Multinational E-Commerce: Strategies and Structures

1. 9 Multinational E-Commerce: Strategies and Structures

2. Learning Objectives • Define the forms of e-commerce • Appreciate the growing presence of e-commerce in the global economy • Understand the structure of the Internet economy • Identify the basic components of successful e-commerce strategy

3. Learning Objectives • Understand the attractions of and deterrents to building a multinational e-commerce business • Know the basic multinational e-commerce business models • Identify the practicalities of running a multinational e-commerce business • Understand the function of enablers in multinational e-commerce operations

4. The Internet Economy • Internet Economy • Growing faster than any other business trend in history • Companies face issues similar to those faced by traditional multinational companies

5. What Is E-Commerce? • Refers to the selling of goods or services over the Internet • Includes goods or services delivered offline • E.g., Amazon.com shipping book via UPS • Also includes goods and services delivered online • E.g., downloaded computer software

6. Types of E-Commerce Transactions • B2C: business-to-consumer transactions • Buying toys from eToys • B2B: business-to-business transactions • Makes up 70 to 85% of current e-commerce business • C2C: consumer-to consumer transactions • Anyone selling online • C2B: consumer-to-business transactions

7. Exhibit 9.1: E-Commerce Value Chain

8. The Internet Economy • Two indicators of the global presence of e-commerce • Secure server: an Internet host that allows users to send and receive encrypted data • Internet hosts: computers connected to the Internet with their own IP addresses • OECD dominate the Internet with over 90% of Internet hosts

9. Exhibit 9.2: Secure Servers and Internet Hosts in Selected OECD Countries

10. The Internet Economy • In 1991, 3 million people used the Internet and almost none used it for e-commerce. • Between 2001 and 2002, U.S. consumers spent over $1.3 billion on e-commerce, increase of over 90%. • Recent estimates suggest growth around the world. • Offers tremendous opportunities for multinationals

11. Exhibit 9.3: Internet Users around the World

12. The Internet Economy • Internet economy has four layers • The infrastructure • The applications infrastructure • The Internet intermediaries • The Internet commerce layer

13. Layer 1 • The Internet infrastructure is the backbone of the Internet, including the Internet service providers, e.g., • Communications (Qwest, MCI/Worldcom) • Internet service providers (Mindspring, AOL, Earthlink) • Networking (Cisco, Lucent, 3Com) • Hardware (Dell, Compaq, HP)

14. Layer 2 • The applications infrastructure • Companies and consultants that build web systems and supporting software • Consultants (SB1) • Commerce applications (Netscape, Sun, IBM) • Web development software (Adobe, NetObjects) • Search engine software (Verity) • Web-enable databases (Oracle)

15. Layer 3 • The internet intermediaries • Companies that provides linking services on the Internet and derive revenues from commissions, advertising, and membership fees • Online travel agencies (Travelweb, Travelocity.com) • Online brokerages (E*TRADE) • Content aggregators (CNET, ZDNet) • Online advertising (Yahoo!)

16. Layer 4 • The Internet commerce layer • Companies that conduct commercial transactions on the Web • E-retailers (wine.com, diamond.com) • Manufacturers selling directly (hpshopping.com, Dell) • Subscription-based companies (VRBO.com) • Transportation services (most airlines) • Shipping services (FedEx, UPS)

17. Exhibit 9.4: Internet Businesses Ranked on Business Week’s Information Technology 100

18. Fundamentals of E-Commerce • E-commerce is evolving quickly. • Failures of many start-ups show it’s not without risks. • E-commerce presents significant opportunities and threats.

19. Exhibit 9.5: Summary of Threats and Opportunities

20. Five Steps for Successful E-Commerce Strategy • Build on current business models and experiment with new e-commerce models • Use e-commerce to search for ways to reduce costs or enhance the business. • Meet the challenge of developing an e-commerce organization • Entire firm (not only top management) must be prepared to embrace the e-commerce model.

21. Steps for Successful E-Commerce Strategy (cont.) • Allocate resources to the e-commerce business • Commit financial, human, and technological resources to develop e-commerce capabilities • Build a superior e-commerce infrastructure as a basis of a differentiation strategy • Provide superior online experiences

22. Steps for Successful E-Commerce Strategy (cont.) • Make sure the entire management team aligns with the e-commerce agenda

23. E-Commerce Structure: Integrated or Autonomous • Company needs to decide how e-commerce fits into existing design • Right mixture of bricks and clicks • How much to integrate Internet into traditional businesses • Brick-and-mortar: traditional or non-virtual business operation

24. Integrated or Autonomous • Degree of interaction between brick-and-mortar operations can occur anywhere in the value chain • Can range from near seamless operations (e.g., Office Depot) to the mostly independent operations (e.g., Barnes & Noble and Barnesandnoble.com)

