E-Commerce

Electronic Commerce (EC) is where business transactions take place via

telecommunications networks, especially the Internet.

Electronic commerce describes the buying and selling of products, services, and
information via computer networks including the Internet.

E-commerce, ecommerce, or electronic commerce is defined as the conduct of a

financial transaction by electronic means. E-commerce provides a new channel
in which to build relationships and generate convenient transactions with a
larger, more geographically diverse customer base. . E-commerce provides
firms with the ability to reach new customers and old customers in new ways.
In the same vein, e-commerce also allows firms to tap new and old suppliers
through new and innovative channels. These possibilities have raised the
expectations of improved efficiency and substantial cost savings.

The effects of e-commerce are already appearing in all areas of business, from
customer service to new product design. It facilitates new types of information
based business processes for reaching and interacting with customers-online
advertising and marketing, online, order taking and online customer service etc.
It can also reduce costs in managing orders and interacting with a wide range of
suppliers and trading and trading partners, areas that typically add significant
overheads to the cost of products and services.

The major different types of e-commerce are: business-to-business (B2B);

business to- consumer (B2C); business-to-government (B2G); consumer-to-
consumer (C2C); and mobile commerce (m-commerce).

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B2B e-commerce is simply defined as e-commerce between companies. This is
the type of e-commerce that deals with relationships between and among
businesses. About 80% of e-commerce is of this type.

The more common B2B examples and best practice models are IBM, Hewlett
Packard (HP), Cisco and Dell. Cisco, for instance, receives over 90% of its
product orders over the Internet. Most B2B applications are in the areas of
supplier management (especially purchase order processing), inventory
management (i.e., managing order-ship-bill cycles), distribution management
(especially in the transmission of shipping documents), channel management
(i.e., information dissemination on changes in operational conditions), and
payment management (e.g., electronic payment systems or EPS).

There are three cost areas that are significantly reduced through the conduct of
B2B e-commerce. First is the reduction of search costs, as buyers need not go
through multiple intermediaries to search for information about suppliers,
products and prices as in a traditional supply chain. In terms of effort, time and
money spent, the Internet is a more efficient information channel than its
traditional counterpart. In B2B markets, buyers and sellers are gathered together
into a single online trading community, reducing search costs even further.
Second is the reduction in the costs of processing transactions (e.g. invoices,
purchase orders and payment schemes), as B2B allows for the automation of
transaction processes and therefore, the quick implementation of the same
compared to other channels (such as the telephone and fax). Efficiency in
trading processes and transactions is also enhanced through the B2B e-market’s
ability to process sales through online auctions. Third, online processing
improves inventory management and logistics.

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The rapid growth of B2B e-markets creates traditional supply-side cost-based
economies of scale. Furthermore, the bringing together of a significant number
of buyers and sellers provides the demand-side economies of scale or network
effects. Each additional incremental participant in the e-market creates value for
all participants in the demand side. More participants form a critical mass,
which is key in attracting more users to an e-market.

Business-to-government e-commerce or B2G is generally defined as

commerce between companies and the public sector. It refers to the use of the
Internet for public procurement, licensing procedures, and other government-
related operations. This kind of e-commerce has two features: first, the public
sector assumes a pilot/leading role in establishing e-commerce; and second, it is
assumed that the public sector has the greatest need for making its procurement
system more effective.

Consumer-to-consumer e-commerce or C2C is simply commerce between

private individuals or consumers. This type of e-commerce is characterized by
the growth of electronic marketplaces and online auctions, particularly in
vertical industries where firms/businesses can bid for what they want from
among multiple suppliers. It perhaps has the greatest potential for developing
new markets.

Business-to-consumer e-commerce, or commerce between companies and

consumers, involves customers gathering information; purchasing physical
goods (i.e., tangibles such as books or consumer products) or information goods
(or goods of electronic material or digitized content, such as software, or e-
books); and, for information goods, receiving products over an electronic
network. It is the second largest and the earliest form of e-commerce. Its origins

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can be traced to online retailing (or e-tailing). Thus, the more common B2C
business models are the online retailing companies such as Amazon.com,
Drugstore.com, Beyond.com, Barnes and Noble and Toys Rus.

