E-Commerce

INTRODUCTION TO E-COMMERCE

Objectives
Introduction to electronic commerce
Introduction to e-business
Distinction between e – commerce and e–business
The impact of electronic commerce
Levels of e-commerce
Benefits of e-commerce
Limitations of e-commerce
INTRODUCTION TO ELECTRONIC-COMMERCE

Today, some considerable time after the so called ‗dot com/Internet revolution‘, electronic
commerce (e-commerce) remains a relatively new, emerging and constantly changing area of
business management and information technology. There has been and continues to be much
publicity and discussion about e-commerce. Library catalogues and shelves are filled with books
and articles on the subject. However, there remains a sense of confusion, suspicion and is
understanding surrounding the area, which has been exacerbated by the different contexts in
which electronic commerce is used, coupled with the myriad related buzzwords and acronyms.
This book aims to consolidate the major themes that have arisen from the new area of electronic
commerce and to provide an understanding of its application and importance to management. In
order to understand electronic commerce it is important to identify the different terms that are
used, and to assess their origin and usage.
With the advent of the Internet, the term e-commerce began to include:

 Electronic trading of physical goods and of intangibles such as information.

 All the steps involve din trade , such as on-line marketing, ordering payment and
support for delivery.
 The electronic provision of services such as after sales support or on-line legal advice.
 Electronicsupportforcollaborationbetweencompaniessuchascollaborativeon-line
design and engineering or virtual business consultancy teams.

Some of the definitions of e-commerce often heard and found in publications and the media are:
Electronic Commerce (EC)is where business transactions take place via telecommunications
networks, especially the Internet.

Electronic commerce describes the buying and selling of products, services, and information via
computer networks including the Internet.

Electronic commerce is about doing business electronically.

E-commerce, ecommerce, or electronic commerce is defined as the conduct of a financial

transaction by electronic means.

The wide range of business activities related to e-commerce brought about a range of other new
terms and phrases to describe the Internet phenomenon in other business sectors. Some of these
focus on purchasing from on-line stores on the Internet. Since transactions go through the
internet and the Web, the terms I-commerce (Internet commerce), I commerce and even Web-
commerce have been suggested but are now very rarely used. Other terms that are used for on-
line retail selling include e-tailing, virtual-stores or cyber stores. A collection of these virtual
stores is sometimes gathered into a ‗virtual mall‘ or ‗cybermall‘.

INTRODUCTION TO ELECTRONIC -BUISNESS

As with e-commerce, e-business (electronic business) also has a number of different definitions
and is used in a number of different contexts. One of the first to use the term was IBM, in
October 1997, when it launched a campaign built around e-business. Today, major corporations
are rethinking their businesses in terms of the Internet and its new culture and capabilities and
this is what some see as e-business.
E-business is the conduct of business on the Internet, not only buying and selling but also
servicing customers and collaborating with business partners.
E-business includes customer service (e-service) and intra-business tasks.
E-business is the transformation of key business processes through the use of Internet
technologies. An e-business is a company that can adapt to constant and continual change. The
development of intranet and extranet is part of e-business.
E-business is everything to do with back-end systems in an organisation.
In practice, e-commerce and e-business are often used interchangeably
 DISTINCTION BETWEEN E- COMMERCE AND E-BUISNESS

Commerce is defined as embracing the concept of trade,‗ exchange of merchandise on a large

scale between different countries‘. By association, e-commerce can be seen to include the
electronic medium for this exchange. Thus electronic commerce can be broadly defined as the
exchange of merchandise (whether tangible or intangible) on a large scale between different
countries using an electronic medium – namely the Internet. The implications of this are that e-
commerce incorporates a whole socio-economic, telecommunications technology and
commercial infrastructure at the macro-environmental level. All these elements interact together
to provide the fundamentals of e-commerce. Business, on the other hand, is defined as ‗a
commercial enterprise as a going concern‘ .E-business can broadly be defined as the processes or
areas involved in the running and operation of an organisation that are electronic or digital in
nature. These include direct business activities such as marketing, sales and human resource
management but also indirect activities such as business process re-engineering and change
management, which impact on the improvement in efficiency and integration of business
processes and activities.
Figure 1.1 illustrates the major differences in e-commerce and e-business, where e-commerce
has a broader definition referring more to the macro-environment, e-business relates more to the
micro-level of the firm.
THE KEY DRIVERS

