Disinter-mediation and the Advent of E-commerce - Essay Example

Introduction The advent of e-Commerce brought in many promises and hope for new businesses to evolve and emerge with new and more innovative models of doing business. The bricks and clicks companies and many more new models like Amazon, eBay, PayPal, brought in new revolution into the business world by providing easier, more robust and innovative means of doing trade. Not only does the selling and purchasing became simplified but also e-Commerce provided a whole new approach of doing and conducting business by bringing in direction connection between the sellers and the buyers. This direct interaction between the buyers and sellers was perceived to be free from any intermediation of third party firms i.e. middlemen as technology greatly reduced the cost of searching the information regarding the buyers and sellers lessening the dependence on the middlemen. This virtual absence of middlemen kick started the process of disintermediation and it was largely believed that with advances in e-Commerce, disintermediation will increase and will result into the reduction of cost of searching the information. However, the same seem not to be happening as despite improvements in the technology and whole e-Commerce process, disintermediation did not took place as expected. This work will look into exploring the reasons behind this perceived disintermediation and e-Commerce and why it did not took place despite the bright future of doing business electronically was promised by the e-Commerce. However before discussing the core issue it will be very important that some of the latest business models and real example be explored in order to broaden the scope of our study and better understand the linkages between e-Commerce and disintermediation and future survival of disintermediation. Bricks and clicks’ companies Through traffic driving, traditional retail stores are diverting their internet website visitors to their physical stores therefore the traditional retailers as a point of defense has already started to explore a relatively new and unique model of brick and click or bricks and mortars. Bricks and Clicks are traditionally described as a sales model that utilizes both the traditional stores and internet to generate the sales. (This business model, also known as clicks and mortar or clicks and bricks, began to be used in the 1990s. The rise of the Internet opened up opportunities for online trading. Initially this was utilized by companies whose primary business was Internet-based - the so-called clicks companies. Established trading companies followed when it became clear that businesses didnt have to be limited to either traditional stores or online trading, but could make use of both. Typical of the established companies that were early adopters of bricks and clicks were supermarkets, who offered their customers the option of ordering online and having their groceries delivered from central warehousing. This shift in the mindset of the traditional retailers working in a physical environment to use this more innovative model to not only use its traditional resources to generate the sales but also as a defense strategy against internet retailers. I believe that this business model is going to replace the internet based business models like that of Amazon because the traditional retailers provide firstly a unique human to human experience while shopping which amazon.com may not provide to the customers which are mostly outgoing and consider shopping as an enjoyable experience which can take them out of their ordinary mundane world to more pleasurable experience of shopping E-Commerce – Present Scenario The number of Internet hosts in August 1981 was only 213. By July 1999, the number of Internet hosts had reached 56,218,000 (ISC). The number of Web sites has been growing exponentially since 1994, when Web browsers (Mosaic and its commercial version, Netscape) were developed. Web browsers greatly facilitate the use of the Internet. The emergence of the Internet, particularly the World Wide Web, makes it possible to do business online. E-commerce has become a fast growing industry. Businesses have been pouring on to the Internet in recent years. By 1999, dot-com registrations had accounted for 79 percent of total dot-net, dot-org, and dot.com registrations combined (Liu, 2000). The commercial sector is becoming a dominating and driving force on the Internet. Businesses use the Internet to market products, negotiate business deals, fill out orders, and conduct commercial transactions. Many corporations have already integrated the Internet into their strategic planning, as the Internet has become an indispensable part of their business operations. Financial and investment services are increasingly common on the Internet. Millions of small investors can get real-time stock quotes from services provided by many online brokerage firms. Banking transactions can be done over the Internet. Consumers can shop in virtual malls. New car buyers are able to examine the features of new cars in virtual show rooms. There are reasons for the growth of commercial use on the Internet. The ultimate goal of private enterprises is to make a profit, which is, of course, a driving force of the capitalist economy. Private enterprises play a crucial role in improving productivity and creating wealth. In general, there are a number of ways of making profits: by increasing revenue (if expenses are constant) or reducing expenses. Increasing sales will increase revenues. Total business expenses can be reduced by cutting administrative and operating expenses. The Internet can be used to achieve both purposes. A company can reach out to its customers and market its products and services by using e-mail and creating Web pages. Customers can not only receive information on the company’s products and services, they can also communicate with the company’s sales and service