E-Business

INTRODUCTION

Internet has become an important medium for doing global business based on the state of

the art technology. Electronic commerce has two major aspects: economical and

technological. New standards and new facilities are constantly emerging and their proper

understanding is essential for the success of an operation, and especially for those who

are assigned a duty to select, establish, and maintain the necessary infrastructure.

In the emerging global economy, e-Commerce and e-business have increasingly become

a necessary component of business strategy and a strong catalyst for economic

development. The integration of information and communications technology (ICT) in

business has revolutionized relationships within organizations and those between and

among organizations and individuals. Specifically, the use of ICT in business has

enhanced productivity, encouraged greater customer participation, and enabled mass

customization, besides reducing costs.

With developments in the Internet and Web-based technologies, distinctions between

traditional markets and the global electronic marketplace-such as business capital size,

among others-are gradually being narrowed down. The name of the game is strategic

positioning, the ability of a company to determine emerging opportunities and utilize the

necessary human capital skills (such as intellectual resources) to make the most of these

opportunities through an e-business strategy that is simple, workable and practicable

within the context of a global information milieu and new economic environment. With

its effect of levelling the playing field, e-Commerce coupled with the appropriate strategy

and policy approach enables small and medium scale enterprises to compete with large

and capital-rich businesses.

On another plane, developing countries are given increased access to the global

marketplace, where they compete with and complement the more developed economies.

Most, if not all, developing countries are already participating in e-Commerce, either as

sellers or buyers. However, to facilitate e-Commerce growth in these countries, the

relatively underdeveloped information infrastructure must be improved. Among the areas

for policy interventions are:

High Internet access costs, including connection service fees, communication fees,

and hosting charges for websites with sufficient bandwidth;

Limited availability of credit cards and a nationwide credit card system;

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Underdeveloped transportation infrastructure resulting in slow and uncertain delivery

of goods and services;

Network security problems and insufficient security safeguards;

Lack of skilled human resources and key technologies (i.e., inadequate professional

IT workforce);

Content restriction on national security and other public policy grounds, which

greatly affect business in the field of information services, such as the media and

entertainment sectors;

Cross-border issues, such as the recognition of transactions under laws of other

ASEAN member-countries, certification services, improvement of delivery methods

and customs facilitation; and

The relatively low cost of labour, which implies that a shift to a comparatively capital

intensive solution (including investments on the improvement of the physical and

network infrastructure) is not apparent.

It is recognized that in the Information Age, Internet commerce is a powerful tool in the

economic growth of developing countries. While there are indications of ecommerce

patronage among large firms in developing countries, there seems to be little and

negligible use of the Internet for commerce among small and medium sized firms.

E-Commerce promises better business for SMEs and sustainable economic development

for developing countries. However, this is premised on strong political will and good

governance, as well as on a responsible and supportive private sector within an effective

policy framework. This primer seeks to provide policy guidelines toward this end.

DEFINITIONS AND CONCEPTS

Electronic commerce or e-Commerce refers to a wide range of online business activities

for products and services. It also pertains to “any form of business transaction in which

the parties interact electronically rather than by physical exchanges or direct physical

contact.”

E-Commerce is usually associated with buying and selling over the Internet, or

conducting any transaction involving the transfer of ownership or rights to use goods or

services through a computer-mediated network. Though popular, this definition is not

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comprehensive enough to capture recent developments in this new and revolutionary

business phenomenon.

A more complete definition is: E-Commerce is the use of electronic communications and

digital information processing technology in business transactions to create, transform,

and redefine relationships for value creation between or among organizations, and

between organizations and individuals.

E-Commerce is an emerging concept that describes the process of buying and selling or

exchanging of products, services, and information via computer networks including the

internet.

Definition of E-Commerce from Different Perspective

1. Communications Perspective

EC is the delivery of information, products/services, or payments over the telephone

lines, computer networks or any other electronic means.

2. Business Process Perspective

EC is the application of technology toward the automation of business transactions

and work flow.

3. Service Perspective

EC is a tool that addresses the desire of firms, consumers, and management to cut

service costs while improving the quality of goods and increasing the speed of service

delivery.

4. Online Perspective

EC provides the capability of buying and selling products and information on the

internet and other online services.

Benefit of e-Commerce

Access new markets and extend service offerings to customers

Broaden current geographical parameters to operate globally

Reduce the cost of marketing and promotion

Improve customer service

Strengthen relationships with customers and suppliers

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Streamline business processes and administrative functions

Scope of E-Commerce

Marketing, sales and sales promotion

Pre-sales, subcontracts, supply

Financing and insurance

Commercial transactions: ordering, delivery, payment

Product service and maintenance

Co-operative product development

Distributed co-operative working

Use of public and private services

Business-to-administrations (e.g. customs, etc)

Transport and logistics

Public procurement

Automatic trading of digital goods

Accounting

Dispute resolution

History of E-Commerce

The history of e commerce is a history of how Information Technology has transformed

business processes. Some authors will track back the history of e commerce to the

invention of the telephone at the end of last century.

EDI (Electronic Data Interchange) is widely viewed as the beginning of ecommerce if we

consider ecommerce as the networking of business communities and digitalization of

business information.

Large organizations have been investing in development of EDI since sixties. It has not

gained reasonable acceptance until eighties. EDI has never reached the level of popularity

of the web-based ecommerce for several reasons:

High cost of EDI prohibited small businesses and medium-sized companies from

participating in the electronic commerce;

Slow development of standards hindered the growth of EDI;

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The complexity of developing EDI applications limited its adaptation to a narrow

user base.

The Internet and the Web

The Internet was conceived in 1969, when the Advanced Research Projects Agency (a

Department of Defence organization) funded research of computer networking. The

Internet could end up like EDI without the emergence of the World Wide Web in 1990s.

The Web became a popular mainstream medium (perceived as the fourth mainstream

medium in addition to print, radio and TV) in a speed which had never been seen before.

The Web users and content were almost doubled every a couple of months in 1995 and

1996. The web and telecommunication technology had fuelled the stock bubble in the

roaring 90s and eventually pushed NASDAQ over 5,000 in 2000 before it crashed down

to 1,200 in 2002. XML and Web Services Besides the availability of technical

infrastructures, the popularity of the Web is largely attributed to the low cost of access

and simplicity of HTML authoring, which are the obstacles of EDI development. The

Internet and the Web have overcome the technical difficulty of EDI, but it has not solved

the problem of slow development of

e commerce standards.

XML, as a meta mark-up language, provides a development tool for defining

format of data interchange in a wide variety of business communities. Web Services

offers a flexible and effective architecture for the implementation. There is no doubt that

XML and the Web Services will shape the course of e commerce in years to come

Concepts of Electronic Commerce

Electronic commerce is narrowly defined as buying and selling products/services over the

Internet. The concept has been broadened to include all business activities of a sales

cycle. The distinction between E-Commerce and E-business has become blurred.

Ecommerce and Electronic Commerce has been used interchangeably, Electronic

Business, however, has not been a widely accepted terminology.

David Kosiur described the Components of Electronic Commerce in three dimensions

(Processes, Institutions and Networks) in his 1997 book Understanding Electronic

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Commerce. We expand Institutions as E-Commerce Players, Networks as Technologies

and add Markets as the fourth dimension of E-Commerce.

E- Commerce in Action

How e-Commerce Works

The consumer first moves through the internet to the merchant’s web site. At the web

site, the consumer is briefly given an introduction to the product or services the merchant

offers. It is at this point that the consumer makes the decision to visit the web store by

clicking on a link or button located on the web page. After choosing to visit the web

store, the consumer is typically connected to an online transaction server located

somewhere else on the internet which runs software commonly referred to as a shopping

cart application.

The shopping cart application has been setup by the merchant to display all products and

services offered, as well as calculate pricing, taxes, shipping charges, etc. From there, the

consumer decides that he wants to purchase something, so he enters all pertinent credit

card information and a sales order is produced. Depending on the ecommerce

implementation, the sales order can now take two totally different paths for confirming to

the consumer that the order is officially placed.

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Scenario 1

The consumer’s credit card information goes directly through a private gateway to a

processing network, where the issuing and acquiring banks complete or deny the

transaction. This generally takes place in no more than 5-7 seconds and the consumer is

then informed that the order was received, the credit card was authorized, and that the

product will ultimately be shipped.

Scenario 2

The consumer’s entire order and credit card information is electronically submitted back

to the merchant’s server (usually via email, FTP, or SSL connection) where the order can

be reviewed first and then approved for credit card authorization through a processing

network. The consumer then receives an email shortly afterwards, confirming the order

being received, the credit card being authorized, and status on when the product will

exactly be shipped.

In both scenarios, the process is transparent to the consumer and appears virtually the

same. However, the first scenario is a more simplistic method of setting up a shopping

cart application and does not take into consideration any back office issues that may

delay shipment (i.e., items out of stock, back orders, orders submitted after office hours

or during holidays, etc.). Most of the e-Commerce Manager relies on the second scenario

to handle all of its ecommerce orders. This second scenario keeps the consumer

accurately informed throughout the entire ordering process. There are several basic steps

you will need to accomplish before becoming e-Commerce Enabled.

Getting a Merchant Bank Account

Web Hosting

Web Design Considerations

Registering a Domain Name

Obtaining a Digital Certificate

FORCES FUELING E-COMMERCE

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There are three major forces fueling e-Commerce.

They include:

1. Economic forces

2. Marketing and customer interaction forces

3. Technology, particularly multimedia convergence

1. Economic Forces

One of the most evident benefits of e-Commerce is economic efficiency resulting from

the reduction in communications costs, low-cost technological infrastructure, speedier

and more economic electronic transactions with suppliers, lower global information

sharing and advertising costs, and cheaper customer service alternatives.

Economic integration is either external or internal. External integration refers to the

electronic networking of corporations, suppliers, customers/clients, and independent

contractors into one community communicating in a virtual environment (with the

Internet as medium).

Internal integration, on the other hand, is the networking of the various departments

within a corporation, and of business operations and processes. This allows critical

business information to be stored in a digital form that can be retrieved instantly and

transmitted electronically.

Internal integration is best exemplified by corporate intranets. Among the companies

with efficient corporate intranets are Procter and Gamble, IBM, Nestle and Intel.

Eg. sesami.net: Linking Asian Markets through B2B Hubs

sesami.net is Asia’s largest B2B e-hub, a virtual exchange integrating and connecting

businesses (small, medium or large) to trading partners, e-marketplaces and internal

enterprise systems for the purpose of sourcing out supplies, buying and selling goods and

services online in real time. The e-hub serves as the centre for management of content

and the processing of business transactions with support services such as financial

clearance and information services.

