CHAPTER 9 MULTINATIONAL ECOMMERCE: STRATEGIES AND STRUCTURES

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Chapter 9 Multinational E-commerce Strategies
and Structures
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INTRODUCTION

• Internet economy
• growing faster than any other business trend in
  history
• Companies face issues similar to those faced by
  traditional multinational companies

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THE INTERNET ECONOMY

• What is e-commerce?
• e-commerce refers to the selling of goods or
  services over the internet

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TYPES OF E-COMMERCE TRANSACTIONS

• B2C business to consumer transactions
• B2B business to business transactions
• makes up of 70-85 of current e-commerce business

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Types of e-commerce transactions, continued

• C2C consumer to consumer
• C2B consumer to business

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THE GLOBAL PRESENCE OF E-COMMERCE

• Measured by two indicators
• secure servers
• internet hosts
• OECD countries dominate the internet with over
  90 of the worlds internet hosts - see exhibit
  9.1

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EXHIBIT 9.1 SECURE SERVERS AND INTERNET HOSTS IN
SELECTED OECD COUNTRIES
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Global presence of e-commerce, continued

• In 1991, 3 million people used the internet and
  almost none used it for e-commerce
• By 1999, approximately one quarter of the 250
  million users made purchases online

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THE INTERNET ECONOMY

• Internet economy has four layers
• Layer 1 the backbone of the internet including
  the internet service providers
• communications (MCI, worldcom), internet service
  providers (AOL), networking (cisco) and hardware

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The internet economy, continued

• Layer 2 companies and consultants that build web
  systems and supporting software
• consultants (scient), commerce applications
  (netscape, sun), web development software (adobe,
  netobjects), search engines (verity), and
  web-enabled databases (oracle)

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The internet economy, continued

• Layer 3 companies that provides linking services
  on the internet and derive revenues from
  commissions, advertising, and membership fees
• travel agencies (travelweb, travelocity.Com),
  online brokerages (etrade), content aggregators
  (cnet,zdnet), and online advertising (yahoo!)

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The internet economy, continued

• Level 4 companies that conduct commercial
  transactions on the web
• E-retailers (wine.Com), manufacturers selling
  directly (hpshopping.Com), subscription-based
  companies (vrbo.Com), transportation services
  (most airlines), and shipping services (UPS)

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Exhibit 9.3 Shows E-commerce Business Models
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EXHIBIT 9.3
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FIVE STEPS FOR SUCCESSFUL E-COMMERCE STRATEGY

• 1. Build on current business models and
  experiment with new e-commerce models search
  for ways to reduce costs or enhance the business

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• 2. Meet the challenge of developing an e-commerce
  organization
• Not only senior management, but the entire firm
  must be prepared to embrace the e-commerce model

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• 3. Allocate resources to the e-commerce business
• Commit financial, human, and technological
  resources to develop e-commerce capabilities

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• 4. Build a superior e-commerce infrastructure as
  a basis of differentiation strategy
• 5. Make sure entire management team aligns with
  e-commerce agenda

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E-COMMERCE STRATEGIES INTEGRATED OR AUTONOMOUS

• How does e-commerce fits into existing
  organizational design and management systems?
• i.e., the fit with brick and mortar operations

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Integrated or autonomous, continued

• Degree of interaction between brick and mortar
  operations can occur anywhere in the value chain
• Can range from near seamless operations (e.g.,
  Office Depot) to the mostly independent operations

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Integrated or autonomous, continued

• The independent benefits
• faster and more entrepreneurial
• The integrated benefits
• cross-promotion, shared information, increased
  quantity purchases, use of same distribution
  channels

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Exhibit 9.4 (next) shows key decisions in the
integration versus separation decision
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ADDITIONAL OPERATIONAL CHALLENGES

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

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TASKS FOR TRADITIONAL COMPANIES WITH E-COMMERCE

• Build a common vision and commitment to
  e-commerce
• Change the organization structure for quick
  reconfiguration of assets and capabilities

