Convergence in the high-technology consumer markets: strategic implications of the digital convergence.

Militaru, Gheorghe ; David, Oana ; Osiceanu, Sanda 等

1. INTRODUCTION

In this paper we will examine emerging shifts in the industry convergence in order to assess the strategic implications of digital convergence on companies in order to gain competitive advantages.

Based on literature review, this paper pursues an exploratory research approach to show how the technological convergence is changing the behaviour of the companies and to understand how the potential benefits and constraints from digital convergence pointed out in various contributions in the literature are really acting in these fields.

In our exploratory study we identified the main strategic implications of the digital convergence such as lower-costs, increase accessibility, and enhance capabilities for innovation. In addition, digital convergence is reshaping vertical markets from computing to wireless networks and consumer electronics, transforming the entire industry. Future studies will need to integrate these findings into a more comprehensive framework, especially a quantitative analysis.

The remainder of the paper is organized as follows: first, we explore the concepts surrounding digital convergence and the strongest competitive forces determine the profitability of an industry. This is followed by a short examine of strategic implications of digital convergence and major findings and implications. Lastly, we present some of the major conclusions to be drowned from this research.

2. KEY ISSUES FROM THE LITERATURE

Following the literature on convergence in the hightechnology we understand that convergence means that different industries increasingly use the same knowledge base. For example, as wireless platforms converge to multimedia systems, architectures must converge to support voice, data, and video applications. At level of device the convergence in substitutes means that customers consider two products to be interchangeable with each other. Convergence in complements is when two products work better and more efficient together than separately (O'Brain, 2007).

Digital convergence is the process by which separate technologies that now share resources and interact with each other work together and synergistically creating new efficiencies. For example, mobile communications, broadband networks, and digital multimedia broadcast sevices.

The strongest competitive forces determine the profitability of an industry and so are of greatest importance in strategy formulation. Customer, suppliers, potential entrants, and substitute products are all competitors that may be more or less prominent or active depending on the industry. Every industry has an underlying structure that gives rise to these competitive forces (Hacklin, 2008).

New entrants to an industry bring new capacity, the desire to gain market share, and often substantial resources. The threat of entry depends on the barriers present and on the reaction from existing competitors that the entrant can expect.

Suppliers can exert bargaining power on participants in an industry by raising prices or reducing the quality of purchased goods and services. Powerful suppliers can squeeze profitability out of an industry unable to recover cost increases in its own prices (Pearce & Robinson, 2007).

Customer likewise can force down prices demand higher quality or more service, and play competitors off against each other--powerful buyers. In addition, defining industry boundaries enables the firm to identify its competitors and producers of substitute products. This is critically important to the firm's design of its competitive strategy (O'Brain, 2007).

An overall cost leadership strategy requires efficient-scale facilities, tight cost and overhead control, and often innovative technology as well. Having a low-cost position provides a defense against competition, because less efficient competititors will suffer first from competitive pressures. Implementing a low-cost strategy usually requires high capital investment in equipmant and can revolutionize an industry.

The essence of the differentiation strategy lies in creating a service/product that is perceived as being unique. Approaches to differentiation can take many forms: brand image, technology, features, customer service, dealer network, and other dimensions. A differentiation strategy does not ignore costs, but its primary thrust lies in creating customer loyalty.

The focus strategy is built around the idea of servicing a particular target market very well by addressing customers' specific needs. The focus strategy rests on the premise that the firm can serve its narrow target market more effectively and/or efficiently than other firms trying to serve a broad market. As a result, the firm achieves competitive advantage in its market segment by meeting specific customer needs and/or by lower costs through specialization (Militaru, 2004).

3. STRATEGIC IMPLICATIONS OF DIGITAL CONVERGENCE

Digital convergence exerts significant pressure on companies to reconsider their competitive position for gaining a competitive advantage (see Figure 1). It leads to a reduction of barriers to entry. If barriers to entry are high, the threat of entry will be low. Product differentiation is not an effective barrier because digital products are homogenous and, hence, substituible. The digital products can be reproduced at any resolution, assuming that one has the storage space and the bandwidth (Park, 2007).

[FIGURE 1 OMITTED]

Digital convergence requires a high level of technological flexibility. Converging industries entail the merger of different technologies. Bundling new technologies requires at least a minimum degree of compatitbility among them. In addition, companies also need to have flexible digital components in order to meet an increase variety of customer needs in industry. A high level of quality needs to be maintained for staying competitive, however, it cannot be used as the only source for gaining a competitive edge in digital industry.

