This paper focuses on the rapidly growing area of e-commerce, more so with the emergence of the National Information Infrastructure.

CONTENTS PAGE

1 EXECUTIVE SUMMARY OF KEY ISSUES

EXECUTIVE SUMMARY OF KEY ISSUES

This paper focuses on the rapidly growing area of e-commerce, more so with the emergence of the National Information Infrastructure. Many companies are positioning themselves to gain from the efficiencies and effectiveness derived within its operations of an e-commerce environment. The paper explains transactions cost theory, its effects on the economizing on coordination cost and rapid cost performance improvement that could be conducted via the e-commerce environment. It explains how the e-commerce environment could substantially reduce profit margins, as consumers will be spoilt with choices expecting cheaper goods whilst firms will be competing for consumers thus reducing its product’s prices to stay competitive. Hence, the article suggests that firms would resort to marketing restriction methodology to retain its existing customers. Furthermore, the overall expansion of the e-commerce environment would have an impact on the existing supply chain management, hence emphasising the need to rethink and redefine the value/supply chain management resulting in the value/supply chain reconfiguration. As the evolving infrastructure would link the various groups, namely producers of information, producers of physical goods, electronic retailers, electronic markets, physical distribution networks and electronic channels, the article suggests that an essential market choice box would emerge as a critical technological device to link these groups.

CRITICAL ANALYSIS OF THE JOURNAL

Over recent years information technology has experienced an unprecedented degree of changes, enabling the transformation of the basic mechanisms of business. This transformation is accelerating, supported by new computer based applications to facilitate business process, new systems to capture information on customers and new methods of communication, within and between organizations and their customers/suppliers. This phenomenon has resulted in the emergence of the electronic commerce age. It has led firms to rush into establishing a presence in this new virtual marketplace (Business Week, 1994). As stated by Hoffmann and Novak (1997) the Internet represents a new paradigm shift to businesses. Benjamin and Wigan (1995) state that ‘it is becoming increasingly difficult to delineate accurately the borders of today’s organization’. The reported benefits to the firms deploying e-commerce include increased efficiency of order processing, reduced cost due to just-in-time inventory management, locking in of trading partners and greater ability to customize products and services based upon information arising from the transactions (Cash & Konsynski, 1985; Johnson & Vitale, 1988). In the euphoria of benefits, i.e. efficiencies, effectiveness and cost reductions, firms should not forget the cost of infrastructure, maintenance and resources needed for an e-commerce environment. Please refer to Appendix A - Apparel Company Takes A Gamble

The emergence of e-commerce has raised the prospect of radical changes to the traditional business process. This was further illustrated in 1994, when the first Internet bank, First Virtual was launched (. - 12/1/04). However, as in any traditional business strategy, it imperative for the organization to understand the different factors that affect consumers’ participation. According to Chaffey (Chapter 9, p 335 – 2000) the following factors should be considered in e-commerce environment: -

Access – Major factor, as access in the e-commerce environment equates to consumer participation. However, on the worldwide basis, a relative small proportion of the population has access to the Internet, i.e. less than 10% of the population. (Chaffey – Chapter 4, p 125)
Value proposition – What can e-commerce offer? Consumers must be informed of the value and choices they have via the Internet.
Ease of use – Ensures continuing participation.
Security – Another major factor. In reality, a problem for only those who shop on-line, however the perception of susceptible security is damaging.
Fear of the unknown – The general fear of technology is a factor that could restrict the volume of consumers.

Microenvironment Forces

It is also suggested that mirco-environment forces should be monitored. Factors such as social, legal, economical, political and technological must be understood and monitored. Organizations that either do not monitor these environmental factors, or those that do not respond to them adequately will not remain competitive and may fail.

Social & Cultural

The social and cultural impacts on the Internet are important from the marketing perspective. It enables the organization to understand the buyers’ behaviour and the barriers of adoption towards e-commerce.

Legal

The legal factors that should be considered include the protection of the domain name, registration, copyright and data protection and the legality of doing business on-line.

Economical

Different economical climates at different markets should be considered in developing the e-commerce strategies and budgets.

Political

Political factors include the encouraging roles the government plays in promoting e-commerce, however there are times ...

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Social & Cultural

Legal

The legal factors that should be considered include the protection of the domain name, registration, copyright and data protection and the legality of doing business on-line.

