E-Commerce on Business Strategy the Purpose of Term Paper

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E-Commerce on Business Strategy

The purpose of this literary review is to determine the effects and impacts of e-commerce on business strategies and internal processes with particular emphasis on the travel industry.

Our review will include material from several different sources including the Sloan Management Review, Travel Weekly and white papers from Ernest & Young.

We will begin by defining E-commerce and the impact of it in the new economy. Subsequently we will discuss the impacts and effects of e-commerce on business strategies. Finally our discussion will focus on the Travel industry and the impact of e-commerce on Tour operators.


E-commerce is defined as the use of telecommunications, in particular the Internet, to purchase and sell goods and services. (The Macmillan Encyclopedia 2001) The term e-commerce also refers to using electronic means to improve the way a company does business and to create value, or competitive advantages, for the company. Improvements can be in business-to-business, business-to-consumer, and intra-business transactions of information, goods, and funds.("E-Commerce 101," 1999)

Effects and Impacts of E-commerce on Business Strategies and Internal Processes

All of a sudden, electronic commerce seems to be all over the place, leaving traditional companies pondering how to alter business strategies to meet the demand. Is e-commerce just another trend? Do the benefits of this new technology outweigh the risks and difficulties involved in overhauling the business? Should companies be guarded and wait things out? The Sloan Management Review argues, "E-commerce is a force that is not likely to fade....All companies will eventually be forced to rethink their strategies, management structure and business operations in light of the economic benefits that e-commerce enables." (Mass, 2000)

Encarta writes that, "Internet sales and transactions in the retail and services sectors increased significantly from 1999 to 2000." ("Electronic Commerce," 2002) The Encarta article goes on the explain that the United States Bureau of the Census reported that retail e-commerce sales improved 92% from $15 billion in 1999 to $29 billion in 2000, whereas e-commerce service transactions increased 48% from $25 billion to $37 billion. In spite of these dramatic increases, e-commerce is still in its formative years. The U.S. Census Bureau also reported that in the year 2000 retail e-commerce sales denoted less than 1% of all retail sales. ("Electronic Commerce," 2002)

E-commerce and traditional commerce are governed by many of the same principles these principles dictate that buyers and sellers come together to exchange goods and services for money. Instead of conducting business in the traditional way -- e-commerce consumers and produces conduct business through networked computers or the Internet. ("Electronic Commerce," 2002)

E-commerce is popular among buyers because it is convenient. "The benefits to online shopping in a tough economy are the 24/7 access to merchandise, which saves time and money," (Hyman, 2002) Buyers can also visit the Internet to conduct comparison pricing and to buy goods and this can be accomplished without having to leave their homes or offices. In a few instances, consumers can immediately acquire a product or service, such as an electronic book, a music file, or computer software, by downloading it over the Internet. ("Electronic Commerce," 2002")

GartnerG2 survey revealed that 79% of online shoppers value convenience, while only 32% valued price. Forty-four hundred online shoppers were surveyed, 49% referred to convenience as the single most important factor in making a purchase over the Web. On the contrary, 2% revealed that price was the only important consideration. Price and convenience were important for 30% of surveyed online shoppers.. ("Electronic Commerce," 2002)

For sellers, e-commerce offers a way to cut costs and increase their markets. (Electronic Commerce," 2002) Sellers also gain advantage of targeting customers without actively marketing. If information about goods and services is made available on the Internet the intended buyer will get the information, without active advertisement of the goods by the producer. ("CMC E-commerce Suite, 2002)

In addition, sellers do not need to build, staff, maintain a store or print and distribute mail order catalogs. Automated order tracking and billing systems cut additional labor costs, and if the product or service can be downloaded, e-commerce firms have no distribution costs. Because products are sold over the global Internet, sellers have the ability to market their products or services globally and are not restricted by the physical location of a store. Moreover Internet technologies also permit sellers to track the interests and preferences of their customers with the customer's consent and then use this information to build an ongoing rapport with the customer by customizing products and services to meet the customer's wants and needs..(Electronic Commerce," 2002)

