E-learning MBA Master Degree online from distance

  • The New World Of E-commerce

    TEACHER: Hello, Student. We are all aware of the dramatic growth of the Internet as well as of the rapid evolution of its technical infrastructure.

    The Internet offers a variety of services, of which E-mail and the World Wide Web (www) are the most popular ones.

    Roughly 50% of all adults living in the US access the web, and the percentage in other regions of the world is rising very fast.

    The Web offers almost infinite options, from viewing the filmography of your favorite actors to checking stock market quotations. But from an economic point of view, the most important and potentially revolutionary service of the web is Electronic Commerce.

    STUDENT: I basically know what you mean, but how do you exactly define "Electronic Commerce"?

    TEACHER: Known popularly as e-commerce, this facility consists in allowing the selling and purchasing of almost anything, from almost any place of the world to any other place of the world, through the Internet. This is what I call the E-Commerce Revolution

    STUDENT: Now, why do you use the word "revolution" ? This is in fact a very strong word.

    TEACHER: Right. We all heard of the Industrial Revolution (IR). Basically, the IR was a process of mechanization: doing with machines, much more efficiently, the same things that were made before by hand: cotton spinning, webbing cloth, making shoes, etc.

    Now, was this really a revolution? It can be argued that it was simply an accelerated process of improved productivity. Nothing really new or revolutionary was present.

    STUDENT: Well, everyone calls this process the "Industrial Revolution"! Who says the name "revolution" in wrongly used? Is that you, Teacher?

    TEACHER: I would not dream of that, since the wisdom of our ancestors is in the name "Industrial Revolution", and my unhallowed hands shall not disturb it.

    STUDENT: "the wisdom of our ancestors... my unhallowed hands" indeed! You sound like Dickens!

    TEACHER: I was trying to impress you, but you found me out! The expressions are from Dickens' famous book A Christmas Carol.

    But let's continue. It is the famous management guru Peter Drucker himself who maintains that only the railroads were the new, revolutionary element in the times of the IR. Allowing people to get in contact and trade over long inland distances, the railroads were the facility that motorized the rapid, revolutionary changes of the IR era.

    STUDENT: If we apply the same reasoning, the advent of the computer was not revolutionary. The same procedures (invoicing, accounting, etc.) are now performed more efficiently with computers.

    TEACHER: Correct. According to Drucker, only e-commerce is the really new, revolutionary facility which will produce dramatic changes in the same way the railroads did in the 19th. century.

    STUDENT: Fine, but I see that there are several different types of e-commerce.

    TEACHER: Correct. First let’s look at Merchant (Business) to Consumer E-commerce: B2C.

    Any person with access to the web can easily purchase books, CDs, electronic equipment, and almost anything from suppliers located in any country. We can compare prices and make rational purchase decisions. It does not matter where we live, and the cost of access to the web is not high.

    This part of e-commerce, the selling by merchants directly to consumers is certainly very important. It is growing rapidly, and will cause many changes in the way the traditional manufacturer to consumer chain is structured.

    STUDENT: And what about the "dotcom" meltdown of year 2000?

    TEACHER: A lot of e-commerce companies went out of business when the "dotcom" bubble burst. But in almost all cases those companies did not have a sound business plan; they were able to get financing and begin operations simply by calling themselves "an internet company". But companies with a sound business plan survived, and the e-commerce volume is growing continuously every year.

    STUDENT: And what will be the effect on existing "brick and mortar" businesses?

    TEACHER: Some businesses will simply disappear and many more will have to adjust to the new model if they are to survive. Managing a business engaged in producing and/or selling will be radically different.

    STUDENT: I guess now you will talk about B2B.

    TEACHER: Yes. Let’s discuss Firm To Firm (Business to Business) E-commerce: B2B.

    As said before, B2C e-business is important. But the most important part of e-commerce, both in volume and in its potential to produce radical changes, is firm to firm commerce.

    Businesses will are no longer restricted to the traditional system of selling and purchasing industrial goods. By offering their goods on the Internet sellers of raw materials or industrial goods may reach customers all over the world. And firms are able to find the best providers of the inputs they need in the same way.

    STUDENT: I can image how this is affecting selling and purchasing organizations in every firm.

    TEACHER: Very much, of course. And here again, managing a business in the near future will require new types of knowledge and different talents. Just imagine how differently Ford, and the surviving Ford dealers, have to manage their businesses when now:

    * Car buyers can find the car they want at the right price on the web instead of being limited to the nearest car dealership.
    * Ford is able to quickly obtain the materials they need to produce cars, at the best price on any given moment, from an unlimited number of suppliers from anywhere in the world.

    Just in case you are wondering when this will happen, the answer is now. Ford and GM, as well as many other companies, have transferred their purchasing operations to the web in 2000. All suppliers, business partners and customers from all over the world are connected.

    STUDENT: And how would you classify one, if not the most, successful dotcom company, eBay.com?

    TEACHER: eBay is an intermediary for C2C and B2C transactions resulting from auctions. Although some of the products auctioned at eBay are sold by companies, in most cases the seller and the buyer are individuals who can be considered "consumers".

