Assignment 6

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Multinational E-Commerce:

Strategies and Structures

Learning Objectives (1 of 2)

Define the forms of e-commerce.
Understand the structure of the Internet economy.
Identify the basic components of a successful
e-commerce strategy.
Know the basic multinational e-commerce business models.

Learning Objectives

Identify the practicalities of running a multinational
e-commerce business.
Understand the function of enablers in multinational
e-commerce operations.

The Internet Economy (1 of 4)

The Internet and electronic commerce (e- commerce) are drastically changing how international business is done.
The Internet allows any company to create a virtual and global presence to conduct operations around the world, and it allows MNCs to dramatically alter the way they present and communicate with global customers.
The growth of smartphones and social media (Facebook, Twitter, etc.) are revolutionizing commerce.

The Internet Economy (2 of 4)

Although small in comparison to the traditional economy, the Internet economy is:
Growing faster than any other business trend in history; a worldwide phenomenon
Drastically changing how international business is done
The Internet allows any company to create a virtual and global presence to conduct operations worldwide.

The Internet Economy (3 of 4)

Aspects of the Internet and e-commerce globally:
By 2016, there will be around 3 billion Internet users
In 2013, there were more mobile-cellular subscription as people in the world.
Mobile broadband has reached 30% penetration.
Online advertising is expected to grow 12% in 2016.
The number of individuals buying goods and services online is expected to continue growing.

The Internet Economy (3 of 4)

Many of the issues involved in business over the Web are similar to those faced by traditional MNCs.
The next generation of Multinational managers must address unique challenges in formulating and implementing multinational strategies for the Internet economy.

What Is E-Commerce? (1 of 4)

E-Commerce is the selling of goods or services over the internet, and includes those delivered online (downloaded software) and offline (delivery by UPS).
Types of transactions:
B2C: Business-to-Consumer transactions
Example: buying toys from eToys.
B2B: Business-to-Business transactions
75-80% of transactions

What is E-Commerce? (2 of 4)

Types of transactions: (cont’d)
C2C: Consumer-to-Consumer transactions
Anyone selling online
eBay facilitates C2C transactions
C2B: Consumer-to-Business transactions
Example: price comparison websites
C2G: Citizen-to-Government e-commerce
B2G: Business-to-Government

What is E-Commerce? (3 of 4)

Types of transactions: (cont’d)
C2G: Citizen-to-Government e-commerce
The government can interact with citizens
Facilitates payment of taxes, education, healthcare, etc.
B2G: Business-to-Government
Facilitation of business between governments and companies as well as facilitation negotiations

Exhibit 10.1:
E-Commerce Value Chain

What is E-Commerce? (4 of 4)

Two indicators of the global presence of e-commerce:
Secure Server: an Internet host that allows users to send and receive encrypted data
Internet Hosts: computers connected to the Internet with their own IP addresses
The extent of e-commerce is difficult to measure.
One method is to estimate its contribution to a country’s GDP.

Exhibit 10.2:
Internet Economy as a Percentage of GDP for Selected Countries

Exhibit 10.3:
Number of Digital Buyers Worldwide

Fundamentals of E-Commerce Strategy & Structure

E-commerce is evolving quickly.
Failures of many start-ups show it’s not without risks.
Each layer of the Internet economy has its threats and opportunities.

Exhibit 10.4:
E-Commerce Business Models: Openings and Barriers for Going Global

SOURCE: Adapted from Sawhney, Mohanbir, and Sumant Mandal. 2000. “Go global.” Business 2.0, May, 178–213 ; OECD, “ E- commerce: Impacts and policy changes.” Economics Department Working Paper No. 252. May, 178–213 ; Coppel, Jonathon, 2000. “ E- commerce: impacts and policy changes.” OECD, Economics Department Working Papers, No, 252. Paris. June 23.

Steps for a Successful
E-Commerce Strategy (1 of 4)

Experts suggest seven fundamental requirements:
1. Leadership
Successful e-commerce is only possible through dynamic and strong leadership.
2. Build on current business models and experiment with new e-commerce models
Use e-commerce to search for ways to reduce costs or enhance the business.

Steps for a Successful
E-Commerce Strategy (2 of 4)

Experts suggest seven fundamental requirements: (cont’d)
3. Meet the challenge of developing an e-commerce organization.
The entire firm (not only top management) must be prepared to embrace the e-commerce model.
4. Allocate resources to the e-commerce business.
Commit financial, human, and technological resources to develop e-commerce capabilities.

Steps for a Successful
E-Commerce Strategy (3 of 4)

Experts suggest seven fundamental requirements: (cont’d)
5. Have an e-commerce strategy.
Use strategic management to implement a strong and adequate strategic e-commerce plan.
6. Develop appropriate e-commerce systems.
Remove traditional barriers to ensure increased coordination and information flows among the various functional areas.

