Introduction to Electronic Commerce and Trade

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Introduction to Electronic Commerce and Trade
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What is commerce?

• activities that seek to create arms-length
  transactions between firms and individuals and
  involve the exchange of money, goods, or
  obligations.

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What is E-Commerce?

• an interactive concept, designed to draw
  together a wide range of business support
  services, which includes inter-organisational
  e-mail, directories, trading support systems for
  commodities, products, customised products, and
  custom-built goods and services different types
  of support and reporting systems, including
  management, logistical and statistical
  reporting/information systems. Clarke

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A Simplified Approach

• Electronic commerce
• is the communication of any object of commercial
  interchange by electronic means Gardner
• is the integration of e-mail, electronic funds
  transfer, EDI and similar techniques into a
  comprehensive electronic-based system of business
  functions Nath et al
• Electronic Trade and Commerce

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Electronic Business

Electronic Business
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E-Commerce History and Scope

• History
• Began in the early 1970s (long before the
  Internet was open to commercial use)
• Limited to large businesses initially
• Electronic Fund Transfer (EFT) and Electronic
  Data Interchange (EDI)
• Scope Today Includes
• advertising
• home banking
• shopping in electronic stores and malls
• buying stocks
• finding a job
• conducting an auction
• collaborating electronically with business
  partners around the globe
• providing customer service

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Advantages of Electronic Commerce

• Global reach
• Reduced administration costs
• Improved customer service
• Greater product choice
• Flexibility of product / physical location
• Ease of use
• Increased marketing capability
• Develop new relationships

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E-Commerce Framework
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Electronic Commerce Activities

• Electronic Data Interchange (EDI)
• Electronic Funds Transfer (EFT)
• Electronic payments (E-cash - Credit cards)
• Automatic Teller Machine (ATM)
• Video conferencing and E-mail
• Sales/Marketing
• Loan and insurance facilities
• Travel reservations

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Electronic Commerce Platforms

• Television / Set top boxes
• Computer Networks
• Microcomputers
• PDAs
• ISPs

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EC Benefits to Organizations

• Increased customer base
• Broaden markets
• Find niche markets (e.g. www.dogtoys.com)
• Reduced cost
• Reach a large number of customers at little cost
• Procure material and services from other
  companies at less cost
• Allow lower inventories by facilitating
  pull-type supply chain management
• Shorten marketing distribution channels and
  reduce marketing costs
• Decrease the cost of creating, processing,
  distributing, storing, and retrieving paper-based
  information
• Lower telecommunications costs because the
  Internet is much cheaper than value-added
  networks (VANs)
• Reduced cycle time
• Procure material and services from other
  companies rapidly
• Reduce the time between the outlay of capital and
  the receipt of products and services
• Helps small businesses compete against large
  companies

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EC Benefits to Customers

• Choice
• Consumers can select from many vendors and many
  more products than they could locate otherwise
• Consumers can get customized products, from PCs
  to cars, at competitive or bargain prices
• Consumers can find unique products and
  collectors items through virtual auctions that
  might otherwise require them to travel long
  distances to a particular auction place at a
  specific time
• Convenience
• Consumers can conduct online quick comparisons to
  find less expensive products and services
• Customers can shop or make other transactions 24
  hours a day, year round, from almost any location
• Product information immediately available 24
  hours a day, year round, from almost any location
• Consumers can interact with other consumers in
  electronic communities and can exchange ideas as
  well as compare experiences

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EC Benefits to Society

• Convenience
• Enables more individuals to work at home and to
  do less traveling
• Access
• Allows some merchandise to be sold at lower
  prices - less affluent people can buy more and
  increase their standard of living
• Enables people in less developed countries and
  rural areas to enjoy products and services that
  otherwise are not available to them
• Facilitates delivery of public services, such as
  government entitlements, reducing the cost of
  distribution and fraud, and increasing the
  quality of the social services, police work,
  health care and education

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Technical Limitations of EC

• A few technical challenges remain for
  organizations wishing to conduct EC
• Lack of universally accepted standards for
  quality, security, and reliability
• Insufficient telecommunications bandwidth
• Still-evolving software development tools
• Difficulties in integrating the Internet and EC
  software with some existing (especially legacy)
  applications and databases
• Need for special Web servers in addition to the
  network servers (added cost)
• Expensive and/or inconvenient Internet
  accessibility for many people
• All of these will diminish over time

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Non-Technical Limitations of EC

• Legal and economic concerns
• Many legal issues are yet unresolved
• Lack of national and international regulations
  and standards
• Difficulty in measuring benefits of EC and
  justifying EC
• Insufficient number (critical mass) of sellers
  and buyers exists for profitable EC operations
• Cultural resistance
• Distrust of the new Many sellers and buyers are
  waiting for EC to stabilize before they take part
• Customer resistance to the change from a physical
  to virtual stores
• Perception that electronic commerce is expensive
  and unsecured, so many do not want even to try it

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Internet Population
Source www.etforecasts.com
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Internet Population

• Current Global internet population
• 165 - 170 million users - 1999
• 1.17 billion users 2005
• US online population 80 million 1999
• US online population 230 million 2005
• Trend is moving to world wide population.
• it is projected that by 2005 the US will only
  represent 15 of internet users

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Worldwide e-Commerce Growth (2004)
6.8 Trillion
Forrester Research Inc.
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Electronic Commerce as a Strategy Tool

• E-commerce should be more than a way of sending
  documents electronically
• Process re-engineering of the organisation may be
  required
• Rethink the way that you do business

