1. E-business: meaning and scope
E-business means carrying out the processes of industry, trade and commerce by using computer networks. E-commerce is the buying and selling of goods and services online, with the dealings with customers and suppliers that go with it. E-commerce is a part of e-business; e-business also covers processes inside the firm, such as staff records.
Scope (imagined examples):
- Business to business: a firm deals with a firm, e.g. an online bookshop orders stock from a publisher.
- Business to customer: a firm sells to an individual buyer, e.g. a student buys a dictionary from the shop's site.
- Intra-business: processes inside one firm, e.g. staff apply for leave on the firm network.
- Customer to customer: one private person deals with another, e.g. a student sells an old atlas to another.
| Point | Meaning |
|---|---|
| E-business | Carrying out the processes of industry, trade and commerce with the help of computer networks |
| E-commerce | Buying and selling online, with the dealings with customers and suppliers around it |
| Imagined example | Pustak Ghar sells books on its site and also keeps its stock and staff records on a network |
| Type | Parties | Imagined example |
|---|---|---|
| Business to business | Firm and firm | Pustak Ghar orders books from a publisher on a trade portal |
| Business to customer | Firm and individual buyer | A student buys a dictionary from the Pustak Ghar site |
| Intra-business | Departments and staff of one firm | Staff of Pustak Ghar book leave on the firm network |
| Customer to customer | One private person and another | A student sells an old atlas to another student |
Key terms
- E-business
The conduct of industry, trade and commerce processes with the help of computer networks.
- E-commerce
Buying and selling online, with the dealings with customers and suppliers; a part of e-business.
2. Benefits and limitations of e-business
Benefits: ease of formation and lower investment; convenience, as business can run at any time; speed; global reach and access; and a move towards a paperless society.
Limitations: low personal touch; mismatch between the speed of order-taking and of delivery; the need for technology capability and competence on all sides; risk from the anonymity of the parties; people's resistance; and ethical fallouts, such as the monitoring of employees.
Worked check: a shop at Rs 45,000 a month against a stock room at Rs 12,000 saves Rs 33,000 a month, or Rs 3,96,000 a year.
| Benefit | Meaning |
|---|---|
| Ease of formation, lower investment | A firm can start without costly premises |
| Convenience | Business is open at any time, day and night |
| Speed | Orders, payments and records move in moments |
| Global reach and access | Buyers and sellers in distant places can meet |
| Move towards a paperless society | Documents are made and sent electronically |
| Limitation | Meaning |
|---|---|
| Low personal touch | Buyers cannot see, touch or discuss goods face to face |
| Mismatch of speeds | Orders are taken in seconds, but delivery takes days |
| Need for technology capability | All parties must have the equipment and the skill |
| Risk from anonymity | The parties may not know who is on the other side |
| People's resistance | Some people prefer the old ways |
| Ethical fallouts | For example, secret monitoring of employees |
| Item (imagined Pustak Ghar) | Rs a month |
|---|---|
| Rent of a shop in the main market | 45,000 |
| Rent of the stock room used instead | 12,000 |
| Saving each month | 33,000 |
| Saving in a year | 3,96,000 |
Key terms
- Global reach
The ability of an online business to deal with buyers and sellers in distant places.
3. Stages of an online transaction and payment mechanisms
An online transaction has three stages. Pre-purchase or pre-sale: information and advertising. Purchase or sale: registration, placing the order (the shopping cart) and payment. Delivery: the goods are packed, sent and received.
Payment mechanisms, as of 2024:
- Cash on delivery: the buyer pays the courier in cash on arrival.
- Cheque: a written order to the bank to pay, which needs clearing.
- Net banking transfer: a transfer from the account through the bank's website.
- Credit and debit cards: a debit card pays from the account balance; a credit card allows payment later within a limit.
- Digital cash and e-wallets: a prepaid stored balance.
- Unified payments interface: an instant transfer between bank accounts, started from a phone.
Dated note, as of 2024: payment systems change quickly, so check the present position before relying on this list.
| Item (imagined order at Pustak Ghar) | Rs |
|---|---|
| Three books at Rs 240 each plus one at Rs 350 | 1,070 |
| Coupon of 10 per cent on the book total | minus 107 |
| Delivery charge | plus 40 |
| Amount to pay, by any method | 1,003 |
Key terms
- Shopping cart
A facility on a website in which a buyer collects the items to be bought before confirming the order.
- E-wallet
A prepaid stored balance, kept electronically and used to pay.
4. Security risks and measures
Risks:
- Transaction risks: default on order-taking or order-giving, on delivery, or on payment.
- Data storage and transmission risks: viruses, hacking and loss of data.
- Risks to intellectual property and privacy: copying of designs and text; leaking of personal information.
Measures:
- Encryption: scrambling data so that only the key-holder can read it.
- Digital signatures and certificates: a signature shows who sent a record and that it was not altered; a certificate from a trusted body shows that a key belongs to a named party.
- Passwords and one-time passwords: a password admits authorised users; a one-time password is valid for a single use.
- Firewalls: filters between a private network and the internet.
- Secure websites: an encrypted connection, shown by a padlock and a secure web address, as of 2024.
