Chapter Copyright© 2004 Thomson Learning All rights reserved 9 Multinational E-Commerce: Strategies and Structures Multinational E-Commerce: Strategies.

Chapter

Copyright© 2004 Thomson Learning All rights reserved

9Multinational E-Commerce:

Strategies and Structures

Copyright© 2005 South-Western/Thomson Learning All rights reserved

Learning Objectives

• Define the forms of e-commerce• Appreciate the growing presence of e-commerce in the

global economy• Understand the structure of the Internet economy• Identify the basic components of successful

e-commerce strategy

• Define the forms of e-commerce• Appreciate the growing presence of e-commerce in the

global economy• Understand the structure of the Internet economy• Identify the basic components of successful

e-commerce strategy


Learning Objectives

• Understand the attractions of and deterrents to building a multinational e-commerce business

• Know the basic multinational e-commerce business models

• Identify the practicalities of running a multinational e-commerce business

• Understand the function of enablers in multinational e-commerce operations

• Understand the attractions of and deterrents to building a multinational e-commerce business

• Know the basic multinational e-commerce business models

• Identify the practicalities of running a multinational e-commerce business

• Understand the function of enablers in multinational e-commerce operations


The Internet Economy

• Internet Economy• Growing faster than any other business trend in

history• Companies face issues similar to those faced by

traditional multinational companies

• Internet Economy• Growing faster than any other business trend in

history• Companies face issues similar to those faced by

traditional multinational companies


What Is E-Commerce?

• Refers to the selling of goods or services over the Internet

• Includes goods or services delivered offline• E.g., Amazon.com shipping book via UPS

• Also includes goods and services delivered online• E.g., downloaded computer software

• Refers to the selling of goods or services over the Internet

• Includes goods or services delivered offline• E.g., Amazon.com shipping book via UPS

• Also includes goods and services delivered online• E.g., downloaded computer software


Types of E-Commerce Transactions

• B2C: business-to-consumer transactions• Buying toys from eToys

• B2B: business-to-business transactions• Makes up 70 to 85% of current e-commerce

business• C2C: consumer-to consumer transactions

• Anyone selling online• C2B: consumer-to-business transactions

• B2C: business-to-consumer transactions• Buying toys from eToys

• B2B: business-to-business transactions• Makes up 70 to 85% of current e-commerce

business• C2C: consumer-to consumer transactions

• Anyone selling online• C2B: consumer-to-business transactions


Exhibit 9.1: E-Commerce Value Chain



• Two indicators of the global presence of e-commerce• Secure server: an Internet host that allows users to

send and receive encrypted data• Internet hosts: computers connected to the Internet

with their own IP addresses• OECD dominate the Internet with over 90% of Internet

hosts

• Two indicators of the global presence of e-commerce• Secure server: an Internet host that allows users to

send and receive encrypted data• Internet hosts: computers connected to the Internet

with their own IP addresses• OECD dominate the Internet with over 90% of Internet

hosts


Exhibit 9.2: Secure Servers and Internet Hosts in Selected OECD Countries



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

• Between 2001 and 2002, U.S. consumers spent over $1.3 billion on e-commerce, increase of over 90%.

• Recent estimates suggest growth around the world.• Offers tremendous opportunities for multinationals

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

• Between 2001 and 2002, U.S. consumers spent over $1.3 billion on e-commerce, increase of over 90%.

• Recent estimates suggest growth around the world.• Offers tremendous opportunities for multinationals


Exhibit 9.3: Internet Users around the World



• Internet economy has four layers• The infrastructure• The applications infrastructure• The Internet intermediaries• The Internet commerce layer

• Internet economy has four layers• The infrastructure• The applications infrastructure• The Internet intermediaries• The Internet commerce layer


Layer 1

• The Internet infrastructure is the backbone of the Internet, including the Internet service providers, e.g.,• Communications (Qwest, MCI/Worldcom)• Internet service providers (Mindspring, AOL,

Earthlink)• Networking (Cisco, Lucent, 3Com)• Hardware (Dell, Compaq, HP)

• The Internet infrastructure is the backbone of the Internet, including the Internet service providers, e.g.,• Communications (Qwest, MCI/Worldcom)• Internet service providers (Mindspring, AOL,

