The Impact of E-commerce on Global Marketplace - Essay Example

THE IMPACT OF E-COMMERCE ON GLOBAL MARKETPLACE INTRODUCTION 1 Facts and Figure of Electronic Commerce 2.0 ELECTRONIC COMMERCE CATEGORIES 2.1 Business to Business (E-Commerce) 2.2 Business-to-consumer (E-Commerce) 3.0 ELECTRONIC COMMERCE BUSINESS MODELS Retail Supply Chain Management and Logistics Advertising and Marketing Human Resources Customer Service 4.0 CASE STUDIES 4.1 MARKS AND SPENCER Financial performance M&S E-Commerce Venture M&S Customers Reasons for Failure 4.2 DELL Dell Customers Dell E-commerce Strategy Organization structure Dell’s Short Comings 4.3 FEDEX Role of Information Technology in Customer service FedEx Short comings 5.0 Conclusion INTRODUCTION Electronic commerce is buying and selling of goods and services and the transfer of funds, through digital communication (The Columbia Encyclopedia, 2004). Electronic commerce provides the capability of buying and selling products and information on the Internet. Czerniawska (1998) has argued that information is the most important battlefield of business as we move into the next century. Today information is like Noah deluge, understanding this enormous power of technology and directing the flow of information in our favour is indispensable for any business in today’s world. The arrival of information technology has given rise to countless applications in a variety of fields. This world without borders provides every thing, ranging from finding information to shopping online, trading stocks and entertainment. Any thing just is possible, just with a click of a mouse (Ovan, 1999). Former United States President Clinton has mentioned that if right environment is created for Electronic commerce, every computer will work as virtual shop. For the first time in the history of commerce, business has truly become global. Distance is no long a barrier, but rather death of distance has taken place. 1.1 Facts and Figure of Electronic Commerce According to the United States Department of Commerce (2002) the volume of business-to-business commerce has increased from US $38 billion in 1997 to US$300 billion in 2002. Jupiter Communications has mentioned that the growth of consumer-to-consumer commerce has grown from US $7 billion to US $41 billion by 2002 and the online consumer market in Europe alone will grow from €29 billion in 2003 to €117 billion in 2009. At present, 61 percent of European Internet users are buying online and spending an average of €843 per buyer. The reason for this growth is improved broadband connections. More than 4.3 million people shopped and transferred funds online. Online trading has reached 31 percent of the total United States investment market in 2002. According to click (2006) the total online consumer spending in 2004 was US$117, which increased to US$ 143 billion shown in table 1.1. The way consumers buy and sell goods is changing. The reason for this change is Electronic Commerce. Research by Forrester (2006) has predicted that Electronic Commerce sales will increase in US by 7 in 2006. According to an estimate of United States Department of Commerce Report, in 2002, 600 million people surfed web. By year 2005, the global Internet population reached 1.17 billion. The arrival of digital economy has changed the frontiers of business. In digital economy any player can play the game without greater capital and with no entry barriers, reducing the cost by information dissemination (Kobrin, 1998) 2.0 ELECTRONIC COMMERCE CATEGORIES Electronic commerce has two broad categories, business-to-business commerce (B2B) and business to consumer commerce (B2C). Amazon is one such unmistakable name for providing business to consumer commerce, while Cisco primarily deals in B2B environments. Infoseek and Yahoo target adds on their search engines, according to users interests and preferences (Skolnik,2001). 2.1 Business to Business (E-Commerce) Business to business commerce includes; selling and focusing on selling services or goods online; buying: allowing companies to make procurements, aiding the purchase process and manage spending effectively; while electronic market place bring different buyers and sellers together, where multiple buyers and sellers provide a platform or the electronic commerce participant companies (Murillo, 2004) Business to business commerce is involved in the range of activities, such as electronic data interchange; electronic funds transfer, electronic forms, integrated messaging, and shared databases. Cisco is one such example, which sells online. Bugle Boy provides support to the retailers in their business-to-business partnerships. . 2.2 Business-to-consumer (E-Commerce) Business to consumer commerce is direct selling, removing the transitional brokers and reaching out directly to consumers. Internet is all-in-one market place, which brings benefit for both buyers and sellers. Today majority of websites are in retail business and the net end of business to consumer commerce increasing revenue by reaching the right customers (Ovans, 1999). Business to consumer commerce offers unique opportunities from retail to selling services; all are part of greater Electronic commerce. For example United Parcel Services (UPS) and Federal Express (FEDEX) provide online services to customers to track their packages, calculate shipping costs. Such facilitation was unthinkable before the arrival of Internet technology. Electronic commerce applications have changed the way of traditional business (Lee, 2001) 3.0 ELECTRONIC COMMERCE BUSINESS MODELS Electronic commerce has variety of forms, such as retail, manufacturing, supply chain HRM and marketing and advertising as described below (Murillo, 2004). Retail Retail businesses are easy communication between consumers and firms. With reduced costs of advertising and search has eliminated the geographic boundaries allowing local entrepreneurs to compete in a global market (Hoover, 2000). Retailing online is to create a total experience; it is this image of total ease and comfort clinging to chair and through few clicks order any