Highlights in Business, Economics and Management FTMM 2023

Volume 15 (2023)

E-Commerce Industry: A Comprehensive Analysis of its

Competitive Advantages
Boying Niu1, *, † and Jiayi Zhao2, †
1Mathematics Department & Business, Organization, and Society Department, Franklin and
Marshall College, Lancaster, USA
2School of Economics, Hefei University of Technology, Hefei, China
*Corresponding author: [email protected]
†These authors contributed equally.
Abstract. This paper confirms the importance of e-commerce by analyzing the definition and
historical development of e-commerce. It also emphasizes the importance of cybersecurity and trust
in online transactions for the development of e-commerce. Through the analysis of Porter's five
forces model, it is concluded that the e-commerce market does have great potential because of
obvious advantages compared with traditional commerce and but also has high competition due to
the low barrier to entry. In addition, this paper analyzes companies including SHEIN, Cainiao,
Xiaohongshu, Taobao, and TikTok, and summarizes five already existing comparative advantages
for e-commerce companies, namely convenience, digital information, logistic network, marketing,
and information tracking. The final conclusion is that for companies that want to enter e-commerce,
this is a good opportunity, but it is very significant to identify market pain points and develop their
own differentiation. It suggests that companies should leverage the advantages of e-commerce while
also addressing the competition and developing their own unique value proposition to succeed in
this fast-growing market.
Keywords: E-commerce industry, Porter's five forces model, comparative advantages.

1. Introduction
In recent years, the global marketplace has witnessed a revolutionary change in the way consumers
shop and businesses sell their products and services. The introduction of electronic commerce, also
known as e-commerce, has revolutionized the way companies conduct their operations and interact
with customers. By definition, e-commerce is the use of electronic communications and digital
information processing technology in business transactions to create, transform, and redefine
relationships for value creation between or among organizations, and between organizations and
individuals [1]. In simple terms, e-commerce is when products and services are traded over the
Internet. E-commerce has become a vital component of modern business practices, enabling
businesses to reach customers from different corners of the world and drive sales and revenue growth.
There are six types of e-commerce, including B2B (business-to-business), B2C(business-to-
customer), B2A(business-to-administration), C2C(customer-to-customer), C2B(customer-to-
business), and C2A(customer-to-administration) [2]. In general, B2B is used for traditional industrial
wholesale companies, and conventional retail companies use the B2C approach to sell consumers
their products. As to transactions between companies and the government, they will use the B2A
approach. From the customers’ view, they can trade with other customers via online transaction
forums, which is the C2C approach, while if they want to sell their products or services to companies,
such as artwork, they will use the C2B approach. C2A is applied in trades between consumers and
the government, such as education, health, and taxes. Based on these six types of e-commerce, it is
obvious that e-commerce is changing people’s lives.
The history of e-commerce can be traced back to the early 1960s when companies started using
Electronic Data Interchange (EDI) to share business documents electronically [3]. However, it wasn't
until the mid-1990s that -commerce began to take off with the introduction of the World Wide Web.
Amazon, one of the first major e-commerce websites, was founded in 1994 and eBay followed shortly

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after in 1995. From there, the e-commerce industry has continued to grow at a rapid pace. Today, e-
commerce is a massive industry with global sales. It encompasses a wide range of businesses, from
online marketplaces like Amazon and eBay to direct-to-consumer retailers like Warby Parker and
Casper [4]. In addition, many traditional brick-and-mortar stores have added e-commerce capabilities
to their business models in order to reach a wider audience. The current state of e-commerce is
characterized by several trends. One of the most notable is the growth of mobile commerce, or m-
commerce, which refers to e-commerce transactions conducted via mobile devices. According to data
from eMarketer, m-commerce accounted for over half of all e-commerce sales in 2020 [5]. Another
trend is the rise of social commerce, which involves buying and selling products directly on social
media platforms like Instagram and Facebook.
E-commerce is important for several reasons. First and foremost, it offers consumers convenience
and accessibility [6]. With e-commerce, people can shop from anywhere at any time, making it easier
to find what they're looking for and compare prices. In addition, e-commerce has created new
opportunities for businesses to reach customers and grow their sales. By eliminating the limitations
of physical storefronts, businesses can reach a global audience and sell products around the clock.
Finally, e-commerce has also created new job opportunities in areas like web development, digital
marketing, and customer service. Overall, e-commerce has revolutionized the way people shop and
do business. From its humble beginnings in the 1990s to the massive industry, it is today, e-commerce
has changed the face of retail and opened up new opportunities for both consumers and businesses.
As technology continues to evolve, it will be interesting to see how e-commerce continues to adapt
and grow in the years to come.

