Abstract for E-commerce

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Abstract

The project E-commerce for SME’s, is aimed to investigate business potential of

Internet for Small and Medium sized Enterprises (SME’s) mainly in the UK and

identifying the benefits and problems brought by the new medium. The Internet is

offering SME’s a number of new opportunities that are cost effective and reliable (to

certain extent), thereby for the first time, providing them with an opportunity to

compete with their larger counterparts. This project discusses the problems that

SME’s face while using or trying to use this technology. Problems, which are mainly

cost, and skill based.

In this information age, it seems like every company has its own web site. A web site

that is not effectively designed and maintained could spoil the company’s reputation.

The report along with providing certain helpful tips for building an on-line business,

discusses some of the legal and regulatory issues.

In the near future, the Internet seems to become an inseparable part of our society,

especially with the emergence of new technologies which are about to change the

way business is being done. Small and Medium sized companies are therefore facing

up to understand the nature of the Internet and adapt themselves into this new

medium as quickly as possible.

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Acknowledgements

I would like to thank Mr T G Gough, my project supervisor, for providing me with

some critical advice’s and comments right from the beginning of my work till its

accomplishment. I am also thankful to Lydia Lau, my project assessor for providing

me with some important materiel, which were vital for some analysis.

I am also thankful to my friends for supporting me not only during my dissertation

but also through out this MSc course in Leeds.

It is a pleasure for me to acknowledge a number of other people who have been

directly, and indirectly helpful in achieving my objectives.

Finally, I am greatful to my family for their continual support and encouragement,

which always helped me being confident and responsible.

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Contents

1 Project Introduction 1 1.1 Purpose of the project 1 1.2 Methodology 2

2 Introduction 5 2.1 The Digital revolution 5 2.1.1 The Digital Economy 6 2.1.2 Components of Digital Economics 2.2 The Internet 7 2.2.1 Background and History 8 2.2.2 The World Wide Web 9

3 Electronic Commerce 10 3.1 Definitions 10 3.2 The EDI (Electronic Data I nterchange) 3.3 Origin and History 13 3.3 I nternet and E-commerce 13 3.4 Working Framework for E-commerce 14

4 Small and Medium Enterpr ises 16 4.1 Some definitions 16 4.2 Factors determining the size of an SME 16 4.3 SME’s in the UK 17 4.4 Importance of SME’s to the Economy of UK 18 4.5 Behavioral aspects of SME’s in the new Economy 19 4.6 E-commerce as a business strategy 21 4.7 Stages involved in setting up a business on-line 22 4.7.1 How can existing customers be kept 24 4.7.2 Reduce operating costs 24 4.7.3 Attract, keep and train a productive staff 24 4.7.4 Regulate and increase cash flow 25 4.7.5 Going global 25 4.7.6 Advertising your web site 27

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4.8 Risk Assessment in SME’s – “ A necessary measure” 28 4.8.1 Intellectual property 28 4.8.2 Advertising on the web 29 4.8.3 Other potential pitfalls 29 4.8.4 Some legal Issues 30 5 Case Study 32 6 Future 36 6.1 Prospects for EDI 37 6.2 I ntroduction of the Euro 38 7 Discussions and Conclusion 40 8 References 45 9 Appendix A 48 10 Appendix B 49 11 Appendix C 50 12 Appendix D 51 13 Appendix E 55 14 Appendix F 56

E-commerce for SME’s

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1 Project Introduction

As we enter the second millennium, we experience one of the most important

changes in our lives- the move to an Internet based society. Almost everything in our

society is to be changed - the way businesses run, the way schools educate and even

the way we spend our leisure time. Most of the change has already occurred, and

much more yet to come (Efraim Turban et al, 2000). So, it is tacit that every

individual, particularly those who run a business or those who intend to start one, has

some understanding of the way the business society is functioning in this IT age.

The project “E-commerce for SME’s” is an attempt made to explain how businesses,

in particular Small and Medium sized businesses, are functioning and how they are

using IT and other information resources, to sustain their presence in today’s global

market and withstand the cut-throat competition where the life of a business can

sometimes last for a few months. The project is aimed at people who have little or

no understanding of the potential benefits of E-commerce as a business tool

particularly in small medium sized enterprise.

1.1 Purpose of the Project

There are several aspects that lead to the take up of this project, my interest in the

field of E-commerce being the main reason. The initiation of the project is based on

the following considerations:

1. There are a number of projects, articles and researches describing the e-

commerce technology and their applications in businesses, but there are only a

few resources which have been giving a comprehensive and up-to date

information about e-commerce and their impact on the current and new emerging

trends in SME’s in layman terms.


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2. Many of the articles, which have been written about E-commerce, are mainly

circled around SME’s in other countries particularly in America. The discussions

in this project are mainly based on the SME’s in U.K.

3. In this Digital age it seems that every organization is trying or is having a web

presence. But each new technology brings with it, its own share of problems.

Driven by the media hype and success stories many companies decide to present

themselves on the Internet without a sound business reason. A weak web site on

the other hand can result in worsening a firm’s established image. By having a

sound strategy before hand for building an effective web site, and targeting their

market companies could avoid this state.

4. Despite the fact that small businesses find implementing E-commerce

advantageous, there are several factors that hinder the smooth transition of the

business. These include dealing with the new technology, lack of expertise, in

some cases improper utilization of funds and to certain extant the legal issues

concerning security and standards. These aspects will be discussed in the

following chapters.

5. The future has a lot to hold for E-commerce. This to some extent is predictable.

Emergence of new technologies and economic policies will have a considerable

effect on the way the businesses are being done. There was not much of

discussion available in this field. Certain economic issues such as the

introduction of the Euro currency have been covered in the following report.

1.2 Methodology

For carrying out this project effectively and efficiently, it has been divided into

several tasks. There was a necessity of having a general background and

understanding of this field before getting into the study. Here it should be noted that

the World Wide Web was the primary source of information, right from the start of

this project, as this area is a relatively new and fluctuating one, and without up-to-

date information it is impossible to carry out a well reasoned analysis.


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However there are many books available on E-commerce, which were used for

getting a basic idea about the project. All the sources used to carry out the

dissertation can be categorized as:

• Internet/Web

• Text books

• Research and survey results,

Choosing research topic/ Allocation of Project topic

Discussing a case study, and draw an inference

Making an outline of the project (topics and sub-topics)

Setting clear aims and defining the project objectives

Listing the information sources for the project

Collecting and selecting of information required

Choosing a method for analyzing the information

Conducting an analysis on the information

Drawing a Final conclusion with discussions

Checking with the original aims and objectives


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• Statistical data

• Academic Journals/Magazines

• Commercial Magazines

• Press releases by government bodies

• E-mail Research groups

A case study allows exploring the issues of concern, within an organization in a real

time basis. This not only helps understand the problem domain in detail, but also

allows drawing some critical conclusions for analysis. The case study discussed in

this project fit the situation perfectly and depicts the typical industry and market

behavior towards adoptation of new technologies.


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2 I ntroduction

The rapid growth and proliferation of the information society continues to accelerate

as we step into the new millennium. People and businesses are increasingly

becoming dependent on the easy and rapid availability of information. New concepts

and paradigms are emerging and are changing the traditional ways of doing business.

As more and more people and places are getting connected, the technological needs

and forces that are driving the present day market continue to change at a rapid pace.

2.1 The Digital revolution

A new era of Digital revolution is emerging in a similar way, once industrial

revolution prior to agriculture revolution emerged, this took nearly 200 years to

manifest itself. But it merely took 40 years for digital revolution to shape-up. What

is the digital revolution? There has been a transformation in the way business was

done before. People started involving computers into their businesses as a device

that could do a few complicated and time consuming tasks, apart from storing

information. As the technology advanced, computer evolved into the most

sophisticated device that almost took care of all the required necessities of a

business. The rapid advancement in the telecommunication technology caught up

with the computer technology, which evolved both in terms of its computing power

and size. Internet is the revolutionary technology that this century has seen. The

businesses are seizing to exist, the way they used to before.

“ The wind of Economic change has never blown through our economies with such a

force as it is today.” – Tony Blair


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2.1.1 The Digital Economy

The new economy has done more than change the way business is conducted; it has

rendered obsolete the fundamental economic assumptions on which businesses have

been based. It has transformed the industrial economy into Digital economy. In this

new economy intellectual property and customer relationships move to the forefront.

No longer do physical assets play the central role in value propositions [Ref 27].

Information in this age is easier and cheaper to get. Manufacturers can offer

customers more and better choices tailored directly to their preferences. No longer

does size ultimately limit returns and no longer does it take several years and deep

pockets to build a business with global presence. We are now stepping the Digital

Economy.

