To what degree does trust affect the competition in E-commerce - Essay Example

Literature Review College: 2.0. Literature review 2 Introduction E-commerce or electronic commerce is a type of commerce where buying and selling of products and services is virtual, in that it is conducted across electronic platforms like the internet and other computer-enabled networks. E-commerce is a recent development having cropped up after the introduction of the computer and the internet. In the virtual world of e-commerce, trade becomes a process of communicating via systems that connect the buyer and seller in a virtual marketplace. Like in the other common types of commerce, e-commerce involves a lot of communication between the buyer and the seller in such a way that, the interaction buffers the deficit created by existence of a virtual trading platform, which deviates from the one-on-one contact in typical trading. E-commerce utilizes several technological developments in the world of commerce, communication, marketing, data exchange, payments and computers among other major developments that enhance execution of e-commerce. These developments include; internet marketing, electronic funds transfer, mobile commerce, electronic data exchange (EDI), online transaction systems and automated data collection among other technologies. E-commerce relies on a set of technologies to successfully execute transactions. A typical e-commerce transaction starts with a customer visiting a company’s website that acts as a virtual store for products and services that the company deals with. The customer shops for the products and places an order of one or several items in the store. The customer gives vital information about their location, which enhances easier delivery of the products and services. Company processes the order and prepares documents for delivery and payments. Some companies might request for payments before delivery of goods while others requests for payments at the point of delivery. In case of Taobao, payment is made after delivery and verification of the quality of goods by the customer. The customer then pays for the products via electronic money transfer. While e-commerce presents one of the most convenient shopping expereince and the fastest growing type of trade in the world, the existence of virtual processes puts trust in the forefront. E-commerce companies must ensure that they can be trusted by customers in terms of delivery of products, quality of the products delivered, confidentiality of consumer data and payment of products. Trust is one of the major factors that is a determinant of the competitive ability of an e-commerce company in the industry. 2.1.1. Taobao: Brief background Taobao Marketplace is a virtual online shopping website operating in China and established in 2003 by Alibaba Group. Taobao is a consumer to consumer (C2C) retail platform which enables small business and individual businesspeople to open virtual stores. It operates in China, Hong Kong, Macau and Taiwan (Shanghai Daily, 2008,par.1-3). Taobao is one of the fastest growing online shopping marketplaces with over 760 million products listed and ranking among the top 10 most visited shopping websites (Alexa.com, 2014). Taobao was established in reaction to eBay’s acquisition of Eachnet, which was the leading auction website in China (Hasselt, 2006). Taobao launched a series of services to counter competition from eBay, which included the instant messaging tool that allows communication between buyers and sellers and escrow-based payment tool called Alipay. Taobao offered free listings and provided website features optimized for consumer use. As a result, Taobao market share grew tremendously edging out eBay, which shut its operations in China in 2006, leaving Taobao as the undisputed leader in China (The Economist, 2006, par.3-5). In 2008, Taobao introduced business to consumer (B2C) platform; the Taobao Mall. Taobao Mall has since then become a centre of quality products for Chinese market from all over the world. Taobao Mall launched the Tmall.com independent domain to enhance the shopping experience. In 2011, Taobao Mall became independent in 2011 and changed its name to Tian Mao in 2012. Taobao beta launched the independent searching engine; eTao in 2010, which provides information on major e-commerce websites in China. Consumers use this search engine to compare prices from different sellers and make a good purchasing decision. eTao offers information from different major e-commerce websites in China (Alibaba Group, 2014). From 2011, Alibaba Group has a physical furniture store that operates under Taobao Mall brand name (Taobao Filed Guide, 2014). In 2012, Alipay was developed to accommodate payments international Visa and MasterCard credits cards. Alibaba Group launched $586 million investment in Sina Weibo, in 2013, a move aimed at expanding the market share. In the same year, Weibo for Taobao, which links Sina Weibo accounts with Taobao accounts, was launched (Ghosh & Ramakrishnan, 2013, par.1-4). Taobao marketplace is a one stop shopping place for all consumer needs. Currently, Taobao caters for needs of almost all groups in China and offers both local and international goods. Taobao growth has greatly benefited from the trust it has created among the consumers. The Alipay escrow-based online payment platform has enabled the company to create trust among the customers. Alipay ensures safe transactions only after the goods have been received and certified by the customer, which reduces the breach of quality of goods and reduces the time that could have been spent in processing refunds in case customers refuse the goods. Taobao is rapidly expanding and has launched a Taobao platform for Southeast Asia region. Taobao is one of the rapidly growing e-commerce companies in the world. Its current consumer data base has more than 5 million users, with more than 800 million registered products. In 2009, Taobao had facilitated exchange of more than RBM200 billion of merchandise (Alibaba Group, 2014). 