Internet and E-commerce: diffusion and practice. Daniela Andreini

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Internet and E-commerce:

diffusion and practice

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52 European Countries

809,624,686 population estimate for

Europe in 2007

337,878,613 Internet users and a

41.7% penetration as of Sept.30/07

98,003,362 Broadband connections,

12.1% penetration as of Sept.30/07

UNITED STATES OF AMERICA

US - Population: 301,139,947 - Area:

9,629,047 sq km (3,717,812.82 sq

miles)

215,088,545 Internet users as of

Nov./07, 71.4% penetration,

Nielsen//NetRatings.

64,614,000 Internet broadband

connections as of Dec./06, per

FCC-CTIA.

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INTERNET USERS AND POPULATION

REGION Population ( 2007 Est. ) % Pop. of World Internet Users, Latest Data % Population (Penetration) 5 % 71.1 % 71.4 % Europe 800,401,065 12.0 % 382,005,271 47.7 % 27.1 % 263,5 % 59.9 % United States 301,139,947 4,5% 215,088,545 15% 125.6 % 7.3 % % Usage of World Use Growth ( 2000-2007 ) North America 334,659,631 238,015,529 27.3 % 120.2 % European Union 489,188,563 293,070,327 20.8 % 210.5 %

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The Broadband

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How to predict the evolution of

e-commerce (B2C + B2B) in a Nation?

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Why?

Thanks to the Broadband the internet users are able to:

• Spend much more time online, and visit much more web sites

• Use more multimedia contents, for instance video, music,

animation and games

• More

rich media

means more interactive creativity and more

engaging

than a traditional media offline

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Broadband: definition

For Broadband we mean the possibility of transmitting, for any user, wide

quantity of information and such a technique can be achieved by using

several transmission systems that we will analyze in the following.

Broadband term is used for home, for mobile and for any communication

user and the concept is the same: transmission of wide information.

The common telephone call operates at a speed of 64 Kb/s (64 000 by the

OECD that considers the Broadband as a connection to the telephone

network that permits a downstream access at 256 Kb/s and an

upstream at 128 Kb/s (That corresponds to the most common ADSL);

Conversely the Recommendation T 1.113 (of 1997) of the ITU defines

Broadband only the transmission with a speed higher than 2 Mb/s.

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La potenzialità della Banda Larga

Time per person

Pages per person

Sessions per person

Time per session

Pages per session

Broadband users spend double the time in the internet and visit quadruple the pages more than narrowband users

Consumption in Europe

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Mobile Diffusion

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EC diffusion among firms

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Why e-commerce is more developed in some

counties and less in others?

THEORETIC CONTEXT

EC DIFFUSION

GLOBAL

NATIONAL

FIRM

Rogers, 1995; Swanson, 1994; Cooper & Zmud, 1990;

Fichman, 2000; Ramamurthy et al., 1999;

Gibbs et al., 2003; Zhu & Kraemer, 2005

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Conceptual Framework

Concepts Variables

Global Environment Global Production networks, global markets, technical innovation, trade liberalization, global competition, MNC strategies, e-commerce movement

National Environment

1. Environment 2. Policy

Wealth, industry structure, information structure, consumer preferences, social/cultural factors, business practices.

Telecommunications diffusion and cost, infrastructure investment, openness of trade and investment, regulatory and legal environment, e-commerce promotion

Firm

3. Drivers and Barriers

4. E-commerce Diffusion

5. Firm Impact

6. National Outcomes

Drivers: external, internal operational, and strategic drivers. Barriers:economic, institutional, cultural, legal and privacy barriers

Level of internet use; use for online sales, procurement and services; use with distribution channels

Organizational Performance: sales, efficiency, cost, competitiveness. Competitive Environment: number of distribution channels, suppliers, and competitors,

competitive intensity

Diversity versus convergence in e-commerce diffusion and impacts Gibbs et al. 2005

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Global Environment

E-commerce Development

MNCs Multi National Corporations

+ bring resources, capital, knowledge, practices (Coe et al. 1997)

+ competition pressure (Grossman & Helpman, 1993)

+ global Production networks (Ernst, 2003; Dietrick & Kraemer, 1998)

Kramaer et al. “Globalization and National Diversity: e-commerce diffusion and impacts across Nation” in Global E-commerce Cambridge University press, 2006

