CHAPTER 17

Global E-commerce

INTRODUCTION

Electronic commerce (or e-commerce) refers to the use of the Internet to conduct business. This network can be accessed using devices such as computers, handheld (wireless) devices and mobile phones. People use the Internet both to access information and services created by others, and to present their own information and services. The Internet thus allows people to communicate and conduct business across the world, at any time, and almost instantaneously.

 

Internet communication often involves text, pictures, video and sound. It is typically represented in the form of electronic mail and Web sites. People communicate about many different things using the Internet, including business.

Some examples of Internet-based e-commerce activities include:

• Visiting an online bookstore to select and purchase books
• Sending electronic mail to people and businesses
• Checking the location and status of parcels in transit
• Using an online marketplace to find suppliers of stationery
• Searching for suppliers of truck spare parts

E-COMMERCE VERSUS E-BUSINESS

One of the important definitional issues in any study of e-commerce is its relationship with e-business.

E-commerce is the conduct of commercial activities using electronic processes or tools that are enabled by information and communications technologies. Some people use the term ‘electronic trading’ to mean much the same thing. Others use ‘electronic procurement’, ‘electronic purchasing’ or ‘electronic marketing’. At its most basic level, e-commerce is about the deployment of ICTs to enable buyers and sellers to undertake transactions electronically, especially over the Internet.

At a more complex level e-commerce can be considered the enablement of all transaction processes by ICTs. In such a case, e-commerce can be thought to extend beyond a simplistic purchase and sale to encompass the entire supply chain, or the chain of transactions that permits the sale of goods and services to the final customer. Essentially all processes related to the electronic enablement by ICTs of commercial activities in goods and services will be considered part of e-commerce. This includes e-procurement, e-purchasing, e-fulfilment and related activities.

E-business on the other hand, is a business using ICTs to enable commercial processes, and especially to attain advantage through implementation of an e-commerce strategy.

E-commerce and e-business differ on three main levels:

1. An e-business consciously makes the deployment of ICTs for commerce an integrated component of its business strategy.
2. An e-business considers ‘connections of these electronic processes to other parts of the organization’ and not just the ‘buying and selling of products and services electronically’.
3. An e-business automates the relationships between multiple suppliers and partnering organizations.

 

E-commerce therefore, is a wider term used to describe not only goods and services that are selected, ordered and paid for via the Internet, but also for the various services, electronic processes and transactions that occur within and between businesses. E-business can more specifically refer to the strategy and business model encompassing e-commerce.

TYPES OF E-COMMERCE

The major different types of e-commerce are business-to-business (B2B), business-to-consumer (B2C), business-to-government (B2G), consumer-to-consumer (C2C), and mobile commerce (m-commerce).

B2B E-commerce

Business-to-business (B2B) e-commerce is simply defined as e-commerce between companies. This is the type of e-commerce that deals with relationships between and among businesses. About 80 per cent of e-commerce is of this type, and is growing faster than any other. The B2B market has two primary components—e-frastructure and e-markets.

 

E-frastructure

E-frastructure is the architecture of B2B, primarily consisting of the following:

• Logistics: Transportation, warehousing and distribution.
• Application service providers: Deployment, hosting and management of packaged software from a central facility (e.g., Oracle and LinkShare Corporation).
• Outsourcing of functions in the process of e-commerce, such as Web-hosting, security and customer care solutions (e.g., outsourcing providers such as eShare, NetSales, iXL Enterprises and Universal Access).
• Auction solutions software for the operation and maintenance of real-time auctions in the Internet (e.g., Moai Technologies and OpenSite Technologies).
• Content management software for the facilitation of Web site content management and delivery (e.g., Interwoven and ProcureNet).
• Web-based commerce enablers (e.g., Commerce One, a browser-based, XML-enabled purchasing automation software).

E-markets

E-markets are simply defined as Web sites where buyers and sellers interact with each other and conduct transactions. Most B2B applications are in the areas of supplier management (especially purchase order processing), inventory management (managing order-ship-bill cycles), distribution management (especially in the transmission of shipping documents), channel management (information dissemination on changes in operational conditions), and payment management (electronic payment systems or EPS).