representatives if they have questions about the products. The company can save a great deal of its financial resources by using the Internet to deliver services, provide training programmes, hold virtual conferences, cut travelling expenses, strengthen internal communications, speed up purchasing cycles, and reduce long distance phone call and fax expenses. E-marketplaces are one of the relatively new trends that are affecting buyer-supplier relationships. Although there have been several failures in the e-business arena, whether it is business-to-business (B2B) or business-to-consumer (B2C) e-commerce, there is no doubt that the Internet has changed the way that business is done in several ways. It has been shown that electronic commerce can fundamentally change the inter-organizational processes involving buyer-supplier relationships. It reshapes these buyer-supplier relationships, improves a businesss core processes, and helps reach new markets or segments through the electronic medium. From the perspective of sellers, an e-market opens up their services and products to a larger number of customers as compared to traditional businesses. Further, through better communication with potential buyers, which maximizes input in design decisions, a seller can supply a better product and can reduce inventory levels across the entire supply chain. As far as the buyer is concerned, a much greater choice of products is available than before, and it is easier to find the best value at the lowest price. An e-market can fulfill a portion of the traditional procurement process from need identification and supplier selection through to final transaction. (Murtaza, et. Al, 2004, p.325-335) The proposition that the internet based companies will be more involved in playing a role of intermediary rather than involving in direct sales may be considered as a credible proposition. Due to low entry barriers, irrelevance of company size enhances its attraction to be used as a distribution channel performing the role of an intermediary rather than involving in the sales process themselves. (Melewar, 2003, p363). However same could not have been achieved due to various reasons. The following section will discuss the argument that why disintermediation did not occur to the same extent as it was predicted. Disintermediation and e-Commerce The notion of disintermediation revolves around the idea that with the introduction of new and novel technology, a new and unique customer experience can be created which reduces the cost and time spent by the consumer to conduct a transaction. (Shunk et.al.2007). Disintermediation is the term which is used for the removal of any intermediaries in the supply chain process. This is often done in order to remove the physical agents so that the costs to both buyers and sellers is decreased.(Mills&Comek,2004).This therefore means no role of the brokers, agents or distributors in the buying and selling process. As discussed above that the companies have evolved the new models of bricks and clicks companies whereby they divert their online visitors to visit their physical stores thus effectively removing the chain of external players involved in the exchange process between the buyers and the sellers. The classical theories on the intermediation suggest that due to lack of information, customers tend to involve those who have knowledge and expertise of the market in order to make buying and selling decisions. It is often believed that the disintermediation related with the e-Commerce is mostly related with the goods having short life cycles or the goods and services which require very little value addition from the distributors however the extent of the removal of the intermediaries from the whole supply chain process can be partial also besides the full removal of the middlemen from the supply chain process. However despite this perceived notion of cost and time reduction in order to bring in more efficiency in the processes, the disintermediation has not occurred as it was expected by the various authors in their writings. These reasons are: 1) Changing Supply Chain relationships: The changing relationships in the supply chain management relationships suggested that there is lot of changes required in the associated activities with the supply chain management. Though the disintermediation may incur in the supply chain relationships however the required changes in the way monetary transactions are being conducted, the security issues associated with the conducting transactions online as well as the issues of taxation are some of the core elements within supply chain relationships which may force firms to involve intermediaries in the process in order to reduce these costs. The perceived notion that removal of intermediaries from the supply chain process will reduce the cost effectively raises the cost of doing the business as other associated costs increase. (Ritchie, Brindley, 2000). 2) Changes in information Technology Information technology is probably the only field where changes are so rapid that hardly any significant trends and patterns of doing business emerge. With the increase in technological sophistication, firms have developed capabilities and systems which help them to look beyond the traditional disintermediation. More sophisticated manufacturing systems, the changing relationships in supply chain relationships as discussed above have necessarily improved the coordination between the various members of the supply chain link thus reducing the use of technology in bringing in disintermediation. The same phenomenon has largely been observed in the B2B marketing where the new and innovative management practices reduced the reliance on e-Commerce. 3) Multi-agent systems The use of multi-agent intelligent systems has pushed the firms to look beyond the disintermediation process. With the use of intelligent systems with the various capabilities including information filtering, the disintermediation has become an obsolete concept with little relevance in fast changing information technology sphere. 