INTRODUCTION n Internet economy: –growing faster than any other business trend in history n Companies face issues similar to those faced by traditional

INTRODUCTIONINTRODUCTION

Internet economy: –growing faster than any other business trend in history

Companies face issues similar to those faced by traditional multinational companies

THE INTERNET ECONOMYTHE INTERNET ECONOMY

What is e-commerce?

–e-commerce refers to the selling of goods or services over the internet

TYPES OF E-COMMERCE TYPES OF E-COMMERCE TRANSACTIONSTRANSACTIONS

B2C – business to consumer transactions

B2B – business to business transactions–makes up of 70-85% of current e-commerce business

Types of e-commerce Types of e-commerce transactions, continuedtransactions, continued

C2C – consumer to consumer C2B – consumer to business

THE GLOBAL PRESENCE THE GLOBAL PRESENCE OF E-COMMERCEOF E-COMMERCE Measured by two indicators

–secure servers– internet hosts

OECD countries dominate the internet with over 90% of the world’s internet hosts - see exhibit 9.1

EXHIBIT 9.1 SECURE SERVERS EXHIBIT 9.1 SECURE SERVERS AND INTERNET HOSTS IN AND INTERNET HOSTS IN SELECTED OECD COUNTRIESSELECTED OECD COUNTRIES

0 50 100 150 200

U.S.

Japan

Germany

Czech Republic

Denmark

Korea

Mexico

Poland

Spain

Turkey

Internet Hosts

Secure Servers

Global presence of e-Global presence of e-commerce, continuedcommerce, continued

In 1991, 3 million people used the internet and almost none used it for e-commerce

By 1999, approximately one quarter of the 250 million users made purchases online

THE INTERNET ECONOMYTHE INTERNET ECONOMY Internet economy has four layers Layer 1: the backbone of the

internet including the internet service providers–communications (MCI, worldcom), internet service providers (AOL), networking (cisco) and hardware

Layer 2: companies and consultants that build web systems and supporting software–consultants (scient), commerce applications (netscape, sun), web development software (adobe, netobjects), search engines (verity), and web-enabled databases (oracle)

The internet economy, The internet economy, continuedcontinued

Layer 3: companies that provides linking services on the internet and derive revenues from commissions, advertising, and membership fees–travel agencies (travelweb, travelocity.Com), online brokerages (etrade), content aggregators (cnet,zdnet), and online advertising (yahoo!)


Level 4: companies that conduct commercial transactions on the web–E-retailers (wine.Com), manufacturers selling directly (hpshopping.Com), subscription-based companies (vrbo.Com), transportation services (most airlines), and shipping services (UPS)


Exhibit 9.3 Shows E-Exhibit 9.3 Shows E-commerce Business commerce Business

ModelsModels

EXHIBIT 9.3EXHIBIT 9.3

Infomediaries/PortalsEasier to bring localUses Local franchisesLow barriers to entry: Easy to imitateExamples: Yahoo!, Excite

Infrastructure ProvidersMust exist before commerceTechnology not culture-basedSuccessful precedents (IBM, SAP)

B2B CommerceMany businesses are wiredMany vertical markets are alreadyglobalStill limited by physical and paymentinfrastructure

B2C CommerceBusiness Models not yet provenLimited by PC and web devicepenetrationDiversity in consumer preferences

FIVE STEPS FOR FIVE STEPS FOR SUCCESSFUL E-SUCCESSFUL E-COMMERCE STRATEGYCOMMERCE STRATEGY

1. Build on current business models and experiment with new e-commerce models – search for ways to reduce costs or enhance the business

2. Meet the challenge of developing an e-commerce organization Not only senior management, but the entire firm must be prepared to embrace the e-commerce model

3. Allocate resources to the e-commerce businessCommit financial, human, and technological resources to develop e-commerce capabilities

4. Build a superior e-commerce infrastructure as a basis of differentiation strategy

5. Make sure entire management team aligns with e-commerce agenda

E-COMMERCE E-COMMERCE STRATEGIES: INTEGRATED STRATEGIES: INTEGRATED OR AUTONOMOUS OR AUTONOMOUS

How does e-commerce fits into existing organizational design and management systems?– i.e., the fit with “brick and mortar” operations

Integrated or autonomous, Integrated or autonomous, continuedcontinued

Degree of interaction between brick and mortar operations can occur anywhere in the value chain

Can range from near seamless operations (e.g., Office Depot) to the mostly independent operations

Integrated or autonomous, Integrated or autonomous, continuedcontinued

The independent benefits: – faster and more entrepreneurial

The integrated benefits: –cross-promotion, shared information, increased quantity purchases, use of same distribution channels

Exhibit 9.4 (next) shows Exhibit 9.4 (next) shows key decisions in the key decisions in the integration versus integration versus separation decisionseparation decision

Target a different customer group on the Web

Management skills and experience for the Web

Distribution system Web friendly

Need capital

PRODUCT/SERVICE

MANAGEMENT

OPERATIONS

EQUITY

Price differently from stores on the Web

Willing to adapt performance criteria to Web business

Challenge to current business modelDistribution system Web friendly

Solid information system

Yes No

Yes No

YesNo

YesNo

Yes

Yes

Yes

Yes

No

No

No

No

INDEPENDENT INTEGRATED

ADDITIONAL ADDITIONAL OPERATIONAL OPERATIONAL CHALLENGESCHALLENGES Finding partnerships and alliances

with customers or third parties Attracting, retaining, and

developing employees in the e-commerce unit

Deciding what e-commerce functions to outsource

TASKS FOR TRADITIONAL TASKS FOR TRADITIONAL COMPANIES WITH E-COMPANIES WITH E-COMMERCECOMMERCE

Build a common vision and commitment to e-commerce

Change the organization structure for quick reconfiguration of assets and capabilities

