BENEFITS AND BARRIERS OF E-COMMERCE IN GOODS AND SERVICES IN HONG KONG. Sally Rao Griffith University. Augustine Chow Harmony Asset Limited

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1 BENEFITS AND BARRIERS OF E-COMMERCE IN GOODS AND SERVICES IN HONG KONG Sally Rao Griffith University Augustine Chow Harmony Asset Limited Chad Perry Southern Cross University Abstract Recent problems experienced by B2C e-commerce companies in Hong Kong and elsewhere highlight difficulties associated with B2C internet marketing. However, little academic attention has been paid to the success factors involved. Thus this paper addresses the problem: What are the success factors for marketing products and services over the internet in Hong Kong e-commerce businesses? This research uses case studies to develop a conceptual framework about benefits and barriers. In effect, the research aimed to develop a theory that would serve as the foundation for future empirical analyses. Results showed that e-commerce success factors differ between sellers of tangible goods (e-retailers) and providers of services. For example, fulfillment and logistic support, product suitability are more important for tangible goods sellers. Management Implications may apply in countries beyond Hong Kong. Introduction The internet is impacting on the way business is conducted (Corcoran 1999; Hayes 1999; Peet 2000). The internet is especially important for Hong Kong businesses because Hong Kong is a major trading and financial center in Asia. Indeed, Hong Kong businesses face opportunities both at home and in the growing markets in mainland China, but they also face potential problems in terms of technology and global competition. Perhaps the problems for Hong Kong/China B2C e-commerce are even more daunting than those faced by US or European businesses because of the relatively poor communications and physical infrastructure in many Asian countries (Boston Consulting Group 2000). As well, Hong Kong internet customers are different and their associated buying processes may be different from those in the West. Despite this potential and theses difficulties of B2C e-commerce and the internet as a commercial marketplace, little is known about how to strategically leverage its capabilities. This lack of understanding by many on-line businesses may lead to financial losses, damaged company reputations, or missed opportunities (Rynecki 2000). Therefore, a better understanding of the internet as a commercial medium is required by business (Cairncross 2000; Sheridan 1999). Specifically, an understanding of the internet marketing s benefits and barriers, and how these benefits can be fully leveraged and barriers overcome, is important for the success of e-commerce in Hong Kong businesses. Therefore, the research problem for this paper is: What are the benefits and barriers associated with B2C e-commerce in Hong Kong?

2 This paper has three parts. Firstly, a preliminary framework based on the literature is outlined. Then, the methodology of case study is briefly described. Finally, a revised framework based on the findings is presented. A Preliminary Framework A preliminary conceptual framework linking strategy to the performance of on-line activities was developed from the literature to help guide this research. The literature about e-commerce has covered several issues faced by e-commerce organizations in a comprehensive way and so was incorporated into the framework on the left hand side of Figure 1. A multi-disciplinary approach was adopted in developing this framework because of the scant literature on such a framework in e-commerce, that is, the literature draws from several fields including marketing, information systems and strategy. That is, this framework integrates a number of concepts from these different fields into a holistic view of B2C e-commerce. For example, it highlights the importance of leveraging the benefits of e-commerce and the Internet such as interactivity (Hoffman and Novak 1996, 1997; Weiber and Kollmann 1998; Duncan and Moriarty 1998), the use of multimedia (Hoffmann and Novak 1996), and of providing consumers with additional convenience (Bloch, Pigneur, and Segev 1996; Burke 1997; Jarvenpaa and Todd 1997; Lohse and Spiller 1998). The literature also indicated some of the barriers hindering the firms progress with their on-line activities and their potential success. Factors such as security (Aldridge, White, and Forcht 1997; Bhimani 1996; Borenstein et al. 1996; Liddy 1996), fulfillment (Koloszyc 1999; Peet 2000; Karpinski 1999), channel conflicts (Collett 1999), and the lack of face-toface interaction (Marshall and Heslop 1988; Acland and Reiser 2000) were identified as significant barriers that may hinder the performance of e-commerce. Methodology The rigorous qualitative methodology of case research was adopted to explore research issues arising from the preliminary conceptual framework, and to assess whether the benefits and barriers were different for goods and for services (Parkhe 1993; Perry 1998; Yin 1994). This choice of case research is justified from its theory building capability. The review of extant literature confirmed that e-commerce is a new area of research and thus there is a need for more theories in the area (Carson et al. 2001). Qualitative methods such as case research address theory building rather than theory testing (Bonoma 1985; Parkhe 1993; Wilson and Vlosky 1997; Adams, Day and Dougherty 1998). That is, the primary objective of this research was to understand the phenomena and to interpret the respondent s experiences and beliefs in their own terms (Gilmore and Carson 1996). The depth and detail of qualitative data can be obtained only by getting physically and psychologically closer to the phenomenon through in-depth interviews (Carson and Coviello 1996; Merriam 1988). The approach used is consistent with the procedures recommended for theory generation by several scholars (Deshpande 1983; Peter and Olson 1983; Zaltman, LeMaster and Heffring 1982) and utilized by researchers in marketing (Drumwright 1996; Workman, Homburg and Gruner 1998; Homburg, Workman and Jenesen 2000). Data were collected from ten managers of two internet businesses in Hong Kong during One of these businesses sells physical products, the other sells intangible services. 2

