Challenges and Obstacles to Global E-Commerce Systems

This paper will try to analyse the current challenges and obstacles to global Electronic Commerce Systems. In the first section a definition of E-Commerce is given along with its functions and importance in the today’s business world. It is characterised as a Foreign Direct Investment (FDI) tool. E-Commerce being identified as a new “trend” in the business as well as in the social environment faces a number of challenges and obstacles. The main body of the article will identify and analyse in more depth, first the challenges and then the obstacles. This will include cultural, legal and security issues. Furthermore, will examine the business models, organisational restructuring, IT infrastructure, trust, fraud risk and the demand for skilled employees. It will also try to identify whether some of the challenges can be characterised as obstacles or vice versus.

Introduction

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Nowadays, the World Wide Web is fiercely getting bigger and more complex than ever was. It started to get into the peoples lives for good, as most of the households own a PC to accommodate their “needs” for life simplicity, on-line education and entertainment.

The Internet “trend” is one of the most advanced and fast growing “necessities” of our modern life.

This does not only stop on an individual level, but it is quickly adopted within the business environment, in other words, the E-Commerce.

E-Commerce is everything that has to do with buying, selling and promoting goods or services through the Internet. A huge amount of people are making on-line transactions through the World Wide Web giving away personal details about their selves along with their credit card numbers. These everyday transactions can sum up to hundred of thousands of pounds.

The Internet does not only deal with money, but also with enormous databases, full of vital and sometimes top secret information that companies, organizations and governments have; of course within their own “close and secure” environment.

Also, the Internet can be easily characterised as an FDI (Foreign Direct Investment) tool. Companies apply different strategies of how to enter a foreign market, expand their operations and become Multinationals. There are a lot of ways to enter foreign markets; some of the most common ways are: (a) Greenfields (building a new plant in a foreign country), (b) Join Ventures, (c) Mergers ; Acquisitions, (d) Strategic Alliances, (e) Exports, etc.

Companies do that in order to create a competitive advantage over other companies (competitors). “Competition is the cause of the success or failure of firms and this leads a firm to take defensive actions and increase its performance.” (Porter 1985)

Such firms gain competitive advantage by exploiting new resources; low labour costs, cheap raw materials, country’s infrastructure, communication channels, legislation, etc.

E-Commerce can be introduced as a new way of entering foreign markets. As “globalization” is driving the world to a small “global village”, the same applies to E-Commerce.

According to Chaffey D. (p.14), there are two general benefits to creating an e-business that will impact on profitability:

(a) Potential for increase revenue arising from increased reach to a larger number customer base and encouraging loyalty and repeat purchases among existing customers.

(b) Cost reduction achieved through delivering services electronically. Reductions include staff costs, transport costs and material costs.

Many companies are using the Internet to communicate with both their customers and suppliers and also creating new digital electronic commerce networks that override the traditional distribution channels.

There are no boundaries in the cyberspace, therefore anyone can access information from anywhere in the world by viewing different web sites. For example, by typing the URL www.gov.uk, automatically anyone has access to the online services of the UK government.

This does not only stop here (for information purposes), but it continues to a more advance level, such as online bank transactions and online purchasing.

For example, you can pay your bills from home by simply accessing your bank’s web site (i.e. Barclays) or plan a flight and buy a ticket online (i.e. British Airways).

There are different kind of companies and organizations; therefore there are different e-commerce categories.

These categories are:

; Business-to-Consumer (B2C)

; Business-to-Business (B2B)

; Consumer-to-Consumer (C2C)

Business-to-Consumer (B2C)

The electronic retailing of products and services, directly to individual consumers.

Business-to-Business (B2B)

The electronic sales of products and services among businesses.

Consumer-to-Consumer (C2C)

Consumers selling goods and services electronically to other consumers.

A company that considers the idea to go online has to take into consideration issues that arise in the e-commerce world.

These issues can be identified as challenges and obstacles to e-commerce and e-business not only nationally, but also most importantly globally.

Some of the challenges and obstacles to be addressed are:

Management change; organisational reengineering; security; legal issues; personnel; trust and risks; culture; fraud; business models, etc.

Challenges of E-Commerce

The revolution of e-commerce brings along some challenges, not only for the firms, but for governments as well.

These challenges can influence at a microeconomic and macroeconomic environment level.

There is a common concept that when you sell online, you sell to the world. This concept is far from being true. In order to deploy a good e-commerce business there are some radical challenges that need to be implemented or even overcome them, as well as on a business level (private sector) and government level (public sector).

Electronic Commerce and Electronic Business require a complete change of the business structure.

Firms that are going digital they need to consider restructuring their entire business structure or even create a new one. They need to implement new management processes, changes in their business culture and follow different procedures for managing their employees. Also, they need to create a new structure for information systems, networked processing functions and most importantly, they will need to change their entire business strategy.

