MAHARASHTRA NATIONAL LAW UNIVERSITY, NAGPUR

Reading Material
Module 3- Introduction to Modern Business and Small Business
( Student Notes)
BBA1.3 BUSINESS STUDIES
BBA.LL.B.(Hons.) Five-Year Integrated Degree Course
Academic Year: 2022-23
1st YEAR, SEMESTER-I

Designed and Developed by:

Raman R. Tirpude
Assistant Professor of Management
Dr. Purnima Singh
Assistant Professor of Management

Course Instructor:
Raman R. Tirpude
Assistant Professor of Management
Dr. Purnima Singh
Assistant Professor of Management

(For Internal Circulation Only)

3.1 Introduction to E-commerce

3.1.1 Introduction

WE are living in e-century. The Internet and information and communications technologies
(ICT) are central to economic growth and productivity. Internet-based technologies and networks
can increase productivity, decrease costs and open new market opportunities. Now-a-days, using
the Internet and email to conduct business is not uncommon. However, lack of technical and
management skills in Information and Communications Technology is a barrier. There are a wide
variety of resources available to help you to improve your e-commerce skills. Simply, decide
what skills you need and identify the appropriate resources to help you to build those skills.
The skills that may be required range from basic abilities, like word processing and Internet
navigation, to more complex capabilities such as designing and building websites and database
management. There are a range of resources to help you broaden your understanding of the e-
commerce environment and develop your technical skills. These include online resources, books
and magazines, seminars and training courses. Keeping this in mind, a summary on the
background of Electronic Commerce is being provided.

3.1.2 E-Commerce: Meaning

E-Commerce or Electronics Commerce is a methodology of modern business which addresses

the need of business organizations, vendors and customers to reduce cost and improve the quality
of goods and services while increasing the speed of delivery. E-commerce refers to paperless
exchange of business information using following ways.

 Electronic Data Exchange (EDI)

 Electronic Mail (e-mail)
 Electronic Bulletin Boards
 Electronic Fund Transfer (EFT)
 Other Network-based technologies

The concept of e-commerce is all about using the internet to do business better and faster.
E-commerce is the process of buying and selling over the Internet, or conducting any
transaction involving the transfer of ownership or rights to use goods or services through a
computer-mediated network without using any paper document. Electronic commerce or e-
commerce refers to a wide range of online business activities for products and services. It also
pertains to “any form of business transaction in which the parties interact electronically rather
than by physical exchanges or direct physical contact.” Business transacted through the use of
computers, telephones, fax machines, barcode readers, credit cards, automated teller machines
(ATM) or other electronic appliances without the exchange of paper-based documents. It
includes procurement, order entry, transaction processing, payment authentication, inventory
control, and customer support.

Ecommerce has allowed firms to establish a market presence, or to enhance an existing market
position, by providing a cheaper and more efficient distribution chain for their products or
services. Examples of E-Commerce
 An individual purchases a book on the Internet.
 A government employee reserves a hotel room over the Internet.
 A business calls a toll-free number and orders a computer using the seller's interactive
telephone system.
 A business buys office supplies on-line or through an electronic auction.
 Retailer orders merchandise using an EDI network or a supplier's extranet.
 A manufacturing plant orders electronic components from another plant within the company
using the company's intranet.
 An individual withdraws funds from an automatic teller machine (ATM).
 Accepting credit cards for commercial online sales
 Driving information through a company via its intranet
 Driving manufacturing and distribution through a value chain with partners on an extranet
 Selling to consumers on a pay-per-download basis, through a Web site, etc

What Does Electronic Business (E-Business) Mean?

Electronic business (e-business) refers to the use of the Web, Internet, intranets, extranets or some
combination thereof to conduct business. E-business is similar to e-commerce, but it goes beyond
the simple buying and selling of products and services online. E-business includes a much wider
range of businesses processes, such as supply chain management, electronic order processing and
customer relationship management. E-business processes, therefore, can help companies to
operate more effectively and efficiently.

Electronic business is a broader term that encompasses other common terms such as e-commerce
and e-tailing. As more of companies' sales, marketing and other internal business processes are
conducted digitally, electronic business processes such as customer relationship management
(CRM), enterprise resource planning (ERP), and content management are becoming increasingly
important. This shift has also been facilitated by improved security measures for online
transactions.

3.1.3 E-Commerce Definitions

The definition of e-commerce includes business activities that are business-to-business (B2B),
business-to-consumer (B2C), extended enterprise computing (also known as "newly emerging
value chains"), d-commerce, and m-commerce.
Ecommerce is simply a part of e-business, more specifically, the trading aspect of e-business.
Although there are many definitions and explanations of e-commerce, the following definition
provides a clear distinction. There are many definitions and understanding about E-Commerce.
They are as follows:

1. According to the editor-in-chief of International Journal of Electronic Commerce,

Vladimir Zwass, ‘Electronic commerce is sharing business information, maintaining business

relationships and conducting business transactions by means of telecommunications networks.

2. Electronic Commerce is where business transactions take place via telecommunications

networks, especially the Internet – E. Turban, J. Lee, D. King and H.M. Chung,

3. Electronic commerce is about doing business electronically – P. Timmers

4. Electronic commerce or e-commerce refers to a wide range of online business activities for
products and services – Anita Rosen

5. It pertains to “any form of business transaction in which the parties interact electronically
rather than by physical exchanges or direct physical contact.” – MK, Euro Info Correspondence
Centre (Belgrade, Serbia),

6. E-commerce is usually associated with buying and selling over the Internet, or conducting
any transaction involving the transfer of ownership or rights to use goods or services through a
computer-mediated network. – Thomas L. Mesenbourg

7. A more complete definition is: E-commerce is the use of electronic communications and
digital information processing technology in business transactions to create, transform, and
redefine relationships for value creation between or among organizations, and between
organizations and individuals. – Emmanuel Lallana, Rudy Quimbo, Zorayda Ruth Andam,
ePrimer

From your reading it should be apparent to you that electronic commerce is more than online
shopping.

3.1.4 E-Commerce – Features Electronic commerce, or e-Commerce, refers to the purchasing

and selling of goods or services via electronic means, such as the Internet or mobile phone
applications. It may also refer to the process of creating, marketing, servicing and paying for
services and goods. Businesses, governments and the public can participate in e-Commerce
transactions. The following discussion will elicit the unique features of e-commerce. The unique
features of e-commerce technology include:

3.1.4.1 Ubiquity(Everywhere and at anytime)

e-Commerce is ubiquitous, It is available just about everywhere and at all times by using internet
and Wi-Fi hotspot such as airport, coffee cafe and hill station places.. Consumer can connect it to
the Internet at any time, including at their homes, their offices, on their video game systems with
an Internet connection and mobile phone devices. E-Commerce is ubiquitous technology which
is available everywhere Moreover, individuals who have cell phones with data capabilities can
access the Internet without a Wi-Fi connection.

3.1.4.2 Global reach:

The potential market size is roughly equal to the size of the online population of the world. E-
Commerce Technology seamlessly stretches across traditional cultural and national boundaries
and enables worldwide access to the client. E-Commerce website has ability to translate the
multilingual websites as well as allow the access to visitors all over the world, purchase
products and make business interactions.

3.1.4.3 Universal standards:

The technical standards of the Internet are shared by all of the nations in the world. The whole
online tradition are growing and expanding their features in the world. To development any kind
of business need Internet and communication application which make the business relationship
more lovingly and attractive for secure business and successful business.

3.1.4.4 Richness:

Users can access and utilize text messages and visual and audio components to send and receive
information. An individual may see information richness on a company's blog if a post contains
a video related to a product and hyperlinks that allow him to look at or purchase the product and
send information about the post via text message or email.

3.1.4.5 Interactivity:

E-commerce technologies allow two-way communication between the merchant and the
consumer. As a result, e-Commerce technologies can adjust to each individual’s experience. For
example, while shopping online, an individual is able to view different angles of some items, add
products into a virtual shopping cart, checkout by inputting his payment information and then
submit the order. 1.4.6 Personalization: Technologies within e-Commerce allow for the
personalization and customization of marketing messages that groups or individuals receive. An
example of personalization includes product recommendations based on a user's search history
on a Web site that allows individuals to create an account. 1.4.7 Information density: The use of
e-Commerce reduces the cost to store, process and communicate information, At the same time,
accuracy and timeliness increase; thus, making information accurate, inexpensive and plentiful.
For example, the online shopping process allows a company to receive personal, shipping, billing
and payment information from a customer all at once and sends the customer's information to the
appropriate departments in a matter of seconds.

3.1.4.6 Social technology:

E-Commerce technology has tie up the social media networking application to provide the best
source of content sharing technology and e-Marketing systems. You can share your content or
data easily in just one click. 1.4.9 User-Generated Content: Social networks use e-Commerce
technologies to allow members, the general public, to share content with the worldwide
community. Consumers with accounts can share personal and commercial information to promote
a product or service. When a company has a professional social networking account, a member
of the same social network has the option of associating himself with the company or a product
by saying he likes or recommends it. When an individual updates his status on a social networking
account, he may also mention a product or company by name, which creates word-of-mouth
advertising.

