Class XI - Business Studies

Chapter - 5 Emerging Modes of Business

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Emerging Modes of Business

E-Business

If the term business is taken to mean a wide range of activities comprising industry, trade and commerce; e-business may be defined as the conduct of industry, trade and commerce using the computer networks.

The network you are most familiar with as a student or consumer is the internet. Whereas internet is a public thorough way, firms use more private and, hence more secure networks for more effective and efficient management of their internal functions.

E-business versus e-commerce:

Though, many a times, the terms e-business and e-commerce are used interchangeably, yet more precise definitions would distinguish between the two.

Just as the term ‘business’ is a broader term than ‘commerce’, 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. E-business is, therefore, clearly much more than buying and selling over the internet, i.e., e-commerce.

Scope of e-Business

We have mentioned above that the scope of e-business is quite vast. Almost all types of business functions such as production finance, marketing and personnel administration as well as managerial activities like planning, organizing and controlling can be carried out over computer networks.

The other way of looking at the scope of e-business is to examine it in terms of people or parties involved in electronic transactions. Viewed from this perspective, a firm’s electronic transactions and networks can be visualized as extending into three directions viz., (I) B2B which is a firm’s interactions with other businesses, (ii) B2C i.e., a firm’s interactions with its customers and (iii) intra-B or a firm’s internal processes.

(I) B2B Commerce:

Here, 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.

(ii) B2C Commerce:

As the name implies, B2C (business-to-customers) transactions have business firms at one end and its customers on the other end.

Although, what comes to one’s mind instantaneously is online shopping, it must be appreciated that ‘selling’ is the outcome of the marketing process. And, marketing begins well before a product is offered for sale and continues even after the product has been sold.

B2C commerce, therefore, entails a wide gamut of marketing activities such as identifying activities, promotion and sometimes even delivery of products (e.g., music or films) that are carried out online.

E-commerce permits conduct of these activities at a much lower cost but high speed.

Customers these days are becoming very choosy and desire individual attention to be given to them. Not only do they require the product features be tailor-made to suit their requirements, but also the convenience of delivery and payment at their pleasure. With the onset of e-commerce, all this has become a reality.

Further, B2C variant of e-commerce enables a business to be in touch with its customers on round-the-clock basis. Companies can conduct online surveys to ascertain as to who is buying what and what the customer satisfaction level is.

By now, you might have formed the opinion that B2C is a one-way traffic, i.e., from business-to-customers. But do remember that its corollary, C2B commerce is very much a reality which provides the consumers with the freedom of shopping-at-will.

Customers can also make use of call centers set up by companies to make toll free calls to make queries and lodge complaints round the clock at no extra cost to them.

The beauty of the process is that one need not set up these call centers or help lines; they may be outsourced. We shall discuss this aspect later in the section devoted to Business Process Outsourcing (BPO).

(iii) Intra-B Commerce:

Here, parties involved in the electronic transactions are from within a given business firm, hence, the name intra-B commerce.

As noted earlier too, one critical difference between e-commerce and e-business is that, e-commerce comprises a business firm’s interaction with its suppliers, and distributors/other business firms (hence, the name B2B) and customers (B2C) over the internet.

While e-business is a much wider term and also includes the use of intranet for managing interactions and dealings among various departments and persons within a 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.

In a similar vein, closer computer-based interactions among the other departments makes it possible for the firm to reap advantages of efficient inventory and cash management, greater utilization of plant and machinery, effective handling of customers’ orders, and effective human resource management.

Just as intercom facilitated voice communication within the office, intranet facilitates multimedia and even 3-D graphic communication among organizational units for well-informed decisions, permitting better coordination, faster decisions and speedier workflows.

(iv) C2C Commerce:

Here, the business originates from the consumer and the ultimate destination is also consumers, thus the name C2C commerce. This type of commerce is best suited for dealing in goods for which there is no established market mechanism.

Additionally, e-commerce technology provides market system security to such transactions which otherwise would have been missing if the buyers and sellers were to interact in anonymity of one-to-one transactions?

Benefits of e-Business

(I) ease of formation and lower investment requirements:

Unlike a host of procedural requirements for setting up an industry, e-business is relatively easy to start.
The benefits of internet technology accrue to big or small business alike. In fact, internet is responsible for the popularity of the phrase: ‘networked individuals and firms are more efficient than networthed individuals.’
This means that even if you do not have much of the investment (net worth) but have contacts (network), you can do fabulous business.

(ii) Convenience:

Internet offers the convenience of ‘24 hours × 7 days a week ×365 days’ a year business.
Such flexibility is available even to the organizational personnel whereby they can do work from wherever they are, and whenever they may want to do it.
Yes, e-business is truly a business as enabled and enhanced by electronics and offers the advantage of accessing anything, anywhere, anytime.

