1. Chapter Copyright© 2004 Thomson Learning All rights reserved 9 Multinational E-Commerce: Strategies and Structures Multinational E-Commerce: Strategies and Structures

2. Copyright© 2005 South-Western/Thomson Learning All rights reserved Learning Objectives Define the forms of e-commerce Appreciate the growing presence of e-commerce in the global economy Understand the structure of the Internet economy Identify the basic components of successful e-commerce strategy Define the forms of e-commerce Appreciate the growing presence of e-commerce in the global economy Understand the structure of the Internet economy Identify the basic components of successful e-commerce strategy

3. Copyright© 2005 South-Western/Thomson Learning All rights reserved Learning Objectives Understand the attractions of and deterrents to building a multinational e-commerce business Know the basic multinational e-commerce business models Identify the practicalities of running a multinational e-commerce business Understand the function of enablers in multinational e-commerce operations Understand the attractions of and deterrents to building a multinational e-commerce business Know the basic multinational e-commerce business models Identify the practicalities of running a multinational e-commerce business Understand the function of enablers in multinational e-commerce operations

4. Copyright© 2005 South-Western/Thomson Learning All rights reserved The Internet Economy Internet Economy Growing faster than any other business trend in history Companies face issues similar to those faced by traditional multinational companies Internet Economy Growing faster than any other business trend in history Companies face issues similar to those faced by traditional multinational companies

5. Copyright© 2005 South-Western/Thomson Learning All rights reserved What Is E-Commerce? Refers to the selling of goods or services over the Internet Includes goods or services delivered offline E.g., Amazon.com shipping book via UPS Also includes goods and services delivered online E.g., downloaded computer software Refers to the selling of goods or services over the Internet Includes goods or services delivered offline E.g., Amazon.com shipping book via UPS Also includes goods and services delivered online E.g., downloaded computer software

6. Copyright© 2005 South-Western/Thomson Learning All rights reserved Types of E-Commerce Transactions B2C: business-to-consumer transactions Buying toys from eToys B2B: business-to-business transactions Makes up 70 to 85% of current e-commerce business C2C: consumer-to consumer transactions Anyone selling online C2B: consumer-to-business transactions B2C: business-to-consumer transactions Buying toys from eToys B2B: business-to-business transactions Makes up 70 to 85% of current e-commerce business C2C: consumer-to consumer transactions Anyone selling online C2B: consumer-to-business transactions

7. Copyright© 2005 South-Western/Thomson Learning All rights reserved Exhibit 9.1: E-Commerce Value Chain

8. Copyright© 2005 South-Western/Thomson Learning All rights reserved The Internet Economy Two indicators of the global presence of e-commerce Secure server: an Internet host that allows users to send and receive encrypted data Internet hosts: computers connected to the Internet with their own IP addresses OECD dominate the Internet with over 90% of Internet hosts Two indicators of the global presence of e-commerce Secure server: an Internet host that allows users to send and receive encrypted data Internet hosts: computers connected to the Internet with their own IP addresses OECD dominate the Internet with over 90% of Internet hosts

9. Copyright© 2005 South-Western/Thomson Learning All rights reserved Exhibit 9.2: Secure Servers and Internet Hosts in Selected OECD Countries

10. Copyright© 2005 South-Western/Thomson Learning All rights reserved The Internet Economy In 1991, 3 million people used the Internet and almost none used it for e-commerce. Between 2001 and 2002, U.S. consumers spent over $1.3 billion on e-commerce, increase of over 90%. Recent estimates suggest growth around the world. Offers tremendous opportunities for multinationals In 1991, 3 million people used the Internet and almost none used it for e-commerce. Between 2001 and 2002, U.S. consumers spent over $1.3 billion on e-commerce, increase of over 90%. Recent estimates suggest growth around the world. Offers tremendous opportunities for multinationals

