Electronic Commerce

1. Electronic Commerce Session 1: An Introduction to Electronic Commerce

2. Session Objectives • To provide an introduction to electronic commerce (e-commerce) by answering the following questions: • What is e-commerce? • What are the advantages and disadvantages of e-commerce • What were the 1st and 2nd waves of e-commerce characterised by? • What are the categories of e-commerce?

3. Session Objectives Cont’d • To discuss concepts such as: • Markets • Value chains • Transaction cost • To evaluate international electronic commerce issues

4. What is Commerce? • Traditional commerce may be defined as: • From Webster's Revised Unabridged Dictionary • Commerce : \Com"merce\, noun. 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.

5. What is E-Commerce? Electronic commerce (e-commerce) is a general term for any type of business, or commercial transaction that involves the transfer of information across the Internet. This covers a range of different types of businesses from consumer-based retail sites, like Amazon.com, through auction and music sites like eBay or MP3.com, to business exchanges trading goods or services between corporations.

6. What is E-Commerce Cont’d? Electronic commerce is the use of electronic communication to do business. E-commerce is not about technology. It is not a new business. E-commerce is a method for companies to create and operate their business in new and efficient ways. [1]

7. What is E-Commerce Cont’d? 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. [2]

8. What isE-Commerce Cont’d? • In summary, e-commerce is the • use of electronic communication to do business • Specifically, the transfer of information (transactions), over the Internet • Some people use the term e-business to refer to all the categories of e-commerce • E.g. IBM defines e-business as: • The transformation of key business processes through the use of Internet technologies

9. From Traditional Commerce to E-commerce Sailing ships Opened avenues for trade between buyers and sellers. Ancient times (thousands of years ago) Printing press Steam engine Telephone

10. From Traditional Commerce to E-commerce Cont’d Electronic Funds Transfer (EFTs) Wire transfers - used by banks Businesses transfer electronic data- data not re-keyed- high implementation cost, thus excluded small businesses Electronic Data Interchange (EDI) Internet On-line shopping

11. Business Processes Suited to Certain Type of Commerce • E-commerce • Sale/purchase of books & CDs, travel services, investments and insurance services • Online delivery of software • Online shipment tracking

12. Business Processes Suited to Certain Type of Commerce Cont’d • E-commerce & Traditional • Sale/purchase of automobiles and residential real estate (e.g. do research online then buy from a dealer or real estate agent) • Online banking • Roommate matching service

13. Business Processes Suited to Certain Type of Commerce Cont’d • Traditional • Sale/purchase of impulse items for immediate use, high fashion jewelry and antiques (personal inspection required; prefer to touch, smell or examine closely) • Small denomination purchases and sales (since there is not yet a standard for transferring small amounts of money)

14. What Are the Advantages of E-commerce? • 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) • Increase speed and accuracy for exchanged information, thus reducing cost

15. What Are the Advantages of E-commerce Cont’d? • Business can be transacted 24hrs 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

16. What Are the Disadvantages of E-commerce? • Inability to sell some products (e.g. high cost jewelry and perishable foods, although supermarkets like www.Tesco.com delivers to your home) • The newness and evolution of the current technology • Many products require a large number of people to purchase to be viable • High capital investment

17. What Are the Disadvantages of E-commerce Cont’d? • Difficulty in integrating current databases and transaction processing systems into e-commerce solutions • Cultural and legal obstacles • Transmission of credit card details • Some consumers resistant to change • Laws are unclear • Shipping profile: Products with a low value-to-weight ratio that can not be efficiently packed and shipped are unsuitable (use traditional commerce)

18. The 1st Wave of E-commerce • The 1st wave was from the mid 1990s to 2003 • Dot-com boom (over $100 billion in investment): Rapid growth from mid-1990s to 2000 • Dot-com bust: in 2000 • Gloom years: 2000 –2003 (over $200 billion in investment)

19. Characteristics of the 1st Wave3 • 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

20. The 2nd Wave of E-commerce • Beginning in 2003 e-commerce has shown signs of new 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

21. Characteristics of the 2nd Wave • International scope where sellers do business in many countries and languages • Faster, cheaper connections (x20 faster), broadband at home (although more expensive) • Radio frequency ID devices and smart cards • Fingerprint readers and retina scanners (biometric technologies) used for tracking • Email, integral part of marketing

22. Characteristics of the 2nd Wave Cont’d • E-commerce integral part of marketing and customer contact strategy • Some categories of on-line advertising, e.g. employment services (job want ads) have replaced traditional advertising outlets • Problems • Language conversions • Currency conversions

23. E-commerce Categories3 • 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

24. 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

25. 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

26. Business Processes that Support Buy/Sell Activities • Description • Businesses and other organisations maintain and use information to identify and evaluate customers, suppliers and employees (and to support buying, selling hiring, planning and other activities). More and more this information is being shared • Example • Dell Computer uses secure internet connections to share current sales and forecasts with suppliers who use it to plan their production, therefore they deliver the right quantities of components at the right time

27. C2C e-commerce • Description • Participants in an online marketplace can buy and sell goods with each other • Example • Consumers and businesses trade with each other on eBay.com • Web site • www.ebay.com

28. 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

29. 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)

30. Relative Sizes of E-commerce Categories Business processes B2B B2C

31. Relative Sizes of E-commerce Categories Cont’d

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

33. 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 organisations (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 data supplier Datastream

34. Hierarchical Organisations (Firms)

35. 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)

36. 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

37. 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

38. Value Chains • A value chain is a way to organise 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

39. 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 include: • Primary activities (the activities that the strategic business unit undertakes • Support activities (such as human resource management and purchasing)

40. Manufacturer Value Chain Primary activities After sales service & support Manufacture product or create service Design deliver Purchase materials and supplies Identify customers Market & sell Support activities Finance & admin HR Technology development

41. Primary Activities • Identify new customers, and sell new services to existing customers (research & surveys) • Design – from concept to manufacturing • Purchase materials and supplies – includes contracts, vendor selection, monitoring quality and delivery timeliness • Manufacture product or create service –transform materials and labour into finished products

42. Primary Activities Cont’d • Market and sell – advertising, promoting, managing sales staff, pricing and monitoring sales • Deliver – store, deliver distribute and ship final product – warehousing, consolidating freight, selecting shippers and monitoring delivery timeliness • Provide after-sale service and support – promote relationship with customer, e.g. installing, maintaining, testing, repairing, and warranties

43. Primary Activities Cont’d • If a strategic business unit provides a service then the value chain will include a “Provide service” activity instead of “Manufacture activity”

44. Support Activities • Each business unit must also undertake support activities that provide the infrastructure for the primary activities: • Finance and administration – accounting, paying bills, borrowing, compliance with laws • Human resources – recruiting, hiring, training, compensation and benefits • Technology development – improves the product or service, including basic and applied research and development, process improvement and field tests of maintenance procedures

45. Industry Value Chains • Industry value chains describes the larger stream of activities into which a particular business unit’s value chain is embedded • When a business unit delivers a product to a customer the customer might use the product as purchased materials in its value chain • By examining how other business units in the industry value chain conduct their business cost reduction and product improvement may result

46. 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

47. International Issues • Trust issues • Language issues • Culture issues • Infrastructure issues

48. Trust Issues • Anyone can create a site on the Web • 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 developing methods which allow legitimate businesses to establish trusts relationships quickly with consumers

49. Language Issues (localisation) • 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 • Translating entire Web sites is expensive • 25-90 cents per word for human translators (400-600 words per hour) • Automated software translation (machine translation) is cheaper (400,000 word per hour) - less accurate

50. 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”