By Roohul Amin

MSc Computer (Peshawar University)PAKISTAN

• Foundation of Electronic Commerce• Definition and Content of the field• Benefits and Limitations• The Driving Forces of EC• Impact of EC: Everything will be changed

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Foundation of ECDEFINITIONS

Commerce is the activities and procedures involved in buying and selling things. OR

Commerce is viewed as transactions conducted between business partners.

Business is work relating to the production, buying, and selling of goods or services. OR

A business is an organization which produces and sells goods or which provides a service. OR

Business is used when talking about how many products or services a company is able to sell. If business is good, a lot of products or services are being sold and if business is bad, few of them are being sold. OR

Demo

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Cont…..........

• Business is work or some other activity that you do as part of your job and not for pleasure. OR

• You can use business to refer to a particular area of work or activity in which the aim is to make a profit.

• A chamber is a large room, especially one that is used for formal meetings.

• A chamber of commerce is an organization of businessmen that promotes local commercial interests. (BUSINESS)

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Cont…..........• Electronic Commerce is an emerging concept that

describe the process of buying and selling or exchanging of products, services, and information via computer networks including the Internet.

• EC can be define from these perspectives:• (Kalakota, Whinston)• From a communication perspective, EC is the delivery of

information, products/services, or payments over telephone lines, computer networks, or any other electronic means.

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Cont………………

• From a business process perspective , EC is the application of technology toward the automation of business transactions and work flow.

• From a service perspective, EC is a tool that addresses the desire of firms, consumers, and management to cut service costs while improving the quality of goods and increasing the speed of services delivery.

• From an online perspective, EC provides the capability of buying and selling products on the Internet and other services.

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Pure versus Partial EC

• EC has many forms depending on:• The Products (services) sold.• The Process • The Delivery Agent• Pure EC: is that in which, the products (services),

the process, and the agent are digital.• Partial EC: is that in which, the products, the

process, and the agent may be physical or digital.

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The EC Field

• The Framework/Applications of EC• EC is not only have a Web site.• There are many applications of EC. f.e:

• Home Banking• Shopping in Online Store and Malls (Direct Marketing)• Buying Stocks• Finding a Job• Conducting an Auction• Collaborating on research and development projects

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Cont…

• To execute these applications, it is necessary to have supporting information and organizational infrastructure and systems.

• for example: » Common Business Services Infrastructure» Messaging and Information Distribution Infrastructure» Multimedia Contents and Network Publishing Infrastructure» Network Infrastructure» Interfacing Infrastructure

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Classification of EC Application

• 3 Categories1. Buying and selling goods & Services2. Facilitating inter and intra-organization3. Providing customer services

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ELECTRONIC MARKETS• A market is a network of interactions and

relationships where information, products, services, any payments are exchanged.

• In EM the marketplace is electronic, the business center is not a physical building.

• A network-based location where business interactions occur.

• The EM is the place where shoppers and sellers meet.

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Cont…• The market handle all the necessary transactions

including:• Order Placing • Transfer of money between banks• Shipments

• In EM the participants are:• Transaction handlers• Buyers• Brokers• Sellers

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Figure to Explain EMShopper/Purchaser

Product Services Information, RequestPurchases RequestPayment or Payment Advice

Electronic Market(Transaction Handler)

Seller/Supplier

Purchase Fulfillment RequestPurchase Change Request

Electronic Commerce Network (Infrastructure)

Response to Information RequestPurchase AcknowledgmentShipping NoticePurchase/Services Delivery (If online)Payment Acknowledgment

Response to Fulfillment RequestShipping Notice

Payment Authorization Request

Electronic Transfer of Funds (ETF)

Payment Authorization Request

Shoppers/Purchaser’s BankTransaction Handler’s Bank(Automated Clearing House)

Sellers/Supplier’s Bank

Payment Approval Electronic Transfer of Funds (ETF)

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INTERORGANIZATIONAL INFORMATION SYSTEM AND

ELECTRONIC MARKETS• An IOS involves information flow among two

or more organizations. • Objective:- Efficient Transaction Processing• Such as:

• Transmitting Orders• Bills • Payment Using EDI or extranets.

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Cont…

• Relationships are predetermined; no negotiation just execution.

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Cont…

• In contrast, in EM, sellers and buyers negotiate, submit bids and agree on an order.

• Finish the execution on-or offline.