The more common applications of this type of e-commerce are in the areas of
purchasing products and information, and personal finance management, which
pertains to the management of personal investments and finances with the use of
online banking tools.

B2C e-commerce reduces transactions costs (particularly search costs) by

increasing consumer access to information and allowing consumers to find the
most competitive price for a product or service. B2C e-commerce also reduces
market entry barriers since the cost of putting up and maintaining a Web site is
much cheaper than installing a “brick-and-mortar” structure for a firm. In the
case of information goods, B2C e-commerce is even more attractive because it
saves firms from factoring in the additional cost of a physical distribution
network. Moreover, for countries with a growing and robust Internet population,
delivering information goods becomes increasingly feasible.

E-COMMERCE APPLICATIONS: ISSUES AND PROSPECTS

Various applications of e-commerce are continually affecting trends and
prospects for business over the Internet, including e-banking, e-tailing and
online publishing/online retailing. A more developed and mature e-banking
environment plays an important role in ecommerce by encouraging a shift from
traditional modes of payment (i.e., cash, checks or any form of paper-based
legal tender) to electronic alternatives (such as epayment systems), thereby
closing the e-commerce loop.
In most developing countries, the payment schemes available for online
transactions are the following:

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A. Traditional Payment Methods
● Cash-on-delivery. Many online transactions only involve submitting
purchase orders online. Payment is by cash upon the delivery of the physical
goods.
● Bank payments. After ordering goods online, payment is made by depositing
cash into the bank account of the company from which the goods were ordered.
Delivery is likewise done the conventional way.
B. Electronic Payment Methods
● Innovations affecting consumers, include credit and debit cards, automated
teller machines (ATMs), stored value cards, and e-banking.
● Innovations enabling online commerce are e-cash, e-checks, smart cards,
and encrypted credit cards. These payment methods are not too popular in
developing countries. They are employed by a few large companies in specific
secured channels on a transaction basis.
● Innovations affecting companies pertain to payment mechanisms that banks
provide their clients, including inter-bank transfers through automated clearing
houses allowing payment by direct deposit.

Amul, a milk cooperative, is successfully using ecommerce to deepen its brand

loyalty. As agribusiness companies turn to the Internet for a new channel of
business transactions, insight into its usage is important. Today more than ever,
businesses are viewing the movement of products and services through a
supply-chain management lens. The supply-chain must effectively perform
seven functions: processing/manufacturing, negotiations, transaction, logistics,
promotion, financing, and information. As agribusiness companies engage in e-
commerce these functions guide its implementation.

Likewise, corporate in the automotive sector are improving their customer

relations through this medium. Some of the new names that are rediscovering e-

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commerce through new portals at relatively low capital cost, without venture
capital funding include: Key 2 crorepati, Music Absolute, Gate 2 Biz. The low
cost of the PC and the growing use of the Internet has shown the tremendous
growth of Ecommerce in India, in the recent years.

Some Indian portals/websites deal in a specialized field, for example:

1) Automobiles- On these sites we can buy and sell fourwheelers and two
wheelers, new as well as used vehicles, online. Some of the services they
provide are: Car research and reviews, online evaluation, Technical
specifications, Vehicle Insurance, Vehicle Finance.
2) Stocks and shares and e-commerce- In India today, we can even deal in
stocks and shares through e-commerce. Some of the services offered to
registered members are: Online buying/selling of stocks and shares, Market
analysis and research, Company information, Comparison of companies,
Research on Equity and Mutual Funds.
3) Real estate and e-commerce- They provide information on new properties
as well as properties for resale. One can deal directly with developer through
consultant. Allied services: Housing Finance, Insurance companies, Architects
& Interior Designers, NRI services, Packers & Movers.
4) Travel & tourism and e-commerce- India has a rich history and heritage
and e-commerce is instrumental, to a large extent, in selling India as a product,
encouraging Indians as well as foreigners to see its multifaceted culture and
beauty. The tourist destination sites are categorized according to themes like:
Adventure - trekking, mountain climbing etc, Eco-Themes pertains to
Jungles, flora and fauna.
5) Gifts and e-commerce- In the bygone days, one had to plan what to gift a
loved one, trudge across to your favourite shop, and browse for hours before
purchasing a gift. The gifts are categorized as: Collectibles like paintings and
sculptures, Luxury items like leather goods, perfumes, jewellery boxes, etc,

