Unit 1 Introduction to e-business

I.What is e-commerce?

Electronic commerce or e-commerce refers to a wide range of online business activities for products and
services.1 It also pertains to “any form of business transaction in which the parties interact electronically
rather than by physical exchanges or direct physical contact.”

E-commerce is usually associated with buying and selling over the Internet, or conducting any
transaction involving the transfer of ownership or rights to use goods or services through a computer-
mediated network. Though popular, this definition is not comprehensive enough to capture recent
developments in this new and revolutionary business phenomenon. A more complete definition is: E-
commerce is the use of electronic communications and digital information processing technology in
business transactions to create, transform, and redefine relationships for value creation between or
among organizations, and between organizations and individuals.

Is e-commerce the same as e-business?

While some use e-commerce and e-business interchangeably, they are distinct concepts. In e-commerce,
information and communications technology (ICT) is used in inter-business or inter-organizational
transactions (transactions between and among firms/organizations) and in business-to-consumer
transactions (transactions between firms/organizations and individuals).

In e-business, on the other hand, ICT is used to enhance one’s business. It includes any process that a
business organization (either a for-profit, governmental or non-profit entity) conducts over a computer-
mediated network. A more comprehensive definition of e-business is: “The transformation of an
organization’s processes to deliver additional customer value through the application of technologies,
philosophies and computing paradigm of the new economy.”

II. Impact of ecommerce on global economy in developing countries

Introduction

E-commerce is the process of managing online financial transactions by individuals and companies. This
includes business-to-business (B2B), business-to-consumer (B2C) and business-to-government (B2G)
transactions. The focus of e-commerce is on the systems and procedures whereby financial documents
and information of all types are exchanged. This includes online credit card transactions, e-cash, e-
billing, e-cheques, electronic invoices, purchase order and financial statements.

An internationally agreed working definition of e-commerce accepts three dimensions as part the
process. These dimensions relate to the: Networks over which the relevant activities are carried out;
Processes that ought to be included within the general domain of electronic commerce; and Actors
involved in the transactions.

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Networks are specified through broad and narrow definitions.The broad definition considers goods and
services are ordered over electronic transactions, whether between business, house holds, individuals,
Governments, and other public or private organizations, but the payment and the ultimate delivery of the
good or service may be conducted on- or offline.

The narrow definition considers goods and services are ordered over the internet whether between
business, house holds, individuals, Governments, and other public or private organizations, but the
payment and the ultimate delivery of the good or service may be conducted on- or offline.

E-commerce is often described as being one of three varieties – business-to-business (B2B), business-to-
consumer (B2C) or business-to-government (B2G).

Most of statistics has focused on this two. About 80 per cent of the total value of electronic commerce in
the world today are accounted for by B2B e-commerce. B2C e-commerce has the potential to
substantially affect the way in which people live and interact with each other and is therefore a key
aspect for statistical measurement.

E-Commerce Eludes Developing Countries

By Ron Berry

The business world and society have changed very much due to the information technology and impact
of internet is high. Internet is becoming essential for every business activity .Moreover, at the beginning;
No one thought that the internet will be a source for conducting business. It is estimated that 288 million
people are using online for conducting business .

The internet is quickly becoming the major choice for electronic commerce transactions. The internet
will definitely changes the global economy as all organizations and companies are looking towards the
e-commerce. The increase in e-commerce via the Internet is definitely moving society a little closer to
the "global village" concept that has been touted as a future way of life. More importantly, it is changing
the face of business.

The internet also plays very important role in the field of small businesses and entrepreneurs competing
global economy. Because of the internet the small and virtual organizations are gaining more profits
because there is no need for maintaining large staffs, huge capitals, multi-lingual, transitional
infrastructures.

People began using internet for business purposes by publishing static web pages fro advertising and
dynamic pages soon emerged and allowed organizations to support online sales, customer service and
other value added services.

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According to some statistics, it is estimated that over $10 billion in business to consumer sales have
occurred within the last year via the Internet. Sales in the area of Internet commerce expected to see the
largest growth, business to business commerce, are expected to reach $153 billion this year.

Many challenges and obstacles must be overcome before developing countries can benefit from the
Internet and Internet commerce. The necessary technological infrastructure is either inadequate or non
existent. Developing this infra structure is very difficult for the developing countries for this they require
government support. Until governments become Internet and business friendly and set Internet access
and use as a priority, developing countries may never reap the benefits their world counterparts share.

E-commerce and the Reduction of Transaction Costs

Now days it is belief that by implementing B2B e-commerce they can reduce the transaction costs
associated with trade across organizational and geographical boundaries. By utilizing ICTs facilities to
maximum they can reduce the transaction costs to maximum. This reduction will encourage the firms to
extend the number of transactions they conduct across both organizational and geographical boundaries.
It also is expected to provide opportunities for producer firms in developing countries to enhance their
international profile and to develop direct one-to-one trading relationships with international buyers and
sellers.

B2B E-commerce: Issues for Developing Countries

E-commerce works through ‘many-to-many’ e-marketplaces. It involves large number of buyers and
sellers. In this many buyers and sellers can come together in one trading community and gets idea of
whether to bur y or sell. ‘Many-to-many’ e-markets will be supported by complementary business
functions. If the buyers and sellers decided to do business through online then they require producing
complete information for making the transaction and systems must be in place to arrange binding
contracts and payment.

B2B e-commerce offers greater returns to firms in developing countries than Other trading channels. It
offers two advantages for developing country firms. First, e-commerce related transaction costs are less
sensitive to distance than Traditional marketing channels, so access to global markets is made easier.
Second, by simplifying and making market channels more efficient, B2B e-commerce should enable
developing country firms to retain a larger share of the final consumer price of products. It particularly
helps smaller firms to enter global markets. Reduction in the costs of accessing global markets is very
important for the small firms because they can’t afford more money for the global market. Electronic
trading has created opportunities for developing country producer firms to enter new markets and to
strengthen their position international trade. It opens new commercial opportunities for small firms to
participate in the international markets .It improves the source production with less input and improves
the economy as it eliminate intermediaries or ‘middlemen’ and its own supply and export distribution
reduces the business transaction costs. Government should give its support for the development of
ecommerce in developing countries and it should give priority to ensuring that the conditions for
participating of their businesses are met. As B2B transactions are complex and information-intensive

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government should take care of the telecommunication services and ensure that they are modern and
efficient. Government should reduce tariffs to support trade in ICT hardware and software and it also
maintain taxation, security and privacy protection at compatible level so that the small firms can
improve their trading much more flexibly in to the global market.

