Lecture 1

1.2 Orientation
1.3 Introduction

Notes:

After completing this lecture, participants will be able to:

 Grasp the broad and multifaceted nature of e-commerce;
 Determine the developmental impact of e-commerce; and
 Identify the fundamental roles of trust for e-commerce.


1.4 Defining E-Commerce

1.5 Answer the question

Feedback:

All of these examples describe different facets of e-commerce. Indeed, E-commerce encompasses various degrees of
digitization. A particular transaction may still be defined as “e-commerce” even if not all of its parts take place digitally.

1.6 What is e-commerce?

Notes:

E-commerce stands for “electronic commerce.” However, its true nature is somewhat more than simply purchasing
things online.
The official OECD definition of e-commerce is as follows: “The sale or purchase of goods or services, conducted over
computer networks by methods designed for the purpose of receiving or placing orders.”
Meanwhile, the WTO’s “Work Programme on Electronic Commerce” defines e-commerce thus: “The term 'electronic
commerce' is understood to mean the production, distribution, marketing, sale or delivery of goods and services by
electronic means.”
Thus, e-commerce includes the purchase, through electronic means, not only of physical products (books, shoes, food,
etc.), but also of digital products (software, apps, e-books, etc.) and services (airplane or train tickets, insurance, etc.).

1.7 The implications of e-commerce for the value chain

Notes:

Using e-commerce enables enterprises producing any sort of good or service to sell directly to the end consumer,
thereby reducing their dependence on traditional intermediary firms (sometimes colloquially called “middlemen”). This
is called “disintermediation,” and through it, new and more direct business relationships are forged.

Imagine, for example, a scenario in which a factory located in Tokyo manufactures phones and supplies them to a
Japanese exporter. This exporter then arranges for the phones to be transported to an importer located in the United
States. The importer sells the phones to a distributor or a wholesaler, which in turn supply them to a retailer, be it an
electronic store or a department store, where they finally become available for purchase by end consumers. Through e-
commerce, firms become able to bypass the middlemen. In our example, the Japanese exporter could simply open an
online store, take orders from American consumers and ship the phones directly to them, bypassing the importer,
distributors and retailers, thus cutting down costs.

In some instances, it is even possible for manufacturers to sell directly to consumers, bypassing all of the intermediaries
in the traditional supply chain. However, we should note that, while this makes the product delivery chain significantly
shorter, manufacturers who use e-commerce to sell their goods will incur the cost of their physical transport, packaging
and advertising. Previously, these were all tasks whose costs would have previously been borne by intermediaries.

Disintermediation is thus not just about cutting out middlemen altogether. Indeed, it is often accompanied by a re-
arrangement of the market that may lead to re-intermediation with different actors. Some examples include digital
distribution platforms such as Deezer and Spotify, which serve as intermediaries in music distribution, as well as multi-
channel networks such as Youtube which manage, among other things, monetization, advertisements and intellectual
property rights. As such, disintermediation and re-intermediation, through e-commerce, are both parallel and
complementary.

1.8 Types of e-commerce transactions

Notes:

There are 5 types of e-commerce transactions

Business to Business (B2B)

Transactions between businesses

B2B transactions take place between businesses. It involves the provision of goods and services to other businesses,
for example the outsourcing and offshoring of HR management.

Business to Consumer (B2C)

Businesses sell their goods/services to consumers who are also the end users of these goods/services.

Although traditionally carried out in so-called “brick and mortar” (physical) stores, today businesses can reach
consumers through a wide range of channels, including social networks, online websites, and mobile apps.

Consumer to Consumer (C2C)

Consumers sell their goods/services to other consumers.

C2C transactions can be seen as a digital version of the “classified advertising” section still found in many
newspapers. Today, these types of transactions are typically carried out through online platforms such as eBay, or
during special events, such as sales within online communitiesC2C transactions can be seen as a digital version of the
“classified advertising” section still found in many newspapers. Today, these types of transactions are typically carried
out through online platforms such as eBay, or during special events, such as sales within online communities.

Consumer to Business (C2B)

Consumers post their offers online, allowing businesses to bid for them.

C2B transactions involve consumers providing opportunities to businesses For goods transactions, this may
mean custom-made products created according to the specific requirements of customers, such as a custom-made
birthday cake ordered online. For service transactions, this may involve customers posting a request for a specific
service, such as the design of a website on a platform such as UpWork.

Business to Government (B2G)

Businesses sell goods/services to government entities.