3 Both of the organizations had been involved in B2C e-commerce for a sufficient amount of time to yield useful insights into the main research issues. The research design followed normal procedures of case research (Perry 2001). Firstly, elite interviews were the main source of data collection. Elite interviews are designed to ascertain the decisions makers understanding and encourage them to reveal their notions of what is relevant (Drumwright 1996). The respondents for each case included the CEO of the firm, the marketing manager and IT manager. These managers were the key informants because they were closely involved in the e-commerce activities in their respective firms and had an understanding of the entire decision making process. Secondly, a semi-structured interview protocol with mainly broad open-ended questions to ensure a consistent pathway to analyzing the interview data (Yin 1994) was used. Interview questions were developed using prior theory in the area of e-commerce and in consultation with several academics and practitioners who had substantive or methodological expertise. As well, the usual quality control mechanisms like triangulation were used (Healy and Perry 2000; Carson et al. 2001). A challenging step of case study research is the analysis of the qualitative data. The technique of content analysis was used to analyse the interview information, attaching codes to data. This research developed a start list of codes prior to conducting the field work (Carson et al. 2001). When the coding was complete, matrices were developed to summarise the data (Miles and Huberman 1994) and to provide a platform for cross-case analysis (Patton 1994). Findings Findings from the case study provided evidence about the benefits and barriers: how these benefits can be leveraged and how barriers can be overcome. Our findings are highlighted in the right hand side of Figure 1, with elements derived from the interviews that were not raised in the literature shown as (new). The findings indicate that e-retailers and service providers face some similar challenges such as the difficulties in attracting visitors, the perceptions of users with respect to a lack of security and so on. However, the findings also uncover the differences between these two types of organizations. Fulfilment costs, logistics support, product suitability, and click-and-mortar were more important for tangible goods sellers while the quality of intangible, real-time updating, community/membership, and stickiness were more important for service providers. Furthermore, e-retailers face more challenges and more difficult challenges than service providers. There was also some evidence that service providers may be able to leverage the Internet and e-commerce to a greater extent than tangible goods sellers. This is primarily due to the fewer number of barriers involved in B2C e-commerce for service providers (as demonstrated in Figure 1). Next, we discuss the success factors for e-retailers and service providers in more detail. E-retailers of tangible goods. Firstly, e-retailers need to place a much greater level of emphasis on off-line factors such as fulfillment, logistics, and the choice of products. The findings support a combination of on-line and off-line activities using the click and mortar business model for getting products to consumers on time and at relatively low cost is a major challenge for e-retailers. Secondly, e-retailers also appear to face much greater price pressure when maintaining margins and profitability than their service counterparts. The findings from the case suggest that managers could try to differentiate their offerings in order to reduce the erosion of margins. Methods to accomplish this may include additional customization, improved 3

