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Part – IV
Introduction

Electronic Commerce

The Internet connects the computers of many companies and also connects individuals. It is very much like the world wide telephone network but is much cheaper and allows exchange of not only documents but also multimedia information – namely audio, graphics and video information. The search for more efficient ways of doing business is now driving another revolution in the conduct of business and in our concept of money. This revolution is known as Electronic Commerce, which is any purchasing or selling through an electronic communication medium. Electronic commerce is the symbiotic integration of communications, data management, and security capabilities to allow business applications within different organization to automatically exchange information related to the sale of goods and services. Communication services support the transfer of information management from the originator define the to the recipient. format of Data the services exchange

information. Security mechanisms authentication the source of information, guarantee the integrity of the information received, prevent disclosure of the information to inappropriate users, and document that the information was received by the intended recipient.
Jatin Soni : 9904181899 : Hi Friends.

Jatin Soni : 9904181899 : Hi Friends.

The Internet has spawned a number of innovations in doing business between organizations, between individuals and organizations and between individuals and individuals. These are commonly known as Business-to-Business (B2B), Businessto-Customer (B2C), and Customer-to-Customer (C2C) transactions. These transactions constitute Electronic Commerce and are abbreviated as e-Commerce. In other words, human intermediaries in data handling are being dispensed with and consequently the flow of physical documents is reduced.

What is Electronic Commerce?
Electronic commerce can be defined as "the buying and selling of information, products, and services via computer networks". This definition can be extended by including the "support for any kind of business transactions over a digital infrastructure". Seen from a buyer-seller perspective, and using a life-cycle model, electronic commerce can be used in all the phases of a commerce transaction. E-Commerce is concerned with transactions carried out between two organizations, business or individuals on-line using their respective computers which are connected by a telecommunication system. The transaction include orders sent to vendors to supply items, invoices sent by vendors, payment usually made by debiting an organization’s account with a bank and crediting to the vendor’s account, cash payments made using
Jatin Soni : 9904181899 : Hi Friends.

Jatin Soni : 9904181899 : Hi Friends.

what is known as electronic cash (e-cash). The important point is that all transaction is carried out electronically using the network connection. Transactions may be between two commercial organizations, between government department and a commercial organization, between a customer and a commercial organization or between two individuals. There are a variety of eCommerce applications. Some of these are:
 

Retail stores such as bookstores, music stores, toy stores, etc. Auction sites using which an individual buyer and seller can buy and sell goods. Co-operating businesses connected using their own private telecommunication network carrying out transactions in a semiautomated way. Banks connected to their customers providing services such as deposits, payments, and giving information on status of an account. Railways/airlines/cinema theaters permitting booking tickets on-line and paying for them on-line using credit cards. Filing tax returns with government agencies on-line and obtaining an immediate acknowledgement. Electronic publishing to promote marketing, advertising, sales and customer support.

Business-to-Business e-Commerce
We call this category market-link transaction. Here, business, governments, and other organizations depend on computer-toJatin Soni : 9904181899 : Hi Friends.

Jatin Soni : 9904181899 : Hi Friends.

computer communication as a fast, an economical, and a dependable way to conduct business transactions. Small companies are also beginning to see the benefits of adopting the same methods. Business-to-Business transactions include the use of EDI and electronic mail for purchasing goods and services, buying information and consulting services, submitting request for proposals, and receiving proposals. An example of this type of e-commerce is ordering goods from a vendor, which fully integrates computation, and communication, electronically. 1. A purchase order document is entered via the keyboard of PC by the customer’s purchase office and sent by electronic mail (e-mail) to the vendor. 2. The purchase order is stored in his database by the vendor and is acknowledged by him electronically. 3. The vendor dispatches the items physically (may be by rail or truck) and simultaneously a delivery note is sent by e-mail to the customer. 4. The items that arrive will have a printed delivery note accompanying them. It is sent to the inspection office, which physically inspects items received and compares them with the delivery note. The accepted items note is electronically sent via the LAN to the stores office by the inspection office. The rejected items note is sent electronically to the purchase office. The accepted items are sent to the stores and rejected items to the purchase office.
Jatin Soni : 9904181899 : Hi Friends.

Jatin Soni : 9904181899 : Hi Friends.

5. The stores office computer automatically updates the inventory using the note sent by inspection office. The items taken into stock report is sent via the LAN to the accounts office thereby authorizing payment to the vendor. 6. The accounts office electronically pays for items accepted. Electronic payments are made by the Accounts Office by informing its banker (electronically) to debit its account by the specified amount and credit it to the vendor’s back account. This is known as Electronic Funds Transfer (EFT), which is also an important aspect of e-Commerce.

Business-to-Customer e-Commerce
We call this category marketplace transaction. In a marketplace transaction, customers learn about products differently through electronic publishing, buy them differently using electronic cash and secure payment systems, and have them delivered differently. Also, how customers allocate their loyalty may also be different. An example of this type of e-commerce involves an individual and a shop selling goods. This is called Business-to-Customer (B2C) eCommerce. 1. Customers have access to the Internet from their homes or work places and which to purchase items sold by these shops. 2. The customer logs on to the web address of the shop. If he wants a specific item he states that by keying it in a specified place in a form displayed on his terminal.
Jatin Soni : 9904181899 : Hi Friends.

