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E-Commerce
Electronic Commerce (e-commerce or EC) describes the buying,
selling, and exchanging of
products, services, and information via computer network,
primarily the internet. Some people
view the term commerce as describing transactions conducted
between business partners. Ebusiness
is a broad definition of EC, not just buying and selling, but
also servicing customers,
collaborating with business partners, and conducting electronic
transactions within an organization.
41.1 Why E-Commerce?
Due to rapid expansion in business, and time pressures from
customers, Efficiency in delivering
products and information there to and addressing complaints is
of paramount importance. Use of
internet or web services can be a very effective tool in
achieving this goal. It helps to achieve
various business goals in the fastest possible way, e.g. sharing
production schedules with suppliers,
knowing customer demands for future in advance. These days
almost almost all businesses have Ecommerce,
from fast food chains to automobile manufacturers. Online orders
can be placed along
with online payment made. All this is possible with the use of
E-commerce. According to Lou
Gerstner, IBM’s former CEO,
“E-business is all about time, cycle, speed, globalization,
enhanced productivity, reaching new
customers, and sharing knowledge across institutions for
competitive advantage.”
What does E-Commerce do?
E-commerce is what happens when one combines the broad reach of
the Internet with the vast
resources of traditional information technology systems. It uses
the web to bring together
customers, vendors, and suppliers in the ways never before
possible. E-commerce presents
abundant opportunities. Companies around the world already buy
and sell over the Internet. They
connect with customers, suppliers and each other. They do the
business on the web, and
consequently, they do more business. There are challenges like
security, scalability and reliability.
They are real but they are surmountable. E-commerce is about
web-enabling your core businesses
processes to improve customer service, reduce cycle time, get
more results from limited resources,
and actually sell things.
In the age of global competition, e-commerce can play a critical
role in helping organizations to
boost sales at high margins due to the high economies of scale.
It is something which is becoming
need of the day.
41.2 E-Commerce vs. E-Business
Since both the terms are quite commonly used interchangeably,
the scope is often confused
likewise. All e-commerce is part of e-business. Not all
e-business is e-commerce. E-business means
using the internet and online technologies to create operating
efficiencies, and therefore increase
value to the customer. It is internally focused. Think swift
integration of planning, sourcing,
manufacturing, management, execution, and selling using IT
infrastructure. Example, FedEx is a
company incorporating e-business programs to improve
efficiencies throughout the supply chain.
For instance, moving the invoicing process online reduced costs
as well as officers’ time spent on
paperwork. Now this would be seen as E-business not e-commerce.
Concerns for e-business
usually are which are broader than:
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1. Has e-business increased your effectiveness?
2. Were our processes faulty before we moved them online?
3. Are we gaining efficiencies in specific areas?
4. Have relationships with suppliers or customers improved?
5. Are our web-enabled systems assisting in decision making, or
just providing access to
information?
6. Does our e-business strategy fit with our overall corporate
strategy?
If there is a direct financial transaction involved with the
electronic process using Internet
technologies it is e-commerce. If there is a non-financial
transaction with an electronic process
using Internet technologies it is e-business. Any transaction
with an electronic process using
Internet technologies is e-business. For example, ordering a
book on Amazon.com is e-commerce
and e-business. Creating a map with directions from your home to
the post office on google maps
is e-business (no e-commerce involved). The above confusion is
quite similar to what exists
between Marketing and sales. Sales is part of Marketing.
Marketing includes other activities, such as
Advertising which is not Sales. The most prevalent of E-Commerce
models can be classified as
1. Business to Consumer (B2C)
2. Business to Business (B2B),
3. Business to Employee (B2E),
4. Consumer to Consumer (C2C) and
5. E-Government
• Government to Citizens/Customers
(G2C)
• Government to Business (G2B)
• Government to Government (G2G
41.3 Business to Consumer (B2C)
All elements of physical shopping experience are present in the
B2C Model. There is a store
represented by a website known as store front. Potential
customers browse through the storefront
using web browser (like Netscape or Internet Explorer). If they
like a product, they select it by
adding it to your Shopping Cart. If the customer wants
additional information from the vendor, he
would do so by either investigating relevant links on product
specifications, or by sending message
through a ‘contact us’ or email section of the website. Finally,
once you have selected your product,
you pay for it using any of several payment methods, the most
common of which is a credit card.
