The globalisation of business – E-commerce companies
The Internet started as an internal communications link in 1974, to facilitate the transferring of military information and for research purposes, before being capitalised to a mass-customised information flow. The capability in transferring information to disparate sources using network topology with a front-end browser was envisioned for mass use. In October 1991 , the World Wide Web (www), created by Sir Tim Berners-Lee became one of the most well-known acronyms in the world. The first web address was Info.cern.ch with the first web page being ‘http://info.cern.ch/hypertext/WWW/TheProject.html’ (Info.cern.ch, 2009). The commercial justification of web technology triggered new business models, strategies and communication modes on a global level with the primary driver, which has kept the ongoing momentum, being technological innovations. The growth of the Internet has not been constrained or been plateaued but has grown exponentially in tandem with the growth in global population.
During the late nineties, with the advent of the Internet a dynamic phenomenon burst upon the landscape changing the façade of traditional, structural foundations of global communities within all domains including financial, social and political. The world has been propelled by a new economic power on a different level, a power that enables individuals to collaborate and compete globally (Friedman, 2006). The unleashing of this power reversed the power structure, empowering individuals to innovate using new technologies and create new business models transcending national boundaries. The paradigm shift within the technological domain towards mass customisation presented opportunities for conventional ‘brick and mortar’ companies to transform towards new business models to capitalise on the expanding demands of a global market.
The Internet has brought about paradigm shifts in conceptual thinking that have seen the transformation of innovative ideas into reality. The pervasive barriers of time and distance have been transcended with a click, witnessed by the invalidation of transnational boundaries. The world has become a level playing field awash with capitalistic opportunities available for the new entrepreneurs. (Friedman, 2006).
The invasion of the business world by harnessing innovations in information technology witnessed the revisiting of business models and processes aligned to the maximisation of profits and optimisation of economic resources. Supply chain efficiencies demanded streamlining of blockages and bottleneck delays in business processes which has been alleviated by redefining business processes. The availability of mechanised automation of data and information flow became a dual realisation towards not only the seamless streamlining of business processes but also the mass customisation of information flow. The Internet has produced significant changes across the entire value chain, end-to-end, from the initial purchasing of inputs to the final delivery of goods to consumers. (OECD, 2012)
The e-commerce revolution changed the fundamentals of traditional distribution patterns impacting the whole upstream and downstream supply chain fundamentals from domestic and foreign trading, wholesale and retail industries, producer and consumer goods trading. E-commerce has been described as the new engine of economic growth to spearhead the economies of the world. According to OECD, one of the important developments of the Internet has been transformation of business-to-business (B2B) communications linkages (OECD, 2012).
Electronic commerce, shortened to e-commerce, is the online electronic trading of physical goods and intangibles such as service offerings. This includes trading functionalities such as online marketing, ordering, payment and delivery support. E-commerce also includes after-sales support and online legal advice.(Timmers, 1998).
From a public enterprise view as defined by the European Commission, e-commerce is defined as,”Electronic commerce is about doing business electronically. It is based on the electronic processing and transmission of data, including text, sound and video. It encompasses many diverse activities including electronic trading of goods and services, online delivery of digital content, electronic fund transfers, electronic share trading, electronic bills of lading, commercial auctions, collaborative design and engineering, online sourcing, public procurement, direct consumer marketing, and after-sales service. It involves both products (e.g. consumer goods, specialised medical equipment) and services (e.g. information services, financial and legal services); traditional activities (e.g. healthcare, education) and new activities (e.g. virtual malls).”(cited in p.3, Ewelukwa, 2011).
There is a difference between the concept of e-business and e-commerce. E-business is the overall transformation of the processes within a corporate entity whereas e-commerce refers to the transactional activity between suppliers and buyers of the product or service. E-business encompasses the overall automation of all business processes including human resources, sales, operation, finance and internal governance of a corporate entity. E-commerce refers specifically to the transactional relationship between a buyer of the product and the seller or supplier of the product. Davis (2003) has reclassified e-commerce into a broad and narrow definition. The broad definition of e-commerce transactions refers to the selling and buying of products and services over computer-mediated networks while the end process of payment and delivery is managed offline. The narrow definition refers to the selling and buying of products and services over the Internet with the further distinction of payment and delivery of goods either offline or online. Chaffey (2011) provides a similar interpretation of e-commerce focusing on the transactions between the seller and the buyer. The distribution channels can be segmented according to business-to-business, business-to-customer, business-to-government and consumer-to-consumer (Communication To The European Parliament, The Council, The Economic And Social Committee And The Committee Of The Regions, 1997)
The developing world has not been spared from the effects of e-commerce as the Internet is a global phenomenon. The most impressive gains from the Internet can be seen from countries with a high population notably China, the United States of America and India. The Internet and electronic networked systems have seen a higher return from investment where the number of visitors is higher due to sufficient critical mass.
Developing an e-commerce strategy requires an integrative mix of business rules, marketing knowledge, supply chain management, and information systems strategy development. Due to the competition and the need to differentiate services, innovation is a key criterion for the development of sustainable competitive strategies. The keyword as quoted by Chaffey (2011) is ‘e-business isn’t just about defining “how to do business online”, it defines ‘how to do business differently online’. The business model that can differentiate from the rest of the market with a well-planned competitive strategy is the e-commerce business model that will succeed.