2.1.2 Components of Digital Economics

Just like in marketplace, in marketspace sellers and buyers exchange goods for

money. The major components of marketspace are digital products, consumers,

sellers, infrastructure companies, intermediaries, support services, and content

creators. A brief description of each is as follows. [18]

Digital Products. This is where the major difference exists between marketplace

and marketspace here there is a digitization of products and services. Software and

music are one of them. In digitization, most of the costs are fixed and variable cost is

very small. Therefore profit will increase very rapidly with sales.

The Consumers. The millions of people worldwide who surf the web are the

potential buyers of goods or services advertised on the web. They are the drivers of

the technology that is implemented. Consumers can search for detailed information,

compare, bid and sometimes even negotiate over the web.


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The Sellers. There are thousands of storefronts on the web which offer a choice of

millions of items. It is possible to find new offers, products or services.

The Infrastructure companies. There are many companies which provide the

software and hardware support that is required to support E-commerce. Many

companies offer consulting services on how to set up a store front, other companies

offer hosting services for SME’s.

The intermediar ies. The role of intermediaries lies in bringing the sellers and

buyers together. They help provide some kind of infrastructure services, and also

facilitate transactions between customers and sellers.

The Support services. Hundreds of services are available which help businesses in

aspects ranging from certification/ trust and shopping carts to knowledge providing

services.

Content Creators. The quality of a web site is of paramount importance to run any

web based business. There are many companies which create web content for their

self as well as for others and deal updating and other web maintenance tasks.

2.2 The internet

The internet is the most well known component of the information superhighway

and network infrastructure. To define it in simple terms Internet is a network of

networks-

It is a loose association of thousands of networks and millions of computers across

the world that all work together to share information.


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2.2.1 Background and History

first taking its shape in the early 60’s as the ARPANET ( Advanced Research

Project Agency Network, developed by the computer research program of the United

States defense department), over the next several years Internet grew steadily but

unremarkably as government agencies, universities and corporations continued to

develop and hammer out new protocols and architectures. Internet and Electronic

mail made their first appearance in 1972 [Ref 4], but by 1990 the U.S government

officially decommissioned ARPANet , and National Science Federation (NSF) took

over managing internet development this gave the ultimate uplift, when

privatization and commercialization were facilitated which involved removing

government subsidies to regional networks and barriers imposed by restrictive

acceptable usage policies (1991 – present).

Since then there was a remarkable progress in the number of users as illustrated by

the above chart. People had transformed this powerful technology, to support their

business transactions. This so called supporting technology rapidly evolved into an

inevitable choice for today’s business - big or small which intend to go global and

keep up with the competition in today’s global village.

0

50

100

150

200

250

300

350

1995 1996 1997 1998 1999 2000 2005

Projected

Fig 2.2.1 – Number of world-wide Internet users [Ref 5]


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2.2.2 The world Wide Web (WWW)

The two terms web and internet are often used synonymously, but they are actually

two different things. The world wide web is a subset of the internet. It is a collection

of interlinked documents that work together using specific internet protocol called

HTTP (Hyper Text Transfer Protocol)

Exchange of web pages between the web server (which stores pages) and the

browser (which reads pages) is enabled by the common HTTP which is understood

by both the browser and web server. The web pages are organized using an

addressing scheme, which identifies the web page. Two addressing levels are used

over the web.

IP address . The Internet Protocol or IP is a 4 to 12 digit number that identifies a

specific computer connected on to the internet. Depending on how the Internet

Service Provider assigns an IP address one may have one address all the time or a

different address each time a person log’s in.

Domain Name . These are the next level of internet addressing. Domain names

create a single identity for a series of computers used by a company or an

institution. So while there may be many servers at a given company, each with its

own IP address, they all share a common domain name (eg microsoft.com). The

domain name identifies all the computers in a group. [Ref 8]


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3 Electronic Commerce

3.1 Definitions

There are many definitions for E-commerce, depending on the perspective E-

commerce can have a definition. The table below lists the definition of E-commerce

under different possible perspectives.

Perspective Descr iption Business To automate business transactions and work flows On-line To provide the capability of buying and selling products and

information over the internet and other on-line services. Service To cut service costs while improving the quality of goods

and increasing the speed of service and delivery Communications To deliver information, products/services and payments over

telephone, communication networks or other means[23] Talking in terms of SME’s which use E-commerce as a way to reduce costs and provide services on line, E-commerce can be defined as a process of buying and selling products and information via a network of computers, this very much satisfies with ease the needs of business merchants and consumers by reducing the cost of the product/service and by increasing the speed of delivery. Summing up E-commerce can be defined as “ buying and selling electronically” . [Ref 6] E-commerce primarily encompasses two concepts: -

Business to Business transactions (B2B): - Commercial exchange between a vendor

and his supplier, traditionally a market for electronic data interchange (EDI) and new

market for XML (Extensible Markup language).

Business to Consumer Transactions (B2C): - Commercial exchange between a

vendor and individual members of the public.

The E-commerce applications in the B2B market dominate those in B2C. More than

75% of businesses utilize E-commerce for B2B purposes. According to a study by

LCC (London Chamber of Commerce), Internet to consumer trade will hit £1.6tn by


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2004 making up over 6% of Europe’s total trade, and B2B revenue will rocket to

£4tn. The survey also points out that it is very significant that the biggest rise in the

use of web sites to generate business is among manufacturers [Ref 25]. To exploit

the commonalties between B2B and B2C, we need to have a means to treat them

alike in a more efficient and more effective way then treating them differently. Such

means are now becoming increasingly available with internet, the web and electronic

commerce technologies such as data mining , electronic payments and copy-right

protection software (Timmers,2000). They enable the convergence between B2B and

B2C to be exploited in new online business models, these will be discussed later in

this section. The majority of B2B transactions are conducted by EDI and/or

extranets. (Refer Appendix F for and example)

3.2 The EDI (Electronic Data I nterchange)

EDI has been around for almost 30 years in an non-Internet environment, and is also

called the back bone for E-commerce. Traditional EDI involves translating of

standardized business and trading processes such as purchase orders, invoices,

payments, shipping and delivery schedules into a globally understood business

language and transmit them between secure trading partners using secure

telecommunication links. This uses dedicated or leased telephone lines or VAN

(Value Added Networks) to carry out these data exchanges. Well- known retailers

such as Home Depot, Toys R Us, and Wal Mart would have operated differently

without EDI. Most businesses of smaller size could not benefit from EDI mainly

because only small number of their business partners have EDI and also due to some

major factors such as:

• Significant initial investment

• Requirement for business restructuring

• Long start-up time

• Use of expensive networks

• High operating costs


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The fact that EDI is not a good solution for running businesses on line for small

businesses is evident from the above factors. With the increasingly universal and

cheaper alternatives being offered by Internet based technologies such as E-

commerce, more organizations are now adopting such alternatives also to keep up

with their future needs.

Here it is important to mention the term “Business Model” for E-commerce, because

defining its Business Model is the first step and stands paramount in the systematic

approach of building any business on-line. A Business Model can be define as an

architecture for product, service and information flows, including a description of

the various business actors and their roles; and

A description of the potential benefits for the various business actors; and

A description of sources of revenue. [Ref 24]

There are a huge number of possible business models that can be constructed,

however we observe in practice only a small number of these being implemented. To

list down a few :

• E-procurement

• E-Malls

• E-auctions

• Virtual Communities

• E-shops

• Collaboration Platforms

• Third party Marketplaces

• Value Chain Integrators

• Value-chain service providers

• Information brokerage, Trust and other services


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Models such as the E-procurement, Value Chain Integrators are used widely in B2B

E-commerce supply chain, involving procurement or supply of goods. Considering

the current scenario of SME’s, business models based on two of the above

mentioned business models seem to be widely used. The E-shops and Information

brokerage, Trust and other services. A company having its web site can be

considered to have a basic E-shop other services such as providing shopping carts

and on-line payment are add-on’s which depends on the company’s decision.

Businesses providing help organize and find information over open networks, and

some of special category which provide services such as digital certification fall

under this class.

3.3 Origin and history

Electronic Commerce applications date back to the early 1970’s, with innovations

such as Electronic Fund Transfers (EFT), however this was limited to large

corporations, financial institutions, and a few daring small businesses, with the

emergence of EDI which expanded from financial transactions to other transaction

processing and enlarged the participating companies from financial institutions to

manufacturers, retailers, services and so on. With the commercialization of Internet

in the early 1990’s and its rapid growth, the term Electronic Commerce was coined,

and EC applications expanded rapidly. From 1995 to 1999 we have witnessed many

innovative applications ranging from advertisement to auctions and virtual reality

experience. And now less than a decade later of its origin, many medium and large-

sized organizations already have a web site.[Ref 18]

3.4 Inter net and E-commerce

The Internet is the most well known component of the information superhighway

network infrastructure. Today the internet spans several continents connecting the

distributed information. This not only rules out the once existing geographical

barriers, but the very general infrastructure targets not only one E-commerce


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application such as video-on-demand or home shopping but a wide range of

computer-based services such as e-mail, EDI, information publishing, information

retrieval and video conferencing which are also form a subset of E-commerce, all

these being offered in a cost and time effective way through a commonly available

technology. In short Internet can be viewed as the technology that enables E-

commerce in a global way [Ref 6].