In converging industries companies face an increasing threat of new competitors entering the industry. This is mainly due to blurred industry boundaries and a closer similarity of products. Therefore, competitive advantage becomes extremely difficult to gain and sustain.

The digital convergence will happen where high - bandwith transmission of digital information between any two places is possible. For example, a home heating system might communicate with the local power plant and adjust itself to achieve energy efficiency and low cost. The possibilities for such networked appliances are enormous. At home, the telephone, the personal computer, the mail box, newspaper, newsletters, magazines, the VCR, and the DVD player will be replaced by one will be able to interact with these devices using ordinary speech comends.

Intensity of rivalry derives from one ore more competitors attempting to enhance the competitive position within the existing industry. The number of companies in digital industry has largely increased over the past year, due to lower barriers to entry. In this case, digital products become more and more substitutable; companies increasingly need to compete on price. Additionally, the process of convergence leads to an increasing number of merger, acquisitions, and alliances which reduces the intensity of rivalry.

Digital convergence increases the pressure from substitute products. Duo to convergence, margins between distinct industries become fuzzier. Consequently, some previously unrelated products become substitutes in demand. Another reason is that digital products are easily interchangeable for customers.

Bargaining power of suppliers can be exerted by threatening to raise prices or reduce the quality of an industry's input factor. The supplier group for digital products is dominated by a few companies like Intel, Motorola, Cyrix, Microsoft, and so forth. These suppliers are able to extent considerable pressure on the industry.

The ongoing trend towards mergers, acquisions and alliances will have positive and negative effects on supplier power. If the level of concentration of suppliers rises then the bargaining power of buyers will decrease. On the other hand, if the fragmentation of buyers reduces the bargaining power of them then the bargaining power of suppliers will increase.

Digital convergence will lead to an increase in the bargaining power of buyers. One major reason is that digital products are relatively undifferentiated and buyers can easily find alternative suppliers. Their position is enhanced by generally reduced switching costs due to the high standardization of information and communication technologies (Park, 2007).

The technological adjustments in converging industries leads to digital convergence cost structures become more and more similar. Customers' costs for switching among products from different vendors are relatively low. Brand identification and customer loyalty are diminishing entailing the risk of new entrants.

All competitors have access to standardized digital components increasing the probability of imitations of a unique product. Therefore, gaining a differentiation advantage becomes very unlikely and cannot be sustained over a longer period of time (Gill, 2008).

In view of digital convergence the major drawback of focus strategy is that it is highly vulnerable to change in the market structure. The strategic targets for focus become too narrow to be served in an economic way once market segmentation excedds a certain level. High flexibility and fast reaction create a differentiation advantage by providing customers with something new and innovative.

4. CONCLUSION

Industry convergence seems to be technology-driven since a new technological development is applied across conventional industry boundaries. In the case of substitution innovation seems to be imperative to keep up with the trends in convergence. In contrast, in the case of complementary convergence the opportunities of industry convergence are essentially.

The implications of convergence force a strategic focus shift from the corporate resource-based view to establishing dynamic capabilities across the value network through alliance. Convergence of technologies creates collision across markets leading to the dissolution of old vertical industry boundaries and the emergence of new horizontal players, the creation of new market space, and the migration of value to networkedcontent.

5. REFERENCES

Gill, T. (2008). Convergent products: What functionalities add more value to the base? Journal of Marketing, Vol. 72 (March), 46-62, ISSN: 0022-2429

Hacklin, F. (2008). Management of Convergence in Innovation. Physica-Verlag, ISBN: 978-3-7908-1989-2, Heidelberg

Militaru, Gh. (2004). Sisteme informatice pentru management, All, ISBN: 973-571-474-4, Bucharest, Romania

O'Brain, M. (2007). Entreprise Information System, McGraw-Hill, ISBN: 978-0-07-110710-5, New York

Park, S. (2007). Strategies and Policies in Digital Convergence, Idea Group Inc., ISBN: 1-59904-156-1, London

Pearce, J. & Robinson, R. (2007). Formulation, Implementation, and Control of Competitive Strategy, McGraw-Hill, ISBN: 978-0-07-110718-1, New York