3.1.5-Difference Between E-commerce and Traditional Commerce

Differences between E-commerce Traditional Commerce

Traditional
Commerce and E-
Commerce Point of
Difference
Cost Effective E-commerce is cost effective. Cost has to be incurred for the role of
The cost incurred on middlemen to sell the company’s
middlemen is eliminated as products. The total overhead cost is
there is direct link between more. Running a traditional business
the business and the require a head office with several
customers. . The total branches to cater to the needs of
overhead cost required to run customers situated in different places.
e-business is comparatively
less. Running an e-business
require only a head office.
Overhead cost can be
eliminated by hosting a
website.
Time A lot of valuable time for It takes a lot of time to complete a
both the consumers and transaction.
business is saved. A product
can be ordered and the
transaction can be completed
in few minutes through
internet.
Convenience It provides convenience to It is not so convenient method as that
both customers and business. of E-commerce. Customers have to
It provides better connectivity move away from their home or work
for its prospective and place to locate and purchase a desired
potential customers as the product.
website can be accessed
virtually from anywhere,
anytime through internet. It is
not necessary to move away
from their work place or
home to locate and purchase a
desired product.
Accessibility It is easy to expand the size of It may not be easy to expand the size
the market from regional to of the market from regional to
international level. By hosting national level. Business organizations
a website, a business can have to incur a lot of expenses to
penetrate into global market. enter international market.
It is quite easy to attract
customers from global
markets at a marginal cost.
Introduction of new It is easy to introduce a It takes a lot of time and money to
product product on the website and introduce a new product and analyse
get the immediate feedback of the response of the customers.
the customers. Based on the Initially, cost has to be incurred to
response, the products can be carry out pilot surveys to understand
redefined and modified for a the taste of the customers.
successful launch.
Profit It helps the organization to The cost incurred on the middlemen,
enjoy greater profits by overhead, inventory and limited sales
increasing sales, cutting cost pulls down the profit in traditional
and streamlining operating commerce.
processes.
Physical Inspection It does not allow physical It is possible to physically inspect
inspection of goods. goods before the purchase.
Time Round the clock service is Business is open only for a limited
available. time.
accessibility
Product suitability It not suitable for perishable It is suitable for perishables and
goods and high value items ‘touch and feel’ items.
such as jewellery and
antiques. It is mostly suitable
 for purchasing tickets, books,
music and software.
Human resources It requires technically It does not have such problems
qualified staff with an associated with human resources.
aptitude to update themselves
in the ever changing world. It
has difficulty in recruiting and
retaining talented people.
Customer interaction The interaction between the The interaction between the business
business and the customer is and the consumer is a face-to-face.
screen-to-face.
Process Automated processing of There are chances of clerical errors to
business transactions helps to occur as there is manual processing
minimize the clerical errors. of business transactions.
Business relationship Business relationship is Business relationship is vertical or
characterized by end-to-end. linear.
Fraud Lot of cyber frauds take place Fraud in traditional commerce is
in e-commerce transaction. comparatively less as there is
People generally fear to give personal interaction between the
credit card information. Lack buyer and the seller.
of physical presence in
markets and unclear legal
issues give loopholes for
frauds to take place in e-
business transactions.
Information sharing Little dependency on person Heavy dependency on information
to person information exchange from person to person. No
exchange. It provides a uniform platform for information
universal platform to support sharing as it depends heavily on
business activities across the personal communication.
globe.
Method of Communication can be done Communication is done in
Communication in asynchronous way. synchronous way. Manual
Electronics system intervention is required for each
automatically handles when communication or transaction.
to pass communication to
required person or do the
transactions.
Strategy A uniform strategy can be It is difficult to establish and maintain
easily established and standard practices.
maintain.
3.1.6 Scope of E-Commerce

Today, online shopping is a reality in India. The market place is flooded with several e-commerce
options for shoppers to choose from. In the recent past, the growth of e-commerce industry in
India has been phenomenal as more shoppers have started discovering the benefits of using this
platform. There is enough scope for online businesses in the future if they understand the Indian
shopper’s psyche and cater to their needs. Listed below are the reasons that guarantee the future
prospect of E-commerce in India.

 Enhancing domain registrations

 Rising internet users
 Easy access to internet
 Awareness about internet even in rural areas
 Rising number of cyber cafes

 Growing need for E-commerce

a) Cash on delivery (COD) Indian e-commerce industry has evolved over a period of time with
innovations that have changed the rules of the game globally. COD is one such example. In a
country where credit card penetration is much lower than other developed markets and where e-
commerce companies are still working hard to build trust among shoppers, introducing cash on
delivery has been one of the key factors for the success of the segment. At present, COD is the
preferred payment mode for close to 55-60% of all online transactions in the fashion and lifestyle
segment in India. Executing COD efficiently and painlessly for the customer is critical to the
success of any e-commerce player in the country.

b) Delivering experiences E-commerce needs to focus on customer experience to build trust

and confidence. Customer experience encompasses every interaction of a customer from placing
an order to interacting with customer service team, to the actual delivery experience. Providing
a great delivery experience is one of the core aspects to delighting customers. This not only
mean faster deliveries but also consistency and reliability. The more faith the customer has in
your delivery service, the more likely he is to buy again. Besides, it builds a good brand image
and word-of-mouth publicity.

c) Growing the base India has more than 130 million online users at present, out of which as
many as 10% are engaging in online transactions. The online user base is expected to cross 300
million in the next 2 – 3 years and a larger percentage of people are expected to transact online
by the end of 2015. This large base will provide vast scope for e-commerce businesses to
establish themselves in India.

d) Growing opportunities The e-commerce industry is growing at a rapid pace and changing
the dynamics of the retail industry. In the coming years, e-commerce is expected to contribute
close to 8-10% of the total retail segment in India. This growth is bound to continue provided e-
commerce companies focus on innovating, building strong technology infrastructure and
delivering the best customer experience.

e) Online Travel Segment The online travel segment has seen a CAGR of 55.5% from 2007-
2012. The is due to rise of disposable income, surge in demand for domestic travel and the
boom of the tourism industry. Domestic travel contributed to as much as 50% of the total
market, followed by railways tickets, international air tickets, hotel bookings and bus tickets.

f) E-Tailing- E-tailing encompasses buying consumer items like apparels, electronic devices,
home and kitchen appliances, jewellery, online. Competition is intense due to low entry barrier
of this segment. However, Amazon.com, flipkart, snapdeal.com,jabong.com, and myntra.com are
some of the major players. This segment is expected to grow further as people become more
pressed for time. Also the choice that e-tailing sites offer to customers will drive demand for this
segment. However, there will be intense price based competition in this sector and consolidations
are in the order.

g) Online Financial Services -The financial services segment includes applying for insurance,
paying online bills, and premiums and online transactions for financial services. The costs of
these insurance policies are lesser with premiums being 40%-60% cheaper. This is a win-win
situation for both the insurance provider and the customers. Also the convenience provided by
online portals has led to more customers choosing the online route for bill payment.

h) Classifieds -It is in a very promising stage and has lot of scope for growth. Online advertising
is lot cheaper than conventional methods and unlike the latter, it is not constrained to a geographic
location. The growth is mainly fuelled by services like online job (60% of the segment), online
matrimony, B2C classifieds and B2B classifieds. Naukri.com, timesjob.com, monster.com are the
major players in the job market while jeevansathi.com, shaadi.com are the major matrimonial
sites.
i) Other online Services -These include sites offering online services like buying entertainment
tickets, food and grocery.

3.1.7 Benefits and limitations of E-Commerce

3.1.7.1 Benefits of E-Commerce
Electronic commerce can increase sales and decrease costs. Advertising done well on the web can
get even a small firm’s promotional message out to potential consumers in every country in the
world. A firm can use electronic commerce to reach narrow market segments that are
geographically scattered. The web is particularly useful in creating virtual communities that
become ideal target markets for specific types of products or services. A virtual community is a
gathering of people who share a common interest, but instead of this gathering occurring in the
physical world; it takes place on the internet.
Some key benefits of e-commerce are summarized below:

 By becoming e-commerce enabled, businesses now have access to people all around the
world. In effect all e-commerce businesses have become virtual multinational corporations.
 The cost of creating, processing, distributing, storing and retrieving paper-based information
has decreased.
 The pull-type processing allows for products and services to be customized to the customer’s
requirements.
 Enables reduced inventories and overheads by facilitating ‘pull’-type supply chain
management – this is based on collecting the customer order and then delivering through JIT
(just-in-time) manufacturing.
 The Internet is much cheaper than value added networks (VANs) which were based on
leasing telephone lines for the sole use of the organization and its authorized partners. It is also
cheaper to send a fax or e-mail via the Internet than direct dialling.
 Software and music/video products can be downloaded or e-mailed directly to customers via
the Internet in digital or electronic format.
 Businesses can be contacted by or contact customers or suppliers at any time.
 24/7 access: Enables customers to shop or conduct other transactions 24 hours a day, all year
round from almost any location.
 Customers not only have a whole range of products that they can choose from and customize,
but also an international selection of suppliers.
 Customers can ‘shop’ around the world and conduct comparisons either directly by visiting
different sites, or by visiting a single site where prices are aggregated from a number of
providers and compared (for example www.moneyextra.co.uk for financial products and
services).
 This can range from the immediate delivery of digitized or electronic goods such as software
or audio-visual files by downloading via the Internet, to the on-line tracking of the progress of
packages being delivered by mail or courier.
 An environment of competition where substantial discounts can be found or value added, as
different retailers view for customers. It also allows many individual customers to aggregate
their orders together into a single order presented to wholesalers or manufacturers and obtain a
more competitive price.
 Enables more flexible working practices, which enhances the quality of life for a whole host
of people in society, enabling them to work from home. Not only is this more convenient and
provides happier and less stressful working environments, it also potentially reduces
environmental pollution as fewer people have to travel to work regularly.
 Enables people in developing countries and rural areas to enjoy and access products, services,
information and other people which otherwise would not be so easily available to them.
 Facilitates delivery of public services like health services available over the Internet (on-line
consultation with doctors or nurses), filing taxes over the Internet through the Inland Revenue
website.
 A business can reduce the costs of handling sales inquiries, providing price quotes, and
determining product availability by using electronic commerce in its sales support and order-
taking processes.
 Electronic commerce provides buyers with a wider range of choices than traditional
commerce.
 Electronic commerce provides buyers with an easy way to customize the level of detail in the
information they obtain about a prospective purchase.
 Electronic payments of tax refunds, public retirement, and welfare support cost less to issue
and arrive securely and quickly when transmitted over the internet.
 Electronic payments can be easier to audit and monitor than payments made by cheque,
providing protection against fraud and theft losses.
 Electronic commerce can also make products and services available in remote areas.

3.1.7.2 Limitations of E-Commerce

Most of the disadvantages of e-commerce stem from the newness and rapidly developing pace
of the underlying technologies. Some of the key disadvantages of are given below:

 Return-on-investment is difficult to calculate.