Tasks for traditional Tasks for traditional companies with e-commerce, companies with e-commerce, continuedcontinued Change the organization culture to

support e-commerce Attract and retain e-commerce-

skilled employees Alter HR programs to suit skill

requirements of e-commerce employees

Exhibit 9.5 gives a Exhibit 9.5 gives a comparison of past and comparison of past and expected organizational expected organizational changes multinational changes multinational

companies are making to companies are making to implement their e-implement their e-

commerce strategiescommerce strategies

0 20 40 60 80

Knowledge Management

Organizational Design

Performance Measures

Business Strategies

Next 2 Years Prior 2 Years

EXHIBIT 9.5

GLOBALIZING THROUGH GLOBALIZING THROUGH THE INTERNETTHE INTERNET A web site gives the company

immediate global access –the challenges of globalization faced by traditional brick-and-mortar companies remain

MULTINATIONAL E-MULTINATIONAL E-COMMERCE STRATEGY COMMERCE STRATEGY FORMULATIONFORMULATION

Depends on:–nature of the business–types of products or services offered through e-commerce

E-COMMERCE COMPANIES E-COMMERCE COMPANIES WORK IN THREE AREAS WORK IN THREE AREAS

1. Movement of bits or computerized information

2. Movement of money in payment flows

3. Movement of physical products–each type of operation requires an infrastructure to support the transactions

HIERARCHY OF HIERARCHY OF DIFFICULTYDIFFICULTY

Depends on infrastructure requirements–portals and infomediaries, simplest–digital products that must have an infrastructure to take payments

–most difficult to globalize: e-commerce businesses that rely on a physical structure

MULTINATIONAL E-MULTINATIONAL E-COMMERCE: COMMERCE: OPPORTUNITIES AND OPPORTUNITIES AND THREATSTHREATS Major opportunities of e-

commerce globalization: –cost reduction

less expensive to reach customers via web

–technology is already available

–efficiencies more efficient

Multinational e-commerce: Multinational e-commerce: opportunities and threats, opportunities and threats, continuedcontinued


–convenience web is in operation all the time regardless of location

–speed of access company’s products or services can be accessed from anywhere in the world

Major challenges include:– return/receipt burden and cost of delivery

expect 30-40% return rate–costs of site construction, maintenance, upgrades

–channel conflicts


–easily copied models competitors can easily see and copy business model

–cultural differences web sites must be appropriate culturally



–traditional cross-border complexities remain

exchange rates, different taxes, and government regulations

PICKING A MARKETPICKING A MARKET

Target countries – those with market inefficiencies

e.g., formerly state-controlled economies

–attractive demographics internet population of > 5% high literacy rate

Target countries, continued–participation in at least one free trade agreement

–government with viable legal system

MULTINATIONAL E-MULTINATIONAL E-COMMERCE STRATEGY COMMERCE STRATEGY IMPLEMENTATIONIMPLEMENTATION

Successful implementation of a multinational e-commerce strategy requires building an appropriate organization and developing the necessary technical capabilities to conduct electronic transactions

THE MULTINATIONAL E-THE MULTINATIONAL E-COMMERCE COMMERCE ORGANIZATION ORGANIZATION

What is the organization of a multinational e-business?–three-tiered mixing of global and local functions

Headquarters –vision, strategy, leadership for worldwide electronic marketing

The multinational e-The multinational e-commerce organization, commerce organization, continuedcontinued Shared functional services

–provide HRM, marketing, partner management to regions

Local subsidiaries

–deliver goods, manage functions better done locally such as the supply chain

Exhibit 9.6 pictures the Exhibit 9.6 pictures the levels and functions of levels and functions of

the multinational the multinational corporationcorporation

Local Market Units

Shared Services To Regional Markets

Global CoreProvides global

vision on strategy,marketing,

administration

Procurement,

HRM,

Marketing

Services,

Partner

Management

Expertise in

customers,

regulation,

partnerships,

supply chains

TECHNICAL CAPABILITIES TECHNICAL CAPABILITIES FOR MULTINATIONAL E-FOR MULTINATIONAL E-COMMERCECOMMERCE

Process multiple currencies Calculate and show purchase

information on international shipping, duties, and local taxes such as VAT

Technical capabilities for Technical capabilities for multinational e-commerce, multinational e-commerce, continuedcontinued Check regulatory compliance

with local and international laws Provide support in multilingual

service centers Fraud protection Electronic payment models in

addition to credit cards

TO BUILD OR OUTSOURCE TO BUILD OR OUTSOURCE TECHNICAL CAPABILITIES?TECHNICAL CAPABILITIES? Run all e-commerce functions

internally or outsource to e-commerce enablers

Enablers provide services and software that translate web sites, calculate shipping, value-added taxes, duties, and other charges unique to each country

Exhibit 9.7 shows major Exhibit 9.7 shows major problems identified web-problems identified web-

site globalizationsite globalization

0 10 20 30 40 50 60

Organization Design

Content of Web Page

Technical

Cultural & LegalDifferences

% of 50 major multinational companies

CONCLUSIONSCONCLUSIONS

E-commerce expanding geometrically

Although the US dominates e-commerce, other areas of the world are catching up

Conclusions, continuedConclusions, continued

Fundamentals of e-commerce strategy –build on traditional business models

–experiment with cost reductions or differentiation based on internet use

Documents

INTRODUCTION n Internet economy: –growing faster than any other business trend in history n Companies face issues similar to those faced by traditional