Class XI Business Studies

Chapter 5 Emerging modes of Business

Revision Notes

e-B usiness and e-Commerce

 The conduct of industry, trade and commerce using the computer networks is defined as e-
Business
 e-business is a more elaborate term and comprises various business transactions and functions
conducted electronically, including the more popular gamut of transactions called ‘e-commerce’
 e-commerce covers a firm’s interactions with its customers and suppliers over the internet.
 e-business includes not only e-commerce, but also other electronically conducted business
functions such as production, inventory management, product development, accounting and
finance and human resource management

Scope of e-Business

 On the basis of business function

 production, finance, marketing and personnel administration as well as
managerial activities like planning, organising and controlling can be carried out
over computer networks
 On the basis of parties involved in electronic transaction
 B2B which is a firm’s interactions with other businesses,
 B2C i.e., a firm’s interactions with its customers and
 Intra-B or a firm’s internal processes

B2B Commerce

 Both the parties involved in e-commerce transactions are business firms, and, hence the name
B2B, i.e., business-to business
 Creation of utilities or delivering value requires a business to interact with a number of other
business firms which may be suppliers or vendors of diverse inputs; or else they may be a part of
the channel through which a firm distributes its products to the consumers
 Historically, the term e-commerce originally meant facilitation of B2B transactions using
Electronic Data Interchange (EDI) technology to send and receive commercial documents like
purchase orders or invoices
 For Example, Manufacturing of aircraft requires large number of components which is
manufactured by some other. Computers are used to place orders, monitoring production,
delivery of component and making payments
 B2C Commerce

 B2C (business-to-customers) transactions have business firms at one end and its customers on
the other end
 It entails a wide gamut of marketing activities such as identifying activities, promotion and
sometimes even delivery of products that are carried out online.
 It enables a business to be in touch with its customers on round-the-clock basis which helps in
knowing the customer satisfaction level.
 For example, ATM speeds up withdrawal of money

Intra-B Commerce

 Parties involved in the electronic transactions are from within a given business firm.
 It is largely due to use of intra-B commerce that today it has become possible for the firms to go
in for flexible manufacturing. Use of computer networks makes it possible for the marketing
department to interact constantly with the production department and get the customized
products made as per the requirements of the individual customer
 For example: Virtual Private Network (VPN) technology would mean that employees do not have
to come to office. Instead, in a way the office goes to them and they can work from wherever
they are, and at their own speed and time convenience. Meetings can be held online via tele/
video conferencing

C2C Commerce

 The business originates from the consumer and the ultimate destination is also consumers
 This type of commerce is best suited for dealing in goods for which there is no established
market mechanism
 For example: ebay, quikr etc where consumers sell their goods and services to other consumers.
 Another technology that has emerged to support C2C activities is that of the payment
intermediary.
 For example: PayPal. Instead of purchasing items directly from an unknown, untrusted seller;
the buyer can instead send the money to Pay Pal. From there, PayPal notifies the seller that they
will hold the money for them until the goods have been shipped and accepted by the buyer

Difference Between e-Business and Traditional Business

BASIS TRADITIONAL BUSINESS E-BUSINESS

EASE OF FORMATION Difficult Simple
PHYSICAL PRESENCE Required Not required
LOCATIONAL REQUIREMENTS Proximity to the source of raw None
materials or the market for the
products
COST OF SETTING UP High Low as no requirement of
physical facilities
OPERATING COST High due to fixed charges Low as a result of reliance on
associated with investment in network of relationships rather
procurement and storage, than ownership of resources
 production, marketing and
distribution facilities
NATURE OF CONTACT WITH Indirect through intermediaries Direct
THE SUPPLIERS AND THE
CUSTOMERS
NATURE OF INTERNAL Hierarchical - from top level Non-hierarchical, allowing direct
COMMUNICATION management to middle level vertical, horizontal and diagonal
management to lower level communication
management to operatives
RESPONSE TIME FOR MEETING Long Instantaneous
CUSTOMERS'/INTERNAL
REQUIREMENTS
SHAPE OF THE Vertical/tall, due to hierarchy or Horizontal/flat due to directness
ORGANISATIONAL STRUCTURE chain of command of command and
communication
BUSINESS PROCESSES AND Sequential precedencesuccession Simultaneous (concurrence)
LENGTH OF THE CYCLE relationship, i.e., purchase - different processes. Business
production/operation - marketing - process cycle is, therefore,
sales. The, business process cycle is, shorter
therefore, longer
OPPORTUNITY FOR Much more Less
INTERPERSONAL TOUCH
OPPORTUNITY FOR PHYSICAL Much more Less. However, for digitable
PRE-SAMPLING OF THE products such an opportunity is
PRODUCTS tremendous. You can presample
music, books, journals, software,
videos, etc.
EASE OF GOING GLOBAL Less Much, as cyber space is truly
without boundaries
GOVERNMENT PATRONAGE Shrinking Much, as IT sector is among the
topmost priorities of the
government
NATURE OF HUMAN CAPITAL Semi-skilled and even unskilled Technically and professionally
manpower needed. qualified personnel needed
TRANSACTION RISK Low due to arm's length High due to the distance and
transactions and face-to-face anonymity of the parties
contact.

