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Introduction to
Electronic
Commerce
CHAPTER 1
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.
In this chapter, you will learn:
• What electronic commerce is and how it has evolved
in three waves of development
• Why companies concentrate on revenue models
and the analysis of business processes instead of
business models when they undertake electronic
commerce initiatives
• How to identify opportunities for and barriers to
electronic commerce initiatives
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Learning Objectives
Learning Objectives (cont’d.)
• How economic forces have led to the development
and continued growth of electronic commerce
• How businesses use value chains and SWOT
analysis to identify electronic commerce
opportunities
• How the international nature of electronic commerce
affects its growth and development
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Introduction
• Electronic commerce began in the United States
– China the leader in online retail sales since 2013
– More and more sales being made on smartphones
• China is the world’s largest potential online market
– Active Internet users and upward economic growth
– Buyers use U.S. and domestic sites and are
influenced by online reviews and discussions
– Has led to online review sites and seller participation
in Chinese chat and messaging sites
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IntroductionIntroduction
Introduction (cont’d.)
• Sellers in China must account for regional
differences within a diverse country
– Distribution and delivery difficult without well-
developed roads and standardized shipping practices
– Some sellers have created their own distribution
systems
• Chapter addresses how online businesses have
emerged and grown to accommodate various
cultures and infrastructure challenges around the
world
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The Evolution of Electronic Commerce
• Electronic commerce history
– Rapid growth from mid-1990s to 2000
– “Dot-com boom” followed by “dot-com bust”
– 2000 to 2003: Overly gloomy news reports
– 2003: Signs of profound rebirth
• Sales and profit growth returned
• Electronic commerce grew faster than overall economy
and became a larger part of the total economy
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The Evolution of Electronic Commerce
• Electronic commerce history (cont’d.)
– 2008 general recession
• Electronic commerce suffered far less than most of
economy
– From 2003 to the present
• Electronic commerce has expanded more in good
times and contracted less in bad times than other
economic sectors
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Electronic Commerce and Electronic
Business
• Electronic commerce
– Shopping on the Web
– Businesses trading with other businesses
– Internal company processes
– Broader term: electronic business (e-business)
– Includes all business activities using Internet
technologies
• Internet and World Wide Web (Web)
• Wireless transmissions on mobile telephone networks
• Dot-com (pure dot-com)
– Businesses operating only online
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Categories of Electronic Commerce
• Business-to-consumer (B2C)
– Consumer shopping on the Web
• Business-to-business (B2B): e-procurement
– Transactions conducted between Web businesses
– Supply management (procurement) departments
• Negotiate purchase transactions with suppliers
• Business processes
– Use of Internet technologies within the business
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Business Processes
• Business activity is a task ask performed by a
worker doing his or her job
– May or may not be related to a transaction
• Transaction is an exchange of value
– Purchase, sale, or conversion of raw materials into
finished product
– Involves at least one business activity
• Business processes are groups of logical, related,
sequential activities and transactions
• Web helps people work more effectively
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Relative Size of Electronic Commerce
Elements
• Rough approximation shown in Figure 1-1
• Dollar volume and number of transactions
– B2B much greater than B2C
• Number of transactions
– Supporting business processes greater than B2C and
B2B combined
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FIGURE 1-1 Elements of electronic commerce
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Relative Size of Electronic Commerce
Elements (cont’d.)
• Consumer-to-consumer (C2C)
– Individuals buying and selling among themselves
• Web auction site
– C2C sales included in B2C category
• Seller acts as a business (for transaction purposes)
• Business-to-government (B2G)
– Business transactions with government agencies
• Paying taxes, filing required reports
– B2G transactions included in B2B discussions
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FIGURE 1-2 Electronic commerce categories
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Early Electronic Commerce
• Electronic Funds Transfers (EFTs)
– Wire transfers
– Electronic transmissions of account exchange
information over private communications networks
• Electronic Data Interchange (EDI)
– Business-to-business transmission of computer-
readable data in standard format
– Standard transmitting formats benefits
• Reduces errors, avoids printing and mailing costs and
eliminates need to reenter data
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Early Electronic Commerce (cont’d.)
• Trading partners
– Businesses engaging in EDI with each other
– EDI pioneers (example: Walmart) improved
purchasing processes and supplier relationships
– Pioneers faced high implementation costs
• Value-added network (VAN)
– Independent firm offering EDI connection and
transaction-forwarding services
• EDI continues to be a large portion of B2B electronic
commerce
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The First Wave of Electronic Commerce,
1995-2003
• 1997 to 2000
– More than 12,000 Internet businesses were started
• 2000 to 2003
– More than 5,000 start-ups went out of business
– Extensive coverage of “dot.com bust”
– $200 billion spent on bailing out and starting
businesses
• Set the stage for significant future growth
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The Second Wave of Electronic Commerce,
2004-2009
• Expanding international scope
• Established companies used own funds to finance
gradual expansion
• Faster, less expensive Internet technologies
available
– Increase in broadband connections a key element of
the B2C component of this wave
• E-mail became an integral part of marketing and
customer contact
• Renewed interest in Internet advertising
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The Second Wave of Electronic Commerce,
2004-2009 (cont’d.)