11. Copyright© 2005 South-Western/Thomson Learning All rights reserved Exhibit 9.3: Internet Users around the World

12. Copyright© 2005 South-Western/Thomson Learning All rights reserved The Internet Economy Internet economy has four layers The infrastructure The applications infrastructure The Internet intermediaries The Internet commerce layer Internet economy has four layers The infrastructure The applications infrastructure The Internet intermediaries The Internet commerce layer

13. Copyright© 2005 South-Western/Thomson Learning All rights reserved Layer 1 The Internet infrastructure is the backbone of the Internet, including the Internet service providers, e.g., Communications (Qwest, MCI/Worldcom) Internet service providers (Mindspring, AOL, Earthlink) Networking (Cisco, Lucent, 3Com) Hardware (Dell, Compaq, HP) The Internet infrastructure is the backbone of the Internet, including the Internet service providers, e.g., Communications (Qwest, MCI/Worldcom) Internet service providers (Mindspring, AOL, Earthlink) Networking (Cisco, Lucent, 3Com) Hardware (Dell, Compaq, HP)

14. Copyright© 2005 South-Western/Thomson Learning All rights reserved Layer 2 The applications infrastructure Companies and consultants that build web systems and supporting software Consultants (SB1) Commerce applications (Netscape, Sun, IBM) Web development software (Adobe, NetObjects) Search engine software (Verity) Web-enable databases (Oracle) The applications infrastructure Companies and consultants that build web systems and supporting software Consultants (SB1) Commerce applications (Netscape, Sun, IBM) Web development software (Adobe, NetObjects) Search engine software (Verity) Web-enable databases (Oracle)

15. Copyright© 2005 South-Western/Thomson Learning All rights reserved Layer 3 The internet intermediaries Companies that provides linking services on the Internet and derive revenues from commissions, advertising, and membership fees Online travel agencies (Travelweb, Travelocity.com) Online brokerages (E*TRADE) Content aggregators (CNET, ZDNet) Online advertising (Yahoo!) The internet intermediaries Companies that provides linking services on the Internet and derive revenues from commissions, advertising, and membership fees Online travel agencies (Travelweb, Travelocity.com) Online brokerages (E*TRADE) Content aggregators (CNET, ZDNet) Online advertising (Yahoo!)

16. Copyright© 2005 South-Western/Thomson Learning All rights reserved Layer 4 The Internet commerce layer Companies that conduct commercial transactions on the Web E-retailers (wine.com, diamond.com) Manufacturers selling directly (hpshopping.com, Dell) Subscription-based companies (VRBO.com) Transportation services (most airlines) Shipping services (FedEx, UPS) The Internet commerce layer Companies that conduct commercial transactions on the Web E-retailers (wine.com, diamond.com) Manufacturers selling directly (hpshopping.com, Dell) Subscription-based companies (VRBO.com) Transportation services (most airlines) Shipping services (FedEx, UPS)

17. Copyright© 2005 South-Western/Thomson Learning All rights reserved Exhibit 9.4: Internet Businesses Ranked on Business Week’s Information Technology 100

18. Copyright© 2005 South-Western/Thomson Learning All rights reserved Fundamentals of E-Commerce E-commerce is evolving quickly. Failures of many start-ups show it’s not without risks. E-commerce presents significant opportunities and threats. E-commerce is evolving quickly. Failures of many start-ups show it’s not without risks. E-commerce presents significant opportunities and threats.

19. Copyright© 2005 South-Western/Thomson Learning All rights reserved Exhibit 9.5: Summary of Threats and Opportunities

20. Copyright© 2005 South-Western/Thomson Learning All rights reserved Five Steps for Successful E-Commerce Strategy 1.Build on current business models and experiment with new e-commerce models 1.Use e-commerce to search for ways to reduce costs or enhance the business. 2.Meet the challenge of developing an e-commerce organization 1.Entire firm (not only top management) must be prepared to embrace the e-commerce model. 1.Build on current business models and experiment with new e-commerce models 1.Use e-commerce to search for ways to reduce costs or enhance the business. 2.Meet the challenge of developing an e-commerce organization 1.Entire firm (not only top management) must be prepared to embrace the e-commerce model.

