Electronic Commerce

Chapter one:
Introduction to e-commerce

Chapter 1
 Electronic Commerce: the second
wave
 Humble beginning in the mid- 1990s
 Grew rapidly until 2000
 Major downturn in 2000
 2000-2003 economy doldrums in general
 2003 e-commerce began to show signs of
new life
 Companies that had survived the downturn
were not only seeing growth in sales but also
showing profit

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Electronic Commerce & Electronic
Business:
 To many people the term “electronic
commerce” means shopping on the web.

 However e-commerce also includes many

other activities: business trading with
other business, internal processes, hiring,
planning, and many other activities.

 Some people use the term e-business but

e-commerce is broader.

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Electronic Commerce & Electronic
Business (cont.)
 So e-commerce includes all business
activities conducted using electronic data
transmission technologies.

 The most common technology used is the

internet and the web

 And the use of wireless transmission on

mobile telephone and Personal Digital
Assistant (PDA) devices.

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 Categories of Electronic Commerce
 Business-to-Consumer(B2C): consumers shopping
on the web
 Business-to-Business(B2B): transactions
conducted between businesses
 Business Process: transactions that companies
undertake s on the internet to support selling and buying
activates. (ex: business process of shipping goods)
 Consumer-to-Consumer(C2C): individuals who buy
or sell things among themselves. (ex: auction sites)
 Consumer-to-Government(C2G): transactions
between consumer and a government agency (ex: pay tax)

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6
Elements of Electronic commerce

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The Development & Growth of E-Commerce
 Although the web is not an old technology,
electronic commerce has existed for many
years:
- Electronic Funds Transfer (EFTs):
electronic transmissions of account exchanging
information over a private communication
networks.
- Electronic Data Interchange (EDI): occurs
when one business transmits computer-
readable data in standard format to another
business. (ex: invoice, purchase order, bills…)

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The Development & Growth of E-Commerce

 In EDI by creating a set of standard

formats for electronic transmission of
data, this will:
- Reduce errors
- Avoid printing and mailing costs
- Eliminate the need to re-enter data

 Businesses that engage in EDI with each

other are called trading partners.

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Actual and Estimated Online Sales in
B2C and B2B Categories

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Advantages of Electronic Commerce
 Can increase sales and decrease costs
 If advertising done well on the Web
 Can get a firm’s promotional message out to
potential customers in every country
 Using e-commerce sales support and
order-taking processes, a business can
 Reduce costs of handling sales inquiries
 Provide price quotes

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Advantages of Electronic Commerce
(Continued)
 Increases purchasing opportunities for buyer
 Negotiating price and delivery terms is easier
 The following cost less to issue and arrive
securely and quickly
 Electronic payments of tax refunds
 Public retirement
 Welfare support

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Disadvantages of Electronic Commerce
 Some Products are hard to sell on line
like Perishable grocery for example
 Difficult to
 Calculate return-on-investment
 Integrate existing databases and
transaction-processing software into
software that enables e-commerce
 Cultural and legal obstacles also exist

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 Economic Forces & E-Commerce
(markets)
 Economic is the study of how people allocate
scarce resources.

 One way of people to organize their

commerce activity is to participate in markets.

 What is a market? It includes two conditions:

- Potential seller came into contact with
potential buyer.
- A medium of exchange is available (currency
or barter).

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The example of a sweater dealer

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 Transaction Costs
 Transaction costs are the total costs
that a buyer and seller incur

 Significant components of transaction

costs:
 Cost of information search and acquisition

 Investment of the seller in equipment or in

the hiring of skilled employees to supply
products or services to the buyer

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 Using Electronic Commerce to
Reduce Transaction Costs

 Businesses and individuals can use

electronic commerce to reduce
transaction costs by:
 Improving the flow of information

 Increasing coordination of actions

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 Economic Forces & E-Commerce
(hierarchy)
 Most economists agree that markets
are strong and effective mechanisms
for allocating scarce resources. Thus
we expect most business transaction to
occur within markets.

 However much business activity today

occurs within large hierarchical
business organization (firm, company)

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The example of a sweater dealer

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 Economic Forces & E-Commerce
(hierarchy)
 These firms often conduct business
activities entirely within the
organization, and participate in markets
only for purchasing raw material and
selling finished products.

 Reducing Transaction costs is the main

motivation for moving from markets to
hierarchically firm.

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Economic Forces & E-Commerce
(hierarchy)

 Vertical integration: when an

existing firm replaces one or more of
its supplier markets with its own
hierarchical structure of creating its
own supplied product.

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Network Economic structure
 Some companies operate in a form that is
neither a market not a hierarchy
structure.

 These companies coordinate their

strategies, resources, and skilled sets by
forming a long term relationship with
other companies and individuals based on
shared purposes. ( called network
structure)

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 Network Economic structure
 These relationships are often called
strategic alliance.
 When these relationships occurs
between companies operating on the
internet, these relationships are
called virtual company.

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Network Economic structure

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 Network economic structure
 Electronic commerce can make such
networks which rely extensively on
information sharing, much easier to
construct and maintain.

 Some researchers believe that these

network forms will become predominant
in the near future.

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Network Effects
 As more people or organizations
participate in a network, the value
of the net work to each participant
increases. This increase in the value
is called Network effect.

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:Identifying e-commerce opportunities
 Regardless of how businesses organize
themselves: markets, hierarchies, or
networks. You will need a way to identify
business processes and evaluate whether
e-commerce is suitable for each process.

 SWOT Analysis: evaluates business unit

Opportunities.
S Strengths W Weaknesses O
Opportunities T Threats
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 SWOT Analysis
 Most e-commerce initiatives add value by
either reducing transaction costs, creating
some type of network effect, or both.

 In SWOT Analysis the analyst first look

into the business to identify Strengths and
Weaknesses, then reviews the
environment to identify Opportunities
presented by the environment and the
Threats posted by that environment.
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SWOT Analysis Questions

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Results of Dells' SWOT Analysis

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Results of Dells' SWOT Analysis

 After the analysis, Dell decided to

offer customized computers built to
be ordered and sold over the phone
and eventually over the internet.

 Dells’ strategy capitalized on its

strengths and avoided relying on a
dealer or a network

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 summary
 E-commerce definition
 The first and the second wave of e-commerce
 Advantages and disadvantages
 Economic forces and e-commerce
 Market
 Hierarchy
 Network
 Network effect
 Identifying e-commerce opportunity

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:Homework

 Using SWOT analysis, evaluate

business opportunity of your choice

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