The Factors Affecting E-Business Companies
The Factors Affecting E-Business Companies
Introduction
The business and commerce transactions have been transformed by the advances of the information and communication technology (ICT) and more specifically by the Internet. As the Internet presents a broad spectrum of information and payment mechanisms to the users, it could also increase the level of product and service purchases. Globally reaching trillions of USD, e-commerce has enabled businesses to operate beyond the geographical boundaries, to reach more customers and to compete with other companies not only at national level, but also international level. Developed countries could adopt e-commerce more easily than the other countries as they have sound economic and technological infrastructure. However, even today in some regions of developed and developing countries the level of Internet penetration which affects e-commerce transactions directly is lower. Moreover, there are several inequalities between some groups in terms of Internet usage. Culturally beliefs and attitudes of the consumers are also affect e-businesses. Today even in developed states there is lack of trust to online transactions. As e-commerce is not in a vacuum, it is also affected by politic factors. Politic decisions embody in laws and laws follow social, cultural and technological developments. Since advances in the Information and Communication Technology are the driver of e-commerce, legal environment have been adjusting itself to new digital era. Thus ebusinesses are also affected by the new understanding of legislation. This paper will try to evaluate the several factors (economic, demographical, cultural and politic) affecting ebusinesses success.
Economic Factors
The economic sustainability and competitiveness of a country determines its e-commerce potential. The countries which have a sound economic infrastructure and improved technological environment could easily adopt online trade. Therefore, key macro-economic
indicators, such as per capita GDP; the improvement in ICT infrastructure, such as computer and the Internet penetration and the speed of online transactions; and the advanced payment methods, such as the level of credit card use, affect e-commerce adoption of a country at macro level (Hariharaputhiran, 2012). The development level of a country’s economic structure and its economic stability have also played a crucial role in the adoption of new technologies. Therefore economically developed countries seem to have higher Internet penetration and online trade transactions (Wunnava & Leiter, 2009). For example, income level which is one of the key indicators of a developed economy, affects expansion of the ecommerce because it is directly related to the purchasing power of people (Karimov, 2011).
Globalisation which leads elimination of trade barriers, decline in the costs of the transportation and communication, increased investment opportunities in new markets and more competitive trade environment, is another factor affecting and forming e-commerce transactions. In the globalising world, thanks to the advances in telecommunication and transportation, e-commerce is regarded as a new and easy way to access markets. Today only the businesses which adopt and implement global communication and transportation links, utilize the benefits from the competitive trade environment (Aydin and Savrul, 2014). In addition, the local firms which face foreign competitors in the domestic market, prefers adoption of e-commerce to compete them. However, it is also argued that e-commerce has not changed the actors which have the advantages from the competitive international trade. Global firms still dominant actors of international trade and it is claimed that limited resources of local and small sized firms[1] might put them at a competitive advantage in their domestic markets (Totonchi and Kakamanshadi, 2011).
Demographic factors
In order to enjoy benefits from the Internet in terms of commercial transactions, the users should have the opportunity and the skills of using the Internet. Thus, skilled users would make the right choice consciously to use the Internet for their purposes. With this perspective demographic factors such as gender, age, education and income become the crucial element of any e-commerce company’s success. If there is an inequality between social groups to access and use the Internet, the level of online transactions will be limited and this will affect e-commerce companies negatively.