21. Copyright© 2005 South-Western/Thomson Learning All rights reserved Steps for Successful E-Commerce Strategy (cont.) 3.Allocate resources to the e-commerce business 3.Commit financial, human, and technological resources to develop e-commerce capabilities 4.Build a superior e-commerce infrastructure as a basis of a differentiation strategy 3.Provide superior online experiences 3.Allocate resources to the e-commerce business 3.Commit financial, human, and technological resources to develop e-commerce capabilities 4.Build a superior e-commerce infrastructure as a basis of a differentiation strategy 3.Provide superior online experiences

22. Copyright© 2005 South-Western/Thomson Learning All rights reserved Steps for Successful E-Commerce Strategy (cont.) Make sure the entire management team aligns with the e-commerce agenda

23. Copyright© 2005 South-Western/Thomson Learning All rights reserved E-Commerce Structure: Integrated or Autonomous Company needs to decide how e-commerce fits into existing design Right mixture of bricks and clicks How much to integrate Internet into traditional businesses Brick-and-mortar: traditional or non-virtual business operation Company needs to decide how e-commerce fits into existing design Right mixture of bricks and clicks How much to integrate Internet into traditional businesses Brick-and-mortar: traditional or non-virtual business operation

24. Copyright© 2005 South-Western/Thomson Learning All rights reserved Integrated or Autonomous Degree of interaction between brick-and-mortar operations can occur anywhere in the value chain Can range from near seamless operations (e.g., Office Depot) to the mostly independent operations (e.g., Barnes & Noble and Barnesandnoble.com) Degree of interaction between brick-and-mortar operations can occur anywhere in the value chain Can range from near seamless operations (e.g., Office Depot) to the mostly independent operations (e.g., Barnes & Noble and Barnesandnoble.com)

25. Copyright© 2005 South-Western/Thomson Learning All rights reserved E-Commerce Structure: Integrated or Autonomous The independent benefits Faster and more entrepreneurial Freed from corporate bureaucracy The integrated benefits Cross-promotion, shared information, increased quantity purchases, use of same distribution channels The independent benefits Faster and more entrepreneurial Freed from corporate bureaucracy The integrated benefits Cross-promotion, shared information, increased quantity purchases, use of same distribution channels

26. Copyright© 2005 South-Western/Thomson Learning All rights reserved Exhibit 9.6: Key Decisions in the Integration vs. Separation Decision

27. Copyright© 2005 South-Western/Thomson Learning All rights reserved Additional Operational Challenges for an E-Commerce Business Finding partnerships and alliances with customers or third parties Attracting, retaining, and developing employees in the e-commerce unit Inadequate e-commerce training E-commerce employee retention Deciding what e-commerce functions to outsource Finding partnerships and alliances with customers or third parties Attracting, retaining, and developing employees in the e-commerce unit Inadequate e-commerce training E-commerce employee retention Deciding what e-commerce functions to outsource

28. Copyright© 2005 South-Western/Thomson Learning All rights reserved Pure E-business Company Tasks to Face Challenges Develop information and management systems to respond to growth Maintain rapid decision making, creativity, innovation, and flexibility Build relationships with e-commerce support companies and customers Attract and retain e-commerce–capable talent Develop an effective management team Develop information and management systems to respond to growth Maintain rapid decision making, creativity, innovation, and flexibility Build relationships with e-commerce support companies and customers Attract and retain e-commerce–capable talent Develop an effective management team

29. Copyright© 2005 South-Western/Thomson Learning All rights reserved Tasks for Traditional Companies with E-Commerce Build a common vision and commitment to e-commerce Change the organization structure for quick reconfiguration of assets and capabilities Change the organization culture to support e-commerce Attract and retain e-commerce-skilled employees Alter HR programs to suit skill requirements of e-commerce employees Build a common vision and commitment to e-commerce Change the organization structure for quick reconfiguration of assets and capabilities Change the organization culture to support e-commerce Attract and retain e-commerce-skilled employees Alter HR programs to suit skill requirements of e-commerce employees

