In the broadest sense, electronic commerce (e-commerce), is the buying and selling of products and services over the Internet. It has included the handling of purchase transactions and funds transfers over computer networks. According to the Forrester Research Study Sizing Intercompany Commerce, total U.S business-to-business Internet trade in 1998 is $7.7 billion, compared to a total global e-commerce of $21.8 billion, dramatically increasing from $2.5 billion in 1997. By the year 2002, according to the report, there will be $328 billion worth of e-commerce.
Electronic Commerce (e-commerce)
Electronic commerce is the ability to perform transactions involving the exchange or use of goods or services between two or more parties using electronic tools and techniques Some main technologies have made e-commerce viable – WWW, Electronic Data Interchange (EDI), Electronic Funds Transfer (EFT) and E-mail.
EDI is the inter-organisational, computer-to-computer exchange of business documentation in a standard, machine-processable format. EFT was designed to optimise electronic payments with electronically provided remittance information.
Electronic commerce provides the capability of buying and selling products and information via telephone lines, computer networks, and other electronic means. The Internet, the largest network of computer networks, is the medium usually favoured for electronic commerce because it allows an organisation to cut service costs while increasing the speed of service delivery.
Electronic commerce is considered a primary means by which organisations may expand rapidly into high growth emerging markets of the world. This is possible because, firstly as trans-national companies become skilled in their use of the Internet, they will be able to pursue global electronic commerce more efficiently, saving important advertising, communication, and administrative costs. Secondly, the Internet can increase responsiveness by notifying individual customers when new products in their areas of interest become available and by creating customised products and services. Thirdly and finally, trans-national companies using the Internet can increase their knowledge about consumer habits, be able to define trends, and turn consumer statistics into long-term customer relationships.
Electronic Commerce Activities
Electronic commerce endeavours to improve the execution of business transactions over various networks. Transactions are exchanges that occur when one economic entity sells a product or service to another entity. A transaction takes place when a product or service is transferred across a technologically separable interface that links a consumer (buyer) with a producer (seller). When the buyer/seller transactions occur in the electronic marketplace, information is accessed, absorbed, arranged, and sold in different ways. There are four main categories where business transactions take place Business to Business (B2B), Business to Customer (B2C), Business to Administration and Consumer to Administration.
An example in the B2B category would be a company that uses a network for ordering from its suppliers, receiving invoices and making payments. This category of electronic commerce has been well established for several years.
The B2C category largely equates to electronic retailing. This category has expanded greatly with the advent of the World Wide Web. There are now shopping malls all over the Internet offering all manners of consumer goods, from cakes and wine to computers and motor cars.
The business administration category covers all transactions between companies and government organisations. For example, in the USA the details of forthcoming government procurements are publicised over the Internet and companies can respond electronically. Currently this category is in its infancy, but it could expand quite rapidly as governments use their own operations to promote awareness and growth of electronic commerce. In addition to public procurement, administrations may also offer the option of electronic interchange for such transactions as VAT returns and the payment of corporate taxes.
The consumer administration category is just emerging, in the wake of a growth of both the business consumer and business administration categories; governments may extend electronic interaction to such areas as welfare payments and self-assessed tax returns.
B2B e-commerce was born out of an attempt to solve an administrative problem. It developed a new computer standard to handle these needs, which became known as EDI, Electronic Data Interchange. Today its descendant, XML, a lighter, simpler data interchange standard is used by B2B sites. Simple e-commerce sites first appeared in 1992. The early e-commerce sites were virtual catalogues, simply listing products for sale. Ordering was off-line, through e-mail, phone or fax. By 1996 the technology had advanced greatly to produce virtual stores with shopping carts, client accounts and, with the development of protocols such as Secure Socket Layer (SSL), enabled customers to order and pay for their purchase on-line directly by credit card.
E-commerce quickly became popular with consumers and suppliers. For customers, it was fast, easy and efficient, allowing them to compare products, price and service before purchase. For suppliers, it allowed them to reach an unlimited international audience, 24 hours a day, 7 days a week at reduced costs. Today e-commerce is widely used and growing fast. B2B is the largest, fastest growing and most profitable market. According to IDC, this year, it is expected to account for two thirds of world wide e-commerce. B2C is also expected to grow, boosted by Broadband (high-speed) Internet access to more on-line households. Future advances include digital money and e-wallets, and personal agents that help users find what they are looking for. Sites can work with fulfilment centres providing customers with excellent service and suppliers with information, and can support the newest trend for human interaction in e-commerce customer service.
