Global Electronic Commerce: Theory and Case Studies PDF
Preview Global Electronic Commerce: Theory and Case Studies
Global Electronic Commerce Copyrighted Material Global Electronic Commerce Theory and Case Studies J. Christopher Westland Theodore H. K. Clark The MIT Press Cambridge, Massachusetts London, England Copyrighted Material Second printing, 2000 © 1999 Massachusetts Institute of Technology All rights reserved. No part of this book may be reproduced in any form by any electronic or mechanical means (including photocopying, recording, or information storage and retrieval) without permission in writing from the publisher. This book was set in Times New Roman by Asco Typesetters, Hong Kong. Printed and bound in the United States of America. Library of Congress Cataloging-in-Publication Data Westland, J. Christopher. Global electronic commerce : theory and case studies / J. Christopher Westland. Theodore H. K. Clark. p. cm. Includes bibliographical references (p. ) and index. ISBN 0-262-23205-7 (hc : alk. paper) I. Electronic commerce. 1. Clark, Theodore H. K. II. Tille. HF5548.32.W47 1999 658.S'00285dc2l 99-38199 CIP Copyrighted Material Contents Preface ix Introduction to Electronic Commerce The Foundations of Electronic Commerce 4 Electronic Commerce Infrastructure 6 Electronic Markets 6 Electronic Commerce Supporting Functions 7 Electronic Commerce Opportunities: Today and Tomorrow 7 Notes 8 2 Information Technology in the Post-tndustrial Revolution 9 Digital Railroads 12 Channels and Intermediaries 15 Electronic Channels 22 Notes 24 Case Studies Andersen Consulting: The Asia Intranet Opportunity, Peter Loi'elock and Theodore H. Clark 27 3 Redefining the Geography of Space, Time, and Money 53 The Hard Middle 62 The Problem with Innovation 63 Jobs and the Internet 64 Recommended Reading 69 Notes 69 Case Studies Financial Times Syndication Services: Making Money on the Web, Peter Loi'elock and Theodore H. Clark 71 Security First Network Bank: The World's First Internet Bank, http://it'it'n'. s/nb. coni, Theodore H. Clark and Jo/ui J. Sviokla 91 Global Electronics Manufacturing (HK) Ltd., Theodore H. Clark and A/im ('ht, 121 4 Supply Chain Management and Information Alliances 141 Transforming the Value Chain Using Information Technology 141 Strategic IT and the Value Chain beyond the Firm 145 The Beer Game and the Value of Information 146 Benefits and Challenges of Sharing Information 151 Interorganizational Systems and BPR 152 Copyrighted Material Contents vi Developing and Maintaining lOS Partnerships 153 Wholesale Electronic Commerce: TOS and the Internet 154 Notes 155 Case Studies H. E. Butt Grocery Company: A Leader in ECR Implementation. Theodore H. C/ark. David C'. Croson, faines L. McKenney, and Richard L. No/an 157 Procter & Gamble: Improving Consumer Value through Process Redesign, Theodore H. C/ark and faines L. McKenney 197 5 Telecommunications Infrastructure in Transition 221 Telecommunications Technology 221 Communications Media and Bandwidth 222 Telecommunications for Voice and Modems 223 ISDN and Packet-Switched Services 225 Synchronous and Asynchronous Transmission 228 Declining Costs of Digital Communications 228 The Rise of Computer Networks 229 The World Wide Web 232 Notes 233 Case Studies China's Golden Projects: Reengineering the National Economy, Peter Love/ock, Ben A. Petra.:ini, Theodore H. C/ark, and fo/in f. Sviokla 235 Philippines Telephone and Telegraph, f. Christopher West/and 259 6 Access to Electronic Commerce Services 273 The Roots of Electronic Commerce 273 The Internet 275 ISP Business Models 278 Notes 280 Case Studies Asia Online: The Online Service for Asia, Theodore H. C/ark 281 China Internet Corporation: http://www.China.Com, Theodore H. C/ark and fo/in f. Sviok/a 299 Hong Kong SuperNet, Theodore H. C/ark and Sara/i Cook 315 7 Electronic Auctions and Intermediaries 343 Market Models 344 Copyrighted Material Contents vii Internet Auctions 353 Notes 353 Case Studies Experiences with Electronic Auctions in the Dutch Flower Industry, Eric van Heck and Pierer M. Ribbers 355 E*Trade Securities, Inc., Rajiv La! 367 8 Electronic Financial Markets 385 Financial Markets: First Movers in Electronic Commerce 385 Basics 387 Matching and Price Discovery 389 Notes 396 Case Studies On-Line Trading at the Shanghai Stock Exchange, J. Christopher West/and 399 The