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E-Commerce: The Second Wave Fifth Annual Edition Chapter 1: Introduction to Electronic Commerce Objectives In this chapter, you will learn about: What electronic commerce is and how it is poised for a second wave of growth and profitability

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E commerce the second wave fifth annual edition chapter 1 introduction to electronic commerce l.jpg

E-Commerce: The Second WaveFifth Annual EditionChapter 1:Introduction to Electronic Commerce


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Objectives

  • In this chapter, you will learn about:

  • What electronic commerce is and how it is poised for a second wave of growth and profitability

  • Why business models have given way to revenue models and the analysis of business processes as key elements of electronic commerce initiatives

E-Commerce: The Second Wave, Fifth Annual Edition


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Objectives

  • How economic forces have created a business environment that is fostering a rebirth of electronic commerce How businesses use value chains to identify electronic commerce opportunities

  • How businesses use SWOT analysis to analyze and evaluate business opportunities

E-Commerce: The Second Wave, Fifth Annual Edition


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Objectives

  • Why electronic commerce is international by its very nature and what challenges arise in doing global electronic commerce

E-Commerce: The Second Wave, Fifth Annual Edition


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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 technologies

E-Commerce: The Second Wave, Fifth Annual Edition


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Categories of Electronic 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 devoted to negotiating purchase transactions with suppliers

E-Commerce: The Second Wave, Fifth Annual Edition


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Elements of Electronic Commerce

E-Commerce: The Second Wave, Fifth Annual Edition


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Categories of Electronic Commerce (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

    • Employee logs in to company computer through Internet instead of traveling to office

E-Commerce: The Second Wave, Fifth Annual Edition


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Electronic Commerce Categories

E-Commerce: The Second Wave, Fifth Annual Edition


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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

E-Commerce: The Second Wave, Fifth Annual Edition


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The Development and Growth of Electronic Commerce (Continued)

  • Trading partners

    • Businesses that engage in EDI with each other

  • Value-added network (VAN)

    • Independent firm

    • Offers connection and transaction-forwarding services to buyers and sellers engaged in EDI

E-Commerce: The Second Wave, Fifth Annual Edition


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Actual and Estimated Online Sales in B2C and B2B Categories (Continued)

E-Commerce: The Second Wave, Fifth Annual Edition


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The Second Wave of Electronic Commerce (Continued)

  • Defining characteristics of first wave

    • Dominant influence of U.S. businesses

    • Extensive use of the English language

    • Low bandwidth data transmission technologies

    • Unstructured use of e-mail

    • Overreliance on advertising as a revenue source

E-Commerce: The Second Wave, Fifth Annual Edition


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The Second Wave of Electronic Commerce (Continued) (Continued)

  • As second wave begins

    • Future of electronic commerce will be international in scope

    • Language translation and handling currency conversion problem will need to be solved

    • E-mail will be used as an integral part of marketing and customer contact strategies

E-Commerce: The Second Wave, Fifth Annual Edition


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Business Models, Revenue Models, and Business Processes (Continued)

  • Business model

    • A set of processes that combine to yield a profit

  • Revenue model

    • Used to

      • Identify customers

      • Market to those customers

      • Generate sales to those customers

E-Commerce: The Second Wave, Fifth Annual Edition


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Focus on Specific Business Processes (Continued)

  • Merchandising

    • Combination of store design, layout, and product display knowledge

  • Commodity item

    • Hard to distinguish from the same products or services provided by other sellers

    • Features have become standardized and well known

E-Commerce: The Second Wave, Fifth Annual Edition


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Focus on Specific Business Processes (Continued) (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

E-Commerce: The Second Wave, Fifth Annual Edition


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Advantages of Electronic Commerce (Continued)

  • Can increase sales and decrease costs

  • If advertising done well on the Web

    • 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

E-Commerce: The Second Wave, Fifth Annual Edition


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Advantages of Electronic Commerce (Continued) (Continued)

  • Increases purchasing opportunities for buyer

  • 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

E-Commerce: The Second Wave, Fifth Annual Edition


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Disadvantages of Electronic Commerce (Continued)

  • Perishable grocery products are much harder to sell online

  • 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

E-Commerce: The Second Wave, Fifth Annual Edition


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Economic Forces and Electronic Commerce (Continued)

