1. Chapter 1 Foundations of Electronic Commerce

2. Md. Mahbobor Rahaman Lecturer Dept
Md.Mahbobor Rahaman Lecturer Dept. of Business Administration Leading University

3. Learning Objectives
Define electronic commerce and describe its various categories
Distinguish between electronic markets and inter-organizational systems
Describe the benefits of electronic commerce to organizations, consumers, and society
Describe the limitations of electronic commerce
Understand the forces that drive the widespread use of electronic commerce
Describe and discuss the changes that will be caused by electronic commerce
Discuss some major managerial issues regarding electronic commerce

4. Opening Vignettes: Intel Corp. and Happy Puppy
Intel Corporation
Business-to-business (B2B) products selling
Customer service
Purchasing from and dealing with suppliers
Happy Puppy
Retailing company’s games
Marketing others’ games
Business-to-consumers (B2C)

5. Definitions and Content of Field
Electronic Commerce (EC) is where business transactions take place via telecommunications networks, especially the Internet.
Electronic commerce describes the buying and selling of products, services, and information via computer networks including the Internet.
The infrastructure for EC is a networked computing environment in business, home, and government.
E-Business describes the broadest definition of EC. It includes customer service and intrabusiness tasks. It is frequently used interchangeably with EC.

6. Definitions and Content of Field (cont.)
A global networked environment is known as the Internet
A counterpart within organizations, is called an intranet
An extranet extends intranets so that they can be accessed by business partners.

7. Pure Vs. Partial Electronic Commerce
Three dimensions
the product (service) sold [physical / digital];
the process [physical / digital]
the delivery agent (or intermediary) [physical / digital]
Traditional commerce
all dimensions are physical
Pure EC
all dimensions are digital
Partial EC
all other possibilities include a mix of digital and physical dimensions

8. The Dimensions of Electronic Commerce
Virtual process
Virtual delivery agent
Virtual product
The core of
electronic commerce
Electronic commerce areas
Digital Product
Physical Product
Digital process
Traditional commerce
Physical process
Physical agent
Digital agent

9. The Electronic Commerce Field
Figure 1.2 shows that the EC applications are supported by infrastructures, and their implementation is dependent on four major areas (shown as supporting pillars) people, public policy, technical standards and protocols, and other organizations.
The EC management coordinates the applications, infrastructures, and pillars. It also includes Internet marketing and advertisement.

10. Management Infrastructure A Framework for Electronic Commerce
Electronic Commerce Applications
• Stocks Jobs • On-line banking
• Procurement and purchasing• Malls • On-line marketing and advertising
• Home shopping • Auctions • Travel • On-line publishing
People:
Buyers, sellers,
intermediaries,
services, IS people,
and management
Public
policy,
legal, and
privacy
issues
Technical standards
for documents,
security, and
network protocols
payment
Organizations:
Partners,
competitors,
associations,
government services
Infrastructure
(1)
Common business
services infrastructure
(security smart
cards/authentication
electronic payment,
directories/catalogs)
(2)
Messaging and
information distribution
infrastructure
(EDI, , Hyper Text
Transfer Protocol)
(3)
Multimedia content
and network
publishing infrastructure
(HTML, JAVA, World
Wide Web, VRML)
(4)
Network infrastructure
(Telecom, cable TV
wireless, Internet)
(VAN, WAN, LAN,
Intranet, Extranet)
(5)
Interfacing
(The databases,
customers, and
applications)
Management
A Framework for Electronic Commerce
© Prentice Hall, 2000 9

11. Electronic Markets
A market is a network of interactions and relationships where information, products, services, and payments are exchanged.
The market handles all the necessary transactions.
An electronic market is a place where shoppers and sellers meet electronically.
In electronic markets, sellers and buyers negotiate, submit bids, agree on an order, and finish the execution on- or off-line.

12. Electronic Markets Shopper/Purchaser Seller/Supplier
Electronic commerce
network
(Infrastructure)
Response to information request
Purchase acknowledgment
Shipping notice
Purchase/service delivery (if online)
Payment acknowledgment
Product/service information request
Purchase request
Payment or payment advice
Purchase fulfillment request
Purchase change request
Response to fulfillment request
Shipping notice
Electronic Market
(Transaction Hander)
Payment approval
Electronic transfer of funds
Payment remittance notice
Electronic transfer of funds
Shopper/Purchaser’s Bank
Transaction Handler’s Bank
(Automated Clearing House)
Seller/Supplier’s Bank
Electronic transfer of funds
Electronic Markets
© Prentice Hall, 2000 11

13. Interorganization Information Systems
An interorganizational information system (IOS) involves information flow among two or more organizations.
Its major objective is efficient routine transaction processing, such as transmitting orders, bills, and payments using EDI or extranets.
Scope: An IOS is a unified system encompassing two or several business partners.
A typical IOS includes a company and its suppliers and and/or customers.

