Multinational E-Commerce: Strategies and Structures

1. 10 Multinational E-Commerce: Strategies and Structures

2. Learning Objectives (1 of 2) • Define the forms of e-commerce. • Understand the structure of the Internet economy. • Identify the basic components of a successful e-commerce strategy. • Know the basic multinational e-commerce business models.

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

4. The Internet Economy • Although small in comparison to the traditional economy, the Internet economy is: • Growing faster than any other business trend in history; a worldwide phenomenon • Drastically changing how international business is done • The Internet allows any company to create a virtual and global presence to conduct operations worldwide.

5. The Internet Economy • Many of the issues involved in business over the Web are similar to those faced by traditional MNCs. • The next generation of Multinational managers must address unique challenges in formulating and implementing multinational strategies for the Internet economy.

6. What Is E-Commerce? (1 of 2) • E-Commerce is the selling of goods or services over the internet, and includes those delivered online (downloaded software) and offline (delivery by UPS). • Types of transactions: • B2C: Business-to-Consumer transactions • Example: buying toys from eToys. • B2B: Business-to-Business transactions • 75-80% of transactions

7. What is E-Commerce? (2 of 2) • Types of transactions: (cont’d) • C2C: Consumer-to-Consumer transactions • Anyone selling online • eBay facilitates C2C transactions • C2B: Consumer-to-Business transactions • Example: price comparison websites .

8. Exhibit 10.1: E-Commerce Value Chain

9. Measuring 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 • The extent of e-commerce is difficult to measure. • One method is to estimate its contribution to a country’s GDP.

10. Exhibit 10.2: Internet Economy as a Percentage of GDP for Selected Countries

11. Exhibit 10.3: Percentage of Households with Internet Access

12. Fundamentals of E-Commerce Strategy & Structure • E-commerce is evolving quickly. • Failures of many start-ups show it’s not without risks. • Each layer of the Internet economy has its threats and opportunities.

13. Exhibit 10.4: E-Commerce Business Models: Openings and Barriers for Going Global

14. Steps for a Successful E-Commerce Strategy • Experts suggest seven fundamental requirements: • 1. Leadership • Successful e-commerce is only possible through dynamic and strong leadership. • 2. 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.

15. Steps for Successful E-Commerce Strategy (cont.) • Experts suggest seven fundamental requirements: (cont’d) • 3. Meet the challenge of developing an e-commerce organization. • The entire firm (not only top management) must be prepared to embrace the e-commerce model. • 4. Allocate resources to the e-commerce business. • Commit financial, human, and technological resources to develop e-commerce capabilities.

16. Steps for Successful E-Commerce Strategy (cont.) • Experts suggest seven fundamental requirements: (cont’d) • 5. Have an e-commerce strategy. • Use strategic management to implement a strong and adequate strategic e-commerce plan. • 6. Develop appropriate e-commerce systems. • Remove traditional barriers to ensure increased coordination and information flows among the various functional areas.

17. Steps for Successful E-Commerce Strategy (cont.) • Experts suggest seven fundamental requirements: (cont’d) • 7. Measure success. • Have metrics in place to measure e-commerce success. Obvious output success measures include website hits, number of new e-commerce customers, e-commerce revenue and number of customers learning about new products to purchase through other channels.

18. E-Commerce Structure: Integrated or Autonomous (1 of 4) • The company needs to decide how e-commerce fits into its existing design. • Right mixture of “bricks” and “clicks” • How much to integrate the Internet into traditional business • Brick-and-mortar : traditional, non-virtual business operations

19. E-Commerce Structure: Integrated or Autonomous (2 of 4) • The degree of interaction between brick-and-mortar operations can occur anywhere in the value chain. • It can range from near seamless operations of an Office Depot to the mostly independent operations of Barnes & Noble and Barnesandnoble.com. • Each choice has its benefits.

20. E-Commerce Structure: Integrated or Autonomous (3 of 4) • The independent benefits: • Faster and more entrepreneurial • Freed from corporate bureaucracy • The integrated benefits: • Cross-promotion, shared information, increased quantity purchases, same distribution channels • The choice is seldom clear-cut. • The best option for most firms lies somewhere in between.

21. E-Commerce Structure: Integrated or Autonomous (4 of 4) • Additional steps to integrate online and offline operations: • Keep customers informed. • Retailers find it impossible to maintain the same pricing and inventory on websites and in stores. Customers can be frustrated, and appreciate being informed. • Share customer data across channels. • Example: Retailers can send tailored product emails based on store purchases.

22. Exhibit 10.5: Key Decisions in Web Business Integration

23. 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

24. A Pure E-Business Company Can Meet Its 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

25. A Traditional Firm with E-Commerce Can Meet Its Challenges • Build a common vision and commitment to e-commerce throughout the organization. • Change the organizational structure for quick reconfiguration of assets and capabilities • Change the organizational culture to create a supporting environment for e-commerce. • Attract and retain e-commerce-skilled employees. • Alter HR programs to suit the different skill requirements of e-commerce employees.

26. Exhibit 10.6: Organizational Changes in Major Multinational Companies Building E-Commerce Businesses

27. E-Commerce Security (1 of 3) • E-Commerce Security: the degree to which customers feel that their private, personal information can be safeguarded in the hands of online companies collecting such information • Cybercriminals are becoming increasingly sophisticated.

