Multinational E-Commerce: Strategies and Structures

1. 10 Multinational E-Commerce: Strategies and Structures

2. Learning Objectives • Define the forms of e-commerce • Appreciate the growing presence of e-commerce in the global economy • Understand the structure of the Internet economy • Identify the basic components of successful e-commerce strategy

3. Learning Objectives • Know the basic multinational e-commerce business models • Identify the practicalities of running a multinational e-commerce business • Understand the function of enablers in multinational e-commerce operations

4. The Internet Economy • Internet Economy • Growing faster than any other business trend in history • Companies face issues similar to those faced by traditional multinational companies

5. What Is E-Commerce? • Refers to the selling of goods or services over the Internet • Includes goods or services delivered offline - E.g., Amazon.com shipping book via UPS • Also includes goods and services delivered online - E.g., downloaded computer software

6. Types of E-Commerce Transactions • B2C: business-to-consumer transactions - Buying toys from eToys • B2B: business-to-business transactions - Makes up 70 to 85% of current e-commerce business • C2C: consumer-to consumer transactions - Anyone selling online • C2B: consumer-to-business transactions

7. Exhibit 10.1: E-Commerce Value Chain

8. The Internet Economy • Two indicators of the global presence of e-commerce - Secure server: an Internet host that allows users to send and receive encrypted data - Internet hosts: computers connected to the Internet with their own IP addresses • OECD dominate the Internet with over 90% of Internet hosts

9. Exhibit 10.2: Secure Servers and Internet Hosts in Selected OECD Countries

10. The Internet Economy • In 1991, 3 million people used the Internet and almost none used it for e-commerce. • The growth in the use of the Internet or the World Wide Web for e-commerce is so dramatic that its impact is difficult to estimate • Some say that the Internet will have more impact on the world than the industrial revolution • Offers tremendous opportunities for multinationals

11. Exhibit 10.3: Percentage of Households with Internet Access

12. Exhibit 10.4: The Number of Broadband Subscribers over Time for a Number of Selected Countries

13. The Internet Economy • Internet economy has four layers • The infrastructure • The applications infrastructure • The Internet intermediaries • The Internet commerce layer

14. Layer 1 • The Internet infrastructure is the backbone of the Internet, including the Internet service providers (ISPs), e.g., - Communications (Qwest, MCI, WorldCom) - Internet service providers (Mindspring, AOL, Earthlink) - Networking (Cisco, Lucent, 3Com) - Hardware (Dell, Compaq, HP)

15. Layer 2 • The applications infrastructure - Companies and consultants that build web systems and supporting software • Consultants (Scient) • Commerce applications (Netscape, Sun, IBM) • Web development software (Adobe, NetObjects) • Search engine software (Verity) • Web-enable databases (Oracle)

16. Layer 3 • The internet intermediaries - Companies that provides linking services on the Internet and derive revenues from commissions, advertising, and membership fees • Online travel agencies (Travelweb, Travelocity.com) • Online brokerages (E*TRADE) • Content aggregators (CNET, ZDNet) • Online advertising (Yahoo!)

17. Layer 4 • The Internet commerce layer - Companies that conduct commercial transactions on the Web • E-retailers (wine.com, diamond.com) • Manufacturers selling directly (hpshopping.com, Dell) • Subscription-based companies (VRBO.com) • Transportation services (most airlines) • Shipping services (FedEx, UPS)

18. Fundamentals of E-Commerce • E-commerce is evolving quickly. • Failures of many start-ups show it’s not without risks. • E-commerce presents significant opportunities and threats.

19. Exhibit 10.5: E-Commerce Business Models

20. Steps for Successful E-Commerce Strategy • Leadership - Successful e-commerce is only possible through dynamic and strong leadership. • Build on current business models and experiment with new e-commerce models - Use e-commerce to search for ways to reduce costs or enhance the business.

21. Steps for Successful E-Commerce Strategy (cont.) • Meet the challenge of developing an e-commerce organization - Entire firm (not only top management) must be prepared to embrace the e-commerce model. • Allocate resources to the e-commerce business - Commit financial, human, and technological resources to develop e-commerce capabilities

22. Steps for Successful E-Commerce Strategy (cont.) • Build a superior e-commerce infrastructure as a basis of a differentiation strategy - Provide superior online experiences • Have an e-commerce strategy - Use strategic management to implement a strong and adequate strategic e-commerce plan

23. Steps for Successful E-Commerce Strategy (cont.) • Develop appropriate e-commerce systems - Work hard to remove traditional barriers to ensure that there are increased coordination and information flows among the various functional areas • Measure success - Have metrics in place to measure e-commerce success

24. Exhibit 10.6: Summary of E-Commerce “don’ts” based on Best Practices

25. E-Commerce Structure: Integrated or Autonomous • Company needs to decide how e-commerce fits into existing design • Right mixture of bricks and clicks - How much to integrate Internet into traditional businesses • Brick-and-mortar: traditional or non-virtual business operation