14. Types of Interorganizational Systems
Electronic data interchange (EDI)
Extranets
Electronic funds transfer (EFT)
Integrated messaging systems
Shared databases
Electronically-supported supply chain management

15. Classification of EC by the Nature
of the Transactions
Business-to-business
Business-to-customer
Intra business transactions
Others
Classification of Electronic Commerce
© Prentice Hall, 2000

16. Electronic Commerce is Interdisciplinary
Marketing
Computer sciences
Consumer behavior and psychology
Finance
Economic
Production/Logistic
Management information systems
Accounting and auditing
Management
Business law and ethics

17. The Benefits of Electronic Commerce
Benefits to Organizations
Expands the marketplace to national and international markets
Decreases the cost of creating, processing, distributing, storing and retrieving paper-based information
Allows reduced inventories and overhead by facilitating “pull” type supply chain management
The pull type processing allows for customization of products and services which provides competitive advantage to its implementers

18. Benefits to Organizations (cont.)
Reduces the time between the outlay of capital and the receipt of products and services
Supports business processes reengineering (BPR) efforts
Lowers telecommunications cost - the Internet is much cheaper than value added networks (VANs)

19. Benefits to Customers
Enables customers to shop or do other transactions 24 hours a day, all year round from almost any location
Provides customers with more choices
Provides customers with less expensive products and services by allowing them to shop in many places and conduct quick comparisons
Allows quick delivery of products and services in some cases, especially with digitized products

20. Benefits to Customers (cont.)
Customers can receive relevant and detailed information in seconds, rather than in days or weeks
Makes it possible to participate in virtual auctions
Allows customers to interact with other customers in electronic communities and exchange ideas as well as compare experiences
Electronic commerce facilitates competition, which results in substantial discounts.

21. Benefits to Society
Enables more individuals to work at home, and to do less traveling for shopping, resulting in less traffic on the roads, and lower air pollution
Allows some merchandise to be sold at lower prices benefiting the poor ones
Enables people in Third World countries and rural areas to enjoy products and services which otherwise are not available to them
Facilitates delivery of public services at a reduced cost,increases effectiveness, and/or improves quality

22. The Limitations of Electronic Commerce
Technical Limitations of Electronic Commerce
Lack of sufficient system’s security, reliability, standards, and communication protocols
Insufficient telecommunication bandwidth
The software development tools are still evolving and changing rapidly
Difficulties in integrating the Internet and electronic commerce software with some existing applications and databases

23. Technical Limitations of Electronic Commerce (cont.)
The need for special Web servers and other infrastructures, in addition to the network servers (additional cost)
Possible problems of interoperability, meaning that some EC software does not fit with some hardware, or is incompatible with some operating systems or other components

24. Non-Technical Limitations
Cost and justification (35% of the respondents)
The cost of developing an EC in house can be very high, and mistakes due to lack of experience, may result in delays. There are many opportunities for outsourcing, but where and how to do it is not a simple issue. Furthermore, to justify the system one needs to deal with some intangible benefits which are difficult to quantify.

25. Non-Technical Limitations (cont.)
Security and Privacy (17% of the respondents)
These issues are especially important in the B2C area, and security concerns are not truly so serious from a technical standpoint. Privacy measures are constantly improving too. Yet, the customers perceive these issues as very important and therefore the EC industry has a very long and difficult task of convincing customers that online transactions and privacy are, in fact, fairly secure.
Lack of trust and user resistance (4%)
Customers do not trust an unknown faceless seller, paperless transactions, and electronic money. So switching from a physical to a virtual store may be difficult.

26. Non-Technical Limitations (cont.)
Other limiting factors are:
Lack of touch and feel online
Many unresolved legal issues
Rapidly evolving and changing EC
Lack of support services
Insufficiently large enough number of sellers and buyers
Breakdown of human relationships
Expensive and/or inconvenient accessibility to the Internet

27. The Driving Forces of Electronic Commerce
The New World of Business
Business pressures
Organizational responses
The role of Information Technology (including electronic commerce)

28. Major Business Pressures
Market and
economic pressures
Strong competition
Global economy
Regional trade agreements (e.g. NAFTA)
Extremely low labor cost in some countries
Frequent and significant changes in markets
Increased power of consumers
Societal and
environmental pressures
Changing nature of workforce
Government deregulation of banking and other services
Shrinking government budgets subsides
Increased importance of ethical and legal issues
Increased social responsibility of organizations
Rapid political changes
Technological pressures
Rapid technological obsolescence
Increase innovations and new technologies
Information overload
Rapid decline in technology cost Vs. performance ratio

29. Organizational Responses
External Environment, Social, Economic, Political, etc
Organization
Structure and the
Corporate Culture
Individual
and Roles
Information
Technology
The Organization’s
Strategy
Management
and
Business Process
Framework for Organizational and Societal Impacts of Information Technology

30. Business Process Reengineering
Reducing cycle time and time to market
Empowerment of employees and collaborative work
Knowledge management
Customer-focused approach
Business alliances — virtual corporation

31. Everything Will Be Changed
Improving Direct Marketing
Product promotion
New sales channels
Direct savings
Time-to-market (reduced cycle time)
Customer service
Brand or corporate image

32. Other Changes in the Workplace
Transforming Organizations
Work will change
Technology learning
Organizational learning
Redefining Organization
New product capabilities
New business models

33. Other Changes in the Workplace (cont.)
Impacts on Manufacturing
Pull processing, mass customization, shorter cycle time, integration (ERP), electronic bidding and procurement
Impacts on Finance and Accounting
Electronic payment systems, electronic cash, automating back office, home banking, electronic stock trading
Human Resource Management
Electronic recruiting, training, distance learning

34. Plan of the Book Part I Part II Part III Part IV Part V
Ch1 Introduction
Part I
Part II
Ch2 Retailing
Ch3 Consumer Behavior and Market Research
Ch4 Advertisement
Ch5 Service Industries Applications
Ch6 Business-to-Businesses
Ch7 Intranet and Extranet Applications
EC Application
Support and Implementation
Ch8 Payments
Ch9 Corporate Strategy
Ch10 Public Policy
Part III
Technological Support
Ch11 Infrastructure
Appendix A
Appendix B
Appendix C
Part IV
Ch12 Economics, Global, Research in EC
Part V

35. Management Issues Is it real?
How to evaluate the magnitude of the business pressures?
What should be my company’s strategy towards EC?
What is the best way to learn about EC?