It is important to identify the key drivers of e-commerce to allow a comparison between different
countries. It is often claimed that e-commerce is more advanced in the USA than in Europe.
These key drivers can be measured by a number of criteria that can highlight the stages of
advancement of e-commerce in each of the respective countries. The criteria that can determine
the level of advancement of e-commerce are summarized in Table 1.1 and can be categorised as:
 Technological factors – The degree of advancement of the telecommunications
infrastructure which provides access to the new technology for business and consumers.
 Political factors – including the role of government in creating government legislation,
initiatives and funding to support the use and development of e-commerce and
information technology.
  Social factors – incorporating the level and advancement in IT education and training
which will enable both potential buyers and the workforce to understand and use the new
technology.
 Economic factors – including the general wealth and commercial health of the nation and
the elements that contribute to it. Since a distinction has been made in this book between
e-commerce and e-business for consistency, the key drivers of e-business are also
identified.

These are mainly at the level of the firm and are influenced by the macro-environment and e-
commerce, which include:
 Organisational culture – attitudes to research and development (R&D); its willingness to
innovate and use technology to achieve objectives.
 Commercial benefits – in terms of cost savings and improved efficiency that impact on
the financial performance of the firm. Skilled and committed workforce – that
understands, is willing and able to implement new technologies and processes.
 Requirements of customers and suppliers – in terms of product and service demand and
supply.
 Competition – ensuring the organisation stays ahead of or at least keeps up with
competitors and industry leaders.
These key drivers for the implementation of e-business can be put into the context of the classic
economic equation of supply and demand illustrated in Figure 1.2.
 THE IMPACT OF ELECTRONIC -COMMERCE

E-commerce and e-business are not solely the Internet, websites or dot com companies. It is
about a new business concept that incorporates all previous business management and economic
concepts. As such, e-business and e-commerce impact on many areas of business and disciplines
of business management studies.
For example:
Marketing – issues of on-line advertising, marketing strategies and consumer behaviour and
cultures. One of the areas in which it impacts particularly is direct marketing. In the past this was
mainly door-to door, home parties (like the Tupperware parties) and mail order using catalogues
or leaflets. This moved to telemarketing and TV selling with the advances in telephone and
television technology and finally developed into e-marketing spawning ‗e CRM‘ (customer
relationship management) data mining and the like by creating new channels for direct sales and
promotion.
Computer sciences – development of different network and computing technologies and
languages to support e-commerce and e-business, for example linking front and back office
legacy systems with the ‗web based‘ technology.

Finance and accounting – on-line banking; issues of transaction costs; accounting and auditing
implications where ‗intangible‘ assets and human capital must be tangibly valued in an
increasingly knowledge based economy.

Economics – the impact of e-commerce on local and global economies; understanding the
concepts of a digital and knowledge-based economy and how this fits into economic theory.

Production and operations management – the impact of on-line processing has led to reduced
cycle times. It takes seconds to deliver digitized products and services electronically; similarly
the time for processing orders can be reduced by more than 90 per cent from days to minutes.
Production systems are integrated with finance marketing and other functional systems as well as
with business partners and customers.

Production and operations management (manufacturing) – moving from mass production to

demand-driven, mass customisation customer pull rather than the manufacturer push of the past.
Web-based Enterprise Resource Planning systems (ERP) can also be used to forward orders
directly to designers and/or production floor within seconds, thus cutting production cycle times
by up to 50 per cent, especially when manufacturing plants, engineers and designers are located
in different countries. In sub-assembler companies, where a product is assembled from a number
of different components sourced from a number of manufacturers, communication, collaboration
and coordination are critical – so electronic bidding can yield cheaper components and having
flexible and adaptable procurement systems allows fast changes at a minimum cost so
inventories can be minimised and money saved.

Management information systems – analysis, design and implementation of e-business systems

within an organisation; issues of integration of front-end and back-end systems.
Human resource management – issues of on-line recruiting, home working and ‗intrapreneurs‘
working on a project by project basis replacing permanent employees.

Business law and ethics – the different legal and ethical issues that have arisen as a result of a
global ‗virtual‘ market. Issues such as copyright laws, privacy of customer information, legality
of electronic contracts, etc.

LEVELS OF ELECTRONIC-COMMERCE

Electronic commerce is the process of conducting commercial transactions electronically overthe

Internet. This process is carried out primarily in five levels, and the main aspect of e- commerce
is a merchant selling products or service to the consumers. There are five major segments under
the broader category of e-business. However, the following are some popular e- commerce
models used by companies engaged in e-commerce:-
• Business to business e-commerce(B2B)
• Business to consumers e-commerce(B2C)
• Consumers to consumers e-commerce(C2C)
• Business to employee se-commerce(B2E)and
• Consumer to business e-commerce(C2B)

Business to Business E-commerce (B2B)

Business to Business e-commerce provides small and medium enterprises (SMES) with an
excellent opportunity to access new markets, improve customer service and reduce costs. And
while hurdles exist, they should be viewed more as speed breakers rather than road barriers. As a
medium of information storage and dissemination, the internet has and is emerging a clear
winner. Its rate of penetration has far outpaced the growth of other popular media such as
newspaper, radio and television.

