LITERATURE REVIEW

2.1 INTRODUCTION

This chapter gives an insight into various studies conducted by outstanding researchers, as well as explained terminologies with regards to the role of e-commerce in reducing operational cost in an organization. The chapter also gives a resume of the history and present status of the problem delineated by a concise review of previous studies into closely related problems.

2.2 THEORETICAL FRAMEWORK

The theoretical foundations of e-commerce are arguably anchored on the Garg(2000) model for electroniccommerce taxation, which suggests that a number of qualities must be met by the tax system: Neutrality – the taxmechanism should be neutral and equitable between the traditional physical mode of commerce and electronictransaction, such that transacting under either mode should neither affect the incidence of tax nor should it resultin double or non-taxation; Efficiency – since increase in compliance cost is likely to lead to tax evasion or even areversal on the use of electronic transactions, the tax system should necessarily be cost-effective, not only to the fiscal authorities, but also to businesses; Simplicity – the tax system should be devoid of complexities whilebeing user-friendly, in order to engender voluntary compliance and reduce opportunities for litigation; Flexibilityand effectiveness – although it is challenging to produce a tax law that will take care of all possible futuredevelopments or scenarios in the economy and all fields of technology, it is nevertheless critical that theenactment is flexible enough to be adapted to new situations without necessitating radical change in its contentand form. Furthermore, the law should be able to produce the maximum amount of tax in a timely way, whilealso presenting a disincentive for tax evasion and avoidance; Split of revenue in case of clash of tax jurisdiction –the tax policy should contain a mechanism that allows for an equitable split of revenues from a taxable activityor transaction whose locus is being contended by another country. The overriding principle is that the taxpayershould not have to suffer double-taxation, while the tax authority avoids controversies and litigation.

On its part, the Optimal Taxation theory specifies how taxes can be configured in a way that offers the bestoutcomes in terms of social welfare. It features two models: the Ramsey Rule and the Laffer Curve Model. TheRamsey Rule posits that the excess burden of taxation will be minimized by setting the ratio of taxation inverselyproportional to price elasticities of demand for tangible and intangible electronic products. This models assumesthat government attempts to minimize the excess burden (efficiency loss) of taxation subject to given revenuerequirements. The Optimal Taxation theory under Ramsey rule is the rate that minimizes the excess burden oftaxation while still generating the required revenue from tangible and intangible electronic business. The Laffer

Curve model on the other hand assumes that government will attempt to generate as much revenue as possiblewithout any regard to the efficiency losses caused by taxation. Only constitutional constraints and otherlegislation can limit government’s desire for increased revenue. The LafferCurve considers the inverserelationship between taxation and tangible and intangible electronic products and the impact of theserelationships on tax revenues. The analysis reveals that a higher tax is not always the maximizing rate – as alower tax rate may actually raise more tax revenues than a higher one in electronic commerce transactions (citedin Emenyi, 2013).

2.3 THE CONCEPT OF E-COMMERCE

E-commerce simply refers to the use of the Internet and the Web totransact business. More formally, we focus on digitally enabled commercialtransactions between and among organizations and individuals. Each of thesecomponents of our working definition of e-commerce is important. Digitally enabledtransactions include all transactions mediated by digital technology. For the most part,this means transactions that occur over the Internet and the Web. Commercialtransactions involve the exchange of value (e.g., money) across organizational orindividual boundaries in return for products and services. Exchange of value isimportant for understanding the limits of e-commerce. Without an exchange of value,no commerce occurs.

2.3.1 Marketing on the Internet

With increased globalization of the worldeconomies, for most enterprises, marketopportunities seem to be endless these days.

This in turn, of course, causes heightenedcompetition among the players inducing betterperformance. Consequently, departing from theraditional commercial strategies and tactics,innovative managers are looking for unique waysto compete more effectively on a local, regionaland global access basis. The Internet, inparticular, provides businesses with a broad andvast communications network that is driving theformation of a huge global electronic marketplace.

Businesses that discover the Internet to becost effective in marketing their products,efficiently to customers (B2C) and businessesmarkets (B2B). Companies who use the Internet,not only for advertising, but also for e-mail andcustomer ordering, increase their hours ofbusiness on a global spectrum. Instead of atypical eight-hour day, businesses haveincreased their opportunities by providing 24-hour access for branch offices, businesscontacts and shoppers - access that is importantin conducting business across different timezones or internationally. Expanding accessindeed increase the number and coverage ofpotential customers.

2.3.2 The Old Rules of Organisational Customer

Service

● The company determines the level ofcustomer service. Profit and efficiency havelot to do with the determination of that level.

● Business is product oriented and task-driven. Customer service means being polite. Work is about getting the task done according to company standards.

● Suppliers and customers sometimes operate at cross-purposes. Special requests a reviewed as interruptions and inconveniences.

● Marketing and customer services are separate functions, performed by different departments.

● If traditional expectations have been met, then the customer is being properly served.

