E-

COMMERC
E
 INTRODUCTION
In the emerging global economy, e-commerce and e-business have increasingly
become a necessary component of business strategy and a strong catalyst for
economic development. The integration of information and communications
technology (ICT) in business has revolutionized relationships within organizations and
those between and among organizations and individuals. Specifically, the use of ICT
in business has enhanced productivity, encouraged greater customer participation,
and enabled mass customization, besides reducing costs.

With developments in the Internet and Web-based technologies, distinctions between

traditional markets and the global electronic marketplace-such as business capital
size, among others-are gradually being narrowed down. The name of the game is
strategic positioning, the ability of a company to determine emerging opportunities
and utilize the necessary human capital skills (such as intellectual resources) to make
the most of these opportunities through an e-business strategy that is simple,
workable and practicable within the context of a global information setting and new
economic environment. With its effect of leveling the playing field, e-commerce
coupled with the appropriate strategy and policy approach enables small and
medium scale enterprises to compete with large and capital-rich businesses.

On another plane, developing countries are given increased access to the global
marketplace, where they compete with and complement the more developed
economies. Most, if not all, developing countries are already participating in e-
commerce, either as sellers or buyers. However, to facilitate e-commerce growth in
these countries, the relatively underdeveloped information infrastructure must be
improved.

Among the areas for policy interventions are:

1. High Internet access costs, including connection service fees, communication

fees, and hosting charges for websites with sufficient bandwidth;
2. Limited availability of credit cards and a nationwide credit card system;
3. Underdeveloped transportation infrastructure resulting in slow and uncertain
delivery of goods and services;
4. Network security problems and insufficient security safeguards;
5. Lack of skilled human resources and key technologies (i.e., inadequate
professional IT workforce);
6. Content restriction on national security and other public policy grounds, which
greatly affect business in the field of information services, such as the media
and entertainment sectors;
7. Cross-border issues, such as the recognition of transactions under laws of
other ASEAN member-countries, certification services, improvement of
delivery methods and customs facilitation; and
8. The relatively low cost of labor, which implies that a shift to a comparatively
capital intensive solution (including investments on the improvement of the
physical and network infrastructure) is not apparent.

1. DEFINITIONS
What is e-commerce?

Electronic commerce or e-commerce refers to a wide range of online business

activities for products and services. It also pertains to “any form of business
transaction in which the parties interact electronically rather than by physical
exchanges or direct physical contact.”
E-commerce is usually associated with buying and selling over the Internet, or
conducting any transaction involving the transfer of ownership or rights to use goods
or services through a computer-mediated network. Though popular, this definition is
not comprehensive enough to capture recent developments in this new and
revolutionary business phenomenon.

A more complete definition is: E-commerce is the use of electronic

communications and digital information processing technology in business
transactions to create, transform, and redefine relationships for value
creation between or among organizations, and between organizations and
individuals.

2. TYPES OF E-COMMERCE
What are the different types of e-commerce?
The major different types of e-commerce are:
Business-to-Business (B2B)
Business-to-Consumer (B2C)
Business-to-Government (B2G)
Consumer-to-Consumer (C2C) and
mobile commerce (m-commerce).

What is B2B e-commerce?

B2B e-commerce is simply defined as e-commerce between companies. This is the
type of e-commerce that deals with relationships between and among businesses.
About 80% of e-commerce is of this type, and most experts predict that B2B
ecommerce will continue to grow faster than the B2C segment.

The B2B market has two primary components: e-frastructure and e-markets.

E-frastructure is the architecture of B2B, primarily consisting of the following:

• logistics - transportation, warehousing and distribution (e.g., Procter and

Gamble)
• application service providers - deployment, hosting and management of
packaged software from a central facility (e.g., Oracle and Linkshare)
• outsourcing of functions in the process of e-commerce, such as Web-
hosting,security and customer care solutions (e.g., outsourcing providers such
as eShare, NetSales, iXL Enterprises and Universal Access)
• auction solutions software for the operation and maintenance of real-time
auctions in the Internet (e.g., Moai Technologies and OpenSite Technologies)
• content management software for the facilitation of Web site content
management and delivery (e.g., Interwoven and ProcureNet) and
• Web-based commerce enablers (e.g., Commerce One, a browser-based,
XMLenabled purchasing automation software).