Business to Consumers E-commerce(B2C)

B2C is the most popular form of e-commerce, wherein the individuals are directly involved in
B2Ce-commerce,and businesses use the internet for offering their products or services24hours
a day through global access. The sites Amazon.com and Rediff are among these. These websites
spell goods directly to consumers over the Internet. The two way accessibility feature of the
internet enables operating companies to ascertain consumer preferences and buying trends
directly.

Consumer to Consumer E-commerce(C2C)

This form of e-commerce is nothing but the cyber version of the good old auction houses. If any
one wants to sell anything, all one has to do is post a message on the site, giving details of the
product and the expected price and wait for an interested customer to turn up and buy it. The
buyer gets in touch with the seller through the Internet and the deal is crossed once the amount is
finalised. Online message boards and barters are also examples of C2C e-commerce.

Consumer-to-Business E-commerce(C2B)
E-commerce, by empowering the customer, has been strategically redefining business. An
example of C2B model of e-commerce is the site Price line.Com, which allows prospective
airline travellers, tourists in need of hotel reservations etc. to visit its websites and indicate their
preferred price for travel between any two cities. If an airline is willing to issue a ticket on the
customers offered price, the consumer can then travel to the mentioned destination at his terms.

Business to Employees E-commerce (B2E)

This is concerned more with marketing a corporation's internal processes more efficiently.
Customer care and support activities also hold ground. There quirement is that are all self-service
with applications on the web that the employees can use themselves.

THE BENEFITS OF ELECTRONIC -COMMERCE

The previous sections have included discussions about what e-commerce is and its impact, but
what are the benefits of e-commerce? What does it offer and why do it? The benefits of e-
commerce can be seen to affect three major stakeholders: organizations, consumers and society.
Benefits of e-commerce to organizations

 International marketplace. What used to be a single physical marketplace located in a

geographical area has now become a borderless marketplace including national and
international markets. By becoming e-commerce enabled, businesses now have access to
people all around the world. In effect all e-commerce businesses have become virtual
multinational corporations.
 Operational cost savings. The cost of creating, processing, distributing, storing and
retrieving paper-based information has decreased.
 Mass customisation. E-commerce has revolutionised the way consumers buy good and
services. The pull-type processing allows for products and services to be customised to
the customer‘s requirements. In the past when Ford first started making motor cars,
customers could have any colour so long as it was black. Now customers can configure a
car according to their specifications within minutes on-line via the
www.ford.comwebsite.
 Enables reduced inventories and overheads by facilitating ‗pull‘-type supply chain
management – this is based on collecting the customer order and then delivering through
JIT (just-in-time) manufacturing. This is particularly beneficial for companies in the high
technology sector, where stocks of components held could quickly become obsolete
within months. For example, companies like Motorola (mobile phones), and Dell
(computers) gather customer orders for a product, transmit them electronically to the
manufacturing plant where they are manufactured according to the customer‘s
specifications (like colour and features) and then sent to the customer within a few days.
 Lower telecommunications cost. The Internet is much cheaper than value added
networks (VANs) which were based on leasing telephone lines for the sole use of the
organisation and its authorised partners. It is also cheaper to send a fax or e-mail via the
Internet than direct dialling.
 Digitisation of products and processes. Particularly in the case of software and
music/video products, which can be downloaded or e-mailed directly to customers via the
Internet in digital or electronic format.
  No more 24-hour-time constraints. Businesses can be contacted byor contact customers
or suppliers at any time.
Benefits of e-commerce to consumers

24/7 access. Enables customers to shop or conduct other transactions 24 hours a day, all year
round from almost any location. For example, checking balances, making payments, obtaining
travel and other information. In one case a pop star set up web cameras in every room in his
house, so that he could check the status of his home by logging onto the Internet when he was
away from home on tour.
Morechoices. Customers not only have a whole range of products that they can choose from and
customise, but also an international selection of suppliers.

Price comparisons. Customers can ‗shop‘ around the world and conduct comparisons either
directly by visiting different sites, or by visiting a single site where prices are aggregated from a
number of providers and compared (for example www.moneyextra.co.uk for financial products
and services).