Jatin Soni : 9904181899 : Hi Friends.

3. If the customer wants to buy one or more books he points to the book details shown on his VDU using is mouse and clicks. The vendor’s computer enters the process, adds them, provides discount if any and shows the net amount payable. The customer is then asked to enter his credit card number and address to which the items are to be shipped. Option is also given to the customer to pay cash on delivery. 4. If the payment is by credit card, the vendor electronically (i.e. via a telephone line) sends credit card details of the customer and the amount of bill to the credit card company’s computer. 5. If the customer’s credit is OK the credit card company authorizes the sale. The E-shop can now proceed to fulfill the order. 6. The E-shop’s computer sends and order acknowledgement accepting the order and asks the customer for shipping instructions. Based on the shipping instructions the E-shop specifies the mode of transport and delivery period. 7. The E-shop normally does not have the items in its store. It orders them from a distributor (normally electronically). After they are received at vendor’s warehouse, the items are packed and dispatched to the customer’s address. 8. The credit card company sends a bill to the customer. It also credits the vendor’s bank account by the amount of the bill.

Jatin Soni : 9904181899 : Hi Friends.

Jatin Soni : 9904181899 : Hi Friends.

Customer-to-Customer (C2C) e-Commerce
An example of this type of e-commerce is one in which two individuals want to sell/buy items. The items are usually used items, collector’s items such as stamps/coins or antiques. The seller posts the description of the item and the expected price of the item on a website maintained by a company which acts as a middleman or broker. An individual who logs on to this site looking for items may be interested in the item for sale. He then offers to buy the item and he may quote a price. The price is mutually settled by exchanging messages by e-mail. The broker then arranges to collect the items from the seller and dispatch it to the buyer. He collects a fee from the buyer and the seller for his services. The primary advantage of this transaction is that the Internet enables two individuals in distant places to come together to buy and sell using an intermediary’s Web address.

Hardware

and

Software

Requirement

for

Electronic Commerce
The following hardware and software would be needed for establishing e-commerce between businesses:
1. Each of the businesses must have a LAN interconnecting its

offices. The offices themselves should have computers for data entry/receipt, comparisons, etc. The system may be a distributed client/server type system with each office being a client and the databases being stored in appropriate servers. The internal system architecture of the business is not a major
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Jatin Soni : 9904181899 : Hi Friends.

issue. However, the protocol used by the LAN is normally the same as that used by Internet, namely, TCP/IP. The organizational computer network using this protocol is called and Intranet. Besides using TCP / IP protocol intranets also have one or more World Wide Web servers. 2. The two intranets must be interconnected. Connect each of the intranets to the Internet. 3. A method of paying for goods or services received electronically. This implies that the business partners must know one another’s bank account details. Further, funds transfer must be secure. No one should be able to illegally access a business partner’s account and transfer money. 4. When documents are interchanged by e-mail. This is acceptable between close business associates. It is not secure and there is no authentication of documents sent and received. For more secure transactions e-Commerce has introduced a method called Electronic Data Interchange (EDI) which has a provision for authentication.

Advantages and Disadvantages of Electronic Commerce
The elements involved in e-commerce seem to offer the following advantages to small businesses and multinationals alike. Ecommerce provides:

Jatin Soni : 9904181899 : Hi Friends.

Jatin Soni : 9904181899 : Hi Friends.

Extended global market reach across a cheap public network, thus improved market research, enhanced product promotion and new sales channels to an increased audience. Better knowledge of individual customers needs and wants. The opportunity to establish strategic business networks and alliances. A means of eliminating intermediaries, such as geographically local franchises, due to direct customer contact.

 

I. The major advantage to a customer using e-Commerce mode for purchasing /shopping are: 1. One can buy/sell items from anywhere sitting at home provided and Internet connection is available. 2. The shipping can be done 24 hours a day, 365 days in a year —An Internet based shop never closes! 3. One can avail of services such as financial services, legal services, medical advice etc., from appropriate portals. 4. Wide varieties of goods (particularly items like books and music) are accessible easily without spending time and money in physically visiting and searching in many shops. 5. Anonymous friendly advice may be available on items one may like to buy/rent.
II. The major advantage to a customer using e-Commerce mode for

a business are: 1. With a web site a business can reach out to a world wide customer base at a very low cost.

Jatin Soni : 9904181899 : Hi Friends.

Jatin Soni : 9904181899 : Hi Friends.

2. Order processing cost is reduced as manual data entry is reduced. Business is also carried out faster as all documents are exchanged electronically. 3. Inventory size is reduced as transaction time is reduced. 4. Funds transfer is faster. 5. A large number of potential business partners can be quickly explored with appropriate search engines and e-mail correspondence. The major disadvantages of e-Commerce are: 1. Currently Internet access is not widely available in India. 2. Communication infrastructure is expensive and not very reliable particularly to individuals in India. 3. Payments by credit card require faith in the system security. As of now there is no mutual trust between seller and buyer on this system for payment using credit cards for goods and service in India. 4. Electronic Data Interchange standards have to be in place before Business-to Business e-Commerce can increase. Small businesses may find it difficult to conform. 5. Many persons go shopping for social contacts, touch and feel before buying items. E-Commerce will de-personalize transactions. 6. A major concern is security of transactions on the Internet. Spies or hackers can steal and misuse credit card numbers if appropriate care is not taken.

