NCERT Class 11 Business Studies Chapter 5 PDF

CHAPTER 5 E MERGING MODES OF BUSINESS LEARNING OBJECTIVES After studying this chapter, you should be able to: state the meaning of e-business; explain the process of online buying and selling as a part of e-business; distinguish e-business from tradi...

CHAPTER 5 E MERGING MODES OF BUSINESS LEARNING OBJECTIVES After studying this chapter, you should be able to: state the meaning of e-business; explain the process of online buying and selling as a part of e-business; distinguish e-business from traditional business; state benefits of switching over to electronic mode; explain requirements for a firm’s initiation into e-business; identify major security concerns of electronic mode of doing business; discuss the need for business process outsourcing; and appreciate the scope of business process outsourcing. 2019-20 118 BUSINESS STUDIES “Let us do some shopping,” Rita woke up Rekha, her friend from the home- village who had come to Delhi during the vacations. “At this hour well past midnight,” said Rekha rubbing her eyes, “Who would be sitting with his shop open for you?” “Oh! Perhaps I could not convey it properly. We are not going anywhere! I am talking about online shopping over the internet!” told Rita. “Oh yes! I have heard of online shopping, but have never done any,” Rekha said, “What would they be selling over the internet, how will they deliver, What about payment… and why is it that internet has not yet become as popular in the villages? As Rekha was grappling with these questions, Rita had already logged on to one of India’s largest online shopping mall. 5.1 INTRODUCTION responsible for these two new modes of business would be in order. The way business is done has The newer modes of business are undergone fundamental changes not new business. These are rather during the last decade or so. The simply the new ways of doing business manner of conducting business is attributable to a number of factors. referred to as the ‘mode of business,’ You are aware that business as an and, the prefix ‘emerging’ underlines activity is aimed at creating utilities or the fact, that these changes are value in the form of goods and services happening here and now, and, that which the household and industrial these trends are likely to continue. buyers purchase for meeting their In fact, if one were to list the needs and wants. In an effort to three strongest trends that are improve the business processes — be shaping business, these would be: it purchase and production, (i) digitisation — the conversion of text, marketing, finance or human resources sound, images, video, and other business managers and business content into a series of ones and zeroes thinkers keep evolving newer and better that can be transmitted electronically, (ii) outsourcing, and, (iii) inter - ways of doing things. Business firms nationalisation and globalisation. You have to strengthen their capabilities of will read about international business creating utilities and delivering value in Chapter 11. In this chapter, we will to successfully meet the competitive be familiarising you with the first two pressures and ever-growing demands developments, i.e., digitisation (a term of consumers for better quality, lower from electronics) of business — also prices, speedier deliveries and better referred to as electronic business customer care. Besides, the quest for (e-business), and Business Process benefitting from emerging technologies Outsourcing (BPO). Before we do so, a means that business as an activity brief discussion about the factors keeps evolving. 2019-20 EMERGING MODES OF BUSINESS 119 5.2 e-BUSINESS transactions and functions conducted electronically, including the more If the term business is taken to mean popular gamut of transactions called a wide range of activities comprising ‘e-commerce.’ e-commerce covers a industry, trade and commerce; firm’s interactions with its customers e-business may be defined as the and suppliers over the internet. conduct of industry, trade and e-business includes not only commerce using the computer e-commerce, but also other networks. The network you are most electronically conducted business familiar with as a student or consumer functions such as production, is the internet. Whereas internet is a inventory management, product public thorough way, firms use more development, accounting and finance private, and, hence more secure and human resource management. networks for more effective and efficient e-business is, therefore, clearly much management of their internal functions. more than buying and selling over the e-business versus e-commerce: Internet, i.e., e-commerce. Though, many a times, the terms e-business and e-commerce are used 5.2.1 Scope of e-Business interchangeably, yet more precise definitions would distinguish between We have mentioned above that the the two. Just as the term ‘business’ is scope of e-business is quite vast. a broader term than ‘commerce’, Almost all types of business functions e-business is a more elaborate term such as production, finance, marketing and comprises various business and personnel administration as well Figure 5.1 Business to Business e-Commerce 2019-20 120 BUSINESS STUDIES as managerial activities like planning, of computers is used for placing orders, organising and controlling can be monitoring production and delivery of carried out over computer networks. components, and making payments. The other way of looking at the scope Likewise, a firm may strengthen and of e-business is to examine it in terms improve its distribution system by of people or parties involved in exercising a real time (as it happens) electronic transactions. Viewed from control over its stock-in-transit as well this perspective, a firm’s electronic as that with different middlemen in transactions and networks can be different locations. For example, each visualised as extending into three consignment of goods from a warehouse directions viz., (i) B2B which is a firm’s and the stock-at-hand can be monitored interactions with other businesses, and replenishments and reinforcements (ii) B2C i.e., a firm’s interactions with can be set in motion as and its customers and (iii) intra-B or a firm’s when needed. Or else, a customer’s internal processes. specifications may be routed through A brief discussion of various the dealers to the factory and fed constituents of e-business and inter- into the manufacturing system for and intra-transactions among them is customised production. Use of given as below: e-commerce expedites the movement of (i) B2B Commerce: Here, both the the information and documents; and of parties involved in e-commerce late, money transfers as well. transactions are business firms, and, Historically, the term e-commerce hence the name B2B, i.e., business-to- originally meant facilitation of B2B business (see Figure 5.1). Creation of transactions using Electronic Data utilities or delivering value requires a Interchange (EDI) technology to send business to interact with a number of other business firms which may be and receive commercial documents like suppliers or vendors of diverse inputs; purchase orders or invoices. or else they may be (ii) B2C Commerce: As the name a part of the channel through which implies, B2C (business-to-customers) a firm distributes its products to transactions have business firms at the consumers. For example, the one end and its customers on the other manufacture of an automobile requires end. Although, what comes to one’s assembly of a large number of mind instantaneously is online components which in turn are being shopping, it must be appreciated that manufactured elsewhere — within the ‘selling’ is the outcome of the marketing vicinity of the automobile factory or even process. And, marketing begins well overseas. To reduce dependence on a before a product is offered for sale and single supplier, the automobile factory continues even after the product has has to cultivate more than one vendor been sold. B2C commerce, therefore, for each of the components. A network entails a wide gamut of marketing 2019-20 EMERGING MODES OF BUSINESS 121 Benefits of e-Commerce 1. Business Organisation: (i) Expands the marketplace to national and international markets, (ii) Gradual decline in the cost of operations, (iii) Facilitates ‘pull’ supply chain management, (iv) Competitive advantage over competitors, (v) Proper time management and support business processes, and (vi) Small firms co-exist with big firms (win-win). 