 Many firms have had trouble recruiting and retaining employees with the technological,
design, and business process skills needed to create an effective electronic commerce presence.

 Difficulty of integrating existing databases and transaction-processing software designed for

traditional commerce into the software that enables electronic commerce.

 Many businesses face cultural and legal obstacles to conducting electronic commerce

 Lack of sufficient system security, reliability, standards and communication protocols.

3.1.8 The Internet and India

Before the appearance of VSNL's GIAS, Internet had been in India for many years in the form
of ERNET. However, it was not possible for many people to get access to it, as it was meant for
only the educational and research communities.

3.1.8.1 Educational Research Network (ERNET)

Internet in India was established as ERNET. It was a joint undertaking of the Department of
Electronics (DOE) of the Government of India, and the United Nations Development Program
(UNDP), which provides technical assistance to developing nations. ERNET is one of the most
successful operations that UNDP has funded.

3.1.8.2 Gateway Internet Access Service (GIAS)

On August 15th 1995, Videsh Sanchar Nigam Limited (VSNL) -- the Indian international trunk
telephone carrier company -- launched the Gateway Internet Access Service (GIAS).
Subsequently, 6 nodes were established at Mumbai, Delhi, Madras, Calcutta, Bangalore and
Pune. Each GIAS node is connected to Internet via high speed MCI circuits having a bandwidth
of approximately 10 Mbps.

Users in remote areas of India can reach GIAS service via I-NET. The Department of
Telecommunication (DOT) has a wide-spread network in India called I-NET, which has direct
connectivity to each GIAS node.

3.1.8.3 Timeline Chart (NO NEED TO MUG IT UP,##TRIVIA )

The timeline chart showing the development of Internet in India is given below:

 1986: ERNET project starts up; email exchange using UUCP protocol established
between National Centre for Software Technology, Bombay, and IIT Bombay
 1987: Email exchange between ERNET institutions in metros; TCP over X.25
established between the ERNET gateway at NCST and internet via CWI in Amsterdam
 1988: Leased lines used to connect ERNET partner institutions to ERNET gateway in
Bombay
 1989: LWBBS (Live Wire BBS) and BBS CiX launch online services; VSNL
commissions a Gateway Packet Switching System (GPSS) running X.25 protocol;
ERNET acquires an analog leased line operating at 9600 bps to connect ERNET
gateway at NCST, Bombay, to UUNET in the US
 1990: TCP/IP implemented for communication between ERNET centres connected by
leased lines
 1991: LWBBS turns into a paid subscription service and expands to other cities such as
Ahmedabad, Madras (Chennai), Pune, Calcutta (Kolkata), Baroda, Vapi 1992: Business
India launches aXcess, a value-added service offering email as well as e-news, stock
quotes
 1994: ERNET establishes a hub in Bangalore to provide TCP/IP-level connectivity over
satellite links to locations otherwise unreachable by dedicated circuits
 1995: VSNL introduces public internet access in India via dialup services in 6 cities on
August 15, 1995;
 India World portal launches on March 13 1996: Major newspapers such as The Times of
India, The Hindu, The Indian Express and Hindustan Times set up websites; Rediff.com
launched; India’s first cyber cafe launched in Mumbai
 1997: Tamil newspaper Dinamani sets up website; Hotmail creator Sabeer Bhatia sells
Hotmail to Microsoft for $400 million; first online banking site launched by ICICI
Bank; Naukri.com launched; IndusInd also launches website; Khel.com cricket site
launched
 1998: Private ISPs allowed to set up internet infrastructure; LWBBS’s Pune node,
JabberWocky operated by WMI becomes the first ISP licensee; Sify becomes India’s
first national ISP license holder; first major hacking case (teenagers hack data on
BARC’s servers); launch of NASSCOM to promote IT industry by efforts of Dewang
 Mehta; cyber cafes start mushrooming across Indian cities; annual India Internet World
conference series starts in Pragati Maidan
 1999: IndiaWorld sold to Sify for US$115 million (Rs 499 crore) triggering the dotcom
boom in India; WebDunia, India’s first and most successful Hindi portal, launched; large
number of dotcoms appear, mostly modelled as e-marketplaces but have untested
revenue models and big spends; Sify sets up hundreds of public internet kiosks under the
brand name i-Way; New Telecom Policy 1999 launched by DoT; India ISPs allowed to
set up satellite international gateways; India Info portal launched
 2000: Parliament passes Information Technology Act 2000; foreign portals like Yahoo
and MSN set up Indian sites; Bazee.com launched based on the eBay model; Indya.com
launched with Rs 4.5 crore campaign blitz; birth of online journalism: Tehelka.com
exposes cricket betting scandal; ITC launches e-Choupal initiative to take the internet to
villages; Railtel Corporation of India launched; NSE launches online stock trading;
cable internet starts replacing dialup connections; 2000: Rediff IPO on NASDAQ;
Sulekha.com legal entity founded in Austin, Texas
 2001: Subscription sites set up by thenewspapertoday.com and NaiDunia.com; Times of
India group launches 8888 mobile service; India Today group launches 2424 mobile
service; first cyber crime-related arrest (two arrested for hacking go2nextjob.com);
Indian Railways launches online ticketing site (irctc.com) which soon becomes India’s
largest e-revenue earner; India’s first cyber crime police station opens in Bangalore;
Dotcom bubble bursts -- many sites close, some go into hibernation; C-DAC announced
the launch of its Multilingual Advanced News Automation System: MANAS; GAIL
India launched; Andhra Pradesh state government launches e-procurement portal and
extends public internet kiosk facility to every mandal office
 2002: Malayalam Varikha.com, the website of weekly Malayalam magazine, launches
paid site; NPTEL (National Programme on Technology Enhanced Learning) initiative
launched; India’s first teleradiology company Teleradiology Solutions launched; Indian
ISPs allowed to set up submarine international gateways; Wikipedia.org adds Assamese,
Punjabi, Nepali, Oriya, Malayalam content
 2003: Air Deccan launches India’s first online air ticketing site; NIXI (National Internet
Exchange of India) set up; WiFi (2.4GHz) deregulated by GoI; official representation
from India’s DoT and DIT at WSIS 2003 in Geneva; AirTel launches broadband internet
access; Wikipedia.org adds Bhojpuri, Marathi, Kannada, Hindi, Kashmiri, Tamil,
Telugu, Gujarati, Sanskrit, Sindhi content
 2004: DoT declares its Broadband Policy; BSNL introduces broadband; eBay buys
Bazee.com; Monster.com buys Jobsahead.com; NIXI takes over management of the .IN
Registry; ITC e-Choupal demonstrates rural internet adoption; Google starts India
office; Wikipedia.org adds Bengali, Urdu content; Sulekha starts Hindi operations; Ebay
India CEO arrested for alleged sale of porn online, but later released -- the arrest is
criticised by industry
 2005: Social networking sites like Orkut make their presence felt; online registration of
.IN domains begins; Indic language user interface appears on basic cell phones
 2006: Facebook makes India debut; OneIndia.in portal launched; national E-Governance
Plan launched; Naukri.com IPO in India
 2007: Major media websites switch to tab-based design; Arzoo.com re-launched as a
travel portal by Sabeer Bhatia; Twitter makes its India debut; Google News launches
Hindi service
 2008: India sets a world record by sending 10 satellites into orbit in a single launch;
Apple iPhone debut in India; Internet Governance Forum (IGF) held in India; Google
News launches in Tamil, Malayalam, Telugu
 2009: GoI puts forth the draft policy on Indian language IDNs
 2010: 3G spectrum auctioned by telecom players after two-year-long process; WiMax
licenses auctioned; GoI announces National IPv6 Roadmap; TRAI releases National
Broadband Plan; MakeMyTrip lists on NASDAQ at over US$1 billion; Facebook
overtakes Orkut in India
 2011: Mobile number portability launched; ICANN approves 7 Indian language
Internationalised Domain Names (IDNs) for India; iPad enters India market after its Dell
and Samsung rivals; Pearson Group takes controlling stake in e-education startup
TutorVista; Indian government launches National Knowledge Network (NKN); India
internet start-ups Komli Media, LetsBuy.com bag $21 million venture capital deals;
India’s 2011 census uses social media; IIT courses, lectures made available online
 Airtel had launched India's first 4G network in April 2012 in Kolkata, later expanding
the service to Bangalore and Pune, though these have been been data-only offerings till
date
 Bharti Airtel's 5G service will be available in select cities from Saturday (October 1), the
company's chairman Sunil Bharti Mittal said at the sixth edition of India Mobile
Congress (IMC 2022). With this, Bharti Airtel has become the first company to launch
5G services in the country.
Basis for Comparison E-commerce E-business

Running business using the

Trading of merchandise, over the
Meaning internet is known as E-
internet is known as E-commerce.
business.

What is it? Subset Superset

Is it limited to
monetary Yes No
transactions?

What they carry out? Commercial transactions Business transactions

Approach Extroverted Ambiverted

Requires Website Website, CRM, ERP, etc.

Which network is Internet, Intranet and

Internet
used? Extranet.
3.2 Business Models for E-commerce

3.2.1 Meaning and Features of Business model

3.2.1.1 Meaning of Business Model

Business model is the most discussed and least understood aspect of the web. There is so much
talk about how the web changes traditional business models. But there is little clear-cut evidence
of exactly what this means. Basically, a business model is the method of doing business by which
a company can sustain itself -- that is, generate revenue. The business model spells-out how a
company makes money by specifying where it is positioned in the value chain.

Some models are quite simple. A company produces a good or service and sells it to customers.
If all goes well, the revenues from sales exceed the cost of operation and the company realizes a
profit. Internet commerce will give rise to new kinds of business models. But the web is also
likely to reinvent tried-and-true models. Business models have been defined and categorized in
many different ways. When organizations go online, they have to decide which e-business models
best suit their goals.

A business model is defined as the organization of product, service and information flows, and
the source of revenues and benefits for suppliers and customers. The concept of e-business model
is the same but used in the online presence.