4 customer service and support, better and broader choice of products, and value-added services. Service providers. The findings for service providers are different. Service providers are in a much better position to succeed at B2C e-commerce for service providers do not face nearly as many barriers than the e-retailers because of the nature of services - they do not require the distribution infrastructure and logistics necessary for tangible goods. Furthermore, services are inherently better suited for the Internet and e-commerce since they can be fully or partially digitized and hence distributed electronically as well. The internet enables organizations to customize their offerings more effectively, which is also well-suited for services. Nonetheless, service providers still face challenges for successful e-commerce. Managers of service organizations should pay special attention to the quality of their services. Though quality of services is clearly an issue for off-line service providers as well, on-line service providers face different challenges due to the nature of e-commerce. In effect, on-line service providers must reduce the uncertainties with purchasing services at a distance without face-toface interactions. The findings from the case studies suggest that organizations may accomplish this by having off-line facilities, increasing customization, and using technology more effectively. Finally, the findings suggest that service providers must frequently update the information available at their site. Because they are perishable offerings, the availability and nature of services need to be constantly monitored. Furthermore, frequent site updates may increase the motivation of users to come back to a company s site more frequently. The differences between the preliminary and the revised frameworks in Figure 1 occur in the benefit and barrier constructs with new variables added from the case information shown. Whereas the preliminary framework included the benefits and barriers in a list for each, the revised framework separates them based on their importance. For example, the framework for tangible goods in Figure 1 contains two categories of constructs. The top category contains the constructs that are especially important for selling goods over the Internet: price, click-and-mortar, logistics support, fulfilment, and product suitability. The other constructs in the bottom box are relevant to selling products over the internet but are not nearly as important. Figure 1 presents similar information for services. Once again, the more important constructs are in the upper part of the benefit and barrier construct box. They include the four constructs of quality of intangible, real-time updating, community/membership, and stickiness. The constructs in the lower part of the box are identical to the ones in the goods framework. Hence, the differences between goods and services are captured in the upper parts of the respective frameworks. Conclusions and Implications There is little research about the success factors of B2C e-commerce over the Internet. From the sparse literature and our empirical findings, a conceptual framework of the success factors of B2C e-commerce over the Internet was developed and is shown in Figure 1. The research fills a gap in the literature by developing this comprehensive conceptual framework that links strategy to success in B2C e-commerce. Therefore, the major contribution of this paper is the development of a conceptual framework that integrates many research streams, which should 4

5 guide future research in this growing area of academic inquiry. Finally, the research makes theoretical contributions by developing a conceptual framework for an Asian environment and so complements existing theories that are mostly based on US businesses and environment. The implications for practice are a better understanding of e-commerce and of the critical success factors for B2C e-commerce in particular. The focus on both tangible goods and services should further help managers by more precisely identifying the issues that their businesses may wish to consider. That is, the research should help managers develop a more complete understanding of B2C e-commerce within the Hong Kong environment. Managers beyond Hong Kong may also use the findings because cyberspace extends beyond national boundaries, but the differences in scale and consumer behaviour noted in the Introduction should be considered. Further, the apparently large differences between tangible goods sellers and service providers identified in this research need to be addressed in further, theory testing research. 5

6 Figure 1: Comparison between the Preliminary Conceptual Framework and the Revised Framework after the Case Research Preliminary benefits and barriers Revised benefits and barriers Benefits: Convenience Interactivity Hypertext/informativeness Multimedia/visual salience Lower transaction cost Real-time updating Traffic (user-base) Strong brand Membership/loyalty Product suitability Economies of scale Barriers: Bandwidth Security Privacy Impersonal medium Reliability Low margins/price Channel conflict Fulfilment Shopping habits Goods Most important: Product suitability Fulfilment cost Logistics support ( new) Click and mortar (new) Not as important: Traffic (new) Convenience Interactivity Lower transaction cost Strong brand Bandwidth Security Hypertext/informativeness Multimedia/visual salience Reliability Services Most important: Quality of intangible (new) Real time updating Community/membership Stickiness (new) Not as important: Traffic (new) Convenience Interactivity Lower transaction cost Strong brand Bandwidth Security Hypertext/informativeness Multimedia/visual salience Reliability 1

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