2. Benefits to Consumers and Society (i) Flexibility, (ii) Competitive price/discounts/waive offs, (iii) More options and choices and Customised products, (iv) Quick and Timely delivery (digitised products), (v) Employment potential, (vi) Facilitate e-Auctions and e-Tenders, (vii) Interaction with consumers, (viii) Wider outreach. activities such as identifying activities, features to be tailor-made to suit their promotion and sometimes even delivery requirements, but also the convenience of products (e.g., music or films) that of delivery and payment at their are carried out online. e-Commerce pleasure. With the onset of e-commerce, permits conduct of these activities at a all this has become a reality. much lower cost but high speed. For Further, B2C variant of e-commerce example, ATM speeds up withdrawal enables a business to be in touch with of money. its customers on round-the-clock Customers these days are basis. Companies can conduct online becoming very choosy and desire surveys to ascertain as to who is individual attention to be given to them. buying what and what the customer Not only do they require the product satisfaction level is. ATM speeds up Withdrawal of Money e-Commerce greatly facilitates and speeds up the entire B2C process. Withdrawal of one’s own money from banks was, for example, a tedious process in the past. One had to go through a series of procedural formalities before he or she was able to get the payment. After the introduction of ATMs, all that is fast becoming a history now. The first thing that occurs is that the customer is able to withdraw his money, and the rest of the back-end processes take place later. 2019-20 122 BUSINESS STUDIES By now, you might have formed the requirements of the individual opinion that B2C is a one-way traffic, customer. In a similar vein, closer i.e., from business-to-customers. But computer-based interactions among do remember that its corollary, C2B the other departments makes it commerce is very much a reality which possible for the firm to reap provides the consumers with the advantages of efficient inventory freedom of shopping-at-will. Customers and cash management, greater can also make use of call centres set utilisation of plant and machinery, up by companies to make toll free calls effective handling of customers’ to make queries and lodge complaints orders, and effective human resource round the clock at no extra cost to management. them. The beauty of the process is that Just as intercom facilitated voice one need not set up these call centres communication within the office, or help lines; they may be outsourced. intranet facilitates multimedia and even We shall discuss this aspect later in the 3-D graphic communication among section devoted to Business Process organisational units for well- Outsourcing (BPO). informed decisions, permitting better (iii) Intra-B Commerce: Here, parties coordination, faster decisions and involved in the electronic transactions speedier workflows. Take for example, are from within a given business firm, hence, the name intra-B commerce. As a firm’s interactions with its employees, noted earlier too, one critical difference sometimes referred to as B2E between e-commerce and e-business commerce. Companies are resorting to is that, e-commerce comprises a personnel recruitment, interviewing business firm’s interaction with its and selection, training, development suppliers, and distributors/other and education via e-commerce business firms (hence, the name B2B) (captured in a catch-all phrase and customers (B2C) over the internet. ‘e-learning’). Employees can use While e-business is a much wider term electronic catalogues and ordering and also includes the use of intranet forms and access inventory information for managing interactions and for better interaction with the dealings among various departments customers. They can send field reports and persons within a firm. It is largely via e-mail and the management can due to use of intra-B commerce that have them on real time basis. In fact, today it has become possible for Virtual Private Network (VPN) the firms to go in for flexible technology would mean that employees manufacturing. Use of computer do not have to come to office. Instead, networks makes it possible for the in a way the office goes to them and marketing department to interact they can work from wherever they are, constantly with the production and at their own speed and time department and get the customised convenience. Meetings can be held products made as per the online via tele/ video conferencing. 2019-20 EMERGING MODES OF BUSINESS 123 (iv) C 2 C C o m m e r c e : Here, the buyer can instead send the money to business originates from the consumer Pay Pal. From there, PayPal notifies the and the ultimate destination is also seller that they will hold the money for consumers, thus the name C2C them until the goods have been shipped commerce (see Figure 5.2). This type and accepted by the buyer. of commerce is best suited for dealing An important C2C area of in goods for which there is no interactive commerce can be the established market mechanism, for formation of consumers’ forum and example, selling used books or clothes pressure groups. You might have heard either on cash or barter basis. The vast of Yahoo groups. Like a vehicle owner space of the internet allows persons to in a traffic jam can alert others via globally search for potential buyers. message on radio (you must have Additionally, e-commerce technology heard traffic alerts on FM) about the provides market system security to traffic situation of the area he is stuck such transactions which otherwise in; an aggrieved customer can share his would have been missing if experience with a product/service/ the buyers and sellers were to vendor and warn others by writing just interact in anonymity of one-to-one a message and making it known to the transactions? An excellent example of entire group. And, it is quite possible this is found at eBay where consumers that the group pressure might result sell their goods and services to other in a solution of this problem. consumers. To make this activity From the foregoing discussion more secure and robust, several concerning scope of e-business, it is technologies have emerged. Firstly, clear that e-business applications are eBay allows all the sellers and buyers varied and many. to rate one another. In this manner, future prospective purchasers may see e-Business versus Traditional that a particular seller has sold to more Business than 2,000 customers — all of whom By now, you must have formed an idea rate the seller as excellent. In another as to how e-enabling has radically example, a prospective purchaser may transformed the mode of doing see a seller who has previously sold business. Table 5.1 (page 129) provides only four times and all four rate the a feature on comparison between seller poorly. This type of information traditional business and e-business. is helpful. Another technology that has A comparative assessment of the emerged to support C2C activities is features of traditional and e-business that of the payment intermediary. as listed in Table 5.1 points towards PayPal is a good example of this kind. the distinct benefits and limitations of Instead of purchasing items directly e-business that we shall discuss in the from an unknown, untrusted seller; the following paragraphs. 