• Promise of available technologies fulfilled
– Legal distribution of music, video, and other digital
products
• Web 2.0 technologies
– Users participate in creating and modifying content on
third party Web sites
• Shift in online business strategy
– Away from the first-mover advantage which is
expensive and not always successful to a smart-
follower strategy
• “Second mouse gets the cheese”
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The Third Wave of Electronic Commerce,
2010 - Present
• Factors in the third wave
– Critical mass of mobile users with powerful devices
• Increased availability of smartphones and tablets
• Mobile apps used for over 40% of online sales
– Increase in electronic commerce activity
• Growing number of people using handheld devices to
access the Internet
– Widespread participation in social networking
• Businesses can use social commerce to advertise,
promote or suggest specific products and services
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The Third Wave of Electronic Commerce,
2010 - Present
• Factors in the third wave (cont’d)
– Increased online participation by smaller businesses
in sales, purchasing, and capital-raising activities
• Crowdsourcing
– Sophisticated analysis of data companies collect
about online customers
• Big data and data analytics
– Increased integration of tracking technologies into
B2B electronic commerce and the management of
business processes within companies
• RFID devices and biometric technologies
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FIGURE 1-3 Key characteristics of the first three waves of
electronic commerce
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Business Models, Revenue Models, and
Business Processes
• Business model
– Set of processes combined to achieve company goal
• In the first wave of electronic commerce, investors
sought Internet-driven business models
– Expectations of rapid sales growth, market
dominance
– Successful “dot-com” business models emulated
– Led to many business failures
– Michael Porter argued business models did not exist
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Business Models, Revenue Models, and
Business Processes (cont’d.)
• Instead of copying model, companies should
examine their business elements
– Streamline, enhance, or replace with Internet
technology driven processes
• Revenue model
– Specific collection of business processes used to
identify, market and make sales to customers
– Classifies revenue-generating activities for
communication and analysis purposes
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Focus on Specific Business Processes
• Examples of business processes
– Purchasing raw materials or goods for resale
– Converting materials and labor into finished goods
– Managing transportation and logistics
– Hiring and training employees
– Managing business finances
• Identify processes that benefit from ecommerce
technologies
– Not all processes can be improved with technology
– Firms can use it to help them adapt to change
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Role of Merchandising
• Combination of store design, layout, and product
display knowledge
• Salespeople have skills to identify customer needs
and meet them
• Merchandising and personal selling skills can be
difficult to practice remotely
– Companies must be able to transfer these skills to
have Web site success
– Some products are easier to sell on the Internet than
others
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Product/Process Suitability to Electronic
Commerce
• Some products good candidates for electronic
commerce
– Customers do not need to experience physical
characteristics before purchase
– Technology has made more processes suitable for
electronic commerce
• Commodity items are standardized, well-known
products only differentiated by price
– Must have attractive shipping profile to sell online
– Includes books, clothing, shoes, kitchen accessories
and other small household items
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FIGURE 1-5 Business process suitability to type of commerce
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Product/Process Suitability to Electronic
Commerce (cont’d.)
• Easier-to-sell products have:
– Strong brand reputation
– Appeal to small but geographically diverse groups
• Traditional commerce better for:
– Products relying on personal selling skills
– Transactions involving large amounts of money
• Combination of electronic and traditional commerce
strategies best when:
– Business process includes both commodity and
personal inspection aspects
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Opportunities for Electronic Commerce
• Electronic commerce can help increase profits and
sales and decrease business costs
• Virtual community
– Gathering of people sharing a common interest
• E-commerce purchasing opportunities
– Identify new suppliers and business partners
– Efficiently obtain competitive bid information
– Increase speed, information exchange accuracy
– Wider range of choices available 24 hours a day
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Opportunities for Electronic Commerce
(cont’d.)
