Electronic Commerce
Chapter 1
INTRODUCTION
Objectives
• Three waves of e-commerce
• What is e-commerce?
• E-commerce categories
• Advantages and disadvantages
• Economics and e-commerce
• International nature of e-commerce
2
Case study - China
• Since 2013, China has been the leader in online retail sales.
• Chinese are also frequent users of domestic sites with well-developed
brand awareness such as [Link], Tmall and Taobao.
• Chinese online buyers are more highly influenced online reviews.
• Sellers in China must take into account regional differences: shopping
behaviors, distribution & delivery,…
à[Link] has built more than 80 warehouses in 34 cities which it uses to make
faster and more reliable deliveries than its competitors.
è how online businesses have emerged and grown to accommodate
the various cultures and infrastructure challenges around the world.
3
Evolution of E-commerce
• E-commerce grew rapidly from 1995 - 2000 called a “boom”,
followed by a rapid contraction, called “bust” (2000 – 2003)
• In 2003, e-commerce had a profound rebirth. E-commerce also grew
in a faster pace than the overall economy è became a larger part of
the total economy.
• In the general economic recession that started in 2008, e-commerce
suffered far less than most of the economy.
è As the general economy has expanded and contracted, electronic
commerce has consistently expanded more in the good times and
contracted less in the bad times than other economic sectors.
4
Waves of e-commerce
First wave (1995 - 2003) Second waves (2004 - 2009)
§ Dominated by U.S. companies § Global enterprises in many countries participating in electronic commerce
§ Most electronic commerce Web sites in English § Many electronic commerce Web sites available in multiple languages.
§ Many new companies started with outside investor § Established companies funding electronic commerce initiatives with their
money own capital.
§ Slow Internet connections. § Rapidly increasing use of broadband technologies for Internet connections
§ Unstructured e-mail communication with customers § Customized e-mail strategies are integral to customer contact.
§ Reliance on simple forms of online advertising as main § Use of multiple sophisticated advertising approaches and better integration
revenue source of electronic commerce with existing business processes and strategies.
§ Widespread piracy due to ineffective distribution of § New approaches to the sale and distribution of digital products
digital products.
§ Rely on first-mover advantage to ensure success in all § A business observes first-mover failures and enters a business later, when
types of markets and industries large investments are no longer required and business processes have
been tested, à called a smart-follower strategy
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Waves of e-commerce
E-Commerce characteristic Third wave (2010 – 2015)
§ Emergence of China, India, Brazil, and other countries as major
§ International character
centers of electronic commerce activity.
§ English is no longer the dominant language on Web sites worldwide
§ Languages
§ Funding § Wide variety of funding sources available, including crowdsourcing.
§ Connection technologies § High bandwidth mobile telephone networks become an additional
important connection technology.
§ Contact with customers § Social networking tools are important additions to e-mail contact
§ Advertising and Electronic § Increasingly, advertising and marketing strategies are driven by
Commerce Integration available online communication technologies.
§ Distribution of digital § Sale and distribution of digital products becomes commonplace
products
§ First-mover advantage no longer seen as a key element in electronic
§ First-Mover advantage commerce initiatives 6
Waves of e-commerce
• The first wave of e-commerce began in the 1990s, with the creation of
websites of brand manufacturers and retailers like Amazon. At this
stage, e-commerce was a novelty.
• The second wave of e-commerce began in the aughts, when most
consumers routinely used e-commerce.
• The third wave of e-commerce began in the 2010s, when retailers,
particularly e-commerce retailers, began to replace their in-house
products with brand manufacturers' products, using the consumer
information advantage they had over the brand manufacturers.
• The fourth wave of e-commerce??? à DISCUSSION
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Fourth wave of e-commerce
• Integration of Advanced Technologies
• Data-Driven Decision Making
• Enhanced Personalization
• Seamless Omnichannel Integration
• Blockchain Technology
• Automation and Efficiency
• Enhanced User Experience
• Social Commerce and Community Engagement
è These characteristics reflect how the fourth wave of e-commerce is
transforming the industry by integrating cutting-edge technologies and data-
driven approaches to enhance the overall shopping experience and operational
efficiency
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What is e-commerce
• E-commerce: shopping on the World Wide Web ==> NO
• E-commerce includes many other activities, such as
- businesses trading with other businesses
- internal processes that companies use to support their buying, selling, hiring,
planning, and other activities
• E-business
• Definition from IBM: the transformation of key business processes through the
use of Internet technologies
• Most people use the terms “electronic commerce” and “electronic business”
interchangeably.