Improved delivery processes. This can range from the immediate delivery of digitised or
electronic goods such as software or audio-visual files by downloading via the Internet, to the
on-line tracking of the progress of packages being delivered by mail or courier.

An environment of competition where substantial discounts can be found or value added, as

different retailers vie for customers. It also allows many individual customers to aggregate their
orders together into a single order presented to wholesalers or manufacturers and obtain a more
competitive price (aggregate buying), for example www.letsbuyit.com.

Benefits of e-commerce to society

Enables more flexible working practices, which enhances the quality of life for a whole host of
people in society, enabling them to work from home. Not only is this more convenient and
provides happier and less stressful working environments, it also potentially reduces
environmentalpollutionasfewerpeoplehavetotraveltoworkregularly.Connectspeople.
Enables people in developing countries and rural areas to enjoy and access products, services,
information and other people which otherwise would not be so easily available to them.

Facilitates delivery of public services. For example, health services available over the Internet
(on-line consultation with doctors or nurses), filing taxes over the Internet through the Inland
Revenue website.

LIMITATIONS OF ELECTRONIC-COMMERCE

There was much hype surrounding the Internet and e-commerce over the last few years of the
twentieth century. Much of it promoted the Internet and e-commerce as the panacea for all ills,
which raises the question, are there any limitations of e-commerce and the Internet? Isaac
Newton‘s3rd Law of Motion, ‗For every action there is an equal and opposite reaction‘ suggests
that for all the benefits there are limitations to e-commerce. These again will be dealt with
according to the three major stakeholders – organizations, consumers and society.

Limitations of e-commerce to organizations

Lack of sufficient system security, reliability, standards and communication protocols. There are
numerous reports of websites and databases being hacked into, and security holes in software.
For example, Microsoft has over the years issued many security notices and ‗patches‘ for their
software. Several banking and other business websites, including Barclays Bank, Power gen and
even the Consumers‘ Association in the UK, have experienced breaches in security where ‗a
technical oversight‘ or ‗a fault in its systems‘ led to confidential client information becoming
available to all.

Rapidly evolving and changing technology, so there is always a feeling of trying to ‗catch up‘
and not be left behind.

Under pressure to innovate and develop business models to exploit the new opportunities which
sometimes leads to strategies detrimental to the organisation. The ease with which business
models can be copied and emulated over the Internet increase that pressure and curtail longer-
term competitive advantage.
Facing increased competition from both national and international competitors often leads to
price wars and subsequent unsustainable losses for the organisation.

Problems with compatibility of older and ‘newer’ technology. There are problems where older
business systems cannot communicate with web based and Internet infrastructures, leading to
some organisations running almost two independent systems where data cannot be shared. This
often leads to having to invest in new systems or an infrastructure, which bridges the different
systems. In both cases this is both financially costly as well as disruptive to the efficient running
of organisations.

Limitations of e-commerce to consumers

Computing equipment is needed for individuals to participate in the new ‗digital‘ economy,
which means an initial capital cost to customers.

A basic technical knowledge is required of both computing equipment and navigation of the
Internet and the World Wide Web.

Cost of access to the Internet, whether dial-up or broadband tariffs.

Cost of computing equipment. Not just the initial cost of buying equipment but making sure that
the technology is updated regularly to be compatible with the changing requirement of the
Internet, websites and applications.

Lack of security and privacy of personal data. There is no real control of data that is collected
over the Web or Internet. Data protection laws are not universal and so websites hosted in
different countries may or may not

Have laws which protect privacy of personal data.

Physical contact and relationships are replaced by electronic processes .Customers are unable to
touch and feel goods being sold on-line or gauge voices and reactions of human beings.
A lack of trust because they are interacting with faceless computers.

Limitations of e-commerce to society

Break down in human inter action. As people be come more used to inter acting electronically
there could be an erosion of personal and social skills which might eventually be detrimental to
the world we live in where people are more comfortable interacting with a screen than face to
face.

Social division. There is a potential danger that there will be an increase in the social divide
between technical haves and have-nots – so people who do not have technical skills become
unable to secure better-paid jobs and
Could for man under class with potentially dangerous implications for social stability.

Reliance on telecommunications infrastructure, power and IT skills, which in developing

countries nullifies the benefits when power, advanced telecommunications infrastructures and
IT skills are unavailable or scarce or underdeveloped.

Wasted resources. As new technology dates quickly how do you dispose of all the old
computers, keyboards, monitors, speakers and other hardware or software?

Facilitates Just-In-Time manufacturing. This could potentially cripple an economy in times of

crisis as stocks are kept to a minimum and delivery patterns are based on pre-set levels of stock
which last for days rather than weeks