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E-commerce and E-business

In the emerging global economy, e-commerce and e-business have increasingly become a necessary component of business strategy and a strong catalyst for economic development. The integration of information and communications technology (ICT) in business has revolutionized relationships within organizations and those between and among organizations and individuals. Specifically, the use of ICT in business has enhanced productivity, encouraged greater customer participation, and enabled mass customization, besides reducing costs.

Electronic commerce or e-commerce refers to a wide range of online business activities for products and services. It also pertain s to “any form of business transaction in which the parties interact electronically rather than by physical exchanges or direct physical contact.”

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. Though popular, this definition is not comprehensive enough to capture recent developments in this new and revolutionary business phenomenon. 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.

A more comprehensive definition of e-business is: “ The transformation of an organization’s processes to deliver additional customer value through the application of technologies, philosophies and computing paradigm of the new economy. ”

Three primary processes are enhanced in e-business:

• Production processes, which include procurement, ordering and replenishment of stocks; processing of payments; electronic links with suppliers; and production control processes;
• Customer-focused processes, which include promotional and marketing efforts, selling over the Internet, processing of customers’ purchase orders and payments, and customer support;
• Internal management processes, which include employee services, training,

internal information-sharing, video-conferencing, and recruiting. Electronic applications enhance information flow between production and sales forces to improve sales force productivity.

The major different types of e-commerce are: business-to-business (B2B); business-to-consumer (B2C); business-to-government (B2G); consumer-to-consumer (C2C) and mobile commerce (m-commerce).

B2B e-commerce is simply defined as e-commerce between companies. This is the type of e-commerce that deals with relationships between and among businesses. About 80% of e-commerce is of this type, and most experts predict that B2B e-commerce will continue to grow faster than the B2C segment.

The B2B market has two primary components: e-infrastructure and e-markets. E - infrastructure is the architecture of B2B, primarily consisting of the following:

● logistics - transportation, warehousing and distribution;

● application service providers - deployment, hosting and management of packaged software from a central facility;

● outsourcing of functions in the process of e-commerce, such as Web-hosting, security and customer care solutions;

● auction solutions software for the operation and maintenance of real-time auctions in the Internet;

● content management software for the facilitation of Web site content management and delivery;

● Web-based commerce enablers.

E-markets are simply defined as Web sites where buyers and sellers interact with each other and conduct transactions. Among the more evident benefits of e-markets is the increase in price transparency. The gathering of a large number of buyers and sellers in a single e-market reveals market price information and transaction processing to participants. The Internet allows for the publication of information on a single purchase or transaction, making the information readily accessible and available to all members of the e-market.

The rapid growth of B2B e-markets creates traditional supply-side cost-based economies of scale. Furthermore, the bringing together of a significant number of buyers and sellers provides the demand-side economies of scale or network effects. Each additional incremental participant in the e-market creates value for all participants in the demand side. More participants form a critical mass, which is a key in attracting more users to an e-market.

Th e Nature of Exchange Rate

A currency exchange is a service that is able to accept currencies of different countries and provide currency for a particular country in exchange. Transactions of this sort are conducted for a fee, and at the current rate of exchange.

A currency exchange provides a number of services:

- assists with the process of wiring funds from one country to another;

- conducts the conversion from one currency to another.

The currency exchange rate is how much one nation’s currency is worth in comparison to all other national currencies. It establishes how much for example, one dollar of United States money is worth in Japanese money, known as yen. This is the quoted currency exchange rate between the USD and the JPY, and is known as the “spot rate”, the rate of exchange right at the moment.

The rate might be quoted as the “forward exchange”, an exchange rate that’s traded today, but actual payment is delayed until a specified future date.

Let’s look at some of the major determinants of exchange rate movements.

1. Differentials in Inflation. Inflation and recession are economic factors that directly impact the ability of a country to purchase goods and services, both within the country and on the world market. High inflation will mean that the country will be less capable of purchasing goods and services. Decreased purchasing power will lead to the currency of that country being considered less desirable. Inflation will directly lead to a depreciation of the worth of that nation’s currency in comparison to that of a country that is not currently experiencing inflation. Thus the currency exchange rate between the two countries shifts, until the period of inflation passes.

2. Differentials in Interest Rates. Manipulating interest rates, central banks exert influence over both inflation and exchange rates. Let’s describe two situations in the economy: when the interest rate is high, and when the interest rate is low.

3. Current-Account Deficits (ACD). ACD is the balance of trade between a country and its trading partners, reflecting all payments between countries for goods, services, interest and dividends.

a) deficit in the current account means the country requires more foreign currency than it receives through sales of exports. It supplies more of its own currency than foreigners demand for its products.

b) excess demand for foreign currency lowers the country's exchange rate until domestic goods and services are cheap enough for foreigners, and foreign assets are too expensive to generate sales for domestic interests.

4. Public Debt. Nations with large public deficits and debts are less attractive to foreign investors, because a large debt encourages inflation. If inflation is high, the debt will be serviced and ultimately paid off with cheaper real dollars in the future.

In the worst case scenario, a government may print money to pay part of a large debt, but increasing the money supply inevitably causes inflation. Moreover, if a government is not able to service its deficit through domestic means (selling domestic bonds, increasing the money supply), then it must increase the supply of securities for sale to foreigners, thereby lowering their prices. Finally, a large debt may prove worrisome to foreigners if they believe the country risks defaulting on its obligations. Foreigners will be less willing to own securities denominated in that currency if the risk of default is great. For this reason, the country's debt rating is a crucial determinant of its exchange rate.

5. Terms of Trade. T he terms of trade is related to current accounts and the balance of payments. If the price of a country's exports rises, its terms of trade favorably improve. Increasing terms of trade shows greater demand for the country's exports, revenues from exports increase, and the demand for the country's currency and its value will increase too. Hence a higher currency makes a country's exports more expensive and imports cheaper in foreign markets and on the contrary.