 

The more common B2B examples and best practice models are IBM, Hewlett-Packard, Cisco Systems and Dell. Cisco, for instance, receives over 90 per cent of its product orders over the Internet.

B2B e-commerce provides opportunities for worldwide sourcing in all sectors, including raw materials, components and services. The Internet can save costs by streamlining purchasing, distribution and marketing. While the benefits have been apparent to multinationals, SMEs have also been benefited. SMEs are able to form networks linked to multinational companies, opening up new avenues for the cooperative development of technology as well as markets. The transnational ‘web’ of global production networks is transforming supply chains.

B2C E-commerce

Business-to-consumer (B2C) e-commerce, or commerce between companies and consumers, involves customers gathering information; purchasing physical goods (tangibles such as books or consumer products) or information goods (electronic material or digitized content such as software, or e-books); and, for information goods, receiving products over an electronic network.

 

This is the second largest and the earliest form of e-commerce. Its origins can be traced to online retailing (or e-tailing). Thus, the more common B2C business models are the online retailing companies such as Amazon.com, Drugstore.com, Beyond.com, Barnes & Noble and Toys ‘R’ Us. Other B2C examples involving information goods are E-Trade and Travelocity.

The more common applications of this type of e-commerce are in the areas of purchasing products and information, and personal finance management, which pertains to the management of personal investments and finances with the use of online banking tools (such as Quicken).

B2G E-commerce

Business-to-government (B2G) e-commerce, or B2G, is generally defined as commerce between companies and the public sector. It refers to the use of the Internet for public procurement, licensing procedures and other government-related operations.

 

Although Web-based purchasing policies increase the transparency of the procurement process (and reduce the risk of irregularities), the size of the B2G e-commerce market as a component of total e-commerce is insignificant, as government e-procurement systems remain undeveloped.

C2C E-commerce

Consumer-to-consumer (C2C) e-commerce is simply commerce between private individuals or consumers. This type of e-commerce is characterized by the growth of electronic marketplaces and online auctions, particularly in vertical industries where firms/businesses can bid for what they want from among multiple suppliers. It perhaps has the greatest potential for developing new markets. This type of e-commerce comes in at least three forms:

1. Auctions functioning at a portal, such as eBay, which allows online real-time bidding on items being sold in the Web.
2. Peer-to-peer systems, such as the Napster model (a protocol for sharing files between users used by chat forums similar to IRCRC) and other file exchange, and later money exchange models, and
3. Classified advertisements at portal sites where buyers and sellers can negotiate and which feature ‘Buyer Leads and Want Ads’.

C2B E-commerce

Consumer-to-business (C2B) transactions involve reverse auctions, which empower the consumer to drive transactions. A concrete example of this when competing airlines gives a traveller best travel and ticket offers in response to the traveller’s post that she wants to fly from New York to San Francisco.

 

There is little information on the relative size of global C2C e-commerce. However, C2C figures of popular C2C sites such as eBay and Napster indicate that this market is quite large. These sites produce millions of dollars in sales every day.

M-Commerce

M-commerce (mobile commerce) is the buying and selling of goods and services through wireless technology, that is, handheld devices such as cellular telephones and personal digital assistants (PDAs). Japan is seen as a global leader in m-commerce.

 

As content delivery over wireless devices becomes faster, more secure and scalable, some believe that m-commerce will surpass wireline e-commerce as the method of choice for digital commerce transactions. This may well be true for the Asia-Pacific where there are more mobile phone users than there are Internet users.

Industries affected by m-commerce include:

• Financial services, including mobile banking (when customers use their handheld devices to access their accounts and pay their bills), as well as brokerage services (in which stock quotes can be displayed and trading conducted from the same handheld device).
• Telecommunications, in which service changes, bill payment and account reviews can all be conducted from the same handheld device.
• Service/retail, as consumers are given the ability to place and pay for orders on the fly.
• Information services, which include the delivery of entertainment, financial news, sports figures and traffic updates to a single mobile device.

E-COMMERCE—AN EVALUATION

E-commerce provides many new ways for businesses and consumers to communicate and conduct business. There are a number of advantages and disadvantages of conducting business in this manner.

E-commerce Advantages

Some advantages that can be achieved from e-commerce include:

Ability to conduct business each day through the year: E-commerce systems can operate all day every day. Your physical storefront does not need to be open in order for customers and suppliers to be doing business with you electronically.