When the average citizen interact with a company through a
website, buying shoes or books online
or making inquires of products and services, we are doing so
through the Business to Consumer
model. The B2C model is similar to a customer visiting a store
or shop, browsing at products on
display, inquiring from the shopkeeper about a particular
product, and then selecting and paying
for the product or service. One of the major differences between
a traditional shopping
experience and B2C e-commerce Model is that all of this is done
electronically, remotely through
the internet, without you having to leave the comfort of your
house or office. Customers and
suppliers can be 10,000 miles apart, in different cities or
countries, or even different continents,
and yet do business as if they were located in same city or on
the same street. Since the internet
never sleeps or closes customer can do business 24- hours of the
day, 365-days of the year. Bad
weather, strikes or labor problem will not prevent the customer
from visiting the store and placing
their orders.
The real reason that B2C is flourishing in technologically
advanced societies is that it has broken
down ‘physical’ barriers to doing business. This has allowed
even small, less financially sound and
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often suspicious entities, to represent and partner with brand
name companies. Resultantly, when
you visit a storefront on the web, you are not certain whether
the vendor (whose site you are going
to shop at) is in ‘control’ of the entire business cycle. In
most cases, the storefront owner is just a
small link in the complicated supply and distribution network
that has been made possible through
the Internet. Should the relationship between any of the
intermediaries fall apart, the customers
may not have too many options to address his complaints.
Business to Business (B2B)
Traditionally, because transactions between business partners is
conducted by mailing or faxing
documents like Purchase Orders, Delivery Note or Invoices.
Business to Business (B2B) is a
model to e-commerce where businesses conduct commerce amongst
themselves over the
Internet/Intranet. What this entails is two or more business
partners entering into agreements,
whereby instead of using paper documents to complete a
transaction cycle, they do so through
electronic means, sharing data over secure Internet or Intranet
connections. While the volume in
terms of number of transactions through this e-commerce model is
smaller than that generated
worldwide through B2C, the monetary turnover through B2B is
significantly higher, especially on a
per-transaction basis.
Example – B2B and B2C
A car manufacturer company receives an order for delivery of a
car through internet. The payment
is also made by the consumer through the internet using his
credit card. On receiving the order the
company may have to order manufacturing of the unit and certain
principal parts may not
available. In such a case, an online purchase order may be sent
to all the vendors where ever they
are located to seek the relevant parts. Hence the consumer, the
vendor and the manufacturer all are
linked through e-commerce.
Example – B2B
A car manufacturer (like Pak Suzuki for example) can mail or fax
a purchase order formatted per
its company’s requirements, to a steel supplier (like Pakistan
Steel Mills), and conduct a purchase
transaction. Under the B2B Model however, industry standards
(such as Electronic Data
Interchange) are used for transmitting data related to
commercial transactions between the
manufacturer and the supplier. Pak Suzuki, therefore, will be
required to pre-format its purchase
order data as per the standard, while Pakistan Steel Mills will
setup their systems to accept the PO
data per the expected standards. Any deviation form these
standards could make the transaction
null and void.
41.4 Electronic Data Interchange (EDI):
EDI is a set of standards for structuring information to be
electronically exchanged between and
within businesses, organizations, government entities and other
groups. The standards describe
structures that emulate documents, for example purchase orders
to automate purchasing. The term
EDI is also used to refer to the implementation and operation of
systems and processes for
creating, transmitting, and receiving EDI documents.
Business to Employee (B2E)
Companies are finding many ways to do business with their own
employees electronically. They
disseminate information to employees over the intranet. For
example, they also allow employees to
manage their fringe benefits and take training classes,
electronically. In addition, employees can buy
discounted insurance, travel packages, and ticket to events on
the corporate intranet, and they can
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electronically order supplies and material needed for their
work. And many companies have
electronic corporate stores that sell a company’s product to its
employees, usually at a discount.
Consumer to Consumer (C2C)
An increasing number of individuals are using the Internet to
conduct business or to collaborate
with others. Auctions are so far the most popular C2C e-commerce
activity. Some other C2C
activities are:
1. Classified: Individuals used to sell items by advertising in
the classified section of the
newspaper. Today, they are using the Internet for this purpose.
Some classified services are provided
for free.