It is strategically and dynamically linked to the Global Trading Web (GTW), the world’s

largest network of trading communities on the Internet. Because of this very important

link, sesami.net reaches an extensive network of regional, vertical and industry-specific

interoperable B2B e-markets across the globe.

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2. Market Forces

Corporations are encouraged to use e-Commerce in marketing and promotion to capture

international markets, both big and small. The Internet is likewise used as a medium for

enhanced customer service and support. It is a lot easier for companies to provide their

target consumers with more detailed product and service information using the Internet.

3. Technology Forces

The development of ICT is a key factor in the growth of ecommerce. For instance,

technological advances in digitizing content, compression and the promotion of open

systems technology have paved the way for the convergence of communication services

into one single platform. This in turn has made communication more efficient, faster,

easier, and more economical as the need to set up separate networks for telephone

services, television broadcast, cable television, and Internet access is eliminated. From

the standpoint of firms/businesses and consumers, having only one information provider

means lower communications costs.

Moreover, the principle of universal access can be made more achievable with

convergence. At present the high costs of installing landlines in sparsely populated rural

areas is a disincentive to telecommunications companies to install telephones in these

areas. Installing landlines in rural areas can become more attractive to the private sector if

revenues from these landlines are not limited to local and long distance telephone

charges, but also include cable TV and Internet charges.

This development will ensure affordable access to information even by those in rural

areas and will spare the government the trouble and cost of installing expensive landlines.

E-COMMERCE AND E-BUSINESS

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While some use e-Commerce and e-business interchangeably, they are distinct concepts.

In e-Commerce, information and communications technology (ICT) is used in inter-

business or inter-organizational transactions (transactions between and among

firms/organizations) and in business-to-consumer transactions (transactions between

firms/organizations and individuals).

In e-business, on the other hand, ICT is used to enhance one’s business. It includes any

process that a business organization (either a for-profit, governmental or non-profit

entity) conducts over a computer-mediated network. A more comprehensive definition of

e-business is: “The transformation of an organization’s processes to deliver additional

customer value through the application of technologies, philosophies and computing

paradigm of the new economy.”

Three primary processes are enhanced in e-business:

1. Production processes, which include procurement, ordering and replenishment of

stocks; processing of payments; electronic links with suppliers; and production

control processes, among others;

2. Customer-focused processes, which include promotional and marketing efforts,

selling over the Internet, processing of customers’ purchase orders and payments, and

customer support, among others;

3. Internal management processes, which include employee services, training, internal

information-sharing, videoconferencing, and recruiting. Electronic applications enhance

information flow between production and sales forces to improve sales force

productivity. Workgroup communications and electronic publishing of internal business

information are likewise made more efficient.

The Internet Economy

The Internet economy is a broader concept than e-Commerce and e-business. It includes

e-Commerce and e-business. The Internet economy pertains to all economic activities

using electronic networks

as a medium for commerce or those activities involved in both building the networks

linked to the Internet and the purchase of application services such as the provision of

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enabling hardware and software and network equipment for Web-based/online retail and

shopping malls (or “e-malls”). It is made up of three major segments:

physical (ICT) infrastructure, business infrastructure, and commerce. The CREC (Center

for Research and Electronic Commerce) at the University of Texas has developed a

conceptual framework for how the Internet economy works. The framework shows four

layers of the Internet economy-the three mentioned above and a fourth called

intermediaries.

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Internet Economy Conceptual Frame

Based on Center for Research in Electronic Commerce, University of

Texas, “Measuring the Internet Economy”, June 6, 2000; available

from www.Internetindicators.com.

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TYPES OF E-COMMERCE

There are a number of different types of E-Commerce

B2B - Business to Business

B2C - Business to Consumer

C2B - Consumer to Business

B2E - Business to Employee

C2C - Consumer to Consumer

B2B - Business to Business

E-Commerce has been in use for quit a few years and is more commonly known as EDI

(electronic data interchange). In the past EDI was conducted on a direct link of some

form between the two businesses where as today the most popular connection is the

internet. B2B e-Commerce currently makes up about 94% of all e-Commerce

transactions. Typically in the B2B environment, E-Commerce can be used in the

following processes:

Procurement;

order fulfilment;

Managing trading-partner relationships.

E-Commerce technologies have allowed even the smallest businesses to improve the

processes for interfacing with customers. They are now able to develop services for

individual clients rather than provide a standard service. An alternative way of thinking

of B2B e-Commerce is to think of it as being used to:

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Attract, develop, retain, and cultivate relationships with customers;

Streamline the supply chain, manufacturing, and procurement processes, and

automate corporate processes to deliver the right products and services to customers

quickly and cost-effectively;

Capture, analyze, and share, information about customers and company operations, in

order to make better decisions.

B2C - Business to Consumer

This is where the consumer accesses the system of the supplier. It is still a two way

function but is usually done solely through the Internet. B2C can also relate to receiving

information such as share prices, insurance quotes, on-line newspapers, or weather

forecasts. The supplier may be an existing retail outlet such as a high street store; it has

been this type of business that has been successful in using eCommerce to deliver

services to customers. These businesses may have been slow in gearing-up for e-

Commerce compared to the innovative dot.com start ups, but they usually have a sound

commercial structure as well as in-depth experience of running a business - something

which many dotcoms lacked, causing many to fail.

C2B - Consumer to Business

Consumer to Business is a growing arena where the consumer requests a specific service

from the business.

B2E - Business to Employee

Business to Employee e-Commerce is growing in use. This form of e-Commerce is more

commonly known as an ‘Intranet’. An intranet is a web site developed to provide

employees of an organisation with information. The intranet is usually access through the

organisations network, it can and is often extended to an Entrant which uses the Internet

but restricts uses by sign on and password.

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C2C - Consumer to Consumer

These sites are usually some form of an auction site. The consumer lists items for sale

with a commercial auction site. Other consumers access the site and place bids on the

items. The site then provides a connection between the seller and buyer to complete the

transaction. The site provider usually charges a transaction cost. In reality this site should

be call C2B2C.

B2A is the least developed area of e-Commerce and it relates to the way that public

sector organisations, at both central and local level, are providing their services on-line

known as e-Government, it has the potential to increase the domestic and business use of

e-Commerce as traditional services are increasingly being delivered over the Internet.

CHALLENGES IN ELECTRONIC COMMERCE

For more than two decades, organizations have conducted business electronically by

employing a variety of electronic commerce solutions. In the traditional scenario, an

organization enters the electronic market by establishing trading partner agreements with

retailers or wholesalers of their choosing. These agreements may include any items that

cannot be reconciled electronically, such as terms of transfer, payment mechanisms, or

implementation conventions. After establishing the proper business relationships, an

organization must choose the components of their electronic commerce system. Although

these systems differ substantially in terms of features and complexity, the core

components typically include:

Workflow Application: A forms interface that aids the user in creating outgoing

requests or viewing incoming requests. Information that appears in these forms may

also be stored in a local database.

Electronic Data Interchange (EDI) Translator: A mapping between the local

format and a globally understood format.

Communications: A mechanism for transmitting the data; typically asynchronous or

bisynchronous

Value-Added Network (VAN): a store and forward mechanism for exchanging

business messages

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Using an electronic commerce system , a retailer may maintain an electronic merchandise

inventory and update the inventory database when items are received from suppliers or

sold to customers. When the inventory of a particular item is low, the retailer may create

a purchase order to replenish his inventory. As the purchase order passes through the

system, it will be translated into its EDI equivalent, transmitted to a VAN, and forwarded

to the supplier’s mailbox. The supplier will check his mailbox, obtain the EDI purchase

order, translate it into his own local form, process the request, and ship the item.

These technologies have primarily been used to support business transactions between

organizations that have established relationships (i.e. retailer and the wholesaler). More

recently, due largely to the popularity of the Internet and the World Wide Web, vendors

are bringing the product directly to the consumer via electronic shopping malls. These

electronic

malls provide the consumer with powerful browsing and searching capabilities,

somewhat duplicating the traditional shopping experience. In this emerging business-to-

consumer model, where consumers and businesses are meeting electronically, business

relationships will have to be automatically negotiated.

The Challenge

As the information technology industry moves towards the creation of an open,

competitive Electronic Marketplace, it must provide an infrastructure that supports the

seamless location, transfer, and integration of business information in a secure and

reliable manner. This Marketplace will be used by all application domains to procure

commodities and order supplies. As such, electronic commerce applications will require

easy-to-use, robust, security services, a full suite of middleware services, and data and

protocol conversion services. Using this Electronic Marketplace, a purchasing agent will

competitively procure supplies, a manufacturer will obtain product or parts information,

and a consumer will procure goods and services.

Security Issues

Ensuring security of payments and privacy of online transactions is key to the widespread

acceptance and adoption of e-commerce. While the appropriate policies are in place to

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facilitate e-commerce, lack of trust is still a barrier to using the Internet to make online

transactions.

Security of electronic communications is a major control issue for companies engaged in

electronic commerce. It is essential that the commerce related data of buyers and sellers

be kept private when they are transmitted electronically. The data being transmitted also

must be protected against being purpose fully altered by someone other than the sender.

Much online commerce continues to be handled through private EDI networks usually

run over VANs. VANs (Value Added Networks) are relatively secure and reliable. Thus

high availability computing requires a security infrastructure for electronic commerce and

electronic business. Large public networks, including the internet, are more vulnerable

because they are virtually open to anyone and because they are so huge that when abuses

do occur, they can have an enormously wide spread impact.

When the internet becomes part of the corporate networks, the organisation’s information

systems can be vulnerable to actions from outsiders. There are some typical types of

computer crimes that hakers commit on the internet on a regular basis. That is why

Internet security measures like encryption and firewalls are so vital to the success of

electronic commerce and other business uses of the internet.

Building Blocks

In the heterogeneous, distributed environment that makes up this Electronic Marketplace,

information and services will be accessible via methods that are as wide and as varied as

the vendors and consumers that populate and use them. No longer will interoperability be

achieved by using a single set of standards. Competing technologies will always be

available, and quite often there will be no clear winner. Instead, emerging middleware

technologies will complement the suite of standards and standards to provide seamless

location, transfer, and integration of business information.

One can imagine that over time, the Electronic Marketplace will be populated with a

myriad of products and services. To aid the consumer in finding useful and necessary

information from amongst the vast sea of resources that will ultimately be available,

advances in resource discovery technologies will be critical. Key components that will be

necessary to advance resource discovery techniques are distributed naming and directory

services. Distributed naming services provide an environment that allows functions to

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move transparently among computing platforms. Coupling this feature with directory

services provides a method for organizations to dynamically register business capabilities

as they move on and off the information highway.