2.2. Systems theory in e-commerce Systems theory was developed by Ludwig Von Bertalanffy in 1945 and has since then been in use in analytical approaches to understanding the operations of various complex systems that are made up of more than one sub-systems. The theory bases its argument on the fact that a system is a combination of different and independent entities or subsystems that interact in a manner that is coherent towards accomplishment of a specific purpose. Therefore the theory provides a framework for dismantling a system to study the subsystems, and thus provides a deep understanding as to how the subsystems interrelate to produce certain results. For a long time, businesses have been approached as systems and analyzed using a system’s approach. The systems approach encompasses various entities that make up a business, and thus provides a rich framework for a complete understanding of the business as a system. An information system is a subset of several subsystems and thus conforms to the systems theory (Jordan, 1998, p.47). An information system is a combination of several systems that deal with supporting business processes like order processing, purchasing and payments, among other many processes (Kumar & Sareen, 2012, p. 59). E-commerce is based on the premises of a functional subsystem information system (IS). E-commerce is a system that combines several subsystems like ordering, processing, delivery and payment systems to ensure that customers order, pay and recive goods. As a subsystem, e-commerce faces risks in systems-independent uncertainty that can arise from various failures like technological infrastructure, or from third-party transaction platforms. The way e-commerce companies’ deal with the risks associated with systems-dependent uncertainty improves the role of trust in virtual trading. Systems theory is therefore applicable in understanding the issue of trust and how it affects competition in e-commerce (Gefen, Karahanna, & Straub, 2003, pp.53-57). The chaos theory and complexity theory have been extensively used in e-commerce to show the role of managing changes in systems so as to enhance trust. The chaos theory is premised on the fact that the complexity of systems is liable to effects of minute changes that can bring unprecedented changes in the whole system. Chaos theory proposes that the organizational future remains uncertain as it is difficult to predict it. This is based on the argument that a small change in one system can cause snowball effects and thus significant consequences. On the other hand, the complexity theory bases its arguments on planned changes that can mitigate the chaotic reorganization to adapt to changes. Complexity theory argues in favor of continuous realignment and adaptation instead of remaining transfixed in a particular system (Kumar & Sareen, 2012, pp.60-67). 2.2.1. Application of systems theory in Taobao Marketplace Taobao uses several subsystems to ensure that customers’ orders are processed, delivered and paid for in time. These subsystems are independent and deal with various functions in a cooperative manner to realize the goal of product delivery. To build a business environment that can be trusted, Taobao deployed a set of appropriate practices like instant messaging tool that allows communication between buyers and sellers. The escrow-based payment tool called Alipay, which allows for payment only when goods have been delivered and approved by the customer proved vital in enhancing customer trust. Further, Taobao offered free listings and provided website features that were optimized for the purpose of enhancing customer shopping experiences. Taobao continued to add other systems to the existing ones which cater for all types of transactions. Taobao Mall, enhanced the relationship between businesses to consumer, and introduced different businesses from all over the world to the Chinese Taobao marketplace visitors. This has enhanced the trust of customers on the company (Rousseau, et.al., 1998, pp.393-396). eTao, which is a platform offering information on various e-commerce websites allows customers to compare prices and select products from the site that suits their financial capability. This has further enhanced the trust people have on Taobao. Through offering alternative suppliers of products and services, customers have diffused the profit-oriented nature of Taobao. Taobao has also maintained continuous realignment and technological development of systems, which has not affected the performance of its website. Alipay was originally made to accommodate payment from Chinese banks, but recent development has seen it accommodate international Visa and MasterCard cards. Taobao continues to manage the risks associated with system-independence through continuous innovation. Most of these developments have had no effects on the performance of the existing system. Thus, the systems theory has been well utilized by Taobao to create trust through management of risks associated with systems-independence in businesses as well as effectively deploying appropriate practice to create an e-commerce environment that can be trusted (Gefen, Karahanna, & Straub, 2003, pp.53-57). 