4) Costs associated with e-Commerce One of the most important reasons especially for the small businesses is the cost of setting up the e-Commerce facilities. SMEs especially with very limited and often local customer base did not initiated the e-Commerce process on more advanced footings mainly due to the lack of knowledge of their employees as well as high cost of setting up the websites. Besides the level of awareness of the customers of conducting e-transactions especially those being catered by the small business is very low therefore the noise between the direct communication between sellers and buyers necessitate the use of intermediaries. 5) Economic Short-sightedness Economic studies conducted on measuring the impact of e-Commerce often argue that the companies involve in the e-Commerce business do not take the business as serious and it is because of this reason that too few companies have become successful in leaving their mark on the e-Commerce landscape.(Borenstein & Saloner,2001). Most of the businesses consider e-Commerce as one time sunk cost incurred in a rush to penetrate the markets through prices which may not be sustainable in the future thus reverting back to their original and traditional ways of doing business with the involvement of the intermediaries therefore reversing the whole process of disintermediation. Future of disintermediation There are many factors which can have the potential to impact the process of disintermediation. They involve lack of familiarity with brands and offerings, ease of shopping; Glitches with the site, lack of value being provided to the customers and post sales dissonance are some of the very critical factors which effectively dilute the disintermediation efforts. Though the disintermediation decreases the cost for the firms however other associated costs related with the transaction effectively increase thus nullifying the whole cycle of disintermediation. Apart from that, the changing information technology may force firms to look for more better and more innovative ways of interacting with their customers which might again start the reinteremediation process. The disintermediation in the future will therefore only be common if firms innovate in their ways to interact with their customers. Since the internet provide access to the virtually unlimited resources without any significant geographical constraints therefore lack of awareness of the customers belonging to geographically distinct markets, the lack of trust on whether the stuff purchased on-line will be delivered to the customers or not are some of the issues which raises the suspicion to the internet business and it is probably because of this reason that the bricks and clicks companies are more successful than the purely online businesses. On concluding remarks, I do not foresee disintermediation taking place so commonly in the future until and unless businesses become globalized with presence in all major markets and considerable awareness regarding the products and services of the firms are already being raised to a level where those potential customers can start trusting the firm to deliver value to them. Conclusion Though e-commerce seems to provide many unconventional benefits to the firms however one very important benefit which it provided to them was the removal of middlemen from the supply chain process. Technology has allowed firms to take advantage of the disintermediation however due to certain very critical factors; the level of disintermediation which was predicted by the authors was not achieved however factor looks promising provided the firms try to broaden their scope to include activities which effectively build the level of trust in their customers to transact online. References 1) Marchewka, Jack T. (2000), ‘A comparison of structure and strategy in electronic commerce, Information Technology & People, Vol 13, no.2000, p 137-149 2) Reynolds, Jonathan, 2007,’ Perspectives on retail format innovation: relating theory and practice’, International Journal of Retail & Distribution Management, Vol 35,No.8, pp 647-660 3) Christopher Grosso, John McPherson, and Christiana Shi, 2005, ‘Retailing: What is going on’, The Mckinsey Quarterly, retrieved March 31, 2008 from http://www.mckinseyquarterly.com/Retail_Consumer_Goods/Strategy_Analysis/Retailing_Whats_working_online_1631 4) Anjana, 2007,’Online Internet Business Models’, stylusInc, retrieved April 2, 2008 from http://www.stylusinc.com/website/business_models.htm 5) Meleware, T.C., Smith, Nichola,2003,’ The Internet revolution: some global marketing implications’, Marketing Intelligence & Planning, vol 21 No.6, p 363-369 6) Liu, Lewis Guodo, 2000, The emergence of business information resources and services on the Internet and its impact on business librarianship’, Online Information Review, vol 24, no 3 pp234-255 7) Mills, John F, Camek, Vojta. 2004.’ The risks, threats and opportunities of disintermediation’, International Journal of Physical Distribution & Logistics Management, Vol.34, no.9, p714-727 8) Dan L. Shunk, Joseph R. Carter, John Hovis, Aditya Talwar. (2007). Electronics industry drivers of intermediation and disintermediation. International Journal of Physical Distribution & Logistics Management. 37 (0), pp. 248-261. 9) Ritchie, Bob, Brindley, Clare, 2000.’Disintermediation, disintegration, and risk in the SME Global supply chain’, Management Decision, 38(8), p575-583. 10) Borenstein, Severin, Saloner, Garth. (2001). Economics and Electronic Commerce. The Journal of Economic Perspectives. 15 (1), p3-12. 11) Simpson, Penny M, Barnett, William, Simpson, Claude A. (2001). Disintermediation: an exploratory study of changing channel structure in E-Commerce B to C Markets. Available: http://www.iacis.org/iis/2001_iis/pdf%20files/Simpson453.PDF. Last accessed 02 April 2008. Read More