As the amount of information that can be exchanged grows, traditional communications

protocols will give way to a set of faster and more reliable protocols. Middleware

communications will be used to hide the complexity of the underlying communications

protocols. Applications will require programmable interfaces to message queuing,

database access, remote procedure calls, and object request brokers. It is imperative that

the communications infrastructure be able to support these and future services in a

flexible and efficient manner.

The seamless location and transfer of information will allow consumers and providers to

exchange business information, but will not provide for the integration of that

information into their business processes. Current data translation practices allow for a

syntactic translation of information, which works well when semantic differences can be

settled out of band. In the Electronic Marketplace, where entire business paradigms must

be established electronically, it will be necessary to carry both the semantics and syntax

of data elements through the data translation process.

Security services will be imperative in the daily operation of the Electronic Marketplace.

Applications will require a full suite of end-to-end security services, including

authentication, integrity, confidentiality, non-repudiation, and access control. The first

three services can be achieved through public-key cryptosystems that employ digital

signature, encryption, and key exchange technologies. Non-repudiation can be added

through the use of a certification authority. Upon user authentication, traditional access

control or role-based access control methods can be employed to define access rights.

Perhaps the biggest challenge in creating this Electronic Marketplace will be to overcome

current interoperability problems caused by competing security algorithms, message

formats, and certificate management systems. Security is a prime example of a situation

where competing solutions exist and there is no clear winner in sight. Recent work in the

area of cryptographic API’s promises to provide a well-defined, high-level interface to

security services, regardless of the complexity of the underlying algorithms. Differences

in message formats and certificate management systems must similarly be overcome,

either through standards, or through the use of mediators and facilitators.

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Solutions

To directly address the issues of building an information infrastructure that will support

an Electronic Marketplace, the National Institute of Standards and Technology has

established two cooperative, complementary programs.

The CAIT, under the guidance of industry participants, identifies, develops, and

demonstrates critical new technologies and applications. The ECIF provides a laboratory

environment that supports technology transfer through rapid prototypes, pilots, the

integration of key infrastructure components and services, and the demonstration of

existing and emerging Electronic Commerce technologies.

Through on-going projects in the areas of database access, facilitators and mediators,

resource discovery, secure messaging, and integration technologies, the CAIT and ECIF

focus on the following:

Where enabling services and technology are not yet commercially available, NIST

fosters joint research projects aimed at bringing together the research community and

the vendor community. This joint fellowship provides vendors with the tools they

need to quickly implement emerging technologies while researchers remain focused

in their development of new technologies.

Where components are commercially available, NIST creates test beds and pilots

aimed at achieving interoperable solutions. These solutions are achieved by

demonstrating interoperability among middleware technologies, standards and defect

standards.

Promotes technical awareness via presentations, publications, demonstrations, and

consulting.

E-COMMERCE COMMUNITIES

In a word, it’s community that will drive e-Commerce in the future. We certainly have

the technology to build great business-to-consumer and business-to-business ecommerce

applications into our business models. And attributes such as viable application design,

integration with business processes, and overall performance matter.

But those who invest in community will see a large increase in repeat business, improved

support functions, and the opportunity to go after new forms of e-Commerce revenue.

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A successful community strategy must embrace the idea of moving the one on-one

communication that occurs offline into the virtual world of e-Commerce. Such a strategy

currently requires multiple technical approaches. However, community solutions will

soon become more integrated and far-reaching.

The tools that form online communities include discussion or forum software, chat

functions, instant messaging, two-way mailing lists, online collaboration tools, audio,

video, and more. We must choose to invest slowly at first and increase our community

commitment over time.

For example, the online version of some inquiry might be fulfilled simply via a pop-up

notification window on my return visit, assuming your e-Commerce application was

enabled to take a feedback. Or, in a more sophisticated version, you might make a

customer service representative available via video and audio. The same type of solutions

can be enabled for business-to-business transactions.

Online business is much more exacting, and those participating usually have a darn good

idea of what they want. Better to let me contact you and supply my long-distance

requirements. The feedback should be supplied without a long or scripted marketing

pitch, too. Community is also a wise strategic investment in other ways. Suppose one set

up a moderated discussion group or a two way mailing list to get people talking about

their products. Consumers will often have good ideas about product improvements or

good or bad experiences with the product. By implementing these types of open

communication, a company may gather ideas about new product offerings, improvement

of existing products, or methods of bolstering support, all of which will likely yield

repeat business.

Online conversation with business partners will also give net positive results. A private

discussion area or secured online meetings can go a long way toward building stronger

relationships between companies. This will also serve to potentially drive new business

opportunities for both parties.

Building community has to be at the heart of any successful e-Commerce strategy.

Certainly we cannot totally mimic offline human interaction in an online setting.

However, e-Commerce settings today are very inhuman in nature; we need to factor in

the human part of the equation if e-Commerce is to be successful.

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CONSUMER ORIENTED E-COMMERCE

E-retailing essentially consists of the sale of goods and services. Sometimes we refer to

this as the sale of tangible and intangible goods. We can divide tangible goods into two

categories: physical goods and digital goods. Examples of physical goods would be a

book, a television set, a video recorder, a washing machine, etc. Examples of digital

goods are software and music, which may be downloaded from the internet. The sale of

intangible goods is sometimes called e-servicing. Examples of services that may be sold

are information such as the most recent stock prices, the most recent foreign exchange

rate or education. Entertainment such as games that would be played on the internet is

also examples of e-services. So are the sales of services such as telecommunication

services or banking services. The sales of tangible and intangible goods are all referred to

as customer oriented e-Commerce or e-retailing, if they are sold directly to the consumer

who is the end user. Here we discuss the sale of tangible goods.

Let’s see the difference between Traditional Retailing and E-Retailing

Traditional Retailing

Before we begin a discussion of e-retailing, it would be useful to look at some aspects of

traditional retailing. This helps to identify some essential characteristics of retailing.

Traditional retailing essentially involves selling to a final customer through a physical

outlet or through direct physical communication. This normally involves a fairly

extensive chain starting from a manufacturer to a wholesaler and then to the retailer who

through a physical outlet has direct contact with the final customer.

Examples of physical outlets that retailers currently use are:

Malls

Generalized stores (e.g. department store)

Specialized stores

Franchise stores

It is useful to reflect that even in traditional retailing we have moved away from just

using a static physical outlet within which a customer can have direct contact with the

retailer. Thus, more recent forms of traditional retailing include.

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E-Business

direct mailing

telemarketing

door-to-door sales

vending machines

Direct mailing to a customer normally involves sending a brochure or catalogue to a

customer. The customer browses through this catalogue and then carries out mail

ordering. In some respects, this notion of browsing through a catalogue is a forerunner of

e-retailing. Direct mailing, telemarketing, door-to-door sales, or the use of vending

machines includes other forms that have actually moved away from a physical fixed

outlet and in a way are intermediate forms of the movement away from traditional

physical retailing outlet to the virtual retailing we see on the internet.

E-Retailing

The internet has allowed a new kind of specialization to emerge. Instead of specializing

just in a special product line, they allow specialization in particular classes of customers

and sellers. Thus, we see lastminute.com, which allows last minute purchases of travel

tickets, gift, and entertainment to be matched against last minute sellers of the same

items. Here, we see specialization not in a product line but in a class of purchasers and a

class of sellers. This kind of specialization would not have been possible before we had

the internet.

In addition to these specialized stores, we also get generalized estores Where a store sells

several product lines under a single management. Examples of these generalized stores

include JC penny and Walmart. We also have the electronic counterpart of malls or e-

malls. Emalls essentially provide a web-hosting service for your individual store much in

the way that mall provide a hosting service in the sense of a physical location for your

store.

Examples of these e-malls are Yahoo! Store,

GEO Shops and CNET Stores:

In the future we may see the equivalent of franchise stores developing. One new class of

business that is developing very quickly on the internet is the e-broker. The e-broker does

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E-Business

not sell directly to a customer but brings the customer in touch with a particular supplier,

so that a given set of criteria specified by the customer is satisfied. For example, the

customer may want to buy goods at the cheapest price and so the e-broker would then do

a search to find the supplier that would provide the cheapest goods. Or, a customer may

want to find a particular kind of goods and the e-broker sets about determining which

supplier would provide those goods. This area of e-broking is likely to grow very greatly

in the near future.

Benefits of E-Retailing

To the customer...

Customers enjoy a number of benefits from e-retailing. The first of these is convenience.

It is convenient for the customer as he does not have to move from shop to shop

physically in order to examine goods. He is able to sit in front of a terminal and search

the net and examine the information on goods. The second aspect of convenience he gets

is in terms of time.

Normally, the traditional shop has an opening time and a closing time and the customer

can only visit the shop within these periods. On the net, the customer can choose at any

time to visit a site to examine the goods that are available and actually carry out his

purchasing at one’s own convenient time. The third type of convenience that the

customer gets is that he has access to a search engine, which will actually locate the

products that he describes’ and also the site where they may be available, or perhaps even

locate the sites where they may be available at the best price.

The second type of benefit to customers is better information. The Internet and the World

Wide Web are essentially communication media that allow retailers to put on quite

extensive information related to their products, which is available to the customers.

Furthermore, since the customer can look at several sites, he will be able to obtain

different pieces of information from each site to build a far better picture for him about

the products that he is interested in. In some sites, there are customer reviews of different

products as well as reviews by the business itself. An example of this can be found on

Amazon.com. This allows-the customer to finesse his requirements before actually

making the purchase. It also gives different sources of information. The third type of

benefit that the customer gets is competitive pricing. This is due to two factors.

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E-Business

The first is lowered costs to the retailer because he does not have to maintain a

physical showroom, he does not have to hire several shop assistants, and these

savings can be passed on to customers in the form of reduced prices.

Secondly, competitive pricing pressure that arises from the fact that the customer is

now able to look at prices at several sites. Therefore, the pressure is always there on

the retailer to maintain a competitive price for his products.

The third benefit is customization. The customer can actually specify the features of

the products that he would like and thus in some cases it is possible that the retailer

may allow a customized product to be delivered.

An example of this is on the Dell site. The computer site allows shoppers to custom

specify their own computer software and hardware configurations. Thus, the customer is

able to select exactly what he wants. This ability to get the business to deliver a product

that the customer specifies he wants is the essence of C2B ecommerce.

