Management 55

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Multinational E-Commerce:

Strategies and Structures

Chapter

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

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

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 2)

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 2)

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

Exhibit 10.1: E-Commerce Value Chain

Measuring The Internet Economy

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: Percentage of Households with Internet Access

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

Steps for a Successful E-Commerce Strategy

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 Successful E-Commerce Strategy (cont.)

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 Successful E-Commerce Strategy (cont.)

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 Successful E-Commerce Strategy (cont.)

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.

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 10.5: Key Decisions in Web Business Integration

Additional Operational Challenges for an E-Commerce Business

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

A Pure E-Business Company Can Meet Its 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

A Traditional Firm with E-Commerce Can Meet Its Challenges

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

E-Commerce Security (1 of 3)

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.

E-Commerce Security (2 of 3)

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

E-Commerce Security (3 of 3)

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 for users

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 3)

The major attractions of e-commerce are:

Cost reduction: It’s 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 3)

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 3)

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.

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: E-Readiness of 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 10.8: 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 10.9: 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

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