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New Possibilities

• A Connemara based salmon fish farm managed to
  sell 50,000 worth of stock in the first three
  months selling on the web
• Marlborough offers clients remote access to
  videoed interviews of potential employees, which
  allows filtering of suitable candidates at an
  early stage thus saving time and money
• In the worlds developed economies, tangible good
  account for 20 of GDP, down from 50 after WWII

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Electronic Commerce Focus

• Business to Business
• physical business transactions outnumber consumer
  sales by ten to one
• Consumer to Business
• Forrester Research estimates that by 2003,
  consumers will spend 108 billion buying goods
  online, while businesses will spend 1.3 trillion

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Business to Business Vs Business to Consumer
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Industry sector Business to Business (B2B)
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Fortune 500 Firms (Survey in 1999)

• Nearly all have web sites
• Less than 10 have transaction-based web sites
• 70 of these were setup for reasons relating to
  public relations, customer service and technical
  support

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Internet Retailing

• 5 of unique visitors to sites ultimately become
  customers
• 1.6 of visits result in purchases
• Portal sites directly drive less than 30 of
  on-line retailing revenues
• Computer goods, entertainment, travel and
  discount brokerage sales account for more then
  80 of the online market
• Two-thirds of shoppers who put items in a virtual
  shopping cart abandon the process before checking
  out

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Business-to-Consumer EC (continued)

• Personalization ability to customize product,
  service, advertisement, or customer service
• B2C EC enables personalization at low cost
• Internet enables marketing research
• Questionnaires
• Usually involve some inducement
• Direct behavior observation
• Cookies or site tracking services

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Business-to-Consumer EC (continued)

• Use of intelligent agents
• Help customers determine what to buy
• Search for and compare vendor prices
• Collect information and develop customer profiles
• Online advertising
• Banners
• Keyword banners
• Random banners
• Direct email
• Pop-up windows

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Business-to-Business EC

• Composes the majority of EC volume
• Enables organizations to form electronic
  relationships
• Covers all activities along the supply chain
• Business Models
• Sell-Side Marketplace
• Organizations sell products to other
  organizations electronically.
• Buy-Side Marketplace
• Buyers post needs sellers submit bids
• Electronic Exchanges
• Electronic marketplaces link many buyers and many
  sellers

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Business-to-Business EC (continued)

• Collaborative Commerce non-buying/selling
  activities between businesses
• Planning and scheduling
• Design
• New product information
• Product content management
• Order management
• Sourcing and procurement

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New business models

• E -procurement
• Supply chain automation
• Customer service
• Intentions Value Network

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E- procurement

• Large companies have been purchasing materials
  using EDI and VANs for some time
• These tended to be expensive to operate and
  difficult to use. They also required an existing
  relationship to be in place between the parties.

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Internet-based E-Procurement

• The internet allows virtually everything that a
  company needs to be purchased online
• Predefined relations are not required
• Hewlett-Packard announced plans to sell
  everything from desks to paper clips over the web.

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Supply Chain Automation

• The Holy Grail of business to business electronic
  commerce
• This type of system would link internal ERP
  systems, like SAP / Oracle, with external
  marketplaces
• Allows employees to source products in the
  marketplace and have the ERP deal with ordering
  delivery payment and so forth.

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Customer Service

• Most companies lose half their customers every
  five years. Cost of acquiring a new customer is
  4-6 times as much as retaining one
• If a company can reduce that by 10-15, it has
  the potential to improve profitability by 50
• Creating a closer relationship with customers
  through ubiquitous contact

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Intentions Value Network

• Use provider alliances to integrate a broad array
  of services into a customised intention solution
• Bundling different/related products and services
  within the same industry to create solutions

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Intentions Value Network

• Shift the mind set from seller and product driven
  to a buyer/service driven business model
• The focus is not on individual products or
  services but on the integration of a wide variety
  of information, products and services to satisfy
  the specific intentions or needs of a community
  of buyers

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Intentions Value Network

• An Integrator oversees a network of approved
  suppliers providing products and services
• The critical role of the Integrator is to
  understand the customers values, needs,
  behaviour and preferences related to the overall
  intention

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Business Models (Rappa,2000)

• Brokerage
• Advertising
• Infomediary
• Merchant
• Manufacturer

• Affiliate
• Community
• Subscription
• Utility

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Timmers (1999)
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Pitfalls for Electronic Commerce

• Content
• Convenience
• Confidence

• Security
• Cost
• Legal uncertainty
• Lack of qualified staff
• Acceptance of service by suppliers/customers
• Lack of industry standards
• Technical problems

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Trust

• Trust is central to any commercial transaction,
  and it foundation is identity authentication
• Trust requires trading partners to be confident
  their communications proceed privately,
  unaltered, and cannot be later refuted

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Security

• Privacy
• The message only viewed by the intended recipient
• Authentication
• Vital to ensure users can be recognised and
  verified (passwords)
• Integrity
• Ensure message is not tampered with during the
  transmit
• Scalability
• Can the system continue to give the same level of
  security with increased users

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Legal Issues

• Business transactions/contracts
• Jurisdiction
• Domain Name Issues
• Linking/Framing Issues
• Content Liability
• Online Disclaimers
• Intellectual Property

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E-commerce Security

• Encryption
• Digital Signatures

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Conclusions

• Altered business models
• New business models
• If this is a new economic revolution, those who
  do not conform will not survive
• A lot of money could be spent gambling

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Readings

• Business Models on the Web Rappa (2000)
  http//digitalenterprise.com/models/models_text.ht
  m
• The e-Business Evolution Amor (1999)
  Chapter 4 (Avoiding Legal Issues)