Factors affecting E-Commerce /Key Drivers of E-commerce/ Forces  fuelling E-commerce

There are many external environmental factors that can affect e- business. It is common for managers to
assess each of these factors closely. The aim is always to take better decisions for the firm’s progress. Some
common factors are political, economic, social and technological (known as PEST analysis).

1.Political factors
It includes the role of government legislation, initiatives and funding to support the use and development of e-
commerce and information technology. Several aspects of government policy can affect e-commerce business.
All firms must follow the law. Managers must find how upcoming legislations can affect their activities. The
government’s role in developing countries is an important one as it facilitates the essential requirements for
the development of E-Commerce such as providing robust secure on-line payment options, ensuring a solid
ICT infrastructure, providing educational programs and building up awareness using different means such as
media and education institutions.

2.Economic factors
It includes the general wealth and commercial health of the nation and the elements that contribute to it.
Economic efficiency results in the reduction of communications costs, low-cost technological infrastructure,
speedier and more economic electronic transactions with suppliers, lower global information sharing and
advertising costs, and cheaper customer service alternatives. Economic integration is either external or
internal. External integration refers to the electronic networking of corporations, suppliers, customers/clients,
and independent contractors into one community communicating in a virtual environment (with the Internet
as medium). Internal integration, on the other hand, is the networking of the various departments within a
corporation, and of business operations and processes. This allows critical business information to be stored in
a digital form that can be retrieved instantly and transmitted electronically. Internal integration is best
exemplified by corporate intranets. Among the companies with efficient corporate intranets are Procter and
Gamble, IBM, Nestle and Intel.
3.Social factors
Incorporating the level and advancement in IT education and training which will enable both potential buyers
and the workforce to understand and use the technology. Rising standards of living and a
burgeoning,upwardly mobile middle class with high disposable incomes,Busy lifestyles,urban traffic congestion
and lack of time for offline shopping have given boost to e-commerce. Evolution of  websites such as Flipkart,
Snapdeal, ebay etc. has become a  market place where seller register with them and pays commission on
every sale.
4.Technological factors
 The development of ICT is a key factor in the growth of e-commerce. It has made communication more
efficient, faster, easier, and more economical as the need to set up separate networks for telephone services,
television broadcast, cable television, and Internet access is eliminated. Due to technological advances
economic transactions have become much easier and faster and this has given boost to  the development of e-
commerce.

Key Differences Between e-commerce and e-business

 The points presented below are substantial so far as the difference between e-commerce and e-
business is concerned:
 Buying and Selling of goods and services through the internet is known as e-commerce. Unlike e-
business, which is an electronic presence of business, by which all the business activities are conducted
through the internet.
 e-commerce is a major component of e-business.
 e-commerce includes transactions which are related to money, but e-business includes monetary as
well as allied activities.
 e-commerce has an extroverted approach that covers customers, suppliers, distributors, etc. On the
other hand, e-business has an ambivert approach that covers internal as well as external processes.
 e-commerce requires a website that can represent the business. Conversely, e-business requires a
website, Customer Relationship Management and Enterprise Resource Planning for running the
business over the internet.
 e-commerce uses the internet to connect with the rest of the world. In contrast to e-business, the
internet, intranet and extranet are used for connecting with the parties.

E-Commerce Infrastructure

Mission: It would be to design, develop and maintenance of e-commerce business venture and enable three
critical objectives:

E-Commerce Infrastructure identifies the functionalities of the Hardware and Software components,
specifies the corresponding service level requirements, and describes the management and operations of
the whole system. It may comprise briefly of the following components at a very abstract level.
Software components used: Content management systems, Web analytics, Text analytics, Application
Programming Interface (API), Database server, Middlewares etc. Object oriented (e.g. CORBA), Transaction
processing, communication (https, messaging), data base (e.g. ODBC), application middleware (CGI)
Hardware components used: Servers, proxy servers, load balancing systems. Firewalls, encryption devices and
interactive voice response units etc.

Beyond this, another important dimension to deliberate upon, is to focus on the key metrics of an  e-
commerce infrastructure policy. These could be noted and elaborated as follows:

Supply chain management in the e-commerce industry

Supply chain management (SCM) refers to strategies that optimize the flow of materials or services to make
available the product or service from inception to the end consumer. It aims to perform this task in an
integrated and cost-effective manner (Reis et al, 2014). Supply chain today is a part of every leading industry.
The broad categories underlying the standard supply chain management for any industry include demand
planning, sourcing, production, inventory management or storage, and logistics. The figure below represents
these tasks.
 Vital elements of supply chain management (SCM)

The extensive growth of e-commerce is the outcome of the increasing use of internet among consumers. The
internet provides these consumers with access to the supply and delivery process by creating their own
personal accounts (Yang, 2012). Thus the new map encompassing e-commerce journey is not limited to
setting up a website and selling the products online. Rather, it entails preparedness to product configuration,
suitable infrastructure, logistics, and supply chain management (Nurmilaakso, 2008). One of the methods
helping e-commerce companies achieving this is e-SCM. It refers to the act of executing the SCM process with
the use of internet and computer applications.