30. Copyright© 2005 South-Western/Thomson Learning All rights reserved Exhibit 9.7: Organizational Changes in Major Multinational Co. Building E-Commerce

31. Copyright© 2005 South-Western/Thomson Learning All rights reserved Globalizing Through the Internet A Web site gives the company immediate global access The challenges of globalization faced by traditional brick-and-mortar companies remain Managers must still decide whether they want to sell global or local product Business issues related to national contexts (e.g., currencies, local laws, etc.) have to be handled A Web site gives the company immediate global access The challenges of globalization faced by traditional brick-and-mortar companies remain Managers must still decide whether they want to sell global or local product Business issues related to national contexts (e.g., currencies, local laws, etc.) have to be handled

32. Copyright© 2005 South-Western/Thomson Learning All rights reserved Multinational E-Commerce Strategy Formulation Depends on Nature of the business Types of products or services offered through e-commerce Hierarchy of difficulty depending on infrastructure requirements Telecommunications infrastructure to move information Payment infrastructure to move money Physical infrastructure to deliver products Depends on Nature of the business Types of products or services offered through e-commerce Hierarchy of difficulty depending on infrastructure requirements Telecommunications infrastructure to move information Payment infrastructure to move money Physical infrastructure to deliver products

33. Copyright© 2005 South-Western/Thomson Learning All rights reserved Attractions of E-Commerce Technology Already available Efficiencies More efficient Convenience Web is operating all the time regardless of location Technology Already available Efficiencies More efficient Convenience Web is operating all the time regardless of location

34. Copyright© 2005 South-Western/Thomson Learning All rights reserved Attractions of E-commerce (cont.) Speed of access Company’s products or services can be accessed immediately from anywhere in the world Speed of access Company’s products or services can be accessed immediately from anywhere in the world

35. Copyright© 2005 South-Western/Thomson Learning All rights reserved E-Commerce Deterrents/Challenges Return/receipt burden and cost of delivery Expect 30-40% return rate Costs of site construction, maintenance, upgrades Channel conflicts Easily copied models Competitors can easily see and copy business model Return/receipt burden and cost of delivery Expect 30-40% return rate Costs of site construction, maintenance, upgrades Channel conflicts Easily copied models Competitors can easily see and copy business model

36. Copyright© 2005 South-Western/Thomson Learning All rights reserved E-Commerce Deterrents Cultural differences Web sites must be appropriate culturally Traditional cross-border complexities remain Exchange rates, different taxes, and government regulations Cultural differences Web sites must be appropriate culturally Traditional cross-border complexities remain Exchange rates, different taxes, and government regulations

37. Copyright© 2005 South-Western/Thomson Learning All rights reserved Picking a Market Two factors to target countries Those with market inefficiencies E.g., formerly state-controlled economies Attractive demographic characteristics Internet population of at least 5% High literacy rate Participation in at least on free trade agreements Government with viable legal system Two factors to target countries Those with market inefficiencies E.g., formerly state-controlled economies Attractive demographic characteristics Internet population of at least 5% High literacy rate Participation in at least on free trade agreements Government with viable legal system

38. Copyright© 2005 South-Western/Thomson Learning All rights reserved Picking a Market (cont.) E-commerce potential is substantial in Latin America because of MERCOSUR Potential exists for Asian countries with membership in ASEAN Open borders and common currency of European Union is also fertile ground E-commerce potential is substantial in Latin America because of MERCOSUR Potential exists for Asian countries with membership in ASEAN Open borders and common currency of European Union is also fertile ground