Trust services in e-marketplaces

A crucial issue for the use of e-marketplaces is how to establish trust. Firms purchasing products on-line
need assurances about the companies they are dealing with and about the products they are buying.
Firms selling products on-line need to be confident that payment will be made. Trust is very important in
the development of e-market other wise every one will loose trust and it will become more complex
rather than utilizing its benefits. It was the responsibility of user to know complete details of the product
and the company before making the transaction and in the similar it is responsibility of company
whether they are selling to right person or not. If the transaction is taking between strangers, for the
relationship with each other there should be registration requirements and screening procedures and get
complete details of other so that strangers can trust each other.

Using e-market places to find buyers for fruits and vegetables:

In Nairobi a small trading company selling fruits and vegetables through open

E-marketplace and gaining more profits .Now the company had registered with many open e-
marketplaces which sites did not charge a registration fee. The company’s overall turn over was not less
than US$20,000 per annum.Before they registered through e-marketplaces their income is less and
much of the money was paid to the intermediaries but after registering with e-marketplaces they are
gaining more profits and they are able to develop their business through internet and supplying the fruits
and vegetables according to the customer choice, because of this direct contact with the customer they
are getting more interaction with the customer and also saving costs by not paying to the intermediaries.

On-line showroom

A firm had registered with an on-line trading service providing an on-line showroom. In the 12 months
following registration, the firm received about 20 product inquiries via e-mail. Negotiations were
entered into with three potential clients. After personally visiting all three companies, a successful
transaction was

negotiated with one of them. This buyer became a regular client and accounted for six per cent of the
exporter’s sales. The respondent was satisfied with the business that had been generated, but he was not
prepared to renew the subscription for the on-line showroom service because of the additional costs
incurred in assessing the

Credibility of potential buyers.

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Use of the Web for information purposes

One company in the Nairobi had directly benefited from using the web as a resource for obtaining
information. The company is a small flower exporting firm exports flower through a flower exporter
through different places. The proprietor of this company had frequently visited the flora Holland website
to check average prices for specific periods of sale and for the types of flowers that his company
exported to the auction. By checking regularly he compared the prices listed at the auction site with
those received from the broker for his product. He described

How Web-based information had enabled him to challenge his broker about differences between what
the broker was paying him and the prices paid for his products at the auction. The discussions with his
broker often proceeded along the lines of, ‘the average this day was 10 Ksh, so why are they giving only
3 Ksh!’ Now he is planning to work with a new export because he noted prices at auction and the local
broker paying to him had large discrepancies.

Promoting tourism through internet

Tourism also plays very important role in the development of economy. Before the advent of internet the
tourism organizations gained very less amount as they have to pay to the intermediaries but after the
advent of internet they are gaining more profits by directly contacting the customers.

In the Caribbean tourism is one of the main source for economy because tourism accounts for about
25percent of its GDP.In 2004, it attracted over 42million tourists, of whom 20 millions where cruise
passengers, and generated $21 billion. As they are known to the internet they launched a website in late
2000(www.doitcaribbean.com) with complete details of their destination places. They developed
website in a complete user friendly manner. It contains six major languages and listed all the
availabilities in an attractive manner. After launching the website their business was increased rapidly,
now they are receiving 200 million visitors yearly.

Conclusion

E-commerce had a great effect on the development of global economy in developing countries. Small
firms are gaining more profits by using e-commerce for making transactions with the clients. . By
utilizing ICTs facilities to maximum they can reduce the transaction costs to maximum. This reduction
will encourage the firms to extend the number of transactions they conduct across both organizational
and geographical boundaries. Many developing countries are not able to utilize the efficiencies and
potentialities of internet marketing. By using the internet in the developing countries only very little
business had been takes place with new customers/suppliers .Many industries in the developing
countries are not able to utilize the B2B e-commerce effectively. Trust is very important in the
development of e-market other wise every one will loose trust and it will become more complex rather
than utilizing its benefits.Banks and financial services companies in the developing countries will need
to adopt online payment systems and practices that will meet their clients’ new needs arising from a shift

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to e-commerce. In the development of the e-commerce the government should also play a key role by
becoming Internet and business friendly and set Internet access and use as a priority.

III. Advantages and Disadvantages of Ecommerce

E-commerce, or the act of selling goods or services online as opposed to selling at brick and mortar
establishments, has reshaped the modern marketplace in recent years, but this new form of trade comes
with its own sets of advantages and disadvantages over traditional methods.

It's important, then, for businesses to look beyond the hype and develop their own
perspectives on the true value of e-commerce—to business and to consumers—because interestingly,
there are many advantages for consumers that might actually be a disadvantage for e-commerce
businesses.

Among the top advantages for starting an e-commerce business are eliminating geographical limitations,
gaining new customers with search engine visibility, lower costs for maintenance and rent, and higher
capacity for goods and deliveries while the core disadvantages of starting an e-commerce business
include losing the personal touch of physical retailers, delaying goods or services deliveries, and limiting
availability of merchandise as some goods cannot be sold online.

Explore the following article to discover whether or not venturing into e-commerce is right for your
business.

Pros Over Physical Retailers

The Internet might be the single most important facet of modern society, governing everything from
political discourse and higher education to the way we conduct ourselves and our businesses. It's no
wonder, then, that switching your business to an e-commerce model would come with a huge amount of
advantages.

On top of eliminating the need for long lines at physical stores, e-commerce sites allow people who are
not situated in major urban areas access to stores located remotely. E-commerce, as a result, opens new
markets for your business, allowing you to develop a new business model geared toward your expanding
consumer base, especially one that relies on good e-commerce Search Engine Optimization to drive
more free traffic to the site through consumers' use of search engines.