Dated note, as of 2024: the Information Technology Act 2000 gives legal recognition to electronic records and digital signatures.
| Risk | Meaning |
|---|---|
| Transaction risks | Default on order-taking or order-giving, on delivery, or on payment |
| Data storage and transmission risks | Viruses, hacking and loss of data in storage or in transit |
| Risks to intellectual property and privacy | Copying of designs and text; leak of personal information |
| Measure | What it does |
|---|---|
| Encryption | Scrambles data so that only the holder of the key can read it |
| Digital signature | Shows who sent an electronic record and that it was not changed |
| Digital certificate | Issued by a trusted body to show that a key belongs to a named party |
| Legal note, as of 2024 | The Information Technology Act 2000 gives legal recognition to electronic records and digital signatures |
| Measure | What it does |
|---|---|
| Password | Lets only authorised users into an account |
| One-time password | A code valid for one transaction or login, which soon expires |
| Firewall | Filters traffic between a private network and the internet |
| Secure website | Uses an encrypted connection, shown by a padlock and a secure web address, as of 2024 |
Key terms
- Encryption
The scrambling of data into a coded form that only the holder of the right key can read.
- Firewall
A barrier that filters traffic between a private network and the internet.
5. Resources for successful e-business
A firm needs: a well-designed website that is easy to use; technology and security infrastructure such as servers, networks and protection against hacking; logistics to pack, carry and track goods; and payment systems that let customers pay safely.
A weakness in any one resource spoils the whole experience, however strong the others are. A fine site with no delivery tie-up still leaves customers waiting.
| Resource | Why it is needed |
|---|---|
| A well-designed website | Easy to use, clear in showing goods and prices |
| Technology and security infrastructure | Servers, networks and protection against hacking |
| Logistics | Packing, carrying and tracking of goods |
| Payment systems | Safe ways for customers to pay |
| Need of an imagined shop | Measure |
|---|---|
| Hide card numbers while they travel to the bank | Encryption |
| Prove that an export order really came from the buyer | Digital signature |
| Make each payment need a fresh code from the phone | One-time password |
| Block unknown traffic at the edge of the network | Firewall |
Key terms
- Logistics
The packing, storage, carriage and tracking of goods from seller to buyer.
6. Outsourcing: concept and scope
Outsourcing means contracting some of a firm's activities to outside specialists. The activities are usually non-core, and sometimes core. In business process outsourcing routine processes, such as a customer helpline, are handed over. In knowledge process outsourcing work that needs expert knowledge and analysis is handed over.
Scope: finance and accounting; advertising; courier and logistics; customer support through call centres; production and manufacturing.
| Point | Meaning |
|---|---|
| Outsourcing | Contracting some activities of a firm to outside specialists |
| Usually outsourced | Non-core activities, and sometimes core ones |
| Business process outsourcing | Routine business processes handed to a specialist, such as a helpline |
| Knowledge process outsourcing | Work that needs expert knowledge, such as research or analysis |
| Area | Imagined example |
|---|---|
| Finance and accounting | Madhuvan Tools gives its payroll to a specialist |
| Advertising | A bakery gives its posters and online campaign to an agency |
| Courier and logistics | Pustak Ghar gives parcel delivery to a carrier |
| Customer support | A broadband firm gives its helpline to a call centre |
| Production and manufacturing | A toy brand has its toys made by a contract factory |
Key terms
- Outsourcing
Contracting some of the activities of a firm to outside specialists.
- Knowledge process outsourcing
Handing work that needs expert knowledge and analysis to an outside specialist.
7. Need for outsourcing and concerns
Need: focus on the core business; the quest for excellence; cost reduction through the economies of scale of specialists; growth through knowledge sharing and collaboration among organisations; and a catalyst for economic development.
Concerns: confidentiality of data; sweatshop exploitation of the vendor's workers; ethical concerns; and opposition in home countries, where people fear a loss of jobs.
Worked check: in-house payroll at Rs 1,00,000 a month against a vendor fee of Rs 60,000 saves Rs 40,000 a month, or Rs 4,80,000 a year.
| Need | Meaning |
|---|---|
| Focus on the core business | Managers spend time on the main activity |
| Quest for excellence | Specialists do the task with higher skill |
| Cost reduction | Specialists gain economies of scale and charge less |
| Knowledge sharing and collaboration | Firms learn from one another |
| Catalyst for economic development | Jobs and skills grow where the work is done |
| Concern | Meaning |
|---|---|
| Confidentiality | Private data given to the vendor may leak |
| Sweatshop exploitation | The vendor may pay low wages and demand long hours |
| Ethical concerns | Questions of fairness to workers, customers and communities |
| Opposition in home countries | People fear that jobs will move elsewhere |
| Item (imagined Madhuvan Tools) | Rs a month |
|---|---|
| In-house: 3 clerks at Rs 28,000 plus software at Rs 16,000 | 1,00,000 |
| Vendor: 400 workers at Rs 150 each | 60,000 |
| Saving each month | 40,000 |
| Saving in a year | 4,80,000 |
Key terms
- Economies of scale
Lower cost per unit that comes when a firm does a very large volume of the same work.
Exam tips
Common mistakes
- Treating e-business and e-commerce as the same; e-commerce is a part of e-business.
- Naming types of e-business with no example; add a made-up firm.
- Naming real shopping sites or firms; use imagined ones.
- Writing payment methods or the Information Technology Act without the words as of 2024.
- Saying that a digital signature scrambles data; scrambling is encryption.
- Listing the need for outsourcing with no link to the case.
How marks are usually awarded
- 1 mark: a correct option or a quoted line from the case.
- 2 and 3 marks: one point per benefit, limitation, measure or need, with a short explanation.
- 5 marks: five points, each with an explanation, in a numbered list.
- Case questions: quote the line, name the concept, explain in a sentence.