• Benefits extend to general society
– Lower costs to issue and secure
• Electronic payments of tax refunds
• Public retirement
• Welfare support
– Provides faster transmission
– Provides fraud, theft loss protection
• Electronic payments easier to audit and monitor
– Telecommuting reduces traffic, pollution
– Products and services available in remote areas
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Electronic Commerce: Current Barriers
• Poor choices for electronic commerce
– Perishable foods and high-cost, unique items
• Four barriers
– Need for critical mass of customers with appropriate
technology
– Unpredictability in costs and revenues
– Insufficient tools for hardware and software
integration
– Cultural and legal barriers
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Economic Forces and Electronic Commerce
• Economics
– Study how people allocate scarce resources
• Markets
– Potential sellers come into contact with buyers
– Medium of exchange available (currency or barter)
• Hierarchical business organizations
– Firms or companies
• Transaction costs
– Motivation for moving economic activity to
hierarchically structured firms
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Transaction Costs
• Total costs a buyer and seller incur while gathering
information and negotiating purchase-and-sale
transaction
• Costs include:
– Brokerage fees and sales commissions
– Cost of information search and acquisition
• Sweater dealer example (Figure 1-6)
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FIGURE 1-6 Market form of economic organization
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Markets and Hierarchies
• Coase’s analysis of high transaction costs
– Hierarchical organizations replace market-negotiated
transactions
– Supervision and worker-monitoring elements
– Vertical integration sweater example (Figure 1-7)
• Oliver Williamson (extended Coase’s analysis)
– Complex manufacturing, assembly operations
• Hierarchically organized, vertically integrated
– Manufacturing innovations increased monitoring
activities’ efficiency and effectiveness
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FIGURE 1-7 Hierarchical form of economic organization
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Markets and Hierarchies (cont’d.)
• Strategic business unit (business unit)
– Part of a company large enough to manage itself
– Small enough to quickly respond to business
environment changes
• Exception to hierarchy trend
– Commodities
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Using Electronic Commerce to Reduce
Transaction Costs
• Electronic commerce can
– Improve flow of information
– Increase coordination of actions
– Change attractiveness of vertical integration
• Example: employment transaction
– Telecommuting reduces or eliminates transaction
costs
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Network Economic Structures
• Neither market nor hierarchy
• Strategic alliances (strategic partnerships)
– Coordinate strategies, resources, skill sets by forming
long-term relationships based on shared purposes
– Strategic partners come together for specific projects
• Network organizations well suited to information-
intensive technology industries
– Electronic commerce makes networks easier to
construct and maintain
– Castells predicts economic networks will become the
organizing structure for social interactions
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FIGURE 1-8 Network form of economic organization
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Network Effects
• Law of diminishing returns
– Activities yield less value as consumption amount
increases
• Example: hamburger consumption
• Network effect
– Exception to law of diminishing returns
– As more people or organizations participate in
network, the value to each participant increases
– Examples: Landline phones, e-mail
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Identifying Electronic Commerce
Opportunities
• Focus on specific business processes
– Break business down
– Series of value-adding activities that combine to meet
firm’s goals
• Business activities conducted by firms of all sizes
• Firm
– Multiple business units owned by a common set of
shareholders
• Industry
– Multiple firms selling similar products to similar
customers
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Strategic Business Unit Value Chains
• Value chain
– Organizing strategic business unit activities to design,
produce, promote, market, deliver, and support the
products or services
– Michael Porter includes supporting activities such as
human resource management and purchasing
• Strategic business unit primary activities
– Design, identify customers, purchase materials and
supplies, manufacture product or create service,
market and sell, deliver, provide after-sale service
and support
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Strategic Business Unit Value Chains
(cont’d.)
• Importance of primary activities depends on:
– Product or service
– Customers
• Central corporate organization support activities
– Finance and administration
– Human resource
– Technology development
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FIGURE 1-9 Value chain for a strategic business unit
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Industry Value Chains
• Examine where strategic business unit fits within
industry
• Porter’s value system
– Describes larger activities stream into which particular
business unit’s value chain is embedded
– Industry value chain refers to value systems
• Awareness of businesses value chain activities
– Allows identification of new opportunities
– Useful way to think about general business strategy
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FIGURE 1-10 Industry value chain for a strategic business unit
©CengageLearning2017
SWOT Analysis: Evaluating Business Unit
Opportunities
• Define SWOT (strengths, weaknesses,
opportunities, and threats)
• First look into business unit
– Identify strengths and weaknesses
• Then review operating environment
– Identify opportunities and threats presented
• Take advantage of opportunities
– Build on strengths
– Avoid threats
– Compensate for weaknesses
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FIGURE 1-11 SWOT analysis questions
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FIGURE 1-12 Results of Dell’s SWOT analysis
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International Nature of Electronic
Commerce
• Internet connects computers worldwide
• When companies use Web to improve business
process they automatically operate in global
environment
• Third wave
– Rapidly increasing proportion outside US
– China, India, and Brazil have seen enormous recent
growth
• Key issues in international commerce include trust,
culture, language, government and infrastructure
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FIGURE 1-13 Proportion of online B2C sales by geographic region, 2014
©CengageLearning2017
Trust Issues on the Web
• Important for all businesses to establish trusting
relationships with customers
• Companies can rely on established brand names
• Challenging for new companies because anonymity
exists when trying to establish a Web presence
– Plan for establishing credibility is essential
– Sellers cannot assume site visitors will know they are
trustworthy
• Business must overcome distrust in Web “strangers”
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Language Issues
• Business must adapt to local cultures
– “Think globally, act locally”
– Provide local language versions of Web site as
customers are more likely to buy from sites in own
language
• Websites available in English only have declined
dramatically to about 25% of total sites
• Languages may require multiple translations for
separate dialects
– Localization means a translation considers multiple
elements of the local environment