In this context, the digital divide has been a critical issue in ICT since the massive usage of the computer. The digital divide has two dimensions. First, the divide addresses the availability of groups to access computers, and other ICT products and services. Moreover, digital divide could be a matter of disparities between countries and the regions in a country. As a political, cultural and socio-economic reality, some groups have better opportunity to access computers and the Internet. For example, this inequality could arise between female and male, young and old, rich and poor and educated and uneducated. Although digital divide exists, due to the increasing usability of Information Technologies (IT), it is argued that the gap is closing between male and female, young and old, and rich and poor due to the governmental actions and socioeconomic improvement (Lee, 2010). Accordingly, a recent survey by OxIS[2] reveals that as the use of internet is increasing in the UK, the digital divide for low-income households, lower educated groups, older, and disabled people is getting narrower (Dutton and Blank, 2013). However, in underdeveloped and some developing
countries, even in some regions of the developed countries the digital divide still exists. For example, across Africa in 2014 only 9.8% of the inhabitants can access the Internet (IWS, 2015). Empirical studies show that in developing countries, there have been a digital divide between regions as well. For example even in Croatia, the newest member of EU, between urban and rural areas the digital divide exists in terms of broadband[3] adoption (Krizanovic, 2013). Moreover even between EU countries, with regard to fixed and mobile broadband penetration, it is argued that there has been a significant digital divide and the efforts could not close the gap successfully (Polykalas, 2014 ).
Cultural factors
The intention of shopping online is affected both technological and socio-cultural factors. Although the level of economic and technological development of a country or a region is directly determines the degree of online consumption, even in developed countries some people still tend to do face-to-face shopping rather than online shopping. Those people still want to touch or test the products or they do not trust in online transactions especially payment systems.
Especially the countries which have lower levels of e-commerce transactions, online payments, credit cards and e-money are regarded as risky. Actually, in some countries the majority of the population could not be familiar with these concepts. In such countries to overcome general belief and increase e-commerce transactions some mixed (traditional and electronic) methods are applied. For example, in Jordan many online traders implement cash on delivery option in their transactions (Abu-Shamaa and Abu-Shanab, 2015). Interestingly, a
recent survey reveals that even in the UK, 14% of the Internet users, termed as Adigitals, overwhelmingly negative beliefs and attitudes about the Internet (Dutton and Blank, 2014)
Trust is regarded as one of the prominent factors that affect the success of the e-commerce companies (Zhu et al., 2011). In online shopping trust means ‘having confidence that the store will offer fair prices, insert the right product information, reserve consumer’s privacy, and handle credit card and transaction information securely.’ (Abu-Shamaa and Abu-Shanab, 2015, p.2).
Another significant issue that affects online shopping attitudes of the individuals is trust in online payment system. Due to the fraud concerns some people might not want to pay online in their transactions. Moreover online payment is regarded as a complex method for some people. However, implementing safer and simpler online payment methods will encourage the potential e-customers to shop online (Bahaddad et al., 2013)
Political Factors
E-businesses are also affected by the governmental policies and regulations. Actually, all businesses must comply with the governmental regulations especially with the laws. Moreover, they must aware of the effects of any forthcoming legislation on their operations. Political factors affecting e-businesses include any legislation, initiative or funding to support the adoption and improvement of e-commerce and information technology.
Politically, the governments encourage and regulate online trading in several ways. Firstly, amendment of the laws and the regulations help to the functioning of e-commerce. Moreover, the existence of governmental incentives and programmes which encourage the development new technologies and improve technological infrastructure also have an impact on the success of e-commerce implementations (Permwanichagun, 2015).
With regard to legislation, Chaffey (2011) categorize the laws governing e-commerce into six groups: (1) Data protection and privacy law, (2) Disability and discrimination law, (3) Brand and trademark protection, (4) Intellectual property rights, (5) Contract law and (6) Online advertising law. In this paper data protection, contracting and jurisdiction issues will be discussed.
Data protection and privacy regulations
Although e-commerce presents many benefits to the economies and the people, the open structure of the Internet also brings some problems. Misuse of personal data might be one of the most important problems in online trading. E-commerce firms generally collect and use personal information of online shoppers in order to form their marketing strategies by meeting the personal needs of the individuals (Boritz and No, 2011). In order to complete ecommerce transactions, crucial personal data is required to be shared which has raised privacy and specifically fraud concerns. Hence, online shoppers’ trust in the e-commerce transactions would be decreased and this would affect the performance of online traders negatively.
