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Electronic Commerce

The implications and the experience

By Shafaq Fatima Baig,
Business Faculty Member
Apr 16 - 22, 2001

For an established company, one of the principal challenges of electronic business is the extent to which its value chain is made redundant, and whether its competitive advantage is eroded, or even fatally wounded. Successful companies usually have competitive advantages in a few parts of the value chain. Electronic commerce may mean that these advantages may disappear.

Philips Evan and Thomas Wurster, of Boston Consulting Group point out that, "Where once a sales force, a system of branches, a printing press, a chain of stores or a delivery fleet served as formidable barriers to entry because they took years and heavy investments in build, in this new world they could suddenly become expensive liabilities. New competitors on the internet will be able to come from nowhere to steal your customers". Thus a bank may find its branch network threatened by the growth of online banking.

The potential threat is obvious. The conundrum for bankers assesses the likely extent of the damage. How many customers will be lost? Does the branch network retain important advantages in customer acquisition and retention? Quite possibly, customers find it reassuring to know that their bank does have branches and real people whom they can visit and talk to if necessary, just as they find it pleasant to visit a bookshop. On the other hand, customer profiles are changing. Those who are uncomfortable with online transactions will eventually be replaced by others who have been computer-literate more or less from birth. In addition, even if only a minority of customers were to switch from traditional banks to electronic banking, the numbers may still be sufficient to affect switch from traditional banks to electronic banking, the numbers may still be sufficient to affect product service pricing. In other words, the arrival of cheaper electronic transactions availability will gradually force service providers (like banks) to re-price the whole range of their activities, even for those customers who still transact their business by conventional means.

Electronic commerce has eliminated many of the competitive advantages enjoyed by existing competitors. Retailers can buy the ingredients they need, and rely on their brand names to help them create competitive advantage. Indeed, in an ironic twist of fortune, the major financial services companies of today may end up being little more than marginally profitable sub-contractors to the key players (like Tesco) of tomorrow. In Martin's phrase, "The value added will migrate to the businesses that control the customer relationships."

In practice most businesses do not enjoy the relationships with their customers that they think they do. Just because customer makes frequent use of a supplier whether a retail supermarket or a bank's retail; branch does not mean that the customer is necessarily loyal or committed: it is equally plausible to argue that transaction frequency is a product of necessity rather than desire.

E-Commerce also increases the following social phenomenon, which is likely to be observed:

Travel for shopping has now become the thing of the past. Rather than visiting shops and people can obtain what they want without leaving their desk. This should make shops and roads less crowded and more pleasant for those who still use the old modes of shopping and that is the situation especially in Pakistan.

Consumer choice is another phenomenon which was an arduous act before e-commerce as a computer search for an item or service can be done in seconds, whereas it could take hours, days or weeks (female trend in Pakistan) exactly what was wanted by more conventional means. Consumers are also not restricted to local providers: they can do business with any company in the world that has a web- site. This factor creates more competition for producers in Pakistan especially for those items that which people use for social recognition and to be a conspicuous consumer may be designer's jewelry or clothing even shoes are there. This is the reason that in Pakistan almost all the fashion designers have their web-sites and consumers can easily order their choices. Another interesting feature is that some web-sites don't require the credit cards, as they just need you to pick your choice and then pay through a demand draft or cross check.

Time management and quality of life has also increased with the e-commerce. Rather than being restricted to business hours people can obtain what they want 24 hours a day. This helps people to manage their time and do what they want to do at their own convenience.

Interaction with computer reduces a lot of conflict. Instead of dealing face-to-face with others, people interact with their computer. If human contact is valued, this makes the experience a poorer one. However there will be fewer opportunities for people to work in sales force that involve direct contact with others, but greater opportunities to work in distribution and transport. In the long-term this could be a major change since both sectors employ large numbers of people.