Access to the global marketplace: The Internet spans the world, and it is possible to do business with any business or person who is connected to the Internet. Simple local businesses such as specialist record stores are able to market and sell their offerings internationally using e-commerce. This global opportunity is assisted by the fact that, unlike traditional communications methods, users are not charged according to the distance over which they are communicating.

Speed: Electronic communications allow messages to traverse the world almost instantaneously. There is no need to wait weeks for a catalogue to arrive by post: that communications delay is not a part of the Internet/e-commerce world.

Increased market space: The market in which Web-based businesses operate is the global market. It may not be evident to them, but many businesses are already facing international competition from Web-enabled businesses.

Opportunity to reduce costs: The Internet makes it very easy to ‘shop around’ for products and services that may be cheaper or more effective than we might otherwise settle for. It is sometimes possible to, through some online research, identify original manufacturers for some goods, thereby bypassing wholesalers and achieving a cheaper price.

Computer platform-independent: Many, if not most, computers have the ability to communicate via the Internet independent of operating systems and hardware. Customers are not limited by existing hardware systems.

Efficient applications development environment: In many respects, applications can be more efficiently developed and distributed because they can be built without regard to the customer’s or the business partner’s technology platform. Application updates do not have to be manually installed on computers. Rather, Internet-related technologies provide this capability inherently through automatic deployment of software updates.

Allowing customer self-service and ‘customer outsourcing’: People can interact with businesses at any hour of the day that it is convenient to them, and because these interactions are initiated by customers, the customers also provide a lot of the data for the transaction that may otherwise need to be entered by business staff. This means that some of the work and costs are effectively shifted to customers, this is referred to as ‘customer outsourcing’.

New marketing channel: The Internet provides an important new channel to sell to consumers. As a marketing channel, the Internet has the following characteristics:

• The ability to inexpensively store vast amounts of information at different virtual locations.
• The availability of powerful and inexpensive means of searching, organizing and disseminating such information.
• Interactivity and the ability to provide information on demand.
• The ability to provide perceptual experiences that are far superior to a printed catalogue, although not as rich as personal inspection.
• The capability to serve as a transaction medium.
• The ability to serve as a distribution medium for certain goods (like software).
• Relatively low entry and establishment costs for sellers.

Disadvantages of E-commerce

Some disadvantages and constraints of e-commerce include the following.

Time for delivery of physical products: It is possible to visit a local music store and walk out with a compact disc, or a bookstore and leave with a book. E-commerce is often used to buy goods that are not available locally from businesses all over the world, meaning that physical goods need to be delivered, which takes time and costs money. In some cases, there are ways around this, for example, with electronic files of the music or books being accessed across the Internet, but then these are not physical goods.

Physical product, supplier and delivery uncertainty: In some respects, e-commerce purchases are made on trust. The reasons are:

• This is because not having had physical access to the product, a purchase is made on an expectation of what that product is and its condition.
• This is also because supplying businesses can be conducted across the world, it can be uncertain whether or not they are legitimate businesses and are not just going to take your money. It’s pretty hard to knock on their door to complain or seek legal recourse.
• Lastly, even if the item is sent, it is easy to start wondering whether or not it will ever arrive.

Perishable goods: Though specialized or refrigerated transport can be used, goods bought and sold via the Internet tend to be durable and non-perishable, they need to survive the trip from the supplier to the purchasing business or consumer. This results in perishable and/or non-durable goods being sold through traditional supply-chain arrangements, or through relatively more local e-commerce-based purchases, sales and distribution. In contrast, durable goods can be traded from almost anyone to almost anyone else, leading to competition for lower prices. In some cases, this leads to disintermediation in which intermediary people and businesses are bypassed by consumers and by other businesses that are seeking to purchase more directly from manufacturers.

