Lecture 01

Introduction

Electronic commerce and the computerization of business processes have revolutionized many
industries, such as the travel and financial services industries, and they are shaking up most other
industries as well. Electronic commerce and electronic business are two of the most common
business terms in use today. In fact, try to find a business periodical or trade journal that does not
have several articles discussing how businesses are applying some form of “e” business process or
application. So what exactly are electronic commerce and electronic business? Will these terms
still be important in the years to come, or will they be two more overused and discarded
buzzwords? This lecture examines the definitions of electronic commerce and electronic business
and their surrounding environments.

Two thousand years ago, Roman roads brought trade and commerce to Europe in an unprecedented
manner. A thousand years ago, the spice routes linked the cultures of East and West. At the
beginning of the second millennium, the Internet, the world’s largest computer network, the
network of networks, is making fundamental changes to the lives of everyone on the planet-
changing forever the way business is conducted. Internet has become an important medium for
doing global business based on the state of the art technology. Global business was conducted in
a new way: electronically, using networks and the Internet. The availability of Internet has led to
the development of E-Commerce (Electronic commerce), in which business transactions take place
via telecommunication networks.

E-commerce is a commercial activity dealing directly with the trading of goods and services and
with other related business activities, in which the electronic communication medium plays a
central role. These activities include the communication of information, the management of
payment, the negotiating and trading of financial instruments, and the management of transport.

As an economic activity, EC represents an inter-play of physical, human and societal resources.

 Physical resources include natural resources, technologies and physical infrastructure.

 Human resources refer to human labour, knowledge and skill in their broadest sense.
 Societal resources include resources residing in moral and ethical systems, institutions,
culture, language, social harmony and community spirit.

What is Electronic Commerce?

Electronic commerce, commonly known as e-commerce, is a type of industry where buying and
selling of product or service is conducted over electronic systems such as the Internet and other
computer networks. Electronic commerce draws on such technologies as mobile commerce,
electronic funds transfer, supply chain management, Internet marketing, online transaction
processing, electronic data interchange (EDI), inventory management systems, and automated data
collection systems. Modern electronic commerce typically uses the World Wide Web at least at
one point in the transaction's life-cycle, although it may encompass a wider range of technologies
such as e-mail, mobile devices social media, and telephones as well.

Electronic Commerce is a type of business model, or segment of a larger business model, that
enables a firm or individual to conduct business over an electronic network, typically the internet.
Electronic commerce operates in all four of the major market segments: business to business,
business to consumer, consumer to consumer and consumer to business.

Ecommerce has allowed firms to establish a market presence, or to enhance an already larger
market position, by allowing for a cheaper and more efficient distribution chain for their products
or services. One example of a firm having successfully used ecommerce is Borders. This book
store not only has physical stores, but also has an online store where the customer can buy books,
CDs and DVDs.

History of E-Commerce

History of ecommerce dates back to the invention of the very old notion of "sell and buy",
electricity, cables, computers, modems, and the Internet. Ecommerce became possible in 1991
when the Internet was opened to commercial use. Since that date thousands of businesses have
taken up residence at web sites.

At first, the term ecommerce meant the process of execution of commercial transactions
electronically with the help of the leading technologies such as Electronic Data Interchange (EDI)
and Electronic Funds Transfer (EFT) which gave an opportunity for users to exchange business
information and do electronic transactions. The ability to use these technologies appeared in the
late 1970s and allowed business companies and organizations to send commercial documentation
electronically.

Although the Internet began to advance in popularity among the general public in 1994, it took
approximately four years to develop the security protocols (for example, HTTP) and DSL which
allowed rapid access and a persistent connection to the Internet. In 2000 a great number of business
companies in the United States and Western Europe represented their services in the World Wide
Web. At this time the meaning of the word ecommerce was changed. People began to define the
term ecommerce as the process of purchasing of available goods and services over the Internet
using secure connections and electronic payment services. By the end of 2001, the largest form of
ecommerce, Business-to-Business (B2B) model, had around $700 billion in transactions

Ecommerce has a great deal of advantages over "brick and mortar1" stores and mail order catalogs.
Consumers can easily search through a large database of products and services. They can see actual
prices, build an order over several days and email it as a "wish list" hoping that someone will pay

1
Brick and mortar business is often used to refer to a company that possesses a building or store for operations
for their selected goods. Customers can compare prices with a click of the mouse and buy the
selected product at best prices.