28. E-Commerce Security (2 of 3) • Multinationals must protect their Internet security: • Confidentiality: protecting private information • Availability: ensuring 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

29. E-Commerce Security (3 of 3) • Companies are also under increased pressure to protect the privacy of individuals. • Experts suggest the use of: • Firewalls and antivirus protection software • Data encryption and several levels of authentication for users • Abiding by privacy rules to address Internet security issues

30. Globalizing Through the Internet • The Internet is enabling the emergence of a new form of multinational, the born-global firm. • Born-global firms are able to obtain a significant portion of their revenues from sales in international markets. • Though a website gives the world access to firm’s goods and services, the internationalization challenges faced by traditional MNCs remain. The firm must still solve the global – local dilemma, and deal with national culture and institutional contexts.

31. Multinational E-Commerce Strategy Formulation: The Nature of the Business • What kind of e-business is easiest to take global? • It depends on the types of products or services offered through e-commerce • E-commerce companies work in 3 areas, and require 3 types of infrastructure: • Telecommunications infrastructure to move information • Payment infrastructure to move money • Physical infrastructure to deliver products • Most difficult are e-commerce businesses that require a physical infrastructure.

32. Basic Opportunities & Threats of Multinational E-Commerce (1 of 3) • The major attractions of e-commerce are: • Cost reduction: It’s less expensive to reach international customers. • Technology: The technology to reach customers is readily available. • Efficiencies: Electronic communication can be very efficient. • Convenience: The Web is in operation 24/7. • Speed of Access: Once a website is running, the firm’s products can be accessed immediately from anywhere in the world.

33. Basic Opportunities & Threats of Multinational E-Commerce (2 of 3) • The major deterrents to e-commerce include: • The return/receipt burden & cost of delivery: Businesses should expect a 30-40% return rate for online purchases. • Costs of site construction, maintenance, upgrades: Website creation in multiple languages, currencies and tax locations is expensive. • Channel conflicts: Distributors and retailers of a firm’s products may be in competition with the firm itself. • Easily copied models: Competitors can see and copy the firm’s website.

34. Basic Opportunities & Threats of Multinational E-Commerce (3 of 3) • The major deterrents to e-commerce include (cont’d) • Cultural Differences: Understanding global customers and overcoming cultural barriers can be difficult on the Web. • Traditional cross-border transaction complexities: Issues include pricing for exchange rates, varying taxes, and government regulations. • Standard or local websites: Companies must decide whether to standardize websites or tailor them to local contexts. • Customer trust and satisfaction: Companies must determine whether customers abroad will trust and be satisfied.

35. Picking a Market (1 of 2) • Target countries based on two factors: • Countries with market inefficiencies • E.g., formerly state-controlled economies • Countries with attractive demographic characteristics • An Internet population of at least 5% • A high literacy rate • Participation in at least one free trade agreement • A government with a viable legal system

36. Picking a Market (2 of 2) • E-commerce potential may be substantial in Latin America because of the Mercosur trade group. • Potential exists for Southeast Asian countries with membership in ASEAN. • The open borders and common currency of European Union is also fertile ground for e-commerce growth. • Not all countries are equally e-commerce ready.

37. Exhibit 10.8: E-Readiness of Selected Countries

38. Multinational E-Commerce Strategy Implementation • Successful implementation of a multinational e-commerce strategy requires building an appropriate organization and developing the necessary technical capabilities to conduct electronic transactions. • The following provides an overview of the options available to multinational managers.

39. The Multinational E-Commerce Organization • How is a multinational e-business organized? Consider Amazon.com and Yahoo!. Each has a 3-tiered mix of global & local functions: • 1. Corporate headquarters: The global core provides vision, strategy, & leadership for worldwide electronic marketing. • 2. HQ also provides shared services such as network infrastructure. • 3. Local subsidiaries which deliver the goods, take charge of functions better done locally.

40. Exhibit 10.8: Organizational Structures of the Multinational E-Corporation

41. Technical Capabilities & Implementation Options for Multinational E-commerce (1 of 2) • Required technical capabilities are: • Software to process pricing in multiple currencies • Systems to calculate & show purchase information on international shipping, duties, and local taxes • Systems that check compliance with local and international laws • The ability to give support in multilingual service centers • Fraud protection • Electronic payment models in addition to credit cards

42. Technical Capabilities & Implementation Options for Multinational E-commerce (2 of 2) • Also, local realities require implementation decisions. • Many areas of the world do not process data the same way. In some countries, last names may come first. • Similarly, not all countries use credit and debit cards.

43. Web Sites: Localize or Standardize? • A Standardized Web Site: A company’s web sites are fairly similar in layout and design around the world. • Example: Dell Computer • A Localized Web Site: A company’s websites around the world are adapted to the local culture in terms of values, appeals, symbols, and even themes in the communication content. • Example: Chipshot.com

44. Exhibit 10.9: Major Problems Identified in Web Site Globalization

45. To Build or Outsource Technical Capabilities? • Two options for a firm’s technical capabilities: • Run all e-commerce functions internally, or • outsource to e-commerce enablers • E-commerce Enablers: fulfillment specialists that provide services such as Web site translation, and calculate shipping, value-added taxes, duties, and other charges unique to each country. • Some MNCs are taking advantage of User-Generated Content (UGC).

46. Summary • Internet and e-commerce are becoming an increasingly important component of any multinational’s strategy. • Chapter 10 introduced the basic concepts of e-commerce, and compared traditional and e-commerce companies. • Many of the same challenges are faced by both. • Future trends include the use of User Generated Content (UGC) by multinationals to their advantage