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What is E-commerce & How it works

What is E-commerce & How it works

Electronic commerce, commonly known as E-commerce or eCommerce, is trading in products or services using computer networks, such as the Internet. Electronic commerce draws on technologies such as mobile commerce, electronic funds transfer, supply chain management, Internet marketing, online transaction processing, electronic data interchange (EDI), inventory management systems, and automated data collection systems. Modern electronic commerce typically uses the World Wide Web for at least one part of the transaction’s life cycle, although it may also use other technologies such as e-mail.

Electronic commerce is generally considered to be the sales aspect of e-business. It also consists of the exchange of data to facilitate the financing and payment aspects of business transactions. This is an effective and efficient way of communicating within an organization and one of the most effective and useful ways of conducting business. It is a market entry strategy where the company may or may not have a physical presence.

E-commerce businesses usually employ some or all of the following practices:

• Provide Etail or “virtual storefronts” on websites with online catalogs, sometimes gathered into a “virtual mall”.
• Buy or sell on websites or online marketplaces.
• Gather and use demographic data through web contacts and social media.
• Use electronic data interchange, the business-to-business exchange of data.
• Reach prospective and established customers by E-mail or fax (for example, with newsletters).
• Use business-to-business buying and selling.
• Provide secure business transactions.

 

Governmental regulation

Conflict of laws in cyberspace is a major hurdle for harmonisation of legal framework for e-commerce around the world. In order to give a uniformity to e-commerce law around the world, many countries adopted the UNCITRAL Model Law on Electronic Commerce (1996)

Internationally there is the International Consumer Protection and Enforcement Network (ICPEN), which was formed in 1991 from an informal network of government customer fair trade organisations. The purpose was stated as being to find ways of co-operating on tackling consumer problems connected with cross-border transactions in both goods and services, and to help ensure exchanges of information among the participants for mutual benefit and understanding. From this came Econsumer.gov, an ICPEN initiative since April 2001. It is a portal to report complaints about online and related transactions with foreign companies.

There is also Asia Pacific Economic Cooperation (APEC) was established in 1989 with the vision of achieving stability, security and prosperity for the region through free and open trade and investment. APEC has an Electronic Commerce Steering Group as well as working on common privacy regulations throughout the APEC region.

In Australia, Trade is covered under Australian Treasury Guidelines for electronic commerce, and the Australian Competition and Consumer Commission regulates and offers advice on how to deal with businesses online, and offers specific advice on what happens if things go wrong.

Also Australian government e-commerce website provides information on e-commerce in Australia.

 

Forms

Contemporary electronic commerce involves everything from ordering “digital” content for immediate online consumption, to ordering conventional goods and services, to “meta” services to facilitate other types of electronic commerce.

On the institutional level, big corporations and financial institutions use the internet to exchange financial data to facilitate domestic and international business. Data integrity and security are very hot and pressing issues for electronic commerce.

Aside from traditional e-Commerce, m-Commerce as well as the nascent t-Commerce channels are often seen as the current 2013 poster children of electronic I-Commerce.

 

Global trends

In 2010, the United Kingdom had the biggest e-commerce market in the world when measured by the amount spent per capita. The Czech Republic is the European country where ecommerce delivers the biggest contribution to the enterprises´ total revenue. Almost a quarter (24%) of the country’s total turnover is generated via the online channel.

Among emerging economies, China’s e-commerce presence continues to expand every year. With 384 million internet users, China’s online shopping sales rose to $36.6 billion in 2009 and one of the reasons behind the huge growth has been the improved trust level for shoppers. The Chinese retailers have been able to help consumers feel more comfortable shopping online. China’s cross-border e-commerce is also growing rapidly. E-commerce transactions between China and other countries increased 32% to 2.3 trillion yuan ($375.8 billion) in 2012 and accounted for 9.6% of China’s total international trade.

Other BRIC countries are witnessing the accelerated growth of eCommerce as well. In Russia, the total ecommerce market is projected to total somewhere between 690 billion rubles ($23 billion) and 900 billion rubles ($30 billion) in 2015, at 2010 values. This will equal 5% of total retail volume in Russia. Longer-term, the market size of Russian e-commerce could reach $50 billion by 2020. Ecommerce players need to understand unique insights about trust factor, online payments and language peculiarities to penetrate the Russian market. Brazil’s eCommerce is growing quickly with retail eCommerce sales expected to grow at a healthy double-digit pace through 2014. By 2016, eMarketer expects retail ecommerce sales in Brazil to reach $17.3 billion. India’s ecommerce growth, on the other hand, has been slower although the country’s potential remains solid considering its surging economy, the rapid growth of internet penetration, English language proficiency and a vast market of 1.2 billion consumers (although perhaps only 50 million access the internet through PCs and some estimate the most active group of e-commerce customers numbers only 2-3 million). E-commerce traffic grew about 50% from 2011 to 2012, from 26.1 million to 37.5 million, according to a report released by Com Score. Still much of the estimated 14 billion dollars in 2012 ecommerce was generated from travel sites.

eCommerce is also expanding across the Middle East. Having recorded the world’s fastest growth in internet usage between 2000 and 2009, the region is home to more than 60 million internet users. Retail, travel and gaming are the region’s top eCommerce segments, in spite of difficulties such as the lack of region-wide legal frameworks and logistical problems in cross-border transportation. E-Commerce has become an important tool for small and large businesses worldwide, not only to sell to customers, but also to engage them.

In 2012, ecommerce sales topped $1 trillion for the first time in history.

Mobile devices are playing an increasing role in the mix of eCommerce. Some estimates show that purchases made on mobile devices will make up 25% of the market by 2017. According to Cisco Visual Networking Index, in 2014 the amount of mobile devices will outnumber the number of world population.

Multichannel Selling is also worth mentioning, when it comes to e-commerce. As stated in E-commerce trends for 2014, multichannel selling is relatively young but though has already managed to become a key driver for promotion of small business companies unable to compete with media giants in Google. The essence of it lies in equipping a few shopping platforms like Amazon or Nextag for goods promotion.

 

Impact on markets and retailers

Economists have theorized that e-commerce ought to lead to intensified price competition, as it increases consumers’ ability to gather information about products and prices. Research by four economists at the University of Chicago has found that the growth of online shopping has also affected industry structure in two areas that have seen significant growth in e-commerce, bookshops and travel agencies. Generally, larger firms are able to use economies of scale and offer lower prices. The lone exception to this pattern has been the very smallest category of bookseller, shops with between one and four employees, which appear to have withstood the trend.

Individual or business involved in e-commerce whether buyers or sellers rely on Internet-based technology in order to accomplish their transactions. E-commerce is recognized for its ability to allow business to communicate and to form transaction anytime and anyplace. Whether an individual is in the US or overseas, business can be conducted through the internet. The power of e-commerce allows geophysical barriers to disappear, making all consumers and businesses on earth potential customers and suppliers. eBay is a good example of e-commerce business individuals and businesses are able to post their items and sell them around the Globe.

 

Distribution channels

E-commerce has grown in importance as companies have adopted pure-click and brick-and-click channel systems. We can distinguish pure-click and brick-and-click channel system adopted by companies.

• Pure-click or pure-play companies are those that have launched a website without any previous existence as a firm.
• Bricks-and-clicks companies are those existing companies that have added an online site for e-commerce.
• Click-to-brick online retailers that later open physical locations to supplement their online efforts.

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