39. Copyright© 2005 South-Western/Thomson Learning All rights reserved Exhibit 9.8: E-Readiness of Selected Countries

40. Copyright© 2005 South-Western/Thomson Learning All rights reserved Multinational E-Commerce Strategy Implementation Requires building an appropriate organization and developing the necessary technical capabilities to conduct electronic transactions

41. Copyright© 2005 South-Western/Thomson Learning All rights reserved The Multinational E-Commerce Organization Three-tiered mixing of global and local functions Headquarters Vision, strategy, leadership for worldwide electronic marketing Also provide shared services such as network infrastructure Three-tiered mixing of global and local functions Headquarters Vision, strategy, leadership for worldwide electronic marketing Also provide shared services such as network infrastructure

42. Copyright© 2005 South-Western/Thomson Learning All rights reserved The Multinational E-Commerce Organization (cont.) Shared functional services Provide HRM, marketing, partner management to regions Local subsidiaries Deliver goods, manage functions better done locally such as the supply chain Shared functional services Provide HRM, marketing, partner management to regions Local subsidiaries Deliver goods, manage functions better done locally such as the supply chain

43. Copyright© 2005 South-Western/Thomson Learning All rights reserved Exhibit 9.9: Organizational Structures of the Multinational E-Corporation

44. Copyright© 2005 South-Western/Thomson Learning All rights reserved Technical Capabilities for Multinational E-commerce Ability to process multiple currencies Ability to calculate/show purchase information on international shipping, duties, and local taxes such as VAT Systems that check compliance with local and international laws Ability to process multiple currencies Ability to calculate/show purchase information on international shipping, duties, and local taxes such as VAT Systems that check compliance with local and international laws

45. Copyright© 2005 South-Western/Thomson Learning All rights reserved Technical Capabilities for Multinational E-commerce Ability to provide support in multilingual service centers Fraud protection Electronic payment models in addition to credit cards Ability to provide support in multilingual service centers Fraud protection Electronic payment models in addition to credit cards

46. Copyright© 2005 South-Western/Thomson Learning All rights reserved To Build or Outsource Technical Capabilities? Two options Run all e-commerce functions internally or outsource to e-commerce enablers E-commerce enablers: fulfillment specialists that provide services such as Web site translation Provide services and software that translate Web sites, calculate shipping, value-added taxes, duties, and other charges unique to each country Two options Run all e-commerce functions internally or outsource to e-commerce enablers E-commerce enablers: fulfillment specialists that provide services such as Web site translation Provide services and software that translate Web sites, calculate shipping, value-added taxes, duties, and other charges unique to each country

47. Copyright© 2005 South-Western/Thomson Learning All rights reserved “Mission-Critical” Factors to Communicate to Global Audience 1.Link all Web sites to corporate Web site 2.Web site should contain all nonelectronic local contact information for feedback or comment 3.Provide a prominent list of languages used by the company’s Web site 4.Use different languages for downloads 1.Link all Web sites to corporate Web site 2.Web site should contain all nonelectronic local contact information for feedback or comment 3.Provide a prominent list of languages used by the company’s Web site 4.Use different languages for downloads

48. Copyright© 2005 South-Western/Thomson Learning All rights reserved “Mission-Critical” Factors to Communicate to Global Audience (cont.) 5.Localize by language the parts of the parent company Web site that receive the most access 6.Provide a site map 7.Provide the firm’s privacy statement in all local languages 5.Localize by language the parts of the parent company Web site that receive the most access 6.Provide a site map 7.Provide the firm’s privacy statement in all local languages

49. Copyright© 2005 South-Western/Thomson Learning All rights reserved “Mission-Critical” Factors to Communicate to Global Audience (cont.) 8.Guard against local piracy by putting your policies in local languages 9.Localize your graphics and written material 10.Localize content management 8.Guard against local piracy by putting your policies in local languages 9.Localize your graphics and written material 10.Localize content management

50. Copyright© 2005 South-Western/Thomson Learning All rights reserved Exhibit 9.10: Major Problems Identified in Web Site Globalization