Disintermediation and cross border e-commerce

Chapter 2 Literature Review

2.1 Disintermediation and cross border e-commerce

It is no doubt that information technology has had a significant influence on organizations. Due to significant reductions in the cost of obtaining, processing, and transmitting information, companies have changed their way of operation (Malone, Yates and Benjamin, 1987; Porter and Millar, 1985; Rockart and Morton, 1993).

Especially, “Information links make radical changes possible in management practices, which in turn affect market structures and firm configurations (Sarkar, Butler and Steinfeld, 2001)”. What IT transforms not only the way activities are performed, but also the nature of linkages between them (Porter and Millar, 1985). This implies the continuous evolution of an enterprise’s value chain. In other words, the system of those interdependent activities through a firm produces goods and distributes it to the final buyer is an ongoing state due to the evolution of information technology (Porter, 1985).

However, it has been noted that the higher final price of products has due to intermediaries add costs to the value chain. For example, in the shirts market, it would be possible to reduce the retail price by almost 62% if wholesalers and retailers could be eliminated from the traditional value chain (Benjamin and Wigand, 1995).

Traditionally, supply chain should include raw materials providers sell materials to manufacturers, who produce and distribute products through wholesalers, distributors, and retailers to the final customers (Warkentin, Bapna and Sugumaran, 2000). Through intermediaries such as distributers and retailers, the information of products can be delivered from suppliers to customers (Anderson, Britt and Favre, 2007).

Therefore, the question is whether, in this process, intermediaries could be taken

off from the value system. The answer should be partial yes, since the great success of the internet in 2000, some small and medium enterprises started to sell their merchandise to end user through those online platforms without the help of the distributor, and with the advancements in technology, producers begin to have an ability to interact with consumers directly. In other words, information technologies are extending to reach individual consumers (Sarkar, Butler and Steinfeld, 2001). The phenomenon is the foundation of e-commerce and is generally called disintermediation.

The appearance of e-commerce has divided the information about the product from the product itself (Kaplan and Sawhney, 2000). For example, now a consumer can visit website to get the information regarding the products (Warkentin, Bapna and Sugumaran, 2000). The obstacles that existed which prevented wholesalers and manufacturers from selling directly to final customer has been removed. This is to say that intermediaries such as distributors and retailers in the supply chain has effectively been removed (Tao, 2014), but we can also say website is a new form of an intermediary that is the center of an information network which connect the manufacturers and consumers (Warkentin, Bapna and Sugumaran, 2000).

Traditionally, the supply chain in international trade is very long. Since the geographical isolation, consumers have no chance to purchase products directly from original business. The supply chain in traditional international trade could be divided into three main parts. Firstly, in the country A, the original business sells batch of products to the exporter. In the second part, the exporter of country A sells batch of products to the importer of country B by oversea shipping, and customs clearance, commodity inspection, and settlement of exchange will happen in this part. Lastly, the importer of country B sells batch of products to the retailer through distributor, and

finally consumer purchase single goods from retailer (Wang, Chai, Liu and Xu, 2015).

Nowadays, e-commerce platforms such as eBay, and Amazon displays a whole new type of intermediary in the international trade. Since the great success of those platforms, small and medium enterprises not only lower their cost in the supply chain, but also have an opportunity to sell their merchandise to worldwide consumers through those e-commerce platforms without the help of the local agent and distributor.

The phenomenon is one kind of modes of cross border e-commerce.

Cross border e-commerce can be defined into three types. First one is B2B2C cross border e-commerce, and the platform belong to the same country with business.

The second kind is B2B2C cross border e-commerce, and the platform belong to the same country with customer. Last is called B2C. In this kind of cross border e-commerce, business directly sells a single good to customer instead of third party platform. Therefore, compare with traditional cross border trade, the researchers have proved that information cost and middleman cost are much lower to business (Wang, Chai, Liu and Xu, 2015). In the cross border e-commerce, it is easier for every unit to get information from the Internet, which decrease the cost of information. Similarly, with the help of Internet, the supply chain of cross border e-commerce is much shorter than traditional cross border trade, which brings a lower middleman costs. We can say cross border e-commerce is a breakthrough for traditional international trade to local business.

On the other side, thanks to the decrease in the cost of supply chain, business can offer the opportunity to provide a lower price to the international market (Ecommerce Foundation, 2016). Also, it provides a good opportunity for customer to reach different product ranges compared to the domestic market. However, it always occur to

something new, there are some problems may influence consumer’s shopping behavior in cross border e-commerce.