product- any time. For some it has become a necessity that due to shortage of time are unable to visit shops (Evans, 1996). Supply Chain Management and Logistics Supply chain is the process of transferring goods from their points of origin to markets and to the end consumers. The supply chain management comprises manufacturing, packaging, distribution, warehousing, and retailing. Electronic commerce applications empower managers to have better control over company purchasing habits. Advertising and Marketing Internet advertising has evolved since 1994 when first online banner appeared. Revenue generated from Internet advertising was about $8.2 billion in 2000. Online marketing is called direct marketing, as it involves wide range of activities related to consumers needs. Some of these activities include market research for prospective customers, market segment, understanding their needs, and meeting those needs (Geoffrey, 2001) Human Resources Electronic commerce has improved by providing online businesses applications, such as hassle free changes in policies, benefits, procedures, mergers, down sizing and pressure to increase productivity. Online training tutorials provided by human resource professionals in today’s organisations are meant to cut cost of expensive training. Electronic commerce applications have also improved recruitment services by streamlining resume for suitable candidates (Jamrog and Pyle,1996) Customer Service In any business offering customers the convenience is always considered a priority. Electronic commerce applications have made it possible for business to target new customers and capture information about customers who shop online. These business application have enabled firms to target customers more effectively, and tailor their services /products accordingly. 4.0 CASE STUDIES 4.1 Marks and Spencer (Marks and Spencer, 2006) Marks and Spencer started business as a chain of "penny bazaars" founded by Thomas Spencer, but with the passage of time it became a household name. In the 20th century it made a reputation of selling only the British made goods, as a result M&S entered in stronger relation with the local manufactures selling local goods under “St Michael” brand. The company main emphasis is on quality with a reputation for fair value for money. Financial performance Till 1999 Marks & Spencers financial year used to end on March 31st, but now the company has changed its reporting to 52/53 dates on variable dates. Table below shows the Marks and Spencer Financial performance since 1996 to 2005. Table 1.1 Source: www2.marksandspencer.com/the company M&S E-Commerce Venture Looking at success M&S decided to start online selling as they already had 24 million customers, tapping only on friction of them will create extra revenue, the management thought. Marks ventured into E-Commerce in alliance with Confetti Network .M&S traditional strategy is customer focused, as a result it also sought alliances with other media companies including Microsoft, beeb.com, Open and Tele-west with an intention of attracting customers and make itself a multi channel retailer. There were a number of planes to develop more products and commitments over the Internet, however within a year, excluding other losses, it lost about 690 jobs and losses related with direct catalogue amounted to 38.6 million pound, which proved fatal blow for an organisation which was riding the waves of success for the last 100 years. As the company was unable to cop its E-Commerce, in 2000, it has signed a three years agreements with MSN and the BBCs e-commerce website, Beeb.com. MSN MSNs shopping channel became M&S premier partner to sell its clothing & fashion, ‘home & garden and ‘flowers & gifts categories (Tom,2000). Reasons for Failure There have been several reasons for this failure. The first one was pre-assumption that 24 million traditional customers will automatically come online and shop. It could not simply understand its consumers (Citrin,2000).Marks and Spencer normally deals in women clothes and make a major chunk of their business. Women are more particular about dress and garments. Garments are personal things, which no matter how good looks over the Internet lacks tangibility. In traditional shopping its easy to check and re-check, change colour, feel the softness of the cloth, which a picture over the net cannot provide, especially when M&S as a brand is associated with class and standard. M&S does sell casual dress still its market share is not that high that it can pull the youngsters from other brands. The Internet shoppers are normally younger people, who were more at ease to check the price on other site, before plunging into shopping on M&S site. The middle age group and women are also less interested and less experienced E- shopping. It was M&S in-ability to understand, how customers shop on line that it lost the E-venture. DELL (Kenneth Kraemer and Jason Dedrick, 2001) Michael Dell founded Dell in 1984. Dell started selling computers of his own brand via phone. It rapidly grew in 1990s and it sales reached to US$3.5 million to in 1990s and US$25 billion in 1999 as described in the table below. Source: Kenneth Kraemer and Jason Dedrick (2001) The profits soared due to its cost structure and direct sales model. Dell Customers Dell minimized the depreciation of PC by receiving payment from customers in advance, paid to suppliers later on. This capital recycling created profit for Dell. Dell knew its customers and has created great amount of information to provide high level of service to target retention of customers. Dell major competitors are Compaq, IBM and HP, however Dell has been the winner due to its effective strategy. Dell E-commerce Strategy Dell was an early bird to start the use of Internet, at a time when its competitor didn’t take e- selling seriously. Unlike indirect vendors, such as Apple and IBM and Compaq, dell did not have to worry about channel conflict as it started its online business of ordered manufacturing. This built to order manufacturing made it easy for customers to configure the product. As