3.5 Working Framework for E-commerce

There are several frameworks using which E-commerce can be described like the

WWW Architecture (Kalakota, whinston 1999), Open market E-commerce server

architecture (Turban et al, 2000) and others. But the “Merchant Server Architecture” ,

best describes the E-commerce architecture in the current scenario. This architecture

indicates the components involved in a transaction involving a vendor and a

customer as can be seen in most SME E-commerce transactions.

The above figure outlines the major components in an electronic catalogue merchant

server system. As shown above a single server is used to handle product

presentation, order processing, and payment processing. Similarly in this architecture

a single database is used to store the catalog and handle orders. The pages of

Fig 3.4 – Working framework for E-commerce


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electronic catalog are created dynamically from the product descriptions contained in

the catalog database. For those merchants who only deal with few products the pages

for the web catalog are created well in advance thus eliminating the need for a

catalog database. This standard framework supports the following components

• Catalog templates

• Shopping carts

• Product searching

• Cross-selling

• Secure payment processing

Some of these concepts will be discusses in the succeeding sections. The other

frameworks can also be adopted, but this entirely rests on the budget allocated by the

SME, and also on the type of the E-commerce being used i.e. Business to Business

or Business to Consumer (these concepts would be discussed in the subsequent

chapters).


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4 Small and Medium sized Enterpr ises

4.1 Some definitions

To have an overall understanding of the SME’s it should first be clarified exactly

what is meant by a ‘Small’ business. Although there has been a long great deal of

arguments over the issue of definitions by small business theorists and researchers

(Bolton 1971; Binks and Coyne, 1983; Curran and Stanworth, 1984) no entirely

acceptable solutions have emerged.

Bolton Report 1971. The best description of the key characteristics of a small firm

remains that used by the Bolton Committee in its 1971 Bolton Report on Small

Firms. This stated that a Small firm is an independent business, managed by its

owner or partly-owners and having a small market share. It also recognized that size

would be relevant to sector. For instance a firm of a given sector could be small

compared to others in a different sector where the market is large and there are many

competitors, where as a firm of similar proportion could be considered large in

another sector with fewer players and/or generally smaller firms within it.

Similarly it recognized that it may be more appropriate to define size by the number

of employees in some sector but more appropriate to use turnover in others. But for

the purposes of official statistics it is most usual to measure size according to

number of employees or their equivalent [Ref 19].

4.2 Factors determining Size of an SME

There are different interpretations for determining under what category, an enterprise

falls under. The factors that may determine the company’s size can be :-

• The number of employees the company hires

• The Maximum annual turnover


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• The maximum annual balance sheet total

• The maximum % owned by one or many enterprises not satisfying the above

criteria.

The table below illustrates these interpretations in figures [Ref 1]

SIZE OF COMPANY MICRO SMALL MEDIUM Maximum number of

employees 10 50 250

Maximum annual turnover - 7m ECU 40m ECU

Maximum annual balance sheet total

- 5m ECU 27m ECU

Maximum % owned by one or several enterprises not satisfying the above

criteria

- 25% 25%

4.3 SME’s in U.K

There were an estimated 3.7 million active businesses in the UK1 at the start of 1999,

of which there has been a considerable growth during 1998-99 in businesses having

1-4 employees. SME’s in UK are involved in almost every business sector other than

electricity, gas and water supply sectors. They cover a number of different industry

types like chemicals, electrical and electronic engineering, metals, footware/clothing,

rubber/plastics, giftware and in other sectors such as supplies and

transport/communication. The share of employment provided by these SME’s varies

greatly from one industry to another. In construction sector SME’s contributed to

84% of the total employment, however the share of employment and turnover in

1 This includes an estimate of very small businesses that do not appear on the official business register, since they are estimated using survey data, the reliability of data is lowest for smallest class of businesses.

Table 4.2 – Factors determining size of SME’s


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SME’s was the highest among those businesses based in Northern Ireland, and

lowest among those based in London, the south east, the north east and the Humber.

Its also an intresting fact to note that Ireland is gradually becoming UK’s SME

capital. There has been an export of $3.29 billion worth of software from Ireland

last year mainly from the SME sector. There are an increasing number of SME’s in

Ireland which have been utilizing E-commerce as their prime business strategy. “ If

SME’s get left behind in the new economy, the whole country gets left behind” said

Vivienne Jupp, senior partner with Anderson Consulting and chair of the

Information Society Commission of Ireland. 69 % of Ireland’s SME’s have some

form of net access, and most of them have been online for more than a year. [Ref 17]

Another sector that is note worthy and is increasingly being benefited by E-

commerce is the food sector. The web is a perfect fit for the sales of fresh fruits,

vegetables, and other perishable food items which are usually dealt by the SME

sectors. Products such as fruits are low margin products, quickly perishable and need

very quick sales decisions. “The fruit industry in Europe is quite fragmented, and the

web helps pull the industry together,” said Alan Holmes, managing director of

www.WorldOfFruits.com. [Ref 17]

4.4 Importance of SME’s to the Economy of U.K

Small and Medium Enterprises are significant in their contribution to the economy of

United Kingdom. There are an estimated 1.3 million SME’s that run all over U.K,

which sum-up to over 90% of the businesses in U.K [Ref 2]. Most of these

companies fall under the Small enterprises category with less the 10 employees. The

SME’s in U.K employ over 40% of the private sector work force and account for

40% of the U.K’s turnover. The growth and health of this sector is therefore

important for the economic and social uplift of U.K. Considerable attention has been

paid to SME base over the last ten to fifteen years, without understanding the roles


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of large firms and their links into the SME base [Ref 3]. Large firms still dominate

regional economies in terms of output but not in terms of jobs. However a healthy

and growing large-firm sector is essential to the growth of SMEs, from where the

bulk of new jobs will emerge in the future. Growth of a large firm indirectly reflects

the growth of SMEs in that region as large firms tend to outsource their business to

smaller firms in terms of contracts and sub-contracts.

4.5 Behavioral aspects of SME’s in the new Economy

The primary focus of Small firms is on business survival through minimization of

cost, maximization of income and thereby maximization of profits. Reduction of

cost can be in terms of reducing the paperwork, or reducing unnecessary man-power

E-commerce, was considered by many SME’s as a reactive measure for improving

their business, in some cases as a response to the request by larger organizations

which were their customers. But there is a probable question that arises, before a

small company thinks of an E-commerce solution. Would the implementation of E-

commerce yield lucrative results? This question also depends on different issues

such as the sector of the SME, the turnover and the behavior of the clientele or

customers. SME’s are involved in a very diverse business fields. It can be found in

U.K that SME’s are involved in almost every business sector, resulting in an intense

competition. companies run into crises mainly because of bad services and response

and many end up in a very short period, and loose business to their bigger

counterparts, partly because they do not have sufficient resources to withstand crises

and partly because many businesses lack understanding and importance of a sound

business plan.

With the astonishing growth of the Internet, businesses are beginning to find new

ways to expand their opportunities. It seems everyone has a web site these days. And

yet the task of setting up a web site is often not as simple as it seems to be. Some

business sites lack focus and functionality while others fail to take advantage of their

full potential.


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Do you need a web site ? This should be the first question asked. A business should

think about what they intend to accomplish by establishing a web site. Mere

implementation of an E-commerce site may result in unnecessary and futile

investment of the organization’s limited financial resources. When an organization

intends to implement an E-commerce solution, one question that is to be borne in

mind: “what positive impact will it have on the business and is the company ready

with a business plan in place ?” Then, Depending on the size of the business and

how one wants to grow it, an e-commerce solution provider is to be approached.

During a recent interview conducted by the “Computing” magazine [Ref 7], some of

the new business leaders stipulated a few rules for the new economy :

• “ Speed is more important than stability” .

• “ Growth is more important than profitability” .

• “ Instinct is more important than research” .

And most important of all as one director put it

‘The idea is everything – the rest is just execution’

One may dismiss the internet culture as just another technological feet. But

something is happening in the high-tech industry that hasn’ t happened in the U.K

for a long time. People are taking a risk and making serious money and many have

realized that this is the right time to strike. There are many online solution providers,

which help SME’s go about, solving their e-commerce necessities, like IBM [Ref 8].

As it is said “Look before you leap” , it is always wise to consider the benefits E-

commerce has to offer before one can think of implementing it.

E-commerce transforms the way business handles day to day issues including:

• Attracting new customers

• Retaining existing customers


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• Reducing operating costs

• Increasing cash flow

• Attracting, retaining and training staff

• Understanding competitors activities that may impact your business

High investments by many big organizations were made on E-commerce .