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Categories of Electronic Commerce
• Five general e-commerce categories:
• Business-to-consumer
• Business-to-business
• Business processes
• Consumer-to-consumer
• Business-to-government
• Supply management or procurement
• Departments are devoted to negotiating purchase transactions with suppliers
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DISCUSSION
Categories of Electronic Commerce
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E-commerce categories
• Relative size of E-Commerce elements
Relative Size (in terms of dollar volume and number of transactions) of Electronic Commerce Elements
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Identifying Electronic Commerce
Opportunities
• Firm
• Multiple business units owned by a common set of shareholders
• Industry
• Multiple firms that sell similar products to similar customers
13
Business Models, Revenue Models, and
Business Processes
• Business model
• A set of processes that combine to yield a profit
• Revenue model
• A specific collection of business processes used to:
• Identify customers
• Market to those customers
• Generate sales to those customers
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Business Models, Revenue Models, and
Business Processes
• Business process: collection of related activities to produce a specific
service or product
• Primary (core) processes: create value directly (purchasing,
manufacturing, sales, etc.)
• Supporting processes: support core processes (accounting,
recruitment, technical support, etc.)
• Instead of copying business models, a wiser approach is to
improve/replace specific business processes
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Strategic Business Unit Value Chains
• Value chain
• A way of organizing the activities that each strategic business unit undertakes
16
Industry Value Chains
• Value system
• Larger stream of activities into which a particular business unit’s value chain
is embedded
• Also referred to as industry value chain
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What is e-commerce
• Industry value chain: a chain of various
processes that are involved in producing
goods (and services), starting with raw
materials and ending with the delivered
product
• Example: Industry value chain for a wooden
chair
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SWOT Analysis: Evaluating Business Unit
Opportunities
• SWOT (strengths, weaknesses, opportunities, threats) analysis:
Evaluating Business Unit Opportunities
• In SWOT analysis:
• An analyst first looks into the business unit to identify its strengths and
weaknesses
• The analyst then reviews the operating environment and identifies
opportunities and threats
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SWOT Analysis: Evaluating Business Unit
Opportunities
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SWOT analysis example
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SWOT analysis example
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E-commerce: Opportunities and Barriers
• Opportunities
• Create virtual community
• For sellers
• Increase sales
• Decrease cost
• Increase reach and richness
• Identify new suppliers and business partners
• For buyers
• Increase purchasing opportunities
• Easier negotiating price and delivery terms
• Increase speed, information exchange accuracy
• Wider range of choices
23
E-commerce: Opportunities and Barriers
• Opportunities
• For society
• Lower costs to issue:
• Electronic payments of tax refunds
• Public retirement
• Welfare support
• Secure and quick Internet transmission
• Fraud, theft loss protection
• Electronic payments easier to audit and monitor
• Reduced commuter-caused traffic, pollution due to telecommuting
• Products and services available in remote areas
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E-commerce: Opportunities and Barriers
• Barriers
• Not all products & services suitable for e-commerce
• Technology and software issues
• Consumers resistant to change
• Cultural differences
• Conflicting laws
• These barriers will disappear when
• Advancing of technologies
• Buyers willing to buy through the Internet
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DISCUSSION
E-commerce: Opportunities and Barriers
• Products/services for e-commerce
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Economics and e-commerce
• Economics: study of how people allocate scarce resources
• One way people do this is to participate in markets
• Economists use a formal definition of market that includes two
conditions:
• The potential sellers of a good come into contact with potential buyers
• A medium of exchange is available
• Most economists agree that markets are strong and effective
mechanisms for allocating scarce resources
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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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DISCUSSION
Economics and e-commerce
• Agency cost: the cost of using an agency
• Two components:
• The costs inherently associated with using an agent
• The costs of techniques used to mitigate the problems associated
with using an agent
• Using e-commerce to reduce transaction cost and agency costs
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Network Economic Structures
• Network economic structures
• Neither a market nor a hierarchy
• Companies coordinate their strategies, resources, and skill sets by forming
long-term, stable relationships with other companies and individuals based on
shared purposes
• Strategic alliances (strategic partnerships)
• Relationships created within the network economic structure
31
DISCUSSION
Economics and e-commerce
• How companies are formed?
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Economics and e-commerce
• Law of diminishing returns:
• Most activities yield less value as the amount of consumption increases
• In all productive processes, adding more of one factor of production, while
holding all others constant, will at some point yield lower per-unit returns
• Network effect: more people or organizations participate in a network,
the value of the network to each participant increases
• E-commerce can be used to create network effect
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International nature
• Internet connects computers worldwide
• When companies use Web to improve business process they
automatically operate in global environment
• Key issues
• Trust
35
International nature
• Key issues
• Languages
• Culture
• Government
• Infrastructure
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