The e-Business model describes how a company functions; how it provides a product or service,
how it generates revenue, and how it will create and adapt to new markets and technologies. It
has four traditional components. These are the e-business concept, value proposition, sources of
revenue, and the required activities, resources, and capabilities. In a successful business, all of its
business model components work together in a cooperative and supportive fashion.

3.2.1.2 Features of Business model

i. E-Business Concept

The e-business concept describes the rationale of the business, its goals and vision, and products
or offerings from which it will earn revenue. A successful concept is based on a market analysis
that identifies customers likely to purchase the product and how much they are willing to pay for
it.

ii. Value Proposition

The value proposition describes the value that the company will provide to its customers and,
sometimes, to others as well. With a value proposition the company attempts to offer better value
than competitors so that the buyer will benefit most with this product.
A value proposition may include one or more of the following points:

 Reduced price

 Improved service or convenience such as the "1 click" checkout

 Speed of delivery and assistance

 Products that lead to increased efficiency and productivity

 Access to a large and available inventory that presents options for the buyer

 Providing value in an e-business uses the same approach as providing value in any business,
although it may require different capabilities. But common to both are the customers who seek
out value in a business transaction. The value proposition helps focus the business on the well-
being of the customer, where it remains in successful companies.

 Value Delivery through Integration of Activities

iii. Sources of Revenue

Depending on the business model, several revenue sources may be available to an e-business.
Many online businesses will have a three or four of these sources. A mix of revenue sources is
often referred to as a revenue model but may be mistakenly called a business model. Some of
these sources of revenue are:

 Advertising

 Affiliation

 Agent commissions

 Licensing

 Sales commissions

 Sales profits

 Sponsorship

 Subscription

 Syndication

 Use Fees

For large public-private or government projects revenue sources might also include:

 Bonds, usually for large capital expenditures

 Taxes, primarily income, property and sales taxes

 Use fees and tolls

With small fast-growing companies such as e-Business startups, investors often track expected
revenues and revenue growth and may make changes to increase revenue. However, after the Dot-
Com boom ended, more traditional measures such as cash flow and earnings have came back into
favor as means of evaluation.

iv. Activities, Resources and Capabilities

The activities, resources and capabilities of a business are sometimes known as its requirements.
In order to perform the activities required to carry out the mission of the business, certain
resources are needed; for example, employees with certain skills, or capabilities, are needed to
perform activities correctly and efficiently. Also, inventions, processes and other intellectual
property may add to the individual knowledge of an employee to develop a competence in the
performance of the required activities.

a. Activities

Activities are specific business processes or groups of processes such as design, production and
sales that implement the business concept. The operational business model identifies the costs
and outputs of each activity. Activities drive the need for resources.

b. Resources

In order to perform activities an organization requires human, tangible, intangible and supporting
resources.

Human resources, in particular the skills and knowledge of employees are important, as are the
programs (e.g. incentives, training) and institutions that support them.

Tangible, or physical and financial, resources include facilities, equipment, and cash reserves.

Intangible resources include intellectual property, business processes that can be patented, brands,
customer profiles and personalization data in databases, and customized software.

Supporting resources include organizational structure, information systems or communications

processes that may have little value as stand-alone resources.

c. Capacity

The total resources of the organization represent its capacity. When resources are underutilized,
the company has resources that aren't used, or idle capacity. Idle capacity in manufacturing tends
to be measured in terms of additional output that could be produced. In service organizations the
measure for idle capacity is usually a number of employees. Resource capacity can also be
measured in job-hours, machine-hours, sales per employee, or square feet. Often these are
compared with industry standards to assess the efficiency of the organization.

Capacity also represents a constraint to growth. Demand for product or services may exceed
capacity and managers may take a variety of steps to temporarily resolve the problem: overtime
for existing employees, additional shifts to increase the utilization of equipment, contracting to
outside entities, even competitors. For example, a software company may outsource code writing,
which is standard fare - almost a routine activity, in order to increase its design capacity.

3.2.3 E-Business Models

An e-business model is simply the approach a company takes to become a profitable business on
the Internet. There are many buzzwords that define aspects of electronic business, and there are
subgroups as well, such as content providers, auction sites and pure-play Internet retailers in the
business-to-consumer space.

E-Commerce or Electronics Commerce business models can generally be categorized into the
following types.

 Business - to - Business (B2B)

 Business - to - Consumer (B2C)
 Consumer - to - Consumer (C2C)
 Consumer - to - Business (C2B)
 Business - to - Government (B2G)
 Government - to - Business (G2B)
 Government - to - Citizen (G2C)

3.2.3.1 Business - to - Business (B2B) A type of commerce transaction that exists between
businesses, such as those involving a manufacturer and wholesaler, or a wholesaler and a retailer
is known as Business-to-Business (B2B). It refers to business that is conducted between
companies, rather than between a company and individual consumers. This is in contrast to
business to consumer (B2C) and business to government (B2G). Website following B2B business
model sells its product to an intermediate buyer who then sells the product to the final customer.
For example, a wholesaler places an order from a company's website and after receiving the
consignment, sells the end product to final customer who comes to buy the product at wholesaler's
retail outlet.

B2B implies that seller as well as buyer is business entity. B2B covers large number of
applications which enables business to form relationships with their distributors, resellers,
suppliers etc.

IBM, Hewlett Packard (HP), CISCO, Dell are the examples of B2B. Chemconnect.com and
chemdex.com are the examples of B2B that brings two firms together on the virtual market.

Following are the leading items in B2B e-Commerce.

 Electronics

 Shipping and Warehousing

 Motor Vehicles

 Petrochemicals

 Paper

 Office products

 Food

 Agriculture

B2B applications can be witnessed in the following areas:

 Supplier management

 Inventory management

 Distribution management

 Channel management

 Payment management

Diagrammatic Representation of B2B Model

(Source-
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merce%2Fe_commerce_b2b_mode.htm&psig=AOvVaw3sD1v6Zv6pYWznkNnFwZ2k&ust=1
666759098672000&source=images&cd=vfe&ved=0CA4QjhxqFwoTCOCrtdLH-
voCFQAAAAAdAAAAABAE)

Advantages of B2B

Selling products to businesses using an online channel is much more complex than selling to
private customers. In addition to the way that you approach the customer, which is different than
in the B2C sector, there is a whole range of other differences that are essential to understand and
that can be advantageous. The following are the advantages of B2B model.

1. Instant purchases: Online business allows for instant purchases. Now, companies can do almost
everything over the internet. They can get in contact with the company they are seeking to transact
with, make a first time transaction, and then set up a system for future transactions. This allows
for frequent purchases. Under frequent purchases, prices usually drop. Therefore, there is saving
in time and money.

2. Increased revenue: 24/7 online ordering will increase companies’ revenue. Many different time
zones exist in the world and potential clients might not have the same business hours as you. By
allowing for companies to make transactions all the time, the time zone becomes irrelevant. For
example: If it is 10 am in your clients’ time zone and 2 am in your time zone, your client can still
make purchases. By offering products at all hours of the day, revenue will increase for the
company.

3. Expands company’s presence: If your company has joined the online community, than it is
expanding its presence and increasing its brand awareness. Nowadays, you can find just about
anything over the internet. Why not allow for people to find your company too?

4. Closer business relationships: Doing business with other companies online will create closer
business relationships. This will result in more transactions. This frequent buying builds a
stronger relationship. Although this does not require face to face interaction, it does allow for
businesses to get more familiar with each other.

The Disadvantages of a B2B Companies that embrace a B2B, model, stand to capture significant
profit through the sales of high-cost products or sheer bulk orders. B2B practices diverge in
several and significant ways from standard business-to-consumer practices. Although some
differences entail simple changes in perspective, others create disadvantages for companies
seeking to sell to other businesses.
1. Limited Market Businesses selling to other businesses face a much smaller buying group than
businesses selling to consumers. The total number of prospective buyers may be in thousands,
rather than the potential millions of customers for consumer products. These limited numbers
make every lead and every existing customer more valuable and the loss of a single, large
customer can devastate the bottom line. For example, if you supply parts to businesses in mature
markets, where only a handful of competitors normally operate, your business might not survive
if one of your buyers closes shop.

2. Long Purchase Decision Time The majority of consumer purchase decisions involve one or
perhaps two decision makers and the total time for a purchase decision tends to run on the short
side. The B2B sales cycle involves a complicated set of factors, involving multiple stakeholders
and decision-makers, with total decision times that can stretch out for months. B2B sellers cannot
depend on a fast turnaround with new clients for an influx of working capital and must maintain
the financial solvency to operate with long gaps between sales.

3. Inverted Power Structure In B2B, buyers wield more power than sellers. A B2B buyer can, also
within limits, demand certain customizations, impose exacting specifications and drive a hard line
with pricing because the seller depends much more heavily on retaining its customers. This
requires B2B sellers to retain a level of flexibility in both product development and production.

4. Sales Process The typical sale process in B2B demands considerable face time, often multiple
meetings, and gets driven by quantifiable factors, rather than the qualitative and emotional factors.
The sales process often depends on the salesperson’s ability to demonstrate what the product does
or allows modifications that solve the very specific problem the buyer faces, and can deliver a
solid return on investment.

3.2.4.2 Business - to - Consumer (B2C)

As the name suggests, it is the model involving business and consumers over the internet. B2C
means selling directly to the end consumer or selling to an individual rather than a company.
Website following B2C business model sells its product directly to a customer. A customer can
view products shown on the website of business organization. The customer can choose a product
and order the same. Website will send a notification to the business organization via email and
organization will dispatch the product/goods to the customer. B2C is also known as internet
retailing or E-trailing.

 The B2C model includes electronic shopping, information searching (e.g. railway timetables)
but also interactive games delivered over the Internet.

 Popular items sold using B2C model are airline tickets, books, computers, videotapes, music
CDs, toys, music, health and beauty products, jewellery etc..

Following are the key features of a B2C Model

 Heavy advertising required to attract large number of customers.

 High investment in terms of hardware/software.

 Support or good customer care service

Consumer Shopping Procedure

Following are the steps used in B2C e-commerce −

A consumer

 Determines the requirement.

 Searches available items on the website meeting the requirement.

