E-COMMERCE

INTRODUCTION
In the emerging global economy, e-commerce and e-business have increasingly
become a necessary component of business strategy and a strong catalyst for
economic development. The integration of information and communications
technology (ICT) in business has revolutionized relationships within
organizations and those between and among organizations and individuals.
Specifically, the use of ICT in business has enhanced productivity, encouraged
greater customer participation, and enabled mass customization, besides
reducing costs. With developments in the Internet and Web-based
technologies, distinctions between traditional markets and the global
electronic marketplace-such as business capital size, among others-are
gradually being narrowed down. The name of the game is strategic positioning,
the ability of a company to determine emerging opportunities and utilize the
necessary human capital skills (such as intellectual resources) to make the
most of these opportunities through an e-business strategy that is simple,
workable and practicable within the context of a global information milieu and
new economic environment. With its effect of leveling the playing field, e-
commerce coupled with the appropriate strategy and policy approach enables
small and medium scale enterprises to compete with large and capital-rich
businesses. On another plane, developing countries are given increased access
to the global marketplace, where they compete with and complement the
more developed economies. Most, if not all, developing countries are already
participating in e-commerce, either as sellers or buyers. However, to facilitate
e-commerce growth in these countries, the relatively underdeveloped
information infrastructure must be improved. Among the areas for policy
intervention are:

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● High Internet access costs, including connection service fees, communication
fees, and hosting charges for websites with sufficient bandwidth;

● Limited availability of credit cards and a nationwide credit card system;

● Underdeveloped transportation infrastructure resulting in slow and

uncertain delivery of goods and services;

● Network security problems and insufficient security safeguards;

● Lack of skilled human resources and key technologies (i.e., inadequate

professional IT workforce);

● Content restriction on national security and other public policy grounds,

which greatly affect business in the field of information services, such as the
media and entertainment sectors;

● Cross-border issues, such as the recognition of transactions under laws,

certification services, improvement of delivery methods and customs
facilitation; and

● The relatively low cost of labor, which implies that a shift to a comparatively
capital intensive solution (including investments on the improvement of the
physical and network infrastructure) is not apparent.

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

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.”

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HISTORY
The meaning of electronic commerce has changed over the last 30 years.
Originally, electronic commerce meant the facilitation of commercial
transactions electronically, using technology such as Electronic Data
Interchange (EDI) and Electronic Funds Transfer (EFT). These were both
introduced in the late 1970s, allowing businesses to send commercial
documents like purchase orders or invoices electronically. The growth and
acceptance of credit cards, automated teller machines (ATM) and telephone
banking in the 1980s were also forms of electronic commerce.

From the 1990s onwards, electronic commerce would additionally include

enterprise resource planning systems (ERP), data mining and data
warehousing.

An early example of many-to-many electronic commerce in physical goods was

the Boston Computer Exchange, a marketplace for used computers launched in
1982. An early online information marketplace, including online consulting,
was the American Information Exchange, another pre Internet online system
introduced in 1991.

In 1990, Tim Berners-Lee invented the Worldwide Web browser and

transformed an academic telecommunication network into a worldwide
everyman everyday communication system called internet/www. Commercial
enterprise on the Internet was strictly prohibited until 1991.Although the
Internet became popular worldwide around 1994 when the first internet
online shopping started, it took about five years to introduce security protocols
and DSL allowing continual connection to the Internet. By the end of 2000,
many European and American business companies offered their services

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through the World Wide Web. Since then people began to associate a word
"ecommerce" with the ability of purchasing various goods through the Internet
using secure protocols and electronic payment services.

What are the different types of e-commerce?

The major different types of e-commerce are: business-to-business (B2B);
business-to-consumer (B2C); business-to-government (B2G); consumer-to-
consumer (C2C); and mobile commerce (m-commerce).

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. The
B2B market has two primary components: e-frastructure and e-markets. E-
frastructure is the architecture of B2B, primarily consisting of the following:

● 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., OpenSite Technologies);

● content management software for the facilitation of Web site content

management and delivery (e.g., Interwoven and ProcureNet); and

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● 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).