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THE DISTINGUISH B/W IOS AND E-MARKETS

Interorganizational System (IOS) Electronic Markets

Customers/Suppliers relationship is determine in advance, based on multiple transactions.

Two Types of Relationships are exist:•Customer/sellers relationship at time of transactions.•Customer/sellers relationship at time of agreement upon transactions.

May be built around private or publically accessible networks.

Built around publically accessible networks.

Involvement of outside communications companies lead to typically value-added carriers (VANs).

When outside communications companies are involved, they are typically online services providers (market makers)

Advance arrangements result in agreements on the nature and format of business documents that will be exchanged and payments.

Sellers determine, in conjunctions with the market makers, which business transaction they will be provide.

Lecture #4

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Cont…Interorganizational Systems Electronic Markets

Advance arrangements are made so both parties know which communication networks will be integral to the system.

Customers and seller use their own choice regarding using communication networks, may it change to transaction to transaction.

Joint guidelines and expectations of each party are formulated so each knows how the system is to be used and when transaction will be submitted and received by each business partners.

No joint guidelines are drawn in advance

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Scope of IOS• combined system among two or several business

partners.• Typically an IOS is composed of:

• Company• Suppliers• Customers

• Through IOS, buyers, sellers arrange routines business transactions. • Use communication N/W for Info-exchange. • No needs of telephone calls.

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Types of IOS• Electronic Data Interchange (EDI).

– Which provides secured B2B connection over value-added network (VANs)

• Extranets.– Which provides secured B2B connection over the

Internet.

• Electronic Funds Transfer (EFT).– is safe, secure, efficient, and less expensive system

for transferring money from one place to another.

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Cont…

• Integrated Messaging----emails. etc.• Shared database.

– is a system of sharing data and information through Internet (Extranet).

• Supply Chain Management.– Corporation between a company and its suppliers.

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• Business to Business (B2B). • Most EC is B2B. It include IOS and EM transactions between

organizations.

• Business to Consumer (B2C).• These are retailing transactions with individual shoppers.

• Consumer to Consumer (C2C).• In this category consumer sells directly to consumers. Examples are

individuals selling in classified ads (e.g. www classified2000.com).

•

CLASSIFICATION OF THE EC FIELD

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Cont…

• and selling residential property, cars and so on. Advertising personal services on the Internet and selling knowledge and expertise is an other example of C2C.

• Consumer to Business (C2B).• This includes individuals who sells products or services

to organizations, as well as individuals who seeks sellers interact with them, and conclude a treanscations.

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INTERDISCIPLINARY NATURE OF EC

• Electronic commerce , being a new field is just developing its theoretical or scientific foundations. EC is based on several disciplines given below.

• Marketing. Many issues of marketing offline are relevant to

online EC for example cost benefits of advertisements and advertisement strategies.

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Continue Computer Sciences.• This disciplines include languages, multimedia,

and network.Consumer behavior and Psychology. • Consumer behavior is the key the success of B2C trade, but so is the behavior of the

sellers. Finance.• The financial markets and banks are one of

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Economics• Electronics commerce is influenced by

economic forces and has a major impact on world and country economics.

Management information systems(MIS).• The information system department is usually

responsible for the deployment of EC. This discipline covers issues ranging from system analysis to system integration.

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Accounting and auditing.• The back office operations of electronic

transaction are similar to other transaction in some respect, but different in other for example auditing electronic transaction represent challenge for the accounting profession so does the development of methodologies for the cost- benefit justification.

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BENEFITS AND LIMITATIONS

The Benefits of EC:• Few innovation in human history encompass as many potential benefits as EC does. The global nature of the technology, low cost

opportunity to reach hundreds of million of people ,interactive nature, variety of possibilities and resourcefulness rapidly.

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Management :• Electronic commerce efforts need to be

managed properly and because of the interdisciplinary nature of EC, its management may require new approaches and theories.

Business law and ethics:• Legal and ethical issues are extremely

important in EC, especially in a global market.

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growth of the supporting infrastructures resultin many potential benefits to organizations.

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Benefits to Organizations• Electronic commerce expands the

marketplace to national and international markets.

• Electronic commerce decreases the cost of creating ,processing, distributing storing and retrieving paper-based information.

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• Ability for creating highly specialized business.• Electronic commerce allows reduced inventories and overhead by facilitating “pull” type supply chain management.

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• The pull-type processing enables expensive customization of products and services which provides competitive advantage to its implementation.