E-markets are simply defined as Web sites where buyers and sellers interact with
each other and conduct transactions.

The more common B2B examples and best practice models are IBM, Hewlett Packard
(HP), Cisco and Dell. Cisco, for instance, receives over 90% of its product orders over
the Internet.

Most B2B applications are in the areas of supplier management (especially purchase
order processing), inventory management (i.e., managing order-ship-bill cycles),
distribution management (especially in the transmission of shipping documents),
channel management (i.e., information dissemination on changes in operational
conditions), and payment management (e.g., electronic payment systems or EPS).

What is B2C e-commerce?

Business-to-Consumer e-commerce, or commerce between companies and
consumers, involves customers gathering information; purchasing physical goods
(i.e., tangibles such as books or consumer products) or information goods (or goods
of electronic material or digitized content, such as software, or e-books); and, for
information goods, receiving products over an electronic network.
It is the second largest and the earliest form of e-commerce. Its origins can be traced
to online retailing (or e-tailing). Thus, the more common B2C business models are the
online retailing companies such as Amazon.com, Drugstore.com, Beyond.com,
Barnes and Noble and ToysRus. Other B2C examples involving information goods are
E-Trade and Travelocity.
The more common applications of this type of e-commerce are in the areas of
purchasing products and information, and personal finance management, which
pertain to the management of personal investments and finances with the use of
online banking tools (e.g., Quicken).
B2C e-commerce reduces transactions costs (particularly search costs) by increasing
consumer access to information and allowing consumers to find the most competitive
price for a product or service. B2C e-commerce also reduces market entry barriers
since the cost of putting up and maintaining a Web site is much cheaper than
installing a “brick-and-mortar” structure for a firm. In the case of information goods,
B2C e-commerce is even more attractive because it saves firms from factoring in the
additional cost of a physical distribution network. Moreover, for countries with a
growing and robust Internet population, delivering information goods becomes
increasingly feasible.

What is B2G e-commerce?

Business-to-Government e-commerce or B2G is generally defined as commerce
between companies and the public sector. It refers to the use of the Internet for
public procurement, licensing procedures, and other government-related operations.

This kind of e-commerce has two features:

First, the public sector assumes a pilot/leading role in establishing e-commerce; and
Second, it is assumed that the public sector has the greatest need for making its
procurement system more effective.
Web-based purchasing policies increase the transparency of the procurement
process (and reduce the risk of irregularities). To date, however, the size of the B2G
ecommerce market as a component of total e-commerce is insignificant, as
government e-procurement systems remain undeveloped.

What is C2C e-commerce?

Consumer-to-Consumer e-commerce or C2C is simply commerce between private
individuals or consumers. This type of e-commerce is characterized by the growth of
electronic marketplaces
and online auctions, particularly in vertical industries where firms/businesses can bid
for what they want from among multiple suppliers.16 It perhaps has the greatest
potential for developing new markets.

This type of e-commerce comes in at least three forms:

• Auctions facilitated at a portal, such as eBay, which allows online real-time
bidding on items being sold in the Web
• Peer-to-Peer systems, such as the Napster model (a protocol for sharing files
between users used by chat forums similar to IRC) and other file exchange
and later money exchange models; and
• Classified ads at portal sites such as Excite Classifieds and eWanted (an
interactive, online marketplace where buyers and sellers can negotiate and
which features “Buyer Leads & Want Ads”).

Consumer-to-business (C2B) transactions involve reverse auctions, which empower

the consumer to drive transactions. A concrete example of this when competing
airlines gives a traveler best travel and ticket offers in response to the traveler’s post
that she wants to fly from New York to San Francisco.