Successful Companies like Dell have transferred their business onto the internet.

Today Dell sells over $2 million worth of computer equipment everyday, IBM has

aimed to trim up to $500 m off its expenses by reducing the paper invoices, e-mail

handling and other related costs and will be shifting 75% of its sales onto the internet

by the end of 2001[Ref 9].

An organization or business intending to have a web presence must operate with an

equally strategic level as they would do in a business without E-commerce. Key

business initiatives such as Sales Force Automation, Quick Response, Just-in-time,

Business Process Re-engineering, Efficient customer Response, Supply Chain

Management, all could be embraced as components of an overall E-commerce

business strategy.

The very purpose of an E-commerce infrastructure is to provide interoperability, for

instance between the SME and its trading partners. The required infrastructure must

thus be built, keeping in mind the IT know-how of the SME. Therefore certain

guidelines must be laid in order to achieve a desired level of reliability, security and

robustness to make the business dependent on the outcome.

4.6 E-commerce as a business strategy

“ Think Global act local” this is the slogan that drives many companies to adopt E-

commerce into their business. In-fact this very much applies to small or medium

companies which intend to globalize their business, more and more companies are

having their web presence, because internet is one global network that anyone can

master with ease. Internet, other than publicizing and promoting products online also


22

enables a company reach the vast customer community. More people implies more

business. Before trying to make the best out of E-commerce, a proper E-commerce

business strategy is very much vital. Let us first consider the various stages involved

in setting up a business on-line.

4.7 Stages involved in setting up a business on-line

The first step for improving business is by setting up an e-commerce site.. Setting

up an E-commerce site is similar to setting up a shop wherein you need to know your

business environment, customers, competitors, and ways to promote your store.

According to Michael Porter[Ref 24] , there are three generic competitive strategies

that can be followed by firms to achieve commercial success:

1 Cost leadership : In order to build and increase market share, it is always necessary

to have pursuing position in the market of being the lowest-cost producer.

2 Differentiation : Providing a product or service with a unique characteristic, which

allows the company to charge a relatively higher price and thus a relatively a higher

margin.

3 Focus or Niche : Concentrate on a specific market segment.

There were a few tips published by IBM on similar lines, to mention a few: [Ref 10]

Tip 1 : Develop a market management plan before setting up your site – identify

your target customers and understand their behavior and preferences.

Tip 2 : How the products or services offered will be perceived by a customer-

Certain products need physical evaluation before a decision can be taken, does your

product fall under this category ? if so how can this be made more perceivable to a

customer.

Tip 3 : How efficient is your web-site ? – customers will not wait for a long time to

access a web site. The popularity of a web site depends very much on how fast


23

customers can access it on their computer and customers often find downloading

which takes more than 10 seconds unacceptable.

Tip 4 : The overall design and structure of your web site must be clear and up to

date – A site should be appealing and encouraging to the customer visually and

informatively. Corporations must adhere to a fixed schedule of updating their web

site quite regularly. A unaltered web site might induce a sense of monotony in the

mind of the customer.

Tip 5 : Emphasis on the interactivity and communication of the web site – A

customer by all means should be given a chance to express his opinion by different

means like discussion forums, feedback’s. On the other hand being able to interact

with customers means a company can more effectively provide customers with

targeted personal services and strengthen their relationship.

Tip 6 : Does your business have a database to capture all your customer

information – Many web sites provide this through a membership service, by

providing the customer with a username and a password. With the help of an

analysis about their customers a company could tailor its program and response, like

for instance the customer response to price adjustments, or payment method etc.

There are a number of companies offering a gammut of services at very competitive

and affordable prices. Magic Moments (www.magic-moments.com ) is one such

company I’ve come across. Companies like these host a variety of E-mail and web-

hosting packages. These services are primarily marketed keeping SME’s in mind,

the services start from domain name registrations to E-commerce shopping cart

facilities and real time payment solutions at an affordable price.

Hosting an informative web site ends the first phase of setting up your E-commerce

solution. The crucial part of any business lies in sustaining its growth, which means

how a business is maintained. Bad maintenance of a business may result in a

business loosing its market value and may even lead to its shutdown. Most SME’s


24

having started EC applications do it for marketing purposes via a home page and

more and more often include the possibility of basic transactions such as on-line

orders, covering rather the business to consumer side [Ref 16] . There are many

aspects that need to be considered for a healthy growth in business.

4.7.1 How can the existing customers be kept

As a small business owner, one may always be looking for ways for cutting down

the operating costs of daily business such as rents, salaries, office supplies,

telecommunication etc. But the cost of keeping an existing customer happy can

quickly add up. E-commerce lets you connect with your customers when they need

you or when you want to. One can set up his E-business such that customers can

track their shipments or find product description at your web site. E-mail can be used

effectively to maintain customers, for instance you can send out a notice about a

special offer to all your customers with one key stroke, this can be done at home or

on move instead of from your office.

4.7.2 Reduce your operating costs.

One doesn’ t need to have an office in every geographic location that is targeted for

the business. And because you can reach both local and world wide markets through

internet, there is no need to employ many employees or have transport for selling the

product, and because your can communicate with your suppliers on-line there is no

such need to keep as much inventory on hand as you did previously or perform the

same amount of administrative tasks as you did before. The potential savings are

obvious.

4.7.3 Attract, keep and train a productive staff

One of the greatest assets of a successful, small business is a productive staff.

According a recent survey by EUROSTAT it was found that more then 90% of


25

businesses in U.K comprise of SME’s and out of that more than 36% of them fall

under the Small enterprises category and employ less than 10 employees. It is

therefore very much essential to have a well-trained staff. Most employees look for

challenging and flexible work, the opportunity for career development and a good

salary. Implementing E-commerce into your business, means that you are ensuring

your employees that you are doing business in the most efficient and competitive

manner possible. The staff can be offered challenges and flexibility they want (for

example they can use E-mail and work from home or from another remote location,

Tele-working is once such concept). So as your business grows more efficiently with

the use of E-commerce tools and solutions, so too will your profitability, allowing

you to offer your staff the kind of salaries and opportunities that will make them

want to stay with you for a longer term.

4.7.4 Regulate and increase your cash flow.

Cash flow is perhaps the most important aspect of a small business. Without a

positive cash flow ( for payment of periodical things such as supplies, salaries,

advertising and other promotions) a business cannot sustain for a long time. The cash

flow in a business can be improved from all sides using E-commerce. Customers

would be able to buy products over internet and payment is made electronically even

before the product is dispatched, with this you can reduce your inventory carrying

costs and focus more towards advertising budget, and reducing costs will increase he

cash flow.

4.7.5 Going Global

“Going Global” is the next phase of expansion, once an organization has enough

resources to withstand itself and take risk. What’s involved in going global ? Going

global may seem like an intimidating task. Questions like “Will international visitors

come to my site ?” do pop up. During a recent survey conducted by IDC in the U.S it

was seen that only 45% of the sites make any efforts to accommodate non- U.S


26

customers [Ref 11]. And only 11% of the sites display and accept sales in the local

currencies. Is it acceptable to loose a major chunk of sales out there ? Most E-

commerce sites which are entirely in English don’ t even ship outside their country,

this cuts out another majority of sales.

here are a few things that need to be done to globalize your site :

1. Find a way to ship globally : International shipments have to be handled.

Shipping services such as FedEx and UPS handle such shipments. Customers

need to be informed about the shipping tariffs and customs charges as applicable,

these can be taken care of by the shipping services like FedEx, but the process is

to be made clear before the shipment is dispatched.

2. Add multiple currencies to your site : Merchant banks generally accept

charges in any currency as long as the merchant sends the currency information

along with the purchase information with the sales details. Make minor changes

in your product presentation pages or your shopping cart so shoppers can see

what they’re going to be charged in their local currencies.

3. Conver t your site to local languages : German and Japanese should be at the

top of your list. According to Forrester and IDC research, Japan will have 57

million web users by 2003 and by 2004 will have $1.6 trillion in online revenue.

So Japan is not a bad place to start with. The below chart shows the classification

of web sites on the language used.

57%

8%5%

5%

4%4%

2%4% 2% 9%

English 57% Japanese 8% German 5%Spanish 5% French 4% Chinese 4%Korean 2% Italian 4% Portuguese 2%Others 9%

Fig 4.8.6 – Percent of adult Internet users by languages spoken


27

4. Employ multi-lingual customer services : As long as a web site is being

displayed in international languages, you should expect customers to want to

communicate in their own language, this can be dealt in two ways. Contract with

a customer service center with native speakers, or translate the written language

into English and vise versa.

Sites such as www.US-Style.com handle such tasks such as localizing the web site,

managing e-mails customer inquiries and cultural content.