Jatin Soni : 9904181899 : Hi Friends.

Jatin Soni : 9904181899 : Hi Friends.

7. Shopping portals will be vulnerable to attacks by hackers unless special precautions are taken. One type of nuisance is called denial (rejection) of service in which a large number of frivolous (playful) enquires are posted to a portal making it inaccessible to legitimate customers. 8. Portals have to be protected form virus attacks and other electronic vandalism (damages) and espionage (spying) by erecting (rigid) firewalls and special security systems. 9. Customer’s privacy may be lost if regular log is kept of his/her buying habits. In spite of these disadvantages e-Commerce is bound to rapidly increase due to is convenience.

Benefits of Electronics Commerce
Electronics commerce increases the speed, accuracy, and efficiency of business and personal transactions. At this time, business-to-business electronic commerce is already being used for cutting costs related to the purchasing process. Commerce over the Internet is relatively inexpensive, even at the high end. The benefit of electronic commerce include the following:

Reduced costs to buyers from increased competition in procurement, as more suppliers are able to compete in an electronically open marketplace. Reduced costs to suppliers by electronically accessing online data based of bid opportunities, by on-line abilities to submit bids, and by on-line of awards.

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Jatin Soni : 9904181899 : Hi Friends.

Reduced errors, time and overhead costs in information processing by eliminating requirements for reentering data. Reduced inventories, as the demand for goods and services are electronically linked through just-in-time-inventory and integrated manufacturing techniques. Increase access to real-time inventory information, faster, fulfillment of orders, and lowers cost due to the elimination of paperwork. Reduced overhead costs through uniformity, automation, and integration of management processes, which enables flatter, wider, and more efficient processes. Better quality of goods as specification is standardized and competition increases; also better variety through expanded markets and the ability to produce customized goods. Creation of new markets through the ability to easily and cheaply reach potential customers. Easier time to market as business processes are linked, eliminating time delays between steps and the engineering of each sub process within the whole process. Faster time to market as business processed are linked, eliminating time delays between steps and the engineering of each sub process within the whole process. New business opportunities. Business and entrepreneurs are continuously on the lookout for new and innovative ideas as viable commercial ventures; electronics commerce provides such opportunities.

Jatin Soni : 9904181899 : Hi Friends.

Jatin Soni : 9904181899 : Hi Friends.

Increased access to a client base. Identifying and locating new clients and new markets is not trivial task since it involves analysis, product marketing, and consumer-base testing more precisely meeting the customer’s requirements. Improved product analysis as businesses are able to perform product analyses and comparisons and report their findings on the Internet and on-line. Wider access to assistance and to advice from experts and peers. Users can utilize the Internet to obtain expert advice and get help.

Issues in Electronic Commerce
There are some pitfalls and issues on the way to electronic commerce. They are as follows:

Privacy and Security: Early experiences with electronic commerce in the banking industry, which has been a pioneer in the use of electronic systems, can be used to learn of some potential dangers and issues to be taken into account. The use of Automated Teller Machines and electronic home banking systems has increasingly allowed customers to bank outside of traditional bank facilities, for most of their usual transactions. The potential source of trouble are customer concerns with privacy and security, which could lead to a backlash against suppliers using such systems, or simply to customers avoiding the use of these systems. Some believe that customers will be

Jatin Soni : 9904181899 : Hi Friends.

Jatin Soni : 9904181899 : Hi Friends.

reluctant

to

provide

their

suppliers

with

data

on

their

demographics information, buying patterns or product needs.

Electronic

Payment

Systems:

Electronic

business

transactions can only be successful if financial exchanges between buyers and sellers can occur in a simple, universally accepted, safe and cheap way. Various systems have been proposed some of them based on traditional mechanisms (e.g. credit cards accounts) while others rely on new designs, such as electronic money. The key here will be to find a few widely accepted mechanisms, which can be used by most actors. Agreement between the companies that offers credit card (like MasterCard, Visa card) with most major software vendors on one security standard for credit card transactions over the Internet is one step in the right direction. This doesn't diminish the need for more specialized systems, for instance to allow micro-transactions, the exchange of very small amounts of money (a few cents) in exchange for information or services. These new payment mechanisms will in turn enable new business models such as pay-per-article newspapers.

Implementation Issues: The implementation issues involve the managerial implications of creating, managing and getting the benefits of an electronic commerce system. Basically, it revolves around the realization that technology alone will not solve issues or create advantages. This technology needs to be integrated in an organization, with the change management issues linked to people resisting new concepts and ideas. It also

Jatin Soni : 9904181899 : Hi Friends.

Jatin Soni : 9904181899 : Hi Friends.

needs to support a clearly defined and well-communicated business strategy.

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