Economic Implications of e-Business for Organizations

We review the macroeconomic and microeconomic impacts of e-business on organizations. E-business improves the economic efficiency of national economies through greater capital formation and long-run efficiency gains. E-business affects many aspects of the economy, from international trade to monetary and fiscal policies. At the microeconomic level, we use Porter’s Five Forces to organize our discussion of how e-business changes the creation of value and its division among market players. ICT affects industry through many channels and at many levels, from how inputs are purchased to how final goods and services are sold and delivered. The corporate strategist must consider how e-business may change the nature of rivalry among the competitors. Changes in upstream and downstream interactions in the market and expanded opportunities for substitutes and potential entrants also influence strategy. Thus, e-business can alter strategy by changing the nature of entry threats, suppliers’ power, buyers’ power, threats from substitutes, and rivalry among existing firms. We discuss empirical results from the literature wherever possible to illustrate the importance of e-business for a firm’s strategy. We close with a brief look at e-business and non-profit organizations.