Development of the Online Broker Industry

Introduction

The purpose of this report is to gain an understanding of the enterprise development by studying the Openshaw case and the development of the online broker industry since then and likely developments in the future.

Openshaw Plant Machinery is an online equipment broker that was established in 1998. The founders Neville and Sue Openshaw recognised the lacking of a central and convenient place for business to trade new or second-hand equipment and machinery in the industry. Openshaw staffs have extensive experience from working in many areas of various industries and can deliver excellent service to its customers. A wide range of contracts is strength of Openshaw (Openshaw Plant Machinery 2011).

Discussion

In this section, I will firstly give a brief background about the online broker/trade industry. Macro-environment and industry environment analysis will be discussed including analysis of recent developments and likely future developments in the industry.

The industry

Openshaw belongs provides a platform for buying, selling, and sourcing new and used equipment and machinery. It has extensive links with machinery manufactory industry as well as brokerage industry. In the report, I will focus on the online brokerage industry.

The online brokerage sector is relatively new. However, the traditional retail brokerage industry has been around for a long time. Online equipment brokerage might be a bit under the radar since most of the brokerage companies or individual brokers work on financial services, such as stock exchange, mutual fund, insurance, and real estate. It was made possible after the development of internet and World Wide Web.  Since then, as the information technology develops, the industry has grown rapidly and represents one of the most successful applications of e-commerce (Bakeos et al 2005).

Nowadays, due to the volatile nature of most industries, companies have to adapt new technologies to maintain competitive and keep up with the society. Information technology, especially Internet, offers extraordinary level of convenience and flexibility and subsequently has changed the way the business usually run. People now have the technology to communicate from basically wherever and whenever they like (Lonney, Jessup & Valacich 2004). In online brokerage sector, although the quality of online brokerage service might be lower than traditional approach, it offers lower associated cost and more flexibility and grows rapidly worldwide (Bakeos et al 2005). In the future, there are a number of areas that are worth to watch out for.

• More customers generated content – this is will be very helpful for increase the awareness and transactions, because customers trust other customers rather than what the website claim. Therefore, providing the opportunity and encouraging customers to write a review or blog about their trading experience on the website could turn out to be a plus for an online brokerage business.
• Improvement on products and services- No doubt, the growth and profitability of e-commerce will encourage more business enter the industry. Existing online brokerage companies have to continually improve their products and tools, enhance the flexibility and convenience, and develop better customer support.
• Video and visual information – As we known, human being obtain information quicker with images than just plain text (Audette 2010). Although text is very informative and requires less effort to produce, videos and images are more eyes catching. Also, people, in many occasions, prefer information in a more visualised format. Thus, web-based business can benefit significantly from visual information. Visual browsing and searching are likely to get more attention in the near future. Nowadays, internet speed and technology enable people to view picture and video easily. People can compare products with on-website videos to help them make the right decision.
• Engaging social media -The success stories about Facebook and twitter shows how important is the social media. Twitter had increased about 40 million accounts in three months and there are about 110 million Tweets a day across the world (Chiang 2011).  Companies have started to employ social media for product marketing, customer communication, and idea generation (Menchaca 2010). Similarly, online broker should do the same thing to engage with customers.
• Service offered through multiple e-channels-Online equipment broker like Openshaw can offer customer the opportunity to be really innovative and participate in the process of developing equipment that meets the special needs of customers. Online brokers can set up video and/or skype conference between customers and manufacturers who are 20,000 km away and discuss the whole design, costing, and building process. Also, the once the equipment is installed, customers will have 24/7 online support to ensure the machinery working safe and sound.

Macro-environment analysis

The environment for an organisation includes those factors outside the organisation that influence its strategy. For example, businesses have not much option regarding the company tax policy in many countries. Macro-environment is one of two sections of the external environment. It has impact on almost all the industries and overall economic growth. The analysis of the macro-environment could potentially provide information about what have affected the industry in the past as well as what is going to affect the industry in the future. Mangers and scholar have categorised these macro-environment factors in to groups including economic, political, legal, social/cultural, demographic, sustainability, international, environmental, and technology factors.

Government use political and legal system to regulate business environment. The New Zealand government, like other developed countries, mainly allows the market regulate itself. New Zealand political and legal systems are very stable and are very unlikely to pose any political risk to the companies that operate in New Zealand. On the other hand, policy variation between parties and political decision affected by major events could have impacts on business operation. For example, government’s support on rebuilding Christchurch CBD may have a positive result for online equipment brokerage sector.  However, the emission trading scheme would have little impact on the industry.

Changes in society and culture change consumers’ demand and consequently affect company’s strategy and industry’s profitability. If a company can predict and prepare for these changes, the company is likely to succeed. The Do-It-Yourself (DIY) spirit is a piece of culture of New Zealand. Online equipment broker industry could use this factor and extend its products range in order to include more equipment that is suitable for DIY purpose.

Certainly, the economy is one of the environmental factors that would have most impact on industries and businesses. Economic factors include taxation, interest rate, inflation, exchange rate, and GDP. These factors affect not only behaviour of customers, but also the behaviour of companies. For example, the strong NZ dollar makes the export goods less attractive yet makes import goods more affordable to domestic consumers. The global financial crisis has affected New Zealand economy although New Zealand and Australia are thought to escape relatively well and have 2 to 3 percent growth in the near future (Sun 2010). In the online equipment brokerage sector, the low interest rate could have a positive effect as the lower rate makes the asset investment more attractive. Additionally, the tax reduction for both individual and business may increase the revenue of the industry in the future.

