E-Commerce

Electronic commerce.
The exchange or buying and selling of commodities; esp. the exchange of merchandise, on a large scale, between different places or communities; extended trade or traffic. Most fundamentally, e-commerce represents the realization of digital, as opposed to paper-based, commercial transactions between businesses, between a business and its consumers, or between a government and its citizens or constituent business.

From Traditional Commerce to Ecommerce

Sailing ships Opened avenues for trade between buyers and sellers. Ancient times (thousands of years ago)

Printing press

Steam engine

Telephone

From Traditional Commerce to Ecommerce Cont d

) Electronic Funds Transfer (EFTs Wire transfers - used by banks.

Electronic Data Interchange (EDI)

Businesses transfer electronic data. - data not re-keyed. - high implementation cost, thus excluded small businesses.

Internet

On-line shopping.

Electronic Commerce Processes

Electronic fund transfer (EFT) Electronic data interchange (EDI) Internet commerce.

The 1st Wave of E-commerce

The 1st wave was from the mid 1990s to 2003. During the dot-com boom over $100 billion was invested and a rapid growth of e-commerce was seen (mid-1990s 2000). The dot-com bust occurred in 2000. This was followed by the gloom years, 2000 2003 (however, during this time over $200 billion was invested in e-commerce).

Characteristics of the 1st Wave

It was primarily a U.S. phenomenon.. Web pages were in English. Internet technologies were slow and inexpensive (e.g. dial-up lines). Bar codes and scanners used to track parts (B2B and Business processes). Email, tool for unstructured communication. On-line advertising main revenue source.

The 2nd Wave of E-commerce

Beginning in 2003 e-commerce showed new signs of life. Companies like Amazon.com (books), and eBay.com (auctions) who survived the downturn were beginning to show profits. Continuous growth of B2C sales: 20-30% each year since 2000.

Characteristics of the 2nd Wave

International scope - sellers do business in many countries and languages. Faster connections , broadband at home . Radio frequency ID devices and smart cards. Fingerprint readers and retina scanners used for tracking . Email is now an integral part of marketing. Some problems however include:
Language conversions Currency conversions

E-commerce Categories
There are five general e-commerce categories:
Business to Consumer (or B2C) e-commerce Business to Business (or B2B) e-commerce (sometimes called e-procurement) Business processes that support buying and selling activities Consumer-to-consumer (or C2C) e-commerce Business-to-government (or B2G) e-commerce

B2C e-commerce
Description
Businesses sell products or services to individual customers (consumers).

Example
Walmart.com sells merchandise to consumers through its Web site

Web site
www.walmart.com

B2B e-commerce
Description
Businesses sell products or services to other businesses.

Example
Grainger.com sells industrial supplies to large and small businesses through its Web site.

Web site
www.grainger.com

Business Processes that Support Buy/Sell Activities

Description
Businesses and other organisations maintain and use information to identify and evaluate customers, suppliers and employees . More and more of this information is being shared.

Example
Dell Computer uses secure internet connections to share current sales and forecasts information with suppliers who use it to plan their production.
As a result they deliver the right quantities of components at the right time

C2C e-commerce
Description
Participants in an online marketplace can buy and sell goods from each other.

Example
Consumers and businesses trade with each other on eBay.com

Web site
www.ebay.com

B2G e-commerce
Description
Business sell goods or services to governments and government agencies.

Example
Cal-Buy portal for businesses that want to sell online to the State of California.

Web site
www.pd.dgs.ca.gov/calbuy/default.htm

E-commerce Categories Example

You are a computer manufacturing company who performs the following activities on the Internet:
Sells computers to individuals (B2C) Purchases parts (e.g. hard drives, power supplies etc.) from a supplier (B2B) Hires staff, manage customer accounts, advertise, etc. (Business processes) Sells computers to the Government to be used in schools (B2G) On eBay.com individuals buy and sell this brand of computers (C2C)

Relative Sizes of E-commerce Categories

Business processes that support buy/sell activities

B2B e-commerce

B2C e-commerce

Establishing Trading Partner Relationship

Raw Material Producer Manufacturer

Supplier Intermediary

Retailer Distributor

Customer/ Consumer

Customer
Relationships between Participants/ Trading Partners

Economic Forces
Economics is the study of how people allocate scare resources. Resources are allocated through:
Commerce (markets) Government actions (e.g. taxes)

Markets
A market is a place where sellers can come into contact with buyers and a medium of exchange (e.g. currency) is available (e.g. the stock market). Some hierarchal organizations (companies) however, due to high transaction cost, choose to replace supplier markets with its own hierarchal structure for creating the product. This is called vertical integration.
E.g. Thomson Financial, a financial software provider, purchased the financial data supplier Datastream ICV

Transaction Costs
Transaction costs are the total costs that a buyer and seller incur as they gather information and negotiate a purchase/sale transaction Transaction costs are the main reason for vertical integration (Ronald Coase). Businesses can use e-commerce to reduce transaction costs (e.g. telecommuting rather than physical commuting to allow global employment opportunities).