Economical

Different economical climates at different markets should be considered in developing the e-commerce strategies and budgets.

Political

Political factors include the encouraging roles the government plays in promoting e-commerce, however there are times when government imposes restriction on e-commerce activities and this is important in the marketing perspective.

Technological

Constant monitoring on the rapid changes within the e-commerce environment is necessary to adapt to stakeholders responsiveness.

Key Components

To participate in this rapid changing e-commerce environment, organizations have to analyse and diagnose the firm’s capabilities with respect to customers, suppliers, business partnerships and technologies. The e-commerce environment as coined by Enix ( -18/12/03) highlights that it will be underpinned by 3 key components, i.e. Marketing - customer information, Banking – payment systems and Organization – process support/supply chain management.

Marketing

The emergence of e-commerce will significantly impact the traditional marketing concepts and the customer relationship management, Hoffman and Novak (1996). Drafting of the e-marketing strategies should have similar elements to a traditional marketing strategy, such as those defined by McDonald (1999) and Kotler (1997) however difference in the e-environment need to be considered. In the past, the planning process has been conceived as an annual event, but as McDonald (1999) points out, this is no longer relevant in a dynamic business environment. The era of e-marketing accentuates this trend. Strategies will have to be reviewed frequently. Ultimately, however, the fundamental marketing mix (4P’s) will determine who wins in markets of the future for either electronic or brick & mortar operations.

For the consumers, the biggest lure to Internet shopping is convenience. Want to browse through a bookstore 24/7 without having to go outside? Companies such as Amazon.com Inc and Barnes & Noble Inc ring up millions of dollars in sales each day by operating vast web sites that effectively let customers do just that. Consumers also are using the web to hunt for bargains, trade stocks at rock-bottom commission rates and gather information about purchases they will make later in the real world.

For the businesses, online commerce is enticing mainly because of its intense efficiency. Once a web is built, it can take orders around the clock and field countless customers-service queries, without losing tempers or requiring coffee breaks. Product catalogs can be updated constantly, without the extra trips to the printer and up-to-the-minute data about what are selling (what isn’t), discounts and offers becomes accessible with a few mouse clicks ( - 17/12/03). The CEO of Kodak was alleged to have said, that he couldn’t tell if Kodak’s website makes money, however he was sure that the website is the most personal way of selling since the door to door salesmen, only now the customers were knocking on Kodak’s door. In order for marketing efforts to succeed in this environment, a new business paradigm is required in which the marketing function is reconstructed to facilitate e-commerce.

However, online commerce may create new problems. With customers able to gather huge amounts of data via the Internet and then go comparison-shopping, profits margins may get squeezed. This then becomes a survival situation for some companies. In addition, many of the cost savings measures are at the expense of human resources, thus creating a national employment ‘headache’ for the Government.

The e-commerce environment has made marketing easier however challenging as consumers demands and needs increases. Hence, it is important that firms gain important insights into customers’ nature and needs. This desire to establish long-term customer relationship with increasingly sophisticated demands and needs has led many firms to seek new ways of acquiring, managing and utilising customer information (Peters and Fletcher, 1995). However, with the sheer growth of the Internet, finding relevant information is becoming difficult, hence consumers might shift to traditional ways of buying. Firms have to ensure that the ‘shift and select’ of information is done on their behalf. Here many firms rely on intermediary, however the concern of issues such as privacy, trust and security (Schell, 1996) are highlighted.

Organizational Processes

All businesses’ effectiveness and efficiencies are related to the supply chain management. By applying information systems within an e-commerce environment, firms can enhance or radically improve many aspects of the supply chain. The supply chain management (SCM) involves the coordination of all supply activities of a firm, from its suppliers and delivery of products to the customers. Technology is vital to SCM since managing relationships with customers, suppliers and intermediaries is based on flow of information and the transactions between these parties. This then provides the ultimate customer superior value, i.e. deliver products to customers with greater efficiency and lower cost, and also reduces operational cost and so increases profitability.

Hence, firms have to consider issues involved in modifying the supply chain in response to e-commerce, i.e. in its upstream and downstream processes, as it should be recognised that process are not confined within one department but they cross the supply chain of all activities. Strategies for the supply chain improvement, as categorized by Hughes et.al. (1998), is based on the scope of change and the speed of change. These changes are associated with business process reengineering and business process improvement (Bocij et al., 1999). Whilst the downstream supply chain management effectiveness and efficiencies have been explained above in the e-marketing concept, here the upstream supply chain management will touch on the e-procurement concepts.