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Cultural Issues
• Important element of business trust is anticipating
how the other party to a transaction will act in
specific circumstances
• Culture is the combination of language and customs
– Varies across national boundaries, regions within
nations
• Care must be taken in choosing packaging, product
names, icons used to represent common actions
and even colors
• Japanese shoppers resisted US sites for years
because of their resistance to use of credit cards
© 2017 Cengage Learning®. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part, except for use as permitted in a
license distributed with a certain product or service or otherwise on a password-protected website or school-approved learning management system for classroom use 56
Culture and Government
• Some areas have cultural environments inhospitable
to online discussions that occur on the Internet
– May lead to government controls that limit electronic
commerce development
– Many countries filter available Web content and some
have denounced the Internet
• Countries such as the People’s Republic of China
and Singapore traditionally control access to
information but want to reap the benefits of
electronic commerce
– Result has been many regulations and requirements
© 2017 Cengage Learning®. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part, except for use as permitted in a
license distributed with a certain product or service or otherwise on a password-protected website or school-approved learning management system for classroom use 57
Infrastructure Issues
• Computers and software connected to Internet and
the related communications networks
• Outside the U.S. the telecommunications industry is
either government owned or regulated
– Inhibits development or limits expansion
• High local telephone connection costs affect online
behavior
• Over half of all Websites turn away international
orders because of no process to handle them
– Problem is increasing globally
© 2017 Cengage Learning®. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part, except for use as permitted in a
license distributed with a certain product or service or otherwise on a password-protected website or school-approved learning management system for classroom use 58
Infrastructure Issues (cont’d.)
• Freight forwarder arranges international
transactions’ shipping and insurance
• Customs broker arranges tariff payment and
compliance with international shipping laws
• Bonded warehouse is a secure location that holds
international shipments until customs requirements
or payments satisfied
• Handling international transactions paperwork has
an annual cost of $700 billion
– Software automates some paperwork
© 2017 Cengage Learning®. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part, except for use as permitted in a
license distributed with a certain product or service or otherwise on a password-protected website or school-approved learning management system for classroom use 59
© 2017 Cengage Learning®. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part, except for use as permitted in a
license distributed with a certain product or service or otherwise on a password-protected website or school-approved learning management system for classroom use 60
FIGURE 1-14 Parties involved in a typical international
trade transaction
©CengageLearning2017

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BSAD 372 SPRING 2017 CH 1

  • 1. Introduction to Electronic Commerce CHAPTER 1 © 2017 Cengage Learning®. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website or school-approved learning management system for classroom use. .
  • 2. In this chapter, you will learn: • What electronic commerce is and how it has evolved in three waves of development • Why companies concentrate on revenue models and the analysis of business processes instead of business models when they undertake electronic commerce initiatives • How to identify opportunities for and barriers to electronic commerce initiatives © 2017 Cengage Learning®. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website or school-approved learning management system for classroom use. 22 Learning Objectives
  • 3. Learning Objectives (cont’d.) • How economic forces have led to the development and continued growth of electronic commerce • How businesses use value chains and SWOT analysis to identify electronic commerce opportunities • How the international nature of electronic commerce affects its growth and development © 2017 Cengage Learning®. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website or school-approved learning management system for classroom use. 33
  • 4. Introduction • Electronic commerce began in the United States – China the leader in online retail sales since 2013 – More and more sales being made on smartphones • China is the world’s largest potential online market – Active Internet users and upward economic growth – Buyers use U.S. and domestic sites and are influenced by online reviews and discussions – Has led to online review sites and seller participation in Chinese chat and messaging sites © 2017 Cengage Learning®. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website or school-approved learning management system for classroom use. 4 IntroductionIntroduction
  • 5. Introduction (cont’d.) • Sellers in China must account for regional differences within a diverse country – Distribution and delivery difficult without well- developed roads and standardized shipping practices – Some sellers have created their own distribution systems • Chapter addresses how online businesses have emerged and grown to accommodate various cultures and infrastructure challenges around the world © 2017 Cengage Learning®. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website or school-approved learning management system for classroom use. 5
  • 6. The Evolution of Electronic Commerce • Electronic commerce history – Rapid growth from mid-1990s to 2000 – “Dot-com boom” followed by “dot-com bust” – 2000 to 2003: Overly gloomy news reports – 2003: Signs of profound rebirth • Sales and profit growth returned • Electronic commerce grew faster than overall economy and became a larger part of the total economy © 2017 Cengage Learning®. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website or school-approved learning management system for classroom use. 66
  • 7. The Evolution of Electronic Commerce • Electronic commerce history (cont’d.) – 2008 general recession • Electronic commerce suffered far less than most of economy – From 2003 to the present • Electronic commerce has expanded more in good times and contracted less in bad times than other economic sectors © 2017 Cengage Learning®. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website or school-approved learning management system for classroom use. 77
  • 8. Electronic Commerce and Electronic Business • Electronic commerce – Shopping on the Web – Businesses trading with other businesses – Internal company processes – Broader term: electronic business (e-business) – Includes all business activities using Internet technologies • Internet and World Wide Web (Web) • Wireless transmissions on mobile telephone networks • Dot-com (pure dot-com) – Businesses operating only online © 2017 Cengage Learning®. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website or school-approved learning management system for classroom use. 88
  • 9. Categories of Electronic Commerce • Business-to-consumer (B2C) – Consumer shopping on the Web • Business-to-business (B2B): e-procurement – Transactions conducted between Web businesses – Supply management (procurement) departments • Negotiate purchase transactions with suppliers • Business processes – Use of Internet technologies within the business 99© 2017 Cengage Learning®. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website or school-approved learning management system for classroom use.
