Global Electronic Commerce: Theory and Case Studies

586 Pages·1999·29.544 MB·English

by  J Christopher Westland, Theordore H. Clark

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