What is m-commerce?
M-commerce (mobile commerce) is the buying and selling of goods and services
through wireless technology-i.e., handheld devices such as cellular telephones and
personal digital assistants (PDAs). Japan is seen as a global leader in m-commerce.
As content delivery over wireless devices becomes faster, more secure, and scalable,
some believe that m-commerce will surpass wireline e-commerce as the method of
choice for digital commerce transactions. This may well be true for the Asia-Pacific
where there are more mobile phone users than there are Internet users.
Industries affected by m-commerce include:
Financial services, including mobile banking (when customers use their handheld
devices to access their accounts and pay their bills), as well as brokerage services (in
which stock quotes can be displayed and trading conducted from the same handheld
device);
Telecommunications, in which service changes, bill payment and account reviews
can all be conducted from the same handheld device;
Service/retail, as consumers are given the ability to place and pay for orders on-
the-fly; and
Information services, which include the delivery of entertainment, financial news,
sports figures and traffic updates to a single mobile device. Forrester Research
predicts US$3.4 billion sales closed using PDA and cell phones by 2005.

3. ADVANTAGES AND DISADVANTAGES OF E-COMMERCE

Like any conventional business, electronic commerce is also characterized by some advantages
and inherent drawbacks. Let's have a look at some of these important advantages and
disadvantages of electronic commerce.

Advantages of E-Commerce

The greatest and the most important advantage of e-commerce, is that it enables a business
concern or individual to reach the global market. It caters to the demands of both the national and
the international market, as your business activities are no longer restricted by geographical
boundaries. With the help of electronic commerce, even small enterprises can access the global
market for selling and purchasing products and services. Even time restrictions are nonexistent
while conducting businesses, as e-commerce empowers one to execute business transactions 24
hours a day and even on holidays and weekends. This in turn significantly increases sales and
profit.

Some of the key strengths of using the Internet for businesses include the following:

24 X 7 operations: Round-the-clock operation is an expensive proposition in the ‘brick-and-

mortar’ world, while it is natural in the ‘click-and-conquer’ world.

Global reach: The net being inherently global, reaching global customers is relatively easy on
the net compared to the world of bricks.

Cost of acquiring, serving and retaining customers: It is relatively cheaper to acquire new
customers over the net; thanks to 24 X 7 operations and its global reach. Through innovative
tools of ‘push’ technology, it is also possible to retain customer’s loyalty with minimal investments.

An extended enterprise is easy to build: In today’s world every enterprise is part of the
‘connected economy’: as such, you need to extend your enterprise all the way to your suppliers
and business partners like distributors, retailers and ultimately your end-customers. The Internet
provides an effective (often less expensive) way to extend your enterprise beyond the narrow
confines of your own organization. Tools like enterprise resource planning (ERP), supply chain
management (SCM) and customer relationship management (CRM), can easily be deployed over
the Internet, permitting amazing efficiency in time needed to market, customer loyalty, on-time
deliver and eventually profitability.

Disintermediation: Using the Internet, one can directly approach the customers and suppliers,
cutting down on the number of levels and in the process, cutting down the costs.

Improved customer service to your clients: It results in higher satisfaction and more sales.

Power to provide the ‘best of both the worlds’: It benefits the traditional business side-by-side
with the Internet tools.

A technology-based customer interface: In a brick-and-mortar business, customers conduct

transactions either face-to-face or over the phone with store clerks, account managers, or other
individuals. In contrast, the customer interface in the electronic environment is a ‘screen-to-face’
interaction. This includes PC-based monitors ATM machines, PDAs, or other electronic devices
such as the DoCopMo iMode in Japan and the Nokia 7100 in Europe. Operationally, these types
of interfaces place an enormous responsibility on the organization to capture and represent the
customer experience because there is often no opportunity for direct human intervention during
the encounter. If the interface is designed correctly, the customer will have no need for a
simultaneous or follow-up phone conversation. Thus, the ‘screen-to-customer’ interface has the
potential to both increase sales and decrease costs. In fact, a number of innovators are entering
the e-commerce markets with solutions that reintroduce humans into the process, such as the
service representatives available on demand for Web users at www.liyeyerson.com. When the
interface does not work, not only is the revenue lost but the organization also incurs the
technology costs. Thus, a poorly designed Customer interface has both negative revenue and
cost_implications.