● Extra attention paid to the customer may be unacceptable to the company and viewed as an unnecessary expense.

● Added value means taking customers to lunch or sending them gifts.

Relationship between ecommerce and operational cost of an organization

Electronic commerce, or eCommerce, is conducting business over the Internet. Usually it refers to buying and selling goods and services, and transferring funds digitally. There are many benefits to eCommerce business, not the least of which is reduced transaction costs.

Quantity

When offline stores calculate transaction costs, they have to factor in countless business expenditures along with the actual number of transactions. When there are fewer transactions, the cost of per transaction is higher. On the flipside, transactions arriving in high quantity can overwhelm your personnel and distributors. In an eCommerce business, the transaction cost is the same across the board, whether one order or thousands come in.

Accuracy

Electronic selling nearly eliminates processing errors that run rampant with human processors. This translates into less wasted time solving order and invoice problems. Although inaccuracies do not incur fees or penalties, they do take up considerable employee time and energy. ECommerce frees up staff members to focus on profit-generating activities.

Brick And Mortar

The money received for every transaction will pay for the item; it will also contribute to the salesperson status quo salary, credit card fees, lease on storefront, electricity, telephone, heating/cooling, taxes, displays, repairs and maintenance to the building. However, the money received for an eCommerce transaction pays for the item, web hosting, shopping cart software, distribution and little else. The cost overall of maintaining a virtual store is far less than that of a brick and mortar store.

Inventory

With a brick and mortar store, you will have to maintain an inventory. This will entail purchasing, receiving, unpacking, displaying, storing extras and selling as quickly as possible. In the eCommerce world, you can opt to own or rent warehouse space to store inventory, or you can create a working relationship with wholesalers or manufacturers that ship directly from their facility, which is often called drop shipping. If purchasing in bulk, your cost per item will be lower, but you will not have to process and house the inventory.

Other Reduced Costs

An eCommerce business is able to reduce labor and other costs in many areas, including: document preparation, reconciliation, mail preparation, telephone calling, data entry, overtime and supervision expenses. EBusiness can help manage operating costs in many areas, thereby reducing the cost of individual transactions. The use of email and electronic invoicing are a tremendous savings over the traditional methods.

2.5 EMPIRICAL REVIEW

In the beginning, electronic marketing and electronic commerce was all about the Web site.

At that point, it was a novelty to buy on the Web, and expectations were low. Today, however, the scene is completely changed. The percentage of businesses offering online shopping is expected to double each year and millions of individuals world-wide are riding on the wave of the future by shopping through the Internet. The pressure is mounting on these Internet businesses to satisfy this new segment of customers. Not everyone is satisfied with the experience. According to a poll conducted by the Boston Consulting Group, 28% of online purchasing attempts fail. Buyers either leave thee-store or abandon their shopping carts before completing the purchase. In another research study by Anderson Consulting, 40% of Internets hoppers in the United States reported problems with online stores in the pre-Christmas rush. The problems encountered were stock shortage(64%), delivery problems (40%), excessively highdelivery charge (38%), and trouble in connectingto or downloading from a Web site (36%).

Despite high shopping cart abandonment rates (88%) and various problems of shopping online (40%), Andersen discovered that most customers were satisfied overall with their experience of shopping online. Internet shopping earned a 73% satisfaction rate, compared with60% for brick and mortar stores, and 56% for catalog shopping.

In that study, ninety-six percent of experienced Internet users reported that they will use the Web to purchase products, and 72% said they will use the Internet for day-to-day shopping in 2001.

In another study by Goldman Sachs and PC Data Online, 95.6% of respondents said their shopping experience met, exceeded or significantly exceeded their expectations. A majority of respondents (97%) said they had planned to buy online again. More than half of the respondents to the survey (51.6%) said their items of choice were out of stock. Of those, 42.2%said they never purchased a different item. Most respondents (68%) said they did not use online customer service. More than a quarter (27.7%)of people surveyed said their experience with online customer service was negative, and 48.2%said it was positive.

In another study conducted bye-satisfy.com, a survey of 10,000 Internet customers found that only 36% are satisfied with their online interactions and that more than half of the transactions require a phone call or other offline interaction to resolve. The study also showed that online customers generally have higher service expectations. The survey’s findings are in sharp contrast to previous studies that indicated that Web businesses generally have met online shoppers’ expectations. The contrast is attributable to the different approaches taken by dot-com companies and traditional businesses that go to the Web. The findings revealed that businesses on the Web required more than just a pretty Web site and an e-mail address URLs because people who use this technology expected it to work, otherwise, it could be frustrating.

The online customer satisfaction field, like the rest of the dot-com industry, is far from mature, and new initiative are being tried all the time. But some of the techniques that shopping Web sites are trying now include virtual personal advisers, interactivity as an ongoing source of market research and some bells and whistles such as digital receipts. Above all else, the e-business must be concerned with their customers entire buying experience.