Since you also eliminate the need for a physical store, your business can save money on rent and upkeep
like utilities and maintenance. Additionally, because there is no limit to the number of items that can be
sold online, your store's stock can expand exponentially by moving to an e-commerce model, and the
store can remain open 24/7 so consumers can browse your wares at their leisure.

Thanks to e-commerce, consumers can also purchase digital goods like music albums, videos, or books
instantaneously, and stores can now sell unlimited copies of these digital items. This also cuts down on

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things like employee payroll expenses because you no longer need to have dozens of employees a week
on-site to sell albums, books, or movies.

E-commerce also allows your business to scale up easier than physical retailers as they are not bound by
physical limitations like inventory storage space. Of course, logistics gets tougher as a business grows,
but one can scale up its logistics, too, with the choice of the right third-party logistics provider.

Since the e-commerce merchant captures contact information in the form of email, sending out
automated and customized emails is quite easy. Additionally, these businesses and metrics allow for
superior store customization by using cookies and other methods of monitoring a consumer's behavior.

Because the entire supply chain can be interlinked with business to business e-commerce systems,
procurement becomes faster, transparent, and cheaper, and there's no need to handle currency notes or
cash, which further cuts down on costs and opportunities for accounting errors.

Finally, e-commerce allows your business to track logistics, which is key to a successful e-commerce
company, as well as sell low-volume goods. Although conventional retail focuses on stocking fast-
moving goods, the economics of e-commerce permits slow-moving and even obsolete products to be
included in the catalog.

Worldwide Presence

This is the biggest advantage of conducting business online. A firm engaging in e-business can have a
nationwide or a worldwide presence. IBM was one of the first companies to use the term e-business to
refer to servicing customers and collaborating with business partners from all over the world. Dell Inc.,
too, had a flourishing business selling PCs throughout the U.S., only via telephone and the Internet till
the year 2007.

Amazon.com is another success story that helps people buy internationally from third parties. Hence,
worldwide presence is ensured, if companies rethink their business with regard to the Internet.

Cost-effective Marketing and Promotions

Using the web to market products guarantees worldwide reach at a nominal price. Advertising
techniques, like pay per click advertising, ensure that the advertiser only pays for the advertisements that
are actually viewed.

Affiliate marketing -- where customers are directed to a business portal because of the efforts of the
affiliate, who in turn receive a compensation for their efforts meeting with success -- has emerged on
account of e-business. Affiliate marketing has helped both the business and the affiliates. Firms have
managed to use cost-effective online advertising strategies to their advantage.

Developing a Competitive Strategy

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Firms need to have a competitive strategy in order to ensure a competitive advantage. Without an
effective strategy, they will find it impossible to maintain the advantage and earn profits. The strategy
that the firms can pursue, can be a cost strategy or a differentiation strategy.

For instance, till the year 2007, Dell Inc. was selling computers only via the Internet and the phone. It
adopted a differentiation strategy by selling its computers online and customizing its laptops to suit the
requirements of the clients. Thus, e-business resulted in Dell Inc. managing to capture a chunky segment
of the market using the differentiation strategy.

Better Customer Service

E-business has resulted in improved customer service. Many a time, on visiting a website, the customer
is greeted by a pop-up chat window. Readily available customer service may help in encouraging the
customer to know more about the product or service. Moreover, payments can be made online, and
products can be shipped to the customer without the customer having to leave the house.

Curtailing of Transaction Cost

The nature of online business is such that, the costs incurred for every transaction to go through smooth
and sound, there is no acting middleman. Websites are sufficiently loaded with directions to facilitate
stress-free transactions. Simple and succinct instructional tabs, generally, save the potential buyer from
predicaments of any sort.

The mode of payment is predetermined, promising security to the customer. Thus, online payments are a
no-ho-hum affair. All that you are left with, as the proprietor of your online business, is to download the
requirement order and ship it. This demands effort, too; however, the toil is far less than a tangible
business profile.

Overhead Costs Are Reduced

An E-business, essentially, is independent of costs that are incurred due to business having a physical
entity. Utility bills and other expenses are manageable. You also cut back on costs incurred for hiring
personnel and retaining them with competitive incentives topped with abundant facilities. Running an e-
business is highly convenient as the proprietor does not require to rent another site to execute the
business.

02 Cons Over Brick and Mortar Stores

While it may appear that e-commerce is the perfect choice to solve your business problems, there are
still a number of disadvantages to switching from selling at a physical location to using online retail.

Many consumers still prefer visiting brick and mortar shops because of their personal touch and the
relationship customers get to develop with a retail location. Additionally, many customers want to
experience the product before purchase, especially when it comes to clothing, but e-commerce
eliminates that luxury.
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Security and credit card fraud are also huge risks when dealing with online shopping—consumers run
the risk of identity fraud and other hazards as their personal details are captured by e-commerce
businesses while businesses run the risk of phishing attacks and other forms of security fraud; both can
suffer from credit card fraud.

As a result, consumers also fear their inability to identify scams and scammers, meaning that your
website has to be extraordinarily protected and verified for most consumers to trust using it.

If shopping is about instant gratification, then consumers are left empty-handed for some time after
making a purchase on an e-commerce website as they often have to either pay more for expedited
shipping or wait out several days while the postal service does its job. Additionally, if they are
unsatisfied with their order, many e-commerce retailers have to issue a refund, which requires your
business to expand its reverse logistics functions, meaning the shipping back of goods and refunding of
costs.

Speaking of costs, there's a multiplicity of regulations and taxation that comes with opening an e-
commerce shop, and regulators are still not clear about the tax implications of e-commerce transactions,
which is especially true when the seller and buyer are located in different territories.

Sectoral Limitations

The main disadvantage of e-business is the lack of growth in some sectors on account of product or
sector limitations. The food sector has not benefited in terms of growth of sales and consequent revenue
generation because of a number of practical reasons, like food products being perishable items.
Consumers do not look for food products on the Internet, since they prefer going to the supermarket to
buy the necessary items as and when the need arises.

Costly E-business Solutions for Optimization

Substantial resources are required for redefining product lines in order to sell online. Upgrading
computer systems, training personnel, and updating websites requires substantial resources. Moreover,
Electronic Data Management (EDM) and Enterprise Resource Planning (ERP), necessary for ensuring
optimal internal business processes, may be looked upon, by some firms, as one of its disadvantages.