  • 10. Business Processes • Business activity is a task ask performed by a worker doing his or her job – May or may not be related to a transaction • Transaction is an exchange of value – Purchase, sale, or conversion of raw materials into finished product – Involves at least one business activity • Business processes are groups of logical, related, sequential activities and transactions • Web helps people work more effectively © 2017 Cengage Learning®. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website or school-approved learning management system for classroom use. 10
  • 11. Relative Size of Electronic Commerce Elements • Rough approximation shown in Figure 1-1 • Dollar volume and number of transactions – B2B much greater than B2C • Number of transactions – Supporting business processes greater than B2C and B2B combined © 2017 Cengage Learning®. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website or school-approved learning management system for classroom use. 11
  • 12. © 2017 Cengage Learning®. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website or school-approved learning management system for classroom use. 12 FIGURE 1-1 Elements of electronic commerce ©CengageLearning2017
  • 13. Relative Size of Electronic Commerce Elements (cont’d.) • Consumer-to-consumer (C2C) – Individuals buying and selling among themselves • Web auction site – C2C sales included in B2C category • Seller acts as a business (for transaction purposes) • Business-to-government (B2G) – Business transactions with government agencies • Paying taxes, filing required reports – B2G transactions included in B2B discussions © 2017 Cengage Learning®. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website or school-approved learning management system for classroom use. 1313
  • 14. © 2017 Cengage Learning®. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website or school-approved learning management system for classroom use. 14 FIGURE 1-2 Electronic commerce categories ©CengageLearning2017
  • 15. Early Electronic Commerce • Electronic Funds Transfers (EFTs) – Wire transfers – Electronic transmissions of account exchange information over private communications networks • Electronic Data Interchange (EDI) – Business-to-business transmission of computer- readable data in standard format – Standard transmitting formats benefits • Reduces errors, avoids printing and mailing costs and eliminates need to reenter data © 2017 Cengage Learning®. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website or school-approved learning management system for classroom use. 1515
  • 16. Early Electronic Commerce (cont’d.) • Trading partners – Businesses engaging in EDI with each other – EDI pioneers (example: Walmart) improved purchasing processes and supplier relationships – Pioneers faced high implementation costs • Value-added network (VAN) – Independent firm offering EDI connection and transaction-forwarding services • EDI continues to be a large portion of B2B electronic commerce © 2017 Cengage Learning®. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website or school-approved learning management system for classroom use. 1616
  • 17. The First Wave of Electronic Commerce, 1995-2003 • 1997 to 2000 – More than 12,000 Internet businesses were started • 2000 to 2003 – More than 5,000 start-ups went out of business – Extensive coverage of “dot.com bust” – $200 billion spent on bailing out and starting businesses • Set the stage for significant future growth © 2017 Cengage Learning®. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website or school-approved learning management system for classroom use. 1717
  • 18. The Second Wave of Electronic Commerce, 2004-2009 • Expanding international scope • Established companies used own funds to finance gradual expansion • Faster, less expensive Internet technologies available – Increase in broadband connections a key element of the B2C component of this wave • E-mail became an integral part of marketing and customer contact • Renewed interest in Internet advertising © 2017 Cengage Learning®. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website or school-approved learning management system for classroom use. 1818
  • 19. The Second Wave of Electronic Commerce, 2004-2009 (cont’d.) • Promise of available technologies fulfilled – Legal distribution of music, video, and other digital products • Web 2.0 technologies – Users participate in creating and modifying content on third party Web sites • Shift in online business strategy – Away from the first-mover advantage which is expensive and not always successful to a smart- follower strategy • “Second mouse gets the cheese” © 2017 Cengage Learning®. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website or school-approved learning management system for classroom use 1919
  • 20. The Third Wave of Electronic Commerce, 2010 - Present • Factors in the third wave – Critical mass of mobile users with powerful devices • Increased availability of smartphones and tablets • Mobile apps used for over 40% of online sales – Increase in electronic commerce activity • Growing number of people using handheld devices to access the Internet – Widespread participation in social networking • Businesses can use social commerce to advertise, promote or suggest specific products and services © 2017 Cengage Learning®. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website or school-approved learning management system for classroom use 20
  • 21. The Third Wave of Electronic Commerce, 2010 - Present • Factors in the third wave (cont’d) – Increased online participation by smaller businesses in sales, purchasing, and capital-raising activities • Crowdsourcing – Sophisticated analysis of data companies collect about online customers • Big data and data analytics – Increased integration of tracking technologies into B2B electronic commerce and the management of business processes within companies • RFID devices and biometric technologies © 2017 Cengage Learning®. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website or school-approved learning management system for classroom use 21
