The history of E-commerce is closely related with the history of internet.
Online shopping became possible when the internet was opened to public. The first web page in the world was published in August 1991 (Brügger, 2009). It was a simple, text-based web page. It had a few links and the main goal of the page was to introduce World Wide Web to the people. Three years later, in 1994, the World Wide Web Consortium was established, and HTML was defined as the standard language for web pages. Since then the internet has been developing. The latest websites are more colorful, sophisticated and more interactive unlike the older ones. The World Wide Web has transformed the way business is conducted. It has opened new way of communication for individuals and business, enabling global reach and easy access. According to (Hoffman, et al., 1995), the web has become popular than other internet services because of its ability to facilitate sharing of resources and information globally. Prior to web, Electronic Data Interchange (EDI) was used in the electronic marketplace by owners and buyers to interact electronically. EDI allowed companies to perform varies business functions electronically. Since its arrival, the Web has gradually replaced those (linked with EDI) proprietary networks making it possible for all business, regardless of their size, to access the global market and reach their customers and other businesses. The web is becoming more important as an infrastructure and a tool that has enabled business to conduct commercial functions (Wen, et al., 2000). In short, Web is providing a medium that facilitates
two-way communication between different actors. It has the technology that allows businesses to use it for various purposes: as a sales tool, as a distribution channel, as a customer support portal and as an informational retrieval source. It has established a global commercial marketplace for both suppliers and consumers that can operate internationally without time restrictions. It has revolutionized the whole commerce and business industry.
For fully understanding the concept of „electronic commerce‟ or e-commerce, one has to understand the broader concept of e-business. E-business is about creating connections and information sharing through electronic means, both internally in the organization and externally (Chaffey, 2011). So, e-business is all about activities that involves connecting employees through an internet platform to improve information sharing, facilitating distribution of knowledge, supporting after-sale services, etc. E-business is a broad term that includes both e-commerce and m-commerce (mobile m-commerce) (Tawfik & Albrecht, 2008). There are nearly as many definitions of e-commerce as there are contributions to the literature. According to one definition, „E-commerce is the process by which people use electronic means to do business or do other economic activities. It is the process whereby traditional trade is carried out by electronic methods‟ (Qin, et al., 2014). Turban shares a similar view and defines e-commerce as, “Electronic Commerce (EC) is the process of buying, selling, transferring, or exchanging products, services and/or information via computer networks, including the Internet” (Turban, et al., 2006). Unlike the others, Schneider has defined e-commerce in terms of data transmission, “Business activities conducted using electronic data transmission over the internet and the World Wide Web” (Schneider, 2006). Laudon and Trever focused more on the relationship between actors conducting business and defined e-commerce as, “E-commerce is the use of the internet and the Web to transact business. More formally, digitally enabled commercial transactions between and among organizations and individuals” (Laudon & Traver, 2003)
All these definitions are based on the same concept, yet they employ different definitional approaches. Laudon & Traver (2003) limit e-commerce to transactional business online whereas Schneider‟s (2006) defines it in a broader term and includes business activities. The present study will take the view that e-commerce is a means of selling goods/services through a website.
Figure 12: E-Business versus e-commerce
Source: (Biccler & Saelens, 2015)
As seen in the above picture, e-business in an organization covers all operating activities conducted over a data network, for example the internet. E-commerce is limited to the online retailing implying financial transactions, so we can say e-commerce is a sub-part of e-business (Biccler & Saelens, 2015).
There are various types of e-commerce website that focuses on different areas of business activities. One of the most common e-commerce websites is a business web portal. The main idea of these websites is to provide business information to its internal staff, prospective customers and business partners.
Another common type of e-commerce website is a transactional website. This type of website can operate a range of business activities, for instance online payments (Carney, 2005). Transactional websites provide online auctions services and enables interactions between sellers and buyers as well as between buyer. E-commerce has truly revolutionized the way business is being done all around the world. The continuous development of how the internet is used has made e-commerce one of the most important platforms for sharing business information both within an organization, business to business, and business to customer (Chong & Bauer, 2000). Due to the advancement in internet technologies and e-business, an increasing number of traditional organizations are deciding to enter the internet market by adopting e-commerce, resulting in effects such as increased profits, high business volume and more competitive pressure (Chen, et al., 2013). Other benefits of adopting e-commerce are lower cost of trading, faster and better-informed business decisions, and less importance of geography (Smith, 1998).