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National Environment

E-commerce Development

1. National Environment

+ Wealth: GDP per capita and annual growth rate

+ Investment in new technologies, infrastructures, HR, high wage

rates (Caselli & Coleman, 2001; Shih et al., 2004)

+ investment resources, industry structure, payment mechanisms,

and rule and laws (Ernst, 2003; Zhu & Kraemer, 2002; Zhu et al.,

2004, 2005)

2. National Policy

+ Liberalization of telecommunication (OECD, 1996 ),

+ Lower telecom. and competition in financial services (Shih et al.,

2004, 2005; Zhu et al. 2004)

+ transportation services (Fomin et al., 2003 ),

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Firm-level findings

CRITO GEC Survey 2002

E-commerce Development

1. Drivers to e-commerce use

+ Expand market for existing product and services………47,9% + To improve coordination with customers and suppliers..43,7% + To enter new businesses and markets………..42% + Customer demanded it……….36,9% + To reduce Costs………35,7% + Major Competitors were online………...31,3% + Suppliers required it………. 22,3% + Required for government procurement……… 15,2% + Government provided incentives………. 8,3%

1. Barriers to e-commerce use

+ Concerns about privacy of data or security issues………44,2% + Inadequate legal protection for Internet purchases……...34,1% + Need for face-to-face customer interaction..………..33,8% + Costs of implementing an ecommerce site……….33,6% + Customers do not use this technology………31,4% + Finding staff with ecommerce expertise..………...26,5% + Internet is not part of business strategy..……….. 24,8% + Business law do not support ecommerce………. 24,2% + Making organizational changes………. .23,9% + Making organizational changes………...23,9% + revalence of credit card use in the Country………...20,3% + Taxation of Internet sales……….16,5% + Cost of internet access………...……….15,1%

Survey in 2.139 firms in USA, Brazil, China, Denmark, France,

Germany, Japan, Mexico, Singapore and Taiwan

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Firm use of e-commerce: Ecommerce is

more than just sales online

Advertising and market purposes;

58% Exchanging Operational data

w ith business customers ; 51%

Exchanging Operational data w ith suppliers;

48% Making purchases online;

47% After-sales customer

service and support; 44%

Formally integrating same business processes w ith suppliers or other business

partners; 34% Making Sales online;

30% 0% 20% 40% 60% 80% 100%

Germany, Japan, Mexico, Singapore and Taiwan

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Firm use of e-commerce: Ecommerce is

more than just sales online

66%

Advertising and m arket purposes 61%

Exchanging Operational data w ith business

custom ers

56%

Exchanging Operational data w ith suppliers 51%

Making purchases online

50%

After-sales custom er service and support 41%

Form ally integrating sam e business processes w ith suppliers or other business partners

34%

Making Sales online;

0% 20% 40% 60% 80% 100% High Local High Global 34% 30% 42% 49% 43% 46% 64% CRITO GEC Survey 2002

Germany, Japan, Mexico, Singapore and Taiwan 35% manufacturing; 33%Wholesale&Retail; 32% Banking&Insurance

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B2B and B2C sales and services

Firms doing online sales

Percent B2B only

Percent B2C only

Percent both B2B and B2C

12,9

7,1

15,0

Firm online sales as percent of total sales (among

firms selling online)

B2B

B2C

15,2

_18,6

Firms doing online services

Percent B2B only

Percent B2C only

Percent both B2B and B2C

23,1

12,9

33,3

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B2B and B2C sales and services in Local

and Global Firms

40% 38% 28% 38% 90% 71% 76% 87% 93% 76% 81% 90% 0% 10% 20% 30% 40% 50% 60% 70% 80% 90% 100% B2C sales B2B sales B2C services B2B services B2C B2B High Local High Global

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Theory on firms’ advantages: Demand-Side Advantages

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Demand expansion.

The Internet can increase sales in three ways:

- market expansion: occurs when new segments of customers are reached who did not yet buy in the category. Estee Lauder, for example, hopes that Clinique.com will attract

customers who avoid buying at a cosmetics counter because they find the experience intimidating.

- brand switching: by winning customers from competitors. One specific way in which new segments can be tapped or customers won from competitors is through expansion of the current market to the global market (Quelch and Klein 1996).