  • 22. © 2017 Cengage Learning®. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website or school-approved learning management system for classroom use 22 FIGURE 1-3 Key characteristics of the first three waves of electronic commerce ©CengageLearning2017
  • 23. Business Models, Revenue Models, and Business Processes • Business model – Set of processes combined to achieve company goal • In the first wave of electronic commerce, investors sought Internet-driven business models – Expectations of rapid sales growth, market dominance – Successful “dot-com” business models emulated – Led to many business failures – Michael Porter argued business models did not exist © 2017 Cengage Learning®. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website or school-approved learning management system for classroom use 2323
  • 24. Business Models, Revenue Models, and Business Processes (cont’d.) • Instead of copying model, companies should examine their business elements – Streamline, enhance, or replace with Internet technology driven processes • Revenue model – Specific collection of business processes used to identify, market and make sales to customers – Classifies revenue-generating activities for communication and analysis purposes © 2017 Cengage Learning®. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website or school-approved learning management system for classroom use 2424
  • 25. Focus on Specific Business Processes • Examples of business processes – Purchasing raw materials or goods for resale – Converting materials and labor into finished goods – Managing transportation and logistics – Hiring and training employees – Managing business finances • Identify processes that benefit from ecommerce technologies – Not all processes can be improved with technology – Firms can use it to help them adapt to change © 2017 Cengage Learning®. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website or school-approved learning management system for classroom use 2525
  • 26. Role of Merchandising • Combination of store design, layout, and product display knowledge • Salespeople have skills to identify customer needs and meet them • Merchandising and personal selling skills can be difficult to practice remotely – Companies must be able to transfer these skills to have Web site success – Some products are easier to sell on the Internet than others © 2017 Cengage Learning®. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website or school-approved learning management system for classroom use 2626
  • 27. Product/Process Suitability to Electronic Commerce • Some products good candidates for electronic commerce – Customers do not need to experience physical characteristics before purchase – Technology has made more processes suitable for electronic commerce • Commodity items are standardized, well-known products only differentiated by price – Must have attractive shipping profile to sell online – Includes books, clothing, shoes, kitchen accessories and other small household items © 2017 Cengage Learning®. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website or school-approved learning management system for classroom use 27
  • 28. © 2017 Cengage Learning®. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website or school-approved learning management system for classroom use 28 FIGURE 1-5 Business process suitability to type of commerce ©CengageLearning2017
  • 29. Product/Process Suitability to Electronic Commerce (cont’d.) • Easier-to-sell products have: – Strong brand reputation – Appeal to small but geographically diverse groups • Traditional commerce better for: – Products relying on personal selling skills – Transactions involving large amounts of money • Combination of electronic and traditional commerce strategies best when: – Business process includes both commodity and personal inspection aspects © 2017 Cengage Learning®. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website or school-approved learning management system for classroom use 2929
  • 30. Opportunities for Electronic Commerce • Electronic commerce can help increase profits and sales and decrease business costs • Virtual community – Gathering of people sharing a common interest • E-commerce purchasing opportunities – Identify new suppliers and business partners – Efficiently obtain competitive bid information – Increase speed, information exchange accuracy – Wider range of choices available 24 hours a day © 2017 Cengage Learning®. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website or school-approved learning management system for classroom use 30
  • 31. Opportunities for Electronic Commerce (cont’d.) • Benefits extend to general society – Lower costs to issue and secure • Electronic payments of tax refunds • Public retirement • Welfare support – Provides faster transmission – Provides fraud, theft loss protection • Electronic payments easier to audit and monitor – Telecommuting reduces traffic, pollution – Products and services available in remote areas © 2017 Cengage Learning®. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website or school-approved learning management system for classroom use 3131
  • 32. Electronic Commerce: Current Barriers • Poor choices for electronic commerce – Perishable foods and high-cost, unique items • Four barriers – Need for critical mass of customers with appropriate technology – Unpredictability in costs and revenues – Insufficient tools for hardware and software integration – Cultural and legal barriers © 2017 Cengage Learning®. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website or school-approved learning management system for classroom use 3232
  • 33. Economic Forces and Electronic Commerce • Economics – Study how people allocate scarce resources • Markets – Potential sellers come into contact with buyers – Medium of exchange available (currency or barter) • Hierarchical business organizations – Firms or companies • Transaction costs – Motivation for moving economic activity to hierarchically structured firms © 2017 Cengage Learning®. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website or school-approved learning management system for classroom use 3333