4.7.6 Adver tising your web site

A new web site is like a new product in the market. People do not know about it

until it is brought to their notice through advertising and promotion. It is equally

important to advertise your web site as build it, as it is at the end of the day the

number of visitors that matters to a business web site. More visitors imply more

business. There are several ways to advertise a web site, depending upon the budget.

Advertising through other popular web site is perhaps one of the most common

ways. Certain web sites which run search engines like www.msn.com,

www.yahoo.com and www.ask.com , are but a few sites. Certain web sites are also

advertised through T.V commercials, but this obviously would cost more. And of

course magazines and newspapers also serve as an effective media. But advertising

online would be the best way to advertise, as the web people would almost instantly

access site.

6%

22%

21%20%

11%

20%

6% Computing 22% web navigation/portal

21% Entertainment 20%News/reference

11% Other 20% Financial Services

Fig 4.8.7 – Online Ad placement in UK by type of site [Ref. 5]


28

A study launched by the Enterprise DG of the European Commission highlighted

the fact that Business to Business web sites accounted for 61% of business web sites

in Europe, while the figure stood at 43% in North America. Business to Consumer

web-sites accounted for 39% in Europe and 57% in America (Refer Appendix D for

some FAQ’s relating to E-commerce).

4.8 Risk Assessment in SME’s – “ A necessary measure”

Companies and organizations transacting business over the internet face potential

exposure in a number of areas. Electronic financial transactions, bill collections,

disclosure of sensitive information through e-mail. Companies face major threat in

the areas of intellectual property, security and business reputation exposures

[ Ref 12].

Organizations should consider conducting a risk assessment of their exposures over

internet. A company should review their possible exposures in their “ Internet

inventory” which can be in e-mail, Database maintenance and marketing, financial

transactions, advertising, copyrights etc.

4.8.1 I ntellectual property

The most valuable asset for any high-tech company is its intellectual property.

Intellectual property in cyberspace includes copyrights, patents, trademarks, service

marks, trade secrets, brand names and brand equity. Protection of intellectual capital

is one of the most overlooked aspects of risk management over internet. An

intellectual property lawsuit can lead to many obstacles for a company, such as

shortening a product’s life cycle, decreased earnings per share, loss of equity, and a

compromised cash position. An uninsured IP claim rises many problematic issues in

an organization.


29

In past very little was done in the insurance industry to help clients protect their

intellectual assets. Today, insurance and risk management consultants have

developed various ways to protect and defend their intangible assets. Basic risk

management procedures include obtaining signed disclosure agreements,

maintaining records and documents, conducting patent searches, and notifying legal

counsel when new products are developed so that patent applications can be filed.

4.8.2 Adver tising on the web

Advertisements on the internet are subject to the same Federal Trade Commission

regulations as ads that are broadcasted or publicized through print. Disputes and

litigation’s most frequently arise out of comparative claims, false claims or use of

unsubstantiated testimonials, use of terms such as “satisfaction guaranteed” ,

deceptive pricing and offers that use words such as “ free” , “bonus” or “gift” .

4.8.3 Other Potential Pitfalls

Copyright and trademark infringement is another major area of concern for online

business. Individuals or corporations that distribute an unauthorized copy of a

protected work can be directly liable, even if it is unintentional. Other areas include

property damage, theft, business interruption, libel and slander, damage to reputation

and loss of market share.

The risks discussed above are by no means restricted to Small or Medium sized

businesses. Large organizations and corporations are equally prone to these risks. A

complete risk audit is necessary for any company doing business over the internet,

because it can help prevent a potentially catastrophic situation.


30

4.8.4 Some Legal I ssues

The legal issues involving E-commerce for SME’s has both bright and dark sides of

it. The e-commerce bill or the e-trade bill which was published recently is a

government policy framework which lets businesses and individuals safely trade

online with a framework for the provision of public encrypted services will also be

regulated, which means that they must meet minimum standards for the customer.

The key aspect of the bill is the use of digital signatures for E-commerce. The

Department of Trade and Industry (DTI) is responsible for the bill. The bill to certain

extent has been useful by providing E-commerce customers and vendors by

ingraining concepts such as data encryption and digital signatures, but the bill gives

ministers broad powers to control the use of encryption, and allows the police and

law-enforcement community to tap data transmissions [Ref 29]. The consequences

for IT managers could be unpleasant. This bill does have a negative impact on the

businesses both on the SME and big industrial sectors, as this may lead to UK’s E-

commerce being ignored by rest of the world, because of a possible security breach

and may lead to UK loosing business to rivals in countries with flexible frameworks.

SME’s have increasingly been pointing out problems of being held back by

restrictions on credit card transactions. Banks in UK have been inhibiting E-trade

progress in Small and Medium sized businesses by refusing to let them clear credit-

card transactions on-line. This is the most important reason for the slow take-up of

E-commerce in Small and Medium businesses in UK. “However we convert only

5% of those who apply to us to do online trading. The banks are declining the rest of

the applications” the reason being that should a firm go out of business, any bank

which issues it an ID will be liable for unfulfilled card purchases.(Gavin Breeze, MD

of credit card payment gateway- DataCash). To accept online credit card

transactions, businesses must be granted ‘Merchant ID’ by a card acquiring bank.

The largest acquirers are Natwest and Barclays, which control nearly 80% of the

market.


31

Key Escrow is another legal issue that is still under debate. Although defining

escrow can be difficult, as this encompasses many issues such as cryptography and

Trusted Third Party (TTP) , but basically the process of escrow is : Buyers and

sellers deposit documents and money with a neutral third party to be held. When

certain conditions agreed upon by both buyer and seller are met, the third party (the

“ escrow holder” ) then distributes the documents and the money. There have been

many attempts made by the UK government to implement Key Escrow into the e-

commerce legislature, but this issue has remained a paradox, the evident reason

being that Vendors and buyers feel vulnerable departing from their confidentiality,

and handing over their vital information to a third party. Due to these reasons it has

still been a debate, if Key Escrow would help or hinder E-commerce.


32

5 Case Study

SME’s are now using e-commerce in their everyday business practices in order to

integrate more fully into their respective supply chains . I have come across one such

interesting article on an experiment that was conducted by British Telecom (BT) on

fifteen organizations in the industrial sector of south Wales (ISW), with varied

business classes like manufacturing, service sector and regular exports [13]. Three of

those SME’s were of particular interest as they represented both Business to

Business and Business to Consumer trading. The three organizations represented

typical SME’s (were in compliance with the table shown in definition of SME’s)

The three companies have been named A, B and C for convenience.

Company A undertakes small manufacturing activity such as hose and couplings

fitting and can be classified as service activity. Companies B and C however are

manufacturing based companies. All the three companies were technologically

capable and were willing to be experimented. Therefore it was decided to install

ISDN lines for all the three companies to ensure fast and speed data

communications, since company A was more into industrial supplies, it relied more

on catalogues, so the company was tested for installation of e-catalogues

development by BT. Companies B and C have some ongoing R&D processes and

which could be boosted through desktop video conferencing systems. All three

companies had their own web sites designed.

Company A’s operations were more straight forward which involved sourcing of

supplies and sales teams interaction with customers. Its major customer circle

covered Aiwa, Sony, Azcom. In August 1997 the marketing manager initiated a

Business process re-engineering (BPR) project, and evaluated the entire companies

operations by early 1998. The initial strategy being to consolidate the existing

supplier base. The internet has been used exclusively to find a team of consultants to

asset with this project. Company A’s customer base is hi-tech, so the manager feels

that by the improved means of electronic communications and understanding the


33

difficulties facing them has resulted in generation of new business for the company.

The manager is increasingly using e-mail to build good relationship with his

customers.

Company B increasingly uses Internet for downloads, software upgrades, obtaining

data sheets and other technical information. The company also provided an upgrade

for its testing product on the web, which it did by asking its customers to download

from the web. Traditionally the company would have to supply 1200 hard copies of

the upgrade to it customers which would have costed it £ 7200 (£ 6 * 1200), but

now the company just distributed one each to the twelve customer bases, with the

remainder being downloaded from the web. This simple solution saved the company

£ 5305, by the spring of 1998 the company had therefore realized subsequent

benefits from E-commerce. This savings led to the company appointing new

employees for taking responsibility for the E-commerce activities in the company.

The profit gained by the company is as illustrated in the below table.