B2G transactions typically take place through set public procurement processes. In terms of e-commerce, however,
they entail the use of the Internet for public procurement, licensing procedures and other government-related
operations.
1.9 Answer the question

Feedback:

There are actually two transactions here. Buying a physical gift card from a physical store is not e-commerce. However,
using the gift card to download a game is e-commerce.The gift card here works as a payment method, just like a prepaid
credit card.
1.10 Answer the question

Feedback:

A small clothing producer sells its products to Zara (a fashion retailer), which processes its orders through an online
platform. - B2B

A client from India purchases a book online from Barnes and Nobles (a retail bookseller). - B2C

A client resells his/her own vintage shoes on eBay (an e-commerce platform). - C2C

A consumer posts a design project on UpWork (an online freelancing platform) and waits for companies to bid on the
project. - C2B
1.11 The Impact of E-commerce

1.12 Answer the question

Feedback:

Today, B2B accounts for the bulk of e-commerce. While, in 2015, UNCTAD data placed B2C e-commerce at a value of
around $2 trillion, B2B e-commerce was valued at approximately $19 trillion worldwide.
1.13 E-commerce Trends

Notes:

Retail e-commerce sales

In recent years, retail e-commerce has been expanding at over 25% annually. Although this growth rate is expected to
slow down, the share of retail e-commerce in the total retail sales is expected to double from 2015 to 2020.

B2C e-commerce sales worldwide by region

Worldwide retail

Until 2014, consumers in North America accounted for the largest share of worldwide retail e-commerce sales. Since
then, however, they have been overtaken by consumers in the Asia-Pacific region, which is today the largest regional e-
commerce market in the world. That said, however, Asia’s e-commerce market is incredibly diverse, ranging from the
leading B2C e-commerce market in the world, China, to other countries, such as Laos, in which e-commerce is still in its
infancy.

In 2015, the global population totaled roughly 7.3 billion people, of which 1.4 billion (19%) purchased goods and/or
services online at least once. The Asia-Pacific region accounted for the lion’s share of global B2C e-commerce. Asia’s e-
commerce market is diverse, ranging from the leading B2C e-commerce market, China, to countries in which e-
commerce is still in its infancy.

Global cross-border B2C e-commerce transaction by region

Regional developments

Although domestic transactions are the dominant form of e-commerce, cross-border e-commerce (exports through e-
commerce) are projected to increase across all regions from 2014 to 2020. According to an UNCTAD study, cross-border
e-commerce accounts for more than 50% of all e-commerce taking place in both India and Singapore.
1.14 The E-connectivity gap

Notes:

In most developing countries, the share of people who purchase products online is quite low. For example, while in 2013
the share of people buying online products was 75% in the UK, it was only 5% in Thailand. Such a gap may be due to
limited purchasing power, lack of trust, limited shopping options in local languages, limited payment options and poor
delivery services.
1.15 The E-connectivity gap: SMEs vs. large enterprises

Notes:

E-connectivity is a major factor behind the e-commerce gap. Generally speaking, when it comes to e-connectivity, the
size of an enterprise matters.

The larger the enterprise, the higher its level of e-connectivity. The higher the level of development of a country the
smaller the e-connectivity gap between large and small enterprises.

It is thus imperative to improve e-connectivity for SMEs in developing and least-developed countries.
1.16 The benefits for an economy of improving the e-connectivity of SMEs

Notes:

SMEs account for nearly 70% of global employment, 95% of all businesses worldwide, as well as roughly 80% of all new
jobs created in emerging markets. As such, SMEs are vital for the world economy and form a powerhouse of
employment, innovation and entrepreneurial spirit. Thus, even comparatively small productivity gains achieved by SMEs
can have large positive ripple effects on GDP growth and jobs in a region.

E-commerce is particularly well-suited for SMEs. This is because the greatest strength of SMEs is their agility: their ability
to adapt to circumstances swiftly and efficiently. Small businesses can make the necessary changes to deal with rapid
changes in technology and shifting conditions without too much bureaucracy.

In short, with SMEs both being a critical component of a country’s economy and well-suited recipients of the benefits of
e-commerce, improving their e-connectivity is an effective way of improving the economic outlook, not only of the SMEs
themselves, but also of broad sectors of a country or region.
1.17 The importance of following the development of e-commerce

Notes:

Unfortunately, the vast majority of SMEs in developing countries are not yet taking full advantage of e-commerce
opportunities. Current best estimates, for example, put the current share of African enterprises engaged in cross-border
e-commerce at less 2%.