2019-20 124 BUSINESS STUDIES e-commerce makes flexible Manufacturing and Mass Customisation possible Customised products have traditionally been made to order by craftsmen and have, therefore, been expensive and delivery times have been long. Industrial revolution meant that organisations could engage in mass production and could sell homogeneous products rolled out of the factory at a lower cost due to the economies of scale. Thanks to e-commerce, now organisations can offer customised products/ services at lower costs, that previously were only associated with mass produced commodity items. Here are a few examples: 401(k) Forum (US) Customises educational content and investment advice based on individual interviews. Acumin Corp. (US) Customises vitamin pills specified by using the Internet. Customers fill in lifestyle and health questionnaire. Dell (US) Build your own PC. Green Mountain Electricity supplier (but not generator). Customers could select Energy Resources sources for their electricity, e.g., hydro, solar, etc. (US) Levi Jeans Tailored jeans service. Web service suspended after complaints (Original Spin) by retailers but service now offered through retailers. Offers (US) 49,500 different sizes and 30 styles for a total of nearly 1.5 million options for a cost of just $55. Orders are sent by net and jeans are produced and shipped in 2-3 weeks. N.V. Nutsbedrijf Westland supplies natural gas to many tulip growers in the Westland Netherlands. Computers in the greenhouse help greenhouse (Newzealand) owners maintain temperature, CO2 output, humidity, light and other factors in the most cost-efficient manner. National Bicycle Custom built bicycles within 2/3 days of taking the order. (Japan) Simon and Teachers can order customised books specifically matched to Schuster (US) individual course and student needs. Xerox DocuTech printers are generating in excess of 125,000 customised books a month. Skyway (US) Skyway is a logistics company offering whole order delivery. Shipments from multiple origins with different modes of transport can be merged in transit and delivered as a single order with one set of paperwork to the store or consumer. SmithKline Creates customised stop smoking programme for customers. Beecham (US) Uses call centre questionnaire to generate a series of personalised communications. Source: Adapted from http://www.managingchange.com 2019-20 EMERGING MODES OF BUSINESS 125 Place advertisement Want to sell products Want to buy products Receives products Customer Receives money Customer Figure 5.2 Consumer to Consumer e-Commerce (C2C) 5.3 B ENEFITS OF e- BUSINESS is routed to the restaurant located closest to his location. The food is (i) Ease of formation and lower delivered and the payment collected by investment requirements: Unlike a the restaurant staff and the amount due host of procedural requirements for to you as a client solicitor is credited to setting up an industry, e-business is your account through an electronic relatively easy to start. The benefits of clearing system. internet technology accrue to big or (ii) Convenience: Internet offers the small business alike. In fact, Internet convenience of ‘24 hours × 7 days a is responsible for the popularity of the week × 365 days’ a year business that phrase: ‘networked individuals and allowed Rita and Rekha to go for f i r m s a re m o r e ef f i c i e n t t h a n shopping well after midnight. Such networthed individuals.’ This means that even if you do not have much of flexibility is available even to the the investment (networth) but have organisational personnel whereby they contacts (network), you can do can do work from wherever they are, fabulous business. and whenever they may want to do it. Imagine a restaurant that does not Yes, e-business is truly a business have any requirement of a physical as enabled and enhanced by space. Yes, you may have an online electronics and offers the advantage ‘menu’ representing the best of cuisines of accessing anything, anywhere, from the best of restaurants the world- anytime. over that you have networked with. The (iii) Speed: As already noted, much of customer visits your website, decides the buying or selling involves exchange the menu, places the order that in turn of information that Internet allows at 2019-20 126 BUSINESS STUDIES Box A Some e-Business Applications e-Procurement: It involves internet-based sales transactions between business firms, including both, “reverse auctions” that facilitate online trade between a single business purchaser and many sellers, and, digital marketplaces that facilitate online trading between multiple buyers and sellers. e-Bidding/e-Auction: Most shopping sites have ‘Quote your price’ whereby you can bid for the goods and services (such as airline tickets!). It also includes e-tendering whereby one may submit tender quotations online. e-Communication/e-Promotion: Right from e-mail, it includes publication of online catalogues displaying images of goods, advertisement through banners, pop-ups, opinion poles and customer surveys, etc. Meetings and conferences may be held by the means of video conferencing. e-Delivery: It includes electronic delivery of computer software, photographs, videos, books (e-books) and journals (e-journals) and other multimedia content to the user’s computer. It also includes rendering of legal, accounting, medical, and other consulting services electronically. In fact, internet provides the firms with the opportunities for outsourcing of a host of Information Technology Enabled Services (ITES) that we will be discussing under business process outsourcing. Now, you can even print the airlines and railway tickets at home! e-Trading: It involves securities trading, that is online buying and selling of shares and other financial instruments. For example, sharekhan.com is India’s largest online trading firm. the click of a mouse. This benefit hand, it allows the seller an access to becomes all the more attractive in the the global market; on the other hand, case of information-intensive products it affords to the buyer a freedom to such as softwares, movies, music, choose products from almost any part e-books and journals that can even be of the world. It would not be an delivered online. Cycle time, i.e., the exaggeration to say that in the absence time taken to complete a cycle from the of internet, globalisation would have origin of demand to its fulfilment, been considerably restricted in scope is substantially reduced due to and speed. transformation of the business (v) Movement towards a paperless processes from being sequential to society: Use of Internet has becoming parallel or simultaneous. considerably reduced dependence