    STUDENT: OK, so the new paradigm of an efficient manager is "The E-Commerce Savvy Manager". Can you describe this new species?

    TEACHER: To successfully manage any type of business in the e-commerce era, all of the traditional skills will still be necessary: marketing, finance, personnel administration, etc. will still be vital.

    The additional new skills needed will be:

    * A good understanding of how the WWW (and information technology in general) works.
    * Flexibility of mind to follow (or better, produce) the quick changes which are taking place in this environment. These changes are technological as well as cultural, social and economical.

    STUDENT: So, a manager with a new mentality is needed, both for purely e-commerce as well as for traditional brick-and-mortar enterprises.

    TEACHER: Yes. Although the traditional skills will still be necessary, many of the basic assumptions a manager could make until a short time ago will have to change.

    Student, can you think of some examples of concepts that do not work anymore?

    STUDENT: OK. How about "I can charge a higher price than some of my competitors, based on the fact that the customer has no easy way to find my competitors and look at their prices." ?

    TEACHER: No way! The Web did away with this inability of the customer to compare prices.

    STUDENT: I could say that "Most of my customers are located near my warehouse, and they can not purchase from a far-away supplier."

    TEACHER: Forget it: UPS, Federal Express, DHL, etc. will deliver door to door in 24 hours from one corner of the world to the other. OK, as an exception I can accept that what you said is valid for heavy, low cost products such as... well, bricks!

    STUDENT: Some business people think that they can "afford a few unsatisfied customers, since the latter have no way to communicate their complaints to the mass of customers and prospects.".

    TEACHER: Silly! One single unhappy customer can post his complaint on the web and let thousands know. In Japan a buyer of a Toshiba video recorder, unhappy with the way the company ignored his request for service, posted this complaint in the web. He got 6.3m hits a day as other customers added their complaints. Toshiba sued but the courts ruled in favor of the customer. The company publicly apologized.

    STUDENT: Let me try this one: "I manage a giant chain of retail stores. No way a competitor can be a menace, the amount of capital needed would be too large."

    TEACHER: Ha! Just look at how Amazon.com put Barnes & Noble in a tight spot in a short time.

    STUDENT: I see your point about managers being forced to abandon old concepts. But why must an existing traditional firm sell on the web?

    TEACHER: An existing firm will probably have to complement (in most cases not replace) its business using e-commerce, forced by new and existing competitors.

    We mentioned Barnes & Noble. This is a traditional, giant chain of bookstores in the US. As you probably know, Amazon.com started as a Web retailer of books. Shortly thereafter B&N was forced to establish a Web store, too. B&N did not close its brick-and-mortar stores, of course. But it was forced to add an B2C e-commerce option.

    Traditional stock brokers such as Merrill Lynch are, reluctantly, trading shares on the web (at much lower commissions than they charge for their conventional service) forced by low cost web brokers such as E-Trade.

    STUDENT: Do you think the traditional shopping Mall is going to disappear?

    TEACHER: No, but it is certainly under siege. Are the owners of the Malls worried? At least one of them is. The Wall Street Journal reported that the owners of The Saint Louis Galleria, a 170-store mall, prohibited tenants who operate the stores from advertising the sale of their products on the web.

    STUDENT: It seems to me that the Web offers many new opportunities for start-ups.

    TEACHER: Yes. While it is still not easy to get rich quickly, the low price of entry at a modest level makes it much easier to start a new company.

    In fact, imagination is the limit. From an ambitious objective of competing head to head with the giants (as Amazon.com does) to a housewife wanting to sell hand-made dolls, all is possible with e-commerce.

    STUDENT: Are you serious about the chances of starting a new Amazon?

    TEACHER: Establishing a business like Amazon.com still costs a lot of money, although much less than opening thousands of traditional stores. But Yahoo, Amazon.com and many others are offering to sell anyone's wares on the web, no matter how small the volume of sales might be. Many companies, including Yahoo and IBM, will open an e-commerce store for anyone at a reasonable, affordable price.

    Now we will describe different types of B2C companies. We could call this section "The E-Commerce "Boutique" vs. "The On-Line Department Store"-

    Different strategies are being used in B2C e-commerce. One is to specialize in a particular category. A good example is eToys; as the name suggests, they sell only toys and a few other products for children. On the other hand, Amazon.com, after having started with the selling of books only, has expanded into a wide variety of products. The very nature of e-commerce allows these very different strategies to be successful.

    STUDENT: I guess this is the time for a review, isn’t it?

    TEACHER: Sure. Here it is:

    * It is obvious that e-commerce is both a great challenge for existing businesses, and a golden opportunity for start-ups, or for existing firms to grow.
    * The traditional managing skills will still be necessary, but new skills and a different mentality must be also present.
    * If you are, or will become a professional manager, you will have to acquire those new skills and convert to the new mentality.

    And if you are thinking about starting your own business, this is the best time in history to reach this goal via e-commerce, no matter how small your available capital. You may even start a company in your spare time.


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