Transcript CHAPTER 9 MULTINATIONAL E

INTRODUCTION
Internet economy:
– growing faster than any other
business trend in history
 Companies face issues similar to
those faced by traditional
multinational companies

THE INTERNET ECONOMY

What is e-commerce?
– e-commerce refers to the
selling of goods or services over
the internet
TYPES OF E-COMMERCE
TRANSACTIONS


B2C – business to consumer
transactions
B2B – business to business
transactions
– makes up of 70-85% of current
e-commerce business
Types of e-commerce
transactions, continued


C2C – consumer to consumer
C2B – consumer to business
THE GLOBAL PRESENCE OF
E-COMMERCE


Measured by two indicators
– secure servers
– internet hosts
OECD countries dominate the
internet with over 90% of the
world’s internet hosts - see
exhibit 9.1
EXHIBIT 9.1 SECURE SERVERS
AND INTERNET HOSTS IN
SELECTED OECD COUNTRIES
Turkey
Spain
Poland
Mexico
Korea
Internet Hosts
Secure Servers
Denmark
Czech Republic
Germany
Japan
U.S.
0
50
100
150
200
Global presence of ecommerce, continued


In 1991, 3 million people used the
internet and almost none used it
for e-commerce
By 1999, approximately one
quarter of the 250 million users
made purchases online
THE INTERNET ECONOMY


Internet economy has four layers
Layer 1: the backbone of the
internet including the internet
service providers
– communications (MCI,
worldcom), internet service
providers (AOL), networking
(cisco) and hardware
The internet economy, continued
 Layer 2: companies and
consultants that build web
systems and supporting software
– consultants (scient), commerce
applications (netscape, sun),
web development software
(adobe, netobjects), search
engines (verity), and webenabled databases (oracle)
The internet economy, continued

Layer 3: companies that provides
linking services on the internet and
derive revenues from commissions,
advertising, and membership fees
– travel agencies (travelweb,
travelocity.Com), online
brokerages (etrade), content
aggregators (cnet,zdnet), and
online advertising (yahoo!)
The internet economy, continued
 Level 4: companies that conduct
commercial transactions on the web
– E-retailers (wine.Com),
manufacturers selling directly
(hpshopping.Com), subscriptionbased companies (vrbo.Com),
transportation services (most
airlines), and shipping services
(UPS)
Exhibit 9.3 Shows Ecommerce Business Models
EXHIBIT 9.3
Infomediaries/Portals
Easier to bring local
Uses Local franchises
Low barriers to entry: Easy to imitate
Examples: Yahoo!, Excite
Infrastructure Providers
Must exist before commerce
Technology not culture-based
Successful precedents (IBM, SAP)
B2C Commerce
Business Models not yet proven
Limited by PC and web device
penetration
Diversity in consumer preferences
B2B Commerce
Many businesses are wired
Many vertical markets are already
global
Still limited by physical and payment
infrastructure
FIVE STEPS FOR
SUCCESSFUL E-COMMERCE
STRATEGY
1. Build on current business models
and experiment with new ecommerce models – search for
ways to reduce costs or enhance
the business
2. Meet the challenge of developing
an e-commerce organization
Not only senior management,
but the entire firm must be
prepared to embrace the ecommerce model
3. Allocate resources to the ecommerce business
Commit financial, human, and
technological resources to
develop e-commerce
capabilities
4. Build a superior e-commerce
infrastructure as a basis of
differentiation strategy
5. Make sure entire management
team aligns with e-commerce
agenda
E-COMMERCE STRATEGIES:
INTEGRATED OR
AUTONOMOUS

How does e-commerce fits into
existing organizational design and
management systems?
– i.e., the fit with “brick and
mortar” operations
Integrated or autonomous,
continued


Degree of interaction between
brick and mortar operations can
occur anywhere in the value chain
Can range from near seamless
operations (e.g., Office Depot) to
the mostly independent
operations
Integrated or autonomous,
continued


The independent benefits:
– faster and more entrepreneurial
The integrated benefits:
– cross-promotion, shared
information, increased quantity
purchases, use of same
distribution channels
Exhibit 9.4 (next) shows key
decisions in the integration
versus separation decision
PRODUCT/SERVICE
Yes
Targe t a diffe re nt cus tom e r group on the We b
No
Yes
Price diffe re ntly from s tore s on the We b
No
MANAGEMENT
No
No
INDEPENDENT
M anage m e nt s k ills and e xpe rie nce for the We b
Yes
Willing to adapt pe rform ance crite ria to We b bus ine s s Yes
OPERATIONS
INTEGRATED
Yes
Challe nge to curre nt bus ine s s m ode l
Dis tribution s ys te m We b frie ndly
No
No
Dis tribution s ys te m We b frie ndly
Yes
No
Solid inform ation s ys te m
Yes
EQUITY
Yes
Ne e d capital
No
ADDITIONAL OPERATIONAL
CHALLENGES