Some companies try to introduce new technology without changing any of the above; this will most certainly lead them to failure.

The search for new thriving Internet business model;

Firms need to carefully consider and create a business model that will be applicable to the Internet and also, whether the Internet matches to their organization’s business objectives.

In the real world some strategies and models can be the same regarding different issues, but in E-Commerce is different. New strategies are required for customer service, advertising and ordering.

E-Commerce paying systems;

A digital firm has to consider building a well-structured and very secure paying system. Such systems are used for the payment of goods or services online. This is probably the most essential security action for doing online transactions. There are a few systems developed for different purposes, therefore a firm must to consider implement if not all of them, at least the majority. Some of these systems are digital wallet, electronic cash, micro payment, smart card, and person-to-person.

Unproven business models.

Despite the fact the drivers for e-commerce suggest increased revenue and cost reduction, this does not always apply. Many companies met failure due to the fact they could not generate enough revenue to actually cover their expensive marketing campaigns, labour costs and technology infrastructure.

Companies may not have the costs of retail stores and front staff, but they have other costs such as call centers and large warehouses.

E-Commerce is a new era in the business field; therefore the business models that are created are new and mostly not tested for success. (Laudon K.C. & Laudon J.P.)

Business process change requirements.

A lot of vital business processes must be redesigned in order to meet the expectations of E-Commerce. The supply chain management along with the co-ordination of the firm’s departments, production line and sales stores are the first that are more likely influenced by the change. (Laudon K.C. ; Laudon J.P.)

Taking a broader perspective to infrastructure development.

All e-businesses in order to co-ordinate their online transactions, business activities as well as the potential linkage with other firms within its industry, the built of a very strong IT infrastructure is essential.

IT infrastructure has the power to connect the firm with infrastructures of other organizations while bringing down barriers and creating a new “business global village”.

Selecting technologies for the new IT infrastructure.

Digital firms have to select the most suitable Internet technology that complies according to their business processes and data structures. There are different kinds of hardware and software tools that can be used to different business applications. Therefore, this creates a big question mark to whether choosing the right set of technologies for the firm’s IT infrastructure. (Laudon K.C. & Laudon J.P.)

Managing the new IT infrastructure.

It is very difficult to actually manage a firm’s IT infrastructure; E-Commerce often requires firms to reassess their IT infrastructure to remain competitive.

Technology is constantly upgrading and introduces new systems, applications and hardware. A company has to keep up with the technology pace in order to create well functioning business processes among customers and suppliers via the Internet.

This requires the reconstruction of information architectures and IT infrastructures.

There are five basic problems that stand in the way of implementing these new changes.

(a) Loss of Management Control

The end users are becoming more independent capable of collecting, storing and handle software. This occurs due to the lack of a single, central point where the need of management can occur.

(b) Connectivity and Application Integration

The company needs to upgrade its IT infrastructure in order to have compatible networks and standards and eliminate connectivity problems.

(c) Organizational Change Requirements

The old organization structure has to be changed to be compatible with the new IT infrastructure in order to be more effective and uniformed.

(d) Hidden Costs of Enterprise Computing

Some unexpected costs and expected savings that did not occur are generating problems. These costs are generated from hardware and software installations, maintenance costs, labour costs etc.

(e) Scalability, Reliability, and Security

The increased load of data transactions and storage as well as the traffic of applications such as audio, streaming video and graphics; drive managers to develop strategies to manage those issues.

As enterprise networking is very sensitive to different operating systems and network management software, is difficult to make all the components of a network work with no problems. Therefore, sometimes the system does not operate.

Security at any business and organization has a primary concern in order to prevent the theft or the manipulation of data from hackers or other miscreants. (Laudon K.C. ; Laudon J.P.)

Lines of business and global strategy;

When a firm goes globally has to decide whether all or some of its activities should be managed on a global basis.

Only some of a firm’s activities can be worth managing globally. For example, different computer components are manufactured or assembled to different countries but always under the exact specifications of the country of design. This is done to primarily take advantage of lower labour and raw material costs.

The difficulties of managing change in a multicultural firm.

In every firm exists a culture, the “company culture”. A company’s culture includes everything, is how a company works/operates. When a company in a single nation decides to reorganize its structure can be difficult, costly and may take a long time.

Imagine changing a large multinational company that has a variety of cultures; this will cause chaos.

In order to manage global systems a firm has to develop a strategy. This strategy will consist on identifying the Core Business Processes and start building for there. Then it should choose an approach (incremental, grand design, evolutionary), the best approach is the evolutionary as it evolves transnational applications from existing applications taking into consideration the goals and capabilities of the firm. (Laudon K.C. ; Laudon J.P.)