The benefits of e-retailing to the customer include

Convenience

Better information

Competitive price

Customization

Shopping anywhere, anytime

So with e-retailing, the customer can shop “anywhere around the globe without being

restricted to his local vicinity. He could, for example, purchase goods over and have them

delivered to a domestic address. He can also shop, as mentioned earlier at any time.

These are very considerable benefits of e-retailing to the customer. These benefits could

see larger and larger numbers of customers move more and more of their shopping on to

eretailing sites in the future.

To the Business...

There are a number of benefits of e-retailing to the business itself.

The first of these is global reach. The retailer now is no longer restricted to customers

who are able to reach the store physically. They can be from anywhere around the

globe. The retailer must, of course, deliver the goods of a purchase to the customer.

We see later that has an impact on the types of goods that are most easily handled

through e-retailing.

The second benefit is better customer service. The use of email and the use of

electronic interchange of messages between the customer and the retailer allow better

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E-Business

communication between the customer and the retailer. These allow one to easily

inquiries and deal with complaints. These also allow a much more rapid response

time than was possible in the days of faxes and postal mail.

The third benefit is the lowered capital cost to the retailer. The retailer does not have

to maintain showrooms; he can probably have lower inventories. Thus, while

Amazon.com lists over a few million titles, it keeps an inventory of a few thousand

best selling titles only. Therefore, the retailer has lower warehousing costs. He does

not have to have many shop assistants who are physically answering questions and

Showing the customer goods.

The fourth benefit to the retailer is mass customization. Based on requests by the

customers, the retailer is now able to carry out mass customization with reduced time

to market for the customized products.

The next advantage is targeted marketing. The retailer is now able to pick on a

specific targeted group of customers and direct marketing towards these customers.

The retailer is also able to provide more value-added services in the way of better

information, add-on services to basic services, or add-on options to products that he is

selling.

The last advantage to the retailer consists of different new forms of specialized stores

that he is now able to utilize.

The benefits to the e-retailer are

Global reach & Better customer service

Low capital cost

Mass customization & Targeted marketing

More value-added services

New forms of specialized stores and niche marketing

The future of E-Retailing

When one examines e-retailing, one can distinguish between two trends, namely

Technologies that help you see and experience the product better, e.g. virtual reality, Java

3D, etc. Technologies that help you not to see at all but use an intelligent agent (or

mobile agent) that does all the shopping tasks for you.

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Summary: E-retailing essentially consists of the sale of goods and services. Sometimes

we refer to this as the sale of tangible and intangible goods.

MODEL FOR E-COMMERCE & INFORMATION

SUPERHIGHWAY

There are basically seven types of models for E-business. The E- Business model would

be closely tied to the mission of the organization. Once the organization has decided what

it aims to do one of the models that have been explained below may be adopted.

Category Killer

A category killer would use the Internet to define a new market by identifying a value

proposition for the customer or create a new value proposition. The organization which

does so, would have the first mover advantage in the market and would stay ahead of the

competition by continuously innovating.

Example: Amazon.com.

Channel Reconfiguration

This model would use the Internet as means of reaching the customers and suppliers and

to conduct, transactions on them. This model supplements the legacy distribution and

communication channels. The advantage of such a model is decreased time to market.

Such a model would invest in end-to-end process integration. This would require a major

application overhaul to develop an integrated infrastructure that allows the processes to

flow seamlessly, which in turn should lead to reduction of costs of products by

eliminating, redundancies of operations and enhancing the scope of each operation. The

advantage of such a model is decreased time to market, and minimizing the total product

cost.

Examples: Cisco.

Transaction Aggregation

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This type of organization would create an electronic commerce and payment

infrastructure that integrates their existing transaction processing capabilities with e -

business capabilities. This would facilitate a client in carrying out all the steps of

purchases - searching, comparing, and selecting and paying online. These intermediaries

may fulfill the following roles -

Support buyers in identifying their needs and finding an appropriate seller.

Provide an efficient means of exchanging information between both parties.

Execute the business transaction.

For example: Microsoft Expedia and eBay.

Infomediary

An infomediary provides specialized information on behalf of producers of goods and

services and their potential customers. That is, it serves to bring together the customer

and the supplier of goods. An example of an Infomediary is priceline.com.

This model would serve to simplify a major purchasing event such as buying a house, by

offering the customer a unified front-end for purchasing related goods and services from

multiple providers. It provides convenience to the customer and hence enhances the

relationship between the customer and the company.

E.g. RealtoLcom.

Market Segment Aggregation

The organization defines a customer base and builds a comprehensive suite of services

tailored to that customer type. Say for instance in our country the MNC’s which have to

set up their offices would have to go through a lot of procedures before they get the final

clearances. A Market segment aggregator, who could get all the clearances that are

required, could possibly handle this work.

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E-Business

E.g. American Express’s, small business exchange, catering to the needs of small-scale

companies.

Value Chain Integration

Value Chain Integration (VO) connects the organization’s systems with its supplier’s

systems using the Internet, and this integration would lead to a joint manufacturing

execution plan, keeping the customers needs in the center. Such an arrangement provides

seamless integration within and between enterprises, tying together large islands of

information systems. The advantage is that, when the customer keys in his requirement

over the net, it would be transmitted to every process centre in the value chain without

much loss of time. This way the organization can rapidly react to events. E.g. Dell

Online.

Strategic Model for e-Business - Software Development

1. Stage of Orientation

Define your short, medium and long term targets to discuss your individual requirements

2. Stage of Analysis

Analyses of special requirements for your application

3. Stage of Design and Layout

Visual displays based on your ideas

4. Stage of Transformation

Realizing requirements and ideas in the software solutions

5. Stage of Implementation

Full implementation of your e Business solutions

Using Value Chains to Model and e-Commerce Business

A value chain for a product is the chain of actions that are performed by the business to

add value in creating and delivering the product. For example, when you buy a product in

a store or from the web, the value chain includes the business selecting products to be

sold, purchasing the components or tools necessary to build them from a wholesaler or

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manufacturer, arranging the display, marketing and advertising the product, and

delivering the product to the client. In the book Designing Systems for Internet

Commerce by G. Winfield Treese and Lawrence C. Stewart, the authors suggest breaking

down the aspects of your business into four general value-chain areas:

Attract: in which you get and keep customer interest, and includes advertising and

marketing

Interact: in which you turn interest into orders, and includes sales and catalogs

Act: in which you manage orders, and includes order capture, payment, and fulfillment

React: in which you service customers, and includes technical support, customer service,

and order tracking.

According to Treese and Stewart, looking at the value chain for your business helps you

to define areas of focus — what your company is good at, or where you should

concentrate your efforts to gain competitive advantage. Within System Architect, the

Process Decomposition diagram is a handy vehicle for establishing what business

processes are performed within each of these value-chain areas. The Process

Decomposition diagram enables you to model three model elements — Primary Process

Groups, Process Threads, and Elementary Business Processes. Each of the value-chain

areas listed above can represent a Primary Process Group. Each group contains one or

more process threads (a process thread is a grouping of process flows that deal with a

central process — for example, ordering). Each process thread contains the elementary

business processes that make up the thread (these are modeled on one or more Process

Chart diagrams for each Process Thread).

Let’s Take a Look at an Example

Suppose we’ve already modeled a number of Process Chart diagrams for the various

process flows that occur within our on-line retail business. Each of these Process Chart

diagrams represents all or part of a Process Thread. We can create a Process

Decomposition diagram to model the hierarchy of our process threads to elementary

business processes, and the value chain areas that they are contained within. Create a

Process Decomposition diagram.

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Draw four Primary Process Groups on The diagram — named Attract, Interact, Act, and

React. Browse all of the Process Threads that you’ve modelled for your business in

System Architect’s browser. Drag-and-drop them onto the diagram workspace, and

assign them to the value-chain Primary Process Groups according to the guidelines

above. Select all of the Process Threads on the diagram, and from System Architect’s

Dictionary menu, select Update Selected Process Threads EBPs. System Architect

reviews all of the Process Chart diagrams you have built, and automatically draws

appropriate elementary business processes on the diagram, under the Process Threads that

they belong to (remember, every Process Thread is represented by one or more Process

Chart diagrams).

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Take a look at one of the Primary Process Groups, for example, Interact. Note that you

can now view this value chain category, and see the various processes that are performed

by your company to satisfy this value chain. As Treese and Stewart state, in developing

systems for Internet commerce, you should focus on parts of the value chain related to

that of the underlying business (ie, the product you are selling), and from looking at the

value chain required to doing business online. Understanding these two pieces and how

they fit together is an important part of creating a successful business in Internet

commerce.

Electronic Commerce Industry Framework

Electronic commerce not only affects transactions between parties, it also influences the

way markets will be structured. Traditionally, market ties were led through the exchange

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of goods, services, and money. Electronic commerce adds a new element: information.

Market ties, such as those forming around online payments, are now based on

information goods, in-lation services, and electronic money.

Electronic Commerce Applications

Supply chain management

Video on demand.

Remote banking

Procurement and purchasing

Generic Framework for E-Commerce

To better understand the market structure that is developing around electronic commerce,

we have developed a simple framework (see Fig.) that succinctly captures the

developments in this area. Even those aware of the importance of electronic commerce

have little under-standing of online jargon, or how the industry is structured. Such

confusion is further entrenched by the media’s use of different names to refer to the same

phenomenon or its various elements: the Information Superhighway, the Internet,

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Cyberspace, Interactive Multimedia, and so on. It is important for businesses to

understand the overall industry in order to develop business strategies that employ

electronic commerce.

The next section will explain each aspect of the electronic commerce infrastructure in

detail, beginning with the most broadly based term: the Information Superhighway

Infrastructure.

The Information Superhighway

The Information Superhighway has many different types of transport systems and does

not function as a monolithic entity; there is no single inter-state highway that connects

the digital equivalent of Los Angeles to Miami. Instead, the architecture is a mixture of

many forms of high-speed network transport, whether it be land-based telephone, air-

based wireless, modem -based PC, or satellite-based. For instance, mail sent from a

portable PC in the French Riviera to a computer in Los Angeles might travel across

several different types of transport networks interconnected with each other before it

reaches its destination.

The players in this industry segment can be called information transport providers. They

include: telecommunication companies that provide phone lines; cable TV systems that

provide coaxial cables and direct broadcast satellite (DBS) networks; wireless companies

that provide mobile radio and satellite networks; and computer networks, including

private net-works like CompuServe or America Online, and public data networks like the

Internet.

