2. 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

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

4. 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

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

6. 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

7. EXHIBIT 9.1 SECURE SERVERS AND INTERNET HOSTS IN SELECTED OECD COUNTRIES

8. 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

9. 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

10. 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

11. 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

12. 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

13. Exhibit 9.3 Shows E- commerce Business Models

14. EXHIBIT 9.3

15. 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

16. 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

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

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

19. 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

20. 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

21. 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

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

24. 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

25. 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

26. 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

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

28. EXHIBIT 9.5

29. 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

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

31. 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

32. 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

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

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

35. –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

36. 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

37. –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

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

39. 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

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

41. 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

42. 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

43. 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

44. Exhibit 9.6 pictures the levels and functions of the multinational corporation

46. 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

47. 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

48. 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

49. Exhibit 9.7 shows major problems identified web-site globalization

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

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