(iii) Speed:

As already noted, much of the buying or selling involves exchange of information that internet allows at the click of a mouse.
This benefit becomes all the more attractive in the case of information-intensive products such as software’s, movies, music, e-books and journals that can even be delivered online.
Cycle time, i.e., the time taken to complete a cycle from the origin of demand to its fulfillment, is substantially reduced due to transformation of the business processes from being sequential to becoming parallel or simultaneous.
You know that in the digital era, money is defined as electronic pulses at the speed of light, thanks to the electronic funds transfer technology of e-commerce.

(iv) Global reach/access:

Internet is truly without boundaries. 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.
It would not be an exaggeration to say that in the absence of internet, globalization would have been considerably restricted in scope and speed.
Sourcing of supplies of materials and components in a paper less fashion.
Even the government departments and regulatory authorities are increasingly moving in this direction whereby they allow electronic filing of returns and reports.
In fact, e-commerce tools are affecting the administrative reforms aimed at speeding up the process of granting permissions, approvals and licenses. In this respect, the provisions of Information Technology Act 2000 are quite noteworthy.

Limitations of e-Business

(I) Low personal touch:

High-tech it may be, e-business, however, lacks warmth of interpersonal interactions.
To this extent, it is relatively less suitable mode of business in respect of product categories requiring high personal touch such as garments, toiletries, etc.

(ii) Incongruence between order taking/giving and order fulfillment speed:

Information can flow at the click of a mouse, but the physical delivery of the product takes time.
This incongruence may play on the patience of the customers. At times, due to technical reasons, web sites take unusually long time to open.
This may further frustrate the user.

(iii) Need for technology capability and competence of parties to e-business:

Apart from the traditional 3R’s (Reading, Writing, and Arithmetic), 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 that is the division of society on the basis of familiarity and non-familiarity with digital technology.

(iv) Increased risk due to anonymity and non-traceability of parties:

Internet transactions occur between cyber personalities. As such, it becomes difficult to establish the identity of the parties.
Moreover, one does not know even the location from where the parties may be operating. It is riskier, therefore, transacting through internet. E-business is riskier also in the sense that there are additional hazards of impersonation and leakage of confidential information such as credit card details.
Then, there also are problems of ‘virus,’ and ‘hacking,’ that you must have heard of. If not, we will be dealing with security and safety concerns of online business.

Despite limitations, e-commerce is the way

It may be pointed out that most of the limitations of e-business discussed above are in the process of being overcome. Websites are becoming more and more interactive to overcome the problem of ‘low touch.’

Communication technology is continually evolving to increase the speed and quality of communication through internet. Efforts are on to overcome the digital divide, for example, by resorting to such strategies as setting up of community telecentres in villages and rural areas in India with the involvement of government agencies, NGOs and international institutions.

In order to diffuse e-commerce in all nooks and corners, India has undertaken about 150 such projects.

In view of the above discussion, it is clear that e-business is here to stay and is poised to reshape the businesses, governance and the economies. It is, therefore, appropriate that we familiarize ourselves with how e-business is conducted.

Online Transactions

Operationally, one may visualize 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; and thirdly, the delivery stage except the stage relating to delivery, all other stages involve flow of information.

The information is exchanged in the traditional business mode too, but at severe time and cost constraints.

In face-to-face interaction in traditional business mode, for example, one needs to travel to be able to talk to the other party, requiring travel effort, greater time and costs.

Exchange of information through the telephone is also cumbersome. It requires simultaneous presence of both the parties for verbal exchange of information. Information can be transmitted by post too, but this again is quite a time consuming and expensive process.

Internet comes in as the fourth channel which is free from most of the problems referred to above. In the case of information-intensive products and services such as software and music, even delivery can take place online.

(I) Registration:

Before online shopping, one has to register with the online vendor by filling-up a registration form.
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.
Otherwise, anyone can login using your name and shop in your name. This can put you in trouble.

(ii) 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.
Just as in a physical store you can put in and take items out of your cart, likewise, you can do so even while shopping online.
After being sure of what you want to buy, you can ‘checkout’ and choose your payment options.

(iii) Payment mechanism:

Payment for the purchases through online shopping may be done in a number of ways:

Cash-on Delivery (CoD): As is clear from the name, payment for the goods ordered online may be made in cash at the time of physical delivery of goods.

Cheque: Alternatively, the online vendor may arrange for the pickup of the cheque from the customer’s end. Upon realization, 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 net. In this case, therefore, the buyer may transfer the amount for the agreed price of the transaction to the account of the online vendor who may, then, proceed to arrange for the delivery of goods.

Credit or Debit Cards: Popularly referred to as ‘plastic money,’ these cards are the most widely used medium for online transactions. In fact, about 95 per cent of online consumer transactions are executed with a credit card.