Limited and selected sensory information: The Internet is an effective channel for visual and auditory information such as, seeing pictures, hearing sounds and reading text. However, it does not allow full scope for our senses. We can see pictures of the flowers, but not smell their fragrance, we can see pictures of a hammer, but not feel its weight or balance. Further, when we pick up and inspect something, we choose what we look at and how we look at it. This is not the case on the Internet. If we were looking at buying a car on the Internet, we would see the pictures the seller had chosen for us to see but not the things we might look for if we were able to see it in person. And, taking into account our other senses, we can’t test the car to hear the sound of the engine as it changes gears or take in the smell and feel of the leather seats. There are many ways in which the Internet does not convey the richness of experiences of the world. This lack of sensory information means that people are often much more comfortable buying generic goods via the Internet—things that they have seen or experienced before and about which there is little ambiguity, rather than unique or complex things.

Returning goods: Returning goods online can be an area of difficulty. This increases the uncertainties surrounding the initial payment and delivery of goods. The various questions that come up are—will the goods get back to their source? who pays for the return postage? will the refund be paid? how long will it take? etc.

Privacy, security, payment, identity, contract: E-commerce transactions involve issues such as privacy and security of information and payment details, and problems of identity theft.

Feasibility of transactions: E-commerce is most often conducted using credit card facilities for payments, and as a result very small and very large transactions tend not to be conducted online. The size of transactions is also impacted by the economics of transporting physical goods. For example, any benefits or conveniences of buying a box of pens online from a US based business tend to be eclipsed by the cost of having to pay for them to be delivered to a customer in Australia. The delivery costs also mean that buying individual items from a range of different overseas businesses is significantly greater.

DRIVERS OF E-COMMERCE

The various factors driving e-commerce are discussed here.

Global Factors

Global production networks and increasing global competition are the two main global factors which have acted as drivers of e-commerce.

 

Global Production Networks

The growth of global production networks in industries such as automobiles, electronics and textiles are the primary drivers of e-commerce as these networks rely heavily on IT and e-commerce for coordination. Some countries have domestic firms who participate in these global networks as suppliers or subcontractors (such as Taiwan) or as bases for subsidiaries of multinational corporations (such as Singapore), while others are coordinators of such networks (such as the US and Japan). Although the roles differ, the integration of countries into global production networks often involves the adoption of B2B e-commerce by firms in these countries as a condition for participating in such networks.

Increasing Global Competition

Global competition is perhaps the most significant force driving e-commerce development across countries. A country’s integration in global production networks, the presence of TNCs and the extent of trade liberalization are all factors that increase the level of global competition and, by extension, the pressure for countries to adopt e-commerce as a means of reducing costs and/or expanding markets.

In summary, global factors by definition potentially influence adoption in all countries. However, they appear to have more prominence in shaping e-commerce diffusion in countries that are part of open trade regimes, have a high proportion of TNCs, have more firms that are part of global production networks and have more firms engaged in global competition. While these factors represent global pressures for countries to adopt e-commerce, their influence will depend upon characteristics of each country. Some countries, such as Singapore, which has historically been a centre of entrepôt trade in East Asia, are more trade-oriented, and, therefore, more open, TNC-friendly and part of global networks. Others, such as Mexico, which is a supplier to global TNC TNCs, are heavily engaged in production networks by virtue of trade liberalization and being located next to the large US market.

Demographic Factors

Country demographics have a huge influence on e-commerce development, as they relate to market size and concentration, consumer needs and ease of access to technology.

 

Population Density

It is seen that densely populated nations, such as Singapore and Germany, enjoy strong IT infrastructures, whereas large countries with low population density, such as China and Brazil, suffer from underdeveloped infrastructures, plus distribution and delivery problems.

IT Labor Force

The presence of an IT labor force is another enabling condition for e-commerce, in that it provides needed skills for IT production and use. For example, countries like India and China have a large IT workforce whereas countries such as Singapore and Germany import IT workers. Taiwan and Denmark restrict immigration that could supplement their small domestic IT workforces.

IT Literacy

General IT literacy enables access to both B2C and B2B e-commerce, and is influenced by demographic factors such as income, education, age and gender. IT literacy is generally higher among the highly educated across countries, and is highest among the younger generation. The US has an equal gender distribution on Internet use, whereas use is heavily male-dominated in the other countries.

Wealth Distribution

The distribution of wealth is also a major barrier or limit to IT usage. In Brazil and Mexico, where income is unevenly distributed, a large percentage of the population is cut off from PC and Internet access due to their inability to afford such technologies. A more equal distribution of wealth, such as in Japan, Germany, France and Taiwan, creates conditions which are conducive for e-commerce since a greater proportion of the population has access to IT resources.