Cost Without e-commerce £ /annum Cost With e-commerce £ /annum

Fixed costs : 1200 paper manuals, printing and distribution (@ £ 6/ copy)

7200 Fixed costs : 1200 paper manuals, printing and distribution (@ £ 6/ copy) line installation ISDN terminal adapter Rental BT internet account Web-site development/design

72 400 329 352 130 600

Variable costs

12

Total costs

7200

Total costs

1895

Saving with e-commerce

5305

Table 1 : Benefits for company B by using e-commerce


34

Company C has benefited very much from the use of internet for supplying its

suppliers with all the necessary information and obtaining information about its

competitors. The companies main savings are made out of its automated daily

sales/manufacturing plan which it obtains from a major customer. This process of

data exchange is automatically received and processed with the minimal manual

intervention, thus saving two days of human labor per week, which turns out to be an

equivalent of £ 4600 per annum. The cost the company has to bear is 9 minutes of

phone call per day, the savings of the company started with £ 2653 the year

following the first installation of the ISDN line and the profits kept increasing the

following year. The below table shows the companies profit statistics. Thus this gave

time for company C to concentrate more on the productive shop-floor side of its

business thus contributing to more production with lesser staff. The second major

benefit that the company had was to the customer in that, what was a £ 400,000

stock-holding of company C’s ‘ looms’ which has now been reduced to £ 200,000,

which is half the amount in just 9 months, the manager expects that this cost will

reduce further. Thirdly this customer has now given 100% of its loom orders to

company C which resulted in a 10% increase in the companies turnover.

The time it took for the company to realize its profits was short. The electronic link

was established in March 1997, by May the benefits could be perceived, and by

August 1998 the lucrative benefits were all evident. The gist of the solution being in

the speed of communications backed by a simple internet e-mail link (Refer

Appendix E for statistics).


35

Cost Without e-commerce £ /annum Cost With e-commerce £ /annum

Fixed costs : Two-fi fths of clerk’s time { @ £ 11 500salary}

4600 Fixed costs : ISDN line installation ISDN adapter Rental Clerks time { @ £ 5.53/hour} CompuServe account

400 329 352 719 72

Variable costs

75

Total costs

4600

Total costs

1947

Saving with e-commerce

2653

There is a growing importance for e-commerce in SME’s as shown by the above

experimental study. All the three SME’s which were experimented had benefited in

some way or the other as can be seen by the pre and post experimental statistics. The

major benefits that E-commerce can provide to SME’s in interaction with their

trading partners are faster communication, more effective dissemination and

collection of information, and closer relationships through out the supply chain. The

major issues are technology incompatibilities and a lack of understanding of

potential benefits

The most important requirements of E-commerce to SME’s are access to

information about E-commerce and generic products/services, which can be easily

implemented.

Table 2 : Benefits for company C from e-commerce


36

6 Future

While some of the legal issues still lye stranded in uncertainty, one thing we can be

sure of is that this is only just the beginning E-commerce revolution and over the

next few years E-commerce can be expected to have a profound influence on the

way every individual and business conducts trade. The advent of interactive digital

TV and unwired mobile internet access will take E-commerce well beyond the

realms of the PC-literate to create a truly mass market phenomenon.

The Wireless Application Protocol or simply WAP is an open, global specification,

which gives mobile users with wireless devices the opportunity to easily access and

interact with information and services. WAP is the technology that enables access of

Internet through a mobile communication device like a mobile phone. WAP is

picking up quickly. In the UK,� telecom giants like BT, Vodafone, Orange are

already providing these services to their customers. It is predicted that In the near

future, there would be greater number of people accessing Internet over mobile

devices, than over the PC. Probably because Europe records the highest percentage

of mobile phone users in the world. Presently there are not many WAP enabled web-

sites, but According to a recent report from Forrester, ninety percent of the e-

commerce executives interviewed plan to launch Internet sites designed for mobile

phones. so doing business the ‘WAP way’ has a lot to hold for businesses in the near

future.

Interactive digital TV promises an E-commerce boom. For the first time viewers will

be able to treat their TV like a PC. Interactive digital TV consumers will be able to

surf the web, send e-mail and pull up text based information about the program they

are watching. According to Microsoft which conducted its own findings about the

interactive digital TV prospects in U.K, 67% of web TV participants considered

buying goods online. One-third of the participants said they were willing to pay for

online banking and shopping in future. This suggests that TV will become a key

channel for delivery of E-commerce in future. The reason is simple: more people

have access to TV set than PC. 40% of UK homes have a PC where as 98% have a


37

TV. On the other hand TV is seen as reliable and simple to use technology. But

looking at the darker side - setting up on digital TV is not as simple as setting up on

the internet, its not simply porting existing web sites to TV, as organizations must

overcome several obstacles. Several aspects on the web sites such as the amount of

text, the elimination scroll bars at the same time keeping in mind not to involve too

much of technical jargon i.e. avoiding concepts such as “ log on” a PC illiterate may

not understand such terms, instead usage of more user friendly instructions are to be

incorporated [20]

There has been an increasing uproar among the E-merchants about the security and

reliability of online payment. This is one area, which needs a desperate uplift to

build the trust of consumers. Many companies have been working on this subject to

develop a much more reliable and secure payment transaction system. Few of them

have come out with a solution which can be expected to hit the Internet market, very

shortly. “Wave Systems” has developed one such solution. Online payment is

controlled by a chip within the computer, or optionally through a USB port device.

So the consumer having this device can got to the Wave Systems site, sign into their

server and using a credit card put the money into their chip. Unlike the normal

payment, money in this model resides on the client rather than on the server. Thus

the merchant need not connect to the server to authenticate the customer’s payment,

thus avoiding bottlenecks at the gateway server which would other wise happen. at

the same time the client is relatively secured without having to dispose his bank

details every time he shops online. [Ref 21]

6.1 Prospects for EDI

As discussed in section 4.6, the EDI has its own limitations. But it is a matter of

concern how organizations, which run EDI in the traditional manner, can compete in

an Internet based society. When considered as a channel for EDI, the Internet

appears to be the most feasible alternative for putting business on-line and in

particular B2B trading, which is virtually within the reach of any organization large


38

or small. Companies who currently possess traditional EDI have had a positive

response to Internet based EDI (Turban Efraim et al, 2000). A recent Forester

Research inc. survey showed that by late 1997, 8% of the companies were already

moving to Internet based EDI and another 12% were piloting systems and 32% were

considering them. It is also said that 16% of the traffic will move from VAN and

leased lines to Internet. The Internet simply serves as an alternative transport

mechanism to a more expensive lease line. The combination of web, XML and Java

makes EDI worthwhile even for small infrequent transactions. The EDI on the other

hand is not interactive but the wen and Java were designed specifically for

interactivity as well as ease of use.

6.2 The introduction of the Euro

The share of SME’s that are or plan to be fully euro compatible, increased from a

low initial value in 1999 and are expected to hit well over 90% in 2002 in euro

countries and about 50% by the end of 2002 in non-euro countries. Less than one

fifth of the SME’s expect a negative impact of the euro on their business. The graph

below illustrates these figures.

0 20 40 60 80 100

50-249

10-49

1-9

0

large positive effect Small positive effect No effect

Small negative effect Large negative

Fig 7.1 - Anticipated effect of Euro on businesses by enterprise size.


39

The share of enterprises expecting positive effects increases from just over 20% for companies without any employees to over 45% for medium sized enterprises.[Ref 22] Although the UK is not joining in the first wave, a surprising 19% of the UK’s Small

and Medium sized Enterprises have amended their business strategy to accommodate

the Euro according to Grant Thornton International Business Strategies Ltd. [Ref

26]. The UK SME’s were also more positive about the Euro than their German

counterparts (27% Vs 21% respectively), and 21% of UK SME’s were expecting to

invoice in Euro by the end of this year. Overall only 65% of Euro zone SME’s

surveyed expect to be invoicing in Euro by the end of 2000.

Australian based E-commerce software developer 3Dcubed said it has come up with

an international solution to help SME’s deal with the introduction of the Euro

currency. The software package called “Shop Factory” solves the Euro blues by

including the fixed currency conversion rates for Euro membership, this allows

selecting Euro as a secondary currency – solving the dual currency problem for

merchants. Shoppers can also switch among 60 currencies with conversion rates

updated daily.


40

6 Discussions and Conclusion

It is difficult to draw qualitative conclusions about SME’s and E-commerce, partly

because this is very much an emerging market, with many of the SME examples

discussed having been set-up recently. Driven by the competitive pressure many

SME’s have entered the E-commerce market, many without preparing a proper

business case. Many SME’s, which have already implemented E-commerce, do not

have sufficient experience to assess a proper business case for continuing this

experiment. However SME’s are still experiencing certain extent of success with E-

commerce, this fact is quite evident from the case study that has been discussed, this

is in line with the fact that E-commerce activities are experimental ‘add-ons’ to

existing businesses. KITE analysis report of E-commerce practices in SME’s

suggests that many SME’s surveyed have very low expectation of cost benefits to be

gained from E-commerce. They are very interested however, in quality benefits such

as access to new markets, which demonstrates a positive outlook. This suggests that

SME’s engaging in E-commerce are also prepared to take new challenges, such as

developing new ways of dealing with expansion into their customer base.