a result by 2000 Dell was making US$50 million a day in e-sales. However, Dell achievement in sales was not only due to the Internet, but developed closer ties with the customers by creating 50000 premier pages for the customers, who used these configurations for ordering, services and support. It also enabled the smaller companies to buy PCs and peripherals and software easily from Dell. This E-strategy worked, and Dell was able to tap into high growth market without recruiting army of consultants. Organization structure Dell is working in Americas, Asia-Pacific and Japan, and Europe and its headquarter is in Texas, with one regional headquarter in Japan as well. Dell activities are organised in each region around different customer segments such as; (1) Relationship (corporate) customers, (2) home and small business (transaction customers), and (3) public sector (government and educational) The relationship with public sector customers’ makes 65 percent of Dells revenue in all but in EU it makes 80 percent of the revenue. Field representatives provide these services and support teams over thousands of phones and over the Internet to offer around the clock sales and support. Dell is an early user of the Internet and is the leading indicator of E-Commerce. It will not wrong to assume that Dell has embedded Internet into every activity (as shown in the figure below), which continues to evolve with the change in technology. Source: Kenneth Kraemer and Jason Dedrick (2001) Dell’s Short Comings E-commerce enabled Dell to overcome many obstacles, however there are many barriers which Dell will have to overcome, such as language, communication protocols, power supply, financial practices, preferences for national computer champions, and government regulations. Other than that Dell also lacks market research, as it believes in direct sales. Dell has reached individual customers, however in order to reach government and new corporate customers, it has to develop new marketing strategies to reach this segment. Dell will face difficulty in reaching new markets, especially for those customers who are without Internet. FEDEX (Bharat Rao, Ziv Navoth, Robert Wuebker and Mel Horwitch (1998) Frederick Smith was the founder of FedEx, who established the company in 1971. In 10th year of its inception, FedEx revenue reached US$ one billion, which made it the first US company to reach the mark of billion dollar. At the end of 1997, its revenue reached $10.3 billion, and in 1998 FedEx had become the undisputed leader of package and delivery business with 43 percent market share. The emergence of Electronic Commerce in late 90s set a stage for new supply chain management goals.    In addition to overnight delivery FedEx also created world-class logistics service, which was established in1987. And through the use of information technology and expertise in warehousing it offered services in many areas, such as inventory systems, scheduling and routing, call centers, and warehousing know-how (including location identification, set-up and operational specifications). Role of Information Technology in Customer service By launching E commerce, it allowed to fly lobster to flowers and surgical equipment across the globe in no time. Even though its competitor UPS and DHL were not behind, but FDX was ahead of them due to its excellent business strategy and information technology use. FedEx pioneered Web based package tracking. It initiated online catalogs, which enabled its customers to incorporate directly from their site through the interface code allowing them to track packages directly. This real time global tracking and tracing systems allowed retailers and customers to track the package progress. By using E- Commerce technologies FedEx encouraged the growth of content-driven technologies and integrated it in many Web sites under merchant brands. It was this strategy, which opened new markets for FedEx and control the cost. In early 199u FedEx also worked with Marimba to build industrial-strength package delivery monitoring capabilities for merchants. Thus we can say that FedEx use of IT has made it success story. FedEx Short comings Despite the success there were many issues which were unresolved, such as difficulty in filling the online forms, entering sorting addresses, record keeping, poorly designed menus and lack of functionality and usability in web interface (Score, 2002). Even, though, FedEx restructured its IT infrastructure, but the uncertainty associated with its standard gave a chance to its competitor UPS. At present FedEx is going on the path of success, there are many issues to be resolved, such as how should FedEx capitalize its first mover advantage? How to over come the threats which it faces from competitors. And how to capture new investment and increase its customer database. It would be these questions which FedEx has to solve to keep its competitive advantage. Conclusion From the above discussion and case studies, it is clear that E-commerce is changing the way things used to work in today’s business world. The use of IT is offering manufacturers, supplier and customers opportunities to shorten the time period and bypass the middleman, make transactions and delivery swift. It is also shortening the distributions channel, helping to develop new products and services for current and potential customers. To manufacturers, E-commerce is offering the ability to dominate the electronic channel and access the customers. The impact of E-commerce is enormous and future will bring many more possibilities for all the business sectors. There will be failures as happened in the case of M&S, but we must remember that E- commerce needs right business strategy, with right people and right timing, if all click together, successful E-commerce takes place. Reference The Columbia Encyclopedia, (2004) Czerniawska.A. (1998). Business in a Virtual World: Exploiting Information for Competitive Advantage, Houndmills, UK Ovans.A. (1999).E-commerce: Taxing the Web. Harvard Business Review. 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