Governments must bring down the different barriers that impose on E-Commerce, such as taxation, extensive regulation and censorship; and let E-Commerce grow up in an environment driven by markets. Also, governments should support the creation of a legal framework for doing business on the Internet. (United States Government, 16/11/01)

“Greater competition in telecommunications and broadcast industries should be encouraged so that high-bandwidth services are brought to homes and offices around the world”.

(United States Government, 16/11/01)

E-Commerce will open the market for highly skilled workers. From the expansion of E-Commerce this demand will increase and it will significantly change the labour market. All the skilled workers that are living in countries that cannot comply with the salary and technology requirements, they will migrate to more developed countries that can easily accommodate their needs and demands. (United States Government, 16/11/01)

Customers are active not passive;

The customer is used to the traditional way of shopping, i.e. going to the supermarket, see the products, touch them and then buy them. Now is being asked to buy online, only by viewing an icon of the product he/she wants and with a click of a button to purchase it.

I believe customers will find this transition from tangible purchase to virtual purchase very difficult.

Obstacles of E-Commerce

Although E-Commerce is expanding rapidly and creates new opportunities to customers and businesses, there are still some gray areas (obstacles or barriers) that have to be considered in order to make E-Commerce more solid, uniformed and trustworthy.

According to CommerceNet 2000 survey regarding the barriers to E-Commerce, the following top ten barriers ware identified:

Security and Encryption;

Governments and businesses have identified security probably as the most influential factor of the e-commerce prosperity. Cybercrime is a major drawback for consumers buying online or businesses selling online.

For example, some companies have released customer information after been attacked by a virus. Microsoft’s Hotmail has been the center of a numerous attacks in the past few years, even though it belongs to the biggest and leading companies in the computer world.

The word security drives people transacting online; feeling free from hackers and the danger of theft.

Moreover, sometimes-different people interpret the same problem in a different way. The Americans have as a major concern the online payment security, whereas the French are more concerned about the personal data protection. (Obstacles to E-Commerce, 16/11/01)

In order to prevent online theft, but on the other hand increase security, there are some technologies that can be applied. Secure Server, can be achieved by Secure Sockets Layer (SSL) is a protocol designed to ensure secure connection to the server and is using public key encryption in order to protect data traveling through the Internet.

Electronic Data Interchange (EDI) is a tool that can be defined as “direct computer to computer transfer of business information”. (Electronic Data Interchange, 19/11/01)

Secure Electronic Transaction (SET) is a protocol along with Certification Authorities issues digital electronic signatures.

Trust and Risk;

In the world of the Internet and especially in the e-commerce field there is a general hesitation for trust deriving among the people.

People have their concerns regarding the trustworthiness of online purchasing or even “surfing on the net” being vulnerable from viruses. There have been so many examples of companies and even personal computers at people’s houses that were hacked. Therefore, people and companies are well aware of the risks that e-commerce and the Internet provide.

Lack of Qualified Personnel;

Due to the fact that e-commerce has been developed in the last few years, there was not enough time for people to actually go and learn this new “trend”.

There are many new technologies, hardware and software introduced for the applications of e-commerce. The limited amounts of people who are aware of these new technologies are scarce resources. This force companies to pay huge amount of salaries in order to “grab” these skilled personnel and utilise them appropriately. Some of those people are moving away from their underdeveloped countries seeking new better job opportunities and of course increased salaries.

Lack of Business Models;

As I mentioned before, e-commerce is new way of doing business through the Internet. Therefore, new business models have to be developed in order for the company to be compatible and competitive. Such companies need to restructure their entire management structure. Many business models are new and due to the limited time of their development, were not able to be proved successful. Nevertheless, the development of new, efficient and successful business models is a necessity.

Culture;

Within every company exists a culture; this is the behaviour of doing business of that specific company. When introducing new business challenges to a company such as e-commerce that brings new technologies and requires new developments; the need of changing the culture of the company is necessary. Quite often is very difficult to change the culture of a company and it is even more difficult to change the culture of a multinational company.

User authentication and lack of public key infrastructure;

Companies need to encourage the use of authentication by introducing usernames and passwords in order to access their services online. This can increase the security and also build trust between the user and the company. New technology infrastructure needs to be built to support this requirement. Using the proper hardware and software can do this.

For example, some consumers’ claim that they have not gotten what they have ordered or they have not ordered anything. With the authentication system all transactions can be monitored and save disputes.

“Electronic authentication refers to the means by which a party to an electronic transaction can indicate his or her agreement to the terms of the contract, evidence his identity, and/or perform related functions”. (Internalisation of E-Commerce, May 2000)

Organisation;

A considerable of amount of organisations are difficult to changes. Their management team may respond very slow to new changes or may not be adaptive to changes at all. This is a serious obstacle for e-commerce, but also to the company’s prosperity in the future.