3
 Benefits of e-Business

Easy to Set Up
• we can set up an online business even by sitting at home if we have the required software, a device,
and the internet.

Cheaper than Traditional Business

• The cost taken to set up an e-business is cheaper. Also, the transaction cost is effectively less.

No Geographical Boundaries
• Anyone can order anything from anywhere at anytime.
• On the one hand, it allows the seller an access to the global market; on the other hand, it affords to
the buyer a freedom to choose products from almost any part of the world.

Flexible Business Hours

• Since the internet is always available. E-business breaks down the time barriers that location-based
businesses encounter

Speed And Efficiency

• Online ordering systems can process payments and orders in real-time, usually faster, more
accurately and cheaper than human workers

Movement towards a paperless society

• Use of internet has considerably reduced dependence on paperwork
• In fact, e-commerce tools are effecting the administrative reforms aimed at speeding up the process
of granting permissions, approvals and licences
 Limitation of e-Business

Lack of Personal Touch

• One can touch or feel the product. So it is difficult for the consumers to check the quality of a
product.
• In the traditional model, we have contact with the salesperson. This lends it a touch of humanity
and credibility. It also builds trust with the customer. An e-Business model will always miss out on
such attributes.
Delivery Time
• The delivery of the products takes time. This lag time often discourages customers.
• However, e-businesses are trying to resolve such issues by promising very limited delivery times.
For example, Amazon now assures one-day delivery
Security Issues
• There are a lot of people who scam through online business. Also, it is easier for hackers to get
your financial details. It has a few security and integrity issues. This also causes distrust among
potential customers
Need for technology capability and competence of parties to e-business
• e-business requires a fairly high degree of familiarity of the parties with the world of computers.
And, this requirement is responsible for what is known as digital divide
• Digital divide means the division of society on the basis of familiarity and non-familiarity with
digital technology.
Ethical fallouts
• companies use an ‘electronic eye’ to keep track of the computer files you use, your e-mail account,
the websites you visit etc

Online Transaction

 We visualise three stages involved in online transactions.

 Firstly, the pre-purchase/sale stage including advertising and information seeking
 Secondly, the purchase/sale stage comprised of steps such as price negotiation, closing of
purchase/sales deal and payment
 Thirdly, the delivery stage

Process of Online Trading

Registrattion Payment
Placing an order
Mechanism
  Registration:
 Registration means that you have an ‘account’ with the online vendor.
 Among various details that need to be filled in is a ‘password’ as the sections
relating to your ‘account’, and ‘shopping cart’ are password protected

 Placing an order:
 You can pick and drop the items in the shopping cart.
 Shopping cart is an online record of what you have picked up while browsing the
online store
 After being sure of what you want to buy, you can ‘checkout’

 Payment Mechanism:
 Purchases through online shopping may be done in a number of ways:
 Cash-on Delivery: Payment for the goods ordered online may be made
in cash at the time of physical delivery of goods.
 Cheque: The online vendor may arrange for the pickup of the cheque
from the customer’s end. Upon realisation, the delivery of goods may
be made.
 Net-banking Transfer: Modern banks provide to their customers the
facility of electronic transfer of funds over the Internet using Immediate
Payment Services (IMPS), NEFT and RTGS
 Credit or Debit Cards: Credit card allows its holder to make purchase on
credit. The amount due from the card holder to the online seller is
assumed by the card issuing bank, who later transfers the amount
involved in the transaction to the credit of the seller. Debit card allows
its holder to make purchases through it to the extent of the amount
lying in the corresponding account. The moment any transaction is
made, the amount due as payment is deducted electronically from the
card.
 Digital Cash: This type of currency has no real physical properties, but
offers the ability to use real currency in an electronic format. Like e-
wallets , PayTm etc

e-B usiness Risks

 Transaction Risks:
 Seller denies that the customer ever placed the order or the customer denies
that he ever placed the order. This may be referred to as ‘default on order
taking/giving
 The intended delivery does not take place, goods are delivered at wrong
address, or goods other than ordered may be delivered. This may be regarded
as ‘default on delivery’.
 Seller does not get the payment for the goods supplied whereas the customer
claims that the payment was made. This may be referred to as ‘default on
payment’.
  Thus, in e-business risk may arise for the seller or the buyer on account of
default on order taking/giving, delivery as well as payment