 Compares similar items for price, delivery date or any other terms.

 Gives the order.

 Pays the bill.

 Receives the delivered item and review/inspect them.

 Consults the vendor to get after service support or returns the product if not satisfied with the
delivered product.

(Source-
https://www.google.com/url?sa=i&url=https%3A%2F%2Ffanyv88.com%3A443%2Fhttps%2Fwww.tutorialspoint.com%2Fe_com
merce%2Fe_commerce_b2b_mode.htm&psig=AOvVaw3sD1v6Zv6pYWznkNnFwZ2k&ust=1
666759098672000&source=images&cd=vfe&ved=0CA4QjhxqFwoTCOCrtdLH-
voCFQAAAAAdAAAAABAE)

Advantages of E-Commerce for B2C Businesses

Benefits of B2C e-commerce can be considered either from the viewpoint of the consumer or
from that of the business.
From the consumer side, benefits include:
1. Access to goods and services from home or other remote locations.
2. The possibility of lower cost of goods and services.
3. Access to a greater variety of goods and services on offer.
4. Consumers can shop at any time of day, from the privacy of their own home. The internet has
been called “the mall that never sleeps.”
5. So many choices – Consumers can shop for basically any item they can think of! Airline
tickets, groceries, clothing, and even medicine!
6. Hassle free – Consumers can shop online without dealing with annoying sales people,
fighting the congestion of shopping malls, and driving 10 different places to find one thing. 42
From the business side, benefits include:
1. Lower transaction costs associated with sales.
2. Access to global markets and hence to more potential customers.
3. Can reach worldwide market with unlimited volume of customers.
4. Can display information, pictures, and prices of products or services without spending a
fortune on colourful advertisements.
5. In some cases, makes order processing an easier task than before.
6. Can operate on decreased, little, or even no overhead
Disadvantage of E-Commerce for B2C Businesses
1. The competition is so fast for the web. There can literally be thousands of places a customer
can go and purchase the same product.
2. Technology problem can cause problems to operate the site properly, resulting in losing
customers and sales.
3. Catalogue Inflexibility: The catalogue needs to regenerate every time when there is some new
information or items to add in.
4. Limited Market Place: Normally, customer will be from locally and limited to certain area.
5. High Sales Cycle: Usually, a lot of phone calls and mailings are needed.
6. Required Higher Cost of Doing Business: Cost regarding inventory, employees, purchasing
costs, and order-processing costs associated with faxing, phone calls, and data entry, and even
physical stores increase transaction costs.
7. Inefficient Business Administration: Store inventory levels, shipping and receiving logs, and
other business administration tasks might need to be categorized and updated manually in and
done only when have time. This cause the information might not the latest or updated.
8. Need to employ number of staff: Need staffs that give customer service and sales support
service.
Disadvantages for the consumer
1. Security issue: probably the number one reason why people don’t purchase online. Credit
card information is very sensitive and must be handled by someone the customer can trust.
Scams, frauds and rip-off are not uncommon on the web.
2. Customer services: consumer are not always satisfied with their purchases and when buying
online.

2.6.3 Consumer - to - Consumer (C2C)

Customer to Customer (C2C), sometimes known as Consumer to Consumer, E-Commerce
involves electronically-facilitated transactions between individuals, often through a third party.
One common example is online auctions, such as Ebay, where an individual can list an item for
sale and other individuals can bid to purchase it. Auction sites normally charge commission to
the sellers using them. They act purely as intermediaries who match buyers with sellers and they
have little control over the quality of the products being offered, although they do try to prevent
the sale of illegal goods, such as pirate CDs or DVDs.
Website following C2C business model helps consumer to sell their assets like residential
property, cars, motorcycles etc. or rent a room by publishing their information on the website.
Website may or may not charge the consumer for its services. Another consumer may opt to
buy the product of the first customer by viewing the post/advertisement on the website.
Another popular area for customer to customer transactions is online classified advertising sites,
such as Craigslist and Gumtree. Major online retailers like Amazon also allow individuals to sell
products via their sites.

C2C is expected to increase in the future because it minimises the costs of using third parties.
However, it does suffer from some problems, such as lack of quality control or payment
guarantees and there can sometimes be difficulties in making credit-card payments.

The same customer can act as both buyer as well as seller

 The online market place will allow buyer to browse products by using different criteria such
as; best seller, most popular product, from your city and many more
 Different sellers can bid on the products with list item listed by the buyer, what they are looking
for so that the buyer can get different best prices and offers from sellers
 The social media linking functionalities include, community or forum discussion and blog and
other social media website link interface.
 The back-end interface includes features for administration to manage buyer and seller
accounts, payment settings, gallery setting, etc. Advantages of C2C E-Commerce
 It is always available so that consumers can have access to whenever they feel like shopping
 There is regular updating of the website  Consumers selling products to other consumers
benefit from the higher profitability that result from selling directly to one another
 There is a low transaction cost; sellers can post their goods over the internet at a cheaper rate
far better than higher price of renting a space in a store
 Customer can directly contact sellers and do without an intermediary. Disadvantages of C2C
E-Commerce

 Payment made has no guarantee

 There could be theft as scammers might try to create their website with names of some famous
C2C websites such as eBay to attract customers.

 There is lack of controlling quality of the products. C2C e-commerce websites must update
their technologies to suit the current happenings in their business. It is every body’s wish to buy
or sell without any threat to their security. C2C e-commerce websites to upgrade their security
measures to arrest the situation of scammers and fraudsters that pose threat to the security of
consumers and sellers. C2C e-commerce websites should increase their payment technology to
allow consumers to purchase products at ease.

Consumer - to - Business (C2B)

Customer to Business (C2B), sometimes known as Consumer to Business, is the most recent E-
Commerce business model. In this model, individual customers offer to sell products and
services to companies who are prepared to purchase them. This business model is the opposite
of the traditional B2C model.
C2B (Customer to Business) is a model where initiative comes from the customers
(consumers) and enterprises are the target group. The customers actively contact the enterprises
via the Internet and raise questions, suggestions and ideas that can be used, for example for
product or service innovation. The enterprises can facilitate the C2B model by setting, for
example discussions forums on their websites or their pages on social networks. In these cases,
the Word Of Mouth Marketing applies.
In this model, a consumer approaches website showing multiple business organizations for a
particular service. Consumer places an estimate of amount he/she wants to spend for a particular
service. For example, comparison of interest rates of personal loan/ car loan provided by various
banks via website. Business organization that fulfils the consumer's requirement within
specified budget approaches the customer and provides its services.
Elance was one of the first web sites to offer this type of transactions. It allows sellers to
advertise their skills and prospective buyers to advertise projects. Similar sites such as People
per hour and Guru work on the same basis.
General features of C2B
– Direct action.
– Collaborative consumption.
– Detailed segmentation.
– Interaction.
– Reciprocity.
– Bi-directionality.
The advent of the C2B scheme is due to major changes:
 Connecting a large group of people to a bidirectional network has made this sort of
commercial relationship possible. The large traditional media outlets are one direction
relationship whereas the internet is bidirectional one.
 Decreased cost of technology : Individuals now have access to technologies that were once
only available to large companies ( digital printing and acquisition technology, high
performance computer, powerful software)

There are only a few kinds of companies whose trading models could be considered as C2B.
Online Advertising sites like Google Adsense, affiliation platforms like Commission Junction
and affiliation programs like Amazon are the best examples of C2B schemes. Individuals can
display advertising banners, contextual text ads or any other promotional items on their personal
websites. Individuals are directly commissioned to provide an advertising/selling service to
companies.
The new C2B business model is a revolution because it introduces a new collaborative trading
scheme paving the way for new applications and new socio-economical behaviours
Advantages and Disadvantages of C2B
C2B Advantages
1. Could be described in terms of paths, nodes, properties
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2.6.8 Business-to-Government (B-to-G):

Business-to-government (B2G) e-commerce is concerned with the need for business to sell
goods or services to governments or government agencies. Such activities include supplying the
army, police force, hospitals and schools with products and services. Furthermore, businesses
will often compete in an online environment for contracts to provide services to the public on
behalf of the government. Such services may include the collection of taxes, and the supply of
public services. The exchange of information, services and products between business
organizations and government agencies on-line. This may include,
E-procurement services, in which businesses learn about the purchasing needs of agencies and
provide services.
 A virtual workplace in which a business and a government agency could coordinate the work
on a contracted project by collaborating on-line to coordinate on-line meetings, review plans
and manage progress.
 Rental of on-line applications and databases designed especially for use by government
agencies.
Business-to-Peer Networks (B-to-P):
This would be the provision of hardware, software or other services to the peer networks. An
example here would be Napster who provided the software and facilities to enable peer
networking.

Consumer-to-Government (C-to-G):
Examples where consumers provide services to government have yet to be implemented. See
Government-to-Business.

Consumer-to-Peer Networks (C-to-P):

This is exactly part of what peer-to-peer networking is and so is a slightly redundant distinction
since consumers offer their computing facilities once they are on the peer network.

Government-to-Business (G-to-B):
Also known as e-government, the exchange of information, services and products between
government agencies and business organizations. Government sites now enable the exchange
between government and business of:
 Information, guidance and advice for business on international trading, sources of funding
and support (ukishelp), facilities (e.g. www.dti. org.uk).
 A database of laws, regulations and government policy for industry sectors.
 On-line application and submission of official forms (such as value added tax).
 On-line payment facilities.

This improves accuracy, increases speed and reduces costs, so businesses are given financial
incentives to use electronic-form submission and payment facilities.

Government-to-Consumer (G-to-C):
It is also known as e-government. Government sites offering information, forms and facilities to
conduct transactions for individuals, including paying bills and submitting official forms on-line
such as tax returns.
Government-to-Government (G-to-G):
It is also known as e-government. Government-to-government transactions within countries
linking local governments together and also international governments, especially within the
European Union, which is in the early stages of developing coordinated strategies to link up
different national systems.

Peer–to-Peer Network (P-to-P):

This is the communications model in which each party has the same capabilities and either party
can initiate a communication session. In recent usage, peer-to-peer has come to describe
applications in which users can use the Internet to exchange files with each other directly or
through a mediating server.