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household curios and carpets, etc, Toys & games, Chocolates, Flowers,
Woodcraft & metal-craft.
6) Hobbies and e-commerce- The most popular hobbies from time immemorial
are reading, music and films. The book’s cover a wide range of topics like
Business, Art, Cookery, Engineering, Children’s Stories, Health,
Medicine, Biographies, Horror, Home & Garden, etc.
7) Matrimony and E- commerce- It is said that marriages are made in heaven,
but in the world of E-commerce they are made on marriage portals One can
search for a suitable match on their websites by region of residence (India or
abroad), religion or caste. Allied services for registered members: Astrological
services, Information on Customs and Rituals, Legal issues, Health & Beauty,
Fashion & Style, Wedding Planners.
8) Employment and e-commerce- Two major portals like
www.Monsterindia.com and www.naukri.com (meaning job.com in Hindi) are
instrumental in providing job seekers with suitable employment at the click of a
mouse. The service for job seekers is free and for Employers they charge a
nominal fee. Jobs are available online in fields ranging from secretarial to
software development, and from real estate to education.

Government can use e-commerce in the following ways:

● E-procurement. Government agencies should be able to trade electronically
with all suppliers using open standards-through ‘agency enablement’ programs,
‘supplier enablement’ programs, and e-procurement information systems.
● Customs clearance. With the computerization of customs processes and
operations (i.e., electronic submission, processing and electronic payment; and
automated systems for data entry to integrate customs tables, codes and
preassessment), one can expect more predictable and more precise information
on clearing time and delivery shipments, and increased legitimate revenues.

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● Tax administration. This includes a system for electronic processing and
transmission of tax return information, online issuances of tax clearances,
permits,and licenses, and an electronic process registration of businesses and
new taxpayers, among others.

the major differences in e-commerce and e-business, where e-commerce has a

broader definition referring more to the macro-environment, e-business relates
more to the micro-level of the firm.

The criteria that can determine the level of advancement of e-commerce can be
categorised as:
1 Technological factors – The degree of advancement of the tele-
communications infrastructure which provides access to the new technology for
business and consumers.

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2 Political factors – including the role of government in creating government
legislation, initiatives and funding to support the use and development of e-
commerce and information technology.

3 Social factors – incorporating the level and advancement in IT education and

training which will enable both potential buyers and the workforce to
understand and use the new technology.

4 Economic factors – including the general wealth and commercial health of the
nation and the elements that contribute to it.

e-commerce issues
 dispute resolution
 competition policy
 consumer, user protection
 privacy
 spam
 cybercrime
 security of network and information systems
 electronic authentication
 unlawful content
 intellectual property rights

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 applicable jurisdiction, cross border coordination and cross border
enforcement – which is a particularly important issue, given the differences
between national laws and regulations among countries
 taxation of e-commerce
 trade
 exemption of ISPs for third party liability
As well, from a development perspective the possibility of engaging in and
benefiting from ecommerce within and between countries depends on the
resolution of a number of fundamental, underlying issues that are listed in the
Inventory. These include:
 telecommunications infrastructure, broadband access
 Internet leased line costs
 peering and interconnection
 affordable and universal access
 education, human capacity building
 multilingualization of Internet naming systems
 cultural and linguistic diversity
 freedom of information and media

E-commerce at the WTO

The issue of e-commerce was raised first in the WTO by the United States in
February 1998 as a market access issue with the proposal for member states not
to impose any duties on electronic transmissions. Though pushed through by the
US as a ‘standstill’ measure till the next General Council, the issue has been
transformed into a full-blown study and debate on essentially three major
issues:

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 􀂃 The question of agreeing to a permanent ‘stand-still’ on the customs duty
imposition position,
􀂃 The question of characterisation of e-commerce, either as a good, service,
or something else from the standpoint of the existing WTO agreements,
and
􀂃 The question of protecting IPRs on the Internet.

