External and Internal Environments

Externaland Internal Environments

Abstract

EBayis an online shopping company that operates in the internet industry.The company was started in 1995 and its mission is to create aplatform that will allow anybody from any part of the world to tradeanything. Some of the general environments that affect eBay’sgrowth include technology and demography where individuals fromdifferent age groups have different buying and internet usagebehaviors. In addition, eBay’s growth is affected by two majorforces of competition, including rivalry in the industry and a highcustomer’s bargaining power. Some of the eBay’s external threatsinclude stiff competition and cyber insecurity while itsopportunities include an increase in the number of internet users.Its strengths include market leadership and a suitable model, whileits weaknesses include a low advertising budget and an interface thatfails to please the many potential customers. EBay’s resources,core competencies, and capabilities have contributed towards thecurrent competitive advantages.

Keywords: Online marketing, internet industry, competitive advantage,forces of competition.

Externaland Internal Environments

Thediscovery of the internet opened many new opportunities fororganizations and individuals. EBay is one of the companies thatwhich operations are entirely based on the internet. EBay was startedin 1995 and its headquarters are located in San Jose, United States(EBay, 2015). Currently, eBay is traded at NASDAQ: EBAY, NASDAQ-100,S &amp P 500 components. The company operates in the internetindustry and its services include online shopping. Some of the keyeBay products include electronic commerce, eBay Classified, Kijiji,Gumtree, iBazar, and Gitti Gidiyor (EBay, 2015). From its missionstatement, eBay intends to provide an online marketplace that targetsthe global market, and allow anyone to trade anything. EBay has beengrowing over the years following its aggressive investment intechnology and innovation that has enhanced its competitiveness inthe internet industry. This paper will analyze eBay Incorporationwith a focus on its general environment, the forces of competition,how it can address rivalry and a high customers’ bargaining power,external opportunities and threats, weaknesses and strengths,resources, core competencies, and capabilities, and an analysis ofeBay’s value chain.

Segmentsof the general environment

Businessesare affected by six major environmental segments, includingenvironment, economy, political, socio-cultural, technology, and thelegal segment. EBay incorporation is most likely to be affected bytwo of these segments. First, eBay operates in the internet industry,which means that it cannot escape the effects of technology. Internetcompanies that provide a consumer-to-consumer as well asbusiness-to-business connection and business services via theinternet are affected by fraud. Studies indicate that online shoppersand retailers lose about $ 3.6 for each dollar of fraud that wasincurred in the year 2014, where these cases of fraud are expected toincrease by 60 % per annum (Teeuwen, 2013). Cases of fraud havedenied eBay an opportunity to expand its market share to its desiredlevel since many potential customers fear being scammed.

Secondly,the demographic factor has limited the capacity of eBay and otherinternet-based enterprises from reaching the older generations, suchas the baby boomers. It is estimated that only more than 50 % of thebaby boomers do not rely on the internet-based services, in spite ofthe fact that they use technology from time to time (Rainie, 2012).Although eBay and other organizations operating in the internetindustry have managed to attract a large proportion of youngergenerations (especially the millennial), the older generations aremore financially stable than the young ones, which implies that thefailure of the baby boomers to use the internet services have deniedeBay and other companies an opportunity to expand their revenues.

Forcesof competition

Companiesare affected by five major forces of competition, including thethreat of new entrants, substitution, consumers’ bargaining power,supplier bargaining power, and competitive rivalry. EBay is mainlyaffected by the intense bargaining power of its customers and rivalrywithin the sector. EBay targets the same customers with offline andother online retail customers. This means that customers are atliberty to switch from one outlet to another, depending on pricesthat each company offers. In addition, customers demand quality andwide range of products and services, which increase their bargainingpower (Rainie, 2012). EBay has addressed these challenges byincreasing its market share, offering competitive prices, andoffering a wide range of products.

Rivalrywithin the industry is a force that is beyond the control ofindividual companies. With the entry of new companies (includingAlibaba and Apple Pay among others) competition in the industry isexpected to continue increasing (Rainie, 2012). EBay potentialcustomers are at liberty to buy from online competitors, offlineretailers, auctioneers, and distributors. However, their decision toswitch from one rival to another depends on the competitive advantageof each competitor. For example, eBay’s capacity to offer qualityproducts, affordable prices, and convenience of payments and web siteusage have allowed it to protect its market share.

Addressingthe threat of rivalry and customer’s bargaining power in the future

Thethreat of rivalry subjects eBay to the risk of losing its marketshare, which means that any measure taken should help the companyenhance its competitive advantage. One strategy that eBay might taketo enhance its competitiveness is to position itself as a leadingauthority, trusted service provider, and an expert in the field ofinternet-based retail business, instead of focusing more on prospects(EBay, 2015). This will allow eBay to differentiate itself from otherplayers, thus retaining its market share.

Inaddition, it is likely that eBay will focus on increasing its loyalcustomers in order to deal with the issue of a high bargaining powerof consumers. This may be achieved through different strategies, suchas effective marketing methods, after sale services, engagingcustomers by requesting them to give their feedback after eachtransaction, and giving discounts to regular customers. This willallow eBay to focus on other factors, other than price, that motivatecustomers to buy from a given vendor and not from rivals. Moreover,this might also help eBay attract customers who are interested otherfactors (such as quality and convenience) other than the price ofdifferent commodities.

