e-Commerce

CHAPTER 1

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-
Electronic market:
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.
Internet Commerce:
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.
1. 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.”
2. 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.”
3. Formulating commercial transaction at a site remote from the trading partner and then
using electronic communication to execute that transaction.

TRADE CYCLE:
Classified as
1. Nature of organization
2. frequency of trade between the partner to the exchange
3. nature of goods and services
 It is use to support
1. finding, negotiating
2. order, delivery, payment
3. after sale services

REPEAT CREDIT CASH

SEARCH
PRE-SALE

NEGOTIATIE

ORDER
EXECUTION
DELIVER

INVOICE
SETTLEMENT
PAYMENT

AFTER SALES AFTER-SALE

ELECTRONIC MARKET:

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.
 REPEAT

SEARCH
PRE-SALE

NEGOTIATIE

ORDER
EXECUTION
DELIVER

INVOICE
SETTLEMENT
PAYMENT

AFTER SALES AFTER-SALE

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.

REPEAT

SEARCH
PRE-SALE

NEGOTIATIE

ORDER
EXECUTION
DELIVER

INVOICE
SETTLEMENT
PAYMENT

AFTER SALES AFTER-SALE

INTERNET COMMERCE:

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
 1. search
2. settlement and execution (order, deliver, invoice, payment)
3. after sale services (online support for the product)
REPEAT

SEARCH
PRE-SALE

NEGOTIATIE

ORDER
EXECUTION
DELIVER

INVOICE
SETTLEMENT
PAYMENT

AFTER SALES AFTER-SALE

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.
 CHAPTER 2

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.

Supply chains:
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.

Manufacture

Sub assembly Wholesale

Supply
Component Retail
Supply
MANUFACTURING VALUE CHAIN
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-
Primary Activities
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
Secondary Activities
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.

Support Activities
Firm Infrastructure

Human Resource Management

Technology Development

Procurement
Margin

Inbound Outbound Marketing

Operations Service
Logistic Logistic & Sales

Primary Activities

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).

Outbound Inbound Outbound Inbound

Logistic Logistic Operations Logistic Logistic

VALUE CHAIN LINKAGE

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

Internal
Supplies

Vehicle
Component Assembler Dealer
Supplies Network Consumer

AUTOMOBILE ASSEMBLY

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

Regional
Warehouse

Super-
Food Market
Manufacturer Consumer

SUPER MARKET
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.

3. Insurance

Agents

Insurance
Company Consumer

Insurance
Broker

INSURANCE

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)
 CHAPTER 3

COMPETITIVE ADVANTAGE
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-
Cost leadership
Differentiation in terms of quality
Focus on a single aspect of the market
Porter’s Model for Competitive Force

Threat of
potential entrants

Bargaining power Competitive Bargaining power

of Supplier of Buyers
Rivalry

Threat of
Substitution

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

1. Threat of potential new entrants

2. Threat of a substitute product or service
3. The bargaining power of the buyers
4. The bargaining power of supplier
5. Competitive rivalry among existing firms in the trade sector

1. 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

2. 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

3. 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).

4. 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.

5. 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

 Reduce the administrative cost of trading
 Reduce stock handling
 Increase supply reliability
 Quality differentiation
 Cut out intermediaries
 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
 System need to be out in the market before competitors make a start in copying
ideas
 Technical advantage is converted into brand advantage
 Provide better and better services to the customer

Sustainable competitive advantage appears to be more common with internet e-

Commerce;
 The element of surprises can be greater.
 Entry cost is low
 Regular development in the sites and services
 CHAPTER 4

BUSINESS STRATEGY
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

 Consideration of environmental changes
 Assessment of internal strengths
 A decision making process
 A strategy generating process

Business environment Technology evaluation Business capability

Business strategy Strategy formulation Business strategy

e-Commerce strategy

e-Commerce plan

Business implementation Technical implementation

Evaluation

e-Commerce Strategy Formulation