2. Personal Services: A variety of personal services are offered
on the Internet, ranging from
tutoring and astrology to legal and medical advice. Personal
services are advertised in the
classified areas, in personal web pages, on Internet
communities’ bulletin, and more. Be very
careful before you buy any personal services. You need to be
sure of the quality of what you
buy.
3. Peer-to-Peer and file exchange: An increasing number of
individuals are using the P2P services
of companies. Individuals can exchange online digital products,
such as music and games.
41.5 E Government
E-Government / electronic government / digital government, or
online government. The terms
refer to government’s use of information and communication
technology (ICT) to exchange
information and services with citizens, businesses, and other
arms of government. E-Government
may be applied by legislature, judiciary, or administration, in
order to improve internal efficiency,
the delivery of public services, or processes of democratic
governance. The primary delivery
models are
1. Government-to-Citizen or Government-to-Customer (G2C)
2. Government-to-Business (G2B) and
3. Government-to-Government (G2G).
Government to Citizen (G2C)
Government-to-Citizen (abbreviated G2C) is the online
non-commercial interaction between local
and central Government and private individuals. Many government
entities in pakistan are making
it more convenient for the citizens to interact with them. For
example
1. CBR offering services regarding (www.cbr.gov.pk)
• Online verification
• Sales tax registration status
• Online availability of tax
returns
2. NADRA registration system (www.nadra.gov.pk)
• NIC registration process
• Bill Payment Kiosks
• Guidance notes
• Contact information
• Complaints section for applicants
Government to Business (G2B)
Government-to-Business (abbreviated G2B) is the online
non-commercial interaction between
local and central government and the commercial business sector.
The basic difference between
the G2C setup and G2B set up is that government is dealing with
private individuals (citizens) in
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case of G2C and commercial sector in case of G2B. For Example,
trade development authority of
Pakistan, formerly Export Promotion Bureau (EPB). (www.epb.gov.pk),
providing
• Facilitation for exporters
• Exporters’ database
• Guidance on regulations
• Registration and complaints
procedures
Government to Government (G2G)
Another category of electronic commerce is government to
government E-Commerce. G2G form
refers to Procurement transactions between government to
government agencies.
41.6 Other Forms of E-Commerce
Intra-business E-Commerce – E-Commerce can be done not only
between business partners, but
also within organizations. Such activity is referred to as
intra-business EC or, in short intrabusiness.
E-Commerce between and among units within the business – large
corporations
frequently consist of independent units, or strategic business
units (SBUs), which “sell” or “buy”
materials, products and services to and from each other.
Transactions of this type can be easily
automated and performed over the intranet. An SBU can be
considered as either a seller or a
buyer. An example would be company-owned-dealership.
E-Learning
E-Learning is the online delivery of information for purposes of
education, training, knowledge
management, or performance management. It is a web - enabled
system that makes knowledge
accessible to those who need it, when they need it – anytime,
anywhere. E-learning is useful for
facilitating learning at schools.
Conflicts within click-and-mortar organization
When an established company decides to sell direct online, on a
large scale, it may create a conflict
within its existing operation. Conflict may arise in areas such
as pricing of products and services,
allocation of resources (e.g. advertising budget) and logistics
services provided to the online
activities by the offline activities (e.g. handling of returned
items purchased online). As a result of
these conflicts, some companies have completely separated
“clicks” (the online portion of the
organization) from the “mortar” (the traditional brick and
mortar part of the organization). This
may increase expense and reduce the synergy between the two.
41.7 M-Commerce
Electronic commerce has gradually shifted to a modern form in
the name of Mobile commerce.
M-Commerce (mobile commerce) refers to the conduct of e-commerce
via wireless devices.
These devices can be connected to the Internet, making it
possible for users to conduct
transactions from anywhere. The employees need to collaborate
and communicate with office
employees and to access corporate data, rapidly and
conveniently. Such a capability is provided by
m-commerce. Two main characteristics are driving the interest in
m-commerce: mobility and reach
ability. Mobility
implies that the Internet access travels with the
customers. M-commerce is
appealing because wireless offers customers information from any
location. This enables
employees to contact the office from anywhere they happen to be
or customer. Reachability
means
that people can be contacted at any time, which most people see
as a convenience of modern life.
These two characteristics – mobility and reachability break the
geographical and time barriers. As a
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result, mobile terminals such as PDA or cell phone with Internet
access can be used to obtain realtime
information and to communicate from anywhere, at any time.