• Electronic commerce reduces the time between the outlay of capital and the receipt of products and services.

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Benefits to Consumer

• As follows:• EC enables customers to shop or do transactions 24

hours a day, all year round, from almost any location.• Provides customers with more choice; they can select

from many vendors and from more products.• Frequently provides customers with less expensive

products and services by allowing them to shop in many places and conduct quick comparisons.

• Digitalized products, like books, purchasing s/w online, EC allow quick delivery.

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• Information receiving in seconds rather than days, or weeks.

• Help customer to take part in auctions.• Allows customers to interact with other customers in E-

communications.

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Benefits to Society

• As follows;• EC enables more individuals to work at home and to do

less traveling for shopping, resulting in less traffic on the roads and lower air pollution.

• EC allows merchandise to be sold at lower prices, so less influent people can buy more and increase their standard of living.

• EC enables people in Third World countries and rural areas to enjoy products and services that otherwise are not available to them. E.g. opportunities to learn professions and earn college degrees.

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• EC facilitate delivery of public services, such as health care, education, and distribution of government social services at a reduced cost and/or improved quality.

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Limitation of EC• Two categories:

– Technical Limitations• Lack of system security, reliability and protocols• Insufficient telecommunication bandwidth• The software development tools are still changing• Difficult to integrate the Internet and EC s/w with

databases and other applications• More special servers are needed to the Vendors• Some s/w not fit with some hardware, may be

incompatible with some Operating System (like windows vista)

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Cont….– Non Technical Limitation – ( according to survey (1998))

• Cost of justification (34.8 % of the respondents). The cost of developing EC in-house can be very high, and mistakes due to lack of experience may result in delays.

• Security and privacy (17.2%): • These issues are very especially important in the B2C area,

especially security issues which are perceived to be more serious than they really are when appropriate encryption is used. In EC industry has a very long and difficult task of convincing customers that online transaction and privacy is secure.

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Cont

• Lack of trust and user resistance Customers do not trust an unknown faceless seller, paperless

transaction, and electronic money. So switching from physical to virtual stores may be difficult.

• Other limiting factors. Accessibility to the internet is still expensive and/or

inconvenient for many potential customers. In most applications there are not yet enough sellers and

buyer for profitable EC operation.

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The driving force of Electronic Commerce

• THE NEW WORLD OF BUSINESS• Market, economical, social, and technological factors are

creating a highly competitive business environment in which customers are the focal point.• Change in these factors happened quickly and some time

unpredictable manner. Therefore companies need to react frequently and quickly to both the problems and the opportunities resulting from this new business environment.

• Boyett and Boyett emphasize this dramatic change and describe it with a set of business pressures.

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Cont…

• They maintain that in order to succeed in this dynamic world, companies must take not only traditional actions such as lowering cost and closing unprofitable facilities but also innovative activities such as customizing products, creating new product.

• We refer to the traditional and the innovative activities, some of which are interrelated , as critical response activities.

• They can be performed in some or all of the processes of the organization from the daily routine processing of payroll and order entry to strategic activities such as the acquisition purchase, and loss ) of a company.

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Cont…

• Many activities can be greatly treated by EC.• EC is the solution to these business pressures.• See the figure-> 1.5, page----50.

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Cont…

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Organization

TechnologyInnovations Obsolescence(going out of use)ECInfo Overload

MarketGlobalCompetitiveChanging WorkforcePowerful Customers

SocietySocial ResponsibilityGovernment- RegulationsDeregulationsShrinking BudgetsSubsidiesEthics

IT and EC support

This figure shows us the Major Business Pressures and the role of EC

Cont…

• BUSINESS PRESSURE:• Following are the business environmental factors

that create pressures to the organizations.• Social factors• Economic factors• Legal• Technological • Political

• See the table 1.2

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Cont…

• ORGANIZATIONAL RESPONSES• Organizations are composed of five major

components. • Organizational structure and the corporate culture• Management and business process• Individuals and roles• The organization’s strategy• Information Technology (including EC)

• These components are in stable condition called equilibrium.

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Cont…

• If any change occurs, the system become unstable, then it is necessary to adjust some or all of the internal parts:

• Organizational structure and the corporate culture• Management and business process• Individuals and roles

• The internal parts are interrelated. For example, a change in an organizational strategy may create a change in the corporate struture.