The Internet is creating unprecedented and seeming infinite opportunities for both customers and businesses. Yet it one of its major problems is that it is changing so fast that both parties are overwhelmed by the speed of change and the sheer number of choices available to them. In addition web businesses win by following rules quite different than those which traditional businesses may follow. E-commerce appears to be exempt from the kinds of constraints that have limited companies historically.
An e-commerce environment handled in a proper manner, with the right customisation of products and services, in innovative ways, can lead to win-win situations. The customers can get the right product at the right time and for the right price, companies can set new standards in efficiency and profitability.
E-commerce activities can be broken down into the following areas: –
Searching and Advertising
Businesses list their products or services on their WebPages.
Potential users browsing electronic catalogues on a network.
Software agents searching on behalf of one or more users.
Users specify the product or services required with electronic requests.
Buyers and sellers may elect to negotiate the terms of a transaction, such as the terms of exchange and payment. These terms may cover right to copy, copyright or license agreements, usage rights, distribution right, refund policies, and terms or payment.
The buyer issues a contractual agreement of the terms of exchange, or usage, and payment. This contractual agreement is generally issued as an order, which sets forth the price and other terms of the transaction. The order may be verbal, in writing, or electronic. This agreement can be confirmed electronically through cryptographic techniques such as digital signatures.
A bill can be sent to the buyer, either before delivery of the product or service, with the delivery, or after the delivery. The bill generally includes remittance information-who, where and how to pay, which can be obtained by having the user complete order or request forms.
Payment and Settlement
The buyer sends some form of electronic payment, Visa card or some other form of credit card. This could be some form of contract or obligation, such as authenticated payment instructions, or the actual transfer of value, such as digital cash. It is usually sent along with some remittance information to the seller. This payment may occur for a single item, or on a usage basis, or with a single payment for multiple items or usage. Settlement occurs when the payment and remittance information are analysed by the seller or the seller’s agent and accepted as valid and then an actual transfer of funds is accomplished.
Electronic commerce does not completely address collaborative design and manufacturing activities, although they do share many of the same sorts of activities. Collaborative design and manufacturing could decompose to hundreds of speciality firms that meet, negotiate and contract with each other over the network, which they would then use to purchase, sell, distribute, and assemble the various components that make up a product or service. Companies such as Dell Computers are now offering a facility whereby the customer can design their end product, in this case a personnel computer, over the Internet.
Distribution and Receipt
Either before, after, or concurrent with payment, the seller arranges for delivery of the purchased product or service to the buyer, and the buyer provides the seller with proof of receipt of delivery. Policies regarding customer satisfaction and return should be negotiated prior to this activity, and made part of the contract between buyer and seller.
This activity is particularly important to corporate customers and suppliers. Both buyer and seller must reconcile all electronic transactions in the accounts receivable and accounts payable, inventory information, and accounting systems. Account and management information system records must also be updated. This activity can involve third parties, if the transacting businesses outsource their accounting services.
Customer service activities may include: –
Providing the buyer with timely information as to the progress of the transaction.
Handling customer requirements when transactions go awry such as resolving any mistakes, disputes, or complaints concerning product quality, delivery, or payment, and providing expert advice and assistance in the use of the products and services.
Information and Knowledge Processing
A final key activity in electronic commerce is the collection, management, analysis, and interpretation of the various data to make more intelligent and effective transaction-related decisions.
E-commerce is made possible through the expanded technologies of the Internet, the World Wide Web, and Value Added Networks.
The Internet is a world-wide collection of computer networks, co-operating with each other to exchange data using a common software standard. Through telephone wires and satellite links, Internet users can share information in a variety of forms. The size, scope and design of the Internet allow users to connect easily through ordinary personal computers and local phone numbers. The exchange electronic mail (E-mail) with friends and colleagues with accounts on the Internet, post information for others to access, and update it frequently, access multimedia information that includes sound, photographic images and even video, and access diverse perspectives from around the world.
