20120730

E Commerce, Series II


A Study on its Effects & Opportunities


Ecommerce results in reducing Transaction Costs:
In a business process, transaction costs are the sum of all costs that a purchaser and seller incur during the purchase-sale transaction, where, sales commissions, cost of gathering information, investment made by the seller or purchaser in hiring employees or acquisition of equipment etc. are a part of it.
The term ‘market’ may be understood as a place or organization, where, a potential seller of a good come in contact with a potential purchaser, and a medium of exchange is available between them to undertake the transaction process or simply, commerce activities. The medium of exchange between the purchaser and seller is usually through currency or exchange of goods/property.
When the transaction costs are very high, and the transaction process is complex, people usually form organizations to replace market-negotiated transactions. The structure of these organizations are usually hierarchical, and include supervision and work monitoring elements, such as, information system and coordination of activities, and these organizations spend a lot in collecting, monitoring, and evaluating the system. E commerce reduces the cost of search for actual purchasers, sellers, and by the by increasing the number of market participants. E commerce is also responsible for reducing the transaction cost of human resources through telecommuting.
E Commerce creates Network Effects:

Today a large number of companies/organizations operate in a network structure, and they strategically ally, which may be project-specific, their resources, skills, and strategies through a long-term, stable, & mutual relationship with other firms or individuals, and if all these alliances occur in the web, then they are called as virtual companies. Generally, technology based industries that are information sensitive, categorically called as network organizations. E commerce creates network organizations very easily, through information sharing. In a network, the value of the network to each growing user increases due to simultaneous technological advancement, and it is called as ‘Network Effect’, and e commerce creates network effects in many business processes of a lot of network organizations.
E Commerce Opportunities:

A value chain is a method of organizing the activities that a specific business unit undertakes to purchase, design, produce, market, promote, deliver, support after sales service, and manage human resources, and industry value chain is the integration of at least two value chains of two strategic business units. E commerce and internet technologies can be used as business solutions in an industry value chain, to reduce costs, improve product quality, reach new purchasers or suppliers, and innovate new methods of selling products.                               
It is to remember that, when companies are introducing e commerce, the value chain concept is an excellent ways and means to organize/reorganize the business processes, and hence it will create opportunity for them to improve their business goals.

Majority of e commerce companies add value to their business processes either by reducing transaction costs or creating network effects or an integration of both.
 
Business houses usually use SWOT analysis to find out their strengths, and weaknesses, and then identify opportunities, keeping the possible outside/inside threats in mind.




 

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