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Analysis of the Impact of the Internet on Competition

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Analysis of the Impact of the Internet on Competition
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International Journal of Management

Vol. 21 No. 4

December 2004

An Analysis of the Impact of the Internet on Competition in the Banking Industry, using Porter's Five Forces Model
Irene Siaw The Open University of Hong Kong, Hong Kong AlecYu Cisco Systems (HK) Ltd, Hong Kong The emergence of the Intemet has created both threats and opportunities for banking executives. Those who are able to leverage competitive benefits from the Intemet are confronted with significant business potential. The Internet has fundamentally changed traditional relationships and services within the banking industry. It shifts the overall competitive landscape, the technical and standards infrastructure, and the requirements of individuals and business users. The impact of the Intemet on the banking industry and Internet banking as a source of competitive advantage have become challenging issues for both business managers and academics. This article uses the theoretical framework of Michael Porter's Industry 5-Force Competitive Model as the theoretical framework to analyze the ways that the Intemet is affecting the competitive dynamics of the banking industry.

Introduction
The Internet's compelling effect on the commercial world is its ability to pull enormous infonnation from virtually every comer of the globe (Engelman, 1996). Today every business model is evolving to adapt to the growing acceptance of the Intemet and Ecommerce. Banking is no exception. E-commerce fundamentally changes the existing business models, shifting the balance of power fi-om the bank to the individual customer (Brennand, 1999). The impact of the Intemet on the banking industry is often undervalued by executives. The primary problem is that Intemet banking is often confused with the traditional Personal Computer (PC) Remote Home Banking, which has been available for more than 20 years. Despite its innovations, this form of banking did not live up to its predicted level of success. Many banks have


References: Birch, D & Young, M.A., Financial Services and the Intemet - What Does Cyberspace Mean for the Financial Service Industry? Internet Research: Electronic Networking Applications and Policy, Vol. 7(1997), No.2, pp. 120-128. Brennand, C , Next Steps in Financial E-Services in Asia - Lessons from other Market. Internet World Hong Kong, Financial Services Summit Nov 1999. Cisco Systems Inc., Intemet Business Solutions Group. The Banking Industry and the Intemet - A View of the Impact of Intemet Business Models on the Future of Banking, July, 1999. Crede, A., Intemational Banking and the Intemet in Cronin, M.J. (Ed.), Banking and Finance on the Intemet, Van Norstrand Reinhold, New York, NY, pp. 271-305, 1998. Czemiawska, F. & Potter, G., Business in a Virtual World - Exploiting Information for Competitive Advantage, Macmillan Business, 1998. Engelman, L., Interacting on the Internet, Times Mirror Higher Education Group, Boston, MA, 1996. Emst & Young, E-Commerce: Customer Relationship Management. Special Report on Technology in Financial Services, 1999a. Emst & Young, FS Intemet Value Creation Study, 1999b. FIND/SVP (1997), http://www.findsvp.com. Humphreys, K., Banking on the Web - Security First Network Bank and the development of Virtual Financial Institutions in Cronin, M.J. (Ed.), Banking and Finance on the Intemet, Van Norstrand Reinhold, New York, NY, pp. 75-105, 1998. Kalakota, R. & Whinston, A., Electronic Commerce -A Manager 's Guide, AddisonWesley Longman, USA, 1997. International Journal of Management Vol. 21 No. 4 December 2004 523 Kiesnoski, K., Cyberbanks: Creating a Market Niche? Bank Systems & Technology, New York, Vol. 36 (1999), No.5, pp. 30-36. Mols, N., The Intemet and the Banks ' Strategic Distribution Channel Decisions. Intemet Research: Electronic Networking Applications and Policy, Vol.8 (1998), No.4, pp. 331 337. Porter, M., How Competitive Forces Shape Strategy. Harvard Business Review, MarchApril (1979), p. 8. Porter, M., On Competition, Harvard Business School Press, Boston, 1998. Sheshunoff, A. The wait is over for Intemet Banking, ABA Banking Joumal, New York, Vol. 91 (1999), No.6, pp. 18-24. Starita, L., Online Banking: A Strategic Perspective, Financial Service SMART Report Library, July 1999. Watson, R.T., Berthon P., Pitt, L.F., & Zinkhan G.M., Electronic Commerce: The Strategic Perspective, Orlando, FL: The Dryden Press, 2000. Contact email address: isiaw@ouhk.edu.hk
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