This industry segment also includes hardware and software tools that provide an interface

with the various network options, and to the customer premises equipment (CPE), or

terminal equipment, which is a generic term for privately owned communications

equipment that is attached to the net-work. This category of subscriber terminal

equipment can be divided into three parts: cable TV set-top boxes, computer-based

telephony, and net-working hardware (hubs, wiring closets, and routers or digital

switches). The terminal equipment is in fact the gateway to information services,

commercial transactions, and 500 digitally compressed channels.

The biggest area of growth over the last five years has been in the router business.

Routers and digital switches help to connect large net-works (or internet works). Routers

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are devices that can connect the local area networks (LANs) inside various organizations

with the wide area networks (WANs) of various network providers. This interconnection

enables easy communication between separate networks across geo-graphical distances

and provides access to distributed computing re-sources. The router industry is a

multibillion dollar industry that is dominated by players such as Cisco, Bay Networks,

and 3COM, all three of which supply equipment that links data communications net-

works through the Internet. In a recent valuation by Business Week, Cisco was rated as

the fortieth largest company in America, with a market value of $26 billion. Not bad for a

company with an extremely specialized product.

IMPLEMENTATION AND MANAGEMENT ISSUES

Hardware versus Software Implementations Encryption can be implemented in either

hardware or software. Each has its related costs and benefits. The trade-offs among

security, cost, simplicity, efficiency, and ease of implementation need to be studied when

acquiring security products.

In general, software is less expensive and slower than hardware, al-though for large

applications, hardware may be less expensive. In addition, software is less secure, since it

is more easily modified or bypassed than some hardware products.

In many cases, encryption is implemented in a hardware device (such as a card/key entry

system), but is controlled by software. This software re-quires integrity protection to

ensure that the hardware device is provided with correct information (controls, data) and

is not bypassed. Thus, a hybrid solution of software and hardware is generally provided.

Effective security requires the correct management of the entire hybrid solution.

Key Management

All keys need to be protected against modification, and secret keys and private keys need

protection against unauthorized disclosure. The proper management of cryptographic

keys is essential to the effective use of encryption for security. Key management involves

the procedures and protocols, both manual and automated, used throughout the entire life

cycle of the keys. This includes the generation, distribution, storage, entry, use,

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destruction, and archiving of cryptographic keys. Ultimately, the security of information

protected by encryption directly depends upon the protection afforded to keys.

With secret-key encryption, the secret key(s) must be securely distributed (safeguarded

against unauthorized replacement, modification, and disclosure) to the parties wishing to

communicate. Depending on the number and location of users, this task may be difficult.

Automated techniques for generating and distributing cryptographic keys can ease

overhead costs of key management, but some resources have to be devoted to this task.

Public-key encryption users also have to satisfy certain key manage-ment requirements.

For example, since a private/public-key pair is associated with (generated or held by) a

specific user, it is necessary to link the public part of the key pair to the user. In some

cases, the key may be linked to a position or an organization, rather than to an individual

user.

In a small community of users, public keys and their owners can be strongly bound by

simply exchanging public keys. However, business conducted on a larger scale, involving

geographically distributed users, necessitates a means for obtaining public keys online

with a high degree of confidence in their integrity and binding to individuals. The support

for the binding between a key and its owner is generally referred to as a public-key

infrastructure. This involves support for users being able to enter the community of key

holders, generate keys (or have them generated on their be-half), disseminate public keys,

revoke keys (in case, for example, of compromise of the private key), and change keys.

In addition, it may be necessary to build in time/date stamping and to archive keys for

verification of old signatures.

Complying with Export Rules

A number of governments have regulations regarding the import or export of encryption.

The U.S. government controls the export of cryptographic implementations because it

considers them part of munitions. As a general rule, the U.S. government allows

encryption to be used when: the data being encrypted is of a financial nature and the

transaction is between known banks; the content of the data is well- defined; the length of

the data is limited; and the encryption cannot easily be used for other purposes. The rules

governing export can be quite complex, since they consider multiple factors. In addition,

encryption is a rapidly changing field, and rules may change

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from time to time. Questions concerning the export of a particular implementation should

be addressed to appropriate legal counsel.

Other Business Issues

Three problems deter widespread acceptance of encryption for public commerce. First,

successful encryption requires that all participating parties use the same encryption

scheme. Standards that make encryption feasible have to be established within an

organization or a cooperating group (such as banks).

Second, the distribution of keys has prevented wider use of encryption, as there is no easy

way to distribute the secret key to an unknown person on the network. The only safe way

to communicate a key is in person, and even then the distributor must provide a different

secret key for each per-son. Even public-key schemes require a method for key

distribution.

The final deterrent to widespread acceptance of encryption is that it is difficult to use. For

encryption to flourish, the encryption user interface must be simplified so that an average

consumer can easily use the software. Currently, a consumer will not wait more than a

few seconds for information access or retrieval. In the future, encryption will be done by

fast hardware rather than software.

Legal Issues

As encryption becomes commonplace in the commercial world, employers will face the

problem of producing documents that only certain employees can decrypt. Given labor

force mobility, a company may be confronted with the task of producing documents

encrypted by ex- employees who may not wish to cooperate.

ELECTRONIC PAYMENT SYSTEMS

Electronic payment is an integral part of electronic commerce. Broadly de-fined,

electronic payment is a financial exchange that takes place online between buyers and

sellers. The content of this exchange is usually some form of digital financial instrument

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(such as encrypted credit card numbers, electronic checks, or digital cash) that is backed

by a bank or an intermediary, or by legal tender. Three factors are stimulating interest

among financial institutions in electronic payments: decreasing technology costs reduced

operational and processing costs, and increasing online commerce.

The desire to reduce costs is one major reason for the increase in electronic payments.

Cash and checks are very expensive to process, and banks are seeking less costly

alternatives. It is estimated that approximately 56 percent of consumer transactions in the

United States are cash and 29 percent are check. Credits, debits, and other electronic

transactions account for about 15 percent of all consumer transactions, and are expected

to increase rapidly. Electronic transactions numbered 33 billion in 1993 and are expected

to climb to 118 billion by the year 2000. For the same period, paper transactions are

forecast to show very modest growth, from 117 billion in 1993 to 135 billion in the year

2000. Banks and retailers want to wean customers away from paper transactions because

the processing overhead is both labors intensive and costly.

The crucial issue in electronic commerce revolves around how con-sumers will pay

businesses online for various products and services. Currently, consumers can view an

endless variety of products and services offered by vendors on the Internet, but a

consistent and secure payment capability does not exist. The solutions proposed to the

online payment problem have been ad hoc at best. For instance, in one method marketed

by Cyber Cash, users install client software packages, sometimes known as “electronic

wallets,” on their browsers. This software then communicates with “electronic cash

registers” that run on merchants’ Web servers. Each vendor’s client works with only that

vendor’s own server software, a rather restrictive scenario. Currently, merchants face the

unappealing option of either picking one standard and alienating consumers not

subscribing to a standard or needing to support multiple standards, which entails extra

time, effort, and money.

Today, the proliferation of incompatible electronic payment schemes has stifled

electronic commerce in much the same way the split between Beta and VHS standards

stifled the video industry’s growth in the 1970s. Banks faced similar problems in off-line

commerce in the early nineteenth century. Many banks issued their own notes, and a

recurrent problem was the tendency of some institutions to issue more notes than they

had gold as backing. Further, getting one bank to honour another’s notes was a major

problem. Innovations in payment methods involved the creation of new financial

instruments that relied on backing from governments or central banks, and gradually

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came to be used as money. Banks are solving these problems all over again in an online

environment.

The goal of online commerce is to develop a small set of payment methods that are

widely used by consumers and widely accepted by merchants and banks. This chapter

offers a brief examination of the various types of electronic payment systems. It then

provides an overview of the business, consumer, and legal implications of electronic

payment systems.

Overview of the Electronic Payment Technology

Electronic payments first emerged with the development of wire transfers. Early wire

transfer services such as Western Union enabled an individual to deliver currency to a

clerk at one location, who then instructed a clerk at an-other location to disburse funds to

a party at that second location who was able to identify himself as the intended recipient.

Cash was delivered to the customer only after identity was established. In this scenario,

there was no banking environment; Western Union was a telegraph company. Assurance

of payment relied on the financial stability of the firm. Security was pro-vided to the

extent that Western Union was a privately controlled transmission facility used to send

messages about funds transfer; its lines were not shared with the public, and transactions

were private. Authentication was provided only by a signature at the other end of the

transmission that verified that the intended party had indeed received the funds.

During the 1960s and early 1970s, private networking technology has enabled the

development of alternative electronic funds transfer (EFT) systems. Electronic funds

transfer systems have shortened the time of payment instruction transfer between banks,

and in the process have reduced float. However, EFT systems have not changed the

fundamental structure of the payment system. Many of the so-called payment innovations

over the past two decades have been aimed at minimizing banking costs such as reserve

requirements, speeding up check clearing, and minimizing fraud. However, the consumer

rarely interacted with the early EFT systems. Recent innovations in electronic commerce

aim to affect the way consumers deal with payments and appear to be in the direction of a

real-time electronic trans-mission, clearing, and settlement system.

Consumer electronic payment systems are growing rapidly, but the opportunities are

scarcely tapped. In the United States, it is estimated that only 3 percent of the $460

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billion supermarket industry is transacted on credit or debit cards. Only 1 percent of the

$300 billion professional services area is transacted electronically. Less than 12 percent

of business at gasoline service stations is electronic and less than 1 percent of fast food

restaurants have magstripe readers. The educational market alone is more than $100

billion today, only 6 percent of which is transacted electronically. Even more important is

the predicted growth ahead.

Electronic or Digital Cash

Electronic or digital cash combines computerized convenience with security and privacy

that improve on paper cash. The versatility of digital cash opens up a host of new markets

and applications. Digital cash attempts to replace paper cash as the principal payment

vehicle in online payments. Although it may be surprising to some, even after thirty years

of developments in electronic payment systems, cash is still the most prevalent consumer

payment instrument. Cash remains the dominant form of payment for three reasons: lack

of consumer trust in the banking system; inefficient clearing and settlement of noncash

transactions; and negative real interest rates on bank deposits.

These reasons behind the prevalent use of cash in business transactions indicate the need

to re-engineer purchasing processes. In order to displace cash, electronic payment

systems need to have some cash-like qualities that current credit and debit cards lack. For

example, cash is negotiable, meaning that it can be given or traded to someone else. Cash

is legal tender, meaning that the payee is obligated to take it. Cash is a bearer instrument,

meaning that possession is proof of ownership. Cash can be held and used by anyone,

even those without a bank account. Finally, cash places no risk on the part of the

acceptor; the medium is always good.