Transaction Costs Example

Transaction costs incurred by a sweater dealer when purchasing from independent sweater knitters:
Cost of identifying independent knitters. Cost of site visit to negotiate purchase price, arrange delivery and inspection of sweaters. Costs incurred by knitters:
Knitting tools and yarn purchase

Network Economic Structures

Many businesses operate in an economic structure that is neither market or hierarchical. These businesses form, long-term, strategic alliances with other companies who share common goals and strategies. These alliances may occur over the Internet which are called virtual companies.
Teams complete a project or activity then dissolve New teams are creating as required

Value Chains
A value chain is a way to organize the activities that a business undertakes to design, produce, promote, market, deliver and support the products or services it sells. There are several types of value chains including:
Business unit value chains Industry value chains

Strategic Business Unit Value Chains

A strategic business unit is a particular combination of product, distribution channel and customer type (large firms often break down their business into these units). The value chain for a strategic business unit includes:
Primary activities (the activities that the strategic business unit undertakes). Support activities (such as human resource management and purchasing)

Manufacturer Value Chain

Primary activities Design Manufacture product or create service deliver After sales service & support

Identify customers

Market & sell

Purchase materials and supplies

Finance & admin

HR

Technology development

Support activities

Industry Value Chain Example

A value chain for a wooden chair:
Logger cuts down tree. Sawmill converts logs to lumber. Lumberyard provides selection of lumber. Chair manufacture assembles chair. Furniture retailer markets and sells chair. Consumer purchases and uses chair. Landfill or recycler disposes of chair.

SWOT Analysis
SWOT analysis is used to analyse and evaluate business opportunities SWOT is an acronym for:
Strengths Weaknesses Opportunities Threats

SWOT Analysis Cont d

Questions asked during SWOT analysis: Strengths
What does the company do well? Is the company strong in its market? Does the company have a strong sense of purpose and the culture to support it?

Weaknesses:
What does the company do poorly? What problems could be avoided? Does the company have serious financial liabilities?

SWOT Analysis Cont d

Opportunities:
Are industry trends moving upwards? Do new markets exist for the company s products/services? Are there new technologies that the company can exploit?

Threats:
What are the competitors doing well? What obstacles does the company face? Are there troubling changes in the company s business environment (technologies, law and regulations)?

International Issues
Trust issues Language issues Culture issues Infrastructure issues

Trust Issues
Anyone can create a website These individuals or businesses can easily remain anonymous. Without an established brand, consumers find it difficult to trusts on-line businesses:
especially with personal information and credit card numbers.

The key is to develop methods which would allow legitimate businesses to establish trust relationships quickly with consumers .

Language Issues
Global impact requires local language Web sites
customers prefer to buy from sites in native language.

60% of web content today is in English; but more than 50% of the current users do not read English. Multiple translations may be required for different dialects, e.g. Spanish- Mexico and Spain.

Culture Issues
Culture is the combination of language and customs. Culture varies across national boundaries and in many cases regions within nations. Example:
General Motors Chevrolet Nova automobile amused people in Latin America since no va means it will not go .

Culture Issues Cont d

In France any advertisement for a product or service must in in French by law.
This means that French companies must provide websites in at least two languages if they want to sell goods outside of France.

In some cases unrestricted access to the Internet is not permitted, for example in the Middle East and North Africa.

Infrastructure Issues
Limited telecommunication infrastructure may lead to unreliable Internet access. Internet connection cost might be high.
Reduces time businesses might spend surfing for new suppliers or products. Flat-rate access to the Internet is required.

These are major issue in developing countries, including Barbados

What are the Advantages of Ecommerce?

Increases sales, decreases cost
Allows small businesses to have global customer base Reduced cost through electronic sales enquires, price quotes and order taking.

Provides purchasing opportunities for buyers (businesses can identify new suppliers and partners). Increases the speed and accuracy of exchanged information, thus reduces cost

Advantages of E-commerce Cont d

Business can be transacted 24 hours a day. The level of detail of purchase information is selected by user. Digital products can be delivered instantly. Tax refunds, public retirement and welfare support costs less when distributed over the Internet. Allows products and services to be available in remote areas, e.g. remote learning.

What are the Disadvantages of Ecommerce?

Inability to sell certain products (e.g. high cost jewelry and perishable foods; although supermarkets such as www.Tesco.com deliver perishable food items to your home). The newness and evolution of the current technology. Many products require large sales volumes in order to be viable.
This is a challenge for small island economies; in the Caribbean the CARICOM Single Market and Economy (CSME) might provide opportunities since it comprises some 14 million people (if Haiti is included only 6 million if it is not)

Disadvantages of E-commerce Cont d

A large capital investment is required to startup and run ecommerce initiative. Difficulty in integrating current databases and transaction processing systems (legacy systems) into e-commerce solutions. Cultural and legal obstacles.
Transmission of credit card information. Some consumers resistance to change. E-commerce legislation is not well developed and is often unclear.

Shipping profile
Products with a low value-to-weight ratio that can not be efficiently packed and shipped are unsuitable for e-commerce (use traditional commerce).

Prepared By: RAHUL PILLAI