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E-Primer: An Introduction to
E-commerce
"E-commerce for SMEs: How to start now"
conducted July 17, 2000 at PTTC, Manila.
A joint project of:
Department of Trade & Industry
National Computer Center
Philippine Computer Society
Publication source:
e-Primer: an introduction to
E-commerce
by: E.C. Lallana, R.S. Quimbo, and
Z.B. Andam
A complimentary publication of:
Sen. Ramon Magsaysay, Jr.
Chairman
Committee on Science & Technology
Committee on Trade & Commerce
Committee on Cooperatives
What is e-commerce?
E-Commerce is short for electronic
commerce. It has become synonymous with buying and selling over the
Internet.
While the popular view of
e-commerce is not inaccurate, it is not broad enough to cover other
aspects of this revolutionary business phenomenon. E-commerce
includes all business transactions that use electronic communications
and digital information processing technology.
Even before the widespread use of
the Internet for commercial purposes, there were companies that used
private networks to transact business with each other. EDI or
Electronic Data Interchange is an early form of e-commerce. The high
cost of installing and maintaining private networks hampered the
spread of e-commerce. Another limiting factor was the use of
proprietary standards.
The internet made possible the
rapid global adoption of e-commerce because of the lower costs
involved and its being based on open standards. Experts share an
optimistic prediction on the increased use of the Internet for
electronic commerce. For instance, the International Data Corporation
(IDC) has projected that Internet users will reach 320 million by
2002. More than a third of such users (or 128 Million) are expected
to buy products and services through the Net, from a 1997 figure of
18 million buyers.
How is e-commerce different from
traditional commerce?
E-commerce is NOT going to the web and doing
the same old thing in just a slightly different setting. Successful
e-commerce firms do new things and add unique, new improvements to
old things in cyberspace. Dell Computer’s emergence as the US’s
largest computer company is not due simply to the fact that it sells
plain vanilla computers over the Internet. Dell’s success is due
primarily to its ability to use the Internet to produce and sell
customized computers.
The key point here is that the Internet and
information technology (IT) are simply an enabler. Business is
created when technology is used to enhance value or create new
products. As the authors of The Search for Digital Excellence note,
e-commerce “involves the creation, transformation, and redefinition of
relationships for value creation”.
What are the different types of
e-commerce?
There are two types of e-commerce
applications:
(1) business-to-business (B2B); (2) business-to-customer (B2C)
Business-to-Business (B2B)
Electronic Commerce
E-commerce plays an important role in
enhancing and transforming relationships between and among business.
Some B2B applications are:
Supplier Management. Electronic
applications in this area aid in expediting business partnerships
through the reduction of purchase order (PO) processing costs and
cycle times, and by maximizing the number of POs processed with fewer
people.
Inventory Management. Electronic
applications make the order-ship bill cycle shorter. For instance, if
most of a business’s partners are linked electronically, any
information sent by mail can be transmitted instantly. Businesses
can easily keep track of their documents to make sure that they were
received. Such a system improves auditing capabilities, and helps
reduce inventory levels, improve inventory turns, and eliminate
out-of-stock occurrences.
Distribution Management.
Electronic-based applications make the transmission of shipping
documents a lot easier and faster. Shipping documents include bills
of lading, purchase orders, advance ship notices, and manifest
claims. E-commerce also enables more efficient resource management by
certifying that documents contain more accurate data.
Channel Management. E-commerce
allows for speedier dissemination of information regarding changes in
operational conditions to trading partners. Technical, product and
pricing information can be posted with much ease on electronic
bulletin boards.
Payment Management. An electronic
payment system allows for a more efficient payment management system
by minimizing clerical errors, increasing the speed of computing
invoices, and reducing transaction fees and costs.
Business-to-Consumer (B2C)
Business-to-Consumer e-commerce involves
customers gathering information, purchasing, and (for specific
information goods) receiving products over an electronic network.
The consumer uses electronic commerce in the
following economic transactions:
Purchasing products and information.
Electronic applications make it possible for consumers to look up
online information about existing and new products/services.
Personal finance management. In this
field, electronic applications (e.g. Quicken) aid the consumers in
managing investments and personal finances through the use of online
banking tools. Chow.net is a good example of B2C electronic commerce
application, particularly of purchasing products online.
Is e-commerce the same as
e-business?
Some use e-commerce and e-business
interchangeably. We prefer to make a distinction between the two.
E-commerce is the use of IT in inter-business and business-to-consumer
transactions. E-business is the use of IT in enhancing one’s
business.
Through e-business, the following business
areas/applications are enhanced and improved:
Workgroup communications. E-business
applications in this area provide the means of communication between
managers and employees, through electronic mail, videoconferencing,
and bulletin boards for the purpose of increasing information
dissemination, to the end of having better informed employees.
