INTRODUCTION n Internet economy: –growing faster than any other business trend in history n Companies face issues similar to those faced by traditional multinational companies

THE INTERNET ECONOMY n What is e-commerce? –e-commerce refers to the selling of goods or services over the internet

TYPES OF E-COMMERCE TRANSACTIONS n B2C – business to consumer transactions n B2B – business to business transactions –makes up of 70-85% of current e-commerce business

Types of e-commerce transactions, continued n C2C – consumer to consumer n C2B – consumer to business

THE GLOBAL PRESENCE OF E-COMMERCE n Measured by two indicators –secure servers –internet hosts n OECD countries dominate the internet with over 90% of the world’s internet hosts - see exhibit 9.1

EXHIBIT 9.1 SECURE SERVERS AND INTERNET HOSTS IN SELECTED OECD COUNTRIES

Global presence of e- commerce, continued n In 1991, 3 million people used the internet and almost none used it for e-commerce n By 1999, approximately one quarter of the 250 million users made purchases online

THE INTERNET ECONOMY n Internet economy has four layers n Layer 1: the backbone of the internet including the internet service providers –communications (MCI, worldcom), internet service providers (AOL), networking (cisco) and hardware

n Layer 2: companies and consultants that build web systems and supporting software –consultants (scient), commerce applications (netscape, sun), web development software (adobe, netobjects), search engines (verity), and web- enabled databases (oracle) The internet economy, continued

n Layer 3: companies that provides linking services on the internet and derive revenues from commissions, advertising, and membership fees –travel agencies (travelweb, travelocity.Com), online brokerages (etrade), content aggregators (cnet,zdnet), and online advertising (yahoo!) The internet economy, continued

n Level 4: companies that conduct commercial transactions on the web –E-retailers (wine.Com), manufacturers selling directly (hpshopping.Com), subscription- based companies (vrbo.Com), transportation services (most airlines), and shipping services (UPS) The internet economy, continued

Exhibit 9.3 Shows E- commerce Business Models

EXHIBIT 9.3

FIVE STEPS FOR SUCCESSFUL E-COMMERCE STRATEGY 1. Build on current business models and experiment with new e- commerce models – search for ways to reduce costs or enhance the business

2. Meet the challenge of developing an e-commerce organization 4Not only senior management, but the entire firm must be prepared to embrace the e- commerce model

3. Allocate resources to the e- commerce business 4Commit financial, human, and technological resources to develop e-commerce capabilities

4. Build a superior e-commerce infrastructure as a basis of differentiation strategy 5. Make sure entire management team aligns with e-commerce agenda

E-COMMERCE STRATEGIES: INTEGRATED OR AUTONOMOUS n How does e-commerce fits into existing organizational design and management systems? –i.e., the fit with “brick and mortar” operations

Integrated or autonomous, continued n Degree of interaction between brick and mortar operations can occur anywhere in the value chain n Can range from near seamless operations (e.g., Office Depot) to the mostly independent operations

Integrated or autonomous, continued n The independent benefits: –faster and more entrepreneurial n The integrated benefits: –cross-promotion, shared information, increased quantity purchases, use of same distribution channels

Exhibit 9.4 (next) shows key decisions in the integration versus separation decision

ADDITIONAL OPERATIONAL CHALLENGES n Finding partnerships and alliances with customers or third parties n Attracting, retaining, and developing employees in the e- commerce unit n Deciding what e-commerce functions to outsource

TASKS FOR TRADITIONAL COMPANIES WITH E- COMMERCE n Build a common vision and commitment to e-commerce n Change the organization structure for quick reconfiguration of assets and capabilities

Tasks for traditional companies with e-commerce, continued n Change the organization culture to support e-commerce n Attract and retain e-commerce- skilled employees n Alter HR programs to suit skill requirements of e-commerce employees

Exhibit 9.5 gives a comparison of past and expected organizational changes multinational companies are making to implement their e- commerce strategies

EXHIBIT 9.5

GLOBALIZING THROUGH THE INTERNET n A web site gives the company immediate global access –the challenges of globalization faced by traditional brick-and- mortar companies remain

MULTINATIONAL E- COMMERCE STRATEGY FORMULATION n Depends on: –nature of the business –types of products or services offered through e-commerce

E-COMMERCE COMPANIES WORK IN THREE AREAS 1. Movement of bits or computerized information 2. Movement of money in payment flows 3. Movement of physical products –each type of operation requires an infrastructure to support the transactions

HIERARCHY OF DIFFICULTY n Depends on infrastructure requirements –portals and infomediaries, simplest –digital products that must have an infrastructure to take payments –most difficult to globalize: e- commerce businesses that rely on a physical structure

MULTINATIONAL E- COMMERCE: OPPORTUNITIES AND THREATS n Major opportunities of e- commerce globalization: –cost reduction n less expensive to reach customers via web

–technology n is already available –efficiencies n more efficient Multinational e-commerce: opportunities and threats, continued

–convenience n web is in operation all the time regardless of location –speed of access n company’s products or services can be accessed from anywhere in the world

n Major challenges include: –return/receipt burden and cost of delivery n expect 30-40% return rate –costs of site construction, maintenance, upgrades –channel conflicts Multinational e-commerce: opportunities and threats, continued

–easily copied models n competitors can easily see and copy business model –cultural differences n web sites must be appropriate culturally Multinational e-commerce: opportunities and threats, continued

–traditional cross-border complexities remain n exchange rates, different taxes, and government regulations

PICKING A MARKET n Target countries –those with market inefficiencies n e.g., formerly state-controlled economies –attractive demographics n internet population of > 5% n high literacy rate

n Target countries, continued –participation in at least one free trade agreement –government with viable legal system

MULTINATIONAL E- COMMERCE STRATEGY IMPLEMENTATION n Successful implementation of a multinational e-commerce strategy requires building an appropriate organization and developing the necessary technical capabilities to conduct electronic transactions

THE MULTINATIONAL E- COMMERCE ORGANIZATION n What is the organization of a multinational e-business? –three-tiered mixing of global and local functions n Headquarters –vision, strategy, leadership for worldwide electronic marketing

The multinational e-commerce organization, continued n Shared functional services –provide HRM, marketing, partner management to regions n Local subsidiaries –deliver goods, manage functions better done locally such as the supply chain

Exhibit 9.6 pictures the levels and functions of the multinational corporation

TECHNICAL CAPABILITIES FOR MULTINATIONAL E- COMMERCE n Process multiple currencies n Calculate and show purchase information on international shipping, duties, and local taxes such as VAT

Technical capabilities for multinational e-commerce, continued n Check regulatory compliance with local and international laws n Provide support in multilingual service centers n Fraud protection n Electronic payment models in addition to credit cards

TO BUILD OR OUTSOURCE TECHNICAL CAPABILITIES? n Run all e-commerce functions internally or outsource to e- commerce enablers n Enablers provide services and software that translate web sites, calculate shipping, value- added taxes, duties, and other charges unique to each country

Exhibit 9.7 shows major problems identified web-site globalization

CONCLUSIONS n E-commerce expanding geometrically n Although the US dominates e- commerce, other areas of the world are catching up

Conclusions, continued n Fundamentals of e-commerce strategy –build on traditional business models –experiment with cost reductions or differentiation based on internet use