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, which later transfers the amount involved in the transaction to the credit of the seller.

Buyer’s account is debited, who often enjoys the freedom to deposit the amount in installments and at his convenience.

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.

To accept credit card as an online payment type, the seller first needs a secure means of collecting credit card information from its customer. Payments through credit cards can be processed either manually, or through an online authorization system, such as SSL Certificate (see box on, History of e-commerce).

Digital Cash: This is a form of electronic currency that exists only in cyberspace. This type of currency has no real physical properties, but offers the ability to use real currency in an electronic format.

First you need to pay to a bank an amount equivalent to the digital cash that you want to get issued in your favor.

Then the bank dealing in e-cash will send you special software that will allow you to draw digital cash from your account with the bank.

You may then use the digital funds to make purchases over the web. This type of payment system hopes to resolve the security problems related to the use of credit card numbers on the internet.

Security and Safety of e-Transactions: e-Business Risks

One may broadly discuss these issues under three headings: transaction risks, data storage and transmission risks, and threat to intellectual property and privacy risks.

(I) Transaction risks: Online transactions are vulnerable to the following types of 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.

Such situations can be averted by providing for identity and location/address verification at the time of registration, and obtaining authorization as to the order confirmation and payment realization.

(ii) Data storage and transmission risks:

Information is power indeed. But think for a moment if the power goes into the wrong hands. 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. You must have heard of ‘virus’ and ‘hacking’. It means Vital Information under Siege.

Actually, virus is a program (a series of commands) which replicates itself on the other computer systems. The effect of computer viruses can range from mere annoyance in terms of some on-screen display (Level-1 virus), disruption of functioning (Level-2 virus) damage to target data files (Level-3 virus), to complete destruction of the system (Level-4 virus).

Installing and timely updating anti-virus programmes and scanning the files and disks with them provide 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’. This is similar to using ‘code words’ with someone so that others do not understand your conversation.

(iii) Risks of threat to intellectual property and privacy:

Internet is an open space. 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. You are then at the receiving end, with little respite from receiving junk mails.

Resources Required for Successful e-business Implementation

Setting up of any business requires money, men and machines (hardware). For e-business, you require additional resources for developing, operating, maintaining and enhancing a website where ‘site’ means location and ‘web’ means World Wide Web (www).

Simply speaking, a website is a firm’s location on the World Wide Web. Obviously, website is not a physical location. Rather, it is an online embodiment of all the content that a firm may like to provide to others.

Outsourcing: Concept

Outsourcing is yet another trend that is radically reshaping business. 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.

This simple definition leads one to the salient features of the concept that are not peculiar to an industry/business or country, but have become a global phenomenon.

(I) Outsourcing involves contracting out:

Literally, outsourcing means to source from outside what you have hitherto been doing in-house.

(ii) Generally non-core business activities are outsourced:

Sanitation and housekeeping functions are non-core for most organizations. Of course, for municipalities and sanitations services providers, these activities comprise the core of their business activity.

Housekeeping is a core activity for a hotel. In other words, depending upon what business a company is in, there will be some activities that are central and critical to its basic business purpose.

Other activities may be regarded as secondary or incidental to fulfilling that basic purpose. The purpose of a school, for example, is to develop a child by means of curricular and co-curricular activities.

Clearly, these activities comprise the ‘core’ activities. Running a cafeteria/canteen or a book store is non-core activity for a school.

As the organizations venture to experiment with outsourcing, they may initially outsource only the non core activities.

But later on, as they become comfortable with managing interdependencies, they may start getting even the core activities performed by the outsiders. For example, a school may tie-up with some computer training institute to impart computer education to its students.

(iii) Processes may be outsourced to a captive unit or a third party:

Think of a large multinational corporation that deals in diverse products and markets them to a large number of countries.
A number of processes such as recruitment, selection, training, record and payroll (Human Resources), management of accounts receivable and accounts payable (accounting and finance), customer support/grievance handling /troubleshooting (marketing) are common to all its subsidiaries operating in different countries.
If these processes could be centralized and parceled out to a business unit created especially for this purpose, this would result in avoidance of duplication of resources, realization of efficiency and economy’s performance of same activity on a large scale at one or a few select locations, thereby resulting in substantial reduction in costs.
Clearly, therefore, if the task of performing some activity internally is sufficiently large, it may be beneficial for the firm to have a captive service provider, i.e., a service provider set up for providing services of a given kind to only one firm.

Scope of Outsourcing

The term outsourcing has more popularly come to be associated with IT-enabled services or Business Process Outsourcing (BPO).

In fact, even more popular term is ‘call centers’ providing customer-oriented voice based services. About 70 per cent of the BPO industry’s revenue comes from call-centers, 20 per cent from high-volume, low-value data work and the remaining 10 per cent from higher-value information work.