Question of Safety

With the world beguiled by the Internet, it's a fat chance that you are not one among the aficionados.
The Internet is second to none, not to oxygen even, to say the least. Well, one breathes Internet.
Shoppers act live wires when it comes to online pick and pay. However, with far and many pacing
about, there are a few, who twitch at the mention of online payment. Instances of dupery have no
intentions of nailing up anytime soon, and pseudo sites merrily mushroom. All the customer can do, is
remain in a state of doubt.

Data Security

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To carry out online transactions, the websites ask for your email address and other contact details.
Customers brake at the mention of providing personal details, lest defiling of some nature occurs.
Besides, certain sites have a complicated operational structure. Thanks to them, hackers have a job!
They fiddle with accounts, meddle with important files, and corrupt data. This, certainly, cannot be
termed ethical hacking! Viruses metastasize every second damaging the database, sometimes awarding
disastrous repercussions, too.

Site Integrity

"We respect privacy. The information provided by the customer will be protected. We refute
dissemination practices as much as you do." Does this statement not tintinnabulate in the ears. Well, we
have come across these paraplegic oaths several times. Are they true to their word? May be ... may be
not. Some sites are known to trade their customers' details for monetary benefits. The question remains:
Can we trust them?

System Upgradation

Once a system is developed, the responsibility of ad hoc upgradation at intervals follows suit. If this
does not happen, the site turnover would be poor. To improve site performance and tow in a good share
of online customers, keeping up with the advancements is pivotal. Though, some sites may find doing
this an unnecessary feature.

Momentary Intangibility

No matter what e-business may try, their chances of selling products -- like furniture and appliances --
successfully, are bleak. Unless a buyer has the liberty to splurge the kitty, the 'E' sector fights a battle, it
absolutely isn't a part of. For instance, if you are planning to buy a sofa set, you would want to sit on it,
get the feel of the upholstery used, the finish, and what have you! An online furniture bay, by no means,
can consider a proposition like this one. It is better to accept that, there, indeed, are certain things not
meant to be bought online due to the spatial creep; for the rest there is e-transaction!

Ecommerce Advantage #1: Low Financial Cost

One of the ecommerce benefits is that it has a lower startup cost. Physical retail stores have to pay up to
thousands of dollars to rent one of their store locations. Also, they have several upfront costs such as
store signs, store design, buying inventory, sales equipment, and more. Physical retail stores also have to
pay staff to work and run each location. They may also need to hire security staff depending on the
product value in the store.

Advantages of Ecommerce #2: 24/7 Potential Income

One of the advantages of ecommerce is that online stores are always open for business. With your
Facebook ads, you can attract someone at 11 p.m. or 4 a.m.. Most physical location stores are open
between 9 a.m. to 9 p.m. By being available at all hours, you can attract people who would normally

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pick up a product in stores, if the store were open. You can also attract those who may have odd work
schedules or who don’t have time to shop in-person. For a customer to order at night, you don’t need to
have employees working the night shift to ensure all orders get processed. You’ll never need to hire a
security guard.

Ecommerce Advantage #3: Sell Internationally

Next on the list of ecommerce benefits is that a new brand can sell to customers around the world easily.
You have the ability to discover your audience whether they’re in the U.K., South America, or
neighboring countries. If you choose to dropship from AliExpress, many products offer
affordable ePacket shipping or free shipping. This allows you to price and ship your products
competitively to a worldwide audience.

Advantages of Ecommerce #4: Easy to Showcase Bestsellers

Ecommerce benefits like being able to easily display best-sellers makes it easier to show off products
to customers. While you can design a brick and mortar store to sway people to buy certain products,
it’s easier for a customer to find the best-sellers in an online store. The reason why you want
customers to buy your best-sellers is because they’re proven. Other customers have already bought
them and are happy with their purchase. If you want to showcase new products to customers you can
include them in your upsell, email marketing or retargeting ads.

Ecommerce Advantage #5: Personalized Online Experience

Website personalization, one of the online business advantages, can enhance the online shopping
experience. Or segment email lists based on purchases made, location or even how much money a
customer spent. You can also retarget a customer who visited your store showing them an ad for a
product they added to their cart and forgot about. If your online business has a login feature, you can
have a welcome message appear such as ‘Welcome back (name).’ Product bundles can help the
customer buy more for a better price increasing average order value. You can also personalize upsells
based on what the customer has looked at or what you think they might like based on their purchase
behavior.

Ecommerce Advantage #6: Affordable employees

One of the benefits of ecommerce is that hiring employees is affordable. You can choose to outsource
work to virtual assistants in countries where the cost of living is much lower. You’ll need fewer
employees in an ecommerce business than a retail location. A huge advantage of ecommerce is you
don’t need to hire employees at launch. You can start and run an ecommerce business all by yourself.

Ecommerce Advantage #7: Easier to Encourage Impulse Buy

Another one of the ecommerce benefits is that getting your customers to become impulse buyers is
possible. If you have an attractive product photography, one with vibrant color or human emotion, you

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can create ads that drive impulse buys. You can also execute a range of scarcity tactics such as
countdown timers or showcasing limited quantities.

Ecommerce Advantage #8: Easy to Retarget or Remarket to Customer

It’s easy to create retargeting ads to retarget customers in your area when running an online business
making it one of the most profitable ecommerce benefits. You can create a Facebook pixel. You can use
the Shoelace Shopify app to retarget your browsers who visit your store but don’t buy. In ecommerce,
you can retarget people who add to cart but don’t abandon and don’t buy or who visit a blog post and
never buy. You can collect email addresses easily with an effective pop-up or lead magnet and continue
marketing to your customers after you’ve made the sale.

Ecommerce Advantage #9: Customers Get a Less Invasive Experience

Some people dread walking into a brick and mortar store as they’re forced to interact with the store’s
employees. Whether learning about a sales promotion or being asked questions throughout the
shopping experience, some may prefer online shopping as it can be a little less invasive making it one
of the best benefits of ecommerce. If a customer wants to contact the store owner, they can click on a
live chat feature, email or send a Facebook message.