The impact of the Internet and e-commerce has not only presented great potential opportunities but also great challenges for all communities of the world. An indispensable ingredient in ensuring a consistent e-commerce growth is by exploiting the opportunities presented with well-planned strategic initiatives.
PEST analytical tool
The PEST (Political, Economic, Social and Technology) tool will be used to provide macro-environmental analysis of e-commerce. The tool will focus on the global political, economics social and technological factors that impact the development and sustainability of e-commerce businesses. All the different factors are not siloed, isolated factors but interconnected and interdependent with each other. These factors need to be taken into account when doing an evaluation of the current environment or while establishing a new marketplace.
Government E-readiness refers to the preparation of the nation state and its institutions to promote, facilitate and regulate e-commerce requirements. The overall political strategies and vision in supporting the continued expansion of e-commerce, although differing between the developed and the developing countries, is to enable modernisation and structural reforms. The development of the required infrastructure and resources is a pre-requisite for the growth of eCommerce and almost all countries have implemented ICT policies in the endeavour to provide seamless infrastructural frameworks towards efficient connectivity (OECD, 2012). Another challenge for serious consideration is the threat of online cyber-attacks. Albeit there is no fool proof method against the threat as it is a continually evolving threat, most countries have taken precautionary and pre-emptive actions in addressing the threat of cyber-attacks.
Although the developing countries have joined the e-commerce community, the different structural financial, legal, and physical infrastructure including human capabilities have to be undertaken into consideration while formulating strategies for the establishment of e-commerce enterprises (Tan & Tyler, 2007; Molla & Licker, 2005; Ayo et al., 2008).
The Indian experience with e-commerce is entirely different from the developed countries and major Asian economies such as China. In India, e-commerce is still lagging and has not realised its full potential relative to the population count, albeit the global acknowledgement of e-commerce as an important indicator of economic growth (Vaithianathan, 2010). Internet access was only made available to the Indian public in the early 1990s (Joseph, 2006).
One of the key factors for successful Internet penetration in India is a reliable and robust infrastructure, especially within the telecommunication arena. The quality of the bandwidth between the customer and the Internet service provider (ISP) can determine the adoption of online e-commerce trading (Ajayi & Aderounmu, 2010). If the quality is not up to standard and infringes on time and cost, then the adoption of an online e-commerce media will be a challenge with the tendency to opt for offline trading. The telecommunications infrastructure in India has a direct impact on the quality of the bandwidth, with a trickling down effect to the adoption rate of online e-commerce trading.
Within China, there has been active support and intense involvement by the government as the Internet was viewed as an option to jump start and subsequently leapfrog from a traditional economic framework to an equal standing with developed countries. The development of e-commerce in China was looked upon by the Chinese government as a way of modernising the business and sales environment. The traditional business and sales network lagged behind that of the developed world and had considerable catching-up to do, partly due to the historical closed-door policy practised by the state-controlled Chinese authorities. The adoption of business models aligned to the e-commerce model was viewed as a way of jump starting the traditional business domain directly into the e-commerce spectrum as this could speed up the transitioning of the traditional business network into the modern era. The government’s involvement has been an astounding success with China becoming a global player in the e-commerce arena (He, 2000). Success stories such as Ali Baba and Baidu are examples of e-commerce stories that have gone global (Grumbach, 2013)
Within the African sub-continent, e-commerce is envisaged as a means, similar to the Chinese scenario, to increase contributions to trade by the usage of innovative technology facilitated by global technical advancements (Ewelukwa, 2011). Internet use increased by 2,357.3% from 2000 to 2010, the development of e-commerce is slowly moving into the awareness stage. Countries like Nigeria are coming out from years of dictatorship and recent political strife indicates that greater stability is required before the environment is ready for new business models based on technology (Globalissues.org, 2011; Ayo et. al, 2008).
There is an overall increase in global economic growth of 3%, however, forecasts indicate countries are bracing for a slowdown compared to previous years.Regional blocs, such as BRICS, are forecasting a slow down due to inward shift in policies towards domestic growth (International Monetary Fund, 2013; The Economist, 2012). The slowdown in global economic growth has the potential to simulate the growth of e-commerce companies as an alternative to traditional markets due to easier access, transparent pricing and seamless delivery.
The retail e-commerce market in the US was $200 billion in 2011 with projections of 10% annual growth. Apparel and accessories is targeted to grow by 16% over the next five years. The same story is repeated in Latin America where, in 2011 Brazilians spend an average of 48.04 hours online per month culminating with $9 billion online purchases (Baker & McKenzie (2013)
E-commerce development within Europe has seen significant increase over the decade. In the Netherlands, e-commerce as a share of total revenue of companies increased from 3.4% in 1999 to14.1% in 2009. Between 2004 and 2011, this share increased in Norway from 2.4% to 18.5%. Based on overall data, the Czech Republic has the highest % of e-commerce turnover at 25% followed by Finland, Sweden and Hungary nearing at 20% (OECD, 2012) (See Fig1.). Businesses generated more than 4% of turnover through website sales in 2011 with the overall status quo trend in purchasing and selling over the decade, with more businesses involved in purchasing rather than selling.