2.3. Theory of Reasoned Action in e-commerce The theory of reasoned action (TRA) was proposed in 1975 by Martin Fishbein and Icek Ajzen, from researches on theory of attitude, which concluded with behavioral and attitudinal issues in people (Southey, 2011, p.41). The theory is premised on the fact that human beings are rational beings who utilize the accessible information on certain phenomena to have understanding of the past, and consequently use it to evaluate, justify the evaluations and use them to make informed decisions. The theory basis its arguments on three fundamental aspects; behavioral intentions, attitude and subjective norm, which is based on the subjective conclusions drawn from information gathered about the past of a certain entity in question. The theory also suggests that behavioral tendencies tend to conform to the subjective reasoning and the subjective normative thinking about the behavior (Fishbein & Ajzen, 1975, pp. 135-137). Therefore, in e-commerce, the element of trust is developed from a combination of an individuals’ subjective evaluation of the past processes of the e-commerce company and the justification that the individual makes in relation to the processes of the e-commerce company, which target at developing an environment that can be trusted. According to Kumar & Sareen (2012, p.61), the decision of an individual to enter into a transaction with an e-commerce company is based on the evaluation of the available information. The theory also posits that individuals strive to achieve goals that are shaped by specific values. In e-commerce, these specific values will be the strategies adopted by Taobao in developing an environment that can be trusted. Thus, the decision by individuals to use certain e-commerce companies depends on the individual’s belief, attitude, intention and behavior. When an individual is made to belief that an e-commerce company can be trusted, the individual strives to use the company. Therefore, trust in e-commerce would utilize strategies that aim at influencing the beliefs of the customers (Volk, 2001). 2.3.1. Application of the Theory of Reasoned Action in Taobao Marketplace Taobao Marketplace has utilized several strategies and practices that target at developing an environment that can be trusted and thus influence the beliefs of the customers in the website. As opposed to other e-commerce websites like eBay, Taobao developed free practices that were aimed at enhancing the ability of the website to connect the buyers and sellers. The instant messaging tool enhanced communication between the parties to trade thus creating a more secure and trustful environment. Further, Taobao has concentrated on creating platforms that enable the customers to access information about websites offering products on the marketplace. With this information, customers are able to create subjective conclusions about certain e-commerce website that are held within the Taobao domains. Free listings, enhanced and optimized website features that allow customers to expereince enhanced shopping expereince create a trustful environment, which in turn develops beliefs and influences customers’ behaviors (Srinivasan, Anderson, & Ponnavolu, 2002, pp.43-47). Since its inception, Taobao has relied on Alipay, the escrow-based payment platform that allows customers to pay goods after delivery and approval. Unlike other websites that require customers to pay for products upfront, which may lead to delayed delivery or delivery of poor quality products, Taobao has enhanced the delivery process and the quality of products as desired by the customers. These practices have created an environment that customers can trust. This has influenced the belief and created a ‘trust norm’ in the operations of Taobao. The beliefs and norms created by Taobao e-commerce processes has influenced the people’s attitude on using e-commerce services offered by Taobao as opposed to other websites, conferring a competitive advantage to the company (Valve & West, 2013, p.96). The Theory of Reasoned Action has been utilized by Taobao Marketplace through creation of a trustful e-commerce environment that has an impact on the beliefs of customers. The creation of beliefs leads to establishment of norms that influences the behaviors of customers in regards to use of e-commerce services offered by Taobao as opposed to use of other e-commerce websites (Ajzen & Fishbein, 1973, pp. 42-48). 