Online vendors, in their turn, also get distinct advantages. The web and its search engines provide
a way to be found by customers without expensive advertising campaign. Even small online shops
can reach global markets. Web technology also allows to track customer preferences and to deliver
individually-tailored marketing.

History of ecommerce is unthinkable without Amazon2 and Ebay3 which were among the first
Internet companies to allow electronic transactions. Thanks to their founders we now have a
handsome ecommerce sector and enjoy the buying and selling advantages of the Internet. Currently
there are 5 largest and most famous worldwide Internet retailers: Amazon, Dell, Staples, Office
Depot and Hewlett Packard. According to statistics, the most popular categories of products sold
in the World Wide Web are music, books, computers, office supplies and other consumer
electronics.

Traditional Commerce

Traditional Commerce is the process of buying, selling or exchanging products, services or

information is physical probably with the existence of a physical store.

In simple terms, traditional commerce consists of marketing to reach potential customers, getting
together with the customer in a place of business, agreeing on a sale, and making the exchange of
goods and money.

Common marketing techniques used to reach potential customers include mailings, phone calls
and advertisements.

Then the buyer and/or the salesman are the active parties involved in a sale and exchange.

In one case, the buyer initiates the purchase by either going to the store to buy or calling on the
phone and making an order.

In another situation, the salesman goes to the home or place of business to make the sale, or he
calls on the phone to make the sale.

A third method combines action from both parties. The business' sales department mails a catalog
or other material, and the customer then makes a purchase from the catalog.

These methods all apply to business-to-consumer (B2C) as well as business-to-business (B2B)

sales.

2
Amazon.com, Inc. is an American multinational electronic commerce company
3
eBay Inc. is an American multinational internet consumer-to-consumer corporation
Traditional Commerce vs. Electronic Commerce

Due to the increased popularity and availability of Internet access many traditional small business
are considering ecommerce as a valid and profitable sales channel. However, ecommerce and
traditional commerce are very different, and it's important to weight carefully the differences
between ecommerce and traditional commerce in order to decide if it would be a good fit for your
business or just a costly mistake.

Direct Interaction

Traditional commerce is often based around face to face interaction. The customer has a chance to
ask questions and the sales staff can work with them to ensure a satisfactory transaction. Often this
gives sales staff an opportunity for upselling, or encourages the client to buy a more expensive
item or related items, increasing the shop profits. On the other hand, ecommerce doesn't offer this
benefit unless features such as related items or live chats are implemented.

Lower Costs

Ecommerce is usually much cheaper than maintaining a physical store in an equally popular
location. Compared with costs such as commercial space rent, opening an online store can be done
at a fraction of the price for less than $50 per month. This can prove invaluable for small business
owners who don't have the startup capital to rent prime retail space and staff it to be able to sell
their goods.

Reach

With an online shop you can do business with anybody living on a country you are able and willing
to send mail to, unlike traditional commerce where you are restricted to people who actually come
to your shop. This also opens the door to many other forms of marketing that can be done entirely
online, which often results in a much larger volume of sales and even foot traffic to the store. An
online store has no capability limits, and you can have as many clients as your stock can serve.

Returns Rate

In a traditional store, the customer will be purchasing the product in person, which has some
benefits for both the him and the store. The customer will be able to touch and check the items, to
make sure they are suitable, and even try them on, which reduces the number of returned items or
complaints due to an item not being as advertised on a catalogue or promotional leaflet. Expect a
significantly higher rate of returns if you start trading online, as many will just order and try the
items at home, and won't hesitate to return them as they can do it by post without having to talk
with anybody in person.

Credit Card Fraud

The remote nature of Ecommerce makes much more difficult to detect fraud, which means stores
can lose money due to fraud. While traditional commerce is not totally secure, it's easier for a sales
attendant to verify that the person buying something is actually the owner of the credit card, by
asking for photographic ID. However, the fight against card fraud is well underway and banks and
responsible ecommerce owner’s work together to verify that all card use is legitimate.