Earthlink)• Networking (Cisco, Lucent, 3Com)• Hardware (Dell, Compaq, HP)


Layer 2

• The applications infrastructure• Companies and consultants that build web systems

and supporting software• Consultants (SB1)• Commerce applications (Netscape, Sun, IBM)• Web development software (Adobe, NetObjects)• Search engine software (Verity)• Web-enable databases (Oracle)

• The applications infrastructure• Companies and consultants that build web systems

and supporting software• Consultants (SB1)• Commerce applications (Netscape, Sun, IBM)• Web development software (Adobe, NetObjects)• Search engine software (Verity)• Web-enable databases (Oracle)


Layer 3

• The internet intermediaries• Companies that provides linking services on the

Internet and derive revenues from commissions, advertising, and membership fees• Online travel agencies (Travelweb,

Travelocity.com)• Online brokerages (E*TRADE)• Content aggregators (CNET, ZDNet)• Online advertising (Yahoo!)

• The internet intermediaries• Companies that provides linking services on the

Internet and derive revenues from commissions, advertising, and membership fees• Online travel agencies (Travelweb,

Travelocity.com)• Online brokerages (E*TRADE)• Content aggregators (CNET, ZDNet)• Online advertising (Yahoo!)


Layer 4

• The Internet commerce layer• Companies that conduct commercial transactions

on the Web• E-retailers (wine.com, diamond.com)• Manufacturers selling directly (hpshopping.com,

Dell)• Subscription-based companies (VRBO.com)• Transportation services (most airlines)• Shipping services (FedEx, UPS)

• The Internet commerce layer• Companies that conduct commercial transactions

on the Web• E-retailers (wine.com, diamond.com)• Manufacturers selling directly (hpshopping.com,

Dell)• Subscription-based companies (VRBO.com)• Transportation services (most airlines)• Shipping services (FedEx, UPS)


Exhibit 9.4: Internet Businesses Ranked on Business Week’s Information Technology 100


Fundamentals of E-Commerce

• E-commerce is evolving quickly.• Failures of many start-ups show it’s not without risks.• E-commerce presents significant opportunities and

threats.

• E-commerce is evolving quickly.• Failures of many start-ups show it’s not without risks.• E-commerce presents significant opportunities and

threats.


Exhibit 9.5: Summary of Threats and Opportunities


Five Steps for Successful E-Commerce Strategy

1. Build on current business models and experiment with new e-commerce models1.Use e-commerce to search for ways to reduce costs

or enhance the business.2. Meet the challenge of developing an e-commerce

organization1.Entire firm (not only top management) must be

prepared to embrace the e-commerce model.

1. Build on current business models and experiment with new e-commerce models1.Use e-commerce to search for ways to reduce costs

or enhance the business.2. Meet the challenge of developing an e-commerce

organization1.Entire firm (not only top management) must be

prepared to embrace the e-commerce model.


Steps for Successful E-Commerce Strategy (cont.)

3. Allocate resources to the e-commerce business3.Commit financial, human, and technological

resources to develop e-commerce capabilities4. Build a superior e-commerce infrastructure as a basis

of a differentiation strategy3.Provide superior online experiences

3. Allocate resources to the e-commerce business3.Commit financial, human, and technological

resources to develop e-commerce capabilities4. Build a superior e-commerce infrastructure as a basis

of a differentiation strategy3.Provide superior online experiences


Steps for Successful E-Commerce Strategy (cont.)

• Make sure the entire management team aligns with the e-commerce agenda

• Make sure the entire management team aligns with the e-commerce agenda


E-Commerce Structure: Integrated or Autonomous

• Company needs to decide how e-commerce fits into existing design

• Right mixture of bricks and clicks• How much to integrate Internet into traditional

businesses• Brick-and-mortar: traditional or non-virtual business

operation

• Company needs to decide how e-commerce fits into existing design

• Right mixture of bricks and clicks• How much to integrate Internet into traditional

businesses• Brick-and-mortar: traditional or non-virtual business

operation


Integrated or Autonomous

• 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 (e.g., Barnes & Noble and Barnesandnoble.com)

