internal customers. Ignore In
addition, strategic alliance collaborated the relationship
between the enterprise strategic alliance, the integration oI
value chain, show Ilexibility, can reduce the external
environment changes bring adverse impact, and can
compensate the crosswise integration strategy oI enterprises
in the weakness oI external adaptability.
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In conclusion, strategic alliance is the most productive
value chain strategy Ior added value,(see graph1):
Horizontal
integration
strategy
Vertical
integration
strategy
strategic
alliances
Internal
management
eIIiciency
high Less higher high
Core business
operation capacity
strong
Less
stonger
strong
Relationship
between the
upstream and
Downstream Firms
relaxed close
Strategy
alliance
Relationship
between Iinal
consumers
relaxed close
Strategy
alliance
Relationship
between diIIerent
demanders and
suppliers
none reciprocity
complement
ary
advantages
market risk
SelI-comm
itted
shared
responsibilit
y
shared
responsibility
Cost control good better best
Overall
Assessment
value-added
capability
weak
Normally
strong
strong
Graph1 Three kinds oI value chain strategy oI comparative advantage
From the strategic height oI strategic alliance oI value
chain enterprise external and internal resources oI one or
more resources have value coordinate activities, chain
members sharing technology, inIormation and capital
management and marketing resources, produce the
multiplier eIIect, the coordination oI strategic alliance also
make e-business enterprise to provide users with a higher,
more long-term value, winning customer loyalty, and is the
103 103
strongest value-added chain enterprise value chain,
objectively demands oI strategic alliance.
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Charter1The Iormation oI Porter's value chain
Figure 2, vertical integration chain Iorm diagram
Chain integration
Chain services
Synergy platIorm
Credit service
Third market
InIormation agency
Electronic auction Electronic procurement
supplier PlatIorm operators
Electronic stores distributor Internet users
The value
chain
Enterprise in e-commerce creation and value
technological development development
HR management
enterprise inIrustructure
purchasing
Internal logistics,production operation,external logistics,marketing,service
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SURILW
Foundation activities
Support
activities
104 104