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). 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).

B2C e-commerce reduces transactions costs (particularly search costs) by

increasing consumer access to information and allowing consumers to find the
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most competitive price for a product or service. B2C e-commerce also reduces
market entry barriers since the cost of putting up and maintaining a Web site is
much cheaper than installing a “brick-and-mortar” structure for a firm. In the
case of information goods, B2C e-commerce is even more attractive because it
saves firms from factoring in the additional cost of a physical distribution
network. Moreover, for countries with a growing and robust Internet
population, delivering information goods becomes increasingly feasible.

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.

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. 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;

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● 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; and

● classified ads at portal sites such as Excite Classifieds and e-wanted (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.

What is m-commerce?
M-commerce (mobile commerce) is the buying and selling of goods and
services through wireless technology-i.e., handheld devices such as cellular
telephones and personal digital assistants (PDAs). Japan is seen as a global
leader in m-commerce. As content delivery over wireless devices becomes
faster, more secure, and scalable, some believe that m-commerce will surpass
wireline e-commerce as the method of choice for digital commerce
transactions. This may well be true for the Asia-Pacific where there are more
mobile phone users than there are Internet users. Industries affected by m-
commerce include:

● Financial services, including mobile banking (when customers use their

handheld devices to access their accounts and pay their bills), as well as
brokerage services (in which stock quotes can be displayed and trading
conducted from the same handheld device);

● Telecommunications, in which service changes, bill payment and account

reviews can all be conducted from the same handheld device;

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● Service/retail, as consumers are given the ability to place and pay for orders
on-the-fly; and

● Information services, which include the delivery of entertainment, financial

news, sports figures and traffic updates to a single mobile device.

ADVANTAGES OF E-COMMERCE
E-commerce serves as an “equalizer”: It enables start-up and small-
and medium sized enterprises to reach the global market. However, this does
not discount the point that without a good e-business strategy, ecommerce
may in some cases discriminate against SMEs because it reveals proprietary
pricing information. A sound e-business plan does not totally disregard old
economy values. The dot-com bust is proof of this.

E-commerce makes “mass customization” possible: E-

commerce applications in this area include easy-to-use ordering systems that
allow customers to choose and order products according to their personal and
unique specifications. For instance, a car manufacturing company with an e-
commerce strategy allowing for online orders can have new cars built within a
few days (instead of the several weeks it currently takes to build a new vehicle)
based on customer’s specifications. This can work more effectively if a
company’s manufacturing process is advanced and integrated into the
ordering system.

E-commerce allows “network production”: This refers to the

parceling out of the production process to contractors who are geographically
dispersed but who are connected to each other via computer networks. The
benefits of network production include: reduction in costs, more strategic
target marketing, and the facilitation of selling add-on products, services, and
new systems when they are needed. With network production, a company can
assign tasks within its non-core competencies to factories all over the world
that specialize in such tasks (e.g., the assembly of specific components).

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Open for Business 24x7: An e-commerce site basically gives the ability
to have unlimited store hours, giving customers 24 hours a day, 7 days a week
access to shop and buy items. Some merchants choose to limit their hours to 5
days a week, but orders can still be made over the weekend and customers can
still make contact 24/7 via email, phone or fax.

Helpful to the consumer: In C2B transactions, customers/consumers

are given more influence over what and how products are made and how
services are delivered, thereby broadening consumer choices. E-commerce
allows for a faster and more open process, with customers having greater
control. E-commerce makes information on products and the market as a
whole readily available and accessible, and increases price transparency, which
enable customers to make more appropriate purchasing decisions.

DISADVANTAGES OF E-COMMERCE
Security: Security continues to be a problem for online businesses.
Customers have to feel confident about the integrity of the payment process
before they commit to the purchase.

System and Data Integrity: Data protection and the integrity of the
system that handles the data are serious concerns. Computer viruses are
rampant, with new viruses discovered every day. Viruses cause unnecessary
delays, file backups, storage problems, and other similar difficulties. The
danger of hackers accessing files and corrupting accounts adds more stress to
an already complex operation.