• 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 (e.g., Barnes & Noble and Barnesandnoble.com)


E-Commerce Structure: Integrated or Autonomous

• The independent benefits• Faster and more entrepreneurial• Freed from corporate bureaucracy

• The integrated benefits• Cross-promotion, shared information, increased

quantity purchases, use of same distribution channels

• The independent benefits• Faster and more entrepreneurial• Freed from corporate bureaucracy

• The integrated benefits• Cross-promotion, shared information, increased

quantity purchases, use of same distribution channels


Exhibit 9.6: Key Decisions in the Integration vs. Separation Decision


Additional Operational Challenges for an E-Commerce Business

• Finding partnerships and alliances with customers or third parties

• Attracting, retaining, and developing employees in the e-commerce unit

• Inadequate e-commerce training• E-commerce employee retention• Deciding what e-commerce functions to outsource

• Finding partnerships and alliances with customers or third parties

• Attracting, retaining, and developing employees in the e-commerce unit

• Inadequate e-commerce training• E-commerce employee retention• Deciding what e-commerce functions to outsource


Pure E-business Company Tasks to Face Challenges

• Develop information and management systems to respond to growth

• Maintain rapid decision making, creativity, innovation, and flexibility

• Build relationships with e-commerce support companies and customers

• Attract and retain e-commerce–capable talent• Develop an effective management team

• Develop information and management systems to respond to growth

• Maintain rapid decision making, creativity, innovation, and flexibility

• Build relationships with e-commerce support companies and customers

• Attract and retain e-commerce–capable talent• Develop an effective management team


Tasks for Traditional Companies with E-Commerce

• Build a common vision and commitment to e-commerce

• Change the organization structure for quick reconfiguration of assets and capabilities

• 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

• Build a common vision and commitment to e-commerce

• Change the organization structure for quick reconfiguration of assets and capabilities

• 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 9.7: Organizational Changes in Major Multinational Co. Building E-Commerce


Globalizing Through the Internet

• A Web site gives the company immediate global access• The challenges of globalization faced by traditional

brick-and-mortar companies remain• Managers must still decide whether they want to sell

global or local product• Business issues related to national contexts (e.g.,

currencies, local laws, etc.) have to be handled

• A Web site gives the company immediate global access• The challenges of globalization faced by traditional

brick-and-mortar companies remain• Managers must still decide whether they want to sell

global or local product• Business issues related to national contexts (e.g.,

currencies, local laws, etc.) have to be handled


Multinational E-Commerce Strategy Formulation

• Depends on• Nature of the business• Types of products or services offered through

e-commerce• Hierarchy of difficulty depending on infrastructure

requirements• Telecommunications infrastructure to move

information• Payment infrastructure to move money• Physical infrastructure to deliver products

• Depends on• Nature of the business• Types of products or services offered through

e-commerce• Hierarchy of difficulty depending on infrastructure

requirements• Telecommunications infrastructure to move

information• Payment infrastructure to move money• Physical infrastructure to deliver products


Attractions of E-Commerce

• Technology• Already available

• Efficiencies• More efficient

• Convenience• Web is operating all the time regardless of location

• Technology• Already available

• Efficiencies• More efficient

• Convenience• Web is operating all the time regardless of location


Attractions of E-commerce(cont.)

• Speed of access• Company’s products or services can be accessed

immediately from anywhere in the world

• Speed of access• Company’s products or services can be accessed

immediately from anywhere in the world


E-Commerce Deterrents/Challenges

• 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

• 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


E-Commerce Deterrents

• Cultural differences• Web sites must be appropriate culturally

• Traditional cross-border complexities remain• Exchange rates, different taxes, and government

regulations

• Cultural differences• Web sites must be appropriate culturally

• Traditional cross-border complexities remain• Exchange rates, different taxes, and government

regulations


Picking a Market

• Two factors to target countries• Those with market inefficiencies

• E.g., formerly state-controlled economies• Attractive demographic characteristics

• Internet population of at least 5%• High literacy rate• Participation in at least on free trade agreements• Government with viable legal system

• Two factors to target countries• Those with market inefficiencies

• E.g., formerly state-controlled economies• Attractive demographic characteristics

• Internet population of at least 5%• High literacy rate• Participation in at least on free trade agreements• Government with viable legal system


Picking a Market (cont.)

