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Scope of E-Commerce

The mainstream of e-Commerce consists of three areas; these are represented in figure 1.8.


Electronic Market
An electronic market (EM) is a market where the exchange of economic products is coordinated through the electronic exchange of data, eventually resulting in deals among the market participants. The subjects to a commercial negotiation in an electronic market are typically attributes associated with a deal such as delivery or payment conditions.

An electronic market is the use of information and communications technology to present a range of offerings available in a market segment so that the purchaser can compare the prices (and other attributes) of the offerings and make a purchase decision. For example, airline booking system.

Electronic markets are a more efficient form of coordination for certain classes of product transactions, especially those where asset specificity is low or where products are easy to describe. Thus electronic markets are used due to the following reasons: 
  1. Lower Coordination Costs Favour Electronic Markets: Electronically linked producers and retailers are able to lower their costs by reducing intermediary transactions and unnecessary coordination, due to direct electronic transactions with the consumer.
  2. Low Computing Cost: This can transform and expand product to make them suitable for the electronic market.
  3. Multiple Choice Preferences Based Shopping: Traditional single source sales channels had been evolving into linked databases between firms, through EDI, leading to biased electronic markets. The evolution of these linked databases is now yielding to share databases accessible to all firms. As a result, biased electronic markets will transform into unbiased markets.
  4. Trade-Off in Market Participation: Electronic markets pass on the savings accrued from improved coordination costs and sell at a discount compared to traditional markets.
  5. Minimised Delivery Costs: Delivery costs are minimised in two ways: i) Since the information in an e-commerce transaction is transmitted electronically, the paper based information/document exchange cost is substituted by much lower electronic distribution costs. ii) As each element of the industrial value chain is by passed, a physical distribution link and related inventory carrying costs are eliminated. 
The electronic market is primarily about the search phase of the trade cycle as shown in figure 1.9:



The electronic market is most effective in assisting the buyer in a commodity market where products are essentially identical across all sellers. An effective electronic market increases the efficiency of the market; it reduces the search cost for the buyer and makes it more likely that the buyer will continue the search until the 'best buy' is found.

Electronic Data Interchange (EDI) 

EDI provides a standardised system for coding trade transactions so that they can be communicated directly from one computer system to another without the need for printed orders and invoices and the delays. 

EDI is used by organisations that make a large number of regular transitions. One sector where EDI is extensively used is the large supermarket chains, which use EDI for transactions with their suppliers. 

Electronic Data Interchange (EDI) involves automated data exchange between business entities in standardised formats. EDI transactions effectively contain the same data as a traditional paper-based transactions. Since it is automated, EDI greatly improves the speed of business transactions when compared to conventional transactions requiring human intervention.

EDI has been implemented in many organisations in order to further increase efficiency and increase profits. EDI provides the following benefits: 
  1. Improved inventory management, 
  2. Improved accuracy, 
  3. Minimise paper usage and storage, and 
  4. Reduce cycle times and costs.

EDI can be compared and contrasted with electronic mail (e-mail). E-mail enables free format, textual messages to be electronically transmitted from one person to another. EDI, on the other hand, supports structured business messages (those that are expressed in hard copy, pre-printed forms or business documents), and transmits them electronically between computer applications, rather than between people.

Electronic data interchange involves in practical business terms computer-to- computer exchanges of invoices, orders and other business documents. It ensures cost savings and improves efficiency because it minimises the errors that can occur if the same information has to be typed into computers more than once. At the same time, EDI provides an easily accessible mechanism for companies to buy, sell, and trade information. In the business-to-business market, major corporations have embraced EDI systems. In order to reduce costs and improve efficiency and competitiveness, many corporate giants are now demanding that their suppliers convert their sales and purchasing operations to EDI systems as well. In the retail market, the use of EDI systems allow the retailer to implement quick response strategies that can reduce the time they must hold merchandise in inventory, which can result in substantial cost savings for the retailer.

Each company runs its own electronic business system. These systems may not be directly compatible with each other. EDI permits different systems to communicate and exchange data for business transactions.

EDI is used for regular repeat transactions (figure 1.10):




It takes quite a lot of work to set-up systems to send and retrieve EDI messages and, in general, it is not applicable to one-off exchanges. Also EDI is a formal system and it does not really have a place in the search and negotiation phases (although there have been attempts to formulate messages for this purpose). 

EDI, when initially introduced was seen by many as a universal, or atleast a generalised, form of trading. In the event its adoption has been limited to a number of trade sectors where the efficiency of the supply chain is of vital importance- the word limited is used above but that limit covers a vast number of transactions.

Internet Commerce

Internet commerce means the use of the global internet for purchase and sale of goods, services, including service and support after sale. Internet commerce brings some new technology and new capabilities to business. 

Information and communication technologies can also be used to advertise and make once-off sales of a wide range of goods and services this type of e- commerce is typified by the commercial use of the internet.

The internet can be used for the purchase of books that are then delivered by post or the booking of tickets that can be picked up by the clients when they arrive at the event. 

This form of e-commerce may give its customers credit facilities but is typified by the 'cash' trade cycle (where a "cash" payment is taken to include settlement at the time of purchase by a credit card or some form of e-cash), figure 1.11:


The internet can be used for all or part of the trade cycle:
  1. The first stage of the trade cycle is search and the facilities of the internet can be used to locate sites offering, or advertising, appropriate goods or services; a function, that is similar to an electronic market. In many instances, internet sites offer only information and any further steps down the trade cycle are conducted on the telephone or at a conventional shop outlet. 
  2. An increasing number of sites offer facilities to execute and settle the transaction, or in normal jargon to make a purchase - delivery may be electronic or by a home delivery service depending on the nature of the goods or service being offered. The use of the internet for online purchasing may or may not follow a search - publishing a website address is an increasingly common feature on conventional advertising. 
  3. The final use of internet e-commerce is for after-sales service. Many IT providers now offer online support and online services such a banking are, arguably, a special case of the use of after-sales transactions. Again the use of the internet for after-sales may or may not be a follow-on to an earlier online transaction.


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