Negotiate a Purchase by zzz10454


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									        Chapter 1

Introduction to Electronic
             Learning Objectives

In this chapter, you will learn about:
• The basic elements of electronic commerce
• Differences between electronic commerce and
   traditional commerce
• Economic forces that have created a business
   environment that fosters electronic commerce
• The ways in which businesses use value chains to
   identify electronic commerce opportunities
• The ways in which businesses use SWOT analysis
   and evaluate business opportunities
  Traditional Commerce and Electronic

• To many people, the term electronic commerce means
  shopping on the part of the Internet called the World
  Wide Web.

• Although consumer shopping on the Web was
  running about $130 billion per year in 2002 and is
  expected to exceed $500 billion by 2004, electronic
  commerce is much broader and encompasses many
  more business activities than just Web shopping.
  Traditional Commerce and Electronic

• Electronic commerce refers to business activities
  conducted using electronic data transmission via the
  Internet and the World Wide Web.

• The three main elements of e-commerce are:
   – Business-to-consumer
   – Business-to-business
   – The transactions and business processes that support
     selling and purchasing activities on the Web

• Other categories include: consumer-to-consumer and
Electronic Commerce
            Electronic Commerce

• Electronic Funds Transfers (EFTs) have been used by
  banks for many years.

• Electronic Data Interchange (EDI) occurs when one
  business transmits computer-readable data in a
  standard format to another business.
            Electronic Commerce

• Businesses who engage in EDI with each other are
  called trading partners.

• The standard formats used in EDI contain the same
  information that businesses have always included in
  their standard paper invoices, purchase orders, and
  shipping documents.

• Firms, such as General Electric and Wal-Mart, have
  been pioneers in using EDI to improve their
  purchasing process.
        Value Added Network (VAN)

• A value added network is an independent firm that
  offers connection and EDI transaction forwarding
  services to buyers and sellers engaged in EDI.

• VANs are responsible for ensuring the security of
  transmitted data.

• VANs charge a fixed monthly fee plus a per-
  transaction charge to subscribers.
     Activities as Business Processes

• Business processes refer to the group of logical,
  related, and sequential activities and transactions in
  which businesses engage, including:
   – Transferring funds
   – Placing orders
   – Sending invoices
   – Shipping goods to customers
Comparing Traditional Commerce and
Electronic Commerce – Buyer’s Side
Comparing Traditional Commerce and
 Electronic Commerce – Seller’s Side
Business Process Suitability
   to Type of Commerce
             Electronic Commerce

• Commodity item – product or service that is hard to
  distinguish from the same products or services
  provided by other sellers, making them especially well
  suited to electronic commerce.

• Shipping profile – collection of attributes that affect
  how easily a product can be packaged and delivered.
  Advantages of Electronic Commerce

• Electronic commerce can increase sales and decrease

• Web advertising reaches a large amount of potential
  customers throughout the world.

• The Web creates virtual communities for specific
  products or services.
  Advantages of Electronic Commerce

• A business can reduce its costs by using electronic
  commerce in its sales support and order-taking

• Electronic commerce increases sale opportunities for
  the seller.

• Electronic commerce increases purchasing
  opportunities for the buyer.
Disadvantages of Electronic Commerce

• Some business processes are difficult to be
  implemented through electronic commerce.

• Return-on-investment is difficult to apply to electronic

• Businesses face cultural and legal obstacles to
  conducting electronic commerce.
    International Electronic Commerce

• About 60 percent of all electronic commerce sites are in
  English, therefore many language barriers need to be

• The political structures of the world present some

• Legal, tax, and privacy are concerns of international
  electronic commerce.
              Economic Forces
          and Electronic Commerce

• Business activity today occurs within large
  hierarchical business organizations, referred to as
  firms or companies.

• Transaction costs are the total of all costs that a
  buyer and a seller incur as they gather information
  and negotiate a purchase-sale transaction.
               Transaction Costs

• Transaction costs are the total of all costs that a
  buyer and a seller incur as they gather information
  and negotiate a purchase-sale transaction.

• Another significant component of transaction costs
  can be the investment a seller makes in equipment or
  in the hiring of skilled employees to supply the
  product and services to the buyer.
    Economic Forces
and Electronic Commerce
    Economic Forces
and Electronic Commerce
    Economic Forces
and Electronic Commerce
                 Network Effects

• As more people or organizations participate in a
  network, the value of the network to each participant

• Example: An email account that is part of the Internet
  is far more valuable than an email account that
  connects only to other people in the company.
                   Value Chains

• Electronic commerce includes so many activities and
  transactions that it can be difficult for managers to
  decide where and how to use it in their businesses.

• One way to focus on specific business processes as
  candidates for electronic commerce is to break the
  business down into a series of value-adding activities
  that combine to generate profits and meet other
                   Value Chains

• A strategic business unit is one particular
  combination of product, distribution channel, and
  customer type.

• A value chain is a way of organizing the activities that
  each strategic business unit undertakes to design,
  produce, promote, market, deliver, and support the
  products or services it sells.
  Strategic Business Unit Value Chains

• The support activities of a value chain for a strategic
  business unit include:
   – Finance and administration
   – Human resources
   – Technology development
             Industry Value Chains

• Value system describes the larger stream of activities
  into which a particular business unit’s value chain is

• Industry value chain (IVC) refers to value systems.

• IVC is used to identify opportunities for cost
  reduction, product improvement, or channel
Value Chain for Strategic Business
           SWOT Analysis:
Evaluating Business Unit Opportunities

• Most electronic commerce initiatives add value by
  either reducing transaction costs, creating some type
  of network economics effect, or a combination of

• In SWOT analysis, you list the strengths and
  weaknesses of the business unit and then identify
  opportunities presented by the markets of the
  business unit.
           SWOT Analysis:
Evaluating Business Unit Opportunities
      The Role of Electronic Commerce

• Electronic commerce can play a role in
  –   reducing costs
  –   improving product quality
  –   reaching new customers or suppliers
  –   creating new ways of selling existing products
    The Role of Electronic Commerce

• By examining elements of the value chain
  outside of the individual business unit,
  managers can identify many business
  opportunities, including those that can be
  exploited by using electronic commerce.

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