An additional attribute of the Internet is that it lacks a central authority, in other words, there is no Internet, Inc. that controls the Internet. Beyond the various governing boards that work to establish policies and standards, few rules and answers to no single organisation bind the Internet.
The History of the Internet
Many people think that the Internet is a recent innovation, when in fact the essence of it has been around for over a quarter century. The Internet began as ARPAnet, a U.S. Department of Defence project to create a nation-wide computer network that would continue to function even if a large portion of it were destroyed in a nuclear war or natural disaster.
During the next two decades, primarily academic institutions, scientists and the government for research and communications used the network that evolved. The appeal of the Internet to these bodies was obvious, as it allowed disparate institutions to connect to each other’s computing systems and databases, as well as share data via E-mail.
The nature of the Internet changed abruptly in 1992, when the U.S. government began pulling out of network management, and commercial entities offered Internet access to the general public for the first time. This change in focus marked the beginning of the Internet’s astonishing expansion.
The Internet explosion coincides with the advent of increasingly powerful yet reasonably priced personal computers with easy-to-use graphical operating systems. The result has been an attraction of recent computer converts to the network, and new possibilities for exploiting a wealth of multimedia capabilities.
Impact of electronic commerce
Electronic commerce is not some futuristic dream. It is happening now, with many well-established success stories. It is happening world-wide, while the USA, Japan and Europe are leading the way, electronic commerce is essentially global in both concept and realisation. It is happening fast and with the maturing of EDI and the rapid growth of Internet and the World Wide Web, it is accelerating.
The impact of electronic commerce will be pervasive, both on companies and on society as a whole. For those companies that fully exploit it’s potential, electronic commerce offers the possibility of breakpoint changes. Changes that so radically alter customer expectations that they re-define the market or create entirely new markets. All other companies, including those that try to ignore the new technologies, will then be impacted by these changes in markets and customer expectations. Equally, individual members of society will be presented with entirely new ways of purchasing goods, accessing information and services, and interacting with branches of government. Choice will be greatly extended, and restrictions of geography and time eliminated. The overall impact on lifestyle could well be comparable to, say that of the growth in car ownership or the spread of the telephone.
The scope of Electronic Commerce
Electronic Commerce as a general concept covers any form of business transaction that is conducted electronically, using telecommunications networks. Such transactions occur between companies, between companies and their customers or between companies and public administrations.
Electronic Commerce encompasses a broad range of activities. The core component is addressing the commercial transaction cycle. Electronic Commerce includes electronic trading of physical goods and services and of electronic material. Upstream and downstream of the transactions it also includes the advertising and promotion of products and services, the facilitation of contacts between traders, the provision of market intelligence, pre- and post-sales support, electronic procurement and support for shared business processes.
Electronic Commerce impacts upon a large number of business activities.
? Marketing, sales and sales promotion
? Pre-sales, subcontracts, supply
? Financing and insurance
? Commercial transactions: ordering, delivery, payment
? Product service and maintenance
? Co-operative product development
? Distributed co-operative working
? Use of public and private services
? Business-to-administrations (concessions, permissions, tax, customs, etc)
? Transport and logistics
? Public procurement
? Automatic trading of digital goods
? Dispute resolution
The whole of the commercial transaction, including ordering, transport and delivery, the invoicing and payment cycle can be supported electronically. Dealing with public authorities electronically for customs and tax affairs and in statistics is already well developed. However, a number of issues such as security, IPR protection, legal questions and procedures still have to be addressed as part of the electronic commerce business environment.
A distinction should be made between electronic trading of physical goods and services and electronic trading of information-based contents that can be delivered directly through the network (images, voice, text, software, etc.).
The electronic trading of physical goods and services represents an evolution of present ways of trading, capitalising on new possibilities offered by technology to improve efficiency in terms of lower costs. Effectiveness in terms of widening market potential and better meeting customers’ needs as well as providing a means for enhanced product and service innovation, notably through customer-supplier interaction. This form of electronic commerce is expected to have a great impact on competitiveness and a limited impact on employment.
