Big picture
Two big changes have reshaped how business is done. E-business uses the internet and digital networks to buy, sell, serve customers and coordinate with partners. Outsourcing contracts out non-core activities to specialised outside firms, often in other countries, so that a business can focus on what it does best.
India is a major player in both: a fast-growing e-commerce market and a global hub for outsourced services. This chapter explains how they work, their benefits and their risks.
Learning goals
Distinguish e-business and e-commerce.
Explain the scope of e-business: B2B, B2C, intra-B and C2C.
Explain the benefits and limitations of e-business and compare it with traditional business.
Explain the steps in an online transaction and the methods of online payment.
Explain the security and safety risks in e-business and how to reduce them.
Explain outsourcing, its need, scope, benefits and concerns.
Core ideas
1. E-business and e-commerce
E-commerce covers a firm's interaction with its customers and suppliers over the internet: buying and selling.
E-business is wider: it includes e-commerce plus all other business activities carried out electronically, such as production planning, human resource management, finance and internal communication.
2. Scope of e-business
Type | Meaning | Example |
|---|---|---|
B2B (business to business) | Transactions between businesses | A car maker ordering components from suppliers online; inventory management through supplier networks |
B2C (business to customer) | Transactions between a business and consumers | Online shopping on an e-commerce website; online ticket booking |
Intra-B (within the business) | Electronic interaction between departments and employees of the same firm | Online HR records, internal email, video conferencing between offices |
C2C (customer to customer) | Transactions between consumers, usually through a platform | Selling a used phone on an online classifieds website |
3. Benefits and limitations of e-business
Benefits | Limitations |
|---|---|
Ease of formation and lower investment (a website instead of a large shop) | Low personal touch: no face-to-face interaction |
Convenience: 24 × 7 access from anywhere | Delay in delivery of physical goods |
Speed in buying, selling and information exchange | Need for technology capability and digital literacy |
Global reach to customers worldwide | Increased risk of fraud and identity theft due to anonymity |
Movement towards a paperless society | People's resistance to new technology |
Ethical fallouts: monitoring of employees' emails, misuse of data |
Traditional business and e-business compared
Basis | Traditional business | E-business |
|---|---|---|
Ease of formation | Difficult | Simple |
Physical presence required | Yes (shop or office) | Not necessarily |
Cost of setting up | High | Low |
Operating cost | High (rent, staff) | Low |
Nature of contact with suppliers and customers | Indirect, through intermediaries | Direct |
Time to complete transactions | Longer | Shorter |
Business hours | Fixed | 24 × 7 |
Scope | Local or regional | Global |
Personal touch | High | Low |
4. Online transactions
An online purchase passes through three stages:
Pre-purchase or pre-sale stage: the customer searches for products and compares them using the seller's website, reviews and advertisements.
Purchase or sale stage: the customer places an order (often in a "shopping cart"), gives delivery details and pays.
Delivery stage: goods are delivered physically by courier or post; digital products (software, music, e-books) are delivered online.
Methods of payment
Method | How it works |
|---|---|
Cash on delivery (COD) | The customer pays in cash when the goods arrive |
Cheque | The customer sends a cheque; goods are dispatched after it clears |
Net banking transfer | The customer transfers money from their bank account through internet banking |
Credit and debit cards | Card details are entered online, and the amount is charged |
Digital cash and wallets | Prepaid electronic money stored in a mobile wallet |
UPI | Instant payment through a virtual payment address or QR code on a mobile phone |
5. Security and safety in e-business
Risks in e-business
Risk | Examples |
|---|---|
Transaction risks | Default on order taking or giving (the seller denies receiving an order or the buyer denies placing it); default on delivery (wrong goods, late or no delivery); default on payment (the seller isn't paid, or the buyer pays and gets nothing) |
Data storage and transmission risks | Viruses and malware that damage data; hacking to steal or alter data |
Risk of threat to intellectual property and privacy | Copying of designs, content and software; misuse of customers' personal data |
Ways to reduce risk: encryption of data during transmission; digital signatures and certificates to verify identity; secure payment gateways and two-factor authentication (such as an OTP); firewalls and anti-virus software; strong passwords; and buying only from trusted websites with secure (https) connections.
6. Outsourcing
Outsourcing means contracting out a business's non-core activities to outside agencies that specialise in them. Example: a bank in the USA hires a firm in Bengaluru to handle customer calls; a company hires an outside firm for payroll, security or cleaning.
Features: it covers non-core activities (which are not central to the firm's main business); it is done to specialised outside agencies; it may be within the country or abroad (offshoring); and it is a long-term contractual arrangement.
Need for outsourcing
Focusing on core competencies: the firm concentrates on what it does best.
Quest for excellence: specialised agencies do non-core work better.
Cost reduction through economies of scale of specialised agencies, and lower labour costs abroad.
Growth through inter-organisational relationships: partnerships help firms grow without building every capability themselves.
Fostering economic development in the countries where work is outsourced, through jobs and exports.
Scope
Business Process Outsourcing (BPO): customer support, call centres, data entry, payroll, billing and accounting.
Knowledge Process Outsourcing (KPO): work that needs specialised knowledge and judgement, such as research and analysis, legal services, financial analysis, medical transcription and engineering design.
Concerns about outsourcing
Confidentiality of sensitive information may be at risk.
Sweatshop practices: long hours and pressure on workers in some outsourcing firms.
Ethical concerns, such as different labour standards in different countries.
Opposition in home countries, where jobs may be lost to outsourcing.
A reliable approach to case-based questions
Identify the parties: two businesses (B2B), a business and a consumer (B2C), departments of one firm (intra-B), two consumers (C2C).
For a risk, decide whether it involves the deal itself (transaction risk), data (storage and transmission), or ideas and personal information (intellectual property and privacy).
For outsourcing, decide whether the work is routine processes (BPO) or knowledge-based (KPO).
Connections that matter
Business services: e-banking and digital payments support e-business.
Internal trade describes the retail formats that e-commerce now competes with.
International trade: outsourcing is a major part of India's services exports.
Common mistakes
Treating e-business and e-commerce as the same. E-business is the wider term.
Calling a used-goods sale between two individuals on a website B2C. It is C2C.
Calling outsourcing of core activities a good practice. Outsourcing is meant for non-core activities.
Confusing BPO and KPO. KPO needs specialised knowledge.
Revision checklist
I can distinguish e-business and e-commerce.
I can identify B2B, B2C, intra-B and C2C with examples.
I can explain the benefits and limitations of e-business and compare it with traditional business.
I can explain the stages of an online transaction and payment methods.
I can explain the risks in e-business and how to reduce them.
I can explain the need, scope and concerns of outsourcing.