Peer Network-to-Consumer (P-to-C):

This is in effect peer-to-peer networking, offering services to consumers who are an integral
part of the peer network.

Peer Network-to-Business (P-to-B)

Peer-to-peer networking provides resources to business. For example, using peer network
resources such as the spare processing capacity of individual machines on the network to solve
mathematical problems or intensive and repetitive DNA analyses which requires very high
capacity processing power.

M-commerce:
Mobile commerce is the buying and selling of goods and services through wireless technology-
i.e., handheld devices such as cellular telephones and personal digital assistants (PDAs). Japan
is seen as a global leader in m-commerce. As content delivery over wireless devices becomes
faster, more secure, and scalable, some believe that m-commerce will surpass wire line e-
commerce as the method of choice for digital commerce transactions.
Industries affected by m-commerce include:
● Financial services, including mobile banking as well as brokerage services.

● Telecommunications, in which service changes, bill payment and account reviews can all be
conducted from the same handheld device;
● Service/retail, as consumers are given the ability to place and pay for orders on-the-fly; and
● Information services, which include the delivery of entertainment, financial news, sports
figures and traffic updates to a single mobile device.
This framework can be used by organizations to segment their customers and distinguish the
different needs, requirements, business processes, products and services that are needed for each.

****
3.3 Social-media and E-commerce

About social media

Social media is online communication that allows you to interact with your customers and share
information in real time. You can use social media to:

 reach your customers better

 create online networks
 sell and promote your products and services.

However, there is risk in using social media for your business. Tread carefully and learn both
the pros and cons before you start.

Benefits of social media for business

Social media can help you engage with your customers and find out what people are saying
about your business. You can also use social media for advertising, promotional giveaways and
mobile applications.

Social media can help your business to:

 attract customers, get customer feedback and build customer loyalty

 increase your market reach, including international markets
 do market research and reduce marketing costs
 increase revenue by building customer networks and advertising
 develop your brand
 exchange ideas to improve the way you do business
 recruit skilled staff, for example through job networking sites like LinkedIn
 increase traffic to your website and improve its search engine ranking
 keep an eye on your competitors.

Disadvantages of social media

Social media may not suit every business. If you launch your social media presence without
planning, you could end up wasting valuable time and money.

Disadvantages of social media include:

 needing additional resources to manage your online presence

 social media is immediate and needs active daily monitoring
 you may get unwanted or inappropriate behaviour on your social media site
 the risk of getting negative feedback, information leaks or hacking
 the risk of having false or misleading claims made on your social media (by your
business or a customer). These claims can be subject to consumer law. For example, if a
customer or fan posts misleading or deceptive information, particularly about competitor
products or services, you might receive a fine.
Importance Of Social Media In Business Communication — Five Benefits

Social Media — A one of the most widely used communication and networking site allowing
different types of people to join and share their personal feelings and other emotional states.

And owing to rise of the huge number of users across the globe, the popularity of the social
platform is also providing an opportunity for business owners to tab this market to promote their
product and services with a better option of targeting potential customers as per their business
prospects.

Social media has now become a wide platform for marketing to find niche customers with better
prospects of business leads and the advantage of promoting the brand name among the
audience.

It helps to connect people online and social media marketing services is an online marketing
service that helps to attract online customers with lucrative business leads. And it is playing an
important role in business with the rewarding opportunity in various segments across the world.
Reasons Why Social Media is Important for Business

Attract Existing Customers

It allows creating a business page and invites existing customers of the company to join or
follow them and keep themselves updated with the latest products or services introduced by the
company.

And as soon as the user bases increases, more number of people joins that becomes the direct
source of communication to interact with the right audience and influence them to buy their
product or services with the better communication process from any location at a lower cost.

The Podium of Customer Engagement

Social media is the right and most suitable point for customer engagement. The members can
easily interact with each other and share their views with options to give their feedback or ask
personalized queries as per their perspective.

Customer engagement is very important to build a network of the audience and social media is
the right podium for social engagement.
Easy Reputation Management

Blue-chip organizations also very much concern about the reputation of the company to sustain
the goodwill of the company in the market. Interact with customers directly and resolve their
grievances monitor negative comments and remove them with a positive approach.

Monitor every activity of online audience what they are saying about your company or what kind
of perception they have about the brand name or about the whole organization with real-time
update of each action.

Show the Social Responsibility

The motive of social media optimization services is not only to improve the web pages of a
website or improve the brand image of the company but it also provides an opportunity to show
the social responsibility of company towards the society or for the people engaged in the same
field.

Companies can promote social events or other activities which socially inspire the audience and
encourage them to participate and appreciate the whole reputation of the company.

Generate Positive Business Leads

Apart from social interaction, digital marketing companies providing social media marketing
services also focus to generate leads to attract new business and increase the revenue. It also
allows run online ads to promote the specific product or service with pay per click option as per
the budget and need of the users.

The best part of running a campaign with social media is that, it is comparatively affordable and
you can choose the audience as per the age, gender, location, education, and working filed etc.
These social sites also provide interactive insights and reports of each activity which helps to
track the right customer with better analytical tools.

Importance of social media in e-commerce

Social media has played a pivotal role in the digital marketing landscape. It has allowed
businesses to scale their efforts in acquiring, retaining, and ultimately upselling customers. Social
media has helped businesses in improving their presence on the internet, generating leads, and
increasing the online traffic to their website. Owing to its commercial success, many e-commerce
businesses have included social media in their marketing plans. A well planned and executed
social media campaign can help e-commerce business achieve their desired business goals.

Social media has removed the limits to how we shop. Now have to browse through entire isles
of retail stores to find what we want, we don’t even have to browse through thousands of
options on e-commerce websites to choose what we want. Now we can just buy things from
Facebook and Instagram without even having to leave the application. The integration of social
media and e-commerce platforms has made this happen.
Active users on social media
The first thing that any business looks at is the sheer size of the market. All the social media
platforms combined boast a userbase of almost 3 billion people. This alone is probably the
biggest factor that can influence e-commerce businesses to jump on the social media
bandwagons.
It is very crucial to understand the volume of people that actively engage with the platform as
this relates closely to the business goals. The higher the engagement amongst the users, the
higher will be the chances that they indulge themselves in the online shopping experience that
an e-commerce platform wants to provide them with.
How does social media influence e-commerce?
Social media has had influence almost everywhere. Because of this, it is important to realize the
importance of social media in a business and understand its impact. The e-commerce industry
has actually been revolutionized by social media.
On social media, people like to share about their lives and this presents a huge opportunity for
e-commerce businesses. People share product reviews, their shopping experience, and they even
look for what to buy on social media. Using all of this information, they can create a positive
word of mouth about their brand which will help them drive their sales.
Trends in Social media
Over the Years, social media has brought about considerable changes in the way how e-
commerce has approached selling. This has brought about patterns that can be observed in the
buying behaviour and can be capitalized on by the e-commerce businesses. These patterns or
trends like which social platforms consumers prefer for buying, what kind of content do they
like to interact with or how much business does social media actually generate can help e-
commerce generate the right kind of insights and make proper business decisions.
Stronger Brand Perception
An active social media presence enhances how people view a brand. Posting positive customer
reviews, feedback, and testimonials can boost e-commerce conversion. It can be made part of
the strategy to include product reviews and user-generated content. This gold-mine tactic is one
that customers highly appreciate, because they recognize themselves in the content. Social
networks act as a gateway to online shopping, accentuating the best and brightest of a brand.
When audience sees a supportive response, they’re encouraged to find out more about the
brand. Customers value credibility and this builds healthy relationships.
More than selling
If the sole purpose of a seller in social presence is to sell, the followers and customers will see
through this quickly. Social media is more than a portal to e-commerce. They have to engage
with customers on another level, one that isn’t just about buying.
People use Instagram, Pinterest, and other platforms for curiosity and a social touch. Seller should
share their brand, its interest, and relatable content that’s in tune with your customers. Consider
social media beyond its selling potential, it is an additional way to engage with audience and a
tool to play up the best material that shows off one’s brand. To build a healthy relationship with
the customers the sellers should build a connection with them that should not be active only when
they try to sell something.

Platform Purchasing Techniques

Using a variety of networks is important because each one is created with different end goals.
E-commerce seller should maximize outreach potential and get the most out of each platform.
Not only can it ease the sales process and allow more effective interaction with customers, using
each platform allows seller to tweak his strategies and complete sales in multiple ways.
Seller should take advantage of the features within each social network, such hashtags, live
video, sign-up buttons, and contests. A big part of social media involves following trends, and
these details help increase his business visibility.

Promotions and Discounts

Social media is a key platform for posting discounts and new content, and both tactics are big
benefits for e-commerce users. Sellers may create a strategy that addresses the purpose of their
promotion and their end goals.
Growing sales, clearing old inventory, and rewarding customers with incentives are just a few
considerations, and the followers will be looking to the social media accounts for these. Social
media provides new means of exclusivity.

(Source-https://magnetoitsolutions.com/infographic/social-media-importance-in-ecommerce-
industry
https://www.square2marketing.com/blog/infographic-the-importance-of-social-media-in-e-
commerce-
gateways#:~:text=Businesses%20are%20always%20working%20towards,with%20your%20cu
stomers%20and%20market.)

For latest Data

( https://www.ibef.org/industry/ecommerce-presentation)
3.4 Small Business

Introduction
Micro, Small and Medium Enterprises (MSME) contribute significantly to the development
process and acts as a vital link in the industrialisation in terms of production, employment and
exports for economic prosperity by widening entrepreneurial base and use of local raw materials
and indigenous skills. MSME dominate the industrial scenario in the country with sizeable
proportion of labour force and tremendous export potential.
MSMEs play a significant role in the economic growth and contribute to 29.7 per cent of GDP
and 49.66 per cent of exports. The sector offers employment to nearly 60 million people through
28.5 million enterprises, after the agriculture sector. MSMEs are complementary to large
industries as ancillary units and form an integral part of value chain for building a conducive
environment for indigenous skills, grass root innovations and entrepreneurship development. This
sector produces a wide range of products, from simple consumer goods to high-precision,
sophisticated finished products. Recognising the potential of this sector for the national
development, this segment of industry is encouraged in both in pre-reform and post–reform period
for fulfilling the objective of self-reliance and rural industrialisation.