E-commerce has accelerated the supply chain process in consideration to the customers’ expectations as well
as increasing volumes. Attributes like customer satisfaction and internet inventory management are unique.
They demand effective logistic development in the supply chain process. Within the B2C model, e-commerce
business SCM system eliminates distributors and manufacturers from the picture.

The figure below depicts various different levels within the supply chain and logistics.

Following are the vital components forming the supply chain and logistics process of the e-commerce
industry.

Inventory management
Inventory is an important element of supply chain management. With the advent of the internet, the
traditional inventory model has been changing. The traditional method of keeping inventory is when the
business uses its own warehouse in order to sell the products directly to the customer (Kayikci, 2018). This,
however, is not the most efficient method of logistics nowadays. Most recently, the method of ‘risk-pooling’
benefits the whole supply chain (Yang, 2012). In this strategy, e-commerce businesses do not hold their own
inventory and rather outsource their inventory to a larger wholesaler. This helps e-commerce businesses to
reduce the risk of holding their own inventory. Moreover, it benefits the wholesaler by charging slightly higher
for inventory and serving a larger customer (retailers) base (Patil & Divekar, 2014).
Despite the overall benefits of adopting the risk-pooling strategy, about three-fourths of the internet retailers
go by the traditional logistic method (Kayikci, 2018). The figures below represent the different models of
inventory management followed by e-commerce companies today.

In addition, today, more and more e-businesses, especially the ones that are new in business, are adopting the
drop shipping model for inventory. In this model a store does not hold the product it sells on its website,
rather, it purchases the products from a third party and ships it to customers (Yang, 2012).

Reverse logistics
E-commerce industry has an SCM structure which entails reverse logistics as well. Reverse logistics refers to
the planning and execution of the movement of goods from the point of consumption to the point of origin
(Elmas & Erdoğmuş, 2011). Since almost all e-commerce websites offer the facility of exchange and returns,
the need for logistics inevitably increases. The traditional and e-commerce logistics has certain differences in
functionality. Conventional retail model, for the most part, does not offer easy returns facility to the user. On
the other hand, e-retailers take additional care to move the goods safely from the consumer’s to the vendor’s
warehouse. Hence, realizing how important a role logistics play in e-commerce industries, many big and
established e-commerce websites like Amazon and Flipkart have opened their own logistics service.
The present-day supply chain process has evolved drastically from what the scenario of the supply chain was
in the past decades. Retailers are making sure that the supply chain process is optimised with the use of latest
technologies (Laudon & Traver, 2013). In present times, supply chains are much more organized, have great
levels of customer service levels and also help in cost reduction. With the inclusion of automation, artificial
intelligence has helped supply chain management to evolve.

Challenges of E- commerce

 Reverse Logistics
 An estimated more than 10% of shipments delivered are returned back by customers due to various
reasons. These returns causes a huge sum of money in logistics expense without driving any value for
the company. A robust reverse logistics network is a key element to minimize return cost.
 Inventory Management
Customers are pampered by Retailers and thus their expectations from Retailers have increased
manifold. With around 30,000 Pin Codes in India that retailers can serve the customers with thousands
of SKUs, managing the stock inventory is a huge problem. Keeping high service levels and managing
multiple inventories mean higher safety stock as well.
 Last Mile Logistics/Order Fulfillment
The last mile can be defined as the movement of goods from a fulfillment center to their final
destination. In other words, the last mile is the last leg of a product’s trip before it arrives on your
customer’s doorstep. E-Commerce customers don’t like having to wait, this is pushing many e-
commerce companies to self-handle Order to Fulfillment process which in itself becomes too complex
to handle and can actually shift focus from the main business.
 Supply Chain Visibility
Supply Chain Visibility gives a clear view of inventory and supply chain activity, creating an agile global
supply chain. When data visibility is limited and information flow is slow, companies struggle to get a
quick and comprehensive view across the global supply chain network. Agility and alignment are nearly
impossible to achieve as a result.
The challenges are not limited to the above mentioned, rather complexity keeps on increasing as a
company expand and scale.

Environmental forces affecting planning and External Environmental Factors

practices
Internal and External Factors
The internal factors refer to anything within the
company and under the control of the company no
matter whether they are tangible or intangible.
1. Plans & Policies
2. Value Proposition
3. Human Resource
4. Financial and Marketing Resources
5. Corporate Image and brand equity
6. Labour Management
7. Inter-personal Relationship with employees
8. Quality and size of Infrastructure
On the contrary to internal factors, external
elements are affecting factors outside and under
no control of the company. Considering the outside
environment allows businessmen to take suitable
adjustments to their marketing plan to make it
more adaptable to the external environment.
Micro factors:
1. Customers
2. Input or Suppliers
3. Competitors
4. Public
5. Marketing & Media

These factors after being figured out are grouped Macro factors:
into the strengths and weaknesses of the company. 1. Economic
If one element brings positive effects to the 2. Political/legal
company, it is considered as strength 3. Technology
4. Social
5. Natural