Ecommerce Advantage #10: Gain Access to Customer Data Easily

One of the best ecommerce advantages is that you can easily gain access to data analysis about your
customer. Most people feel uncomfortable giving away email addresses or postal codes to physical
retailers. In ecommerce, you can get your customer’s name, mailing address, e-mail address, and
phone number. That means you have at least three different ways to communicate and build a
relationship with them. You can even have them fill out marketing surveys, share their birth date with
you, and more. If you ask them to create an account, you can obtain even more information from them
to better serve them.

Ecommerce Advantage #11: Able to Process a High Number of Orders

If you choose to dropship, you can process a high number of orders with ease. As your business
continues to grow, you might choose to hire employees to help with order processing. In retail stores,
long line ups can deter people from shopping. With ecommerce, there’s no waiting time. A customer
can place orders on his or her own schedule with no delays allowing you to accept a high number of
orders.

Ecommerce Advantage #12: Can Scale Business Quickly

One of the benefits of ecommerce is that it’s easy to scale the business quickly. You can increase your
ad budget when ads are performing well without having to worry too much about keeping up with the
demand, especially if you dropship. With brick and mortar stores, if your store needs to grow in space to
accommodate new products or add more cashiers. You’ll need to find a bigger space, renovate and wait
for your lease to end. This delays your ability to scale. If you create informational products, you run into

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a challenge again as it takes time to write ebooks, courses, and more. With dropshipping, you can add
new products to your store without having to worry about shipping products or holding inventory
allowing you to grow quickly.

Ecommerce Advantage # 13: Can Grow Business Organically with Content

With ecommerce, you can grow organic traffic and sales with ecommerce blogging. From making
videos to writing blog content, you’ll be able to optimize your store to drive traffic and sales without
having to spend more money. A brick and mortar retailer would need to market to their customers to
encourage visits or ensure they’re located in a high traffic area to get more shoppers. With ecommerce,
you’ll be able to not only get traffic organically through content creation, you’ll be able to monetize
those customers with retargeting ads.

Ecommerce Disadvantage #1: No One Can Buy During a Site Crash

The worst of the ecommerce disadvantages is that no one can buy from your store if your site crashes.
That’s why it’s important to ensure your website is hosted on the right platform. For example, if you’re
paying the minimum hosting fee and get a surge in traffic from a high converting ad or a television
shout-out like Shark Tank, your site will likely crash. Fortunately, Shopify offers free hosting in their
monthly fee allowing you to have one of the best servers on the market. In recent memory, there was
only one time where sites were down. However, ecommerce stores weren’t the only affected. Twitter,
Spotify, Soundcloud, and more were affected by the crash. The issue was resolved the same day. Yet,
site crashes on Shopify are so rare that it’s likely not to cause problems in your business.

Ecommerce Disadvantages #2: Customers Can’t Try Before They Buy

While this is currently a problem for many retailers, this won’t be a long-term problem. With augmented
reality, more stores are starting to add AR elements to their store to allow customers to try products on.
Augmented reality ecommerce companies like Holition and Augment, offer solutions for businesses to
create a more interactive experience with your customers. If you own a cosmetics store, you can check
out Sephora’s Virtual Artist app for an example of a beauty retailer with an augmented reality
experience.

Ecommerce Disadvantage #3: Ecommerce Is Highly Competitive

Finding the right niche is another one of the worst ecommerce disadvantages. The reality is the best
niches are often the most competitive that’s why people are drawn to them. The more competitive a
niche is, the more expensive ads for that niche are. There are a couple of ways around this. First, you can
go after a different audience than your competitors. If all your customers are getting competitors through
Facebook ads, you might try ranking organically with SEO optimization. If all your competitors are
using Pinterest, you might try Instagram marketing as Instagram is also a very visual platform. Second,
if your ads are expensive, you can send traffic to blog posts and retarget your customers who visit them
to create lower cost ads.

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Ecommerce Disadvantages #4: Customers Can Be Impatient

If a customer has a question in store a salesperson is on the floor ready to answer them. However, of the
ecommerce disadvantages is that most businesses delay responding to customer inquiries. The reality is
most customers expect a response from a business within the hour on social media. If you delay in
responding to their message, they can become angry and shop somewhere else instead. You need to be
online 24/7. You can hire customer service representatives who are trained to make your customers
happy via Upwork.

Ecommerce Disadvantage #5: You Need To Ship Your Products

Customers consider shipping times to be one of the worst ecommerce disadvantages. When a customer
shops in person she can take the product home right away. But, with online shopping, most customers
receive their products in a week or more. While Amazon offers same day shipping, it wasn’t a profitable
model until they created Amazon Prime. It only became profitable because they have tens of millions of
Prime members. The solution is to be transparent with your customer. Let them know when they can
expect packages when they place an order.

Ecommerce Disadvantages #6: Physical Retail is Still More Popular Despite Decline

Even though one of the benefits of ecommerce is that it’s growing, physical retail still owns most of the
market share. In 2014, the retail industry had accumulated over $22 trillion. Yet, ecommerce had only
made $1.3 trillion worldwide. Having an online business in the early stages allows you to become a
leader in your niche. Yet, most money made is in physical retail stores making it an ecommerce
disadvantage. Hence, why Amazon, despite being the biggest online store, is now creating in-
person stores. But, keep in mind that $1.3 trillion in sales isn’t a small number. There’s still a lot of
potential that online retailers can cash in on. And this number keeps growing.

3.1 Theory - Definition of Value Chain and importance within an organization

IV. Value Chain Model of Michael e. Porter

In 1985 Michael E. Porter wrote a book called the "Competitive Advantage". There he spoke about the
importance of value chains for organizations. Porter defines the value chain as a collection of activities
that are performed to design, produce, market, deliver and support its product. It also reflects the
company's history, strategy and the underlying economics. 22 The value activities are split up into
primary and support activities. Primary activities are involved in the creation, sale and transfer of the
product as well as after sales assistance. Support activities support the primary activities and each other
(as shown in picture 2).23

illustration not visible in this excerpt

Picture 2: the generic value chain (Michael E. Porter24 )

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The generic value chain from Porter is a model used widely by organizations and companies. The value
chain may look different for each industry or even company. But in principle the value chain shows the
activities within an organization and the performance of each activity. Hence they become measurable.
All these activities can be divided into sub-activities and business processes.