System Scalability: A business develops an interactive interface with

customers via a website. After a while, statistical analysis determines whether
visitors to the site are one–time or recurring customers. If the company
expects 2 million customers and 6 million show up, website performance is
bound to experience degradation, slowdown, and eventually loss of customers.
To stop this problem from happening, a website must be scalable, or
upgradable on a regular basis.

Other problems:

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•Any one, good or bad, can easily start a business. And there are many bad
sites which eat up customers’ money.

•There is no guarantee of product quality.

•Mechanical failures can cause unpredictable effects on the total processes.

•There are many hackers who look for opportunities, and thus an ecommerce
site, service, payment gateways, all are always prone to attack.

What forces are fueling e-commerce?

There are at least three major forces fuelling e-commerce: economic forces,
marketing and customer interaction forces, and technology, particularly
multimedia convergence.

Economic forces: One of the most evident benefits of e-commerce is

economic efficiency resulting from the reduction in communications costs,
low-cost technological infrastructure, speedier and more economic electronic
transactions with suppliers, lower global information sharing and advertising
costs, and cheaper customer service alternatives.

Economic integration is either external or internal. External integration refers

to the electronic networking of corporations, suppliers, customers/clients, and
independent contractors into one community communicating in a virtual
environment (with the Internet as medium). Internal integration, on the other
hand, is the networking of the various departments within a corporation, and
of business operations and processes. This allows critical business information
to be stored in a digital form that can be retrieved instantly and transmitted
electronically. Internal integration is best exemplified by corporate intranets.
Among the companies with efficient corporate intranets are Procter and
Gamble, IBM, Nestle and Intel.

Market forces: Corporations are encouraged to use e-commerce in

marketing and promotion to capture international markets, both big and small.
The Internet is likewise used as a medium for enhanced customer service and
support. It is a lot easier for companies to provide their target consumers with
more detailed product and service information using the Internet.

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Technology forces: The development of ICT is a key factor in the growth
of ecommerce. For instance, technological advances in digitizing content,
compression and the promotion of open systems technology have paved the
way for the convergence of communication services into one single platform.
This in turn has made communication more efficient, faster, easier, and more
economical as the need to set up separate networks for telephone services,
television broadcast, cable television, and Internet access is eliminated. From
the standpoint of firms/businesses and consumers, having only one
information provider means lower communications costs.

Moreover, the principle of universal access can be made more achievable with
convergence. At present the high costs of installing landlines in sparsely
populated rural areas is a disincentive to telecommunications companies to
install telephones in these areas. This development will ensure affordable
access to information even by those in rural areas and will spare the
government the trouble and cost of installing expensive landlines.

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What are the components of a typical successful e-
commerce transaction loop?
E-commerce does not refer merely to a firm putting up a Web site for the
purpose of selling goods to buyers over the Internet. For e-commerce to be a
competitive alternative to traditional commercial transactions and for a firm to
maximize the benefits of e-commerce, a number of technical as well as
enabling issues have to be considered. A typical e-commerce transaction loop
involves the following major players and corresponding requisites:

The Seller should have the following components:

● A corporate Web site with e-commerce capabilities (e.g., a secure

transaction server);

● A corporate intranet so that orders are processed in an efficient manner; and

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● IT-literate employees to manage the information flows and maintain the e-
commerce system.

Transaction partners include:

● Banking institutions that offer transaction clearing services (e.g., processing

credit card payments and electronic fund transfers);

● National and international freight companies to enable the movement of

physical goods within, around and out of the country. For business-to-
consumer transactions, the system must offer a means for cost-efficient
transport of small packages (such that purchasing books over the Internet, for
example, is not prohibitively more expensive than buying from a local store);
and

● Authentication authority that serves as a trusted third party to ensure the

integrity and security of transactions.

Consumers (in a business-to-consumer transaction) who:

● Form a critical mass of the population with access to the Internet and
disposable income enabling widespread use of credit cards; and

● Possess a mindset for purchasing goods over the Internet rather than by
physically inspecting items.

