MODULE 1-INTRODUCTION TO ELECTRONIC COMMERCE

Electronic Commerce and the trade cycle:

E-Commerce can be applied to all, or to different phases, of the trade cycle. The trade cycle
varies depending on:
 The nature of the organizations (or individuals) involved.
 The frequency of trade between the partners to the exchange.
 The nature of the goods or services being exchanged.

The trade cycle has to support

 Finding goods or services appropriate to the requirement and agreeing the terms of trade
(referred to as search and negotiation).
 Placing the order, taking delivery and making payment (execution and settlement).
 After-sales activities such as warrantee, service, etc.

There are numerous versions of the trade cycles depending on the factors outlined above and, for
many transactions, further complicated by the complexities of international trade. That said,
three generic trade cycles can be identified:
 Regular, repeat transactions between commercial trading partners (repeat trade cycle).
 Irregular transactions between commercial trading partners where execution and
settlement are separated (‘credit’ transactions).
 Irregular transactions in once-off trading relationships where execution and settlement are
typically combined (‘cash’ transactions).

The three generic trade cycles can be identified:

 Regular, repeat transactions (repeat trade cycle)

 Irregular transactions, where execution & settlement are separated (credit
transactions)
 Irregular transactions where execution & settlement are combined (cash
transactions)
Figure: Generic trade cycles
 Figure: E-Commerce Technologies and generic trade cycles

Electronic Markets:
An electronic market is an inter-organizational information system that provides facilities for
buyers and sellers to exchange information about price and product offerings (been, et al., 1995).
The electronic market is primarily about the search phase of the trade cycle. The electronic
market is most effective in assisting the buyer in a commodity market where products are
essentially identical across all sellers. In a differentiated market there is a variety of product
offerings and the search problem is more complex. An effective electronic market increases the
efficiency of the market, it reduces the search cost for the buyer and makes it more likely that the
buyer will continue the search until the ‘best buy’ is found. ‘The effect of an electronic market in
a commodity market is a more efficient distribution of information which causes decreasing
profit possibilities for sellers.
In brief:
 It increases the efficiency of the market
 It reduces the search cost for the buyer & makes it more likely that buyer will
continue the search until the best buy is found
 It exist in commodity, financial markets & they are also used in airline booking
system
 It is irregular transaction trade cycle.
Electronic Markets (and electronic information services giving product and price data) exist in
commodity exchanges, financial markets and they are also extensively used in the airline
industry for passenger seat sales.
‘…the overall effect of this technology will be to increase the proportion of economic activity
co-ordinated by markets’.
The importance of electronic markets in the sectors where they operate has increased but there
has not been any dramatic expansion of the use of electronic markets to additional economic
sectors. Part of the difficulty of establishing new electronic markets relates to activities by
vendors to gain competitive advantage by product differentiation and techniques to lock-in
customers.
Alternatively a public access network can be seen as an electronic market and can be used with
an index or a search engine to find vendors of the required product or service.
Electronic Data Interchange:

EDI is based on a set of standardized messages for the transfer of structured data between
computer applications. It can have many applications, e.g. sending test results from the
pathology laboratory to the hospital or dispatching exam results from the exam boards to
schools, but it is principally used for trade exchanges: orders, invoices, payments and the many
other transactions that can be used in national and international trade exchanges.

Notable users of EDI are vehicle assemblers, ordering components for their production lines, and
supermarkets (and other multiple retailers), ordering the goods needed to restock their shelves.
EDI allows the stock control/materials management system of the customer to interface with the
stock control/production systems of the suppliers without the use of paper documents or the need
for human intervention.

EDI is used for regular repeat transactions, it takes quite a lot of work to set up systems to send
and retrieve EDI messages and, in general, it is not applicable to one-off exchanges. Also EDI is
a formal system and it does not really have a place in the search and negotiation phases.
EDI tends to be limited to (or ‘owned by’) large organizations which set up their purchasing and
logistics systems to utilize EDI and then demand that their immediate suppliers fit in with the
arrangement. EDI is part of schemes for just-in-time manufacture and quick response supply.

In brief:

 It is used to trade exchanges

 Users are vehicle assemblers, ordering components for the supermarkets
 It is used for regular repeat transactions
 It takes quite lot of work to set up systems
 It is part of schemes for just-in-manufacture and quick response supply
 Mature use of EDI allows for a change in the nature of the product or service
  Mass Customization is such an example

Figure: EDI and Trade Cycle

Internet Commerce:
E-Commerce can be and is used for once-off transactions. This area of trade is typified by the
consumer purchasing over the Internet but there are (or have been) other networks:  Television
sales channels are in use in the US;  The French Minitel is a mature example of an interactive,
public access network; and this type of e-Commerce is also used by organizations to make once-
off or infrequent purchases of items such as computer and office supplies. This form of e-
Commerce may give its customers credit facilities but is typified by the ‘cash’ trade cycle. The
Internet can be used for all or part of the trade cycle:

The first stage

 Advertising appropriate goods and services
 Internet sites offer only information & any further steps down the trade cycle are conducted on
the telephone

The Second stage

 An increasing no. of sites offer facilities to execute & settle the transaction
 Delivery may be electronic or by home delivery depending on the goods and services

The final stage

 After-sales service
 On-line support & On-Line services.
Internet trade is not suited to all goods or to all people. Marketing strategy is popularly enshrined
in the concept of the four Ps: product, price, promotion and place (Needle, 1994). The Internet as
a marketing and sales channel can be examined in this context:

 Product: Some products are more suited than others to selling over the Internet. Existing mail
order operations give an indication and technical products, that would appeal to an Internet
audience, could be added to the list.

 Price: The Internet can have a price advantage. There is no need for a retail outlet and the
business facilities needed by an Internet vendor could be relatively cheap. Set against this is the
cost of delivering goods and the premium rate currently being charged by credit card companies
to some Internet vendors.

 Promotion: The Internet provides a very cheap way of promoting a company and a product.
That said, promotion on the Internet, unlike almost any other form of advertising, relies an the
customer having the facility to access the Internet and then using it to find the promotional
material.

 Place: Internet purchases have to be delivered to the client. Information services can be
delivered electronically but tangible goods require costly physical delivery. e-Commerce in
Perspective e-Commerce is not appropriate to all business transactions and, within e-Commerce
there is no one technology that can or should be appropriate to all requirements. e-commerce is
not a new phenomenon; electronic markets, EDI and consumer e-Commerce on the Minitel have
been around for many years. Predictions in the past have included:

 The expansion of electronic markets into a significantly greater number of trade sectors than
has been the case.
 The use of EDI as a universal and non-proprietary way of doing business. The suggestion of
this book, supported by an examination of Internet commerce and the evolution of other forms of
e-Commerce, is that Internet commerce will similarly settle down as just one, albeit an important
one, of many ways of doing business. The Venn diagram showing three categories of e-
Commerce with the three generic trade cycles to suggest, in general terms, how differing
business requirements are most likely to match onto the available e-Commerce technologies.