3.1 Categories of e-commerce
E-commerce is generally classified according to the nature of the relationship between the participants (Laudon & Traver, 2003); (Schneider, 2006) (Turban, et al., 2006). Three most famous ways to categories e-commerce are given as: Business-to-Business (B2B), Business-to-Consumer (B2C), and Consumer-to-Consumer (C2C). These categories are valid for offline businesses as well.
3.2 Business-to-Business (B2B)
When a business sells goods or services to another business, it is known as B2B. It mostly refers to supply chain (Gibson & Edwards, 2004). Before the advent of Web, B2B existed in the form of EDI over proprietary networks. With the arrival of Web, it became possible for businesses to link regardless of their size and location at affordable prices. B2B generally includes wholesale transactions and is characterized by large volumes, fast delivery times and possibly late payments. It generally leads to higher profits through cost savings, reduced transaction costs, lower advertising cost, lesser delivery costs, better supply chain management, and better information exchange (Barnes-Vieyra & Claycomb, 2001).
3.3 Business-to-Consumer (B2C)
The practice of selling goods or services from businesses to individual consumers is known as B2C. It is also known as e-tailing (Turban, et al., 2006). The practice of B2C emerged only after the arrival of web and is appealing to both retailers and consumers (Ariguzo, et al., 2006). The basic aim of B2C e-commerce is to acquire new customers, to gain international exposure, to advertise, to overcome location disadvantage, to provide online support, to gain cost savings, and to gather customer information (Golden, et al., 2003)
3.4 Consumer-to-Consumer (C2C)
Customers selling goods or services to other customer is known as C2C. Well known examples of C2C are the online auctions and online communities where people can find customers for their goods and services. It can also be called Consumer-to-Business (C2B) when the end user is a business. Both C2C and C2B can be viewed as a kind of B2C (Chaffey, 2011); (Turban, et al., 2006).
In conclusion, the rapid growth of the internet and the advent of Web have led to many changes in the way business is done, resulting in the e-commerce phenomenon.
3.5 Benefits of e-commerce
Doing business online has tremendous advantages. Companies can broaden the scope of sales from local to global, increase sale opportunities, decrease transaction costs, operate 24/7, access narrow market segments, exchange information swiftly and accurately, enhance brand image, and improve the ability to keep a strong customer relationship (Chaffey, 2011); (Turban, et al., 2006). Online businesses will also have better information management, improved understanding of the market, increase integration of the suppliers and vendors, and extended global reach. Information regarding the behavior and preferences of individual and potential customer can also be accessed and used through e-commerce. Consumers can also have access to a larger market with more choices to select from. This helps in finding more affordable goods and services, more choices, time saving and ability to shop 24/7 (Chaffey, 2011).
3.6 Limitations of e-commerce
There are also some limitations to doing business online for both the businesses and the consumers. For businesses, the technology is still in the process of evolution and lack universal standards for security, law and quality (Schneider, 2006); (Turban, et al., 2006). (Napier, et al., 2003) pointed out some general market issues including language, political environment, and currency conversion as few of the major limitation for a business running e-commerce. Traditional business also faces problems in integrating with e-commerce (Turban, et al., 2006); (Schneider, 2006). Also, the benefits accrued to a company due to use of e-commerce is not clear. This ambiguity may cause many companies to fail or not to invest in e-commerce (Turban, et al., 2006). The consumers are also concerned about the security and privacy of their personal data and many consumers wants to feel and touch the product before purchasing (Napier, et al., 2003) (Turban, et al., 2006).
3.7 Drop shipping
E-commerce and global trade have resulted in increased market competition.
As a consequence of this high competition, demands for fast deliveries of low-cost and high-quality products, and services have augmented (Fawcett, et al., 2000).
Accordingly, companies must continuously strive towards improving and enhancing the efficiency in the supply chain in order to achieve competitiveness (Chaffey, 2011). This has caused a high competition amongst the supply chains, rather than the end-products (Chaffey, 2011). Consequently, an efficient order fulfilment
becomes of great importance, which is considered as one of the most complex tasks for electronic retailers (Ayanso, et al., 2006). Order fulfillment includes all the process that concerns the customers‟ order; receiving the customer order, managing the order, picking and packing, delivering the order, and additional after sale customer services (Pyke, et al., 2001). The process of order fulfilment for e-tailers is different from a traditional brick-and-mortar retailer (hereafter retailer), due to the larger amount of small orders (Pyke, et al., 2001). Both e-tailers and retailers are pressured by the shrinking product (Santamaria, 2004).
