E-commerce Environmental Factors: Economic, Technological, Legal, Cultural & Social

5th July 2021 0 By indiafreenotes

A combination of regulatory reform and technological innovation enabled e-commerce to evolve as it has. Although the precursor of the Internet appeared in the late 1960s, Internet e-commerce took off with the arrival of the World Wide Web and browsers in the early 1990s and the liberalisation of the telecommunications sector and innovations that greatly expanded the volume and capacity of communications (optic fibre, digital subscriber line technologies, satellites).

As a result, barriers to engage in electronic commerce have progressively fallen for both buyers and sellers. Earlier forms of e-commerce were mostly custom-made, complex, expensive and the province of large firms. Today, for a few thousand dollars, anyone can become a merchant and reach millions of consumers world-wide. What used to be business-to-business transactions between known parties has become a complex web of commercial activities which can involve vast numbers of individuals who may never meet. In this sense, the Internet has done for electronic commerce what Henry Ford did for the automobile converted a luxury for the few into a relatively simple and inexpensive device for the many.

E-commerce and economic efficiency

The overall economic prosperity of the country will determine the extent of e-commerce activities. Organizations will target developed economy for more internet based transaction as compared to a developing country.

The globalization has encouraged the development of a single international market for trade and commerce. It has reduced the social and the cultural difference between countries. This has promoted culture of standardization of prices and reduction of intermediaries.

Language and culture difference pose a special problem to smaller companies as they do not have enough financial resources to develop a regional specific e-commerce.

A key reason why electronic commerce, especially the business-to-business segment, is growing so quickly is its significant impact on business costs and productivity. Because many of these applications are relatively simple, they may be expected to be widely adopted and have a large economic impact.

Even though some Web sites cost hundreds of millions of dollars, simpler sites can be designed and constructed for tens of thousands. In general, it is less expensive to maintain a cyber-storefront than a physical one because it is always “open”, has a global market, and has fewer variable costs. For exclusively e-commerce merchants who maintain one “store” instead of many, duplicate inventory costs are eliminated.

A key factor in reducing inventory costs is adopting a “just-in-time” inventory system and improving the ability to forecast demand more accurately. Both of these can be accomplished through the adoption of electronic commerce, which strengthens the links between firms. Improved demand forecasting and replenishment of stocks is estimated to lead to a reduction in overall inventories of $250-$350 billion, or about a 20 to 25 per cent reduction in current US inventory levels.

Social Factors

Though the advent of the internet is a universal phenomenon, but the usage pattern is not the same. The level of the internet access and usage directly influence buying behavior of the consumer. The social perception of the internet directly influences its use. The typical perception of the internet can be classified as no perceived advantage, little or no trust in the internet, security risk, cost of usage and utility.

The group of population around above classification are the ones who are not utilizing the internet, thus organization needs to factor them in demand analysis.

The social impact of the internet cannot be undermined. It has greatly influenced our way of life and has brought many differences to the fore-front. The population with income and a certain degree of education is able to use the internet much easily compared to population with costly service or slower access.

Developed countries are promoting the use of the internet and making efforts through social programs. Even people with special needs are able to use the internet to their advantage.

Legal and ethical issues with internet usage

There are certain types of behaviors which are tolerated and accepted by the society around the use of the internet. These generally accepted norms are referred to as ethical standards.

Countries are developing ethics related laws advocating the correct use of the internet. Any organization should be aware of these laws and develop their marketing programs after taking them into consideration.

Among internet users the biggest concerns come with privacy factor. Privacy is described as a moral right every individual, enjoys from intrusion in their personal affairs. The internet users have their online identity through which they perform a financial and personal transactions. Consumers are very much concerned for the protection of this online identity.

Effective e-commerce requires an organization to protect contact information, consumer profile, and behavioral information etc all the time. Organizations should not share or use personal information without prior consumer consent.

The other half of the legal and ethical issue concerns organization itself and its own protection against hacking or industrial espionage.

Technological Factors

The modern digital technology is disruptive in nature. It forces the organization to re-look at its strategies more often. The advent of the internet has seen the rise of online retailers, seriously hampering the function of neighbourhood stores.

The biggest challenge for today’s organization is to access the current technological environment and figure which solution would be the best against the competition. Companies can adopt either of following three courses:

  • Cautious approach
  • Fast follower approach
  • First mover approach

In addition to in-home fixed internet access, the newer addition to technology is the mobile connectivity. This mobile connectivity is through phones, internet enabled devices, digital TV and digital radio. With the availability of so many digital devices, a technology convergence is on the horizon.

Like privacy, security is also a great concern for the organization as well as the internet users. A security fear prevents greater adoption of e-commerce facilities.

Any security system should ensure and verify the following:

  • Authenticity of identity of users
  • Privacy and confidentiality of e-commerce the parties
  • Completeness of transaction
  • Un-interrupted continuity

Technology Policy

One of the key features of electronic commerce is the potential system-wide gains in efficiency to be reaped when firms are linked across industries. Fostering such system-wide improvements requires rethinking technology and innovation policies, such as technology diffusion programmes, which tend to focus on one industry, such as manufacturing, while in fact the largest contributions to system-wide gains may come from services, such as wholesale trade, transportation and retail trade. This suggests the need to widen the notion of “innovation” from a focus on high technology in manufacturing to include consumer goods and services and to adopt a more systemic perspective.

Political Factors

The political and the governing environment in the region or country is determined through ruling government, public opinion and pressure/consumer advocacy groups.

The government needs to put a control in place as to monitor the development and usage of the internet. But as internet promotes global collaboration, government agencies across countries need to collaborate to ensure the safety of e-commerce.

The countries are examining the current tax structure to ensure that e-commerce activities do not reduce tax collection of local government and agencies.

Organizations need to monitor its macro environment and make necessary changes as to remain competitive and profitable.