  • 34. Transaction Costs • Total costs a buyer and seller incur while gathering information and negotiating purchase-and-sale transaction • Costs include: – Brokerage fees and sales commissions – Cost of information search and acquisition • Sweater dealer example (Figure 1-6) © 2017 Cengage Learning®. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website or school-approved learning management system for classroom use 3434
  • 35. © 2017 Cengage Learning®. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website or school-approved learning management system for classroom use 35 FIGURE 1-6 Market form of economic organization ©CengageLearning2017
  • 36. Markets and Hierarchies • Coase’s analysis of high transaction costs – Hierarchical organizations replace market-negotiated transactions – Supervision and worker-monitoring elements – Vertical integration sweater example (Figure 1-7) • Oliver Williamson (extended Coase’s analysis) – Complex manufacturing, assembly operations • Hierarchically organized, vertically integrated – Manufacturing innovations increased monitoring activities’ efficiency and effectiveness © 2017 Cengage Learning®. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website or school-approved learning management system for classroom use 3636
  • 37. © 2017 Cengage Learning®. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website or school-approved learning management system for classroom use 37 FIGURE 1-7 Hierarchical form of economic organization ©CengageLearning2017
  • 38. Markets and Hierarchies (cont’d.) • Strategic business unit (business unit) – Part of a company large enough to manage itself – Small enough to quickly respond to business environment changes • Exception to hierarchy trend – Commodities © 2017 Cengage Learning®. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website or school-approved learning management system for classroom use 38
  • 39. Using Electronic Commerce to Reduce Transaction Costs • Electronic commerce can – Improve flow of information – Increase coordination of actions – Change attractiveness of vertical integration • Example: employment transaction – Telecommuting reduces or eliminates transaction costs © 2017 Cengage Learning®. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website or school-approved learning management system for classroom use 3939
  • 40. Network Economic Structures • Neither market nor hierarchy • Strategic alliances (strategic partnerships) – Coordinate strategies, resources, skill sets by forming long-term relationships based on shared purposes – Strategic partners come together for specific projects • Network organizations well suited to information- intensive technology industries – Electronic commerce makes networks easier to construct and maintain – Castells predicts economic networks will become the organizing structure for social interactions © 2017 Cengage Learning®. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website or school-approved learning management system for classroom use 4040
  • 41. © 2017 Cengage Learning®. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website or school-approved learning management system for classroom use 41 FIGURE 1-8 Network form of economic organization ©CengageLearning2017
  • 42. Network Effects • Law of diminishing returns – Activities yield less value as consumption amount increases • Example: hamburger consumption • Network effect – Exception to law of diminishing returns – As more people or organizations participate in network, the value to each participant increases – Examples: Landline phones, e-mail © 2017 Cengage Learning®. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website or school-approved learning management system for classroom use 4242
  • 43. Identifying Electronic Commerce Opportunities • Focus on specific business processes – Break business down – Series of value-adding activities that combine to meet firm’s goals • Business activities conducted by firms of all sizes • Firm – Multiple business units owned by a common set of shareholders • Industry – Multiple firms selling similar products to similar customers © 2017 Cengage Learning®. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website or school-approved learning management system for classroom use 4343
  • 44. Strategic Business Unit Value Chains • Value chain – Organizing strategic business unit activities to design, produce, promote, market, deliver, and support the products or services – Michael Porter includes supporting activities such as human resource management and purchasing • Strategic business unit primary activities – Design, identify customers, purchase materials and supplies, manufacture product or create service, market and sell, deliver, provide after-sale service and support © 2017 Cengage Learning®. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website or school-approved learning management system for classroom use 44
  • 45. Strategic Business Unit Value Chains (cont’d.) • Importance of primary activities depends on: – Product or service – Customers • Central corporate organization support activities – Finance and administration – Human resource – Technology development © 2017 Cengage Learning®. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website or school-approved learning management system for classroom use 45
  • 46. © 2017 Cengage Learning®. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website or school-approved learning management system for classroom use 46 FIGURE 1-9 Value chain for a strategic business unit ©CengageLearning2017
  • 47. Industry Value Chains • Examine where strategic business unit fits within industry • Porter’s value system – Describes larger activities stream into which particular business unit’s value chain is embedded – Industry value chain refers to value systems • Awareness of businesses value chain activities – Allows identification of new opportunities – Useful way to think about general business strategy © 2017 Cengage Learning®. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website or school-approved learning management system for classroom use 47