In comparison to cash, debit and credit cards have a number of limitations. First, credit

and debit cards cannot be given away because, technically, they are identification cards

owned by the issuer and restricted to one user. Credit and debit cards are not legal tender,

given that merchants ‘have the right to refuse to accept them. Nor are credit and debit

cards bearer instruments; their usage requires an account relationship and authorization

system. Similarly, checks require either personal knowledge of the payer, or a check

guarantee system. A really novel electronic payment method needs to do more than

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recreate the convenience that is offered by credit and debit cards; it needs to create a form

of digital cash that has some of the proper-ties of cash.

LEGAL ASPECTS OF E- COMMERCE

The world is used to conducting business and commerce on signed paper documents.

Two millennia of commerce have been based on the written document with its value

‘authorized’ by the signature of a duly authorized officer. The current legal practice has

paper documents and signatures affixed thereon as its foundation. Electronic documents

and messages, without the familiar signatures and marks, have changes the scene.

However, trade still wants to be assured that the electronic world is safe. The EC system

must, therefore, offer at least the same level of reliability as that which obtains in the

paper world notwithstanding the significant difference between the concepts embodied in

electronic messages and paper documents. It is well known that frauds do take place in

the traditional paper based commercial transaction. Signatures can be forged, paper

document can be tampered with, and even the most secure marks, impression, emblems

and seals can be forging. But then these are known, and trade as well as the legal

community knows how to deal with these problems. Companies set aside funds to take

care of losses due to such frauds.

The EC world, on the other hand, exposes us to issues, which were hitherto unknown,

since they are directly the outcome of creating documents electronically, transmitting

them over world wide computer communication networks. Trading partners exchange

documents electronically. They need to convince themselves that such documents are

authentic when received over networks, and that their authentication can be established in

case of dispute. Transactions may be electronic, but the key concept of admissibility of

evidence and evidential value of electronic documents, which are central to the law,

remain the same. There must be a way to prove that a message existed, that it was sent,

was received, was not changed between the sending and receiving, and that it could not

be read and interpreted by any third party intercepting or deliberately receiving it. The

security of an electronic message, legal requirement, thus gets directly linked to the

technical methods for security of computers and networks. From the legal angle, there is

a further

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complication because the electronic message is independent of the actual medium used

for storage transmission. The message can be stored on a floppy, a magnetic disk, or an

optical disk. Likewise, it may be transmitted over a Local Area Network, a Wide Area

Network, a private Value Added Network or the Internet. The physical medium could be

coaxial cable, radio link, optical fibre or a satellite communication channel.

The legal issues of EC have generated tremendous interest among technologists, traders

and legal experts. Many of the early EDI experiments, and even production systems went

into operation without any legal interchange agreement between trading partners,

between VANs and their customers. No laws for EC existed; in fact they are still in the

making. In India, too the Indian Customs EDI system (ICES) Project got off theground in

1995 without any EC/EDI law in existence, or even a proper interchange agreement.

Legal Issues for Internet Commerce

Internet commerce raises legal issues through the provision of the following services:

Online marketing

Online retailing ordering of products and services

Financial services such as banking and trading in securities.

Exchange of electronic messages and documents

EDI, electronic filing, remote employee access, electronic transactions.

Trade and commerce over the Internet give rise to several legal issues as given below.

Copyright and the Internet

Copyright developed in the printed world to protect the economic interests of creative

writers. Copyright law protects only the expression of an idea and idea itself. In due

course it protects the originality of artists and innovators too. In recent times, however,

the subject matter of copyright has further expanded. For example, the Copyright Designs

and Patent Act, 1988 in the UK, allows protection of the following subject matter:

Original literary, dramatic, musical and artistic works; the typographical arrangement of

published editions of literary, dramatic or musical works; sound recordings; broadcasts;

cable programs These have been broadly classified into two groups as ‘author works’ and

‘media works’ by Hector L. McQueen. The multimedia capability of websites enables all

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types of work to be ‘published’ on the Internet in the sense that copies can be distributed

to users/customers. The problems, however, is that unlike a paper copy, this copy can be

readily duplicated and distributed further by the recipient. If the material is in the public

domain there are no difficulties. But the copyright law applies to the downloaded matter,

much the same way it applies to physical copies.

Issues Related to Jurisdiciary

The Internet allows anyone to set up a Website anywhere in the world. Its location could,

however, be interpreted to decide the jurisdiction of disputes especially in EC. A Website

may accept orders from visitors to the site as part of an Internet store or a shopping mall.

For example, amazon.com is a bookstore retailing books. A court law may rule that the

location of the Website determines the jurisdiction for that business. This is based on

accepted legal practice. Jurisdiction determines which laws would be acceptable. EC on

the Internet will grow if the parties doing business know what rules will govern what

rules govern their activities.

Service Provider liability

Many ISPs provide users access to shared websites, Usenet news, E-mail distribution list

etc. These facilities can because by their users to upload unlawful, defamatory, copyright

or trademarks infringing material. Unlawful material includes banned publications, hate

propaganda, pornography and obscene material, without ISP having chance to review it.

Liability for materials distributed in the Internet may be different for the Website

operators, and the ISPs. AN ISP could be held liable for the bulletin boards, and for

aiding and abetting the commission of an offence such as the distribution of photography.

Similarly, third-party liability for defamation, web sites, etc: “Thus the concerns include

libel and defamation, liability for infringement of third-party rights, liability for hosting

of unlawful materials.

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EIGHT STEPS TO PLAN SUCCESSFUL E-COMMERCE

Good plans are simple plans. They are also measurable, their implementation is

accountable, he resources to deliver the plan are available and there is a time-frame for

the plan to be delivered.

Whatever planning process an organisation uses, expect that the company will not control

the direction in which online services evolve. The customer will decide what works and

what doesn’t.

Respond Fast

If the plan is to respond to customer wishes, then the most successful plan will be the one

that responds fastest. This means that every component of the plan should be built with

the intention of proving a principle. Ask yourself if your customers want this? If they do,

then a more robust version can be built. If they don’t, then you can redirect your time and

resources and use the knowledge gained to good effect elsewhere.

Test out Your Plan

In the online marketplace everything is a test until it’s proven by the customer.

Successful testing follows a simple rule:

Test one Thing at a Time

Only test changes that can be measured directly. If a test includes more than one change,

it’s almost always impossible to measure the effect of each one. Test to learn from the

customer and to improve one step at a time.

Challenge Internal Assumptions

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Remove internal processing costs to make dramatic improvements to profit margins.

Analyse each sales process to clarify what it is that staff spend time doing. In particular,

look for processes in which information is transferred.

Focus on Customer, Supplier & Distributor Benefits

What’s in it for customers, suppliers and distributors? Have you asked what they’d like?

The web’s very good at research. Are you offering them a new way to use an existing

service or a completely new service? Is it faster, cheaper, more convenient or just new

and online? What new information do they get? Decide what you can reliably offer each

group now and plan a phased introduction of more complex services. Complexity often

arises from integrating tried and tested stand-alone services.

Give Good Reasons to Use Online Services

Not all customers will automatically move to an online service simply because it’s there.

Equally, in a service’s early stages it may not make good sense to risk overwhelming a

new online channel by quickly moving large numbers of customers over to the new

service.

If you prefer customers to use an online channel, find ways to: Inform them that it is

there (they may not know this) Tell them how to change over Incentives the swap to

make it worthwhile Introduce the new service as a special privilege beta test programme

Calculate the Three Sets of Costs

Very few organisations have all the resources in-house to start offering online services.

There are three sets of costs that should be calculated:

1. Current company costs that will be altered by the online changes

both internal and external costs

2. Cost to implement the changes

interim support may be needed

training for staff whose tasks change

3. New cost assumptions, post change

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long-term cost-savings

long-term outsourcing arrangements

ongoing online development plans

Help Staff Adapt to Online Working

An online service will affect your staff and the work that they do. If your organisation is

typical, there will be a progressive transfer from processing tasks towards customer

service. Some may find this work more fulfilling; others will not enjoy the increased

interaction with customers. Unless a company’s online services are entirely online, staff

who are to fulfil new service roles will require assistance to develop new skills. They will

almost certainly require some training in how to make the most of the new technology for

the benefit of their customers.

Advantages of E-Commerce for Business

A major reason as to why many companies are seeking to harness the Internet is because

it’s an additional source of revenue via an alternative marketing and distribution channel.

As well as providing the opportunity to reach millions of consumers, the interactive

nature, the many possibilities for its use, and the resourcefulness and rapid growth of its

supporting infrastructures, result in many potential benefits to organizations, individuals,

and society. The following part of this article provides some explanation of the e-

commerce benefits to organizations, individual customers and society:

Benefits to Organizations

Global Reach – EC expands the marketplace to national and international markets. With minimal capital outlay, a company can easily and quickly locate the best suppliers, more customers, and the most suitable business partners worldwide. Expanding the base of customers and suppliers enables organizations to buy cheaper and sell more.

Cost Reduction – EC decreases the cost of creating, processing, distributing, storing, and retrieving paper-based information.

Extended Hours: 24/7/365 – The business is always open on the Web, with no overtime or other extra costs.

Benefits to Consumers

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Ubiquity – EC allows consumers to shop or perform other transactions year round, 24 hours a day, from almost any location.

Participation in Auctions – EC makes it possible for consumers to participate in virtual auctions. These allow sellers to sell things quickly and buyers can locate collectors’ items and bargains.

Electronic Communities – EC allows customers to interact with other customers in electronic communities and exchange ideas as well as compare experiences.

Benefits to Society

Telecommuting – More individuals can work at home and do less travelling for work or shopping, resulting in less traffic on the roads and reduced air pollution.

Higher Standard of Living – Some merchandise can be sold at lower prices, allowing less affluent people to buy more and increase their standard of living.

For HMV, the greatest advantages e-commerce can provide is reduction in costs and improved management of services. Operating via a website allows the company to "stock" as many items as possible as there aren’t the constraints of floor space as in the retail stores. Consumers can choose their product and then HMV can dispatch it from the warehouse. Costs of a large out of town warehouse would be significantly lower then stores on the high street. Flagship stores can remain, but stores that are not performing well can be sold off, releasing funds to further expand online operations.