Business Processes - Definition

A business process is a collection of activities that takes one or more kinds of input and creates an
output of value to the customer.25

Business process reengineering (BPR) (per Hammer and Champy[1993] ) is the fundamental rethinking
of business processes to achieve dramatic improvements in measures of performance such as quality,
cost, speed, and services.26

Supply chain. The supply chain describes all activities that occur once the company receives an order.27

Defining business processes did not start with the "Internet Age". Porter's model goes back to 1985. This
model and the need for defined business processes brought up other "business trends" like
Business Process Reengineering for being a radical rethinking and improvement processes like Kaizen,
Total Quality Management, Just-in-time and so on. It was the overall goal to identify business processes
within an organization, to describe them, and based on this it was possible to achieve optimized business
processes to gain maximum profit.

The need for this organizational and economical change is even more obvious today - globalization, the
integration of companies, mergers, a higher need for standardization force enterprises as well non-
commercial organizations to change and adapt to the so-called new economy.

With the Internet as the new medium for doing electronic business companies are challenged and the
concept of value chains and business processes needs to be revised and improved even more. Sometimes
it is even necessary to totally rethink concepts within the organization. The Internet is an inexpensive,
fast, global and low regulated medium. Many companies use it already as a new sales channel, but this
will not be enough. The challenge is to utilize the Internet to further optimize and integrate the already
interwoven activities of the value chain. The next parts will show some of the approaches to integrate
the value chain and connect it to the eBusiness concept. These are just a few examples to give a basic
impression about eBusiness and value chains. The first model from Bliemel sees information as the key
essential for the new virtual value chain and eCommerce. The other two models point out interfaces and
links between electronic businesses, the value chain and internal and external factors. It is obvious that
they only scratch on the surface but show the implications eBusiness can have on the value chain.

Transformation of the value chain (Virtual Value Chain)

Bliemel/Fassot/Theobald describe the transformation of a physical 28 value chain to a virtual value chain.
The model below is based on the value chain model from Michael E. Porter (shown above). All single

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steps of the value chain are analyzed within a company to manage internal and external processes more
efficiently. Information plays the key element to reach new market opportunities.

Through the digitalization of information it is, according to Bliemel, nowadays possible to process
information in many different ways. Managing information is a factor, which will become more and
more important for companies and organizations. Internal processes like collecting, systemizing,
selecting, intensifying and distributing information can now be supported through information
technology. Bliemel describes this as the virtual value chain process. One result of this process through
the accessibility of more high quality information could be an improvement of real products in the
marketplace.

The model also shows the transformation of the physical value chain to a virtual value chain. In a first
step Bliemel/Fassot/Theobald see the necessity to describe the physical value chain in a virtual world
(Virtual-Real-Value Chain). With this description it is now possible to manage information more
efficiently for each business process (Logistics, Sales etc.) and achieve even more high-quality
information. The transformation generates three potential market opportunities for companies: (1)
improvement of real product offers, (2) generation of original marketable performances in the market
space (e.g. Internet), (3) creation of additional customer values in the market space.

illustration not visible in this excerpt

Picture 3: coming from a physical to a virtual value chain (Bliemel/Fassott/Binder, p. 50)

Interfaces from Internet to business processes and the value chain

As outlined before globalization, the need for cost and time reduction and the understanding that
customer relationship management has a mayor influence on profitability, force organizations to rethink
their value chains to be prepared for the new "Internet-age". The following models are two examples for
integrating the value chain as well as stakeholders in the eBusiness concept.

There are many factors, which have an influence on business and organizations. The model below from
Kurz/Ortwein from the consultancy Arthur D. Little presents the implications of these influences on the
value chain and continuing on eBusiness. They see business-to- business initiatives as the interaction of
all business networks of a company with its suppliers, distributors, partners, logistic services and
customers. These business-to-business initiatives show the company's strategies and do have an effect on
all electronic co-operations and the whole value chain.29

Kurz/Ortwein describe four types of business networks: (1) co-ops (cooperative operations) which are
partnerships between single market actors, value networks where either one buyer operates with many
sellers (e.g. suppliers)- (2) seller value network; or where one seller works with many buyers (e.g.
customers) - (3) buyer value networks, and (4) electronic marketplaces, where many sellers interact with
many buyers.30

illustration not visible in this excerpt

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Picture 4: Business-to-business initiatives (Eberhard Kurz/Eckhard Ortwein, p.130)

There are many interfaces from eBusiness to the value chain in known fields like marketing (through
web sites), recruiting (online applications for a job), communications (email), sale (online trading), etc.
One of the first forms of electronic business as said before was EDI, but eBusiness offers opportunities
for more fields like distribution planning, marketing planning, sales and services through various kinds
of applications as shown in the diagram 5 below. Stephan Salb works for Compaq where the company's
strategy is to create a supply chain oriented electronic commerce solution, which integrates internal and
external processes along the value chain. Common business processes link to eBusiness or are a part of
it. The main goal is it to create a network where value is created for both parts - the company and the
customers, partners, banks etc. Information technology is the tool that makes these connections along
the value chain possible.

The emphasis at Compaq lies on EDI (Electronic Data Interchange), which connects all suppliers in one
network and allows the exchange of business data.31

The advantages of such a concept are obvious: an intensive customer relationship management, fast and
actual data exchange, effective business processes and a strong network of all business subjects (e.g.
suppliers). Hence Compaq is able to stay on the competitive edge.

illustration not visible in this excerpt

Picture 5: Information technology integrates partner and processes along the value chain (Stephan Salb
p. 314)31

E-COMMERCE AND VALUE CHAIN MODEL

VALUE CHAIN MODEL

A value chain for a product is the chain of actions that are performed by the business to add value in
creating and delivering the product. For example, when you buy a product in a store or from the web, the
value chain includes the business selecting products to be sold, purchasing the components or tools
necessary to build them from a wholesaler or manufacturer, arranging the display, marketing and
advertising the product, and delivering the product to the client.

