INTRODUCTION TO
ELECTRONIC COMMERCE
Objectives:
– What electronic commerce is and how it is experiencing a second wave of growth with a new focus on profitability?
– Why companies now concentrate on revenue models and the analysis of business processes instead of business models when they undertake electronic commerce initiatives?
-How economic forces have created a business environment that is fostering the second wave of electronic commerce?
– How businesses use value chains and SWOT analysis to identify electronic commerce opportunities?
– The international nature of electronic commerce and the challenges that arise in engaging in electronic commerce on a global scale?
Electronic Commerce: The Second Wave
*Electronic commerce (e-commerce)
– Businesses trading with other businesses/individuals and their internal processes
*Electronic business (e-business)
– Term used interchangeably with e-commerce
– The transformation of key business processes through the use of Internet technologies
Categories of Electronic Commerce
Five general e-commerce categories:
1. Business-to-consumer
2. Business-to-business
3. Business processes
4. Consumer-to-consumer
5. Business-to-government
*Supply management or procurement
– Departments are devoted to negotiating purchase transactions with suppliers
*Transaction
– An exchange of value
*Business processes
– The group of logical, related, and sequential activities and transactions in which businesses engage
*Telecommuting or telework
– Employees log in to company computers through the Internet instead of traveling to the office
Elements of Electronic Commerce
Electronic Commerce Categories
The Development & Growth of Electronic Commerce
*Electronic funds transfers (EFTs)
– Also called wire transfers
– Electronic transmissions of account exchange information over private communications networks
*Electronic data interchange (EDI)
– Transmitting computer-readable data in a standard format to another business
*Trading partners
– Businesses that engage in EDI with each other
*Value-added network (VAN)
– Independent firm that offers connection and transaction-forwarding services to buyers and sellers engaged in EDI
Actual & Estimated Online Sales in B2C & B2B Categories
The Second Wave of Electronic Commerce
Defining characteristics of the first wave:
– Dominant influence of U.S. businesses
– Extensive use of the English language
– Many new companies started with outside investor money
– Unstructured use of e-mail
– Over-reliance on advertising as a revenue source
Second wave:
– Global enterprises in many countries are participating in electronic commerce
– Established companies fund electronic commerce initiatives with their own capital
– Customized e-mail strategies are now integral to customer contact
Key Characteristics of The First Two Waves of Electronic Commerce
Business Models, Revenue Models, & Business Processes
*Business model
– A set of processes that combine to yield a profit
*Revenue model
– A specific collection of business processes used to identify customers, market to those customers, & generate sales to those customers
Role of Merchandising
*Merchandising
– Combination of store design, layout, and product display knowledge
Product / Process Suitability to Electronic Commerce
*Commodity item
– A product or service that is hard to distinguish from the same products or services provided by other sellers
– Features have become standardized and well known
*Shipping profile
– Collection of attributes that affect how easily a product can be packaged and delivered
*High value-to-weight ratio
– Can make overall shipping cost a small fraction of the selling price
Advantages of Electronic Commerce
– Electronic commerce can increase sales and decrease costs
– If advertising is done well on the Web, it can get a firm’s promotional message out to potential customers in every country
– Using e-commerce sales support and ordertaking processes, a business can reduce costs of handling sales inquiries, & provide price quotes
– It increases purchasing opportunities for buyers
– Negotiating price and delivery terms is easier
The following cost less to issue and arrive securely and quickly:
– Electronic payments of tax refunds
– Public retirement
– Welfare support
Disadvantages of Electronic Commerce
– Perishable grocery products are much harder to sell online
– It is difficult to calculate return on investment, & integrate existing databases and transaction-processing software into software that enables e-commerce
– Cultural and legal obstacles also exist
Economic Forces & Electronic Commerce
*Economics
– Study of how people allocate scarce resources
Two conditions of a market:
– Potential sellers of a good come into contact with potential buyers
– A medium of exchange is available
Transaction Costs
*Transaction costs
– Are the total costs that a buyer and seller incur
Significant components of transaction costs:
– Cost of information search and acquisition
– Investment of the seller in equipment or in the hiring of skilled employees to supply products or services to the buyer
Using Electronic Commerce to Reduce Transaction Costs
Businesses and individuals can use electronic commerce to reduce transaction costs by:
– Improving the flow of information
– Increasing coordination of actions
Network Economic Structures
*Network economic structures
– Neither a market nor a hierarchy
– Companies coordinate their strategies, resources, and skill sets by forming longterm, stable relationships with other companies and individuals based on shared purposes
*Strategic alliances (strategic partnerships)
– Relationships created within the network economic structure
*Virtual companies
– Strategic alliances that occur between or among companies operating on the Internet
*Strategic partners
– Entities that come together as a team for a specific project or activity
Network Effects
*Law of diminishing returns
– Most activities yield less value as the amount of consumption increases
*Network effect
– As more people or organizations participate in a network, the value of the network to each participant increases
Strategic Business Unit Value Chains
*Value chain
– A way of organizing the activities that each strategic business unit undertakes
Primary activities include:
– Designing
– Producing
– Promoting
– Marketing
– Delivering
– Supporting the products or services it sells
*Supporting activities include human resource management and purchasing
Value Chain for a Strategic Business Unit
Industry Value Chains
*Value system
– Larger stream of activities into which a particular business unit’s value chain is embedded
– Also referred to as industry value chain
Industry Value Chain for a Wooden Chair
SWOT Analysis: Evaluating Business Unit Opportunities
*SWOT analysis
– An analyst first looks into the business unit to identify its strengths and weaknesses
– The analyst then reviews the operating environment and identifies opportunities and threats
SWOT Analysis Questions
International Nature of Electronic Commerce
Companies with established reputations:
– Often create trust by ensuring that customers know who they are
– Can rely on their established brand names to create trust on the Web
*Customers’ inherent lack of trust in “strangers” on the Web is logical and to be expected
Culture Issues
*An important element of business trust is anticipating how the other party to a transaction will act in specific circumstances
*Culture
– Combination of language and customs
– Varies across national boundaries
– Varies across regions within nations
Infrastructure Issues
Internet infrastructure includes:
– Computers and software connected to the Internet
– Communications networks over which message packets travel
*Organization for Economic Cooperation and Development’s (OECD) Statements on Information and Communications Policy
– Deals with telecommunications infrastructure development issues
*Flat-rate access system
– Consumer or business pays one monthly fee for unlimited telephone line usage
– Contributed to rapid rise of U.S. electronic commerce
*Targets for technological solutions include paperwork and processes that accompany international transactions
Parties Involed in a Typical International Trade Transaction
E-COMMERCE 