Security Concerns
With all its benefits, e-commerce is still faced with a lot of
concerns from security point of view.
Physical details of the products are not available in case of
internet shopping than in case of
walking around. In case they are available, they need to be
accurate and supported with images of
the product. That is lack of physical feel of the product should
be electronically supported. Once
you enter your personal information and credit card details on a
vendor website, you have no
control on where that information is going, or to whom it is
being transmitted to or shared with.
Although the links are secured for privacy purposes but
information may be leaked out deliberately
by any of the connected parties e.g. supplier. Although there
are means of increasing security of
digitally transmitted transaction data (such as using encryption
technology and digital certificates),
the threat of hackers getting at your personal information is
always a real one – perhaps not from
your computer, but may be from vendors or his business partners
systems.
41.8 E-Business Opportunities
E-business through the Internet offers significant opportunities
to businesses. These opportunities
are similarly available to the competition and hence also
represent concomitant risks.
Competition: Through the creation of a website, a business can
compete locally in traditional
industries, as well as regionally, nationally and globally. The
Internet permits the entity to
effectively target niche markets or areas of specialty and
service broad markets in a cost-effective
manner. The Internet also permits both economies of scale to
become a high-volume global
supplier with low costs and economies of scale through product
specialization.
Even businesses that decide not to actively participate in
e-business will still be affected, because
customers may embrace e-business and seek new sources of supply
through the Internet, or
suppliers may demand e-business capabilities and only deal with
e-enabled enterprises.
With the exception of certain national and international
retailers and suppliers, traditional
marketing has been locally or regionally focused. Until
recently, marketing efforts have been
focused on traditional media, such as television and newspapers
for consumer products and trade
magazines or trade shows for industrial products. Through the
Internet, marketing can be targeted
to selected customers based upon customer registration
information, past purchase history or
other criteria.
Through the Internet, e-business can offer new and innovative
marketing alternatives, such as:
• streaming video to demonstrate
products or services.
• detailed catalogues and user
manuals to identify products, sub-components and parts – such as
pictures, part numbers and prices – to alleviate tedious manual
searches for specific items.
• cross-selling of products and
services – e.g., when a tap is purchased through the Internet, the
provision of detailed installation instructions and a list of
other products required (washers,
Teflon tape, valve sealing, and tools, such as pipe wrenches,
etc.)
• In many cases, an e-commerce
company will survive not only based on its product, but by
having a competent management team, good post-sales services,
well-organized business
structure, network infrastructure and a secured, well-designed
website. Such factors include.
Cost Reduction: E-business facilitates implementation of new
business models, including supply
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chains, service and support arrangements and the creation of
cost-effective alliances. It also offers
profit-enhancing changes through cost reduction, such as:
1.
virtual warehousing
– e.g., upon the receipt of a customer order, the
vendor orders the goods
from the manufacturer and has them shipped directly to the
customer. The vendor can carry
less or no inventory, and thereby reduce warehouse, insurance
and financing costs for
inventory while being able to offer a greater selection of
products.
2.
vertical integration
– e.g., upon the receipt of an order, by means of
website connections, the
vendor automatically arranges shipping, delivery, installation
and after sales service through an
expanded geographically based network of alliance partners. All
members of the alliance
benefit from membership and all participate in the
“one-stop-shopping” convenience of the
alliance partner integration available through the web.
3.
electronic delivery of
goods and services – certain goods, such as
greeting cards, music,
textual materials, architectural drawings and computer software
may be delivered electronically
to customers globally, which thereby reduces delivery and
insurance costs and increases the
timeliness of delivery.
4.
automated order
processing – customers and suppliers can
execute electronic transactions
efficiently based upon Internet standards similar to the EDI
standards and even access or
update each other’s data files to allow inquiries on the status
of orders, including links with
shippers and customs brokers, etc.
5.
Classic business
approaches--- generally do not fit well with
the new e-business models as
described in the third section of this paper. These new models
are increasingly centred on the
customer or consumer. For example, many customers now expect
goods and services to be
delivered 24 hours a day from anywhere in the world. The ability
to meet customers, discuss
their needs with them, demonstrate products, and perform other
activities that traditional
businesses use to differentiate their services may no longer be
available to the same degree.