Economic and Financial Resources

The availability of financial resources such as venture capital to support online businesses and start-ups is another enabler of e-commerce across countries. Such support through venture capital is more widely available in the US, Denmark, Germany, Singapore, Taiwan and Brazil.

The availability of online payment methods is also an enabler of e-commerce. The use of credit cards is a universal phenomenon, although the use of debit cards is more common in Europe. In Asian countries stored-value cards are used as well as wireless payment, money orders, bank transfers and COD. In Taiwan and Japan hybrid methods are popular such as ordering goods online and picking them up and paying for them through convenience stores. At this point, most online purchases are not paid for online except in the US.

Information Infrastructure

A widely available and affordable information infrastructure is another important enabler of e-commerce diffusion. Availability includes both the extent of coverage and the range of technologies in use. High penetration of multiple technologies (teledensity, wireless, Internet, broadband and PCs) enables e-commerce in that several channels are available for conducting it. Countries such as Taiwan and Germany have experienced particularly high penetration and rapid wireless growth since 1995, whereas the US now ranks relatively low on mobile phone penetration. This is probably because of the high penetration of fixed lines and higher competitiveness of the local and long-distance market in the US, compared to Europe and Asia, where mobile phones are more affordable and fixed lines less prevalent. Additional reasons for the rapid growth of wireless in Europe and Asia may be the use of a common standard, namely GSM, and the all-digital network that allows for integration of additional features such as text messaging.

The cost of Internet access can be an inhibitor to e-commerce diffusion. High costs of Internet access limit the amount of time consumers use the Web for information or purchases. Countries with metered access such as France, Germany, Denmark and Japan have had higher costs of access than countries in which users are not charged by the minute but pay a monthly fee for unlimited access. High access costs in these countries have, however, been reduced over the past few years and rates have become more uniform across countries.

Industry Structure

The adoption of e-commerce also depends on industry structure. In each country, some industries are leaders in e-commerce, while others lag behind. E-commerce is commonly found in finance/banking, distribution (wholesale and retail), IT, electronics manufacturing and automotive manufacturing. In general, industries driving e-commerce have been found in sectors that are information-intensive (such as finance/banking) and/or internationally competitive (such as electronics and automobiles).

Firm Size

Firm size is another factor identified in the cases. Large domestic firms tend to be leaders in adopting e-commerce, as they possess the IT resources (technology, financial and human) needed for e-commerce and can leverage e-commerce investments over a large revenue base. In certain cases, SMEs may have advantages such as being more flexible and innovative and more capable of adapting to organizational changes required by e-commerce than large firms. It is generally seen that SMEs are an inhibitor to the spread of e-commerce due to their lack of technological expertise and lack of funds to implement e-commerce solutions.

The existence of strong traditional retail networks also acts as a stumbling block in the way of e-commerce diffusion such as in France, Japan and Taiwan. While such outlets compete with online commerce, sometimes they also encourage e-commerce because such retail networks are located in urban areas with concentrated economic activity and high Internet usage, and they might adopt ‘click and mortar’ strategies of integrating their physical and virtual infrastructures for competitive advantage.

Entrepreneurial Environment

An entrepreneurial business culture facilitates e-commerce. The organizational and legal environment in the US and Taiwan, for example, encourages entrepreneurial and innovative business cultures, for example, by making it possible for bankrupt individuals to financially survive and encouraging them to take another chance to try again without being stigmatized by failure. The lack of entrepreneurial support is evident in Japan, Singapore and Germany. For example, Japanese financial institutions are reluctant to fund entrepreneurial start-ups through venture capital or equity.

In Asian countries, such as Taiwan, personal relationships are important in doing business, and anonymous online relationships are considered impersonal and discouraged. In highly unionized countries such as Denmark, e-procurement and automation of public services is perceived as a threat to job security by government and public officials. In most countries, organizational readiness for e-commerce is still restricted by high perceived costs of IT, security concerns and lack of integration of information systems with business partners.