EBayexternal threats and opportunities

EBayis mainly affected by three major external threats. First, a stiffcompetition in the market increases the risk of losing part of eBay’smarket share to other players, including Google, Yahoo, AOL,Amazon.com, and MSN (Datamonitor, 2015). EBay can reduce pressurefrom competition by differentiating its services in different ways,such as the offering of a wider range and exceptional interactionwith customers. Secondly, eBay faces the threat of losing customersas a result of negative publicity for the lack of adequate cybersecurity service. This might reduce the number of online customers,who fear that will be scammed when transacting with eBay. This threatcan be mitigated by adopting adequate security measures (such as thestandard encryption of the website) coupled with a public relationscampaign to help potential customers understand measures that thecompany has taken to secure their data.

Thereare two major opportunities that eBay may exploit. First, eBay hasonly 159 million active users compared to the global population ofinternet users, which is about 3.1 billion people (EBay, 2015). Thisindicates a large size of untapped markets. EBay can exploit thisopportunity through aggressive marketing campaigns, which will notonly seek to attract customers from other competitors, but toenlighten people on the significance of buying online as opposed tooffline. Secondly, over 50 % of the company sales are domestic, whichmeans that there is still an opportunity for internationalpenetration (U.S. Securities and Exchange Commission, 2015). EBayshould market its services in emerging markets in order to increaseits international sales.

EBayStrengths and weaknesses

EBayhas much strength, but two of them can be considered to be thegreatest. The first strength is the market leadership (EBay, 2015).Currently, eBay is the leading company with online marketing. Themarket leadership means that eBay is in a better position to maintainits brand awareness as well as its offerings. EBay may maximize thisstrength, keeping a consistent presence in markets that it hasalready dominated, which can in turn be accomplished throughmarketing and public relations. Secondly, eBay’s model is among thegreatest strengths that have allowed it to achieve significantgrowth. Its business model allows it to operate without any inventoryand with low capital requirements (Datamonitor, 2015). Due to lowcapital and inventory requirements, eBay can use its profits todiversify its operations, increase geographical coverage, andincrease its allocation for marketing operations, which will enhanceits profitability further.

AlthougheBay has numerous strengths that have allowed it to grow, it has anequal share of weaknesses. For example, the company’s advertisingbudget has remained low (about 2 %), which limits its capacity toreach more customers (Datamonitor, 2015). This weakness can beaddressed by increasing the budget allocation to the marketingdepartment when making the financial plan for each fiscal period.Secondly, the website’s user interface fails to give customers anopportunity to interact with the company, which has reduced customersatisfaction from 83 index points in 2012 to 79 points in 2014(Statista Inc, 2015). This can be addressed by upgrading the websitein order to make more interactive.

Resources,core competencies, and capabilities

EBayresources include technology, finance, and innovation. The companyhas incorporated modern technology into its website in order toensure that all transactions run smoothly (EBay, 2015). In terms offinancial resources, eBay has a cash amount and cash equivalents ofmore than $ 4.4 billion and a borrowing capacity of $ 3 billion (U.S.Securities and Exchange Commission, 2015). Innovation is constantlycreated at eBay. The company uses its engineers to develop new codingsystems software, such as its recent “Best Match” search tool.Core competencies of eBay include an efficient distribution system, aplatform that allows global search, a strong alliance with othercompanies, and a strong brand identity. EBay capabilities include itscapacity to reach potential clients virtually in many parts of theworld and its capacity to sell anything, which means that buyers canget anything that is offered online by vendors (EBay, 2015).

Analysisof eBay value chain

Valuechain refers to a systematic method used to assess the process ofdeveloping competitive advantage. The chain is comprised ofactivities that help the organization build and create value(Antonious, Levitt &amp Schreihans, 2014). EBay operations are basedon an online platform that connects buyers and sellers. This allowsthe company to utilize its technology and innovation resources to addvalue to its services. For example, eBay is able to automate itsservices, including the sniping programs. In addition, eBay had onlyforty categories of products by 1997, but these products have beenincreasing after identifying the need of potential customers. Thecompany can use technology to get feedback virtually from itscustomers all over the world by developing a feedback portal on itswebsite.

Conclusion

EBayis one of the companies that have developed a complex program thatlinks sellers with buyers in the virtual world. Its operations aremore likely to be affected by technology and demographic given thatit operated in the internet industry and targets consumers whosebuying behaviors are influenced by age groups. A stiff rivalry withinthe internet industry, which can be attributed to the entry of newcompanies and a high bargaining power of eBay’s customers are thekey forces that affect its growth rate. Being one of the largestplayers in the internet industry and its experience in business, eBayhas developed an internal capacity to exploit opportunities withinits environment and address external threats, such as stiffcompetition. EBay’s capacity to acquire the largest market share inthe industry and maintain a competitive advantage can be attributedto its resources such as technology and innovation) and internalcapabilities that it has gained over the year.

References

Antonious,H., Levitt, E., &amp Schreihans, C. (2014). Managing value chainstrategy. Journalof Management and Marketing,1, 1-3.

Datamonitor(2015). SWOTanalysis.London: Datamonitor.

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StatistaInc. (2015). Ourcustomer support.New York, NY: The Statistic Portal.

Rainie,L. (2012, March 28). Babyboomers and technology.Washington, DC: Pew Research Center.

Teeuwen,V. (2013). Tenways to better brad recognition.London: Forbes.

U.S.Securities and Exchange Commission (2015). Annualreport pursuant to section 13 or 15 (d) of the Securities ExchangeAct of 1934.Washington, DC: U.S.SEC.