People like new technology and most of us cannot survive without it. Internet, mobile phone, video games, and HD TVs are parts of our everyday life. For many products and services, technology can decrease expenses, increase quality and productivity, and lead to innovation. Advances in technology will ultimately generate benefit for both consumers and the company offering the products and services. In some industry, technological factors are vital for establishing competitive advantages and maintain market position. The industry where Openshaw belongs to particularly requires technology inputs, especially associated with Internet and Web applications. At the end, technology makes the online brokerage system work and it should be able to make the industry better.

Industry environment

The other part of the environment analysis is the industry environment. The industry environment normally affects companies’ profitability and market position in a particular industry. Industry environment consists with factors like buyers’ power, suppliers’ power, competitors, substitutes, and new entrants. Professor Michael Porter suggested that the profitability of a company in an industry count on five competitive forces (Porter 2008).  These five ‘forces’ are threat of new entrants, bargaining power of buyers, bargaining power of suppliers, threat of substitute products or services, and rivalry among existing competitors (Figure 1, Porter 2008). Porter’s fiver forces model is commonly used for business analysis and research. However, it does not take into account for innovation and change and it is only applicable to industry level in many situations.

Existing companies may have the pressure from new entrants on price and costs and may have to invest more to compete. The threat of new entry is likely to be low if the entry barriers are high. Such barriers include customer switching costs, capital investment, economies of scale, access to distribution channels, and government restriction (Porter 2008). For the online equipment broker sector, the threat of new comer is reasonably high. The capital requirement for online brokerage business is little and the customers can easily switching among providers. In addition, there is no obvious government intervention.

Powerful suppliers can affect an industry by charging higher prices and limiting quality and quantity of the products. Suppliers will have more power if there are not many them, switching among suppliers are too costly, suppliers do not depend on the industry, there is no substitute for what suppliers provide, and the supplier enter the industry (Porter 2008). Although the suppliers, in this case, the equipment manufacturers, do not depend on online brokers and there is no substitute products, one of the features of Openshaw is it has extensive contacts and can source equipment from many suppliers and countries. Thus, the power of suppliers for online equipment brokers is moderate.

Powerful buyers, on the other hand, can drive the price down and demand better quality and more variety products and services. The buyers have more bargaining power if there are few buyers in the market, the products are undifferentiated, the cost of switching providers is little, and the buyers enter the industry and produce the product (Porter 2008). Based on these measurements, because buyers do not always have extensive contacts with equipment manufacturers and Openshaw’s service is differentiated, the buyers’ power for online equipment broker is low. However, the number of buyers for the industry is relatively small.

The threat of a substitute is high if the substitute has a better price-performance ratio compared to the industry offering and the cost of switching to the substitute is low (Porter 2008). In this case, direct communication between buyers and manufacturers can be the substitute of Openshaw’s broker service. However, customers will have to spend a lot of time and effort on dealing with manufacturers. Although the cost of switching to substitute is low, the threat of a substitute for online brokerage industry is low.

The level of competition of an industry is determined by a number of reasons including numbers of similar size competitors, industry growth rate, exit barriers, and competitors’ business commitment. To my knowledge, there are not many online equipment brokers within New Zealand and the level of competition is relatively low. In addition, the costs of leaving the industry are low because the initial capital investment is low and there are not much assets for this type of ecommerce.

Overall, if the industry has high entry barriers, many small and equal suppliers and buyers, few substitutes, and not much hostile competitors, the organisations in the industry are likely to make good profit from the market. Although the threat of new entrants is high and the buyers are moderate powerful for online equipment broker industry, the power of suppliers, threat of a substitute and rivalry among competitors are fairly low. The online equipment broker sector should, therefore, has a sound industry environment and potential good profitability.

Conclusion

In the case of Openshaw, the first mover strategy was the key for its establishment and success. Starting up Openshaw was an entrepreneurial action because there was no such online equipment broker at that time, which is only 13 years ago. Its success should be attributed by the combination of entrepreneurial actions and strategic management. Entrepreneurial actions and strategic management are important for business growth independently, yet they generate synergy that increases the value of their individual outcomes (Ireland, Camp, Hitt and Sexton 2001). Entrepreneurship is mainly about innovation and growth while strategic management focuses on competitive advantage. However, they have a common goal, to generate profit. Innovation can create competitive advantage and competitive advantage subsequently increases growth. The strategy that Openshaw used was the first mover strategy. Evidence suggested the first movers in a particular industry usually have long lasting benefits over the later comer (Suarez and Lanzolla 2008). However, Suarez and Lanzolla (2008) also pointed out that this strategy likely success if the pace of both market and technology evolution is smooth. This is actually the case of Openshaw. When the company was established, the Internet technology has been well developed and the consumers have accepted the technology and have started to enjoy the benefit of it.

In the future, the company should keep the focus on integration of entrepreneurship and strategic management. The network approaches to internationalisation might be a good strategy for Openshaw. The study carried out by Loane and Bell (2006) indicates that small entrepreneurial companies will obtain knowledge and resource, such as networks, to internationalise rapidly suggesting social and business networks are valuable resource for small firms.

Although, ecommerce business has incredible growth potential, it creates unique challenges for both existing companies and new comers (Saini and Johnson 2005). The overall environment condition for online equipment broker is reasonable. The domestic and international economic growth is one of the major impact factors for the industry in the near future. Openshaw and other existing companies should keep eyes on new entrants as well as continue on their entrepreneurial and strategic development and actions.