‘Customer Care’ accounts for the bulk of the call center activities with 24 hrs × 7 days handling of in-bound (customer queries and grievances) and out-bound (customer surveys, payment follow-up and telemarketing) traffic.

Need for Outsourcing

Some of the major reasons (and also benefits) of outsourcing are discussed below.

(I) Focusing of attention:

You may be good at doing so many things in academics and extra-curricular activities, yet you would be better off by focusing your limited time and money on just a few things for better efficiency and effectiveness.
Likewise, business firms are realizing the usefulness of focusing on just a few areas where they have distinct capability or core competence, and contracting out the rest of the activities to their outsourcing partners.
You are aware, that, in order to create utilities or value, a business engages in a number of processes, viz., purchase and production, marketing and sales, R&D, accounting and finance, HR and administration etc.
Firms need to define or redefine themselves. Such a way of delimiting the scope of business enables them to focus their attention and resources on select activities for better efficiency and effectiveness.

(ii) Quest for excellence:

You are aware of the benefits of division of labour and specialization. Outsourcing enables the firms to pursue excellence in two ways. One, they excel themselves in the activities that they can do the best by virtue of limited focus.
And, they excel by extending their capabilities through contracting out the remaining activities to those who excel in performing them. In the quest for excellence, it is necessary not only to know what you would like to focus on, but also what you would like others to do for you.

(iii) Cost reduction:

Global competitiveness necessitates not only global quality, but also global competitive pricing. As the prices turn southwards due to competitive pressures, the only way to survival and profitability is cost reduction.
Division of labour and specialization, besides improving quality, reduces cost too. This happens due to the economies of large scale accruing to the outsourcing partners as they deliver the same service to a number of organizations.
Differences in prices of factors of production across the countries
are also a factor contributing to cost reduction.

(iv) Growth through alliance:

To the extent you can avail of the services of others, your investment requirements are reduced, others have invested in those activities for you.
Even if you may like to have a stake in the business of your outsourcing partners, you profit from not only the low-cost and better quality services provided by them to you but also by virtue of a share in the profit from the overall business they do.
Therefore, you can expand rapidly as the same amount of investible funds result in creation of a large number of businesses. Apart from financial returns, outsourcing facilitates inter-organizational knowledge sharing and collaborative learning.
This may also explain the reasons why the firms today are outsourcing not only their routine, non-core processes, but also seeking to benefit from outsourcing such strategic and core processes as Research and Development.

(v) Fillip to economic development:

Outsourcing, more so offshore out-sourcing, stimulates entrepreneurship, employment and exports in the host countries (i.e., the countries from where outsourcing is done).
In India in the IT sector alone, for example, there has been such a tremendous growth of entrepreneurship, employment and exports that today we are the undisputed leaders as far as global outsourcing in software development and IT-enabled services are concerned.
Presently, we have 60 per cent of the $150 billion (1 billion = Rs. 100 crores) global outsourcing share in the informatics sector.

Concerns over Outsourcing

(I) Confidentiality:

Outsourcing depends on sharing a lot of vital information and knowledge. If the outsourcing partner does not preserve the confidentiality, and, say, for example, passes it on to competitors, it can harm the interest of the party that outsources its processes.
If outsourcing involves complete processes/products, there is a further risk of the outsourcing partner starting up a competitive business.

(ii) Sweat-shopping:

As the firms that outsource seek to lower their costs, they try to get maximum benefit from the low-cost manpower of the host countries.
Moreover, it is observed that whether in the manufacturing sector or the IT-sector, what is outsourced is the kind of components or work that does not much build the competency and capability of the outsourcing partner beyond the skills needed to comply with a rigidly prescribed procedure/method.
So, what the firm that goes in for outsourcing look for is the ‘doing’ skills rather than development of the ‘thinking’ skills.

(iii) Ethical concerns:

Think of a shoe company that, in order to cut costs, outsources manufacturing to a developing country where they use child labour/women in the factories.
Back home, the company cannot do so due to stringent laws forbidding use of child labour.
Is cost cutting by using child labour in countries where it is not outlawed or where the laws are ‘weak’, ethical?
Similarly, is it ethical to outsource the work to countries where there exists wage-discrimination on the basis of sex of the worker?

(iv) Resentment in the home countries:

In the course of contracting out manufacturing, marketing, Research and Development or IT-based services, what is ultimately contracted out is ‘employment’ or jobs.
This may cause resentment back in the home country (i.e., the country from which the job is being sourced out) particularly if the home country is suffering from the problem of unemployment.

CONCLUSION

The aforementioned concerns, however, do not seem to matter much as the global outsourcing continues to flourish.
As India emerges as a global outsourcing hub, the industry is forecast to explode at exponential rates — from 23,000 people and $ 10 million per annum in 1998 to over a million people and revenues in excess of $ 20 billion by 2008.

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