The majority of SME’s covered during this study are mainly focused towards

customer-facing E-commerce, perhaps because this is the easiest way to take off,

with the least disruption to the existing system as on the other hand dealing with

B2B application demands integrating the supply chain electronically which means,

changes to internal process such as automating and electronic maintenance of

databases and other inventory related aspects which points out for a greater

availability of time and money both of which are typically in short supply in SME’s.

A variety of other different issues and day to day problems are increasingly being

highlighted by SME’s. Surveys conducted by KPMG suggest that financial and labor

costs mainly arise during the pre and post-contract (E-commerce) stages. Small

businesses do not have the resources of medium to large sized corporations with

which they may trade everyday. This factor hinders the entire business of an SME


41

due to the fact that the required or preferred, investment in skills and technologies

cannot be met. A survey conducted during the time of the experiment being

conducted by BT (Discussed as “Case study” - section 5) there were a number of

problems encountered by SME’s during the pre-contract, contract, and post-contract

stages. The below figure illustrates the higher response levels of problems

encountered during the pre E-commerce trading in businesses.[Ref 13]

For a majority of internet-enabled SME’s in UK, E-mail is the most important used

facility. Most businesses have understood the efficiency and effectiveness of this

communication tool (Refer Appendix E) .

Legality is another problem when it comes to SME’s. Certain issues are as discussed

in the “Legal Issues” section. But there is a lack of standards when it comes to

Fig 8 – Number of SME’s facing types of problems during pre, on- contract and post-contract stages

0

1

2

3

4

5

6

7

8

9

10

nu

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42

digital signatures for authentication, which leads to resistance for conducting

transactions electronically. Additionally concepts such as acceptance of electronic

documents, invoices and other types of electronic documents are not well into the

knowledge of the SME’s as many SME’s are not well acquainted of the legal

framework and therefore have a chance of getting lost in the discussion of what is

recognized as legal and what is not.

The security issue is perceived as important across regions. Relatively new

technologies such as SET, SSL etc. are yet to take important role in the standards.

The discussion over the taxation issue also prohibits a fast market penetration,

especially in the case of SME’s with business activities in several countries the

taxation issue is not transparent. The basic issues involving standardization and

security are a key issues to be solved especially for SME’s because they do not have

law departments as large organizations do, leaving them in a legal dilemma. These

aspects of the emergence of electronic commerce (and their relationship with the

Single Market) deserve further study despite a number of open issues that are yet to

be resolved.

The SME’s are a dynamic force in the UK representing almost 99% of businesses

and more than half of the turnover. In most industries with a few exceptions the

majority of businesses are SME’s. The recent developments in ICTs (Information

and communication technologies) are providing new ways in further growth Internet

being the prime tool. The introduction of electronic commerce also involves the

introduction of new ways of doing business. Resistance to change can also be

expected from small and large organizations alike. Extensive research was done at

“Monash University Center For E-commerce” Queensland Australia. The findings of

the study were generalized to most of the SME’s through out the world. The findings

are summarized as follows:


43

• There is a great amount of resistance for change in the existing system that

SME’s function on, partly due to the technology phobia, and general confusions

generated by misinterpretations of its consequences.

• Electronic commerce in most SME’s is not given priority. The managers are

more concerned about the day to day activities and lack thinking in long term

basis.

• Implementation of a new technology, and its realization is a gradual process, it

takes some time before the actual benefits can be reaped. For SME’s to embrace

E-commerce technologies three key areas need to be addressed :

1. Demonstration of a real business need in order that E-commerce receives priority

2. Availability of a reliable and cost efficient telecommunications infrastructure

which will enable E-commerce technologies to be implemented.

3. Availability of E-commerce enabled software that is simple to install, operate

and maintain.

There are many factors that SME’s have to consider before they can actually think of

implementing an E-commerce solution. An SME with a proper cause and reason

identified can be successful, provided:

• The right E-commerce solution is adopted

• A proper telecommunication infrastructure is implemented

• The SME is confident enough to absorb good business and recover the cost of

implementing and maintaining the solution.

Due to the rising awareness ICTs like Internet and its universal acceptability, there

has been a new perspective in which E-commerce is being dealt with. The evident


44

reason being the cheap and extensive communication possibilities it has to offer.

While the more advanced levels of electronic commerce present substantial

challenges, the more basic levels are now well established and supported by "off the

shelf" solutions. The best way of gaining the mastery of electronic commerce that

will be vital in tomorrow's markets is to try it today.


45

References

Web sites visited : [1.] Small and Medium Enterprise (SME) - Definitions http://www.dti.gov.uk/SME4/define.htm (last accessed 31-08-2000) [8] CNET features – techno- 20 questions:how the net works, 4. How does the web work?, www.coverage.cnet.com/Content/Features/Techno/Networks/ss05.html (last accessed 20-8-2000)

[5] NUA Statistics (1999), How many online world wide, http://www.nua.ie/surveys/analysis/graphs_charts/index.html (last accessed 28-7-99) [6] SME & e-business-“ Is your business ready for E-commerce” www.hk.ibm.com/sme/corner/ready_ecommerce.html (last accessed 19-07-2000) [10] SME & e-business-“e-business- Road to Success for SMEs set to expand on the Internet” , www.hk.ibm.com/sme/corner/roadsuccess_e.html (last accessed 19-07-2000) [11] Globalization of E-commerce: Are you ready ?, Alexis Gutzman(May 17, 2000)www.ecommerce.internet.com/solutions/tech_advisor/print/0,,9561_365241,00.htm l ( last accessed 29-07-2000) [12] Julie Davis, Executive vice President , Aeon Technology, san-jose “E-commerce still a risky business” ( Last accessed on 15-07-2000) [13] A J Davies & A J Garcia – Sierra (July 1999) “ Implementing E-commerce in SME’s – Three case studies” ;; BT Technology Journal, Vol 17, No:3, www.bt.com/bttj/archive.htm [14] E-commerce web solutions provided by “StepOne” www.ecommerce.stepone.co.uk/charges (last accessed 22-07-2000) [16] Booz- Allen and Hamilton, The way forward in electronic commerce for SME’s, “G7 Global Marketing for SME’s” First Annual Conference, Bonn April 1997 (www.ispo.cec.be/ecommerce/sme/reports/wayforward.htm). (Last accessed 16-08-2000) [17] Madanmohan Rao, EM Wire – E-business is critical for Small and Medium Businesses, report from the SME e-Business Summit in Dublin. ( www.electronicmarkets.org/electronicmarkets/electronicmarkets.nsf ) ( Last accessed 4-08-2000)


46

[21] Alexis D Gutzman, Payment Solutions - Wave E-commerce System, www.ecommerce.internet.com/reviews ( Last accessed 29-07-2000) [22] KPMG Consulting and EIM Small Business Research and Consultancy, “The European Observatory For SME’s” - Sixth Report executive Summary, www.europa.eu.int/comm/enterprise/enterprise-policy/analysis/doc/eurob5en.pdf (Last accessed 09-08-2000) [25] James Middleton (2000), South East tops UK dotcom league, www.uk.internet.com/Article/100458 (last accessed 29-08-2000) [26] Euro Matters – Spring 1999: Europe’s SME’s and the Euro (1999), www.grant-thornton.co.uk/whatsnew/newsletters/euro/enews9.htp?frameset=yes (last accessed 29-08-2000) [27] Anderson Consulting (2000), eCommerce Defined- Five Rules of the eEconomy, www.ac.com/ecommerce/five_rules.html (last accessed 16-08-2000) [28] E-commerce – legal FAQ’s, Dr E-commerce, www.drecommerce.com/legal.html (last accessed 3-09-2000) Books, Magazines and Journals refer red: [2] Internet.Works magazine, “Ybag bags business to business site” . Aug2000 issue, pg11. [3] (May 1999), UK round Table on Sustainable Development :Small and Medium Sized Enterprises [4] Kalakota R, Whinston A.B. “Frontiers of Electronic Commerce", Published by Addison Wesley in 2000, 4thed. [7] Computing magazine, issue 28th October 1999, (2000), pg44 [15] Williams P; Arthur Anderson, Marshall R; Elite “Strategy Clinic – Consult the experts” , Computer Weekly, issue 3rd August 2000,pg 33. [18] Turban E, Lee J, King D, Chung H.M., (2000), Electronic Commerce – A Managerial Perspective; Prentice Hall. [19] Bolton, J.E. (1971), Report of the committee of Inquiry on Small firms (Bolton Report), Cmnd. 4811, Her Majesty’s Stationary Office, London.


47

[20] Clarke G, “Preparing for E-commerce with the TV, not the PC” Computing magazine 22nd July 1999 pg (16-17) [23] Lawrence E, Corbitt B, Tidwell A, Fisher J.A and Lawrence J R. (1998), Internet Commerce Digital Models for Business; John Wiley Sons [24] Timmers P (1999), Electronic Commerce – Strategies and Models For Business to Business Trading, John Wiley & Sons Ltd. [29] Anderson R, “Will E-trade help or hinder you online?” , computing magazine 5th Aug 1999, pg 10 – 11.