on You know that in the digital era, money paperwork and the attendant ‘red tape.’ is defined as electronic pulses at You know that Maruti Udyog does bulk the speed of light, thanks to the of its sourcing of supplies of materials electronic funds transfer technology of and components in a paper less fashion. e-commerce. Even the government departments and (iv) Global reach/access: Internet is regulatory authorities are increasingly truly without boundaries. On the one moving in this direction whereby they 2019-20 EMERGING MODES OF BUSINESS 127 allow electronic filing of returns and the division of society on the basis of reports. In fact, e-commerce tools are familiarity and non-familiarity with effecting the administrative reforms digital technology. aimed at speeding up the process of (iv) Increased risk due to anonymity granting permissions, approvals and and non-traceability of parties: licences. In this respect, the provisions Internet transactions occur between of Information Technology Act 2000 cyber personalities. As such, it becomes are quite noteworthy. difficult to establish the identity of the parties. Moreover, one does not know 5.4 LIMITATIONS OF e- BUSINESS even the location from where the parties may be operating. It is riskier, therefore, e-business is not all that rosy. Doing transacting through internet. business in the electronic mode suffers e-business is riskier also in the sense from certain limitations. It is advisable that there are additional hazards of to be aware of these limitations as well. impersonation (someone else may (i) Low personal touch: High-tech it transact in your name) and leakage of may be, e-business, however, lacks confidential information such as credit warmth of interpersonal interactions. To card details. Then, there also are this extent, it is relatively less suitable problems of ‘virus,’ and ‘hacking,’ that mode of business in respect of product you must have heard of. If not, we will categories requiring high personal be dealing with security and safety touch such as garments, toiletries, etc. concerns of online business. (ii) Incongruence between order (v) People resistance: The process of taking/giving and order fulfilment adjustment to new technology and new speed: Information can flow at the click way of doing things causes stress and of a mouse, but the physical delivery of the product takes time. This a sense of insecurity. As a result, incongruence may play on the patience people may resist an organisation’s of the customers. At times, due to plans of entry into e-business. technical reasons, web sites take (vi) Ethical fallouts: “So, you are unusually long time to open. This may planning to quit, you may as well quit further frustrate the user. right now”, said the HR manager (iii) Need for technology capability showing her a copy of the e-mail that and competence of parties to she had written to her friend. Sabeena e-business: Apart from the traditional was both shocked and stunned as to 3R’s (Reading, WRiting, and how her boss got through to her e-mail ARithmetic), e-business requires a account. Nowadays, companies use an fairly high degree of familiarity of the ‘electronic eye’ to keep track of the parties with the world of computers. computer files you use, your e-mail And, this requirement is responsible for account, the websites you visit etc. what is known as digital divide, that is Is it ethical? 2019-20 128 BUSINESS STUDIES Table 5.1 Difference between Traditional and e-Business Basis of distinction Traditional business e-business Ease of for mation Difficult Simple Physical presence Required Not required Proximity to the source of raw Locational requirements materials or the market for the None products Low as no requirement of Cost of setting up High physical facilities High due to fixed charges Low as a result of reliance associated with investment in on network of Operating cost procurement and storage, relationships rather than production, marketing and ownership of resources distribution facilities Nature of contact with the suppliers and the Indirect through inter mediaries Direct customers Hierarchical - from top level Non-hierarchical, Nature of inter nal management to middle level allowing direct vertical, communication management to lower level horizontal and diagonal management to operatives communication Response time for meeting customers'/inter nal Long Instantaneous requirements Horizontal/flat due to Shape of the organisational Vertical/tall, due to hierarchy or directness of command structure chain of command and communication. Sequential precedence- Simultaneous succession relationship, i.e., (concurrence) different Business processes and purchase - production/operation processes. Business length of the cycle - marketing - sales. The, process cycle is, business process cycle is, therefore, shorter therefore, longer Opportunity for inter - Much more Less personal touch Less. However, for digitable products such Opportunity for physical an opportunity is pre-sampling of the Much more tremendous. You can pre- products sample music, books, jour nals, software, videos, etc. Much, as cyber space is Ease of going global Less truly without boundaries 2019-20 EMERGING MODES OF BUSINESS 129 Gover nment patronage Shrinking Much, as IT sector is among the topmost priorities of the gover nment Technically and Semi-skilled and even Nature of human capital professionally qualified unskilled manpower needed. personnel needed Low due to ar m's length High due to the distance T ransaction risk transactions and face-to-face and anonymity of the contact. parties Despite limitations, e-commerce is 5.5 O NLINE TRANSACTIONS the way Operationally, one may visualise three It may be pointed out that most of the stages involved in online transactions. limitations of e-business discussed Firstly, the pre-purchase/sale stage above are in the process of being including advertising and information- overcome. Websites are becoming seeking; secondly, the purchase/sale more and more interactive to overcome stage comprised of steps such as price the problem of ‘low touch.’ negotiation, closing of purchase/sales Communication technology is deal and payment; and thirdly, the continually evolving to increase the delivery stage (see Figure 5.2). It may speed and quality of communication be observed from Figure 5.2 that, except through internet. Efforts are on to the stage relating to delivery, all other overcome the digital divide, for stages involve flow of information. The example, by resorting to such information is exchanged in the strategies as setting up of community traditional business mode too, but at telecentres in villages and rural areas severe time and cost constraints. In face- in India with the involvement of to-face interaction in traditional government agencies, NGOs and business mode, for example, one needs international institutions. In order to to travel to be able to talk to the other diffuse e-commerce in all nooks and party, requiring travel effort, greater time corners, India has undertaken about and costs. Exchange of information 150 such projects. through the telephone is also In view of the above discussion, it cumbersome. It requires simultaneous is clear that e-business is here to stay presence of both the parties for verbal and is poised to reshape the exchange of information. Information businesses, governance and the can be transmitted by post too, but this economies. It is, therefore, appropriate again is quite a time consuming and that we familiarise ourselves with how