The customer controls the interaction: At most websites, the Customer is in control during
screen-to-face Interaction, in that the Web largely employs a ‘self service’ model for managing
commerce or community-based interaction. The customer controls the search degree of
price/product comparison, the people with whom he or she comes in contact, and the decision to
buy. In a face-to-face interchange, the control can rest with either the buyer/seller
or the community member. At a minimum, the seller attempts to influence the buying process by
directing the potential buyer to different products or locations in the store, overcoming price
objections and reacting in real item to competitive offering. The virtual store can attempt to shape
the customer experience with uniquely targeted promotions, reconfiguration of storefronts to
reflect past search behaviour, recommendations based on previous behaviour of other similar
users, and access to proprietary information. However, the seller has much less power in the
online environment due to the control and information flows that the online world puts in
customer’s hands.

Knowledge of Customer behaviour: While the customer controls the interaction, to the firm has
unprecedented access to observe and track individual consumer behaviour. Companies, through
a third-party measurement firm such as Vividence and Accrue, can track a host of behaviours on
websites visited, length of stays on a site, page views on a site, contents of wish lists and
shopping carts, purchases, dollar amounts of purchases, repeat purchases behaviour, conversion
rates of visitors who have completed transactions and other metrics.

Network economics: In information intensive industries, a key competitive battleground centers

on the emergence of industry-standard products, services, components, and or architecture.
Network effects can best be expressed as the situation where the value of a product or service
rises as a function of the number of other users who are using the product. A classic example is
the fax machine of other people who adopt the technology.
I
Disadvantages of Electronic Commerce

Electronic commerce is also characterized by some technological and inherent limitations which
has restricted the number of people using this revolutionary system. One important disadvantage
of e-commerce is that the Internet has still not touched the lives of a great number of people,
either due to the lack of knowledge or trust. A large number of people do not use the Internet for
any kind of financial transaction. Some people simply refuse to trust the authenticity of completely
impersonal business transactions, as in the case of e-commerce. Many people have reservations
regarding the requirement to disclose personal and private information for security concerns.
Many times, the legitimacy and authenticity of different e-commerce sites have also been
questioned.

Another limitation of e-commerce is that it is not suitable for perishable commodities like food
items. People prefer to shop in the conventional way than to use e-commerce for purchasing food
products. So e-commerce is not suitable for such business sectors. The time period required for
delivering physical products can also be quite significant in case of e-commerce. A lot of phone
calls and e-mails may be required till you get your desired products. However, returning the
product and getting a refund can be even more troublesome and time consuming than
purchasing, in case if you are not satisfied with a particular product.

Thus, on evaluating the various pros and cons of electronic commerce, we can say that
the advantages of e-commerce have the potential to outweigh the disadvantages. A proper
strategy to address the technical issues and to build up customers trust in the system, can
change the present scenario and help e-commerce adapt to the changing needs of the world.

4. COMPONENTS OF E-COMMERCE
What are the components of a typical successful e-commerce transaction
loop?
E-commerce does not refer merely to a firm putting up a Web site for the purpose of
selling goods to buyers over the Internet. For e-commerce to be a competitive
alternative to traditional commercial transactions and for a firm to maximize the
benefits of e-commerce, a number of technical as well as enabling issues have to be
considered. A typical e-commerce transaction loop involves the following major
players and corresponding requisites:

The Seller should have the following components:

• A corporate Web site with e-commerce capabilities (e.g., a secure transaction
server);
• A corporate intranet so that orders are processed in an efficient manner; and
• IT-literate employees to manage the information flows and maintain the e-
commerce system.

Transaction partners include:

• Banking institutions that offer transaction clearing services (e.g., processing
credit card payments and electronic fund transfers);
• National and international freight companies to enable the movement of physical
goods within, around and out of the country. For business-to-consumer
transactions, the system must offer a means for cost-efficient transport of small
packages (such that purchasing books over the Internet, for example, is not
prohibitively more expensive than buying from a local store); and
• Authentication authority that serves as a trusted third party to ensure the
integrity and security of transactions.