The immediate practical concern of the US was to achieve a permanent global

ban on tariffs (or ‘stand-still’, as it is referred to) on products and services
which can be delivered electronically via the Internet. This resulted in the May
1998 WTO Ministerial declaration on global electronic commerce and the on-
going WTO work programme on e-commerce. The Ministerial declaration of
20th May 1999 directed the General Council to establish a comprehensive work
programme to examine all trade-related issues relating to global electronic
commerce, ‘taking into account the economic, financial, and development needs
of developing countries’, and report to the third session of the Ministerial
Meeting. (Four WTO bodies—The Committee on Trade and Development, the
Council on Trade-Related Intellectual Property, the Council on Goods, and the
Council on Services—reviewed the manner in which existing multilateral trade
agreements apply to global electronic commerce).

Initially introduced as an issue in international trade policy discussions, e-

commerce has become a subject of multilateral negotiation at the WTO.
Formulating negotiating positions at the WTO, therefore, continues to be a
matter of concern for developing countries including India. Several developing
countries are arguing that the continuation of the moratorium on customs duty
should be linked with all other transition issues and a package solution be
found. Some of them (including India) also want that the work programme at
the WTO should address all the ‘substantive’ issues, i.e. to assess also the

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possible negative impact of e-commerce and the digital economy on developing
countries.

E-commerce raises some fundamental issues at the WTO. First, it blurs the
distinction between a good and a service. This matters because WTO rules treat
goods and services differently. Goods tend to be subject to tariffs; services are
not, but trade in services is limited by restrictions on ‘national treatment’ or
quantitative controls on access to foreign markets. So the rules that will be
devised for electronic commerce may affect the choice between physical and
digital methods of trade.

The WTO discussions on e-commerce see it as divided into three broad

categories for the purpose of policy discussion: (i) the searching stage where
producers and consumers, or buyers and sellers, first interact over the Internet;
(ii) the ordering and payment stage once a transaction has been agreed upon;
and (iii) the delivery stage. For most products traded in e-commerce, the
distinguishing characteristic is the mode of delivery (whether of the order or the
service). For digitised products, the distinction is not clear; e.g. books, music,
software are treated as goods as they are delivered in the form of paper,
cassettes, or discs. If such products can be digitised then no carrier medium is
required and then it becomes appropriate to classify these as services. Such
intangible goods could then come under the ambit of intellectual property rights
(IPRs) and thus trade in such goods would be considered as trade in IPR and not
in goods and services.

E-commerce entails the buying and selling of products and services at a

distance. It is, therefore, becoming increasingly important to rely on the
reputation attached to trademarks and other distinctive signs. Not only is the

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question of their protection an issue, but conflicts arise between them and
Internet ‘domain names’, which, though designed to serve as addresses, have
acquired a further significance as business identifiers. Several addresses
containing the trademark names of established companies have been registered
as domain names, thus leading to disputes over their usage, as well as to
allegations of what is referred to as ‘cyber-squatting’. This practice has become
so popular that it is estimated that 98 per cent of the words in Webster’s English
Dictionary at present have been registered as domain names. Selling innovative
and interesting names as Internet addresses is one thing, but ‘cyber-kidnapping
trademarks’ of existing businesses is another thing altogether.
For developing countries such as India, e-commerce can itself become a non-
tariff barrier in due course. As more and more international trade and supply
chains become digital over the Internet, those enterprises that are not a part of
them either stand to lose the trade opportunity or else pay a higher price or
charge for the service or trade deal . Already in India there are several examples
of suppliers receiving payments electronically and banks having to make special
dispensations from them till such time as the banking regulations and
arrangements for such transactions are not in place.

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