Limitations of E-Commerce for Business

Turban (2008) suggests the following are some of the limitations of e-commerce that are classified as technological or non-technological:

Technological Limitations

Lack of universal standards for quality, security, and reliability. The telecommunications bandwidth is insufficient, especially for m-commerce

(electronic commerce via mobile phones). Difficulty in integrating e-commerce infrastructure with current organizational IT

systems - Many companies use IT systems, which are old (i.e. legacy systems). These were developed to support different needs and different kinds of software and applications. These systems contain valuable business information but have to be integrated with new ones. In many occasions this is extremely difficult. When it comes to full integration with back-office operations, for example, the cost of integrating legacy systems with modern ones may be greater than that of actually scrapping them completely.

Non-Technological Limitations

Security and privacy concerns deter customers from buying. Lack of trust in EC and in unknown sellers hinders buying.

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Many legal and public policy issues, including taxation, have not yet been resolved.

Online fraud is increasing. Some customers like to feel and touch products. Also, customers are resistant to

the change from shopping at a brick-and-mortar store to a virtual store.

But the greatest limitation for HMV in regards to e-commerce is security. Security is the principal issue in promoting e-commerce for both buyers and sellers. The current consumer opinion of Internet security is summarized by Strom (1997), who says:

"The perception of insecure transactions will continue to prevent many shoppers from making their first Internet-based purchases. While consumer attitudes about paying for goods and services online will slowly improve over the next few years, it will not be enough to fuel a rapid growth in ecommerce."

However, there is a certain lack of logic and considerable inconsistency in the attitudes of consumers regarding Internet transactions. Although evidently extremely wary of credit card payment over the Internet, consumers apparently do not think twice about revealing their credit card number over the phone or allowing the card to be taken out of sight by a waiter in a restaurant. So HMV shall have to educate consumers on online security by displaying noticeable SSL security logos to help build consumer confidence

Key benefits to automotive industry:

Combined supplier base.

Connects automobile manufacturers, dealers and consumers in a single

marketplace.

Decreases lead time and production costs.

Key benefits to electronics industry:

Provides access to thousands of components from hundreds of electronic

suppliers.

Provides ability to search by part number, product type or manufacturer

Increases competitive pricing

Key benefits to energy industry:

Provides real time pricing data on energy commodities.

Provides access to hundreds of energy commodities.

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Allows regional energy providers to gain access to a worldwide

market.

Key benefits to food industry:

Reduced lead time preserves perishables

Provides access to real time pricing data

Online auction technology allows for alternative pricing.

Credit Card Payment Processing

When a cardholder uses a credit or debit card for payment, the processing bank reimburses the merchant for the transaction’s amount, after subtracting its processing fees. The processor then clears and settles those funds by presenting the transaction to the card issuing bank. Clearing is the exchange of transaction information between the processing bank and the card issuing bank, through Visa’s or MasterCard’s payment systems. Settlement of a card payment is the process of exchanging funds between the card issuer and the processor to complete a cleared transaction.

The clearing and settlement of a card transaction are facilitated through an interchange, which is the electronic infrastructure that Visa and MasterCard set up to process financial and non-financial transactions between their member banks. The clearing and settlement of a transaction occur simultaneously. The settlement process may vary slightly from one processing bank to another but it generally goes through the following stages:

1. When a service has been provided to a customer or a product has been shipped (in card-not-present transactions, the transaction date is the date on which the product has been shipped), the merchant captures the transaction’s payment information and submits it, together with all other transactions captured this day (forming what is known as a “batch“), to its acquiring bank (processing bank) for settlement.

2. The processing bank then submits the transaction information to the Credit Card Association (Visa or MasterCard) whose card was used for settlement.

3. The Credit Card Association sends the transaction information to the card issuer and then settles it by crediting the merchant processing bank’s account and debiting the card issuer’s account. The amount that is debited from the card issuer’s account is equal to the transaction amount, minus the interchange fees

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(the processing fees, established by Visa and MasterCard, which processing banks pay to card issuing banks). The amount credited to the processing bank is equal to the transaction amount, minus interchange, minus the association fee (the fee that Visa and MasterCard charge for facilitating every card transaction).

4. The processing bank receives its funds, usually within 24 hours of the transaction, and credits the merchant’s account, usually within 48 hours of the transaction. The merchant receives an amount that is equal to the amount credited to the processing bank’s account, minus payment processing costs (the rates and fees that the merchant has agreed to pay for card processing services).

5. The card issuer posts the transaction information on its cardholder’s account and sends a monthly statement. The cardholder has the option to pay the full amount or a lesser amount, but no less than a minimum amount, established in the cardholder agreement. If the cardholder chooses to pay an amount, lesser than the full amount, the remaining balance will be charged an interest rate.

Overview of e-commerce in Pakistan

FROM THE ECONOMIST INTELLIGENCE UNIT

When the government started an information-technology (IT) and e-commerce initiative in early 2000, the banks were expected to lead the way into e-commerce. However, although the banking sector is the leading spender on information communications technology, the most progress in e-commerce has been in “e-government”. Some business-to-business (B2B) portals are available, but they are designed more for information than transactions.

Half of the country’s 7,000 commercial-bank branches, including 90% of the branches in urban areas, had been computerised by August 2006. Many banks and exchange companies offer online funds transfers from overseas, such as for workers remittances. A few of banks offer mobile-phone banking, where customers can pay utility bills using their mobile phones. The National Institutional Facilitation Technologies (NIFT), an automated check-clearing house, was operating in 14 cities in August 2006, and it processed 60m checks per year in 2005/06. NIFT is a public-private company owned 51% by banks.

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Internet merchant accounts (used for processing financial transactions of Internet vendors) were permitted by the State Bank of Pakistan (the central bank) in February 2001. However, inadequate infrastructure and security concerns remain, and in mid-2006 only Citibank (US) offered these accounts, which were used by airlines, mobile companies, Internet service providers and merchants. The transactions that do occur use international credit cards, which are processed outside Pakistan. Users of Internet merchant accounts undertaking transactions outside Pakistan need to submit electronic forms for transactions valued at US$500 or more to their banks, which must then submit the same in consolidated form on a monthly basis to the central bank.

In December 2005 the Central Board of Revenue, the tax authority, started allowing electronic filing of sales tax and federal excise returns by registered private and public companies. At that time, it said that it expected about 1,500 large taxpayers out of 22,000 to use the facility. Government efforts to promote the IT sector include the establishment of the Information Technology and Telecommunications Division in July 2000, various incentives, and the commitment of resources for education and infrastructure building. The Ministry of Science and Technology launched the National Information Technology Policy in August 2000. It was developed by a team that included working groups on the following: human-resource development; IT in government and databases; IT market development and support; IT fiscal issues; telecoms, convergence and deregulation; cyberlaw, legislation and intellectual-property rights; IT research and development; Internet development; software export; e-commerce; and incentives for IT investment.

Total spending (by the government and private sector) on information, communications and technology in Pakistan was US$10bn during 2005/06. Various e-commerce projects and initiatives were underway in the public and private sectors in August 2006. The government said in May 2004 that it has planned new IT and e-commerce projects worth well over PRs4.5bn up to 2007, and by then it aims to produce 100,000 graduates a year in IT studies from the seven new IT universities it has already set up.

Pakistan is part of the 15-member Asia Pacific Council for the Facilitation of Procedures and Practices for Administration, Commerce and Transport. The council aims to support the United Nations Centre for the Facilitation of Procedures and Practices for Administration, Commerce and Transport. Pakistan is a member of the Asia Pacific Council for Trade Facilitation and Electronic Business, a non-governmental organisation that promotes trade facilitation, electronic business policies and activities in the Asia–Pacific region.

E-commerce: Growth of e-commerce

Pakistan has a number of barriers to electronic commerce, including inadequate infrastructure (insufficient telephone lines and frequent power failures); relatively few Internet users; and lack of security for online transactions. The government is working to overcome these problems and has made some progress.

The number of Internet users in Pakistan is growing fast. According to the government’s economic survey for 2005/06, there were an estimated 2.1m Internet subscribers and about 10m Internet users in June 2005 (latest figures available), and Internet access had expanded from 29 cities in August 2000 to 2,339 cities and towns by June 2006. Optical-

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fibre networks were available in 500 cities in June 2006, compared with 53 cities in August 2000. Pakistan had 170 Internet service providers in June 2006.

The Sustainable Development Networking Programme (SDNP), funded by the UNDP, started providing e-mail services and then Internet connectivity beginning in 1993. This remained the country’s largest network until 1996. The government began allowing private Internet service providers (ISPs) in 1995. Paknet, a fully owned subsidiary of Pakistan Telecommunication Company, the formerly government-owned telcoms firm, began offering ISP services in 1999. Paknet is Pakistan’s largest ISP, followed by cyber.net, part of the local Lakson Group. Other leading ISPs include Comsats, Brainnet, Fascom, Supernet, Worldtel (an affiliate of Worldtel Canada) and NetSolConnect (owned by NetSol Technologies of the US and the Akhter group of the UK).

Telecoms deregulation has resulted in an increase in the country’s teledensity, especially in mobile telephony. Landline teledensity (the number of landline phone connections per 100 persons) was 3.9% in June 2006, compared with 3.6% the previous year; whereas cellular density (the number of cellular connections per 100 persons) was a substantial 21%, up from just 7%, over the same period. These improvements should help spur the use of the Internet and e-commerce.

During August 2006 various e-commerce projects and initiatives were underway in the public and private sectors, including electronic-government projects worth US$300m at the federal and provincial level. For example, a five-year, US$30m project funded by World Bank at the State Bank of Pakistan (the central bank) to interlink the countrywide regional office network of the central bank was almost complete. A real-time gross settlements (RTGS) project with backward linkages to commercial banks and the clearing house is scheduled to be completed by end-2006.

The Pakistan Software Export Board (PSEB) has a number of programmes to activate the local information-technology (IT) sector. For example, the Bridge 2002 programme seeks to computerise small and medium-sized enterprises and to provide projects to local software companies, with technical and financial assistance from the board. Another programme, the GEMS-2002, was launched in August 2002 to incubate small software companies, providing logistics support, infrastructure, and marketing and financial guidance. The PSEB also provides financial subsidies and technical support for various training programmes and for securing internationally-recognised quality certifications.

Software-technology parks have been established to develop the IT industry in Lahore, Karachi and Islamabad. But a software-technology park set up in Peshawar in June 2004 was abandoned because of lack of funds and poor infrastructure. Other IT incentives include the following:

IT companies qualify for an income tax exemption on software-export revenues until June 30th 2016.

Software exporters may retain 35% of their earnings in foreign-exchange accounts.

Computers and related hardware are exempt from customs duties, though the 2006/07 budget subjected them to a 15% sales tax.