The trading of electronic material (software, video, music, images, multimedia works, games, etc.) represents a revolutionary new way of trading, for which the full commercial transaction cycle can be conducted simultaneously via the same network (including delivery), implying specific requirements regarding the proper integration of payment, IPR control, etc. Depending on the solutions that will be successful in the market place, traded electronic goods could create totally new markets and revolutionise some industries, such as publishing. This highly innovative form of electronic commerce is expected to have an important impact on competitiveness and create employment.
Examples of Specific Business Benefits of Electronic Commerce
? Reduced advertising costs
? Reduced delivery cost, notably for goods that can also be delivered electronically
? Reduced design and manufacturing cost
? Improved market intelligence and strategic planning
? More opportunity for niche marketing
? Equal access to markets i.e. SMEs vis-?-vis larger corporations
? Access to new markets
? Customer involvement in product and service innovation
Market intelligence such as information on specific markets and countries, market surveys and automatic generation of marketing statistics can all be provided electronically and improve the commercial environment, though a number of issues such as privacy need to be addressed.
Contacts between companies can be facilitated by on-line business directories and improved national and regional information relay centres. Contact between companies and consumers can be supported by various means, including on-line advertising and shopping malls. Companies can provide detailed information on their products and services, including technical specification, guidance on use and answers to common questions, supported by comprehensive navigation and search facilities.
Over recent years, efforts to improve business efficiency and responsiveness have increasingly resulted in a blurring of the boundaries between interacting companies and customers. Business processes then cross company boundaries, with each company carrying out its own parts of those shared processes. An extreme example occurs with the virtual enterprise, where each participating company playing its own role in a closely co-operating network have companies addressing a particular market opportunity.
Where companies can jointly form a single virtual enterprise that addresses anything from production of goods and services to distribution and sales, it can be expected that major shifts will happen in the structure of the industries involved. An example of this is the expected impact of teleshopping (i.e. the possibility to partially by-pass the distribution chain) on the balance of power between consumer goods producers and the retail chain. In this case the traditional boundaries between manufacturing and distribution sectors are becoming less important. Another example of a structural change is observed in the health care industry where electronic commerce is a critical enabling factor for healthcare management companies (HMCs), to become major new intermediaries in the market (between health care providers such as doctors, major health care purchasers, pharmaceutical industry, and government agencies).
In this case electronic commerce means the electronic exchange of health care-related information between market players. These HMCs are now so important that recently a process of vertical integration in the pharmaceutical industry started by manufacturers acquiring healthcare companies in order to get access to their huge information databases.
Examples of Generic Business Strategies Based on Electronic Commerce
? Electronic Marketplace Presence: sales promotion, interactive TV / Internet shopping
? Efficient Consumer Response Management
? Electronic Trading
? Supply Chain Management
? Vendor Managed Inventory
Electronic commerce also enables sector specific strategies such as Value Added Banking
Potentially, electronic commerce can provide comprehensive support for shared business processes, regardless of their nature and regardless of the participants being separated by geography and time. Indeed, it could be argued that such shared business processes are the most general form of electronic commerce and that the other facets identified above are simply special cases of this general form.
The reasoning and examples above reinforce the argument that electronic commerce is a phenomenon that should be considered from the point of view of several policies and several market sectors.
Supplier Opportunities and Customer Benefits of Electronic Commerce
As summarised in table 1, electronic commerce offers several opportunities to suppliers and commensurate benefits to customers. These include:
Supplier opportunity Customer benefit
Global presence Global choice
Improved competitiveness Quality of service
Mass customisation ; customerisation Personalised products ; services
Shorten or eradicate supply chains Rapid response to needs
Substantial cost savings Substantial price reductions
Novel business opportunities New products ; services
Table 1: Opportunities and benefits
Global presence / Global choice
The boundaries of electronic commerce are not defined by geography or national borders, but rather by the coverage of computer networks. Since the most important networks are global in scope, electronic commerce enables even the smallest suppliers to achieve a global presence and to conduct business world-wide.
The corresponding customer benefit is global choice – a customer can select from all potential suppliers of a required product or service, regardless of their geographical location.