E-Procurement

The growing importance of e-procurement was highlighted by the Tranmit plc (1999) report that showed that around 90% of firms said that they planned to implement an e-procurement management report within the next 5 years, because of the cost saving issues. E-procurement is defined as, electronic integration and management of all procurement activities including purchase request, authorization, ordering, delivery and payment between purchaser and supplier. The primary driver for e-procurement in firms is cost reduction through the need for less material in stock due to faster purchase cycle time. Kluge (1997) and Kalakota and Robinson (2000) consider procurement to be a strategic issue since, significant savings can be made and these cost reductions should increase greater profitability. However, there are risks and impacts that are associated to e-procurement that firms should be aware of. Security concerns and lack of thrust are amongst the risks factors. As stated by Potter (2002), ‘people need to be satisfied about who they are dealing with. They need to know that their message have not been intercepted or corrupted on the way, and most importantly they are legally non-repudiable – meaning the other party can’t walk away from it in the court of law’. Hence it is very important for firms to carefully explain the reasons for introducing the new system, emphasizing the benefits for all parties.

Communicating Across The Value Chain

As mentioned, communication should be across the supply chain, and it could be demonstrated by the following example as described by Steinfield, et al (1995). A large multinational, electrical appliance and consumer electronics manufacturer that used France Telecom’s Teletel system to support connections to approximately 10,000 separate retailers and service engineers throughout France. The after-sales service subsidiary of this manufacturer provided replacement parts and training to its widely dispersed customers base. Through the use of the on-line ordering, coupled with courier service for rapid delivery, the firm was able to eliminate regional parts warehouses and reduce the average time from two weeks to two days. In the past, service engineers waited until they had a sufficient need for parts before driving to the regional warehouse. Once the system was implemented, they used the Teletel based “just-in-time” stocking practice for replacement parts.

Moving towards a centralised warehouse reduces the need for replicated inventories and extra personnel around the country, creating substantial savings. Moreover, service engineers were introduced to an expert system based training application, which was designed to diagnose the fault and indicate the repairs needs. This clearly helped the engineers provide faster service to the customers. This system also accumulated data of customers and the respective repair problems, which provides valuable feedback to the sales & marketing divisions and the design and manufacturing divisions. The beauty of this environment is that it could manage relationships with a large number of customers and as well as suppliers. ( - 18/12/03)

Payment System

Commerce on the Internet is already a reality. Since the firm is starting business on-line, it must start with a merchant account to process customers’ credit cards for payments purposes. These accounts normally include set-up costs, monthly charges and per-transaction costs. However, despite the hype of e-commerce, it lacks the readily available and appropriate payment mechanisms. Yes, payments are made through credit cards, but concerns over security and thrust have lead many firms to rely on the fax or telephone to confirm authorisation details. However, one is astonished by this reality as customers are confidently making on-line payments for phonographic sites. Hence it leads the writer to believe that firms have to develop innovative techniques to assure customers of the safety of its web-site and the its secured payment mechanism.

ASSUMPTIONS POINTS

Point 1

As mentioned earlier, less than 10% of the world’s population are actually connected to the Internet. This clearly does not justify the statement that “everyone and every organizations will be connected”. However the figures are growing as illustrated by the statement “the number of Chinese Internet users has risen to 25.4 million from 8.9 million in 1999”. ( - 12/1/04). Furthermore, issues such as infrastructure costs, education standards, cost of connection etc. are different in Africa, Middle East and the US. Clearly developed countries, like the United States of America has a higher percentage of people and organizations connected to e-commerce but is this enough with the globalisation concept of doing business today. This indicates that the brick & mortar businesses are still relevant and needed. Also government policies could restrict access into the Internet. The government of China appeared to be unsure about letting her citizens freely roam the Internet and are starting to shut down Internet cafes that have no official license. In September 2003 the authorities also closed down the non-Chinese search engines. What was left accessible for the Chinese citizens was censored by cybercops. China also asked foreign websites to refrain from contents that would be regarded as being subversive. In the latter months of this year the rules to use the Internet for Chinese citizens were tightened and more stringently imposed. ( - 12/1/04)