  • 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

E-Commerce: The Second Wave, Fifth Annual Edition


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Transaction Costs (Continued)

  • Total costs that a buyer and seller incur

  • Significant components of transaction costs

    • Cost of information search and acquisition

    • Investment of seller in equipment or in the hiring of skilled employees to supply product or service to buyer

E-Commerce: The Second Wave, Fifth Annual Edition


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The Role of Electronic Commerce (Continued)

  • Businesses and individuals

    • Can use electronic commerce to reduce transaction costs by

      • Improving flow of information

      • Increasing coordination of actions

E-Commerce: The Second Wave, Fifth Annual Edition


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Network Economic Structures (Continued)

  • Network economic structure

    • Companies coordinate their strategies, resources, and skill sets

  • Strategic alliances (strategic partnerships)

    • Relationships created within the network economic structure

E-Commerce: The Second Wave, Fifth Annual Edition


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Network Economic Structures (Continued) (Continued)

  • Virtual companies

    • Strategic alliances that occur between or among companies operating on the Internet

  • Strategic partners

    • Come together as a team for a specific project or activity

E-Commerce: The Second Wave, Fifth Annual Edition


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Network Effects (Continued)

  • 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

      • Value of network to each participant increases

E-Commerce: The Second Wave, Fifth Annual Edition


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Value Chains in Electronic Commerce (Continued)

  • Strategic business unit

    • One particular combination of product, distribution channel, and customer type

  • Firm

    • Multiple business units owned by a common set of shareholders

  • Industry

    • Multiple firms that sell similar products to similar customers

E-Commerce: The Second Wave, Fifth Annual Edition


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Strategic Business Unit Value Chains (Continued)

  • Value chain

    • A way of organizing the activities that each strategic business unit undertakes

  • Primary activities

    • Design, produce, promote, market, deliver, and support the products or services it sells

  • Supporting activities

    • Human resource management and purchasing

E-Commerce: The Second Wave, Fifth Annual Edition


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Value Chain for a Strategic Business Unit (Continued)

E-Commerce: The Second Wave, Fifth Annual Edition


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Industry Value Chains (Continued)

  • Value system

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

    • Also referred to as industry value chain

E-Commerce: The Second Wave, Fifth Annual Edition


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Industry Value Chain for a Wooden Chair (Continued)

E-Commerce: The Second Wave, Fifth Annual Edition


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SWOT Analysis: Evaluating Business Unit Opportunities (Continued)

  • SWOT analysis

    • Analyst first looks into the business unit to identify its strengths and weaknesses

    • Analyst then reviews operating environment and identifies opportunities and threats

E-Commerce: The Second Wave, Fifth Annual Edition


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SWOT Analysis Questions (Continued)

E-Commerce: The Second Wave, Fifth Annual Edition


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Results of Dell’s SWOT Analysis (Continued)

E-Commerce: The Second Wave, Fifth Annual Edition


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International Nature of Electronic Commerce (Continued)

  • 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

    • Logical and to be expected

E-Commerce: The Second Wave, Fifth Annual Edition


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This Cartoon from The New Yorker Illustrates Anonymity on the Web

E-Commerce: The Second Wave, Fifth Annual Edition


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Language Issues the Web

  • To do business effectively in other cultures

    • Must adapt to culture

  • 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 local environment

E-Commerce: The Second Wave, Fifth Annual Edition


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Culture Issues the Web

  • Important element of business trust

    • Anticipate 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

E-Commerce: The Second Wave, Fifth Annual Edition


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Infrastructure Issues the Web

  • Internet infrastructure includes

    • Computers and software connected to 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

E-Commerce: The Second Wave, Fifth Annual Edition


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Infrastructure Issues (Continued) the Web

  • 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

    • Paperwork and processes that accompany international transactions

E-Commerce: The Second Wave, Fifth Annual Edition


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Parties Involved in a Typical International Trade Transaction

E-Commerce: The Second Wave, Fifth Annual Edition


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Summary Transaction

  • 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

E-Commerce: The Second Wave, Fifth Annual Edition


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Summary Transaction

  • Using electronic commerce, businesses have

    • Created new products and services

    • Improved promotion, marketing, and delivery of existing offerings

  • 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, and language legal issues

E-Commerce: The Second Wave, Fifth Annual Edition


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