  • 48. © 2017 Cengage Learning®. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website or school-approved learning management system for classroom use 48 FIGURE 1-10 Industry value chain for a strategic business unit ©CengageLearning2017
  • 49. SWOT Analysis: Evaluating Business Unit Opportunities • Define SWOT (strengths, weaknesses, opportunities, and threats) • First look into business unit – Identify strengths and weaknesses • Then review operating environment – Identify opportunities and threats presented • Take advantage of opportunities – Build on strengths – Avoid threats – Compensate for weaknesses © 2017 Cengage Learning®. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website or school-approved learning management system for classroom use 49
  • 50. © 2017 Cengage Learning®. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website or school-approved learning management system for classroom use 50 FIGURE 1-11 SWOT analysis questions ©CengageLearning2017
  • 51. © 2017 Cengage Learning®. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website or school-approved learning management system for classroom use 51 FIGURE 1-12 Results of Dell’s SWOT analysis ©CengageLearning2017
  • 52. International Nature of Electronic Commerce • Internet connects computers worldwide • When companies use Web to improve business process they automatically operate in global environment • Third wave – Rapidly increasing proportion outside US – China, India, and Brazil have seen enormous recent growth • Key issues in international commerce include trust, culture, language, government and infrastructure © 2017 Cengage Learning®. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website or school-approved learning management system for classroom use 52
  • 53. © 2017 Cengage Learning®. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website or school-approved learning management system for classroom use 53 FIGURE 1-13 Proportion of online B2C sales by geographic region, 2014 ©CengageLearning2017
  • 54. Trust Issues on the Web • Important for all businesses to establish trusting relationships with customers • Companies can rely on established brand names • Challenging for new companies because anonymity exists when trying to establish a Web presence – Plan for establishing credibility is essential – Sellers cannot assume site visitors will know they are trustworthy • Business must overcome distrust in Web “strangers” © 2017 Cengage Learning®. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website or school-approved learning management system for classroom use 54
  • 55. Language Issues • Business must adapt to local cultures – “Think globally, act locally” – Provide local language versions of Web site as customers are more likely to buy from sites in own language • Websites available in English only have declined dramatically to about 25% of total sites • Languages may require multiple translations for separate dialects – Localization means a translation considers multiple elements of the local environment © 2017 Cengage Learning®. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website or school-approved learning management system for classroom use 55
  • 56. Cultural Issues • Important element of business trust is anticipating how the other party to a transaction will act in specific circumstances • Culture is the combination of language and customs – Varies across national boundaries, regions within nations • Care must be taken in choosing packaging, product names, icons used to represent common actions and even colors • Japanese shoppers resisted US sites for years because of their resistance to use of credit cards © 2017 Cengage Learning®. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website or school-approved learning management system for classroom use 56
  • 57. Culture and Government • Some areas have cultural environments inhospitable to online discussions that occur on the Internet – May lead to government controls that limit electronic commerce development – Many countries filter available Web content and some have denounced the Internet • Countries such as the People’s Republic of China and Singapore traditionally control access to information but want to reap the benefits of electronic commerce – Result has been many regulations and requirements © 2017 Cengage Learning®. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website or school-approved learning management system for classroom use 57
  • 58. Infrastructure Issues • Computers and software connected to Internet and the related communications networks • Outside the U.S. the telecommunications industry is either government owned or regulated – Inhibits development or limits expansion • High local telephone connection costs affect online behavior • Over half of all Websites turn away international orders because of no process to handle them – Problem is increasing globally © 2017 Cengage Learning®. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website or school-approved learning management system for classroom use 58
  • 59. Infrastructure Issues (cont’d.) • Freight forwarder arranges international transactions’ shipping and insurance • Customs broker arranges tariff payment and compliance with international shipping laws • Bonded warehouse is a secure location that holds international shipments until customs requirements or payments satisfied • Handling international transactions paperwork has an annual cost of $700 billion – Software automates some paperwork © 2017 Cengage Learning®. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website or school-approved learning management system for classroom use 59
  • 60. © 2017 Cengage Learning®. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website or school-approved learning management system for classroom use 60 FIGURE 1-14 Parties involved in a typical international trade transaction ©CengageLearning2017