Consumer Preferences

B2C e-commerce is driven by consumer desires for valuable and useful content, convenience, lifestyle enhancements, and greater product and service selection. High acceptance of IT and the internet is a key enabler of B2C. Internet fever has caught on internationally and has generated high hopes and expectations for positive economic and social impacts. However, consumers have significant reservations about purchasing online, which stems from lack of trust in business practices, privacy/security concerns regarding credit card and other personal information, resistance to using credit cards, and preferences for in-store shopping and inspection of products. These concerns are particularly acute in countries such as India and China, where no legal consumer protection exists and buyers and sellers have little legal backup for faulty products or negligent payment. Language acts as a barrier among non-English-speaking consumers due to the prevalence of English content on the web. Beyond language, preferences for local content (even among those who speak English) are evident across countries. As the web becomes increasingly multilingual and incorporates more local content, consumers are likely to participate more in online commerce.

National Policy

Key policy factors that effect e-commerce diffusion include liberalization of telecommunications, government promotion of e-commerce and IT, and specific legislation to promote e-commerce and IT. The liberalization of markets over the last two decades has enabled e-commerce through increased competition. Firms in competitive markets are motivated to adopt e-commerce technologies in order to enhance productivity and provide better services. Telecommunications liberalization in particular, has encouraged IT and Internet diffusion by making rates more affordable and giving consumers a wider selection of services and options.

CHAPTER SUMMARY

• E-commerce is the conduct of commercial activities using electronic processes or tools that are enabled by information and communications technologies.
• Business-to-business e-commerce is simply defined as e-commerce between companies.
• Business-to-consumer (B2C) e-commerce, or commerce between companies and consumers, involves customers gathering information; purchasing physical goods or information; and, for information goods, receiving products over an electronic network.
• Business-to-government (B2G) e-commerce, or B2G, is commerce between companies and the public sector. It refers to the use of the Internet for public procurement, licensing procedures and other government-related operations.
• Consumer-to-consumer (C2C) e-commerce is simply commerce between private individuals or consumers.
• M-commerce is the buying and selling of goods and services through wireless technology, i.e., handheld devices such as cellular telephones and personal digital assistants.
• The list of environmental factors affecting e-commerce diffusion is long, and these factors have differential influence in different countries.
• Demographic factors (income, education, IT skills, etc.) define the size and characteristics of the potential market for e-commerce and the availability of skills to support e-commerce deployment.
• Economic and financial factors determine whether there are sufficient resources (venture capital) to invest in e-commerce and mechanisms (payment systems, secure systems) to facilitate it.
• Industry structure reflects both business demand for e-commerce and the capabilities of firms to engage in it.
• Information infrastructure defines a country’s technical readiness for e-commerce, and the cost of online access in particular is a critical determinant in that countries with lower costs are more likely to have wider diffusion and use.

KEY TERMS

• Technology
• Invention
• Innovation
• Patent
• National innovation system
• Patent right
• International technology transfer
• Electronic commerce
• E-business
• Business-to-business e-commerce
• Business-to-consumer e-commerce
• Consumer-to-consumer e-commerce
• Consumer-to-business transactions
• M-commerce

DISCUSSION QUESTIONS

1. What is e-commerce? Distinguish between e-commerce and e-business.
2. Enumerate the advantages and disadvantages of e-commerce for an international business.
3. List some of the factors that pose challenges to global e-commerce activity in the global economy.
4. List and explain with examples the different types of e-commerce activities.
5. What are the primary components of B2B e-commerce?
6. Distinguish between e-infrastructure and e-markets.
7. List and explain the different factors which act as drivers of e-commerce?
8. Explain how demographic factors act as drivers of e-commerce.
9. Name the main global factors which act as drivers of e-commerce.

EXAMINATION QUESTION

1. Write a short note on the role of e-commerce for global business. (8)

   [B.Com (Hons.), 2008]

2. Discuss the significance of e-commerce in the context of a modern global organization. (8)

   [B.Com (Hons.), 2009]

3. What is e-commerce? Briefly enumerate factors responsible for the growth of e-commerce in last few decades. (5, 10)

   [B.Com (Hons.), 2010]

4. Write a short note on environmental degradation. (7.5)

   [B.Com (Hons.), 2016, 2018]

5. Briefly discuss international initiatives to combat the effects of environmental change caused by globalization. (7)

   [B.Com (Hons.), 2017]