Some suggest that the Internet will lead to a new role for intermediaries, who will provide value-added services by repositioning themselves in the supply chain. For example, they would do this by providing knowledge about what sites have the best information, in terms of quantity and quality, about products and services. While this argument is valid, it is still true that traditional middlemen providing information about physical goods will gradually disappear in the virtual world.
The Commodity Paradox — "Imagine commodities that are different"
Knowing more about buyer choices and preferences allows producers to rationalize production. The global reach of e-commerce has created a situation where many goods and services have become (or, may soon become) commodities (i.e., they are easily and readily available to everyone, and their only distinguishing feature is price). Under these circumstances, it becomes important for suppliers to reduce costs, which typically results in industry consolidation, as economies of scale are sought. This, of course, has been the great fear of participants in B2B exchanges, where reverse auction selling makes markets highly efficient, whittling away at producer profits.
The counter-argument to this trend is that branding strategies can effectively distinguish Internet businesses and thereby create consumer value. Branding creates the illusion that a company's products and services are different from those of its competitors, and consequently consumers will pay more for them. This is, however, a misleading argument. Internet branding strategies relate not to physical goods or services, but rather to the role that information plays in the supply chain. Consequently, producers' physical output will still tend toward commoditization. (3)
The Dis-Integration Paradox — "Imagine growing while shrinking"
Companies integrate vertically for many reasons, such as realizing greater operating efficiencies, as well as the murky notion of achieving corporate synergies. But, another view holds that in order for businesses to be successful in an environment of globalization and rapid advances in information technology they should identify their core competencies and devolve non-core responsibilities to others. This has led to corporate outsourcing, strategic alliances and the dis-integration of conglomerates. (4)
In the wired world, where the physical supply chain is contracting (dis-intermediation) and industry sectors are consolidating to compete on the basis of price (commoditization), vertical integration is an inefficient and irrelevant strategy handed down from the old economy. The new economic model requires that a company focus on its core competencies and grow within a narrow industry sector in order to realize economies of scale. (5)
By understanding the Internet paradox and its implications for the supply chain, airports can benefit by aligning their strategies to fit the new business environment created by the Internet. While air cargo still comprises only a small part of the total tonnage of physical goods moved, it is a quickly growing mode of transport. The distinguishing features of goods shipped via air are that,
- They have a high value relative to their weight-bulk ratio — i.e., they are relatively small, lightweight, primarily high-tech products — with the exception of documents and perishables. (6)
- They all have a time-value associated with them — e.g. aircraft parts that must arrive on time to prevent expensive schedule delays and medicines/human organs that prevent life-threatening illnesses.
The important features of the Internet (and e-commerce) are that it overcomes information asymmetries between producers and consumers and provides lower prices, greater selection and convenience.
It is expected that with the increasing commoditization of goods and services because of better information provided by e-commerce business models, supply chain contraction (dis-intermediation) and consolidation (economies of scale) will occur. As a result, major hub airports will likely become larger players in the global supply chain because of anticipated increases in the volume of air cargo. (7)