Steps for a Successful
E-Commerce Strategy (4 of 4)

Experts suggest seven fundamental requirements: (cont’d)
7. Measure success.
Have metrics in place to measure e-commerce success. Obvious output success measures include website hits, number of new e-commerce customers, e-commerce revenue and number of customers learning about new products to purchase through other channels.

Exhibit 10.5:
Dos and Don’ts of E-commerce

Source: Based on Fletcher, M. 2009. “How to create a perfect e-commerce website.” Revolution, March, pp. 60–63

Do’s	Don’ts
Incorporate user feedback applications; space for customer comments	Treat customers like second-class; give equal attention
Provide immediate, frequent feedback to customers	Rely on technology as solution to all problems
Create a website personality; consider value-added services	Compete solely on price
Innovate by providing unique services	Rely solely on self-service and automated systems
Market appropriately; find your customers	Wait for customers to find you

E-Commerce Structure: Integrated or Autonomous (1 of 4)

The company needs to decide how e-commerce fits into its existing design.
Right mixture of “bricks” and “clicks”
How much to integrate the Internet into traditional business
Brick-and-mortar : traditional, non-virtual business operations

E-Commerce Structure: Integrated or Autonomous (2 of 4)

The degree of interaction between brick-and-mortar operations can occur anywhere in the value chain.
It can range from near seamless operations of an Office Depot to the mostly independent operations of Barnes & Noble and Barnesandnoble.com.
Each choice has its benefits.

E-Commerce Structure: Integrated or Autonomous (3 of 4)

The independent benefits:
Faster and more entrepreneurial
Freed from corporate bureaucracy
The integrated benefits:
Cross-promotion, shared information, increased quantity purchases, same distribution channels
The choice is seldom clear-cut.
The best option for most firms lies somewhere in between.

E-Commerce Structure: Integrated or Autonomous (4 of 4)

Additional steps to integrate online and offline operations:
Keep customers informed.
Retailers find it impossible to maintain the same pricing and inventory on websites and in stores. Customers can be frustrated, and appreciate being informed.
Share customer data across channels.
Example: Retailers can send tailored product emails based on store purchases.

Exhibit 10.6:
Key Decisions in
Web Business Integration

Additional Operational Challenges for an E-Commerce Business (1 of 6)

Finding partnerships and alliances with customers or third parties
Attracting, retaining, and developing employees in the e-commerce unit
Inadequate e-commerce training
E-commerce employee retention
Deciding what e-commerce functions to outsource

Additional Operational Challenges for an E-Commerce Business (2 of 6)

How can pure e-business companies meet these challenges?
Develop information and management systems to respond to growth.
Maintain rapid decision making, creativity, innovation, and flexibility.
Build relationships with e-commerce support companies and customers.
Attract and retain e-commerce–capable talent.
Develop an effective management team

Additional Operational Challenges for an E-Commerce Business (3 of 6)

Traditional companies with e-commerce units must:
Build a common vision and commitment to
e-commerce throughout the organization.
Change the organizational structure for quick reconfiguration of assets and capabilities
Change the organizational culture to create a supporting environment for e-commerce.
Attract and retain e-commerce-skilled employees.
Alter HR programs to suit the different skill requirements of e-commerce employees.

Exhibit 10.7: Organizational Changes in Major Multinational Companies Building E-Commerce Businesses

Additional Operational Challenges for an E-Commerce Business (4 of 6)

E-Commerce Security: the degree to which customers feel that their private, personal information can be safeguarded in the hands of online companies collecting such information
Cybercriminals are becoming increasingly sophisticated.

Additional Operational Challenges for an E-Commerce Business (5 of 6)

Multinationals must protect their Internet security:
Confidentiality: protecting private information
Availability: ensuring information is accessible to authorized users
Integrity: ensuring that the information collected is accurate and reliable
Authentication: having systems in place to ensure that persons using the systems are legitimate

Additional Operational Challenges for an E-Commerce Business (6 of 6)

Companies are also under increased pressure to protect the privacy of individuals.
Experts suggest the use of:
Firewalls and antivirus protection software
Data encryption and several levels of authentication Website monitoring tools
Abiding by privacy rules to address Internet security issues

Globalizing
Through the Internet

The Internet is enabling the emergence of a new form of multinational, the born-global firm.
Born-global firms are able to obtain a significant portion of their revenues from sales in international markets.
Though a website gives the world access to firm’s goods and services, the internationalization challenges faced by traditional MNCs remain. The firm must still solve the global – local dilemma, and deal with national culture and institutional contexts.

Multinational E-Commerce Strategy Formulation:
The Nature of the Business

What kind of e-business is easiest to take global?
It depends on the types of products or services offered through e-commerce
E-commerce companies work in 3 areas, and require 3 types of infrastructure:
Telecommunications infrastructure to move information
Payment infrastructure to move money
Physical infrastructure to deliver products
Most difficult are e-commerce businesses that require a physical infrastructure.