- relationship deepening: selling more to existing customers. Barnes and Noble, for example, experienced record sales in its real-world stores upon launching its online store, because this increased its customers' interest in books.

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Higher prices.

Lai and Sarvary (1999) show that when the proportion of Internet shoppers is sufficiently high and the product's nondigital attributes (i.e., attributes for which a

physical inspection of the product is necessary) are not overwhelming, the Internet may represent an opportunity for firms to increase their prices. Also, because the Internet

enables consumers to save shopping time and effort, it makes it costly for them to try new products for which sensory attributes need to be physically evaluated. Instead of going to the store, consumers may decide to infer the missing attributes on the basis of their overall evaluation of the brand. Consequently, in some cases, consumers may become more brand loyal when purchasing through the Internet. Because loyal customers are less price

sensitive, firms may be able to raise their prices and enjoy higher revenues.

Source: Inge Geyskens, Katrijn Gielens, & Marnik G. Dekimpe (2002), The Market Valuation of Internet Channel Additions

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Theory on firms’ advantages: Demand-Side Disadvantages

• Demand reduction:

adding an Internet channel to an entrenched channel system

may involve channel "shift“ (customers moving from one channel to another)

without channel "lift" (new sales) (Alba et al. 1997). Adding an Internet channel

may even lead to a decrease in total sales when consumers buy less through the

new channel than through their old channel—for example, when there are fewer

impulse purchases through the Internet or when disenchanted distributors offer

less support to the firm's products, resulting in more brand switching toward the

firm's competitors.

• Lower prices.

For many firms, a major threat posed by the Internet is that profits

could be eroded through the intensified price competition that might ensue as

consumers‘ search costs are lowered (Alba et al. 1997). The Internet can

increase the power of the consumer, because price comparisons across suppliers

can be performed quickly and easily. Therefore, prices and margins are expected

to be pushed down (Degeratu, Rangaswamy, and Wu 2000).

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Theory on firms’ advantages: Supply-Side Advantages

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Supply-Side Advantages

The Internet can offer supply-side advantages through reduced production and transaction costs. In a distribution context, the former refer to the costs of completing the physical distribution activity (Klein, Frazier, and Roth 1990). Transaction costs are the costs incurred as a result of the firm's efforts to coordinate and control the entities performing the physical activities. They include such ex ante costs as drafting and negotiating agreements with these entities and such ex post costs as monitoring and enforcing agreements (Rindfleisch and Heide 1997).

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Lower physical distribution costs.

Internet distribution can help companies dramatically cut physical distribution costs. For intangible goods that can be delivered digitally, distribution costs are often reduced by 50% to 90%. For tangible goods, Internet channels are

estimated to reduce distribution costs by more than 25% (Organisation for Economic Co-operation and Development 1999). These savings can be attributed to a variety of factors: Transaction processing is eased, thereby reducing paperwork, human errors, and customer disputes; inventory costs may be reduced as intermediaries are bypassed; and some

marketing functions are shifted to the customer (Hoffman, Novak, and Chatterjee 1995).

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Lower transaction costs.

Organizational innovations often have the purpose of economizing on transaction costs. By setting up an Internet channel, companies can reduce ex ante transaction costs by bypassing intermediaries (thereby reducing commission costs) and dealing directly with their customers (Benjamin and WJgand 1995). Airlines, for example, are making headway selling tickets online because their direct sales model eliminates the commission paid to travel agents.

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Theory on firms’ advantages: Supply Side Disadvantages

• Higher physical distribution costs.

The cost of an Internet channel has two

components: fixed start-up costs, such as the purchase of computer hardware

and software, and the costs of Internet hosting services. Also, higher advertising

expenditures may be needed to create awareness for the new channel. Even

though Internet channels can vary dramatically in cost, some incremental

expenditures are always involved.

• Higher transaction costs.

Existing channels may view the new Internet channel

as unwelcome competition. They may fear their sales will be reduced if firms

reach out directly to their consumers. In addition, the low physical distribution

costs and easily obtainable economies of scale of Internet channels may lead

firms to reduce their prices and may put pressure on the existing channels'

profit margins (Alba et al. 1997). When this happens, inter-channel friction

becomes likely. The firm's entrenched channels may lose motivation and reduce

their support for the firm's products (a passive response), retaliate, or even

discontinue their distribution (active responses) (Coughlan et al. 2001, p. 252).