Moscow Stock Exchange. Martin Mendelson and J. C'hristopher West/and 417 Electronic Securities Trading at the Bolsa de Comercio de Santiago, J. Christopher West/and 429 9 Digital Storefronts 445 Digital Storefronts on the Web 447 Search Engines 449 The Web as an Advertising and Marketing Channel 452 Internet Dynamics 460 Integration 462 Notes 462 10 Secure Digital Payments 465 The Origin and Development of Cash 465 Microtransactions 470 The Resurgence of Barter 474 Authentication of E-Commerce Payments 474 Identification of Individuals 477 Privacy 479 Controls 480 Encryption and Password Controls 484 Notes 490 Copyrighted Material Contents VIII Case Studies Mondex Electronic Cash in Hong Kong, J. Christopher West/and 493 Access Security at McDonnell Douglas Aerospace Information Services, J. Christopher West/and 515 11 Logistics and Service Opportunities and Issues 529 Competitive Advantage Using Logistics and Information Technology 531 Outsourced Logistics in the Supply Chain 533 Outsourced Logistics and Electronic Commerce for Physical Goods 534 Geographic Information Services and Logistics 535 The Internet and the Future of Logistics Notes 536 Case Studies Consolidated Freightways: The On-Board Computer Project, Theodore H. C/ark and faines L. McKennev 537 12 Successful E-Commerce 557 Redefining the Marginal Cost/Marginal Revenue Equation 557 Turnkey E-Commerce and Site Management 558 Digital Storefronts 560 Another Network 562 From Hobby to Business 563 Information Retailers 564 Reintermediation: Travel Agents' Revenge 565 Where Multimedia Fails 566 Personalizing the Retail Cyberstore 566 Simple Auctions with Real-Time Price Quotes 567 Double-Auction Markets for Securities 568 Infrastructure 569 Design Assistance 569 Supply Chain Management 570 Consumer Durables 570 The Font of Future Wealth 571 Notes 572 Appendix 575 References 581 Index 587 Copyrighted Material Preface There are already good books on the technical structure of the Internet and other network architectures. There have also been a large number of books giving advice on Internet retailing: the how to make money on the Internet" genre of trade press publications. We have, in contrast, tried to fill a niche where the offerings are not as rich: a text on the business models that make sense in a globally networked world. Wc assume that our audience has a basic familiarity with Internet technologies and has spent some time surfing the Web for retailing examples. We are interested in the myriad ways that the Web's capabilities can been made to support, alter, and expand the ways we do businessthe business models that underlie commerce in the late 20th century. We have sought, in writing this book, to synthesize current thought and practice into a comprehensive review of electronic commerce. Our choice of topics, in general, reflects the economic importance of specific electronic commerce implementations, vertical markets, and core competencies in the commercial sector. Chronicles of new technology, sentiments on evolution and growth of digital technology, and advice on how to make money on the Internet provide attractive copy and have sold well. We have resisted the allure of these topics, and instead have focused our attention on the revolution in industrial organization that e-commerce has made possible. Material in the book is presented in twelve chapters. consistent with covering a chapter per week in a typical semester-long university class, with some flexibility provided for addressing a few topics in more depth or for supplementing the text with additional materials. The chapters also include case studies to illustrate e-commerce management issues and current practices. For all of the promise and appeal of electronic commerce in revolutionizing the way we promote, conduct business, sell, and distribute, we still chose to release this material in the time-honored format popularized five centuries ago by Aldus Manu- tius: the printed text. Why? We are certainly not averse to new technology. However, digital media has yet to surpass the printed book in at least three ways. First, com- puter screens have only around 1V of the resolution of the printed page. Thus read- ing requires significantly more visual effort on a computer screen. Second, the quality of computer screens tends to be proportional to their power requirements. This