26. E-Commerce Structure: Integrated or Autonomous • Degree of interaction between brick-and-mortar operations can occur anywhere in the value chain • Can range from near seamless operations (e.g., Office Depot) to the mostly independent operations (e.g., Barnes & Noble and Barnesandnoble.com)

27. E-Commerce Structure: Integrated or Autonomous • The independent benefits - Faster and more entrepreneurial - Freed from corporate bureaucracy • The integrated benefits - Cross-promotion, shared information, increased quantity purchases, use of same distribution channels

28. Exhibit 10.7: Key Decisions in the Integration vs. Separation Decision

29. E-Commerce Structure: Integrated or Autonomous • Ways companies can integrate their online and offline operations - Keep customers informed - Integrate business operations - Share customer data across channels

30. Additional Operational Challenges for an E-Commerce Business • Finding partnerships and alliances with customers or third parties • Attracting, retaining, and developing employees in the e-commerce unit • Inadequate e-commerce training • E-commerce employee retention • Deciding what e-commerce functions to outsource

31. Pure E-business Company Tasks to Face Challenges • Develop information and management systems to respond to growth • Maintain rapid decision making, creativity, innovation, and flexibility • Build relationships with e-commerce support companies and customers • Attract and retain e-commerce–capable talent • Develop an effective management team

32. Tasks for Traditional Companies with E-Commerce • Build a common vision and commitment to e-commerce • Change the organization structure for quick reconfiguration of assets and capabilities • Change the organization culture to support e-commerce • Attract and retain e-commerce-skilled employees • Alter HR programs to suit skill requirements of e-commerce employees

33. Exhibit 10.8: Organizational Changes in Major Multinational Co. Building E-Commerce

34. E-Commerce Security • E-Commerce security: refers to the degree to which customers feel that their private, personal information can be safeguarded in the hands of online companies collecting such information

35. E-Commerce Security • Companies need to be concerned about a number of information security issues such as - Confidentiality: making sure that private information is protected - Availability: ensuring that information is accessible to authorized users - Integrity: ensuring that the information collected is accurate and reliable - Authentication: having systems in place to ensure that persons using the systems are legitimate

36. E-Commerce Security • To ensure that these Internet security issues are addressed, experts suggest the following - Use firewalls, intrusion detection software, and antivirus shields - Encrypt data - Require two-phased authentication - Use web site monitoring tools - Abide by privacy rules

37. Globalizing Through the Internet • Internet is enabling the emergence of a new form of multinational, the born-global firms • Born-global firms are able to obtain a significant portion of their revenues from sales in international markets • Born-global firms tend to adopt a global view of markets and develop competitive advantages to succeed in the various markets

38. Globalizing Through the Internet • A Web site gives the company immediate global access - The challenges of globalization faced by traditional brick-and-mortar companies remain • Managers must still decide whether they want to sell global or local product • Business issues related to national contexts (e.g., currencies, local laws, etc.) have to be handled

39. Multinational E-Commerce Strategy Formulation • Depends on - Nature of the business - Types of products or services offered through e-commerce • Hierarchy of difficulty depending on infrastructure requirements - Telecommunications infrastructure to move information - Payment infrastructure to move money - Physical infrastructure to deliver products

40. Attractions of E-Commerce • Cost reduction - Less expensive to reach international customers • Technology - Already available • Efficiencies - More efficient

41. Attractions of E-commerce(cont.) • Convenience - Web is operating all the time regardless of location • Speed of access - Company’s products or services can be accessed immediately from anywhere in the world

42. E-Commerce Deterrents/Challenges • Return/receipt burden and cost of delivery - Expect 30-40% return rate • Costs of site construction, maintenance, upgrades • Channel conflicts • Easily copied models - Competitors can easily see and copy business model

43. E-Commerce Deterrents • Cultural differences - Web sites must be appropriate culturally • Traditional cross-border complexities remain - Exchange rates, different taxes, and government regulations • Standard or local web sites • Customer trust and satisfaction

44. Picking a Market • Two factors to target countries - Market inefficiencies • E.g., formerly state-controlled economies - Attractive demographic characteristics • Internet population of at least 5% • High literacy rate • Participation in at least on free trade agreements • Government with viable legal system

45. Picking a Market (cont.) • E-commerce potential is substantial in Latin America because of MERCOSUR • Potential exists for Asian countries with membership in ASEAN • Open borders and common currency of European Union is also fertile ground

46. Exhibit 10.9: E-Readiness of Selected Countries

47. Multinational E-Commerce Strategy Implementation • Requires building an appropriate organization and developing the necessary technical capabilities to conduct electronic transactions

48. The Multinational E-Commerce Organization • Three-tiered mixing of global and local functions • Headquarters - Vision, strategy, leadership for worldwide electronic marketing - Also provide shared services such as network infrastructure

49. The Multinational E-Commerce Organization (cont.) • Shared functional services - Provide HRM, marketing, partner management to regions • Local subsidiaries - Deliver goods, manage functions better done locally such as the supply chain

50. Exhibit 10.10: Organizational Structures of the Multinational E-Corporation