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Chapter 9 Multinational E-commerce: Strategies and Structures

Chapter 9 Multinational E-commerce: Strategies and Structures. INTRODUCTION. Internet economy: growing faster than any other business trend in history Companies face issues similar to those faced by traditional multinational companies. THE INTERNET ECONOMY. What is e-commerce?

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Chapter 9 Multinational E-commerce: Strategies and Structures

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  1. Chapter 9 Multinational E-commerce: Strategies and Structures

  2. INTRODUCTION • Internet economy: • growing faster than any other business trend in history • Companies face issues similar to those faced by traditional multinational companies

  3. THE INTERNET ECONOMY • What is e-commerce? • e-commerce refers to the selling of goods or services over the internet

  4. TYPES OF E-COMMERCE TRANSACTIONS • B2C – business to consumer transactions • B2B – business to business transactions • makes up of 70-85% of current e-commerce business

  5. Types of e-commerce transactions, continued • C2C – consumer to consumer • C2B – consumer to business

  6. THE GLOBAL PRESENCE OF E-COMMERCE • Measured by two indicators • secure servers • internet hosts • OECD countries dominate the internet with over 90% of the world’s internet hosts - see exhibit 9.1

  7. EXHIBIT 9.1 SECURE SERVERS AND INTERNET HOSTS IN SELECTED OECD COUNTRIES

  8. Global presence of e-commerce, continued • In 1991, 3 million people used the internet and almost none used it for e-commerce • By 1999, approximately one quarter of the 250 million users made purchases online

  9. THE INTERNET ECONOMY • Internet economy has four layers • Layer 1: the backbone of the internet including the internet service providers • communications (MCI, worldcom), internet service providers (AOL), networking (cisco) and hardware

  10. The internet economy, continued • Layer 2: companies and consultants that build web systems and supporting software • consultants (scient), commerce applications (netscape, sun), web development software (adobe, netobjects), search engines (verity), and web-enabled databases (oracle)

  11. The internet economy, continued • Layer 3: companies that provides linking services on the internet and derive revenues from commissions, advertising, and membership fees • travel agencies (travelweb, travelocity.Com), online brokerages (etrade), content aggregators (cnet,zdnet), and online advertising (yahoo!)

  12. The internet economy, continued • Level 4: companies that conduct commercial transactions on the web • E-retailers (wine.Com), manufacturers selling directly (hpshopping.Com), subscription-based companies (vrbo.Com), transportation services (most airlines), and shipping services (UPS)

  13. Exhibit 9.3 Shows E-commerce Business Models

  14. EXHIBIT 9.3

  15. FIVE STEPS FOR SUCCESSFUL E-COMMERCE STRATEGY 1. Build on current business models and experiment with new e-commerce models – search for ways to reduce costs or enhance the business

  16. 2. Meet the challenge of developing an e-commerce organization • Not only senior management, but the entire firm must be prepared to embrace the e-commerce model

  17. 3. Allocate resources to the e-commerce business • Commit financial, human, and technological resources to develop e-commerce capabilities

  18. 4. Build a superior e-commerce infrastructure as a basis of differentiation strategy 5. Make sure entire management team aligns with e-commerce agenda

  19. E-COMMERCE STRATEGIES: INTEGRATED OR AUTONOMOUS • How does e-commerce fits into existing organizational design and management systems? • i.e., the fit with “brick and mortar” operations

  20. Integrated or autonomous, continued • 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

  21. Integrated or autonomous, continued • The independent benefits: • faster and more entrepreneurial • The integrated benefits: • cross-promotion, shared information, increased quantity purchases, use of same distribution channels

  22. Exhibit 9.4 (next) shows key decisions in the integration versus separation decision

  23. ADDITIONAL OPERATIONAL CHALLENGES • Finding partnerships and alliances with customers or third parties • Attracting, retaining, and developing employees in the e-commerce unit • Deciding what e-commerce functions to outsource

  24. 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

  25. Tasks for traditional companies with e-commerce, continued • 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

  26. Exhibit 9.5 gives a comparison of past and expected organizational changes multinational companies are making to implement their e-commerce strategies

  27. EXHIBIT 9.5

  28. 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

  29. MULTINATIONAL E-COMMERCE STRATEGY FORMULATION • Depends on: • nature of the business • types of products or services offered through e-commerce

  30. E-COMMERCE COMPANIES WORK IN THREE AREAS 1. Movement of bits or computerized information 2. Movement of money in payment flows 3. Movement of physical products • each type of operation requires an infrastructure to support the transactions

  31. HIERARCHY OF DIFFICULTY • Depends on infrastructure requirements • portals and infomediaries, simplest • digital products that must have an infrastructure to take payments • most difficult to globalize: e-commerce businesses that rely on a physical structure

  32. MULTINATIONAL E-COMMERCE: OPPORTUNITIES AND THREATS • Major opportunities of e-commerce globalization: • cost reduction • less expensive to reach customers via web

  33. Multinational e-commerce: opportunities and threats, continued • technology • is already available • efficiencies • more efficient

  34. Multinational e-commerce: opportunities and threats, continued • convenience • web is in operation all the time regardless of location • speed of access • company’s products or services can be accessed from anywhere in the world

  35. Multinational e-commerce: opportunities and threats, continued • Major challenges include: • return/receipt burden and cost of delivery • expect 30-40% return rate • costs of site construction, maintenance, upgrades • channel conflicts

  36. Multinational e-commerce: opportunities and threats, continued • easily copied models • competitors can easily see and copy business model • cultural differences • web sites must be appropriate culturally

  37. Multinational e-commerce: opportunities and threats, continued • traditional cross-border complexities remain • exchange rates, different taxes, and government regulations

  38. PICKING A MARKET • Target countries • those with market inefficiencies • e.g., formerly state-controlled economies • attractive demographics • internet population of > 5% • high literacy rate

  39. Target countries, continued • participation in at least one free trade agreement • government with viable legal system

  40. 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

  41. THE MULTINATIONAL E-COMMERCE ORGANIZATION • What is the organization of a multinational e-business? • three-tiered mixing of global and local functions • Headquarters • vision, strategy, leadership for worldwide electronic marketing

  42. The multinational e-commerce organization, continued • Shared functional services • provide HRM, marketing, partner management to regions • Local subsidiaries • deliver goods, manage functions better done locally such as the supply chain

  43. Exhibit 9.6 pictures the levels and functions of the multinational corporation

  44. TECHNICAL CAPABILITIES FOR MULTINATIONAL E-COMMERCE • Process multiple currencies • Calculate and show purchase information on international shipping, duties, and local taxes such as VAT

  45. Technical capabilities for multinational e-commerce, continued • Check regulatory compliance with local and international laws • Provide support in multilingual service centers • Fraud protection • Electronic payment models in addition to credit cards

  46. TO BUILD OR OUTSOURCE TECHNICAL CAPABILITIES? • Run all e-commerce functions internally or outsource to e-commerce enablers • Enablers provide services and software that translate web sites, calculate shipping, value-added taxes, duties, and other charges unique to each country

  47. Exhibit 9.7 shows major problems identified web-site globalization

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