• E-commerce potential is substantial in Latin America because of MERCOSUR

• Potential exists for Asian countries with membership in ASEAN

• Open borders and common currency of European Union is also fertile ground

• E-commerce potential is substantial in Latin America because of MERCOSUR

• Potential exists for Asian countries with membership in ASEAN

• Open borders and common currency of European Union is also fertile ground


Exhibit 9.8: E-Readiness of Selected Countries


Multinational E-Commerce Strategy Implementation

• Requires building an appropriate organization and developing the necessary technical capabilities to conduct electronic transactions

• Requires building an appropriate organization and developing the necessary technical capabilities to conduct electronic transactions


The Multinational E-Commerce Organization

• Three-tiered mixing of global and local functions• Headquarters

• Vision, strategy, leadership for worldwide electronic marketing

• Also provide shared services such as network infrastructure

• Three-tiered mixing of global and local functions• Headquarters

• Vision, strategy, leadership for worldwide electronic marketing

• Also provide shared services such as network infrastructure


The Multinational E-Commerce Organization (cont.)

• Shared functional services• Provide HRM, marketing, partner management to

regions• Local subsidiaries

• Deliver goods, manage functions better done locally such as the supply chain

• 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 9.9: Organizational Structures of the Multinational E-Corporation


Technical Capabilities for Multinational E-commerce

• Ability to process multiple currencies• Ability to calculate/show purchase information on

international shipping, duties, and local taxes such as VAT

• Systems that check compliance with local and international laws

• Ability to process multiple currencies• Ability to calculate/show purchase information on

international shipping, duties, and local taxes such as VAT

• Systems that check compliance with local and international laws


Technical Capabilities for Multinational E-commerce

• Ability to provide support in multilingual service centers• Fraud protection• Electronic payment models in addition to credit cards

• Ability to provide support in multilingual service centers• Fraud protection• Electronic payment models in addition to credit cards


To Build or Outsource Technical Capabilities?

• Two options• Run all e-commerce functions internally or

outsource to e-commerce enablers• E-commerce enablers: fulfillment specialists that

provide services such as Web site translation• Provide services and software that translate Web

sites, calculate shipping, value-added taxes, duties, and other charges unique to each country

• Two options• Run all e-commerce functions internally or

outsource to e-commerce enablers• E-commerce enablers: fulfillment specialists that

provide services such as Web site translation• Provide services and software that translate Web

sites, calculate shipping, value-added taxes, duties, and other charges unique to each country


“Mission-Critical” Factors to Communicate to Global Audience

1. Link all Web sites to corporate Web site2. Web site should contain all nonelectronic local contact

information for feedback or comment3. Provide a prominent list of languages used by the

company’s Web site4. Use different languages for downloads

1. Link all Web sites to corporate Web site2. Web site should contain all nonelectronic local contact

information for feedback or comment3. Provide a prominent list of languages used by the

company’s Web site4. Use different languages for downloads


“Mission-Critical” Factors to Communicate to Global Audience (cont.)

5. Localize by language the parts of the parent company Web site that receive the most access

6. Provide a site map7. Provide the firm’s privacy statement in all local

languages

5. Localize by language the parts of the parent company Web site that receive the most access

6. Provide a site map7. Provide the firm’s privacy statement in all local

languages


“Mission-Critical” Factors to Communicate to Global Audience (cont.)

8. Guard against local piracy by putting your policies in local languages

9. Localize your graphics and written material10.Localize content management

8. Guard against local piracy by putting your policies in local languages

9. Localize your graphics and written material10.Localize content management


Exhibit 9.10: Major Problems Identified in Web Site Globalization

Chapter Copyright© 2004 Thomson Learning All rights reserved 9 Multinational E-Commerce: Strategies and Structures Multinational E-Commerce: Strategies.

Documents

forms of ecommerce

business transactions

business trend

business transactions

growing presence of

consumer transactions

ecommerce value chain

rights reserved exhibit