To prevent entrenched channels from shirking, firms need to monitor them

more extensively to check whether they live up to their agreements and, if

necessary, enforce these agreements. This is likely to increase ex post

transaction costs (Stump and Heide 1996). In a recent survey of 50 consumer

goods manufacturers by Forrester Research, 66% indicated that channel

conflict, with its potentially costly result, was the biggest issue they faced in

their online strategies (Gilbert and Bacheldor 2000).

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14 17,7 19,5 20,5 27,2 29,8 29,8 31,4 33,9 34,8 0 5 10 15 20 25 30 35 40 Inve ntory cos ts d ecre ase d Procu rem ent cost s dec reas ed Inter nation al S ales Incr ease d Sale s In crea sed Staf f Pr oduct ivity Incr ease d Com petit ive P ositi on In creas ed im prov ed Coor dina tion with supp liers im prov ed Sales area wid ened Inte rnal pro ces ses m ore e ffici ent Cust om er S ervic e Im pro ved

Intangible

Advantages

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9 4 10 16 22 23 26 21 34 34 19 25 25 26 30 33 37 41 43 43 0 5 10 15 20 25 30 35 40 45 50 Inve ntor y cos ts de crea sed Proc urem ent costs de creas ed Intern atio nal S ales Inc reas ed Sale s In crease d Sta ff P rod uct ivity Incr eased Com petiti ve Pos ition Incr eased im prov ed Coor dina tion with supp lier s im prov ed Sales are a w ide ned Inter nal p roces ses m ore effici ent Cust ome r Se rvic e Im prove d High Local High Global

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e-Readiness is the ability to use

Information and

E-Readiness

_{Communication Technologies}

_{(ICT) to develop the}

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E-Readiness

Rank

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E-commerce

“Electronic commerce is about doing business electronically. It is based on the electronic processing and

transmission of data, including text, sound and video. It encompasses many diverse activities including electronic trading of goods and services, online delivery of digital content, electronic fund transfers, electronic share trading, electronic bills of lading, commercial auctions, collaborative design and engineering, on-line sourcing, public procurement, direct consumer marketing, and after-sales service. It involves both products (e.g. consumer goods, specialized medical equipment) and services (e.g. information services, financial and legal services); traditional activities (e.g. healthcare, education) and new activities (e.g. virtual malls).”

European Commission, 1997

M-commerce

“the buying and selling of goods and services throught wireless handheld devices such as mobile phones and personal digital assistants”

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Infocommerce

32 million are the Consumers who research information online and

then buy offline in the USA

These 32 million cross-channel consumers a great target for firms.

They are 43 years old and their income is around 67.400 dollars, they are 2

years younger and 18% healthier than consumers whop buy offline without

searching online

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E-C in the USA

• E-commerce sales growth is still higher than overall retail sales growth,

which has been 6% at most over the past five to six years. In contrast,

retail e-commerce sales growth has been about 25% or more during

the same time.

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Products researched online and bought offline in

the USA

Percentage of consumers who have reaserched these product online and have bought offline

• Consumer electronics 12.1% • Computer hardware 9.1% • Toys 6.0% • Books 5.9% • Automobiles 4.8% • Software 4.3% • Major appliances 4.0% • Home improvement 3.9% • Small appliances 3.8%

• DVDs (not including DVD player) 3.6%

• Travel arrangements 3.5% • Music 3.3% • Video games 3.1% • Office supplies 2.7% • Clothing accessories 2.1% • General apparel 1.7% • Movie tickets 1.7%

Base: North American cross-channel shoppers

•

Automotive parts/accessories 1.5%

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Sporting goods 1.5%

•

Nonprescription health and beauty aid 1.3%

•

Prescription medicines 1.2%

•

Linens/home décor 1.2%

•

Jewelry 1.1%

•

Furniture 1.1%

•

Footwear 1.1%

•

Lawn and garden supplies 1.0%

•

Concert/sports tickets 1.0%

•

Cosmetics/fragrances 0.9%

•

Videos 0.9%

•

Food and beverages/groceries 0.9%

•

Flowers 0.6%

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