Basic Opportunities & Threats of Multinational E-Commerce (1 of 4)

The major attractions of e-commerce are:
Cost reduction: Less expensive to reach international customers.
Technology: The technology to reach customers is readily available.
Efficiencies: Electronic communication can be very efficient.
Convenience: The Web is in operation 24/7.
Speed of Access: Once a website is running, the firm’s products can be accessed immediately from anywhere in the world.

Basic Opportunities & Threats of Multinational E-Commerce (2 of 4)

The major deterrents to e-commerce include:
The return/receipt burden & cost of delivery: Businesses should expect a 30-40% return rate for online purchases.
Costs of site construction, maintenance, upgrades: Website creation in multiple languages, currencies and tax locations is expensive.
Channel conflicts: Distributors and retailers of a firm’s products may be in competition with the firm itself.
Easily copied models: Competitors can see and copy the firm’s website.

Basic Opportunities & Threats of Multinational E-Commerce (3 of 4)

The major deterrents to e-commerce include (cont’d)
Cultural Differences: Understanding global customers and overcoming cultural barriers can be difficult on the Web.
Traditional cross-border transaction complexities: Issues include pricing for exchange rates, varying taxes, and government regulations.
Standard or local websites: Companies must decide whether to standardize websites or tailor them to local contexts.
Customer trust and satisfaction: Companies must determine whether customers abroad will trust and be satisfied.

Basic Opportunities & Threats of Multinational E-Commerce (4 of 4)

Most experts agree that using the Internet to go international can help gain access to new markets.
Selling online allows a company to weather slowdowns in local markets while diversifying into new territories.
Going global through the Internet means more than just offering websites in local languages.
MNCs need to take into consideration culture, customs, and technical sophistication, while adapting their products to meet local needs.

Picking a Market (1 of 2)

Target countries based on two factors:
Countries with market inefficiencies
E.g., formerly state-controlled economies
Countries with attractive demographic characteristics
An Internet population of at least 5%
A high literacy rate
Participation in at least one free trade agreement
A government with a viable legal system

Picking a Market (2 of 2)

E-commerce potential may be substantial in Latin America because of the Mercosur trade group.
Potential exists for Southeast Asian countries with membership in ASEAN.
The open borders and common currency of European Union is also fertile ground for e-commerce growth.
Not all countries are equally e-commerce ready.

Exhibit 10.8:
Web Index for
Selected Countries

Multinational E-Commerce Strategy Implementation

Successful implementation of a multinational e-commerce strategy requires building an appropriate organization and developing the necessary technical capabilities to conduct electronic transactions.
The following provides an overview of the options available to multinational managers.

The Multinational
E-Commerce Organization

How is a multinational e-business organized? Consider Amazon.com and Yahoo!. Each has a 3-tiered mix of global & local functions:
1. Corporate headquarters: The global core provides vision, strategy, & leadership for worldwide electronic marketing.
2. HQ also provides shared services such as network infrastructure.
3. Local subsidiaries which deliver the goods, take charge of functions better done locally.

Exhibit 10.9:
Organizational Structures of the Multinational E-Corporation

Technical Capabilities & Implementation Options for Multinational E-commerce (1 of 2)

Required technical capabilities are:
Software to process pricing in multiple currencies
Systems to calculate & show purchase information on international shipping, duties, and local taxes
Systems that check compliance with local and international laws
The ability to give support in multilingual service centers
Fraud protection
Electronic payment models in addition to credit cards

Technical Capabilities & Implementation Options for Multinational E-commerce (2 of 2)

Also, local realities require implementation decisions.
Many areas of the world do not process data the same way. In some countries, last names may come first.
Similarly, not all countries use credit and debit cards.

Web Sites:
Localize or Standardize?

A Standardized Web Site: A company’s web sites are fairly similar in layout and design around the world.
Example: Dell Computer
A Localized Web Site: A company’s websites around the world are adapted to the local culture in terms of values, appeals, symbols, and even themes in the communication content.
Example: Chipshot.com

Exhibit 10.10:
Major Problems Identified
in Web Site Globalization

To Build or Outsource Technical Capabilities?

Two options for a firm’s technical capabilities:
Run all e-commerce functions internally, or
outsource to e-commerce enablers
E-commerce Enablers: fulfillment specialists that provide services such as Web site translation, and calculate shipping, value-added taxes, duties, and other charges unique to each country.
Some MNCs are taking advantage of User-Generated Content (UGC).

Summary and Conclusions

Internet and e-commerce are becoming an increasingly important component of any multinational’s strategy.
Chapter 10 introduced the basic concepts of e-commerce, and compared traditional and e-commerce companies.
Many of the same challenges are faced by both.
Future trends include the use of User Generated Content (UGC) by multinationals to their advantage