2. E-Commerce Industry Analysis: Porter's Five Forces Model

To have a better view of e-commerce, the Five Forces Model, developed by Michael Porter, can
be applied to the e-commerce industry to understand the competitive dynamics of the market. The
five forces are threat of new entrants, bargaining power of suppliers, bargaining power of buyers,
threat of substitute products or services, and intensity of competitive rivalry. The following sections
discuss how these forces affect the e-commerce industry.
2.1. Threat of New Entrants
The threat of new entrants in the e-commerce industry is relatively low due to several barriers to
entry [7]. First, establishing a reliable online platform requires significant investments in technology,
logistics, and marketing. Second, established e-commerce players already have economies of scale
that enable them to offer competitive prices and services. Third, e-commerce is a highly competitive
industry, making it difficult for new entrants to gain market share. However, some niches, such as
luxury e-commerce, may have lower barriers to entry and attract new players.
2.2. Bargaining Power of Suppliers
Suppliers of e-commerce companies include manufacturers, distributors, and other intermediaries.
The bargaining power of suppliers is low in the e-commerce industry because e-commerce players
have access to a wide range of suppliers, making it easier to switch suppliers if prices are not
competitive. In addition, e-commerce companies can negotiate favorable terms due to their large
purchasing power. However, some niche suppliers may have higher bargaining power, such as those
providing unique or exclusive products.
2.3. Bargaining Power of Buyers
The bargaining power of buyers is high in the e-commerce industry due to the abundance of
choices available to them. Customers have the ability to compare prices and services from different
e-commerce companies, forcing companies to compete on price and quality. In addition, customers
can leave reviews and ratings, influencing the decisions of other buyers. This gives buyers significant

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bargaining power, as e-commerce companies must maintain customer satisfaction to remain

competitive.
2.4. Threat of Substitute Products or Services
The threat of substitute products or services is moderate in the e-commerce industry. E-commerce
companies face competition from brick-and-mortar retailers, as well as other online marketplaces.
However, e-commerce companies have advantages over traditional retailers, such as lower overhead
costs and the ability to reach a wider audience. In addition, e-commerce companies are constantly
innovating to improve the customer experience, such as offering faster delivery and personalized
recommendations. However, the increasing popularity of social commerce and mobile commerce
may pose a threat to traditional e-commerce players.
2.5. Intensity of Competitive Rivalry
The intensity of competitive rivalry in the e-commerce industry is high. The industry is
characterized by intense competition, with many players vying for market share. E-commerce
companies must continually innovate and differentiate themselves to remain competitive. In addition,
competition can come from unexpected sources, such as social media platforms or new technology.
The high intensity of competitive rivalry makes it challenging for e-commerce companies to maintain
profitability and market share.
Overall, the Five Forces Model analysis of the e-commerce industry shows that it is a highly
competitive market with moderate to low barriers to entry. While established players have economies
of scale and customer loyalty, they must continually innovate to stay ahead of the competition. The
bargaining power of suppliers and buyers is low and high, respectively, and e-commerce companies
must balance these factors to maintain profitability. The threat of substitute products or services is
moderate, and e-commerce companies must remain aware of emerging trends and technology. Based
on the Five Forces Model analysis, there is a useful framework for understanding the competitive
dynamics of the e-commerce industry. While the industry has its challenges, e-commerce companies
have the potential to reach a global audience and provide convenient, accessible shopping experiences
for customers. By staying competitive and continuously innovating, e-commerce companies can
continue to grow and succeed in the years.