expensive process. Internet comes in as e-business is conducted. the fourth channel which is free from 2019-20 130 BUSINESS STUDIES Information Technology Act 2000 paves way for Paperless Society Below are given some of the provisions of Information Technology Act 2000 that have made it possible to have paper less dealings in the business world as well as in the government domain. Legal recognition of electronic records (Section 4): Where any law provides that information or any other matter shall be in writing or in the typewritten or printed form, then, notwithstanding anything contained in such law, such requirement shall be deemed to have been satisfied if such information or matter is rendered or made available in an electronic form; and accessible so as to be usable for a subsequent reference. Legal recognition of digital signatures (Section 5): Where any law provides that information or any other matter shall be authenticated by affixing the signature or any document shall be signed or bear the signature of any person, hence notwithstanding anything contained in such law, such requirement shall be deemed to have been satisfied, if such information or matter is authenticated by means of digital signature affixed in such a manner as may be prescribed by the Central Government. Use of electronic records and digital signatures in Government and its agencies (Section 6-1): Where any law provides for the filing of any form, application or any other document with any office, authority, body or agency owned or controlled by the appropriate Government in a particular manner; the issue or grant of any licence, permit, sanction or approval by whatever name called in a particular manner; the receipt or payment of money in a particular manner, then, notwithstanding anything contained in any other law for the time being in force, such requirement shall be deemed to have been satisfied if such filing, issue, grant, receipt or payment, as the case may be, is effected by means of such electronic form as may be prescribed by the appropriate Government. Retention of electronic records (Section 7-1): Where any law provides that documents, records or information shall be retained for any specific period, then, that requirement shall be deemed to have been satisfied if such documents, records or information are retained in the electronic form. Source: Information Technology Act, 2000 most of the problems referred to above. discussing the seller’s perspective in the In the case of information-intensive paragraphs on resource requirements products and services such as software for e-business. So, are you ready with and music, even delivery can take the shopping list or would you like to place online. rely on your instincts as you take What is described here is the a tour of the shopping mall? Let process of online trading from a us follow Rita and Rekha browsing customer’s standpoint. We will be indiatimes.com. 2019-20 EMERGING MODES OF BUSINESS 131 (i) Registration: Before online Payment Services (IMPS), NEFT shopping, one has to register with the and RTGS. In this case, therefore, online vendor by filling-up a the buyer may transfer the amount registration form. Registration means for the agreed price of the transaction that you have an ‘account’ with the to the account of the online vendor online vendor. Among various details who may, then, proceed to arrange that need to be filled in is a ‘password’ for the delivery of goods. as the sections relating to your Credit or Debit Cards: Popularly ‘account’, and ‘shopping cart’ are referred to as ‘plastic money,’ these password protected. Otherwise, anyone cards are the most widely used can login using your name and shop in medium for online transactions. In your name. This can put you in trouble. fact, about 95 per cent of online (ii) Placing an order: You can pick consumer transactions are and drop the items in the shopping cart. executed with a credit card. Credit Shopping cart is an online record of card allows its holder to make what you have picked up while purchase on credit. The amount browsing the online store. Just as in a due from the card holder to the physical store you can put in and take online seller is assumed by the card items out of your cart, likewise, you can issuing bank, who later transfers do so even while shopping online. After the amount involved in the being sure of what you want to buy, transaction to the credit of the seller. you can ‘checkout’ and choose your Buyer’s account is debited, who payment options. often enjoys the freedom to deposit (iii) Payment mechanism: Payment the amount in instalments and at for the purchases through online his convenience. Debit card allows shopping may be done in a number of its holder to make purchases ways: through it to the extent of the Cash-on Delivery (CoD): As is amount lying in the corresponding clear from the name, payment for account. The moment any the goods ordered online may be transaction is made, the amount made in cash at the time of due as payment is deducted physical delivery of goods. electronically from the card. Cheque: Alternatively, the online To accept credit card as an online vendor may arrange for the pickup payment type, the seller first needs of the cheque from the customer’s a secure means of collecting credit end. Upon realisation, the delivery card information from its customer. of goods may be made. Payments through credit cards can Net-banking Transfer: Modern be processed either manually, or banks provide to their customers the through an online authorisation facility of electronic transfer of funds system, such as SSL Certificate (see over the Internet using Immediate box on, History of e-commerce). 2019-20 132 BUSINESS STUDIES Digital Cash: This is a form of exchange, are prone to a number of electronic currency that exists only risks. Risk refers to the probability of in cyberspace. This type of any mishappening that can result currency has no real physical into financial, reputational or properties, but offers the ability to psychological losses to the parties use real currency in an electronic involved in a transaction. Because of format. First you need to pay to a greater probability of such risks in bank (vide cheque, draft, etc.) an the case of online transactions, amount equivalent to the digital security and safety issues becomes cash that you want to get issued the most crucial concern in in your favour. Then the bank e-business. One may broadly discuss dealing in e-cash will send you a these issues under three headings: special software (you can transaction risks, data storage download on your hard disk) that and transmission risks, and will allow you to draw digital cash threat to intellectual property and from your account with the bank. privacy risks. You may then use the digital funds ( i ) T r a n s a c t i o n r i s k s : Online to make purchases over the web. transactions are vulnerable to the following types of transaction risks: 5.6 S E C U R I T Y A N D S AFETY O F Seller denies that the customer ever e-TRANSACTIONS: e-BUSINESS RISKS placed the order or the customer denies that he ever placed the Online transactions, unlike arm’s order. This may be referred to as length transactions in physical ‘default on order taking/giving.’ 