Finding partnerships and alliances
with customers or third parties
Attracting, retaining, and
developing employees in the ecommerce unit
Deciding what e-commerce
functions to outsource
TASKS FOR TRADITIONAL
COMPANIES WITH ECOMMERCE


Build a common vision and
commitment to e-commerce
Change the organization
structure for quick
reconfiguration of assets and
capabilities
Tasks for traditional companies
with e-commerce, continued



Change the organization culture to
support e-commerce
Attract and retain e-commerceskilled employees
Alter HR programs to suit skill
requirements of e-commerce
employees
Exhibit 9.5 gives a comparison
of past and expected
organizational changes
multinational companies are
making to implement their ecommerce strategies
EXHIBIT 9.5
Business Strategies
Performance Measures
Organizational Design
Knowledge Management
0
20
Next 2 Years
40
Prior 2 Years
60
80
GLOBALIZING THROUGH
THE INTERNET

A web site gives the company
immediate global access
– the challenges of globalization
faced by traditional brick-andmortar companies remain
MULTINATIONAL ECOMMERCE STRATEGY
FORMULATION

Depends on:
– nature of the business
– types of products or services
offered through e-commerce
E-COMMERCE COMPANIES
WORK IN THREE AREAS
1. Movement of bits or computerized
information
2. Movement of money in payment
flows
3. Movement of physical products
– each type of operation requires
an infrastructure to support the
transactions
HIERARCHY OF DIFFICULTY

Depends on infrastructure
requirements
– portals and infomediaries, simplest
– digital products that must have an
infrastructure to take payments
– most difficult to globalize: ecommerce businesses that rely on
a physical structure
MULTINATIONAL ECOMMERCE: OPPORTUNITIES
AND THREATS

Major opportunities of ecommerce globalization:
– cost reduction
 less expensive to reach
customers via web
Multinational e-commerce:
opportunities and threats,
continued
– technology
 is already available
– efficiencies
 more efficient
Multinational e-commerce:
opportunities and threats,
continued
– convenience
 web is in operation all the
time regardless of location
– speed of access
 company’s products or
services can be accessed
from anywhere in the world
Multinational e-commerce:
opportunities and threats,
continued
 Major challenges include:
– return/receipt burden and cost
of delivery
 expect 30-40% return rate
– costs of site construction,
maintenance, upgrades
– channel conflicts
Multinational e-commerce:
opportunities and threats,
continued
– easily copied models
 competitors can easily see
and copy business model
– cultural differences
 web sites must be
appropriate culturally
Multinational e-commerce:
opportunities and threats,
continued
– traditional cross-border
complexities remain
 exchange rates, different
taxes, and government
regulations
PICKING A MARKET

Target countries
– those with market inefficiencies
 e.g., formerly state-controlled
economies
– attractive demographics
 internet population of > 5%
 high literacy rate

Target countries, continued
– participation in at least one
free trade agreement
– government with viable legal
system
MULTINATIONAL ECOMMERCE STRATEGY
IMPLEMENTATION

Successful implementation of a
multinational e-commerce
strategy requires building an
appropriate organization and
developing the necessary
technical capabilities to conduct
electronic transactions
THE MULTINATIONAL ECOMMERCE ORGANIZATION


What is the organization of a
multinational e-business?
– three-tiered mixing of global and
local functions
Headquarters
– vision, strategy, leadership for
worldwide electronic marketing
The multinational e-commerce
organization, continued


Shared functional services
–provide HRM, marketing, partner
management to regions
Local subsidiaries
–deliver goods, manage functions
better done locally such as the
supply chain
Exhibit 9.6 pictures the levels
and functions of the
multinational corporation
Share d Se rvice s To Re gional M ark e ts
Global Core
Provides global
vision on strategy,
marketing,
administration
Expertise in
customers,
regulation,
partnerships,
supply chains
Local Market Units
Procurement,
HRM,
Marketing
Services,
Partner
Management
TECHNICAL CAPABILITIES
FOR MULTINATIONAL ECOMMERCE


Process multiple currencies
Calculate and show purchase
information on international
shipping, duties, and local taxes
such as VAT
Technical capabilities for
multinational e-commerce,
continued
 Check regulatory compliance with
local and international laws
 Provide support in multilingual
service centers
 Fraud protection
 Electronic payment models in
addition to credit cards
TO BUILD OR OUTSOURCE
TECHNICAL CAPABILITIES?


Run all e-commerce functions
internally or outsource to ecommerce enablers
Enablers provide services and
software that translate web
sites, calculate shipping, valueadded taxes, duties, and other
charges unique to each country
Exhibit 9.7 shows major
problems identified web-site
globalization
Cultural & Legal
Differences
Technical
Content of Web Page
Organization Design
0
10
20
30
40
% of 50 major multinational companies
50
60
CONCLUSIONS


E-commerce expanding
geometrically
Although the US dominates ecommerce, other areas of the
world are catching up
Conclusions, continued

Fundamentals of e-commerce
strategy
– build on traditional business
models
– experiment with cost reductions
or differentiation based on
internet use