While completing online shopping the customers are required to share personal information such as name, address and credit card number. In some cases, some additional information such as, preferences, income, and consumption behaviours are required to be shared. These are the simplest methods of collecting data. Another method is gathering the Internet Protocol (IP) number during visiting the Website. By this way, it could be possible to track visitors’ future web surfing. Another important approach to collect personal information of Website visitors is ‘cookies’, which are small text files that are set on an Internet user’s computer when one browses the Internet (Luzak, 2013, p.547). Cookies are beneficial because they ease the verification of identity. However, they are generally used to collect individual’s long
term browsing histories including payment information. Cookies are also an appropriate tool for online behavioural advertising (OBA) which could be defined as ‘[a]djusting advertisements to previous online surfing behaviour’ (Smit et al., 2014, p.15). Today almost all advertisement platforms are used this mechanism in their online advertising strategies (eMarketer, 16 May 2013). Although the advertisers are eager to implement OBA by using cookies, without informed consent, the cookies could violate the privacy of the individuals. Due to these privacy concerns, policy makers in US and Europe focussed on implementing opt-in regime which requires explicit consent of users (Bennet, 2011). Recently, the information which is shared in social networking Websites such as Facebook and Twitter, could be also collected and used (Jaafor et al., 2014). More recently, since the launch of the GPS (Global Positioning Systems) integrated mobile phones, it is possible to track users’ movements without any permission (Maekawa, 2014). Furthermore, it is possible to gather and transfer personal data during cloud computing processes (Sahin, 2013). Aforementioned procedures which enable customer tracking, could assist the firms to individualise customer transactions. However, the gathered data could also be transferred to third party organisations without the permission of the consumer. This would increase the concerns about confidentiality of data.
In order to respond to the privacy concerns, some legislations and procedures are entered into force by the governments. Moreover, there are also self-regulation efforts to overcome the privacy concerns. Data protection and protection efforts could be categorised into two groups: the market-driven, as used in the US and the government-driven, as used in the United Kingdom. In the self-regulation or market-driven approach, data protection procedures are determined by the private norms of the industry. The companies release the degree of information to be collected and used in their privacy policy statement according to industrial guidelines. In the US, no legal regulation is applied on the data collection procedures of the
companies. However, in order to assure customers’ trust, web seals such as TRUSTe and WebTrust are used. The Websites which conform to privacy organisations’ procedures display a sign (Adelola, 2014).
In the government regulation approach, data protection procedures are set by the laws which include regulations in terms of collection, use, and transfer of personal data to different countries which have not privacy regulations (Boritz and No, 2011). Several data protection and privacy laws in term of online transactions are put into effect by several countries, such as the United Kingdom, Germany and Canada. One of the outstanding legislations is Directive 95/46/EC of the European Council which was enacted by European Union in 1995.[4] The Directive focuses on ‘the protection of individuals with regard to the processing of personal data and on the free movement of such data.’ One of the prominent features of the Directive is prohibition of transferring personal data to the jurisdictions which have not satisfactory protection mechanisms. The Directive also aimed to constitute a single data protection regulation among the member states (Kshetri and Murugesan, 2013).
After the promulgation of the Directive of 1995, due to the significant technological developments, the mechanisms of accessing, collecting, storing, transmitting, processing, sharing, and using personal data in online transactions has transformed. In order to respond to these developments, new regulations and amendments were entered into force. In 2002, the Directive 2002/58/EC of the European Parliament and of the Council which dealt with the processing of personal data and the protection of privacy in the electronic communications sector was entered into force (EU, 2015). In 2006 and in 2009, the Directive of 2002 was
amended by the Directive (2006/24/EC) and the Directive (2009/136/EC) (as known as ‘cookie’ directive) respectively. The EU’s Data Protection Directives are regarded as the major legislative mechanism to protecting consumer data in online transactions (Kshetri and Murugesan, 2013).