In India, the MSME consists of both ‘traditional’ and ‘modern’ small industries. This sector has
eight subgroups. They are handlooms, handicrafts, coir, sericulture, khadi and village industries,
small scale industries and power looms. The Khadi and Village Industries and Coir segment is
another major contributor to the growth of the MSME. Many global companies are increasingly
looking to Indian MSMEs for strategic partnerships of mutual benefit due to the innovative
capabilities in niche of low-cost manufacturing and local skills and capabilities

Micro, Small and MediumEnterprises

It is important to know how size is defined in our country, with reference to MSME
establishments. Several parameters can be used to measure the size of business units. These
include the number of persons employed in business, capital invested in business, turnover of
business, etc.
The def inition used by the Government of India to describe MSME is based on the investment
in plant and machinery and turnover. This measure seeks to keep in view the socio-economic
environment in India where capital is scarce and labour is abundant .

Impacts of Technology on Small Business

Small businesses rely on technology to help them operate on a daily basis. From laptop computers
with Internet capabilities to printers, online file storage and Web-based applications,
technological advances impact small businesses across various industries. Technology has the
potential to affect small business in positive and adverse ways, depending on the goals a business
has a in place, the products they chose to use, and how well entrepreneurs and their employees
adapt to new systems
Small businesses work closely with their clients to provide them products and services that add
value to their lifestyles. Going from an idea to a finished product or service requires small
business owners and their employees to collaborate with each other and external vendors. E-mail
and instant messenger tools paved the way for online sharing and collaboration. With the ability
to instantly connect, share information and get feedback, e-mail and instant messenger are
beneficial technological advantages for small businesses. Web-based project management
programs such as 5pm, Basecamp and Zoho Projects offer a Web-based approach to keeping track
of projects, delegating tasks, updating team members and clients, tracking time, and sharing
documents in real-time. For small businesses, this means up-to-date information available in a
central hub, regardless of a person's location.

Flexible Work Environments

Technology gives small business owners and their employees the option to work in the office,
from home, on the road and even from across the country. Affording small business owners the
opportunity to hire talent from all over the world, technology can help businesses gain a
competitive edge in the global environment.

Instant Connection With Customers

Small business owners no longer have to mail surveys to customers and wait for weeks for
replies, nor do they have to call customers for feedback. Technology gives small businesses the
ability to connect with their customers via e-mail, through blogs, social networks and forums.
Small business owners can take advantage of this instant connection by getting feedback from
customers and applying it to their businesses immediately, if they see fit.

Online Stores

Technology allows crafters, clothing and accessories designers and painters an option to set up
online stores, rather than investing in costly storefronts. With consumers migrating to the Internet
to find everything from gifts to ordering groceries, the popularity of online shopping increases
with the variety of products and services. Businesses with storefronts can create online stores to
expand their visibility and reach target markets beyond their neighborhoods and surrounding
communities.
 Employee Training

As small businesses implement new technologies into their processes, they are tasked with
providing training to new and veteran employees. While new employees are likely to easily adapt
to the technologies, veteran employees may resist the new technologies or experience a learning
curve, which may temporarily reduce productivity.

ProblemsAssociated With MSME

The potential of MSME is often not realised fully, because of several problems related to size and
operations. We shall now examine some of the major problems that small businesses whether in
urban or in rural areas are encountering in their day-to-day functioning.
MSMEs are at a dis t inct disadvantage as compared to largescale industries. The scale of
operations, availability of finance, ability to use
modern technology, procurement of raw materials are some of these areas. This gives rise to
several problems.
The problems majorly include remote location with less developed infrastructural facilities, lack
of managerial talent, poor quality, traditional technology and inadequate availability of finance.
The problems of exporting small scale units include lack of adequate data on foreign markets,
lack of market intelligence, exchange rate fluctuations, quality standards, and pre-shipment
finance. In general the small businesses are faced with the following problems:
(i)Finance: One of the severe problems faced by MSME is that of non-availability of adequate
finance to carry out its operations. Generally these businesses begin with a small capital base.
Many of the units in the small sector lack the credit worthiness required to raise as capital from
the capital markets. As a result, they heavily depend on local financial resources and are
frequently the victims of exploitation by the money lenders. These units frequently suffer from
lack of adequate working capital, either due to delayed payment of dues to them or locking up of
their capital in unsold stocks. Banks also do not lend money without adequate collateral security
or guarantees and margin money, which many of them are not in a position to provide
(ii) Raw materials: Another major problem of MSME is the procurement of raw materials.
If the required materials are not available, they have to compromise on the quality or have to
pay a high price to get good quality materials. Their bargaining power is relatively low due to
the small quantity of purchases made by them. Also, they cannot afford to take the risk of
buying in bulk as they have no facilities to store the materials. Because of general scarcity of
metals, chemicals and extractive raw materials in the economy, the small scale sector suffers
 the most. This also means a waste of production capacity for the economy and loss of further
units.
(iii) Managerial skills: These businesses are generally promoted and operated by a single person,
who may not possess all the managerial skills required to run the business. Many of the small
business entrepreneurs possess sound technical knowledge but are less successful in marketing
the output. Moreover, they may not find enough time to take care of all functional activities. At
the same time they are not in a position to afford professional managers.
(iv) Marketing: Marketing is one of the most important activities as it generates revenue.
Effective marketing of goods requires a thorough understanding of the customer’s needs and
requirements. In most cases, marketing is a weaker area of small organisations. These
organisations have, therefore, to depend excessively on middlemen, who at times exploit them by
paying low price and delayed payments. Further, direct marketing may not be feasible for small
business firms as they lack the necessary infrastructure.
(v) Quality: Many MSMEs do not adhere to desired standards of quality. Instead they concentrate
on cutting the cost and keeping the prices low. They do not have adequate resources to invest in
quality research and maintain the standards of the industry, nor do they have the expertise to
upgrade technology. In fact maintaining quality is their weakest point, when competing in global
markets.
(vi) Capacity utilisation: Due to lack of marketing skills or lack of demand, many firms have to
operate below full capacity due to which their operating costs tend to increase. Gradually this
leads to sickness and closure of the business.
(vii) Global competition: Apart from the problems stated above MSME are not without fears,
especially in the present context of globalisation. These enterprises face competition is not only
from medium and large industries, but also from multinational companies which are giants in
terms of their size and business volumes.
3.5 Introduction to Outsourcing and Offshoring

Outsourcing

Outsourcing is any task, operation, job or process that could be performed by employees within
your company, but is instead contracted to a other party for a significant period of time. Hiring a
temporary employee while your secretary is on maternity leave is not outsourcing. In addition,
the functions that are performed by the other party can be performed on-site or off-site. The most
common model of outsourcing that is in the news today refers to jobs that are being sent overseas
to countries like India or China. This is more commonly called off shoring. Examples include
telephone call centres, tech-support and computer programming. Outsourcing has been around as
long as work specialization has existed. Customized offshore outsourcing solutions have created
the need of established Business Process Outsourcing (BPO) methodologies. Business process
outsourcing (BPO) is the contracting of a specific business task, such as payroll, to a other party
service provider. Usually, BPO is implemented as a cost-saving measure that a company requires
to maintain its position in the marketplace. In this unit you, will study about the concept and
importance of Business Process Outsourcing (BPO) and Knowledge Process Outsourcing (KPO).

CONCEPT OF BUSINESS PROCESS OUTSOURCING

Business process outsourcing (BPO) can be defined as the act of giving a other party
responsibility of performing what would otherwise be an internal system or service. For instance,
an insurance company might outsource their claims processing program or a bank might
outsource their loan processing system. Other common examples of BPO are call centres and
payroll outsourcing. Typically, companies that are looking at business process outsourcing are
hoping to achieve cost savings by handing over the work to a third-party that can take advantage
of economies of scale by doing the same work for many companies. Or perhaps the cost savings
can be achieved because labour costs are lower due to different costs of living in different
countries. BPO is often divided into two categories: back office outsourcing which includes
internal business functions such as billing or purchasing, and front office outsourcing which
includes customer-related services such as marketing or technical support.
BPO. It provides wide range of tactical, powerful, flexible tools which in turn helps in achieving
the business objectives in a cost effective and efficient manner.

To put it in simple words a BPO(business process outsourcing) is a process in which a company

delegates some of its business processes to an other party on payment of some fee by passing over
total control of process to them. This in turn cuts the operational costs considerably resulting into
huge profits.BPO’s are inclined to provide better customer satisfaction leading to customer
retention, increased productivity, deal with competition effectively and in turn increase in
profitability. There are many kinds of work that can be outsourced to
BPO’s for e.g. Call/Help Centers, Medical Transcription, Billing, Payroll Processing, Data Entry,
IT Services, Human Resources (HR) functions, etc. Due to the proximity of IT industry to BPO,
this industry is also termed as ITES (Information Technology Enabled Service). But, BPO doesn’t
necessarily only provide IT Services.

BPO will be time and again, simply defined as, taking over non-critical business processes or a
function of those processes, as well as the people and systems associated with them, in order to
achieve service level improvements and cost savings. It is useful in leveraging the process
towards driven efficiency and achieving responsiveness, branding, customer relationships and
organizational excellence

ADVANTAGES OF BPO
An important aspect of business process outsourcing is its ability to free corporate executives
from some of their day-to-day process management responsibilities. Once a process is
successfully outsourced, they get more time to, explore new revenue generation activities,
accelerate other projects, and focus on their customers.
By outsourcing their back office operations to third world countries, companies have the
following advantages:
1. Achieve cost reductions – This is made possible through process improvements,
reengineering, and use of technologies that reduce and bring administrative and other costs under
control.
2. Key in on company’s main business – With the day-to-day back office operations taken care
of, the management is free to devote more time to building the company’s core businesses
3. Obtain outside expertise – Rather than recruiting and training personnel, BPO ensures that
domain experts from another company provide the needed guidance and skills.
4. Meet constantly changing customer demands – Many BPO vendors provide the management
with flexible and scalable services to meet the customers’ changing requirements, and to support
company acquisitions, consolidations, and joint ventures.
5. Achieving revenue increases – By outsourcing non-core processes, companies can focus on
increasing their sales and market share, develop new products, expand into new markets, and
enhance customer service and satisfactions.