Improved competitiveness / quality of service
Electronic commerce enables suppliers to improve competitiveness by becoming closer to the customer. As a simple example, many companies are employing electronic commerce technology to offer improved levels of pre-and post-sales support, with increased levels of product information, guidance on product use, and rapid response to customer enquiries. The corresponding customer benefit is improved quality of service.
Mass customisation / personalised products and services
With electronic interaction, suppliers are able to gather detailed information on the needs of each individual customer and automatically tailor products and services to those individual needs. This results in customised products comparable to those offered by specialised suppliers but at mass market prices. One simple example is an on-line magazine that is tailored for the individual reader on each access to emphasise articles likely to be of interest and exclude articles that have already been read.
Shorten or eradicate supply chains / Rapid response to needs
Electronic commerce often allows traditional supply chains to be shortened dramatically. There are many established examples where goods are shipped directly from the manufacturer to the end consumer, by-passing the traditional staging posts of wholesaler’s warehouse, retailer’s warehouse and retail outlet. Typically the contribution of electronic commerce is not in making such direct distribution feasible, since it could also be achieved using paper catalogues and telephone or postal ordering – but rather in making it practical in terms of both cost and time delays. The extreme example arises in the case of products and services that can be delivered electronically, when the supply chain can be eradicated entirely. This has massive implications for the entertainment industries film, video, music, magazines, newspapers, for the information and publishing industries including all forms of publishing, and for companies concerned with the development and distribution of computer software.
The corresponding customer benefit is the ability to rapidly obtain the precise product that is required, without being limited to those currently in stock at local suppliers.
Substantial cost savings / Substantial price reductions
One of the major contributions of electronic commerce is a reduction in transaction costs. While the cost of a business transaction that entails human interaction might be measured in dollars, the cost of conducting a similar transaction electronically might be a few cents or less. Hence, any business process involving routine interactions between people offers the potential for substantial cost savings, which can in turn be translated into substantial price reductions for customers.
Novel business opportunities / New products and services
In addition to re-defining the markets for existing products and services, electronic commerce also provides the opportunity for entirely new products and services. Examples include network supply and support services, directory services, contact services (i.e. establishing initial contact between potential customers and potential suppliers), and many kinds of on-line information services.
While these various opportunities and benefits are all distinct, they are to some extent inter-related. For example, improvements in competitiveness and quality of service may in part be derived from mass customisation, while shortening of supply chains may contribute to cost savings and price reductions.
Examples in electronic commerce
There are many well-established examples of electronic commerce in a wide range of industry sectors and a wide range of application areas. A few of these will serve to illustrate the nature of current activity.
? Retail: – The Internet Book Shop. Virtual Vineyards
? Finance – Barclays Bank. Electronic Share Information
? Distribution: -DIPA GmbH. Oracle
? Pre/post sales support: -Hewlett Packard. GE Plastics
? Engineering design: -Ford. The Global Engineering network.
? Business support: -CitiusNet.
? Publishing: -The Times. The Irish Independant
? Shared business processes: – Tesco.
Levels of electronic commerce
As the above examples help to illustrate, there are various levels at which electronic commerce can be conducted, ranging from a simple network presence to electronic support for processes that are jointly owned and enacted by two or more companies.
Various levels of electronic commerce are listed above. Electronic commerce is more complex at the international level than the intranational level because of such factors as taxation, contract law, customs payments, and differences in banking practices. This highlights the distinction between national transactions and international transactions. The sources of this distinction are not technical – as already emphasised; electronic commerce is essentially global in concept, but rather legislative.
The lower levels of electronic commerce are concerned with a basic network presence, company promotion, and pre- and post-sales support. By using available off the shelf technologies, these levels can be both cheap and straightforward to implement, as thousands of small companies can already testify. By contrast, the more advanced forms of electronic commerce pose complex problems that are as much legal and cultural as technological. At these levels there are no off the shelf solutions, so companies are forced to develop their own custom systems. Thus at present it tends to be only the larger and richer companies that are pioneering these levels. However, over time the boundary of what is commonplace will gradually move up to encompass the more complex levels of electronic commerce, and further off the shelf technologies will be established to support these higher levels, just as they have been for the lower levels.