INTRODUCTION TO ELECTRONIC COMMERCE
Electronic commerce is a general concept covering any form of business transaction or information exchange using information and communication technologies (ICT).
The scope of Electronic Commerce: e-Commerce is a term popularized by the advent of Commercial services on the internet. The mechanism of e-Commerce consist of these three areas-
An electronic market is the use of information and communications technology to present a range of products available in a markets segment, so that the purchaser can compare prices of the products and make a purchase decision. Such as Airline booking system
Electronic Data Interchange:
EDI provides a standardized system for coding trade transaction so that the can communicate directly from one computer system to another without the need for printed order and invoices. such as supermarket.
Information and communication technologies can also be used advertise and make once off sales of a wide range of goods and services. This type of e-Commerce is typified by the commercial use of the internet. Such as books purchasing over internet.
Definition of Electronic Commerce: there are lots of standard definitions typified on the basis of use of e-Commerce.
- Suggestion divides the evolution of information technology (IT) into 20 years periods.
1955-74 The Electronic Data Processing (EDP) era
1975-94 The Management Information System (MIS) era.
1995-2014 The Internet era.
If you accept the proposition that the third steps is differentiate by world wide access to the internet
“Electronic Commerce is commerce enabled by Internet-era Technologies.”
- Electronic Commerce is a general concept covering any form of business transactions or information exchange executed any form of business transactions or information exchange executed using information and communication technology, between companies, between companies and their customers, or between companies and public administration. “Electronic commerce includes electronic trading of goods, services and electronic material.”
- Formulating commercial transaction at a site remote from the trading partner and then using electronic communication to execute that transaction.
- Nature of organization
- frequency of trade between the partner to the exchange
- nature of goods and services
It is use to support
- finding, negotiating
- order, delivery, payment
- after sale services
An electronic market is an inter-organizational information system that provides facilities for buyers and sellers to exchange information about price and product offerings. The electronic market is most effective in search phase of the trade cycle. Electronic market is most effective when product is identical. As product increases search becomes more complex and less efficient. But e-market should reduce search cost for the buyer and increases efficiency of the search until “best buy” is found.
E-market can also be applicable in EXECUTION and SETTLEMENT phase also. For example Airline Booking System- the primary use of electronic market is to locate an available seat according to the customer (time, place, price basis). Then it is also allow deal to be executed and payment to be made.
E-market consider in credit transaction in trade cycle. And e-market also tends to be available to intermediaries (travel agent).
Fundamentally e-market is relies on information provided by the vendors but if information is not good enough that will be disadvantageous things for the vendors, and also due to the competition it also decrease profit to the vendors.
ELECTRONIC DATA INTERCHANGE:
EDI based on a set of standardized messages for the transfer of the structured data between computer applications. It can have many applications, for example sending test result (lab to hospital), dispatching exam result (board to school). But it is principally used for the trade exchanges- order, invoices, payments, and other transactions that can be uses in national and international trade exchange (vehicle assembler, computer assembler).
EDI is used for the regular repeat transactions, and it is a formal system and it does not really have a place in the search and negotiation phases.
I-commerce basically used for once-off or infrequent purchases of items such as computer and office supplies. This form of e-Commerce may give its customers credits facilities but it is typified by the “cash” trade cycle (where case payment is taken to include settlement at the time of purchase by a credit card or some form of e-cash).
Internet can be used for all or part of the trade cycle
- settlement and execution (order, deliver, invoice, payment)
- after sale services (online support for the product)
The internet as a marketing and sales channel can be examined in this context:
- Product: it attract internet user also
- Price: there is no need for a retail outlet and the business facilities needed by an internet vendor could be relatively cheap.
- Promotion: very cheap way of promoting a company and products
- Place: information services can be delivered electronically but tangible goods require costly physical delivery.
THE VALUE CHAIN
Supply chain or value chain: the production of goods and services is the result of the efforts of many organizations- a complex web of contracts and co-operation known as the supply chain or the value system. Each stage in supply chain adds value, and interfaces between stages require the exchange of information and e-Commerce technologies can be utilized for many of these interfaces.
The products sold in shops and purchased for use in organizations are the result of a complex web of relationships between manufacturers, components suppliers, wholesalers, retailers, and the logical infrastructure that links them together.