The value chain model, as originally demonstrated by Porter (1985), identifies nine strategically relevant
activities that create value and reduce cost in a specific business. These nine value-creating activities
consist of five primary activities and four support activities. The primary activities represent the
sequence of bringing materials into the business (inbound logistics), converting them into final products
(operations), shipping out final products (outbound logistics), marketing, and service. The support
activities include procurement, technology development, human resource management, and firm
infrastructure. This model is very helpful for identifying specific activities in business where
competitive strategies can be applied and where information systems are most likely to have a strategic
impact. Successful implementation of e-commerce in an organization should be based on a thorough

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understanding of the areas in the value chain where e-commerce can add value most. More importantly,
to succeed in gaining competitive advantage, e-commerce is to be based on the overall corporate
strategy . Among a host of critical areas/ factors in the value chain that major organizations have taken
into consideration for establishing a sound e-commerce strategy include role of intermediaries, value
pricing, logistics/purchasing, fulfilment, and value nets among others. Following sections present an
analysis of these areas.

1. Role of Intermediaries

 Intermediaries may be more important now than ever before because most of the rapidly growing
Internet businesses are essentially middlemen . For example, companies such as Amazon, CD-Now,
Egghead.com, Cisco, and E*Trade can all be thought of as middlemen-resellers of products provided by
some other source. Intermediaries will continue to be important because they provide consumers with
selection, specialized distribution, and expertise . Some internal disintermediation may take place, in
which employees will be removed if they add little value or even negative value to the distribution
channel. For example, Dell, Cisco, and some online brokerages have eliminated staff in an attempt to

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realize cost savings in certain areas. Exhibit 1 illustrates an example of the role of intermediaries in the
process of purchasing a book online from Amazon.com.

2. Value Pricing

 In addition to employing e-commerce technology to enhance distribution channels, this technology is
also used to redefine pricing strategies. Most companies pursuing a premium pricing strategy, for
example, can use the Internet to better understand their customers. The Internet allows companies to
price with far more precision than they can off-line and to create enormous value in the process. Value
pricing involves several approaches. One approach to pricing involves businesses offering heavily
discounted prices in an attempt to attract customers to their web sites. Another approach involves
businesses transferring their “off-line” prices to the Internet. Neither of these approaches is very
efficient because they do not maximize value. An attractive alternative approach is to utilize the Internet
to track customers buying habits and adjust prices accordingly, thereby uncovering new market
segments. The Internet allows companies to test prices continually in real time and measure customer
responses.

3. Brand Differentiation/Loyalty

Pricing is just one of several ways for a company to differentiate itself from the competition. Another
way in which a company can differentiate itself is by promoting brand loyalty. Brand loyalty encourages
repeat customers and helps to create long-term profitability. A major benefit of customer loyalty is that
loyal customers often refer new customers to a supplier.

4. E-Procurement

 E-commerce technology has provided organizations with the capabilities to improve the effectiveness
and efficiency of the logistics and purchasing functions. Firms such as Wal-Mart and Amazon.com are
currently outsourcing delivery, relying on logistics companies to deliver the product to the customer. E-
procurement is the term currently used to denote the process of using the Internet to integrate supply
chain partners through collaboration on key initiatives and to improve the purchasing process within
organizations. A major benefit of e-procurement is the cost savings aspect. In fact, organizational costs
of placing orders can be reduced by as much as 75% through utilization of the Internet. It also offers
organizations the ability to use the Internet to search for the best pricing available. The overall
advantage of practicing e-procurement is the fact the more automation allows partners quicker access to
information. E-procurement also results in better communication among supply chain partners and
consequently better supplier-customer relationships. Organizations are able to maintain tighter control
over the purchasing process. Only those suppliers that organizations deem to be “preferred suppliers”
will be able to transact business with the organization. Currently, e-procurement is being utilized
primarily for the purchase of office supplies and items which are used for repair and maintenance of the
organization’s facilities (Smock, 2001).

 5. E-Fulfilment

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Today’s marketplace offers new challenges to organizations. A key initiative organizations have
undertaken to better compete is that of “E-fulfillment”. It can alter the way customers purchase as well
as the manner in which manufacturers deliver the product to consumers. Technology has also allowed
distributors and suppliers to focus on providing value-added services to complement their product
offering. E-Fulfillment contrasts with traditional fulfillment. Suppliers are now capable of accepting
order online via the Internet and having the information sent directly into their order processing systems,
something not possible via traditional fulfillment. Orders placed via e-fulfillment tend to be smaller than
those placed via traditional fulfillment channels. The expected and actual lead times are shorter than
those witnessed via traditional fulfillment.

6. Value Nets

 Firms are continually seeking out new ways to attract and maintain customers. A development that has
proven to be effective in attracting and servicing customers is that of the Value Net. A value net is a
network consisting of partnerships, which assists in the transfer of information among supply chain
partners on a regular basis. The main benefit of a value net is the competitive advantage it offers to all
participating organizations. The primary concept behind a value net is its ability to allow firms to
address and solve customer problems, rather than just selling a product. A popular trend in the
marketplace to address niche markets is that of the online-service company. This form of business
interacts directly with the customers primarily via the Internet. The advantage of this form of business is
that it provides enhanced service to the customer in the form of direct door-to-door delivery for
customers. This is a distinct competitive advantage that firms are looking to exploit

 In the world of e commerce companies can use the internet technology to improve the efficiency and
effectiveness of particular value chain activities. There are commercially available hardware ad software
specifically meant to address management problems associated with the supply and distribution chain or
the value chain system as a whole.

Specifically, the Internet technology benefits business organizations in the following ways:

1. It is a powerful tool for better supply chain management.

2. It is critical to internal operations such as just in time inventory, gear production schedules and
production quantities to buyer orders, more accurate monitoring of buyer preferences and shifts
in demand and

V. MODELS

What is B2B e-commerce?

B2B e-commerce is simply defined as e-commerce between companies. This is the type of e-
commerce that deals with relationships between and among businesses. About 80% of e-commerce is
of this type, and most experts predict that B2B ecommerce will continue to grow faster than the B2C
segment.