So, in an effort towards improving the efficiency of order fulfilment and stabilizing the financial position, e-tailers commonly transfer the order fulfilment to other actors. This can be accomplished by outsourcing the warehouse to a third-party logistics provider. Alternatively, by drop shipping, where the distributor ships individual orders directly to customers on behalf of the e-tailers, while exploiting the e-tailers information and features (Tarn, et al., 2003). The practice of drop shipping was mainly used by mail-order firms and companies selling bulky and large products (Netessine & Rudi, 2001). It requires an extensive amount of real-time communication within the supply chain, therefore it was not very successful previously (Netessine & Rudi, 2001). However, with the advancement of e-commerce and the improved communication, drop shipping has become a common means to fulfil online orders (Ayanso, et al., 2006).
Ricker and Kalakota (1999) have defined drop shipping as consumer direct fulfilment (Ricker & Kalakota, 1999). According to another definition it is outsourcing inventory to another party (Chen, et al., 2011). A more thorough definition of drop shipping is; “...an arrangement whereby the retailer forwards customers’ orders to the wholesaler, distributor, or manufacturer, that fills customer orders directly from its own inventory”. (Randall, et al., 2006). (Ayanso, et al., 2006) further refers to drop shipping as a virtually joined supply chain of multiple actors, that has become a method to achieve efficient e-fulfillment. One of the many benefits of drop shipping, is the removal of large investments in warehousing and inventory. This enables the e-tailer to focus more on actual sales and not worry about the operational tasks (Ayanso, et al., 2006). All the operational tasks related to drop shipping are performed by the drop shipper (Ayanso, et al., 2006).
Figure 13: Traditional order fulfilment versus Drop shipping
Source: (Randall, et al., 2002)
The above figure shows the difference between a traditional setting and a drop shipping setting. In drop shipping, the products are forwarded directly from the distributor to the customer. In this way, the e-tailer disclaims their responsibility of the inventory. But all the information passes through the e-tailer (Netessine & Rudi, 2001). An integrated information system is required between the e-tailer and the distributor to manage the e-fulfilment efficiently (Khouja, 2001).
3.8 Advantages of drop shipping
Many e-tailers failed to succeed in their businesses because of the high warehouse investments, so by utilizing drop shipping these e-tailers could diminish warehouse and handling related costs and could have a higher chance to succeed (Randall, et al., 2002). By drop shipping the e-tailers can avoid costs related to inventory, warehouse and logistics (Randall, et al., 2002). Drop shipping is easy to start. Anyone with a laptop and an internet connection can start a drop shipping site with minimal funds (Oberlo, 2019). Drop shipping also enables the e-tailer to just focus on marketing and design, rest of the work can be outsourced. Moreover, the e-tailer can decrease its costs due to the distributor gaining economies of scale in transportation (Randall, et al., 2002). Also, the economies of scale in transportation could be attained through serving different e-tailers (Netessine & Rudi, 2001). The distributor also benefits from the drop shipping as they can increase sales (Randall, et al., 2006). This increase in sales counters the decrease or fluctuation in demand for the distributor (Chen, et al., 2011). The fluctuation in demand is also stabilized by
the distributor stocking inventory for several e-tailers at its own premises thus pooling the demands (Randall, et al., 2006). Likewise, the e-tailer can also take benefit from the distributors‟ improved planning, as it increases the product availability (Randall, et al., 2002).
3.9 Disadvantages of drop shipping
Despite the many advantages, e-tailers have to be aware of the trade-offs when engaging in drop shipping (Randall, et al., 2002). Another potential risk involved in drop shipping is fragmented orders. It is a result of customers ordering from several distributors, it can lead to either increased shipping costs or longer delivery times due to order consolidation (Khouja & Stylianou, 2009). By engaging in drop shipping, e-tailers are divesting part of their control to distributors which increases the associated risks subsequently (Randall, et al., 2002). E-tailers also risk losing the product margin, as the distributor generally increases the order fulfilment price with ten to fifteen percent (Randall, et al., 2002).