25. E-Commerce Structure: Integrated or Autonomous • The independent benefits • Faster and more entrepreneurial • Freed from corporate bureaucracy • The integrated benefits • Cross-promotion, shared information, increased quantity purchases, use of same distribution channels

26. Exhibit 9.6: Key Decisions in the Integration vs. Separation Decision

27. Additional Operational Challenges for an E-Commerce Business • Finding partnerships and alliances with customers or third parties • Attracting, retaining, and developing employees in the e-commerce unit • Inadequate e-commerce training • E-commerce employee retention • Deciding what e-commerce functions to outsource

28. Pure E-business Company Tasks to Face Challenges • Develop information and management systems to respond to growth • Maintain rapid decision making, creativity, innovation, and flexibility • Build relationships with e-commerce support companies and customers • Attract and retain e-commerce–capable talent • Develop an effective management team

29. Tasks for Traditional Companies with E-Commerce • Build a common vision and commitment to e-commerce • Change the organization structure for quick reconfiguration of assets and capabilities • Change the organization culture to support e-commerce • Attract and retain e-commerce-skilled employees • Alter HR programs to suit skill requirements of e-commerce employees

30. Exhibit 9.7: Organizational Changes in Major Multinational Co. Building E-Commerce

31. Globalizing Through the Internet • A Web site gives the company immediate global access • The challenges of globalization faced by traditional brick-and-mortar companies remain • Managers must still decide whether they want to sell global or local product • Business issues related to national contexts (e.g., currencies, local laws, etc.) have to be handled

32. Multinational E-Commerce Strategy Formulation • Depends on • Nature of the business • Types of products or services offered through e-commerce • Hierarchy of difficulty depending on infrastructure requirements • Telecommunications infrastructure to move information • Payment infrastructure to move money • Physical infrastructure to deliver products

33. Attractions of E-Commerce • Technology • Already available • Efficiencies • More efficient • Convenience • Web is operating all the time regardless of location

34. Attractions of E-commerce(cont.) • Speed of access • Company’s products or services can be accessed immediately from anywhere in the world

35. E-Commerce Deterrents/Challenges • Return/receipt burden and cost of delivery • Expect 30-40% return rate • Costs of site construction, maintenance, upgrades • Channel conflicts • Easily copied models • Competitors can easily see and copy business model

36. E-Commerce Deterrents • Cultural differences • Web sites must be appropriate culturally • Traditional cross-border complexities remain • Exchange rates, different taxes, and government regulations

37. Picking a Market • Two factors to target countries • Those with market inefficiencies • E.g., formerly state-controlled economies • Attractive demographic characteristics • Internet population of at least 5% • High literacy rate • Participation in at least on free trade agreements • Government with viable legal system

38. Picking a Market (cont.) • E-commerce potential is substantial in Latin America because of MERCOSUR • Potential exists for Asian countries with membership in ASEAN • Open borders and common currency of European Union is also fertile ground

39. Exhibit 9.8: E-Readiness of Selected Countries

40. Multinational E-Commerce Strategy Implementation • Requires building an appropriate organization and developing the necessary technical capabilities to conduct electronic transactions

41. The Multinational E-Commerce Organization • Three-tiered mixing of global and local functions • Headquarters • Vision, strategy, leadership for worldwide electronic marketing • Also provide shared services such as network infrastructure

42. The Multinational E-Commerce Organization (cont.) • Shared functional services • Provide HRM, marketing, partner management to regions • Local subsidiaries • Deliver goods, manage functions better done locally such as the supply chain

43. Exhibit 9.9: Organizational Structures of the Multinational E-Corporation

44. Technical Capabilities for Multinational E-commerce • Ability to process multiple currencies • Ability to calculate/show purchase information on international shipping, duties, and local taxes such as VAT • Systems that check compliance with local and international laws

45. Technical Capabilities for Multinational E-commerce • Ability to provide support in multilingual service centers • Fraud protection • Electronic payment models in addition to credit cards

46. To Build or Outsource Technical Capabilities? • Two options • Run all e-commerce functions internally or outsource to e-commerce enablers • E-commerce enablers: fulfillment specialists that provide services such as Web site translation • Provide services and software that translate Web sites, calculate shipping, value-added taxes, duties, and other charges unique to each country

47. “Mission-Critical” Factors to Communicate to Global Audience • Link all Web sites to corporate Web site • Web site should contain all nonelectronic local contact information for feedback or comment • Provide a prominent list of languages used by the company’s Web site • Use different languages for downloads

48. “Mission-Critical” Factors to Communicate to Global Audience (cont.) • Localize by language the parts of the parent company Web site that receive the most access • Provide a site map • Provide the firm’s privacy statement in all local languages

49. “Mission-Critical” Factors to Communicate to Global Audience (cont.) • Guard against local piracy by putting your policies in local languages • Localize your graphics and written material • Localize content management

50. Exhibit 9.10: Major Problems Identified in Web Site Globalization