The 2009 amendment which was put into force in all member states[5] in 2011, is so crucial, as it regulates one of the biggest challenges of confidentiality data, ‘cookies’. According to this directive, ‘explicit consent’ is required to launch cookies on the devices of Website visitors. Therefore, the personal data of visitors could not be collected unless they explicitly accept it (opt-in). Hence, the e-commerce companies based in the EU should design their data collection procedures from opt-out to opt-in according to this regulation (Smit et al., 2014). A research from ‘QuBIT’, customer data platform company, suggests that 60% of Internet users polled refuse to accept cookies if asked to opt in, but 99.9% give ‘implied consent’ if they are simply notified that a visited site uses cookies, but take no further action (Heyes, 2012, p.68). The results of this research reveal that implementing explicit consent is so crucial in order to ensure Web users’ privacy.
Contracting
E-commerce transactions are completed via contracts, just like the traditional commerce transactions. However, e-commerce needs electronic contracts as the way of agreement on the contracts have transformed due to the technological developments. In traditional commerce, the way of forming contracts vary. Contracts could be formed in written or be
negotiated orally. The contract law generally ignores the way of forming contracts; instead intention is regarded as the main issue of the cases. Intention is generally embodied in the offer and acceptance tools. As the e-commerce transactions are fulfilled through online network, the transforming offer and acceptance approach could be viewed as an obstacle to the sound contracts (Mik, 2013). Another controversial issue about contracting is signature. In the traditional contracting regime, signature is a mark that states the agreement to the terms of a contract. However, in online commercial transactions as there is no paper-based contract, completing transactions could not be possible with traditional signature. In order to overcome this obstacle, digital signature is started to be used in e-commerce transactions (Gu and Zhu,
2014).
Besides traditional contracting procedures, there have been also new methods. These are Shrink-wrap, Click-wrap and Browse-wrap. Shrink-wrap licence had been used especially by the software manufacturers, before widely use of the Internet. Terms and conditions are generally attached to the software package. In this type of contract, by using the software, the customers agree to be bound by the terms of the licence (Garcia, 2013). After the rise of the Internet, a new type of contract emerged called Click-wrap (or Web-wrap). In this type, the user is required to scroll through the terms and conditions of the contract and click an onscreen button such as I agree or I accept to complete transaction. More recently, a new contracting mechanism, similar to the Shrink-wrap, has arisen: Browse-wrap. In Browse-wrap type of contracts, it is not necessary to take a specific action, such as clicking or ticking, to state agreement. By merely browsing or using a Website, the user agrees to be bound by the Terms of Service located elsewhere (Palanissamy, 2013). Browse-wrap is built on the success of Click-wrap. However, the user might be bound to a EULA (End-User License Agreements) merely by browsing the Website. Hence, the concerns arose with regard to
enforcement of browse-wrap contracts. Browse-wraps sometimes could be subject to an appeal.[6]
Jurisdiction
Today, offer and acceptance, more specifically click-wrap and even browse-wrap[7] is regarded as essential elements of an enforceable of electronic contracts (Palanissamy, 2013). However, some issues such as choice of law and jurisdiction are still problematic. To address these issues is very complicated as the Internet has a borderless nature and it transforms the pace and the manner of business communications. In traditional commerce, geographical borders generally identify the commercial relations. Moreover, territorial borders usually overlap with the legal and cultural borders (Davidson, 2009). Today, due to the borderless nature of ecommerce, in terms of legal disputes some controversial questions have arisen: ‘Which country’s court will hear the disputes? or ‘Which country’s law will be applied to resolve disputes?