Point 2

Secondly the inconsistent worldwide infrastructure capability does not make it possible to have a very high bandwidth rate globally. The writer could not sight a specific worldwide standard bandwidth rate requirement. As this article was written in 1995, history has proven that this assumption has only been partly realised, as there has been improvement of the bandwidth since 1995 as illustrated below: -

All centres were flabbergasted by the public announcement of NEC's (ESS). The performance overtook the fastest supercomputer since two years: by a factor 5. This special purpose machine was entirely constructed on vector processors and used for climatological research. The ultra high-speed parallel computing system, "Earth Simulator" attained the best computing performance in the world according to the Linpack benchmark test. The result of this test of performance, 35.61 TFlops (trillion operations per second), was approved and the Earth Simulator was registered as the world' s fastest supercomputer by Dr. Jack J. Dongarra of the University of Tennessee, USA, – ( - 12/1/04). Please also refer to Appendix B

Point 3

Thirdly, the assumption that cheap, high-speed computation will be available to facilitate the implementation of low-cost coordination transactions can be debatable. Initially the cost of infrastructure and maintenance far exceeded the revenue, and as such increased the coordination cost. This resulted in many companies failing after adopting into the e-commerce environment. Remember the dot-com companies falling. Now though, with the emergence of out-sourcing concepts and cheaper cost of technology has helped facilitate low-cost coordination transactions. However, contributing to the rise of intermediaries are associated issues of privacy, trust and security (Schell, 1996).

Point 4

It was envisioned in the article, that a market choice box will emergence to interface between customer and the organization, in an easy and intuitive was. Over the years, this revolution from the desktop computers to the laptop computers to the Palmtop computer and the mobile phones indicated the rapid movement towards this vision. Recently, however, the emergence of the smart homes concepts has move closer towards the vision of the authors of the article. In Malaysia for an example, the satellite television, ASTRO, has moved towards the concept of interactive usage as envisioned by the authors.

Point 5

Lastly, there is no reason why the assumption that there will be no market favouritism stands as increasing rivalry amongst existing competitors and new entrants will increase with the ease of e-commerce environment. Hence, firms would create innovative ways to retain customers. Here some of the examples of market favouritism are the subscription based web sites and members only web sites.

CRTICAL ISSUES TO CONSIDER FOR RSC

Amongst the issues that were highlighted above, the writer believes that only 2 areas would be critical for Royal Selangor Club (RSC) in assisting towards the adaptation of e-commerce within its environment, i.e. the effects on the economizing on coordination cost and the impact on the existing supply chain management in efficiencies and effectiveness hence maximising profits.

By improving its website’s services, the club could not only save costs by reducing the number of staffs handling members’ services and billing grouses also increase members’ services effectively. It could also result in improved member relationship hence improving more participation of the club’s facilities and services (Effective and efficient operations and cost management).

Elimination of excessive excess inventories, which means an increase in working capital and improve liquidity. It could also ensure certain goods on site only when needed, hence reducing the cost of maintaining these excessive inventories. There could also be on-line processing of tenders and purchase orders and as such increase efficiency and effectiveness. As an example, RSC buys a lot of liquor and beverages and F&B peripherals from many different intermediaries and upstream supplier."B2B" is applicable here (E-procurement).

E-Commerce helps expand the club into a global reach. Remembering the different categories of membership that the club has, will explain the need of global reach. The ability to reach all members at all time through its ubiquitous access and speed of delivery increases business opportunities. For example when a member has to go outstation or affiliated members coming to KL, they will find it easier to request for affiliation club approval via the website. Furthermore this expansion could result into maintaining a leading edge technology position and image in the market place and against competitors (E-marketing).

CONCLUSION

No one should underestimate the resources needed to bring an e-commerce environment into its business. The impact the resources have on the adoption of e-commerce would be high on the Capex and the Opex, i.e. hardware, software, maintenance and human resources. However this could be overcome with proper outsourcing methodology. Nevertheless, even though the benefits of e-commerce could be enormous, it is imperative to understand and manage the transition from the traditional concepts into the e-commerce strategies with care. The risk of not venturing into the e-commerce could be far greater than the investments required.

While a lot of the views and thoughts reflected in this paper were assumptions and inspiration from years of practical, hands-on supervisory/managerial experience, I do not profess to come up with the management fads and revolutionary thinking on my own. On this score, many of the contemporary views and management fundamentals used or described in this paper have been gathered from various sources and articles including, E-Business and E-Commerce Management- Dave Chaffey, and other websites etc as noted. There might be other management ideas and thoughts linked to other sources which might be deemed to be ‘acknowledged’ here even if no direct translation or quotes have been extracted.

