Chapter 1:
Introduction to Electronic Commerce
ELECTRONIC
COMMERCE, SEVENTH
ANNUAL EDITION
Objectives 2
In this chapter, you will learn about:
What electronic commerce is and how it
is experiencing a second wave of growth
with a new focus on profitability
Why companies now concentrate on
revenue models and the analysis of
business processes instead of business
models when they undertake electronic
commerce initiatives
Objectives (continued) 3
How economic forces have created a business
environment that is fostering the second wave of
electronic commerce
How businesses use value chains and SWOT analysis to
identify electronic commerce opportunities
The international nature of electronic commerce and the
challenges that arise in engaging in electronic commerce
on a global scale
Electronic Commerce: The 4
Second Wave
Electronic commerce (e-commerce)
Businesses trading with other businesses and
internal processes
Electronic business (e-business)
Term used interchangeably with e-commerce
The transformation of key business processes
through the use of Internet technologies
Categories of Electronic 5
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
6
Categories of Electronic Commerce 7
(continued)
Transaction
An exchange of value
Business processes
The group of logical, related, and sequential activities and
transactions in which businesses engage
Telecommuting or telework
Employees log in to company computers through the Internet
instead of traveling to the office
8
9
The Development and Growth of 10
Electronic Commerce
Electronic funds transfers (EFTs)
Also called wire transfers
Electronic transmissions of account exchange information
over private communications networks
Electronic data interchange (EDI)
Transmitting computer-readable data in a standard format to
another business
11
The Development and Growth
of Electronic Commerce
(continued)
Trading partners
Businesses that engage in EDI with each other
Value-added network (VAN)
Independent firm that offers connection and transaction-
forwarding services to buyers and sellers engaged in EDI
12
The Second Wave of 13
Electronic Commerce
Defining characteristics of the first wave:
Dominant influence of U.S. businesses
Extensive use of the English language
Many new companies started with outside investor money
Unstructured use of e-mail
Over-reliance on advertising as a revenue source
The Second Wave of 14
Electronic Commerce
(continued)
Second wave:
Global enterprises in many countries are participating in
electronic commerce
Established companies fund electronic commerce initiatives
with their own capital
Customized e-mail strategies are now integral to customer
contact
Business Models, Revenue 15
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
Role of Merchandising 16
Merchandising
Combination of store design, layout, and product display
knowledge
Product/Process Suitability 17
to Electronic Commerce
Commodity item
Hard to distinguish from the same products or services
provided by other sellers
Features have become standardized and well known
Product/Process Suitability 18
to Electronic Commerce
(continued)
Shipping profile
Collection of attributes that affect how easily a product can
be packaged and delivered
High value-to-weight ratio
Can make overall shipping cost a small fraction of the selling
price
Advantages of Electronic 19
Commerce
Electronic commerce can increase sales and
decrease costs
If advertising is done well on the Web, it 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
Advantages of Electronic 20
Commerce (continued)
It increases purchasing opportunities for buyers
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
Disadvantages of 21
Electronic Commerce
Perishable grocery products are much harder to sell online
It is 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
Economic Forces and 22
Electronic Commerce
Economics
Study of how people allocate scarce resources
Two conditions of a market
Potential sellers of a good come into contact with potential
buyers
A medium of exchange is available
Transaction Costs 23
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
Using Electronic 24
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
Network Economic 25
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
Network Economic 26
Structures (continued)
Virtual companies
Strategic alliances that occur between or among companies
operating on the Internet
Strategic partners
Entities that come together as a team for a specific project or
activity
Network Effects 27
Law of diminishing returns
Most activities yield less value as the amount of
consumption increases
Network effect
As more people or organizations participate in a
network, the value of the network to each
participant increases
Identifying Electronic 28
Commerce Opportunities
Firm
Multiple business units owned by a common set of
shareholders
Industry
Multiple firms that sell similar products to similar customers
Strategic Business Unit 29
Value Chains
Value chain
A way of organizing the activities that each strategic business
unit undertakes
Primary activities include:
Designing, producing, promoting, marketing, delivering, and
supporting the products or services it sells
Supporting activities include:
Human resource management and purchasing
30
Industry Value Chains 31
Value system
Larger stream of activities into which a particular business
unit’s value chain is embedded
Also referred to as industry value chain
32
SWOT Analysis: Evaluating 33
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
34
35
International Nature of 36
Electronic Commerce
Companies with established reputations:
Often create trust by ensuring that customers know who they
are
Can rely on their established brand names to create trust on
the Web
Customers’ inherent lack of trust in “strangers” on the Web
is logical and to be expected
Language Issues 37
To do business effectively in other cultures a
business must adapt to those cultures
Researchers have found that customers are more
likely to buy products and services from Web sites
in their own language
Localization
Translation that considers multiple elements of the
local environment
Culture Issues 38
An important element of business trust is
anticipating how the other party to a transaction
will act in specific circumstances
Culture:
Combination of language and customs
Varies across national boundaries
Varies across regions within nations
Infrastructure Issues 39
Internet infrastructure includes:
Computers and software connected to the Internet
Communications networks over which message packets
travel
Organization for Economic Cooperation and
Development’s (OECD) Statements on Information and
Communications Policy deal with telecommunications
infrastructure development issues
Infrastructure Issues 40
(continued)
Flat-rate access system
Consumer or business pays one monthly fee for
unlimited telephone line usage
Contributed to rapid rise of U.S. electronic
commerce
Targets for technological solutions include
paperwork and processes that accompany
international transactions
41
Summary 42
Commerce
Negotiated exchange of goods or services
Electronic commerce
Application of new technologies to conduct business more
effectively
First wave of electronic commerce
Ended in 2000
Second wave of electronic commerce
New approaches to integrating Internet technologies into
business processes
Summary (continued) 43
Using electronic commerce, businesses have:
Created new products and services
Improved promotion, marketing, and delivery of existing
offerings
The global nature of electronic commerce leads to many
opportunities and few challenges
To conduct electronic commerce across international
borders, you must understand the trust, cultural, language,
and legal issues