2019-20 EMERGING MODES OF BUSINESS 133 The intended delivery does not the sellers. These sites provide take place, goods are delivered at protection to the customers against wrong address, or goods other default on delivery and reimburse the than ordered may be delivered. payments made up to some extent. This may be regarded as ‘default As for the payments, we have on delivery’. already seen that in almost 95 per cent Seller does not get the payment for of the cases people use credit cards for the goods supplied whereas the their online purchases. At the time of customer claims that the payment confirming the order, the buyer is was made. This may be referred required to furnish the details such as to as ‘default on payment’. the card number, card issuer and card Thus, in e-business risk may arise validity online. These details may be for the seller or the buyer on account processed offline; and only after of default on order taking/giving, satisfying himself or herself about the delivery as well as payment. Such availability of the credit limits, etc., the situations can be averted by providing seller may go ahead with the delivery for identity and location/address of goods. Alternatively, e-commerce verification at the time of registration, technology today permits even online and obtaining authorisation as to the processing of the credit card order confirmation and payment information. For protecting the credit realisation. For example, in order to card details from being misused, confirm that the customer has correctly shopping malls these days use the entered his details in the registration encryption technology such as form, the seller may verify the same Netscape’s Secure Sockets Layer (SSL). from the ‘cookies’. Cookies are very You can gain some information about similar to the caller ID in telephones SSL from box on history of e-commerce. that provide telemarketers with such In the succeeding section, we will relevant information as: the consumer’s familiarise you with the encryption or name, address and previous purchase cryptography — an important tool payment record. As for customer’s used for safeguarding against data protection from anonymous sellers, it transmission risks in online is always advisable to shop from well- transactions. established shopping sites. While (ii) Data storage and transmission allowing advertisers to sell their risks: Information is power indeed. But products online, these sites assure think for a moment if the power goes customers of the sellers’ identities, into the wrong hands. Data stored in locations and service records. Sites the systems and en-route is exposed such as eBay even provide for rating of to a number of risks. Vital information 2019-20 134 BUSINESS STUDIES may be stolen or modified to pursue who may start dumping a host of some selfish motives or simply for fun/ advertising and promotional literature adventure. You must have heard of into your e-mail box. You are then at ‘virus’ and ‘hacking’. Do you know the the receiving end, with little respite from full form of the acronym ‘VIRUS?’ It receiving junk mails. means Vital Information Under Siege. Actually, virus is a program (a series of 5.7 RESOURCES REQUIRED FOR commands) which replicates itself on the SUCCESSFUL e- BUSINESS other computer systems. The effect of IMPLEMENTATION computer viruses can range from mere Setting up of any business requires annoyance in terms of some on-screen money, men and machines (hardware). display (Level-1 virus), disruption of For e-business, you require additional functioning (Level-2 virus) damage to resources for developing, operating, target data files (Level-3 virus), to maintaining and enhancing a website complete destruction of the system where ‘site’ means location and ‘web’ (Level-4 virus). Installing and timely means world wide web (www). Simply updating anti-virus programmes and speaking, a website is a firm’s location scanning the files and disks with them on the world wide web. Obviously, provides protection to your data files, website is not a physical location. folders and systems from virus attacks. Rather, it is an online embodiment of Data may be intercepted in the all the content that a firm may like to course of transmission. For this, one provide to others. may use cryptography. It refers to the art of protecting information by 5.8 O UTSOURCING: CONCEPT transforming it (encrypting it) into an unreadable format called ‘cyphertext’. Outsourcing is yet another trend that Only those who possess a secret key can is radically reshaping business. It decipher (or decrypt) the message into refers to a long-term contracting out ‘plaintext’. This is similar to using ‘code generally the non-core and of late even words’ with some one so that others do some of the core activities to captive not understand your conversation. or third party specialists with a (iii) Risks of threat to intellectual view to benefitting from their property and privacy: Internet is an experience, expertise, efficiency and, open space. Once the information is even investment. available over the internet, it moves out This simple definition leads one to of the private domain. It then becomes the salient features of the concept that difficult to protect it from being copied. are not peculiar to an industry/ Data furnished in the course of online business or country, but have become transactions may be supplied to others a global phenomenon. 2019-20 EMERGING MODES OF BUSINESS 135 (i) Outsourcing involves contracting As the organisations venture to out: Literally, outsourcing means to experiment with outsourcing, they may source from outside what you have initially outsource only the non- hitherto been doing in-house. For core activities. But later on, as they example, most companies have so far become comfortable with managing appointed their own sanitation staff for interdependencies, they may start maintaining neatness, cleanliness and getting even the core activities overall housekeeping of their premises. performed by the outsiders. For That is, sanitation and housekeeping example, a school may tie-up with some functions were being performed in- computer training institute to impart house. But of late, many companies computer education to its students. have started outsourcing these (iii) Processes may be outsourced activities, i.e., they have entrusted to a captive unit or a third party: outside agencies to perform these Think of a large multinational activities for their organisations on a corporation that deals in diverse contractual basis. products and markets them to a large (ii) Generally non-core business number of countries. A number of activities are outsourced: Sanitation processes such as recruitment, and housekeeping functions are non- selection, training, record and payroll core for most organisations. Of course, (Human Resources), management of for municipalities and sanitations accounts receivable and accounts services providers, these activities payable (accounting and finance), comprise the core of their business customer support/grievance handling activity. Housekeeping is a core activity /troubleshooting (marketing) are for a hotel. In other words, depending common to all its subsidiaries upon what business a company is in, operating in different countries. If these there will be some activities that are processes could be centralised and central and critical to its basic business parcelled out to a business unit created purpose. Other activities may be especially for this purpose, this would regarded as secondary or incidental to result in avoidance of duplication of fulfilling that basic purpose. The resources, realisation of efficiency and purpose of a school, for example, is to economy’s performance of same activity develop a child by means of curricular on a large scale at one