41.9 E-Business IT Risks
Since e-business invariably involves the use of the Internet
through IT, the most important risks
associated with e-business are IT risks. However, it should be
recognized that IT risks are
inextricably related to the risks associated with the
opportunities mentioned. The following IT risks
can be distinguished: IT infrastructure, IT application, and IT
business process risks.
IT infrastructure risks relate to the adequacy of the IT
infrastructure for information processing.
For example, hardware may be susceptible to malfunction. IT
infrastructure risks are addressed by
a security concept geared to the needs of the entity and by
technical and organizational controls
defined on this basis. Typical IT infrastructure risks include:
1. Inappropriate physical security measures that do not prevent
theft, unauthorized access or
improper disclosure of information
2. Vulnerability to overheating, water, fire and other physical
risks
3. Inadequate or improper emergency plans and procedures
4. Absence of adequate back-up procedures
5. Inconstant monitoring of firewalls to detect attempted
break-ins
6. Inadequate PKI (Private Key Infrastructure)
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IT business process risks arise where analyses of security and
information processing do not
extend to entire business processes, but merely to parts
thereof. Such risks may arise from: lack of
data flow transparency, inadequate integration of systems, or
deficient reconciliation and control
procedures in interfaces between subprocesses arising from the
exchange of data between two
subsystems within business processes. In this situation, there
is a risk that IT controls, such as
access rights or data back-up procedures, will only be effective
for the subprocesses, but not for
the aggregated processes.
Typical IT business process risks in an e-business environment
include:
• Transaction data are not
transmitted completely or accurately from the e-business sub-system to
the accounting application
• Safeguards only protect a
sub-system from unauthorized or unapproved transactions and
thereby allow transaction data to be modified by one of the
downstream IT sub-systems
• Improper or inadequate access
control mechanisms may make it difficult or impossible to
effectively manage access controls for all IT sub-systems
integrated into the e-business process
• Access protection that responds
to a single IT application integrated into the business process
could be bypassed deliberately by manipulating the upstream or
downstream IT sub-systems.
• Backup measures are only
effective for the e-business sub-system and hence for the sub-process,
but not for the entire IT business process.
• The design and implementation of
interfaces between the e-business sub-system and
downstream IT sub-systems may not be appropriate.
Legal Risks
Management of an enterprise is responsible for ensuring that
e-business operations are conducted
in compliance with applicable laws and regulations. Entities
should be aware of variations in
applicable laws and regulations across national boundaries,
despite the best efforts of international
rule-making bodies. Entities operating in global markets are
often not up-to-date with respect to
legal issues and governmental oversight in multiple
jurisdictions. Without an understanding of
regulations and the law as it is applied in different
jurisdictions, enterprises may become subject to
fines and adverse judgements and may incur other costs, such as
legal fees, to defend the
enterprise. Some of the relevant legal issues include protection
of intellectual property, including
patent, copyright, and trademark laws, enforceability of
contracts with Internet service providers,
ownership of software by a software vendor or the right of a
software vendor to sell software
licenses.
Commercial legal risks also arise in connection with contract
law and the purchase and sale of
goods and services through the Internet across national
boundaries. In particular, there may be
problems in determining the appropriate
jurisdiction for legal actions with respect to cross-border
Internet transactions. Furthermore, where the applicable
jurisdiction for the transaction
is unclear,
the requirements for entering into a contract may also be
unclear,
for these may vary in certain
respects among jurisdictions. Therefore in some situations, the
question may arise as to whether
there is a legally binding
contract.
In addition, it should be noted that certain commercial
activities that are not regulated in one
jurisdiction may be regulated in another. Management is
responsible for ensuring that regulated
activities are performed in compliance with the laws in those
jurisdictions in which those activities
are conducted.
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Furthermore, risks in relation to tax law compliance may also
arise from e-business activities. In
particular, it is often unclear in which jurisdiction taxes may
become payable in connection with to
cross-border transactions (i.e., income or corporate tax and
sales tax). A related issue is the
documentation requirements for order processing and invoices in
order to comply with tax
legislation.
Management is also responsible for ensuring the privacy of
personal information obtained as part
of the enterprise’s e-business activities. To help ensure
privacy of personal information,
management can establish controls to limit the risk of breaches
of web security.
Summary
E-business is a growing need of today, and organizations who
want to earn a greater market share
will have to give serious thoughts to becoming online. |
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