3. Comparative Advantages of E-commerce

3.1. Breaking the Barriers of Time and Space
Compared with the traditional physical business model, the most intuitive advantage of e-
commerce is that eliminates space and time constraints. Consumers do not need to go to a specific
location to purchase the goods or services they need but only need an electronic device, and
consumption can occur no matter where they are. In terms of time, consumers are no longer limited
by business hours. It can truly meet the consumption wishes of consumers all the time. In the process
of product selection, consumers do not need to spend a lot of time and energy going to different stores
to compare the information of different products. E-commerce provides them with clear and
transparent detailed information, including product raw materials, size information, sales volume,
evaluation, etc., you only need to click on the product page to get it. The consumption process that
used to take hours to complete now only takes tens of minutes to move your fingers.
3.2. Digital Operation
Another advantage of e-commerce that is clearly different from traditional trade lies in the
collection and analysis of information, including consumer preferences, commodity sales, commodity
trends, and so on. Based on the consumer's browsing footprint and purchase records, big data can
analyze his preferences and develop personalized pages. This makes each consumer a higher

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probability of finding the products they are interested in on the homepage. On the one hand, it saves
their selection time in the shopping process, and on the other hand, it can stimulate their willingness
to consume. For merchants, by analyzing and comparing the sales volume and evaluation of each
product in the store, as well as the sales information of similar products in the market, merchants can
more clearly understand their positioning in the market. Based on this, decisions such as increasing
or decreasing production, improving and upgrading, etc. are made for specific commodities in order
to increase sales and increase revenue. In addition, by collecting similar sales information in the entire
market in chronological order and combining relevant information, e-commerce platforms can predict
future trends to a certain extent through big data analysis and other means.
Chinese cross-border fast fashion e-commerce company SHEIN is an example of a good
application of digital information. First of all, SHEIN locates the target customer group as the young
female group who tends to buy cost-effective products with a certain sense of design, which is
conducive to opening up the sinking market and filling the vacancy of low-consumption groups in
the mainstream market. Secondly, different from the production and supply models of Zara and
Uniqlo, which are similar corporate brands, SHEIN adopts the "small order and quick response"
model. Control the number of orders for each type of clothing to 100-500, compress the supply chain
cycle to 7 days, and maintain the frequency of daily updates. By taking advantage of these advantages,
SHEIN can decide whether it is like a manufacturer through customer evaluation of additional orders
[8]. This measure can not only control the cost but also avoid the problem of warehousing and
squeezing goods. In addition, SHEIN has developed its own fashion trend prediction tool, so its
product lag rate is only 10%, which is far lower than other brands. This caters to the needs of
consumers to catch up with fashion trends and also conforms to its own "fast fashion" positioning.
3.3. Logistics Network
The gradual development and improvement of the logistics network make the advantages of e-
commerce more prominent. First, logistics has brought about a huge change in the return and
exchange link in traditional shopping. One warehouse can meet the delivery needs of all buyers,
saving time from the warehouse to the merchant and then to the consumer, and avoiding the
transportation cost of exchanging goods between warehouses in different regions. Most logistics
companies also provide door-to-door pick-up services, which means that consumers can complete the
process of selecting, placing orders, receiving, returning, and exchanging goods without leaving home,
which greatly saves time and energy.
Second, the construction of the logistics network has broken down geographical barriers and
promoted the improvement of purchasing power to a certain extent. From the perspective of
commodity supply, the logistics network undoubtedly builds a transaction bridge for merchants and
buyers around the world. Consumption behavior is no longer divided by region, and consumers can
purchase goods from anywhere in the world through e-commerce. Alibaba has specially set up a
section like Tmall Global that focuses on cross-border transactions of commodities. So far, more than
39,000 overseas brands from more than 90 countries and regions have settled in, covering more than
7,000 categories.
Third, the application of intelligent construction on the logistics network has brought obvious
advantages to the e-commerce industry. Taking the Cainiao logistics network as an example, resource
integration, intelligent warehousing, and intelligent delivery are three advantages that cannot be
ignored. In China, Cainiao has established partnerships with major e-commerce trading platforms and
logistics companies, and the information it collects covers merchants, logistics, and consumers. This
means that Cainiao can provide data support for the entire supply chain. Cainiao has opened overseas
warehouse services in France and Spain, effectively expanding and expanding overseas markets,
reducing the cost of smart logistics transportation and distribution, accelerating the efficiency of smart
logistics, and extending the chain of smart logistics services [9]. In terms of warehouse management,
Cainiao is gradually realizing automated management. The machine uses the barcode of the input
order information to complete the sorting and storage, which saves labor and provides a logistics