For large retailers and manufacturers of complex products the number of supplier organizations will be hundreds and possibly thousands.
PORTER’S VALUE CHAIN MODEL: Porter introduced his model of the Generic Value Chain, his model essentially concerned with the internal activities of the company, and these activities classified as-
Inbound Logistic: handling goods that are brought into the company, storing them and making them available to operations as required
Operations: the productions process
Outbound Logistic: taking the products of company, storing them if necessary and distributing them to the customer in a timely manner.
Marketing & Sales: finding out the requirement of potential customers and letting them know of the products and services that can be offered.
Services: any requirement for installation or advice before delivery and then after-sales service once the transaction is completed
Procurement: finding suppliers of the materials required as input to the operations of the organization, as well as negotiating quality supplies at an acceptable price and with reliable delivery.
Technology Development: the organization needs to update its production processes, train staff, and innovations.
Human Resource Management: the recruitment, training and personal management of the people who work for the organization.
Firm Infrastructure: The overall management of the company including planning and accountancy.
Once analyzed of performance deficits can be addressed to improve product quality, customer service and/ or price competitiveness.
The efficiency of the linkages may be enhanced by the user by the use of information and communication technologies (ICT’s).
Use of ICTs:
- Human Resource Management: vacancies advertisement.
- Procurement: Online search for supplier.
- Marketing: Online advertisement for the products.
- Servicing: Online assistance, fault diagnosis.
INTER ORGANISATIONAL VALUE CHAIN:
Value chains differ considerably across trade sectors and between different organizations within a trade sector. Value system in automobile assembly, food, supermarket, and insurance sector are summarized as follows:
1. automobile industry
Automobile assembly uses a vast number of components. The making of a car is a component assembly job. Some of the components, such as engines and body panels, may be produced by the company (possibly in other plants), whereas most of the parts: lights, break, wheel, tyres, etc. are brought in from supplies. Components are delivered to the production line on a just-in-time basis; larger components might be “sequenced delivery” with their arrival synchronized to match the order of the vehicles on the assembly line.
The sales channel is the dealer network; each vehicle assembler sells through a chain of dealers tied by contract to that marquee. Vehicle supply to the network is a mixture of the carmaker instructing the dealers what to stock and the dealers ordering to meet demand. The dealer network also has a system of swapping vehicle so that the specific requirement of a customer can be met.
2. Food Supermarket
Food retailer is dividing into two parts-
Large supermarket chains (direct deal with manufacturer)
Small retailers (deal with wholesaler rather than manufacturer)
Supermarket supply chain is start from food manufacturer. Produce is either delivered to a regional distribution depot or direct to the shop. Items that are relatively small or are sold in modest quantities can be delivered by the manufacturer to the regional depot where the load can be split up and sent on to the shops where they are needed. Items required in large quantities or that need to be very fresh can be delivered direct from the supplier to the supermarket, obviating the need to “double handle” the goods at the regional warehouse. Supermarket sells directly to the consumer; there is no requirement for any intermediary or channel.
Insurance is a service industry and it is not directly reliant to its suppliers, its value system is therefore focused on sales. Insurance policies to the public can be:
- Sold by an agent (company employee).
- Sold by an intermediary (like insurance broker).
- Direct sales using telesales or the internet.
Value chain in organization itself- An organization needs to analyze its own value chain and it should apply similar techniques to its overall value system. The organization needs to establish which of its inter-organizational relationships working well, providing profit and which fail to achieve appropriate level of quality and prices. The linkage in the value system has to be managed. The physical linkage involve goods handling, transport, warehousing. And including following aims to accomplish-
- Pre-sale: finding supplier & agreeing terms
- Execution: order, delivery
- Settlement: invoice, payment
- After-sales: supportive services
Use of e-Commerce technologies is definitely improving performance of linkage
- Just-in-time manufacturer or quick response supply
- Efficient document processing (less documenting error)
The ability of an organization to prosper arises from its competitive advantage over the other organization operating within its market sector. There are three basic strategies for competitive advantage are-
Differentiation in terms of quality
Focus on a single aspect of the market
Porter’s Model for Competitive Force
Porter’s model helps a firm identify threats to its competitive position and to lay plans that may include IT and e-Commerce, to protect or enhance that position.
