Chapter 1

By Kyle Knight,2014-05-16 23:13
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How businesses use value chains and SWOT analysis to identify electronic commerce opportunities. ? The international nature of electronic commerce and the


    Chapter 1: Introduction to Electronic Commerce


    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


     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


     The international nature of electronic commerce and the challenges that arise in engaging

    in electronic commerce on a global scale

Electronic Commerce: The 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



    Categories of Electronic Commerce

     Five general e-commerce categories:



     Business processes



     Supply management or procurement

     Departments are devoted to negotiating purchase transactions with suppliers

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     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

    The Development and Growth of 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

     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

    The Second Wave of 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

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     Second wave:

     Global enterprises in many countries are participating in electronic commerce

     Established companies fund electronic commerce initiatives with their own


     Customized e-mail strategies are now integral to customer contact

    Business Models, Revenue 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


     Combination of store design, layout, and product display knowledge

    Product/Process Suitability 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 Shipping profile

     Collection of attributes that affect how easily a product can be packaged and


     High value-to-weight ratio

     Can make overall shipping cost a small fraction of the selling price

    Advantages of Electronic 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

     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 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

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Economic Forces and Electronic Commerce


     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

     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 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 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


     Strategic alliances (strategic partnerships)

     Relationships created within the network economic structure

     Virtual companies

     Strategic alliances that occur between or among companies operating on the


     Strategic partners

     Entities that come together as a team for a specific project or activity

Network Effects

     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 Commerce Opportunities


     Multiple business units owned by a common set of shareholders


     Multiple firms that sell similar products to similar customers

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    Strategic Business Unit 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

    Industry Value Chains

     Value system

     Larger stream of activities into which a particular business unit’s value chain is


     Also referred to as industry value chain

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    SWOT Analysis: Evaluating Business Unit Opportunities

     In SWOT analysis:

     An analyst first looks into the business unit to identify its strengths and


     The analyst then reviews the operating environment and identifies opportunities

    and threats

    International Nature of 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

     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


     Translation that considers multiple elements of the local environment

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    Culture Issues

     An important element of business trust is anticipating how the other party to a transaction

    will act in specific circumstances


     Combination of language and customs

     Varies across national boundaries

     Varies across regions within nations

    Infrastructure Issues

     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

     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

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