Firms/Businesses (in a business-to-business transaction) that together form a

critical mass of companies (especially within supply chains) with Internet
access and the capability to place and take orders over the Internet.

Government, to establish:

● A legal framework governing e-commerce transactions (including electronic

documents, signatures, and the like); and

● Legal institutions that would enforce the legal framework (i.e., laws and
regulations) and protect consumers and businesses from fraud, among others.

And finally, the Internet, the successful use of which depends on the following:

● A robust and reliable Internet infrastructure; and

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● A pricing structure that doesn’t penalize consumers for buying goods over
the Internet.

For e-commerce to grow, the above requisites and factors have to be in place.
The least developed factor is an impediment to the increased uptake of e-
commerce as a whole. For instance, a country with an excellent Internet
infrastructure will not have high e-commerce figures if banks do not offer
support and fulfillment services to e-commerce transactions. In countries that
have significant e-commerce figures, a positive feedback loop reinforces each
of these factors.

How is the Internet relevant to e-commerce?

The Internet allows people from all over the world to get connected
inexpensively and reliably. As a technical infrastructure, it is a global collection
of networks, connected to share information using a common set of protocols.
Also, as a vast network of people and information, the Internet is an enabler
for e-commerce as it allows businesses to showcase and sell their products and
services online and gives potential customers, prospects, and business partners
access to information about these businesses and their products and services
that would lead to purchase.

Before the Internet was utilized for commercial purposes, companies used
private networks-such as the EDI or Electronic Data Interchange-to transact
business with each other. That was the early form of e-commerce. However,
installing and maintaining private networks was very expensive. With the

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Internet, e-commerce spread rapidly because of the lower costs involved and
because the Internet is based on open standards.

How important is an intranet for a business engaging

in e-commerce?
An intranet aids in the management of internal corporate information that
may be interconnected with a company’s e-commerce transactions (or
transactions conducted outside the intranet). Inasmuch as the intranet allows
for the instantaneous flow of internal information, vital information is
simultaneously processed and matched with data flowing from external e-
commerce transactions, allowing for the efficient and effective integration of
the corporation’s organizational processes. In this context, corporate
functions, decisions and processes involving e-commerce activities are more
coherent and organized.

The proliferation of intranets has caused a shift from a hierarchical command-

and control organization to an information-based organization. This shift has
implications for managerial responsibilities, communication and information
flows, and workgroup structures.

What are the existing practices in developing

countries with respect to buying and paying online?
In most developing countries, the payment schemes available for online
transactions are the following:

A. Traditional Payment Methods

● Cash-on-delivery: Many online transactions only involve submitting purchase

orders online. Payment is by cash upon the delivery of the physical goods.

● Bank payments: After ordering goods online, payment is made by depositing

cash into the bank account of the company from which the goods were
ordered. Delivery is likewise done the conventional way.

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B. Electronic Payment Methods

● Innovations affecting consumers, include credit and debit cards, automated

teller machines (ATMs), stored value cards, and e-banking.

● Innovations enabling online commerce are e-cash, e-checks, smart cards, and
encrypted credit cards. These payment methods are not too popular in
developing countries. They are employed by a few large companies in specific
secured channels on a transaction basis.

● Innovations affecting companies pertain to payment mechanisms that banks

provide their clients, including inter-bank transfers through automated
clearing houses allowing payment by direct deposit.

What is an Electronic Payment System?

An electronic payment system (EPS) is a system of financial exchange between
buyers and sellers in the online environment that is facilitated by a digital
financial instrument (such as encrypted credit card numbers, electronic checks,
or digital cash) backed by a bank, an intermediary, or by legal tender.

EPS plays an important role in e-commerce because it closes the e-commerce

loop. In developing countries, the underdeveloped electronic payments system
is a serious problem to the growth of e-commerce. In these countries,
entrepreneurs are not able to accept credit card payments over the Internet
due to legal and business concerns. The primary issue is transaction security.