Figure shows five force of competitive rivalry
- Threat of potential new entrants
- Threat of a substitute product or service
- The bargaining power of the buyers
- The bargaining power of supplier
- Competitive rivalry among existing firms in the trade sector
- THREAT OF POTENTIAL NEW ENTRANTS:
It relates to the new company or a company in a different product area, that how much easily it can enter a given trade sector. Barrier to entry into a particular market include the need for capital, knowledge and skills. Where existing firms in the sector may well have a substantial investment in IS/IT (information system/ information technology). e.g. - they can use EDI to co-ordinate their supply chain. This experience and investment can be difficult for a new entrant to match.
Internet e-Commerce is a technology that can facilitate new entrants to existing markets without the need to match the IT and infrastructure investment of the existing firm.
e.g. - internet bookshop, internet banks
- THREAT OF SUBSTITUTION:
When a new product become available that supplies the same function as the existing product services, where existing firm can protect themselves by keeping their product up-to-date or alternatively, in some cases, have become major firms in the business of supplying the substitute product.
Internet e-Commerce provides facility for being substitute distribution channels for conventional retailing.
e.g. – music retail shops with online music, typewriter by word processors
- BARGAINING POWER OF BUYERS:
Where there are a number of competitors in the market or a surplus of supply the buyers is in a strong position to bargain for a low price and for other favorable conditions of trade. The threat is that if you do not accept our terms then there are other suppliers that will.
Bargaining strength of buyer is least threat to the low cost producer, because that organization can agree to tight terms of trade that competitor firms could not profitably match. The other defense is to have a branded product that the store will feel obliged to stock, because their customers expect it.
E-commerce can also used to reshape the supply chain by removing intermediaries (wholesale and agent).
- BARGAINING POWER OF SUPPLIERS:
The organization’s ability to get a good deal is the mirror image of its position with its buyers. It the supply is plentiful and/ or there are several suppliers it should get its product at good price.
EDI is helpful to solve this problem, where it provides quick response and faster supply.
- COMPETITION BETWEEN EXISTING FIRMS:
It is to get the buyers and to trade at a price that produces an acceptable profit. The competitive position of each organization deal is not absolute; in most markets the factors that lead to a successful deal in one place at a given time will not necessarily be replicated in the next bargain that is to be struck.
Use of e-commerce can
Ø Reduce the administrative cost of trading
Ø Reduce stock handling
Ø Increase supply reliability
Ø Quality differentiation
Ø Cut out intermediaries
Ø Provide a new marketing and servicing channel.
First mover advantage:
The first organization to implement a new type of ICT system will, if the system is successful, gain the price advantage or the differentiation while competitors are still operating with traditional methods and systems. First mover can gain advantages but it is a risky business. New technologies and new ways of using them are expensive to develop and are often not successful. There are advantages to being late mover:
The idea has been tried or tested
Its effectiveness can be assessed
Improve version of the new system
New technology is cheaper and easier to implement
How to sustain Competitive Advantage:
The idea of giving the customer access to tracking information via the internet was a new one that had considerable appeal to the customer. The use of new system also had considerable advantage to FedEx who no longer had to deal with a vast number of calls checking up on progress of consignment; because the customer could now access the system themselves.
But e-commerce development and implementation could no be entirely private- customer had to become involved at some stage. The competitor was quick to catch on to the idea and UPS (UNITED PARSAL SERVICES) was soon able to make available a similar system built onto their internal IT infrastructure for tracking packages. DHL, on the other hand, were unable to react as quickly because of technical difficulties in implementing and integrating a competitive system.
To gain advantage
Ø System need to be out in the market before competitors make a start in copying ideas
Ø Technical advantage is converted into brand advantage
Ø Provide better and better services to the customer
Sustainable competitive advantage appears to be more common with internet e-Commerce;
Ø The element of surprises can be greater.
Ø Entry cost is low
Ø Regular development in the sites and services
Corporate strategy is the pattern of major objectives, purpose or goals and essential policies or plans for achieving those goals, stated in such a way as to define what business the company is in or is to be and the kind of company it is or is to be.
Strategy formulation has to be included
Ø Consideration of environmental changes
Ø Assessment of internal strengths
Ø A decision making process
Ø A strategy generating process