Depreciation on computer equipment was raised to 30% (from 10%) in the 2001/02 budget.

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Financing options provided by banks and development finance institutions for IT-sector contracts are acceptable as collateral for the export-finance facility.

Accreditation and Quality Testing Councils are being set up to ensure a high standard of IT education in the public and private sector.

E-commerce: Foreign investment

Foreign investment of 100% is permitted in the telecommunications sector. About 100 IT and telecoms companies from the United States, Europe and Japan have offices in Pakistan, including Oracle, Cisco Systems, International Business Machines, Microsoft and Intel. Two leading ISPs have foreign connections: Worldtel is an affiliate of Worldtel Canada and NetSolConnect is owned by NetSol Technologies of the US and the Akhter group of the UK.

Foreign investors are allowed to invest up to 100% in software companies, and foreign interest in Pakistan’s technology sector has been increasing. Local entrepreneurs have set up around 100 call centres in recent years in Pakistan; one of the first was a call-centre that Align Technologies (US) set up in 2000.

The United Nations Industrial Development Organisation and the World Bank also support projects for information-technology development.

E-commerce: Intellectual property

There was a flurry of legislative activity concerning protection of intellectual property in 2000/01. The Pakistan Patent Ordinance 2000 was issued in December 2000 and the Trademarks Ordinance 2001 was issued in April 2001, and they can be applied to Internet activity.

According to an August 2006 report from the government, the Electronic Data Protection Act 2005, the revised Electronic Crimes Act 2004 and a law relating to electronic payments had been drafted and were ready for legislation, although there is no schedule to present them. The Electronic Data Protection Act would provide protection and safety to foreign data regarding the processing of such data in Pakistan; details for the other two acts were not yet available by August 2006.

E-commerce: Consumer protection

The president passed the Electronic Transactions and Governance Ordinance 2002 in September 2002. It extends the coverage of laws concerned with physical contracts or documents to their electronic forms.

E-commerce: Contract law and dispute resolution

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The Electronic Transactions and Governance Ordinance 2002 extends the coverage of laws concerned with a physical contract or document to its electronic form. It also specifies actions recognised as offences, and it gives guidance on resolving disputes related to electronic contractual obligations and communications. No method of determining the jurisdiction of e-commerce transactions has yet been discussed.

E-commerce: Basis of taxation

No rules have been established on how to tax e-commerce or determine “electronic residence” in Pakistan.

E-commerce: Classification of e-commerce transactions

No classification of e-commerce transactions has been given to assign different tax rates or for any other purpose.

E-commerce: Compliance and enforcement issues

The president passed the Electronic Transactions and Governance Ordinance in September 2002. It provides for the legal recognition of electronic documents and specifies offences. The ordinance makes it an offence for a person to gain or attempt to gain unauthorised access to any information system with or without intent to acquire the information contained therein, whether or not he/she is aware of the nature or contents of such information. It also makes it an offence for any person to do or attempt to do any act with intent to alter, modify, delete, remove, generate, transmit or store any information through or in any information system, knowing that he/she is not authorised to do any of the foregoing. Both offences are punishable with either a prison term of up to seven years, or a fine up to PRs1m or both.

Future of E-Business in Pakistan

E-commerce is a very hot issue these days. After the revolution of Internet, more and more countries are getting involved in it.

However, in general, if we use any type of electronic devices in getting orders and sending catalogues, like telephone, fax or any other such instruments, we are supposed to be applying electronic business techniques. However, the real sense of e-commerce is the business on the internet of which there are different modes, like opening a retail store on internet, where all transactions are done on line, from selection of product to payment of bills.

The over-all volume of e-commerce is more than $4 billion annually. Doing business on internet is not a very costly investment. It is estimated that in near future, almost 25 per cent of the traditional business will be converted into internet business.

Trends: E-commerce is an information technology trend developing fast in the business

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world. The corporate and the business world, aptly supported by the IT industry, already stands transferred, which by recent estimate will exceed $400 billion this year.

As we start warming up to global e-commerce in Pakistan, we must understand that almost 78 per cent of the e-commerce activity takes place in the USA, obviously driven by the use of internet in that country. As the January 2000,over 110 million people have internet access there compared to 279 million the world over.

Nevertheless, Pakistan can make good use of this opportunity with proper planning and execution. To begin with, let us focus on the domestic front before going all out for the global market.

Domestic activity: Offer for improving and productivity to bring it to the excellent level. It also allows our entrepreneur to test their web business and marketing skills before taking on the international markets. E-commerce is not for all but for those who understand it. Yet, e-commerce is not a technology.

The issue at the individual level, it is purely a business matter. At the govt level, it is a matter of providing infrastructure for transactions on internet. E-commerce or business through internet is becoming very popular mode of trading around the world particularly in the developed world. E- commerce is a broad term used to quantify the trading taking place on the internet.

Most studies, however, suggest that e-commerce runs through four steps. The very first step is, to build a website to let the world know about your existence. The website contains information about the company, product/services and other related information, which can help visitors to learn more about the hosts. The second step involves asking customers to loose their pockets and buy on line.

This step requires adopting advance level of software capable of handling orders. In the third stage inventory, management adds to the system and lastly, providing provisions of payments through online banking partnership between buyers and sellers, the most difficult and complex part of e-commerce.

The most common and popular forms of e-commerce are business-to-consumers (B2C) and business-to-business (B2B). Business-to-government (B2G) and government-to-citizens (G2C) are other forms, running on the internet but with low steam. However, the use of former two still dominates the internet.

However, Pakistan is still far behind in chasing the west in this regard. Entrepreneurs in Pakistan are of the opinion that e- commerce means being able to make and receive payments through internet and any other activity through internet is not considered as e-commerce. This low level of understanding has led many Pakistani firms to give low priority to e-commerce due to unavailability of proper framework for the internet in the country.

In Pakistan, e-commerce is still in its infancy and faces many barrier to grow. The notable barriers are: unavailability of proper infrastructure [telephone line of stem lines of steam age, frequent failures of power] limited user of internet hardly one per cent of the entire population have access to the internet], the issue of security of transactions on the

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internet, high bandwidth rates, and last but not least the rigid and monopoly role of the PTCL.

However, the SBP has recently put a crack on the barriers when it approved the merchant ID accounts to facilitate online transactions. But there is still a long way to go and requires government to continue to grease the wheels of e-commerce to speed up the process.

Prospects: Those who create, distribute, and sell goods and services to consumers also have reason to look forward to this new mechanism. All enterprises, including the small and medium sized can reach customers throughout the world instantly and comparatively inexpensively. Many vendors can sell globally without the costly infrastructure of worldwide retail stores, sales offices, distributors, or warehouses.

Greater sales and inventory efficiency maybe possible through the increased interaction with prospective customers that electronic commerce can afford. One to one marketing becomes possible on massive and global scale. Active and alert supplier will also benefit from the new structure of product and service distribution likely to results from electronic commerce. With conventional distribution, a manufacturer must reply to wholesalers and retailers to serve customers in large volumes. E-commerce's automated customers self-service capabilities can eliminate the need for these intermediaries .The manufacturer no longer has to share profit with others. In addition, the manufacturer gains direct contact with consumers that can facilitate future sales.

With this, as the role of conventional intermediaries-such as retail store clerks, travel agents, bank tellers, and wholesale representatives may diminish or end, new intermediaries have started to appear.

Electronic commerce connects manufacturers directly to consumers. The consumer gets product information directly from the ultimate source. The manufacturer can get customer preferences and needs directly from the ultimate source. Each consumer's physical location no longer determines whom the consumer’s contacts to purchase a product. With the purchase of intangibles that can be delivered electronically, physical location becomes irrelevant to product delivery as well. The internet makes the connection between a French consumer and an Egyptian supplier virtually indistinguishable from the connection between a Persian consumer and a Parisian consumer and Parisian manufacture.

It can be concluded that there is a lot of scope of e- commerce in Pakistan, and most companies are eager to going to the digital world, but at present due to absence of any policy framework and limited internet market, companies are holding their plans to start e-business until clouds of barriers as discussed are disappeared.

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CONCLUSION

Just as e-mail has come to dominate our lives in communication with anyone around the

globe, e-Commerce is fast emerging as a way of transactions between parties doing

business nationally and internationally.

At the turn of the last millennium, e-Commerce created excitement in the hallowed

corridors of Harvard Business School as well as the poorest lanes of Hoshiarpur, Punjab,

India. The reasons for this are not far to seek. The two powerful concept of anytime-

anywhere and virtualization of the companies have demonstrated their tremendous

potential to improve business reach, to reduce costs and cycle times, and to enhance

productivity in organizations across the globe. Consequently, consumers can hope for

better comfort and greater value-for-money.

In today’s economic scenario, the market place is increasingly global and competitive

with the growth of internet and web based technologies. As mentioned above the turn of

the last millennium saw the emergence of what is, probably, the most powerful paradigm

that the world has witnessed in recent years – e-Commerce. Advances in communications

and computing, and the realization of the power of the internet have made e-Commerce

the most revolutionary instrument for improving the productivity of both corporations

and individuals.

Therefore, the business process requires efficient coordination of information between

partners/suppliers/support partners and customers. This objective is achievable if the

networks of these parties integrate them effectively to be able to communicate better and

faster for transacting business. Without e-Commerce, the transaction cycle becomes long

resulting in delayed response and higher cost, resulting in decreased customer

satisfaction. Internet provides a faster information highway to transact business.

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Thus e-Commerce is a method to gain and maintain competitive advantage in business

transactions. It is a new way of conducting, managing and executing business

transactions and services through electronic media and networks. It is a modern

methodology that addresses the needs of organisations, consumer, banks and financial

institutions to cut costs while improving the quality of goods and services and improving

the delivery system.

Instead of the traditional paper based transactions in commerce, the electronic media like

computers and communication networks, web-sites, e-mails are restored to. The World

Wide Web allows suppliers to create a web presence for providing product and service

information directly to the customer. A customer can go directly to a vendor to download

the latest information with no human intervention. Many businesses establish this type of

web presence through an Internet Service Provider (ISP).

The ultimate purpose of e-Commerce is to ensure better customer satisfaction which is an

overall psychological state that reflects the evaluation of a relationship between the

customer/consumer and a company-environment-product-service.

REFERENCES

1. http://www.raifoundation.org

2. The Hindu Speaks on Management Volume II

3. e-Commerce and e-Business, from www.eprimers.org

4. The Power of E-Commerce, www.infy.com

5. Introduction to computers-2, IDE, University of Kerala

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