or a few select and co-curricular activities. Clearly, locations, thereby resulting in these activities comprise the ‘core’ substantial reduction in costs. Clearly, activities. Running a cafeteria/canteen therefore, if the task of performing some or a book store is non-core activity for activity internally is sufficiently large, a school. it may be beneficial for the firm to have 2019-20 136 BUSINESS STUDIES Figure 5.4 Types of Outsourcing Service Providers a captive service provider, i.e., a service mature, they move simultaneously provider set up for providing services horizontal and vertical. of a given kind to only one firm. General The most important reason Electric (GE) is, for instance, the largest underlying the use of outsourcing is captive BPO unit in India for providing to benefit from the expertise and certain kinds of services to the parent experience of others. Institutions like company in the United States as well schools, companies and hospitals can as to its subsidiaries in other countries. outsource the cafeteria activity to the Or else, these processes may be catering and nutrition firms for whom parcelled out to third party service providers who operate independently these activities comprise the core or in the market and provide services to heart of their operations. The idea of other firms too. outsourcing is valuable as you tend to Figure 5.4 provides a synoptical gain not only in terms of their expertise view of how a firm can outsource some and experience and the resultant of its activities to the captive and third efficiency, but it also allows you to limit party service providers. The hired party your investment and focus attention to service providers are the persons/firms what your core processes are. which specialise in some processes Little wonder that outsourcing is such as Human Resource Management fast becoming an emerging mode of (HRM) and provide their services to a business. Firms have started wide base of clients, cutting across increasingly outsourcing one or more industries. Such service providers are called ‘horizontals’ in the outsourcing of their processes which can be more terminology. Else, they may specialise efficiently and effectively carried out by in one or two industries and scale up others. What qualifies outsourcing to doing a number of processes from as an emerging mode of business non-core to core. These are called is its increasing acceptance as a ‘verticals.’ As the service providers fundamental business policy and 2019-20 EMERGING MODES OF BUSINESS 137 philosophy, as opposed to the earlier even more popular term is ‘call centres’ philosophy of ‘doing it all by yourself ’. providing customer -oriented voice based services. About 70 per cent of 5.8.1 Scope of Outsourcing the BPO industry’s revenue comes Outsourcing comprises four key from call-centers, 20 per cent from segments: contract manufacturing, high-volume, low-value data work and contract research, contract sales and the remaining 10 per cent from higher- informatics (see Figure 5.5). value information work. ‘Customer Care’ The term outsourcing has more accounts for the bulk of the call centre popularly come to be associated with activities with 24 hours ×7 days IT -enabled services or Business handling of in-bound (customer queries Process Outsourcing (BPO). In fact, and grievances) and out-bound Figure 5.5 Anatomy of Outsourcing 2019-20 138 BUSINESS STUDIES (customer surveys, payment follow-up or value, a business engages in a and telemarketing) traffic. Figure 5.5 number of processes, viz., purchase outlines various types of outsourcing and production, marketing and sales, activities. R&D, accounting and finance, HR and administration etc. Firms need to define 5.8.2 Need for Outsourcing or redefine themselves. They, for Necessity, they say, is the mother of all example, need to consider as to whether they would like to be called inventions. This can be said to be true a manufacturing or marketing even in case of the idea of outsourcing. organisation. Such a way of delimiting As discussed in the introduction to the the scope of business enables them to chapter, global competitive pressures focus their attention and resources on for higher quality products at lower select activities for better efficiency and costs, ever demanding customers, and effectiveness. emerging technologies are the three (ii) Quest for excellence: You are major drivers causing a rethink or aware of the benefits of division of labour re-look at business processes. These and specialisation. Outsourcing may be regarded as factors responsible enables the firms to pursue excellence for the continuing emergence of in two ways. One, they excel themselves outsourcing as a mode of business. In in the activities that they can do the fact, today outsourcing is being best by virtue of limited focus. And, resorted to not out of compulsion, they excel by extending their but also out of choice. Some of the capabilities through contracting out major reasons (and also benefits) of the remaining activities to those who outsourcing are discussed below. excel in performing them. In the quest (i) Focusing of attention: You may for excellence, it is necessary not only be good at doing so many things in to know what you would like to focus academics and extra-curricular on, but also what you would like activities, yet you would be better off others to do for you. by focusing your limited time and (iii) C o s t reduction: Global money on just a few things for better competitiveness necessitates not only efficiency and effectiveness. Likewise, global quality, but also global business firms are realising the competitive pricing. As the prices turn usefulness of focusing on just a few southwards due to competitive areas where they have distinct pressures, the only way to survival and capability or core competence, and profitability is cost reduction. Division contracting out the rest of the activities of labour and specialisation, besides to their outsourcing partners. You are improving quality, reduces cost too. aware, that, in order to create utilities This happens due to the economies of 2019-20 EMERGING MODES OF BUSINESS 139 large scale accruing to the outsourcing (v) Fillip to economic development: partners as they deliver the same Outsourcing, more so offshore out- service to a number of organisations. sourcing, stimulates entrepreneurship, Differences in prices of factors of employment and exports in the host production across the countries countries (i.e., the countries from where are also a factor contributing to outsourcing is done). In India in the IT cost reduction. For example, India sector alone, for example, there has is a preferred destination for been such a tremendous growth of global outsourcing of Research and entrepreneurship, employment and Development, manufacturing, software exports that today we are the development and IT enabled services undisputed leaders as far as global (ITES) because of large scale availability outsourcing in software development of required manpower at lower costs. and IT-enabled services are concerned. (iv) Growth through alliance: To the Presently, we have 60 per cent of the extent you can avail of the services of $150 billion (1 billion = Rs. 100 crores) others, your investment requirements global outsourcing share in the are reduced, others have invested in informatics sector. those activities for you. Even if you may like to have a stake in the business of 5.8.3 Concerns over Outsourcing your outsourcing partners, you profit It will