Although e-commerce has the potential to enhance the inclusion of SMEs in global markets, it also risks engendering the
opposite outcome if ignored. Closing the digital and e-commerce gap is important if e-commerce is to work in favour of
SMEs in developing countries.
1.18 The benefits of e-connectivity for SMEs

Notes:

E-commerce helps SMEs scale up, bringing large, international markets within reach of even the smallest enterprise,
helping it overcome geographical barriers and time constraints. With online stores open 24/7, even micro-enterprises
have the opportunity to sell their goods at any time, to anyone.

The benefits of e-connectivity for SMEs can be divided into 5 sections:

Building an international reputation. Online transactions create a verifiable track record of a company’s performance
and trustworthiness, critical not only for B2C, but also for B2B transactions. Indeed, while consumers rely on such
records to find the companies that are most likely to provide them with satisfactory services or products, businesses also
rely on them to find trustworthy partners for potential deals. Finally, financial institutions may also look at online
transaction records in order to identify solid companies whose growth they can confidently support. As such, the
traceability element of e-commerce lets SMEs create a sound record of online transactions to build an international
reputation, which is one of the most valuable assets which a company can accumulate.

Expanding outreach. Buyers and sellers of niche products may sometimes find it difficult to locate each other in the
physical world. The Internet has made it possible for consumers to search for a product/service online in a search engine
or e-commerce platform. Cross-border e-commerce thus helps SMEs expand their outreach, as it reduces the
investment required for a company to become visible in the global market.

Reducing market research costs. The so-called “big data” generated from transaction records can help SMEs reach out
to a targeted group of potential buyers, thus reducing the need for wide-ranging market research. One technology
widely used by many e-commerce websites involves analysing the browsing history of the website’s users in order to
assess what types of products they generally tend to look for in order to automatically suggests similar products to them.

Disintermediation in international trade. As explained at the beginning of this lecture, e-commerce allows for a process
called “disintermediation” - namely, the bypassing of middlemen in import and export activities - thus allowing SMEs to
retain a significantly larger proportion of the value of their products.

Leveraging e-commerce ecosystems. Online platforms can sometimes be entire e-commerce ecosystems with resources
to help SME access essential services which they need to grow, often at a discounted price. These include financing
options, shipping, delivery and logistics solutions, promotion packages, legal and financial advisory services, market
information and analysis, as well as B2B matchmaking services.

1.19 Engaging in e-commerce to expand business

Notes:

1.What is your brand, design companies approach to collection development, from inspiration to production

2.How do you integrate your collection and production - what kind of processes and resources, fabric, notions etc. do
you consider through the product development process to production. How do you plan for the scale of the
production?

3.How is design and product development integrated with production process - what kind of constraints, issues or
benefits potentially can impact the product development process?

4.How is your production managed, locally or globally - if globally what kinds of manufacturing resources do you use.

https://www.youtube.com/watch?v=1jiT93XfBd8&list=PL52a9jvYEGUuoyfqcihfAtge1803FIkNi&index=1
1.20 Answer the question

Feedback:

All of these answers are true. Referring to slide 11, we see that, despite having relatively large and growing populations
of Internet users, developing and least-developed countries still lagged comparatively far behind developed countries in
e-commerce participation. While allowing for the possibility of some underreporting of e-commerce activity, the reasons
mentioned for these low levels of participation often involve a lack of trust on the part of individuals with regard to the
online purchasing process, difficulties finalizing online payments, and inadequate electronic infrastructure. All of these
are problems which can be solved through policy measures.

1.21 The Perceptions of E-Commerce

1.22 Answer the question

Feedback:

Taken as an average, 79% of the world’s population reports being worried that the personal information which they
input online might be bought or sold to an unauthorized third party. Although this percentage varies from country to
country, all 24 countries surveyed reported a concern above 50%.

1.23 Trust regarding E-commerce

Notes:

Many consumers are reluctant to engage in online shopping because of a lack of trust in the online process. The
perceptions of online transactions are often that they are more uncertain, anonymous and harder to control than offline
transactions.
As such, because e-commerce relies on the safety of the information that is transmitted through a computer network,
trust is a necessary element to its smooth functioning. This means that the consumer’s trust must be built up, not only
with regard to the technology, but also with regard to the third parties with which they will engage in e-commerce, be
they sellers, an e-commerce platform, or an online reviewer.
In the following slide, we will explore what can be done to attempt to improve trust when it comes to e-commerce.