Consumers (in a business-to-consumer transaction) who:

• Form a critical mass of the population with access to the Internet and disposable
income enabling widespread use of credit cards; and
• Possess a mindset for purchasing goods over the Internet rather than by
physically inspecting items.

Firms/Businesses (in a business-to-business transaction) that together form a

critical mass of companies (especially within supply chains) with Internet access and
the capability to place and take orders over the Internet.

Government, to establish:
• A legal framework governing e-commerce transactions (including electronic
documents, signatures, and the like); and
• Legal institutions that would enforce the legal framework (i.e., laws and
regulations) and protect consumers and businesses from fraud, among others.

And finally, the Internet, the successful use of which depends on the following:
• A robust and reliable Internet infrastructure; and
• A pricing structure that doesn’t penalize consumers for spending time on and
buying goods over the Internet (e.g., a flat monthly charge for both ISP access
and local phone calls).

For e-commerce to grow, the above requisites and factors have to be in place. The
least developed factor is an impediment to the increased uptake of e-commerce as a
whole. For instance, a country with an excellent Internet infrastructure will not have
high e-commerce figures if banks do not offer support and fulfillment services to e-
commerce transactions. In countries that have significant e-commerce figures, a
positive feedback loop reinforces each of these factors.

E- PAYMENTS
A more developed and mature e-banking environment plays an important role in
ecommerce by encouraging a shift from traditional modes of payment (i.e., cash,
checks or any form of paper- based legal tender) to electronic alternatives (such as e-
payment systems), thereby closing the e-commerce loop.

In most developing countries, the payment schemes available for online transactions
are the following:

A. Traditional Payment Methods

• Cash-on-delivery. Many online transactions only involve submitting purchase
orders online. Payment is by cash upon the delivery of the physical goods.
• Bank payments. After ordering goods online, payment is made by depositing
cash into the bank account of the company from which the goods were ordered.
Delivery is likewise done the conventional way.

B. Electronic Payment Methods

• Innovations affecting consumers include credit and debit cards, automated
teller machines (ATMs), stored value cards, and e-banking.
• Innovations enabling online commerce are e-cash, e-checks, smart cards,
and encrypted credit cards. These payment methods are not too popular in
developing countries. They are employed by a few large companies in specific
secured channels on a transaction basis.
• Innovations affecting companies pertain to payment mechanisms that banks
provide their clients, including inter-bank transfers through automated clearing
houses allowing payment by direct deposit.

What is an e-payment system? Why is it important?

An electronic payment system (EPS) is a system of financial exchange between
buyers and sellers in the online environment that is facilitated by a digital financial
instrument (such as encrypted credit card numbers, electronic checks, or digital
cash) backed by a bank, an intermediary, or by legal tender.

EPS plays an important role in e-commerce because it closes the e-commerce loop. In
developing countries, the underdeveloped electronic payments system is a serious
impediment to the growth of e-commerce. In these countries, entrepreneurs are not
able to accept credit card payments over the Internet due to legal and business
concerns. The primary issue is transaction security. The absence or inadequacy of
legal infrastructures governing the operation of e-payments is also a concern. Hence,
banks with e-banking operations employ service agreements between themselves
and their clients. The relatively undeveloped credit card industry in many developing
countries is also a barrier to e-commerce. Only a small segment of the population can
buy goods and services over the Internet due to the small credit card market base.
There is also the problem of the requirement of “explicit consent” (i.e., a signature)
by a card owner before a transaction is considered valid-a requirement that does not
exist in the U.S. and in other developed countries.

What is e-banking?
E-banking includes familiar and relatively mature electronically-based products in
developing markets, such as telephone banking, credit cards, ATMs, and direct
deposit. It also includes electronic bill payments and products mostly in the
developing stage, including stored-value cards (e.g., smart cards/smart money) and
Internet based stored value products.