BIS 355
Week 1: E-Commerce Overview
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What is Electronic Commerce?
First of all, in order to understand electronic commerc e, you need to have a basic understanding of COMMERCE. Commerce is a negotiated exchange of valuable objects or servic es, between at least two parties and includes all activities that eac h of the parties undertakes to complete the transaction. You can examine commerce from either the buyer’s or seller’s viewpoint. Electronic Commerce is defined as the use of electronic dat a transmission to implement or enhance any business process. Frequently people us e this term to refer to commerce on the Internet or Web bec ause they are the most extensive dat a transmission networks. The more generic definition includes electronic funds trans fers (EFT) which most bank customer’s use at their A TM, as well as electronic data interchange (EDI) in business to business communications or intranet and extranet net works. In general, e-commerce is a means of reducing the time and paperwork involved in transacting business. But not all business trans actions are suited for the web, although there are a never ending number of start-ups in the Internet space that would like to prove otherwise. In some cases, it is because the technology is just not available or that it hasn’t earned the adoption rat e necessary to make the electronic form of transaction accept able on a wide basis. We sometimes forget we are talking about a form of business that is less than five years old!
Advantages and Disadvantages of Electronic Commerce
The activities in which businesses engage as they conduct commerc e are often referred to as business processes. Certain business processes are well suited to benefit from the advantages of electronic commerce. Typical business process relat ed to commerce include: Trans ferring funds Placing orders Sending invoices Shipping goods to customers
The web has benefit ed companies and industries that conduct many of the following business processes: Sales/purchase of books and CD’s Online delivery of software Advertising and promotion of travel and financial services Online tracking of shipments Sale/purchase of commodity items, especially branded commodities
Advantages
The benefits of electronic commerce primarily relate to increasing sales revenues or decreasing operation costs. Typical advantages include: Increased Sales Reac h narrow market segments in geographically dispersed locations Create virtual communities
Decreased Costs Handling sales inquiries Providing price quotes Determining product availability
BIS 355 Disadvantages
Week 1: E-Commerce Overview
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The disadvantages to electronic commerce include the following: Customer cannot inspect the product Cost/benefit of employing electronic commerce is hard to quantify in traditional accounting terms for managers and investors to grasp Current lack of uni versal standards for transaction processing
Industries specialized in perishable products, high cost products such as jewelry or product lines which depend heavily upon buy er inspection before the sale face difficult challenges attempting to adapt electronic commerce to their current operations, although, companies such as Peapod, HomeGrocer and WebV an are trying to prove otherwise. Also, some firms may encounter difficulty integrating existing databases and transaction processing software designed for traditional commerce into the soft ware that enables electronic commerce. This is particularly true of companies that rely on an established wholesaler or dealer networks to deal wit h the logistics of distribution. Most of thes e networks rely heavily on EDI as their primary form of electronic interaction, and are used to bulk purchase requests from retailers, not individual purchases from consumers. Few manufacturers are set up to deal with individual purchases as well. A typical distribution channel may have as many as four companies involved in the getting the product to a consumer in the retail world. Changing those business relationships is one companies have had to struggle with prior to moving to an e -commerce environment, even if it was supplement ary to existing channels.
International and Other Electronic Commerce Considerations
Firms engaged in international business, in particular, face the additional challenges of currency conversion, tariffs, import/export restrictions, local business customs and the laws of the host nation. Often times restrictions on products and tracking required by government agencies are an important activity that must be considered when planning an e-commerce environment. In some cases you are not allowed to sell and ship certain items across international borders, some countries levy huge taxes on products that they feel infringe on local markets. There are also a number of traditional restrictions on commerce that still apply to businesses, even if they are an e-commerc e provider. While the issue of U.S. sales tax has been effectively deferred for now, there are still a number of regulations that new ent rants into e -business find they need to consider when opening their doors. For example, the company someone I knew work ed for want ed to offer over-the-counter (OTC) pharmac euticals as part of their “drug store”. How many people realize that in the U.S., you are required to track the number and amount of items sold that contain Sudafed type ingredients, because they are the basics of creating illegal drugs! Not only must you track and report any unusual amounts or behaviors, you are required to have a physical walkthrough of your facility by the DEA in order to gain a permit to do so! This is just an example of the type of very real problems encountered by “virtual” storefronts trying to break new ground in traditional industries. Another ex ample is in online automotive sales. In California (and many other states), only registered car dealerships are allowed to sell cars. This i s why you will see so many of the online aut o stores acting as brokers or referral agents to dealers.
BIS 355
Week 1: E-Commerce Overview
Page 3
Value Chains in Electronic Commerce
Michael Port er’s concept of the value chain, expressed in his book Competitive Advant age is used to identify the specific business processes that could benefit the most from the introduction of electronic commerce. A strategic business unit can be broken down into a series of primary value adding activities or supporting activities to identify candidates for electroni c commerce enhancement. Primary activities would include such tasks as: Identifying customers Product/production system design Purchasing material and supplies Marketing and selling activities Trans port ation, logistics and delivery activities Providing aft er sale service and support
Supportive activities would include Human Resources, improving technology, finance and administrative activities. Porter makes a similar argument for an industrial value chain and the role of electronic commerce in reducing costs, improving product quality, reaching new customers or suppliers and creating new ways of selling existing products. The value chain analysis highlights the point that electronic commerce should be a business solution, not merely information tec hnology implemented for its own sake.