Advantages and Disadvantages of Electronic Commerce

There are advantages and disadvantages for both the seller and buyer in online commerce.

Seller

Advantages for the seller include:

 Access to worldwide markets

 Minimal marketing and sales costs
 Can compete with larger companies
 Can track purchases and use data to recommend other items to the customer

Disadvantages to the seller include:

 No personal contact
 Worldwide competition
 Online fraud
 Often difficult to get people to know about and visit the site

Buyer

Advantages for the buyer include:

 Can find hard-to-get items from his or her chair

 Reduced cost
 Automated cost-comparison available

Disadvantages for the buyer include:

 Must pay for shipping and wait for delivery

 Cannot see or feel the product before making a decision
 Cannot easily return item or get support

Benefits to Organizations

1. Electronic commerce expands the marketplace to national and international markets. With
minimal capital outlay, a company can easily and quickly locate more customers, the best
suppliers, and the most suitable business partners worldwide.
2. Electronic commerce decreases the cost of creating, processing, distributing, storing, and
retrieving paper-based information. For example, by introducing an electronic procurement
system, companies can cut the purchasing administrative costs by as much as 85 percent.
 3. Ability for creating highly specialized businesses. For example, dog toys which can be
purchased only in pet shops or department and discount stores in the physical world, are
sold now in a specialized www.dogtoys.com
4. Electronic commerce allows reduced inventories and overhead by facilitating “pull”-type
supply chain management. In a pull-type system the process starts from customer orders
and uses just-in-time manufacturing.
5. Electronic commerce reduces the time between the outlay of capital and the receipt of
products and services.
6. Electronic commerce initiates business processes reengineering projects. By changing
processes, productivity of salespeople, knowledge workers, and administrators can
increase by 100 percent or more.
7. Electronic commerce lowers telecommunications cost-the Internet is much cheaper than
VANs.
8. Other benefits include improved image, improved customer service, newfound business
partners, simplified processes, compressed cycle and delivery time, increased productivity,
eliminating paper, expediting access to information, reduced transportation costs, and
increased flexibility.

Benefits to Consumers

1. Electronic commerce enables customers to shop or do other transactions 24 hours a day,

all year round, from almost any location.
2. Electronic commerce provides customers with more choices; they can select. Electronic
commerce frequently provides customers with less expensive products and services by
allowing them to shop in many places and conduct quick comparisons.
3. In some cases, especially with digitized products, EC allows quick delivery.
4. Customers can receive relevant and detailed information in seconds, rather than days or
weeks.
5. Electronic commerce makes it possible to participate in virtual auctions.
6. Electronic commerce allows customers to interact with other customers in electronic
communities and exchange ideas as well as compare experiences.
7. Electronic commerce facilitates competition, which results in substantial discounts.

Benefits to Society

1. Electronic commerce enables more individuals to work at home and to do less travelling
for shopping, resulting in less traffic on the roads and lower air pollution.
2. Electronic commerce allows some merchandise to be sold at lower prices, so less affluent
people can buy more and increase their standard of living.
3. Electronic commerce enables people in Third World countries and rural areas to enjoy
products and services that otherwise are not available to them.
4. Electronic commerce facilitates delivery of public services, such as health care, education,
and distribution of government social services at a reduced cost and/or improved quality.
Health-care services, for example, can reach patients in rural areas.
Disadvantages of E-Commerce

1. Some business processes such as perishable foods and high-cost, unique items such as
custom-designed jewelry might be impossible to inspect adequately from a remote
location.
2. Costs, which are a function of technology, can change dramatically even during short-lived
electronic commerce implementation projects because the technologies are changing so
rapidly.
3. Many firms have trouble recruiting and retaining employees with the technological, design
and business process skills needed to create an effective electronic commerce presence.
4. Firms facing difficulty of integrating existing databases and transaction processing
software designed for traditional commerce into the software that enables electronic
commerce.
5. Companies that offer software design and consulting services to tie existing systems into
new online business systems can be expensive.
6. Consumers are fearful of sending their credit card numbers over the Internet and having
online merchants4. Consumers are simply resistant to change and are uncomfortable
viewing merchandise on a computer screen rather than in person.

4
A merchant is a businessperson who trades in commodities that were produced by others, in order to earn a profit.