2.4. Expectation-Confirmation theory in e-commerce The Expectation-Confirmation Theory (ECT) was proposed by Oliver in 1977, when it was used to suggest that people perform some actions repeatedly due to the satisfaction they drive from the actions. According to Dwivedi, Lai, Williams & Wade, et.al (2009, pp.326), ECT argues that satisfaction is determined by the interrelationship between prior expectations and perception of delivery. ECT has been used in many fields. Satisfaction models have argued that the discrepancy between an individual’s standards of expectations and the outcomes is influential in determining the direction of the individuals in terms of behaviors that related to certain phenomena. The interplay between expectations and outcomes of a situation lead to satisfaction, which encourage repeat tendencies in the situation. Expectations before an event and the subsequent evaluation of the outcomes after the event interact to determine satisfaction with the event (Dwivedi, Lai, Williams & Wade, et.al, 2009, pp.326-332). In e-commerce, the customers who initiate transactions have certain expectations about the outcomes of the transactions. One of the expectations is built on the fact that the customer can trust the e-commerce website processes to deliver products of his desired quality, price and specifications as spelt out in the order. Further, the customer may have other expectations that are pegged on the performance of the e-commerce website (Elkhani & Bakri, 2012, p.96). The customer repurchases if the prior expectations are met based on the performance of the e-commerce website during the transaction processes. Therefore, the level of customer satisfaction is determined by the perception of the extent to which performance of the e-commerce website matches the customer expectations. Meeting of expectations forms the basis of trust in the e-commerce website which influence repurchases (Kumar & Sareen, 2012, p.61). When an e-commerce website manages to fulfill the expectations of customers, it creates trust and triggers repurchasing and loyalty, which in turn affects the competitive ability of the e-commerce website. 2.4.1. Application of Expectation-Confirmation theory in Taobao Marketplace Taobao Marketplace strategies targeted enhancing of customers’ expereince in shopping. Initial strategies were focused on giving customers a unique expereince in utilizing e-commerce services in shopping. Taobao initial practices included the instant messaging service, free listings and customized website interfaces that enabled customers to experience shopping differently from other existing e-commerce websites. The Alipay escrow-based system that introduced a different kind of payment that was non-existent gave expectations to customers who then moved to test the delivery of their expectations. The expectations of customers relied on the performance of Taobao systems in delivering the products. One of the expectations that Taobao e-commerce services has emphasized on is trust. Taobao created a system that ensured customers could get quality goods of their specifications and pay them after ascertaining that the products met their desires and preferences. The Alipay escrow-based system enables customers to pay for products only after delivery, fulfilling the expectations of the customers in terms of quality goods and payments. Further, Taobao has continued to expand without hitches. Taobao has continued to enhance services delivery by incorporating other development into their websites like the eTao, which enables customers to compare prices of different products from different e-commerce websites. This has fulfilled the expectations of customers and enhanced trust, which has in turn influenced revisiting of the Taobao e-commerce website. Thus Taobao has utilized expectation-confirmation theory to fulfill the expectations of the customers therefore creating a trustful environment. This has influenced repeat visitations and use of the website, which has enhanced the competitive ability of Taobao (Stahl, 2006, p.5). 2.5. Summary E-commerce provides the future of commerce in the world. However, the success of different e-commerce website will be determined by the ability of the websites to create environments that can be trusted by the users. The application of several theories of e-commerce provides an explanation as to how e-commerce websites can enhance trust among the customers. The systems theory argues that the e-commerce is a subsystem of information system, which relies on different and independent systems to carry out transactions. The systems-independence poses risks in that any change in one subsystem may affect the whole system. Thus, e-commerce websites can utilize the theory to manage the subsystems in a way that they cannot be prone to risks and thus create customer trust in the system. The continuous development further mitigates risks associated with changes in independent systems. The theory of reasoned action uses available information on situations to create subjective judgments. The creation of trust in e-commerce websites is based on past information available to the customers. The subjective judgment informs attitudes, behaviors and forms norms that influence the use of certain e-commerce websites. E-commerce websites can then utilize strategies that aim to create trustful environment that can influence subjective judgments of customers. The expectations-confirmation theory uses satisfaction gained from the fulfilling of expectations to develop trust. When expectations of using e-commerce website are met, the customer is satisfied and this creates trust in the website. 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