CONCEPT OF KNOWLEDGE PROCESS OUTSOURCING

KPO is a new phenomenon that is picking pace in India. It is “Knowledge Process Outsourcing”.
In simple words it is the upward shift of BPO in the value chain. Old BPO companies that used
to provide basic backend or customer care support are moving up this value chain. “Unlike
conventional BPO where the focus is on process expertise, in KPO, the focus is on knowledge
expertise.” KPO involves off shoring of knowledge intensive business processes that require
specialized domain expertise, thus delivering high value to organizations
by providing business expertise rather than just process expertise

It is being claimed that KPO is one step extension of Business Processing Outsourcing (BPO).
BPO Industry is shaping into Knowledge Process Outsourcing because of its favourable
advantageous and future scope. But, let us not treat it only a ‘B’ replaced by a ‘K’. In fact,
Knowledge process can be defined as high added value processes chain where the achievement
of objectives is highly dependent on the skills, domain knowledge and experience of the people
carrying out the activity. And when this activity gets outsourced a new business activity emerges,
which is generally known as Knowledge Process Outsourcing. KPO is involved in
services like valuation and investment research, patent filing, legal and insurance etc. KPO can
simply be explained as an off-shoring of knowledge concentrated business processes that needs
specialized domain oriented expertise.
Knowledge process outsourcing (KPO) is the allocation of relatively highlevel tasks to an
outside organization or a different group (possibly in a different geographic location) within the
same organization. Most low-level BPO jobs provide support for an organization’s non core
competencies and entry-level prerequisites are simply a command of English and basic
computer skills. Knowledge process outsourcing jobs, in comparison, are typically integrated
with an organization’s core competencies. The jobs involve more complex tasks and may
require an advanced degree and/or certification. Examples of KPO include accounting, market
and legal research, Web design and content creation.
KPO and BPO are often conducted through off-shore outsourcing as corporations seeking the
most value for the least money source projects to countries where wages are lower. Because
KPO jobs may bring in more money to the economy as BPO, countries such as India are
actively promoting development of that industry

11.4 ADVANTAGES OF KPO

1. Accelerate Reengineering Benefits: Reengineering aims for drastic improvements in critical
measures of performance such as cost, service, quality and speed. But the need to increase
efficiency comes into direct conflict with the need to invest in core business. As non-core internal
functions are continually put on the back seat, systems become less productive and less efficient.
Therefore, by outsourcing a non-core function to a competent provider, the organization can
realize the benefits of reengineering as an outsourcing benefit.
2. Access to Top Class Capabilities: Good and competent providers make extensive investments
in technology, people, and methodologies. They acquire expertise by working with many clients
facing similar challenges. This combination of specialization and expertise ensures the customers
a competitive advantage and helps them avoid the cost of acquiring technology and training.
3. Cash Infusion: Outsourcing often involves the transfer of assets from customer to the provider.
Equipment, vehicles, facilities, and licenses used in the current operations contain value and are
sold to the vendor. The vendor uses these assets to provide services back to the client. Depending
on value of the assets involved, the said sale may result in a significant cash payment to the
customer. While selling these assets to the vendor, they are typically sold at book value. The book
value normally is higher than the market value. In such cases, the difference between the two
actually represents a credit line from the vendor to the client which is repaid in the form of price
of the services over the life of the contract.
4. Optimal use of resources: Every organization has limitations to the resources available to it.
Outsourcing allows an organization to redirect its resources, mostly human resources, from non
core activities toward activities which serve the core need of customer. The organizations can
redirect these human assets or at least the staff slots they represent for greater value adding
activities. People whose energies are currently focused on internal activities can now be focused
externally — on the customer.
5. Solution to difficult problems: Outsourcing is certainly one option for addressing the problem
of managing difficult activities requiring core technical skills. It is essential to remember that
outsourcing doesn’t imply abdication of management responsibility nor does it work well as a
solution to solve critical and suddenly erupting trouble of a company. However, a company can
outsource only those difficult problems which it understands properly because if the organization
doesn’t understand its own requirements, it won’t be able to communicate them to an outside
provider.
6. Focus on main business: Outsourcing allows a company to focus on its core business by
having operational non core functions assumed by an outside expert. Freed from devoting energy
to these non core areas, the company can focus its resources on meeting its customers’ needs
7. Best use of financial resources: There is large amount of competition within most
organizations for capital funds. The senior management is always in a fix to decide where to
invest the capital funds. It is often difficult to justify non-core capital investments when core areas
directly related to producing a product or providing a service compete for the same money. In this
context outsourcing can reduce the need to invest capital funds in non-core business functions.
Outsourcing can also improve certain financial measurements of the company by eliminating
the need to show return on equity from capital investments in non core areas.
8. Cost reduction: Companies which attempt to do everything themselves generally incur higher
research, development, marketing and deployment expenses, and all of these are passed on to the
customer. The outsourcing can help a company to reduce its costs as an outside provider’s lower
cost structure, normally as a result of a greater economy of scale or other advantage based on
specialization, reduces a company’s operating costs and increases its competitive advantage.
9. Minimum Risk: Tremendous risks are associated with the investments made by the
organizations. Markets, competition, financial conditions, Government Regulations and
Technologies all change quickly. Further, it is very risky to keep up with these changes, especially
those in which the next generation requires a significant investment. However, in outsourcing
providers make investments on behalf of many clients, not just one and shared investment spreads
risk, and significantly reduces the risk born by a single company.

11.5 DIFFERENCE BETWEEN KPO AND BPO

Knowledge Processing Outsourcing industry is entirely different from Business processing

outsourcing industry. KPO require expertise having domain knowledge. They are highly skilled
and business experts as they handle more dexterous work which requires experience where as
BPO industry is more about size, quantity and competence. The major difference is that BPO
insist for labor and requires less skilled employees while KPO requires highly knowledgeable
employees in the area that is outsourced like lawyers, doctors, MBA and skilled engineers .The
difference between KPO and BPO can also be analysed on the bases of cost competitiveness, the
salary of KPO employee is much higher than offered to the BPO employee as the people working
for KPO are highly qualified such as Engineer, Doctor, CA, Lawyer etc. BPO provides services
like customer care, technical support through voice processes, tele-marketing, sales, etc. whereas
KPO provides in-depth knowledge, expertise and analysis on complex areas like Legal Services,
Business &Market Research, etc. BPO requires application, understanding of business and
analytical bent of mind. Employees in BPO are not- so- qualified as it focuses on communication
skills whereas KPO involves skill and expertise of knowledge workers with excellent educational
background.
Offshoring Definition

Offshoring is a practice of processing business operations from one country to another, usually from
developed industrialized countries to less-developed/developing countries, with the motive of cutting
down the cost of doing business, enjoying tax benefits, and complying with less stringent requirements
regulations.

The process of business outsourcing in the overseas market for expanding the business and reducing
the cost of business operations as in the case of developing countries, usually there are lenient
environmental regulations, low labor cost, more proximity to raw materials, favorable tax conditions.

Various offshore financial centers, such as Bermuda, Cayman Islands, Switzerland. Different financial
centers have different levels of transparency and regulatory standards.

Offshore business generally occurs among foreign banks, deposits, investments, corporations, etc.
OFCs improve the flow of capital and business transactions. For some, it is a means of reducing tax
liabilities.

Offshoring Examples

 Individual banks offshore their back-office functions to other countries that provide an
efficient and cheap workforce.
 Manufacturers offshore the first stage of production of goods in another country where the raw
material and labor cost is cheap and keeps finished products in its own country.
 Labor services of staffing agencies offshore to other countries.
 Goods are imported from foreign markets to domestic markets by the retailers.
 Import Inputs and raw materials from cheaper markets.

Importance

 Companies that offshore their businesses may offer their services and products at lower rates,
but still, they earn huge profits as production costs get cheaper.
 The resources that are not available in the internal market can be accessed easily in the
international market with the help of offshoring.
 Processes that are offshored, like customer service, information technology, software
development, etc., will be handled by experts; hence the problem of talent shortage and a
specific skill can be dealt with.
 Focus on main business activity can be maintained as the back-office task can be offshored. It
leads the company head to focus on core business and improve productivity and output quality.
  New technologies can be embraced to speed up the process of business, which helps in making
the best use of investment with the least interruption.
 With this business help, risk management can be easily done during technical crises, natural
calamities, or market fluctuations. The other part of the company will have things properly to
respond rapidly to any uninvited situation.
 Consumers also benefit when offshoring a business due to affordability as they can save more
money, which will increase the value of the company in the economy.
 It globally also provides a wider talent base that utilizes new skills, innovative strategies, and
new capabilities.

Offshoring Advantages
 Increased Availability – When offshoring a business, different time zones, and workforce
with 24*7 working capacity, the availability of business increases. It provides a wider
opportunity for businesses to support their clients as and when needed.

1. Reduced Risk – Multiple teams work in different countries to help reduce risk. At the time of
natural calamity or any uninvited danger, the data and products at multiple sites help in
supporting the business.
2. Control – This helps have a dedicated staff working only for an individual company. It leads
to internal accountability of the business from direction to training. The staff is done as the
company head wants.
3. Staff Access – Highly skilled university staff is available in foreign markets, which becomes
advantageous for the business looking for specific talent.
4. Business Growth – Cost of production is reduced due to cheap labor and high tax savings that
lead to a higher profit margin.

Offshoring Disadvantages

 Communication is one of the biggest hindrances in overseas operations as the languages and
time zones are different.
 The exchange rate in different countries is ever-changing and different.
 Implications for Corporate social responsibility
 Companies have to incur an additional cost of time and travel.
 Risk of quality and longer supply time.
 Legal and tax-related complications