Source: OECD ICT Database and Eurostat community survey on ICT usage and ecommerce in enterprise, June 2012 (Cited in p.150, OECD, 2012)
Internet e-commerce was launched in China in 1997, attracting B2C, C2C and B2B enterprises mainly due to the low entry threshold and the exponential returns within a short period. The remarkable experience of the Western e-commerce sites such as eBay, who were able to show remarkable figures in the billion-dollar range after just three years of being in the business, was also keenly observed. The timing was also conducive as the Chinese economy was undergoing major structural changes in transforming from a state-controlled economy to that of a free market (He, 2000; Chaffey, 2011; Lucking-Reiley et al., 2007).
In terms of demographics, the rising rate of population growth especially within the Asian region is an indicative marker of the potential for e-commerce ventures. E.g. In tandem with population growth, the online Internet penetration of 40% within China indicates there is a 60% potential market still untapped, not accounting for the annual increase in rate of population growth (Internetworldstats.com, 2012). The rising Internet penetration within countries of the Middle-East is another untapped market with huge potential. However, issues for consideration include socio-cultural factors, which could be minor factors in the developed world, but could be the litmus test for the success of Internet marketing in developing countries such as Saudi Arabia (Mvfglobal.com, 2010).
E-commerce is suited to the mobile consumer demanding accessibility regardless of location or time. The synchronisation between the new lifestyle and the availability of mobile gadgets with e-commerce facilities has the prospects of a win-win solution.
A mobile lifestyle defined by a need for current information and entertainment has resulted in mobile hand held devices becoming a social phenomenon, with a 55% market penetration in the United States and with a trillion dollar sales potential by 2014 (Garibian, 2013; Gartner, 2010). By 2015, social and mobile marketing is forecasted to influence discretionary consumption (Gartner, 2011). The higher penetration rate of mobile gadgets translates into greater visibility and more visits of e-commerce sites. In India, Internet penetration which currently stands at an estimated 10% of the population or 122 million is forecasted to increase with the decrease in price of smart phones, thereby increasing visibility to e-commerce sites. (The Economist, 2013)
Porter’s Five Forces Analysis tool
Porter’s five forces tool can be used to analyse competitive forces which can directly and indirectly impact the sustainability of the domain. Knowledge of these forces combined with the appropriate mitigation actions can ensure the sustainability of e-commerce (Porter, 2004).
From the perspective of the bargaining power of buyers, this is a perfect market situation with all buyers and suppliers having full knowledge of the goods sold. Price is determined by market mechanisms, and the buyer has the ultimate choice in deciding a purchase due to greater transparency in the price and quality of the product or services offered. From a B2B perspective, the bargaining power of buyers can be reduced by the strategic imposition of ‘soft lock-ins’ by utilising switching costs such as proprietary hardware or business processes (Chaffey, 2011).
Bargaining power of suppliers is characterised by perfect market conditions such as reduced product and price differentiation. Generic commodisation of products results in prices being pushed down to the minimum profitable level. The existence of electronic procurement systems can reduce switching costs, but this can be overcome with ‘soft lock-ins’.
The substitution of products and services can dilute and erode market share. From the e-commerce perspective, the low entry costs of substitute business models translate into substitutions easily taking place due to a slight edge in the competition. Buyers with no switching costs but who have immediate access to substitutes is a strategic death trap for e-commerce entities, similar to a lot of Internet business models. There has to be a differentiation in service in order to prevent switching costs which can be superior customer service.
Within the e-commerce domain, unlike ‘brick-and-mortar’ companies, the cost of entry is significantly lower due to the absence of hard infrastructure as opposed to virtual infrastructure. This is a factor which contributes significantly to the e-commerce enterprises being characterised as transient business enterprises. A lower entry cost also signifies greater competition with new innovations being strategically introduced to the industry. However, the initial introductory period has to be fine-tuned to a deeper level of maturity to sustain repeat visits from the buyer community. The enterprise has to consolidate and institutionalise itself to prevent from being ejected from the system.
Within the Internet industry and e-commerce in particular, the competition intensifies as the playing field has been levelled with all physical barriers becoming non-existent. The transaction of products and services can be mobilised towards a perfect competition scenario with transparency of prices and non-differentiation of products and services.
Statistics indicate the burgeoning e-commerce market has the potential to transform and capture a significant market share in the near future. E-commerce, an innovative by product of the Internet, has found greater growth with the innovation of mobile gadgets. The technology has the potential to be more innovative, with the prospects of e-commerce becoming a more pervasive influence in the global world.
The next level of e-commerce service will be to identify the current gaps in e-commerce such as personalisation of customer needs and upgrading of the online experience by providing face-to-face online interaction. As the number of players in the market increase, either new players or traditional brick-and-mortar retailers, the need for services to be differentiated to retain competitive advantages becomes more apparent. (Savitz, E. (2012).
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