Electronic publishing. Such
applications allow companies to organize, publish, and disseminate
critical work information, such as human resources manuals, product
specifications, and minutes of meetings through tools such as the
World Wide Web. The benefits of online publishing include: reduction
of costs for the printing and distribution of documentation,
speedier information delivery, and minimization of outdated
information.
Sales force productivity. Electronic
applications enhance information flow between the production and sales
forces, and between the firm and its customers. Through the
integration of sales forces with other parts of the organization,
firms will have increased and quicker access to market intelligence
and competitor information to aid in better strategy formulation.
E-business not only increases productivity
but also reduce costs. IBM estimates that in 1999 it saved about $1
billion dollars in its costs by using E-business applications.
What about
internet economy?
How is it different from e-commerce and e-business?
The Internet Economy refers to all the
economic activities related to the use of electronic networks for
commerce. This includes activities related to building the networks
linked to the Internet and the purchase of application services. It
also includes e-commerce and e-business. It is estimated that by 2003
the total Internet economy will be worth $2.8 billion.
|
Worldwide
Internet economy segments |
|
. |
|
1998 |
1999 |
2000 |
2001 |
2002 |
2003 |
. |
|
. |
Business
Infrastructure |
$101 |
$190 |
$273 |
$397 |
$553 |
$917 |
. |
|
. |
IT Infrastructure |
$110 |
$176 |
$239 |
$320 |
$401 |
$592 |
. |
|
. |
Commerce |
$50 |
$111 |
$218 |
$398 |
$774 |
$1,317 |
. |
|
. |
Internet Economy Total |
$2661 |
$447 |
$730 |
$1,115 |
$1,728 |
$2,826 |
. |
|
. |
US Percent Total |
62% |
57% |
56% |
55% |
54% |
50% |
. |
How important is e-commerce?
In a few short years, e-commerce has moved
from novelty to a necessary element of a company’s business strategy.
By one estimate, business-to-consumer e-commerce will reach $108
billion by 2003. Business-to-business e-commerce is expected to grow
even faster – to $1.3 trillion by 2003. The latter figure represents
9>4% of projected overall business-to-business sale four years down
the road.
According to Businessweek, the six sectors
that will be greatly affected by e-commerce are computing and
electronics, telecommunications, financial services, retailing,
energy, and travel. For computing and electronics, e-commerce
activities are expected to grow US$52.8 billion in 1999 to US$410.3
billion in 2003. For telecommunications, it will grow from $1.5
billion in 1999 to $15 billion in 2003. Over the same period,
e-commerce-related activities of financial services firms will grow
from $14 billion to $80 billion. Retailing will move from $18.2
billion to $108 billion. Energy will move from $11 billion to $170.1
billion, and Travel from $12.8 billion to $67.4 billion.
Why is
it so big?
An important reason for the growth of
e-commerce is that it reduces the cost of doing business. IBM expects
that selling over the Web will reduce its 1999 cost by $340 million.
The company figures that online transaction costs are 70-90% less than
those involving human mediation. In the US, it costs banks only 5
cents to process a Net-based transaction, compared to $1.07 if the
same transaction is done in a branch, and 27 cents for an ATM
transaction.
E-commerce is particularly attractive
because it can serve as the ‘great equalizer’. That is, it enables
start-up and small-and medium-sized enterprises to effectively compete
with large and multinational firms in the global marketplace. Here
the classic case is amazon.com – a
virtual bookstore that did not exist a few years ago and does not have
a single square foot of bricks and mortar floor space. Amazon.com is
currently posting an annual sales rate of $1.2 billion, equal to about
235 Barnes and Noble superstores. But because of the efficiencies of
selling over the Web, Amazon has spent only $56 million on fixed
assets, while B&N has spent roughly about $118 for 235 superstores.
E-commerce also makes ‘mass customization’
and ‘net production’ possible. An easy-to-use ordering system allows
customers to order their own unique product; business-to-business
electronic commerce allows the quick and efficient manufacture of
what the customer ordered. For instance, General Motors is hoping
that with the full implementation of its e-commerce strategy, the car
company could receive a customer’s online order and have his new car
or truck built within a few days, instead of the several weeks it
currently takes to build a new vehicle.
‘Network production’ – parceling out to
computer networks that connect different companies – not only greatly
reduces costs, but also increases the ability to target market to each
customer, selling add-on products, services, and new systems when they
are needed. If done right, it yields efficient manufacturing and
unique customer relationships. Network production also means
parceling out a company’s non-core competencies to factories all over
the world that specialize in assembling specific components or some
other task. It is already being predicted that companies will
outsource 40% of all manufacturing by 2000, up from 15% in 1998.
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