 Data storage and transmission risks:

 Data stored in the systems and en-route is exposed to a number of risks. Vital
information may be stolen or modified to pursue some selfish motives or simply
for fun/ adventure
 Installing and timely updating anti-virus programmes and scanning the files and
disks with them provides protection to your data files, folders and systems from
virus attacks.
 Data may be intercepted in the course of transmission. For this, one may use
cryptography. It refers to the art of protecting information by transforming it
(encrypting it) into an unreadable format called ‘cyphertext’. Only those who
possess a secret key can decipher (or decrypt) the message into ‘plaintext’

 Risks of threat to intellectual property and privacy:

 Once the information is available over the internet, it moves out of the private
domain. It then becomes difficult to protect it from being copied.
 Data furnished in the course of online transactions may be supplied to others
who may start dumping a host of advertising and promotional literature into
your e-mail box.

Outsourcing

It refers to a long-term contracting out generally the non-core and of late even some of the core
activities to captive or third-party specialists with a view to benefitting from their experience, expertise,
efficiency and, even investment.

Features of Outsourcing

1. Interchangeable or Fungible Activities: Activities which are not differentiable can be outsourced
but unique activities can’t be outsourced.

2. Requiring Explicit knowledge which is Formal and Codifiable: An IT programmer’s job can be
outsourced but not that of a CEO, because CEO’s job involves managerial, technical and human
relations skills.

3. Activity is Measurable: You cannot outsource what you cannot measure.

4. Activity is not interconnected to other jobs: A job which is fungible, specialised, and
measurable may not be outsourced, if it is connected to other critical activities within the
organisation. Inter-connectedness may be pooled, sequential and mutual.
 Scope of Outsourcing

Research and
Development
Backend
Manufacturing
Non IT Based

Customer
Marketting
Facing

Banking
Outsourcing
Core
(Global/Local)
Insurance
Backend
HR And
Administration
Non-Core
IT Based Accounting
and Finance
Non Voice
Customer
In Bound
Facing
Voice Based
Out Bound
 Need for Outsourcing

Growth through Fillip to economic

Quest of Excellence Cost Reduction
Alliance development

•Business firms are •Outsourcing enables •Division of labour •To the extent you •Outsourcing, more
realising the the firms to pursue and specialisation, can avail of the so offshore
usefulness of excellence in two besides improving services of others, outsourcing,
focusing on just a ways. One, they quality, reduces cost your investment stimulates
few areas where excel themselves in too requirements are entrepreneurship,
they have distinct the activities that •This happens due to reduced, others employment and
capability or core they can do the best the economies of have invested in exports in the host
competence, and by virtue of limited large scale accruing those activities for countries (i.e., the
contracting out the focus. to the outsourcing you countries from
rest of the activities •And, they excel by partners as they •Therefore, you can where outsourcing
to their outsourcing extending their deliver the same expand rapidly as is done).
partners capabilities through service to a number the same amount of
•Delimiting the scope contracting out the of organisations. investible funds
of business enables remaining activities •Differences in prices result in creation of
them to focus their to those who excel of factors of a large number of
attention and in performing them. production across businesses.
resources on select the countries are •Outsourcing
activities for better also a factor facilitates
efficiency and contributing to cost interorganisational
effectiveness. reduction knowledge sharing
and collaborative
learning

Concerns over Outsourcing

Outsourcing depends on sharing a lot of vital information and knowledge

Confidentiality • It can harm the interest of the party that outsources its processes and
• even has a risk of competitor firm gets started

• Outsource seek to lower their costs, they try to get maximum benefit
from the low-cost manpower
Sweat Shopping
• So, the firm that go in for outsourcing look for is the ‘doing’ skills rather
than development of the ‘thinking’ skills.
In order to cut cost outsources the work to some other country where
Ethical Concerns the work is done in an unethical way.
• For example work is accomplised by doing child labour
•
• In the course of contracting out manufacturing, marketing, Research and
Development or IT-based services, what is ultimately contracted out is
Resentment in the home
‘employment’ or jobs.
countries
• This may cause resentment back in the home country if the home
country is suffering from the problem of unemployment.