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Tasks for traditional companies with e-commerce,
continued

• Change the organization culture to support
  e-commerce
• Attract and retain e-commerce-skilled employees
• Alter HR programs to suit skill requirements of
  e-commerce employees

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Exhibit 9.5 gives a comparison of past and
expected organizational changes multinational
companies are making to implement their
e-commerce strategies
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EXHIBIT 9.5
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GLOBALIZING THROUGH THE INTERNET

• A web site gives the company immediate global
  access
• the challenges of globalization faced by
  traditional brick-and-mortar companies remain

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MULTINATIONAL E-COMMERCE STRATEGY FORMULATION

• Depends on
• nature of the business
• types of products or services offered through
  e-commerce

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E-COMMERCE COMPANIES WORK IN THREE AREAS

• 1. Movement of bits or computerized information
• 2. Movement of money in payment flows
• 3. Movement of physical products
• each type of operation requires an infrastructure
  to support the transactions

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HIERARCHY OF DIFFICULTY

• Depends on infrastructure requirements
• portals and infomediaries, simplest
• digital products that must have an infrastructure
  to take payments
• most difficult to globalize e-commerce
  businesses that rely on a physical structure

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MULTINATIONAL E-COMMERCE OPPORTUNITIES AND
THREATS

• Major opportunities of e-commerce globalization
• cost reduction
• less expensive to reach customers via web

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Multinational e-commerce opportunities and
threats, continued

• technology
• is already available
• efficiencies
• more efficient

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Multinational e-commerce opportunities and
threats, continued

• convenience
• web is in operation all the time regardless of
  location
• speed of access
• companys products or services can be accessed
  from anywhere in the world

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Multinational e-commerce opportunities and
threats, continued

• Major challenges include
• return/receipt burden and cost of delivery
• expect 30-40 return rate
• costs of site construction, maintenance, upgrades
• channel conflicts

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Multinational e-commerce opportunities and
threats, continued

• easily copied models
• competitors can easily see and copy business
  model
• cultural differences
• web sites must be appropriate culturally

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Multinational e-commerce opportunities and
threats, continued

• traditional cross-border complexities remain
• exchange rates, different taxes, and government
  regulations

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PICKING A MARKET

• Target countries
• those with market inefficiencies
• e.g., formerly state-controlled economies
• attractive demographics
• internet population of 5
• high literacy rate

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• Target countries, continued
• participation in at least one free trade
  agreement
• government with viable legal system

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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

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THE MULTINATIONAL E-COMMERCE ORGANIZATION

• What is the organization of a multinational
  e-business?
• three-tiered mixing of global and local functions
  
• Headquarters
• vision, strategy, leadership for worldwide
  electronic marketing

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The multinational e-commerce organization,
continued

• Shared functional services
• provide HRM, marketing, partner management to
  regions
• Local subsidiaries
• deliver goods, manage functions better done
  locally such as the supply chain

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Exhibit 9.6 pictures the levels and functions of
the multinational corporation
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TECHNICAL CAPABILITIES FOR MULTINATIONAL
E-COMMERCE

• Process multiple currencies
• Calculate and show purchase information on
  international shipping, duties, and local taxes
  such as VAT

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Technical capabilities for multinational
e-commerce, continued

• Check regulatory compliance with local and
  international laws
• Provide support in multilingual service centers
• Fraud protection
• Electronic payment models in addition to credit
  cards

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TO BUILD OR OUTSOURCE TECHNICAL CAPABILITIES?

• Run all e-commerce functions internally or
  outsource to e-commerce enablers
• Enablers provide services and software that
  translate web sites, calculate shipping,
  value-added taxes, duties, and other charges
  unique to each country

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Exhibit 9.7 shows major problems identified
web-site globalization
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CONCLUSIONS

• E-commerce expanding geometrically
• Although the US dominates e-commerce, other areas
  of the world are catching up

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Conclusions, continued

• Fundamentals of e-commerce strategy
• build on traditional business models
• experiment with cost reductions or
  differentiation based on internet use