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information tracking function. In the transportation and distribution link, Cainiao has introduced
drones and terminal distribution robots to provide a feasible solution for transoceanic transportation
and the "last mile" problem [10].
3.4. Marketing Techniques
The transformation of people's entertainment methods makes e-commerce more options in
marketing. Whether it is Internet celebrity promotion or the live streaming that has emerged in recent
years, marketing is integrated into entertainment activities. Compared with traditional advertising,
consumers not only do not dislike the above methods but always enjoy them.
Xiaohongshu is an e-commerce app that originated from a sharing community. It not only has a
content output section but also has its own e-commerce transaction section. The success of
Xiaohongshu is precisely because it has captured the strong demand for exchange and sharing of the
shopping experience of the customer group, which is dominated by female consumers. It goes deep
into the purchasing process of consumers from the two directions of users' active retrieval of product
information and self-media promotion. On the one hand, merchants will choose suitable Internet
celebrities to cooperate with to promote their products from the perspective of the fan base, recent
popularity, and division. The advantage of this marketing method is a higher degree of precision,
which is based on the similar preferences of fans of Internet celebrities [11]. Moreover, facing their
favorite Internet celebrities, these users tend to have stronger stickiness and a stronger desire to buy.
On the other hand, in order to avoid the problem of being unable to choose a suitable product due to
false online shopping product information, many consumers are more willing to search for evaluation
and recommended content on Xiaohongshu before making a purchase.
Live streaming is an emerging marketing and trading method that combines real-time explanations
with online shopping. The whole process is often based on brand sales staff introducing product
selling points, displaying product details, and staff providing discount links. The short video platform
represented by TikTok, and the e-commerce platform represented by Taobao has become the main
platforms for live streaming. The Taobao platform is mainly broadcast live by brand sales staff, who
are more professional in answering consumers' questions and recommending products on demand.
The TikTok platform, on the other hand, is mainly broadcast live by Internet celebrities, attracting
consumers through singing, dancing, and provocative language, which is more entertaining and
appealing. The price advantage is the most prominent advantage of e-commerce live broadcasting,
because the product price is directly connected by the anchor and the manufacturer, and there is
usually a larger discount without middlemen to raise prices [12]. In addition, live broadcasts bring
goods to economically backward areas to open up sales for agricultural products.
3.5. Information Tracking
The trade process under the e-commerce mode is open and transparent, and merchants and
consumers can grasp each other's real-time information. For merchants, in the return and exchange
business, they can see the logistics information of the products sent back by consumers, so as to
ensure that merchants will not fall into a situation where both money and goods are empty. For
consumers, knowing the source of goods and other buyers' evaluations can help in the purchase
process. Information in the e-commerce transaction process will be automatically uploaded to the
cloud, which is of great significance in the after-sales service process. Effective certificates can
effectively avoid wrangling issues and also enable both parties to use legal means to protect their own
rights and interests when they have to [13]. Especially in the transaction process of big-name
commodities, an intermediate link is often inserted, and professional institutions provide certification
services during the transaction process to ensure the quality of commodities.

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4. Conclusion
In recent years, the global marketplace has witnessed a revolutionary change in the way consumers
shop and businesses sell their products and services. The vigorous development of e-commerce has
not only changed people's lives, but also has a non-negligible influence on the entire market.
Therefore, it makes sense to study it. Through the analysis of Porter's five forces model, e-commerce
has great potential due to its obvious advantages, but it also faces fierce competition due to lower
threshold and customer loyalty. In other words, for e-commerce, risks and opportunities coexist. In
this case, it is worthwhile for companies to enter this market, but only if it needs to ensure its own
competitive differentiation. In order to figure out the secret of differentiation, through the analysis of
several companies that have achieved results in the field of e-commerce, five comparative advantages
as examples for e-commerce companies, compared with traditional business models, are summarized,
including convenience, digital information, logistic network, marketing, and information tracking.
These successful advantages have their own irreplaceable special features, which enable the company
to improve differentiation in the highly competitive market, and finally have a relatively stable market
share. Overall, although e-commerce contains potential opportunities and is developing as a good
trend, it is very important for any company that wants to enter e-commerce to be clear about their
differentiation and make sure that what makes them special is what is needed by the market. In the
future, there may be new companies that discover new market pain points, seize opportunities,
develop their own differentiation, and ultimately succeed.

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