1.24 Bridging the e-commerce gap by building trust

Notes:

In their book, “An Integrative Model of Organizational Trust,” Mayer, Davis & Schoorman define trust as “the willingness
of a party to be vulnerable to the actions of another party based on the expectation that the other will perform a
particular action important to the trustor, irrespective of the ability to monitor or control that other party.”
For our purposes, it is important to remember that trust allows consumers to engage in a relationship that includes an
element of uncertainty: namely, to take a risk. As such, trust, or the lack thereof, influences a consumer’s decision to
shop online.
There are 3 types of trust: institutional trust, interpersonal trust, and dispositional trust.

Institutional trust, as its name implies, refers to trust in institutions such as laws and a technological infrastructure.
Interpersonal trust refers to trust in another party, such as an e-vendor, a vendor reviewer, a third party payment
facilitator, or online platforms that withhold payments to sellers until their buyers confirm that a transaction has been
processed satisfactorily.
Dispositional trust refers to a consumer’s ability to trust themselves and, as such, is rooted in their own beliefs/culture.
Interpersonal and dispositional trust are beyond the reach of policy. Indeed, interpersonal trust is actually largely within
the control of companies, and can be achieved by giving transparent information about their products, build their
reputation, etc.
When it comes to institutional trust, however, there are some points which can be addressed to make online
interactions more secure. A good first step could be, for example, to strengthen the local ICT infrastructure, which is the
basic building block for any e-commerce activity. From a legal perspective, several laws, such as regarding e-signatures,
consumer protection, and data protection must be all in place for successful e-commerce to take place on a large scale.
This includes the development of trusted intermediaries or third parties that will work as independent controlling or
certification authorities to certify legal procedures and technical standards in order to avoid contract disputes. Over time,
the increased consumer confidence generated by such measures will lead to the increased adoption of e-commerce.

1.25 Bridging the gap: security

Notes:

Although a good deal of consumer mistrust with regard to e-commerce is unjustified, it is important to remember that
there are a number of real security threats, such as data transaction attacks and the theft and misuse of financial and
personal information, which continue to inhibit the growth of the e-commerce sector. Thus, end-to-end security is
required to ensure that e-commerce can take place smoothly and without issue.
There are a variety of measures which can be taken to increase security in e-commerce. While the presence of security
features such as SSL security certificates, data encryption and third-party authentication do imply that a seller is
trustworthy, it does not guarantee the security of a transaction: the seller’s website, for example, could still be hacked.
Nonetheless, such measures do reduce the risk of consumers getting harmed. Since making a first successful online
transaction contributes to a consumer’s decision to purchase/conduct another online transaction in the future, security
and trust are thus virtuous cycles. As such, it is important for policymakers to continue to focus on building the digital
infrastructure and technology to support the various security features that enable safe e-commerce.
1.26 Answer the question

Feedback:

Ann has a conscientious personality. She is always careful and rather risk averse. She does not feel comfortable putting
her credit card information online, so she always opts for cash on delivery.

Answer: Dispositional

Explanation: Ann’s reason for not shopping online is related to her upbringing. It is directly related to her own ability to
trust.

Ann is looking at the website of a certain fashion store. However, precise shipping times are not indicated anywhere,
and product reviews are suspiciously absent. Ann is thus beginning to question the credibility of this e-vendor. She is
afraid that the product will not arrive on time, or perhaps not arrive at all.

Answer: Interpersonal

Explanation: Ann (the consumer) is unable to trust the seller because of the way in which the online store was
constructed. A seller’s trustworthiness as perceived by a consumer is interpersonal trust.

Ann is looking at another online store. She sees that it uses Secure Sockets Layer (SSL) technology, which establishes an
encrypted link between a web server and browser, thus ensuring data privacy. She is comforted by this.

Answer: Institutional

Explanation: Ann’s trust in the SSL technology is institutional trust. A seller may display these certificates on their
website, showing their integrity and reputation. This in turn builds on the client’s interpersonal trust.
1.27 Key Points

Notes:

Remember:
E-commerce is broad, and is divided into 5 types of transactions: B2B (largest), C2C, B2C, C2B, G2B

Although e-commerce is growing worldwide, there still remains a large digital gap, not only between developed,

developing and least-developed countries, but also between large, medium and small enterprises.

E-commerce is a double-edged sword: While it can enhance the inclusion in global markets of SMEs from

developing countries, if ignored, it also risks engendering the opposite outcome.

Online shopping relies on information transmitted online. As such, therefore security and trust are fundamental

aspects to the creation of an environment conducive to electronic commerce

1.28 Thank you for completing the lecture