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Cont…

• This figure shows Framework of Organizational and Societal Impacts of IT.

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External Environment, Social, Economic, Political etc.

Organization StructureAnd the

Corporate Culture

ManagementAnd

BusinessProcesses

IndividualsAnd Roles

The Organization’s Stategy

Information Technology(Including EC)

Cont…• Organizational Major responses are:

• Strategic Systems • Continuous Improvement Efforts• Business Process Reengineering (BPR)• Business Alliances• Electronic Commerce

• Strategic Systems:• Provide Org with strategic advantages, to increase their

market share, better negotiate with their suppliers, or prevent competitors from entering into their territory (region or area)

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Cont…• So there is a variety of EC supported strategic systems. For

example FedEx’s overnight delivery system and the company’s ability to track the status of every individual package anywhere in the system.

• See Application Case 1.4 on page 54.

• Continuous Improvement Efforts:• Many companies continuously conduct innovative

programs (workshops) to improve productivity and quality. For example DELL Computer takes its orders electronically and immediately moves them via Enterprise Resources Planning into the just-in-time assembly operations.

• See Table 1.3 on page 55.

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Cont…

• Business Process Reengineering:• It is a major innovations in the org’s structure.• In BPR, Technological, human, and organizational may

all be changed.• 70% US companies rely on BPR.

• SEE THE DETAILS OF THIS TOPIC ON PAGE 53!----home work

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Impact of EC: Everything will be changed

• IMPROVING DIRECT MARKETING:– Traditional direct marketing is done by mail order

(catalogs) and telemarketing.– In 1998 $75 billion in sales were estimated in in

the United States.– In 1998, direct marketing via computers (B2C)

reached about $2 billion in the United States.– Bloched al, (1996) suggest the following EC

impacts:

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Cont…IMPROVING DIRECT MARKETING:

• Product promotion. Electronic commerce enhances promotion of products and services through direct, information-rich and interactive contact with customers.

• New sales channels. EC creates a new distribution channel for existing products, thanks to its direct reach of customers and the bidirectional natures of communication.

• Direct savings. The cost of delivering information to customers over the Internet results in substantial savings to senders.

• Product cycle time. The delivery of digitized products can be reduced to seconds

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Cont…Reduced cycle time

• Also, the administrative work related to physical delivery across international borders, can be reduced significantly. For example TradeNet in Singapore, which reduces the administrative time.

• Customers Service. Customers service can be greatly enhanced by enabling customers to find detailed information online.

• Brand or corporate image. On the Web, new comers can establish corporate images quickly. For example, DELL, Wal-Mart and Cisco use their Web activities to affirm their corporate identity and brand image.

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Cont… Impact of EC• OTHER MARKETING-RELATED IMPACTS

– Customization• EC provides for customization of products and services in

contrast to buying in a store or ordering from a television, which is usually limited to standard product. Today, we can configure not only computers but also cars, jewelry, gifts, and hundreds of other products and services.

– Advertisement• With direct marketing and customization comes a one-to-

one or direct advertisement, which is much more effective than mass advertisement.

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Cont…– Ordering System

• Taking orders from customers can significantly be improved If it is done online and fewer mistakes are made.• When taken electronically, orders can be quickly routed

to the appropriate order –processing site. • This saves times and reduces expenses so sales people have more time to sell.• Also, customers can compute the cost of their orders, saving time for all parties involved.

• MarketsTraditional markets are being changed by EC.THE

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Cont….– Markets

• Traditional markets are being changed by EC.• The physical market disappears as does the need to

deliver the goods to the marketplace. • In the market space, which is electronic market, goods

are delivered directly to buyers when purchasing in completed making market much more efficient.

• For those products they are digitally based-software music, and information the changes will be dramatic.

• All ready, small but powerful software packages are delivered over the internet.

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Cont…• New selling models such as shareware, freeware, and pay-

as-you-use, are emerging to maximize the potential of the internet.

• Although these models have emerged in particular sectors, such as software and publishing industries, they will finally pass through other sectors.

• Many other activities can improve sales, for example, customers convenience is greatly enhance (any place, any time), availability of products and services is much greater (e.g., 10 million books in amazon.com’s catalog ),and cheaper products are offered (e.g Book –A-Million discounts books online up to 50 present).

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Cont….

As is discussed throughout the book, the role of marketing channels, whole sellers, retailers, intermediaries, and storefronts may be dramatically changed by EC.

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The End