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SMEs in South Africa 127
• Contextual characteristics
The economic benefits of moving business transactions from fax,
telephone and post to the Internet are well documented in many
publications (Davies, 2002). Wilde and Swatman (2000) also noted
that the forces of economic rationalism and globalism have enhanced the
market as the final arbiter of price and service with the balance of power
tilting from the manufacturer towards the consumer. Given this erosion
of margins, companies need to reduce costs, both in production and
transaction, in order to make their products and services more competitive.
This again points to the Internet as a vehicle to reduce costs and to
assist in obtaining a competitive advantage in the short term.
The traditional value chain has become virtualized to a great extent due
to the fact that users of the Internet are able to order products and
services online, without intervention of the purchasing department, while
payment is made electronically using electronic funds or purchase cards.
The primary activities in the Porter Value Chain, namely incoming
logistics, outgoing logistics, marketing and sales, are being redefined in
terms of how they are carried out and interact with each other, as
technology provides for more sophisticated methods of business interactions
(Walton & Miller, 1995; Porter, 1985).
These chains have become virtualized as the Internet was increasingly
used as a ‘binding agent’ (Davies, 2002). John Dobbs of Cambridge
Technology partners describes ‘value chain integration’ as a process
of collaboration that optimizes all internal and external activities involved
in delivering greater perceived value to the ultimate consumer (Economist,
1999). In the process, whole portions of the previous chain are
being removed, redefined or disintermediated.
It is, however, necessary to note that the integration of value chains does
not solve all problems. JIT (Just in Time) production is a methodology
of reducing inventory stock that has been used for many years and
serves as an example to prove this point. Critics of this method have
pointed out that it merely forces the lower level manufacturer to hold
stock and deliver to the client as needed. This method does however
reduce stock holding costs throughout the higher levels of the value
chain. It is also interesting to note that the Internet plays an increasingly
important role with JIT ordering due to the ease of ordering at short
notice.
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