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The relatively undeveloped credit card industry in many developing countries is
also a barrier to e-commerce. Only a small segment of the population can buy
goods and services over the Internet due to the small credit card market base.
There is also the problem of the requirement of “explicit consent” (i.e., a
signature) by a card owner before a transaction is considered valid-a
requirement that does not exist in the U.S. and in other developed countries.

What is the confidence level of consumers in the use

of an EPS?
Many developing countries are still cash-based economies. Cash is the
preferred mode of payment not only on account of security but also because
of anonymity, which is useful for tax evasion purposes or keeping secret what
one’s money is being spent on. For other countries, security concerns have a
lot to do with a lack of a legal framework for adjudicating fraud and the
uncertainty of the legal limit on the liability associated with a lost or stolen
credit card.

In sum, among the relevant issues that need to be resolved with respect to EPS
are: consumer protection from fraud through efficiency in record-keeping;
transaction privacy and safety, competitive payment services to ensure equal
access to all consumers, and the right to choice of institutions and payment
methods. Legal frameworks in developing countries should also begin to
recognize electronic transactions and payment schemes.

Example of e-commerce
Here's one example of how a sophisticated, fully computerized e-commerce
system might work. Not all e-commerce systems work in exactly this way:

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1. Sitting at a computer, Mr A tries to order a book online. His Web browser
communicates back-and-forth over the Internet with a Web server that
manages the store's website.
2. The Web server sends his order to the order manager. This is a central
computer that sees orders through every stage of processing from
submission to dispatch.
3. The order manager queries a database to find out whether what Mr A
want is actually in stock.
4. If the item is not in stock, the stock database system can order new
supplies from the wholesalers or manufacturers. This might involve
communicating with order systems at the manufacturer's to find out
estimated supply times while the customer is still sitting at his computer .
5. The stock database confirms whether the item is in stock or suggests an
estimated delivery date when supplies will be received from the
manufacturer.
6. Assuming the item is in stock, the order manager continues to process it.
Next it communicates with a merchant system (run by a credit-card
processing firm or linked to a bank) to take payment using the Mr A’s
credit or debit card number.
7. The merchant system might make extra checks with the Mr A's own bank
computer.
8. The bank computer confirms whether the Mr A has enough funds.

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9. The merchant system authorizes the transaction to go ahead, though
funds will not be completely transferred until several days later.
10. The order manager confirms that the transaction has been successfully
processed and notifies the Web server.
11. The Web server shows the Mr A, a Web page confirming that her order
has been processed and the transaction is complete.
12. The order manager sends a request to the warehouse to dispatch the
goods to the customer.
13. A truck from a dispatch firm collects the goods from the warehouse and
delivers them.
14. Once the goods have been dispatched, the warehouse computer e-mails
Mr A to confirm that his goods are on their way.
15. The goods are delivered to Mr A.

All of these things are invisible—"virtual"—to the Mr A except the computer

he sits at and the dispatch truck that arrives at his door.

Payment Diagram

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 1. Consumer places an order with the merchant through any number of
sales channels: Web Site, Call Center, Retail, Wireless or Broadband.
2. Authorize.Net detects an order has been placed, securely encrypts and
forwards the Authorization Request to the Consumer's Credit Card Issuer
to verify the consumer's credit card account and funds availability.
3. The Authorization (or Decline) Response is returned via Authorize.Net to
the Merchant. Round trip this process averages less than 3 seconds.
4. Upon approval, the Merchant fulfills the consumer's order.
5. Authorize.Net sends the settlement request to the Merchant Account
Provider.
6. The Merchant Account Provider deposits transaction funds into the
Merchant's Checking Account.

CONCLUSION

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Finally, we may say that there are definitely several positive and negative
opportunities that ecommerce has brought on in the past couple years. By
using electronic technology through the internet, we get more competitions,
more marketplaces, faster transactions, and more advanced technologies to
make activities between customers and producers more active.

Bibliography
The data has been taken from the following places:

 http://www.ecworld.utexas.edu
 http://www.dfat.gov.au/apec/ecom/
 http://www.e-aseantf.org

THANKYOU...

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