Jurisdictional issues became complex, due to the global context of the Internet. Legal theorists evaluate jurisdiction mainly in two groups (Ward and Sipior, 2010a): Personal jurisdiction and long arm statute. Personal jurisdiction refers the power of the courts over resident individuals or businesses within a country or a state. However, in some cases, the courts could have an authority over non-resident individuals and businesses which refer long arm statute. In the US, the widely use of the Internet and more specifically e-commerce transactions leads the courts to apply long arm statute on the Internet and the e-commerce disputes (Ward and Sipior, 2010b)
As e-businesses could easily operate beyond borders, their operations might face different or multiple jurisdictions which creates an uncertainty. Therefore, they should be aware of jurisdictional risk ad try to reduce it. To do so, legal analysis and evaluation should be done in their operations (Ward and Sipior, 2010b)
Conclusion
ICT and more specifically the Internet affected all aspects of our lives. The way of conducting businesses has also changed in the new digital era and the phenomenon of ebusiness emerged. Today, commercial transactions occurred through online channels and the Internet. Therefore even small sized businesses could operate beyond borders, regardless of time. In developed and developing countries the level of e-commerce adoption is very high. However rest of the world could not even meet the Internet. Also there are disparities even in developed countries in terms of the Internet and e-commerce adoption. In addition belief of the individuals to the online transactions is another prominent factor. Even in developed countries there is a lack of trust in online shopping. Politic decisions also affect e-commerce with legislations. Confidentiality of data, contracting and jurisdiction are the prominent issues that legal environment dealt with. These factors bring both advantages and disadvantages to the e-businesses. In this context, e-businesses should utilize the opportunities and try to overcome threats.
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[1] E-commerce is also a crucial issue for small sized firms, especially SMEs, to operate in a competitive environment. Although e-commerce presents valuable opportunities to SMEs, there are several limitations which affect successful adoption and implementation of online trading. Primarily, as their products and the services are not generally suitable for online trading, SMEs could not adopt e-commerce easily. Secondly,
SMEs have problems in terms of logistics and payments. Lastly, security issues and the legal framework affect adoption of e-commerce. Some of these problems could be solved by adapting new strategies to the small sized businesses. However, the structural obstacles, such as legal framework, poor technological infrastructure could only be eliminated by the efforts of the governments (Savrul et al., 2014).
[2] Oxford Internet Surveys, Oxford Internet Institute of University of Oxford
[3] ‘Broadband can be defined as anything with a bandwidth larger than 4 Hz (…) Broadband technology is an umbrella term which covers varying high-speed access technologies including ADSL, cable modems, satellite and Wi-Fi’ (Oni and Papazafeiropoulou, 2014: 729)
[4] After this regulation, there were several attempts to improve data protection procedures in line with the new technological developments were made by the EU. For example, in 2012, the Commission proposed a major reform of the EU legal framework on the protection of personal data. The new proposals will strengthen individual rights and tackle the challenges of globalisation and new technologies. (see, Available at: <http://ec.europa.eu/justice/newsroom/data-protection/news/120125 en.htm> Accessed:26/04/2015). Another significant development is a landmark ruling of 2014 which dealt with the ‘right to be forgotten’, in relation to online search engines. (see, Available at: <http ://ec.europa. eu/justice/data-protection/files/factsheets/factsheet data protection en.pdf> Accessed:26/04/2015)
[5] As other member countries, in the UK, e-privacy legislation developed in line with the EU norms. In order to align with the EU Directive of 1995, the United Kingdom put into force Data Protection Act of 1998. Although in the Act, the concept of ‘privacy’ is not mentioned, as a fundamental right, processing of citizens’ personal data is regulated. In practice the Act provides opportunity to the citizens to control their personal data processing. In the UK, the privacy law is enforced by the Information Commissioner’s Office (ICO), a governmental institution. If a Website based in the UK collects personal data, it should inform ICO in line with the principles of the Act which regulates the procedures of collecting and using personal information and privacy policies which inform online visitors how the personal information will be processed and removed (Adelola et al., 2014).
[6] For example, the court in Ticketmaster Corp. v. Tickets.com, Inc. stated ‘[i]t cannot be said that merely putting the terms and conditions in this fashion [listed on the website] necessarily creates a contract with anyone using the web site’ (see. Ticketmaster Corp. v. Tickets.com, Inc. (Ticketmaster I), No. CV99-7654 HLH, 2000 U.S. Dist. LEXIS 4553, at *8 (C.D. Cal. Mar. 27, 2000))
[7] As Garcia (2013, p.31) indicates; ‘ Browsewrap now stands poised to build upon the legal success of online licensing and become as accepted as Clickwrap in American courts.’
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