48

Appendix A

My Exper iences with the project

My overall experiences throughout the working of this project have been pleasant.

The initial discussions and meetings helped me find focus. Getting an idea about the

overall concept was not an arduous task as some of the fundamentals and basic

concepts were covered in the IS5 (Office Automation) module, which I opted for in

the first semester. This project provided me with an opportunity to learn new

concepts and some business theories relating to conducting business on-line. The

internet was of particular help not only for deriving information required for the

project, but also for helping me find new facts, many new articles and different

statistics which otherwise I might not have come across. The E-mail group “Topica”

(www.topica.com) was quite resourceful, my correspondence with several

researchers of similar interests had been quite encouraging. I personally feel that this

project helped me equip myself with the latest facts, figures and theories relating to

E-commerce, which is still an emerging field, and I am sure that doing this project

has given me an added advantage with the knowledge I had possessed during this

academic session. I suggest other students working on similar projects, that it is quite

important to set aims and objectives right from the beginning of the project. This not

only would help orient one’s research but also would help early completion of the

project.


49

Appendix C

MSC PROJECT OBJECTIVES AND DELIVERABLES

This form must be completed by the student, with the agreement of the supervisor of each project, and submitted to the MSc project co-ordinator (Mrs A. Roberts) by 7th April 2000. A copy should be given to the supervisor and a copy retained by the student. Amendments to the agreed objectives and deliverables may be made by agreement between the student and the supervisor during the project. Any such revision should be noted on this form. At the end of the project, a copy of this form must be included in the Project Report as an Appendix.

Student: _Raj K Gunturu________________________

Programme of Study: ____MSc Information Systems____________

Supervisor : ____T G Gough________________________

Title of project: E-Commerce for SME’s _______________

AGREED MARKING SCHEME

Understand the Problem

Produce a Solution *

Evaluation Wr ite -Up Appendix A TOTAL

%

20 40 20 15 5 100

* This category includes Professionalism (see handbook)

OVERALL OBJECTIVES (continue overleaf if necessary):

• Define E-commerce in SME’s

• Discuss the present situation of SME’s in UK

• Discuss how E-commerce can improve a business

• Provide some tips for setting up a business online

• Show how E-commerce can be lucrative in SME’s (through a case study)

• Legal issues and Future

• Overall discussion and conclusions


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DELIVERABLE(s):

1. A project repor t.

2. Electronic copy of the project report

Signature of student: Date:

Signature of supervisor : Date:


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Appendix D

Some FAQ’s about E-commerce

FAQ 1. What should I prioritize online ? As the person responsible for IT in a small

to medium sized enterprise in Midlands I see how cutting-edge things larger

enterprises are doing in field of E-business. My question is what should you do

online ? and how should you prioritize with only limited budget at you disposal ?

Ans: There is no point in acquiring or developing sophisticated e-business

technology if your suppliers and customers are unlikely to use it. Reviewing the

effectiveness of your web site, if any is necessary or setting up a new one if not, is

necessary. The basic cost of setting up any shop web site is relatively low and almost

any serious business is expected to have such a site. While a web site may not

generate significant business directly, but there may be negative consequences if a

company does not have any.

It all depends on the nature of your business, who your customers and suppliers are,

and how competition works in your markets. This is a very vast field and some of

the things you can do are relatively low cost and could pay for themselves quickly. If

a company needs to publish product information that keeps changing frequently with

new products, then a web site is ideal. If part of that information is confidential, than

that can be restricted to some registered customers with a fair increase in cost. The

next level would be to sell on the web depending on your customers again. [Ref 15]

FAQ 2. What are the different components that make up a e-commerce site, and

approximately, how much would it cost me to have a basic set up?


52

Ans: For an organization to have a basic e-commerce site, the following components

are required :

Domain name registration: A name that uniquely identifies your company on the

internet. You can have one or more domains. A domain is not a trademark, and is not

your property. It is merely assigned to you in exchange for an annual subscription

fee.

Costs : £ 50 (minimum 2 years)

Web space: An allocation of hard disk space on the internet service provider’s web

server(s), which you may use to store the HTML pages, images, sounds and

downloadable files which comprise your web site.

Costs £ 100 per 15-Mb web space

Advanced services can also be incorporated by paying extra charges, they include:

Active Server Pages (ASP) hosting: A Microsoft technology that allows web-based

HML pages with built in scripts to be produced on the fly according to the input and

browsing environment of the user. Typically ASP can be used to query, update, add

and delete database records over the web.

Costs £ 100

Full text site indexing: A piece of software that indexes documents automatically in

the background, and provides fast full text searching capabilities, often with a

flexible and complex query language, allows search for information using key

words, instead of following links by trial and error.

Costs £ 50 per 15-Mb data

Microsoft JET database hosting: Originally Joint Engine Technology (JET) is the

database engine behind Microsoft Access. Still used extensively but suffers from

certain limitations, which will be largely replaced for many of Microsoft Database


53

Engine (MSDE), which is actually a cut down but fully compatible version of SQL

server 7.

Costs £ 50 per 15-Mb data

Database Hosting: Microsoft SQL Server 7, used for maintaining the database of the

company from where the data is retrieved through the web site.

Costs £ 100 per 15-Mb data. [Ref 14]

FAQ 3. If I start a business in UK, selling goods via the Internet to the residents in

other EU states, what rate of VAT will apply to sales within the EU but outside the

UK? I am assuming I will be selling in large volumes so will meet the threshold for

tax registration in a number of EU states.

On my business web site would I need to publish the VAT rate and/or amount

applicable for destination country when displaying prices?

If I were to start selling services via the Internet, would the rules be the same as for

the supply of goods?

Ans: As you have pointed out in the question, each member state has a threshold. If

your sales to that member state exceed threshold, you are obliged to have a VAT

representative in that member state, charge VAT at the member state’s rate and have

your VAT representative file VAT according to that member state. If your sales do

not reach that threshold, then you charge VAT at UK rate and file locally. It is to be

not that this is for B2C E-commerce. If you are selling to other businesses, then you

do not charge VAT, but your customer takes the responsibility for VAT in his/her

country. These have to be made clear to the customer, prior to the purchase

agreement. It is necessary in this case, to know where your customer resides.

If you are selling services ( note that electronic products such as downloads, music,

software etc are all defined as services in the VAT directive) on a B2C basis, then

you always charge VAT at your own local rate, regardless of level of sales or


54

thresholds. If the customer is another business then the situation is same as with

goods. [Ref. 28]


55

Appendix E

Small Business Use of the Internet in the UK

Use 1999 1998

E-Mail 71% 76% Business Research 58% 71% Personal Research 50% 64% Purchase goods/Services (business use)

43% 38%

Purchase goods/Services (personal use)

31% 35%

Sell/Market Products 26% 29%

The 19th annual Dun & Bradstreet Small-Business Survey was conducted in

February and March of 2000, the total internet using population of has touched 10

millions. It was found that 40% of Small businesses have their own web sites, up

from just over a quarter last year, and that 70% now have internet access up from

57% last year. But while 31% of the small business decision-makers responding to

the survey said the Internet had helped them, nearly 60% said the web had no

measurable impact on their business. There is a notable significance in the fact that,

top use of the Internet among small businesses is e-mail. Every other categories of

Internet usage fell significantly over the previous year with the exception of

purchasing goods and services for business use.

Fig E – Percentage of Internet usage in the UK according to business type


56

Appendix F

The ANX as a value adder to the Supply Chain

The automotive industry is perhaps the best example that vividly depicts the complete

Business to Business supply chain cycle. In September 1997 the three big U.S

carmakers and some other auto industry companies began piloting what could become

the worlds largest extranet, the Automotive Network Exchange (ANX) . The ANX

promises to cut down costs by billions of dollars and change the way the auto supply

chain does the business. This facility was later on extended by linking suppliers over a

single connection. This though was met with limited success in the initial stages, but

soon paved an easier way of conducting business through supply chain.

The diagram above shows how Manufacturers and suppliers are connected over the

ANX runs on a single protocol and provides easy connectivity, with security. The

network helps auto suppliers (some small and mostly Medium sized organizations)

ANX Network

Supplier #1

Automaker #1

Automaker #2

Automaker #3

Supplier #3

Supplier #2

• Single protocol • Single L ink • Consistent

service secur ity

Fig C - The ANX Supply - Chain Network.


57

reduce the time it takes to turn around an order. The faster the parts arrive the faster

the cars leave the assembly line. Ford Co., for example, hopes to compress some

work-order communications from three weeks to five minutes. Many suppliers are

increasingly moving from private links to ANX, as this facilitates collaborative

product development, solicit and process orders, review designs, post shipping

schedules and trade e-mail messages over a reliable internet based communications

network. [Ref 18]

Documents

Abstract for E-commerce