E-commerce also has some disadvantages, however. Many of these disadvantages are due to the fact that consumers are reluctant to buy certain products online. For instance, online furniture businesses have been unsuccessful because customers want to test a pricey item such as a sofa before they buy it. Many people feel that shopping is a social experience. These people feel that going to a store or a shopping mall with friends or family, an experience that they cannot be accomplished online. Buyers must also be reassured that credit card transactions are secure and that their privacy is respected. ("Electronic Commerce," 2002)

Scores of e-commerce retail and service businesses failed in the late 1990s and as the 21st century started, and a number of unresolved issues have come to lights as e-commerce transactions have grown in number and value. There are a myriad of issues facing e-commerce business strategies among these are taxation, security, privacy, and profitability. ("Electronic Commerce," 2002)

Taxation is an issue because the Internet surpasses national borders and also state or provincial borders within a nation, the issue of sales taxes on goods or services purchased over the Internet creates a dilemma for many governments that rely on sales tax revenue to finance government programs and services. The Internet is a fundamentally tax-free zone. ("Electronic Commerce," 2002) Even though online sales still account for only about 1% of all retail purchases in the United States, a current University of Tennessee study argues that states lost U.S.$13 billion in tax revenue to e-commerce sales in 2000. (Regan, 2002)

Another study reported in 2001 found that state and local governments in America lost an estimated $13.3 billion in uncollected sales taxes for online purchases made that year. Various state and local governments have lobbied the U.S. Congress attempting to impose some type of uniform sales tax that every e-commerce business would be required to pay. At the other end of the spectrum e-commerce businesses have lobbied against states and local governments, arguing that these mandatory taxes would impose a heavy burden on businesses. The European Union is also taking into consideration a proposal to collect sales taxes on Internet purchases by consumers. The EU has already created a way to impose taxes on business-to-business transactions over the World Wide Web.. (Electronic Commerce," 2002)

Another issue facing businesses is ensuring the security of consumers.

Established encryption methods such as Secure Sockets Layer (SSL), a protocol developed by Netscape Communications Corporation, encode credit card numbers and other information to foil would-be thieves." (Electronic Commerce," 2002) Shoppers can verify if the site they are using is secure by noting the "secure" icon at the bottom of their browser window. Additionally, the address bar of Internet browser will have the "https" prefix instead of the standard "http" prefix when the site is secured. Even so, some customers are reluctant to disclose credit card information over the Web, and it is believed that this type of reluctance has delayed the growth of e-commerce. (Electronic Commerce," 2002)

As an alternative to credit card information some websites allow customers to use digital cash also known as e-cash. When businesses utilize this feature on a website, shoppers can purchase a number of virtual credits through a single supply, and in turn use those credits as dollars when purchasing products or services over the Internet. When customers' checkout, the Internet retailer sends the goods to the buyer and includes the shipping costs with the purchase price. Ironically there are very few e-commerce sites that offer an e-cash surface. ("Electronic Commerce," 2002)

The third issue facing businesses is privacy because many consumers worry about privacy. To combat customer fears, many Internet stores post "privacy statements" that explain to customer their policy of distributing or not distributing customer information to other businesses. This privacy policy may include refusing to give the customer's name or e-mail address to companies that send unsolicited and unwanted commercial e-mail messages, often known as junk mail or spam.

Consumers find such unwarranted solicitation annoying and will tend to abandon online stores that allow such nonsense to continue. Encarta reports that "the U.S. Congress is considering legislation to force online companies to safeguard the privacy of online shoppers.." (Electronic Commerce," 2002)

The final issue facing businesses is profitability. A large portion of e-commerce businesses went bankrupt in 2000 and 2001. Most often these bankruptcies were due to inadequate business strategies and unnecessary spending…[continue]

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