not be out of place to be aware of from not only the low-cost and better some of the concerns that outsourcing quality services provided by them to is besieged with. you but also by virtue of a share in the (i) Confidentiality: Outsourcing profit from the overall business they do. depends on sharing a lot of vital Therefore, you can expand rapidly as information and knowledge. If the the same amount of investible funds outsourcing partner does not preserve result in creation of a large number of the confidentiality, and, say, for businesses. Apart from financial example, passes it on to competitors, it returns, outsourcing facilitates inter- can harm the interest of the party that organisational knowledge sharing and outsources its processes. If outsourcing collaborative learning. This may also involves complete processes/products, explain the reasons why the firms today there is a further risk of the outsourcing are outsourcing not only their routine, partner starting up a competitive non-core processes, but also seeking business. to benefit from outsourcing such (ii) Sweat-shopping: As the firms strategic and core processes as that outsource seek to lower their costs, Research and Development. they try to get maximum benefit from 2019-20 140 BUSINESS STUDIES the low-cost manpower of the host outsource the work to countries where countries. Moreover, it is observed that there exists wage-discrimination on the whether in the manufacturing sector or basis of sex of the worker? the IT-sector, what is outsourced is the (iv) Resentment in the home kind of components or work that does countries: In the course of contracting not much build the competency and out manufacturing, marketing, capability of the outsourcing partner Research and Development or beyond the skills needed to comply IT -based services, what is ultimately with a rigidly prescribed procedure/ contracted out is ‘employment’ or jobs. method. So, what the firm that go in This may cause resentment back in the for outsourcing look for is the ‘doing’ home country (i.e., the country from skills rather than development of the which the job is being sourced out) particularly if the home country is ‘thinking’ skills. suffering from the problem of (iii) Ethical concerns: Think of a unemployment. shoe company that, in order to cut The aforementioned concerns, costs, outsources manufacturing to a however, do not seem to matter much developing country where they use as the global outsourcing continues to child labour/women in the factories. flourish. As India emerges as a global Back home, the company cannot do so outsourcing hub, the industry is due to stringent laws forbidding use of forecast to explode at exponential child labour. Is cost cutting by using rates — from 23,000 people and $ 10 child labour in countries where it is not million per annum in 1998 to over a outlawed or where the laws are ‘weak’, million people and revenues in excess ethical? Similarly, is it ethical to of $ 20 billion by 2008. Key Terms e-Business e-Commerce Browser Virus Secure Sockets Layer (SSL) Online trading e-Trading e-Procurement e-Bidding e-Cash Business Process Outsourcing Call Centres Verticals Horizontals Captive BPO units Sweat-shopping 2019-20 EMERGING MODES OF BUSINESS 141 SUMMARY The world of business is changing. e-business and outsourcing are the two most obvious expressions of this change. The trigger for the change owes its origin to both internal and external forces. Internally, it is the business firm’s own quest for improvement and efficiency that has propelled it into e-business and outsourcing. Externally, the ever mounting competitive pressures and ever demanding customers have been the force behind the change. Electronic mode of doing business, or e-business as it is referred to, presents the firm with promising opportunities for anything, anywhere and anytime to its customers, thereby, dismantling the time and space/locational constraints on its performance. Though e-business is high-tech, it suffers from the limitation of being low in personal touch. The customers as a result do not get attended to on an interpersonal basis. Besides, there are concerns over security of e-transactions and privacy of those who transact business over the internet. The benefits of e-commerce also seem to have accrued unevenly across countries and across regions within a country. Apart from becoming digital, the firms are also resorting to a departure from the erstwhile ‘do it all by yourself’ mindset. They are increasingly contracting out manufacturing, R and D as well as of business processes irrespective of whether these are IT enabled or not. India is riding high on the global outsourcing business and has gained considerably in terms of employment generation, capability building and contribution to exports and GDP. Together, the two trends of e-business and outsourcing are reshaping the way business is and will be conducted. Interestingly, both e-business and outsourcing are continuing to evolve, and that is why these are referred to as the emerging modes of business. EXERCISES Multiple Choice Questions Tick mark (ü) the most appropriate answer to the following questions 1. e-commerce does not include a. A business’s interactions with its suppliers b. A business’s interactions with its customers c. Interactions among the various departments within the business d. Interactions among the geographically dispersed units of the business 2019-20 142 BUSINESS STUDIES 2. Outsourcing a. Restricts only to the contracting out of Information Technology Enabled Services (ITES) b. Restricts only to the contracting out of non-core business processes c. Includes contracting out of manufacturing and R&D as well as service processes — both core and non-core — but restricts only to domestic territory d. Includes off-shoring 3. The payment mechanism typical to e-business a. Cash on Delivery (CoD) b. Cheques c. Credit and Debit Cards d. e-Cash 4. A Call Centre handles a. Only in-bound voice based business b. Only out-bound voice based business c. Both voice based and non-voice based business d. Both customer facing and back-end business 5. It is not an application of e-business a. Online bidding b. Online procurement c. Online trading d. Contract R&D Short Answer Questions (50 Words) 1. State any three differences between e-business and traditional business. 2. How does outsourcing represent a new mode of business? 3. Describe briefly any two applications of e-business. 4. What are the ethical concerns involved in outsourcing? 5. Describe briefly the data storage and transmission risks in e-business. Long Answer Questions 1. Why are e-business and outsourcing referred to as the emerging modes of business? Discuss the factors responsible for the growing importance of these trends. 2. Elaborate the steps involved in on-line trading. 2019-20 EMERGING MODES OF BUSINESS 143 3. Evaluate the need for outsourcing and discuss its limitations. 4. Discuss the salient aspects of B2C commerce. 5. Discuss the limitations of electronic mode of doing business. Are these limitations severe enough to restrict its scope? Give reasons for your answer. Projects/Assignments 1. Compare and contrast the products and their prices available on the internet and in retail shops. Is the quality, customer satisfaction and other factors the same? 2. Study any business unit/company which is using e-commerce, e-business as a way of doing business. Interview some people working there and find out the advantages in practical business in terms of its costs also. 2019-20