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The B2B market has two primary components: e-frastructure and e-markets. E-frastructure is the
architecture of B2B, primarily consisting of the following:9
● logistics - transportation, warehousing and distribution (e.g., Procter and Gamble);
● application service providers - deployment, hosting and management of packaged software from a
central facility (e.g., Oracle and Linkshare);
● outsourcing of functions in the process of e-commerce, such as Web-hosting, security and customer
care solutions (e.g., outsourcing providers such as eShare, NetSales, iXL Enterprises and Universal
Access);
● auction solutions software for the operation and maintenance of real-time auctions in the Internet
(e.g., Moai Technologies and OpenSite Technologies);
● content management software for the facilitation of Web site content management and delivery
(e.g., Interwoven and ProcureNet); and
● Web-based commerce enablers (e.g., Commerce One, a browser-based, XMLenabled purchasing
automation software).
E-markets are simply defined as Web sites where buyers and sellers interact with each other and
conduct transactions. The more common B2B examples and best practice models are IBM, Hewlett
Packard (HP), Cisco and Dell. Cisco, for instance, receives over 90% of its product orders over the
Internet. Most B2B applications are in the areas of supplier management (especially purchase order
processing), inventory management (i.e., managing order-ship-bill cycles), distribution management
(especially in the transmission of shipping documents), channel management (i.e., information
dissemination on changes in operational conditions), and payment management (e.g., electronic
payment systems or EPS)
The impact of B2B markets on the economy of developing countries is evident in the following:

Transaction costs. There are three cost areas that are significantly reduced through the conduct of B2B
e-commerce. First is the reduction of search costs, as buyers need not go through multiple intermediaries
to search for information about suppliers, products and prices as in a traditional supply chain. In terms of
effort, time and money spent, the Internet is a more efficient information channel than its traditional
counterpart. In B2B markets, buyers and sellers are gathered together into a single online trading
community, reducing search costs even further. Second is the reduction in the costs of processing
transactions (e.g. invoices, purchase orders and payment schemes), as B2B allows for the automation

of transaction processes and therefore, the quick implementation of the same compared to other channels
(such as the telephone and fax). Efficiency in trading processes and transactions is also enhanced
through the B2B e-market’s ability to process sales through online auctions. Third, online processing
improves inventory management and logistics.

Disintermediation. Through B2B e-markets, suppliers are able to interact and transact directly with
buyers, thereby eliminating intermediaries and distributors. However, new forms of intermediaries are
emerging. For instance, e-markets themselves can be considered as intermediaries because they come
between suppliers and customers in the supply chain.

Transparency in pricing. Among the more evident benefits of e-markets is the increase in price
transparency. The gathering of a large number of buyers and sellers in a single e-market reveals market

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price information and transaction processing to participants. The Internet allows for the publication of
information on a single purchase or transaction, making the

information readily accessible and available to all members of the e-market. Increased price
transparency has the effect of pulling down price differentials in the market. In this context, buyers are
provided much more time to compare prices and make better buying decisions. Moreover, B2B e-
markets expand borders for dynamic and negotiated pricing wherein multiple buyers and sellers
collectively participate in price-setting and two-way auctions. In such environments, prices can be set
through automatic matching of bids and offers. In the emarket place, the requirements of both buyers
and sellers are thus aggregated to reach competitive prices, which are lower than those resulting from
individual actions.

Economies of scale and network effects. The rapid growth of B2B e-markets creates traditional
supply-side cost-based economies of scale. Furthermore, the bringing together of a significant number of
buyers and sellers provides the demand-side economies of scale or network effects. Each additional
incremental participant in the e-market creates value for all participants in the demand side. More
participants form a critical mass, which is key in attracting more users to an e-market.

What is B2C e-commerce?

Business-to-consumer e-commerce, or commerce between companies and consumers, involves

customers gathering information; purchasing physical goods (i.e., tangibles such as books or consumer
products) or information goods (or goods of electronic material or digitized content, such as software, or
e-books); and, for information goods, receiving products over an electronic network.It is the second
largest and the earliest form of e-commerce. Its origins can be traced to online retailing (or e-tailing).13
Thus, the more common B2C business models are the online retailing companies such as Amazon.com,
Drugstore.com, Beyond.com, Barnes and Noble and ToysRus. Other B2C examples involving
information goods are E-Trade and Travelocity.

The more common applications of this type of e-commerce are in the areas of purchasing products and
information, and personal finance management, which pertains to the management of personal
investments and finances with the use of online banking tools (e.g., Quicken)

What is B2G e-commerce?

Business-to-government e-commerce or B2G is generally defined as commerce between companies and

the public sector. It refers to the use of the Internet for public procurement, licensing procedures, and
other government-related operations. This kind of e-commerce has two features: first, the public sector
assumes a pilot/leading role in establishing e-commerce; and second, it is assumed that the public sector
has the greatest need for making its procurement system more effective.

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Web-based purchasing policies increase the transparency of the procurement process (and reduces the
risk of irregularities). To date, however, the size of the B2G ecommerce market as a component of total
e-commerce is insignificant, as government e-procurement systems remain undeveloped.

What is C2C e-commerce?

Consumer-to-consumer e-commerce or C2C is simply commerce between private individuals or

consumers.This type of e-commerce is characterized by the growth of electronic marketplaces and
online auctions, particularly in vertical industries where firms/businesses can bid for what they want
from among multiple suppliers.16 It perhaps has the greatest potential for developing new markets.

This type of e-commerce comes in at least three forms:

● auctions facilitated at a portal, such as eBay, which allows online real-time bidding on items being
sold in the Web;

● peer-to-peer systems, such as the Napster model (a protocol for sharing files between users used by
chat forums similar to IRC) and other file exchange and later money exchange models;

classified ads at portal sites such as Excite Classifieds and eWanted (an interactive, online marketplace
where buyers and sellers can negotiate and which features “Buyer Leads & Want Ads”).

Consumer-to-business (C2B) transactions involve reverse auctions, which empower the consumer to
drive transactions. A concrete example of this when competing airlines gives a traveler best travel and
ticket offers in response to the traveler’s post that she wants to fly from New York to San Francisco.

There is little information on the relative size of global C2C e-commerce. However, C2C figures of
popular C2C sites such as eBay and Napster indicate that this market is quite large. These sites produce
millions of dollars in sales every day.

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