REFERENCES

Dave Chaffey – E-Business & E-Commerce Management

Please also refer to appendix A for an example of a firm taking the e-commerce gamble

Appendix A

Apparel Company Takes A Gamble

By JOHN EVAN FROOK

For 138 years, Duck Head Apparel Co. has remained rooted in the South while rivals built a national presence selling khaki pants. Now the company is taking advantage of the Web's global reach to fight back.

Duck Head is the latest example of a midsize company betting on an IBM AS/400 server infrastructure to not only open new sales channels but forge into supply-chain optimization to make that channel an efficient vehicle for managing production and fulfillment.

This month, the company launched a Web site built atop IBM's Net.Commerce storefront software and Net.Data database middleware, all running on two AS/400 servers. Although they would not disclose the level of IT investment, officials said they will spend $10 million on an interactive ad campaign--a significant bet for a company that recorded $80 million in sales last year.

The chance to attract global sales--and drive revenue to $100 million by the end of the company's fiscal year in July--is worth the risk, according to IS director Henry Greene.

"We have better brand recognition than Levi's Dockers in the Southeast," Greene said. "We are going to push the site for everything it is worth. As sales volume increases, we will continue to increase marketing dollars relative to performance."

Bob Bly, a consultant at the Center for Technical Communication, said Duck Head's $10 million campaign is more characteristic of Web start-ups.

"The major concern is that the advertising-to-sales ratio is much higher than apparel industry standards," Bly said. "Duck Head is viewing itself as a start-up as far as the Web goes. It makes a lot of sense, and you'll see a lot more of this from midsize companies."

Duck Head is not relying on blind faith. A Nielsen Media Research/CommerceNet study published in October showed that 2.7 million people bought clothes on the Internet last year. Moreover, The Gap said its site is generating as much business as its busiest store, or greater than $45 million by some estimates.

Duck Head joins a flock of midsize companies, including Icon Health & Fitness Inc. and Miami Computer Supply, that in recent weeks have chosen IBM's Net.Commerce software and AS/400 hardware for their Web storefronts.

"IBM spent a lot of time catching up to the TCP/IP space from its SNA roots," said analyst Joe Clabby of the Aberdeen Group. "On the Internet, the AS/400 has become a lot more cost competitive with other platforms like Windows NT and Unix than ever before. They have the right product for sites scaling up to 40,000-plus transactions per minute."

In structuring its operations to accommodate the Web, Duck Head has paid particular attention to the ways in which Internet commerce can influence operations. A key factor in the IBM purchase decision was the server system's ability to integrate Web sales orders with Duck Head's existing host system for processing orders. When customers order products from the Web, the order will look no different to the retailer than an EDI transaction, according to Greene.

"On our extranet, we can deliver AS/400 screens into our ERP system without having to do back-end modification," Greene said, adding that Duck Head leverages Cisco hardware and reverse proxy servers to link suppliers in real time.

Among the savings benefits are reduced costs for overnight mail to partners and the ability to make immediate changes in production based on live orders.

Source: http://www.internetwk.com/case/study113098-1.htm

Appendix B

BROADBAND

Broadband refers to the data transfer rate in Internet.
When Internet first started, it was accessed via normal telephone dial-up, which were around 56k through a normal data modem.
The bandwidth (i.e. 56k) was too slow for transfers of multimedia type of files, & with the advancement of web browser technology, higher bandwidth was necessary for faster transfers
This was accommodated by ISDN lines, which provide faster transfer due to the fiber optic technology on which they are based (at least a rate of 2Mbps.)
Subsequent to ISDN, broadband services came into play allowing multiple transfers of voice, media, image & video files.
With the advent of broadband, wireless internet (WIFI) followed suit, with advancement in VOIP (Voice Over Internet Protocol), e.g. telephone calls can be made over the internet at lower rates than the normal dial up, incl. overseas calls
The most important thing regarding the broadband is that it allows a much, much faster access of the Internet with a combination of multimedia file types, which if using the older dial-up can take longer. As an example to download a 4-megabyte mp3 file, on the 56k normal dial up takes nothing less than ½ hour, which translates into longer time & telephone costs. With broadband, it takes between 2–5 minutes.