requirement at least intermittently tethers them to an electrical source, which is a detriment to portability. Third, computer screens, with the exception of those of extremely light laptops, are considerably heavier and bulkier than books, a further deterrent to carrying readïng material around. Of more immediate concern to us, as authors, is that the technologies of digi- tal production and distribution have greatly outpaced the legal and economic Copyrighted Material x Preface framework in which these technologies operate. Despite years of experimentation by several large publishing houses, it is not yet clear how to package digital textbooks properly. Publishers suspect (perhaps rightly so) that digital texts are even more prone to piracy than existing paper media. Contracts and revenue streams for book publishing assume that the information for which consumers pay is indelibly inked into paper. It is the paper that is counted in determining the sales volume, and thus the book revenue. There are many ad hoc ways of modulating quality of information in a bookselection of authors and limits on length, audience, and money. Yet publishers have not fully solved the problem of charging for the utility of the infor- mation rather than the quantity of the paper. The greatest novelty of the Web is its worldwide traffic in information unbound to any particular mediumpaper. CD, or magnetic. Frictionless, spontaneous, and almost limitless flow of information on the Web can be called upon to bolster argu- ments, flexibly demonstrate points, and expand on issues raised in the text. For authors, there are features in the Web's hypertext medium that we wish we could in- corporate into our book: hyperlinking, interactive chat and paging, colorful graphics, sound and other multimedia objects, and so forth. We will be experimenting with new formats for presentation and distribution of material over the comïng years as ways of extending the utility of our text. For now, our ideas are indelibly bound to paper, but we have provided a partial compromise in this text by referring to cases in some of the chapters that are provided in electronic format on the Web. In addition, many Web references are provided throughout the text and cases to enable the reader to explore topics presented within the world of cyberspace as well as through the printed media. No one particular medium can convey everything we would like to present in a classroom. We have presented the material in this book over the past several years in our classes, and have found that a mixture of modesvideos, Web displays, class- room discussion, software, and corporate visitsbest supports discussion of the rich set of ideas presented in electronic commerce. The reader should experiment, and definitely take time out to explore the Web sites to which we refer in the text, and then move on to the hyperlinks to broaden their horizons. With Thanks Finally, and with gratitude, we state our customary acknowledgments for the physi- cal realization of this book. What was once a loose amalgam of concepts, theories, and ideas jotted down on scraps of paper has finally come together in what we hope is an interesting and informative text that goes partway to covering one of the most Copyrighted Materia! Preface xi exciting developments of this century. Who knows what lies ahead, but this will be a consideration for the millennium and subject of further research and perhaps publication. In these days of specialization, not even a pair of authors can hope to cover all the subjects within the book. We extend our thanks to all of those who have written and co-authored the case studies that have enabled the subject to come alive with practical examples. We must also thank all of those who have given generously of their knowledge in specific areas, and in particular, the four anonymous reviewers of this work who helped us improve the final text. We also want to express appreciation for funding provided by the Hong Kong Government Research Grant Council for research and development of the case studies. Lastly, enormous thanks must be given to research assistants Sarah Cook and Dee Conway, who have nursed the project from its infancy to final fruition, with much effort and through many drafts. Copyrighted Materia!
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