Page 347 - Introduction to Electronic Commerce and Social Commerce

334 11 Electronic Commerce Payment Systems and Order Fulfillment

Taiwan to help support operations and rely on Tmall’s
inventory storage and 20 day delivery to limit operating LESSONS LEARNED FROM THE CASE
expenses.
Unlike some of the other 5400 Tmall Global custom- From the consumer’s point of view, the world of online
ers, Costco has enjoyed a modicum of success. While retail is pretty simple—select, pay, confirm, and wait
there are no official annual statistics provided by Costco for delivery. From the merchant’s point of view, online
or Tmall, Tmall did report that Costco sold over $6.4 mil- life is anything but simple. Regardless of whether a
lion in the first month of operation and that during the merchant is running a domestic or international opera-
2014 Single’s Day Sale Costco sold $3.5 million in tion, there are a large number of complex issues that
merchandise. need to be addressed in making a business successful.
Because of Costco’s razor thin margins, whatever reve- A major difference between the two types of opera-
nues are made have to be weighed against the benefits and tions is that when a merchant tries to expand hers or his
costs accrued from the site and partnership. On the benefit online business by going international the problems
side, the operation (Mahajan 2015): are exacerbated—almost like running separate, local
businesses in the different countries.
• Enables them to test the market without having to invest As the open case highlighted, among the litany of
in real estate, this was the mistake that many big box issues that have to be addressed by merchants, some of
retailers (e.g., Home Depot and Best Buy) made when the key issues revolve around: (1) handling electronic
they entered the Chinese market. currencies and payments; (2) managing and fulfilling
• Allows them to experiment with the market to determine orders once payment has been made; and (3) ensuring
those products that will sell, the features that are impor- that the linkage between the financial side and the
tant to Chinese customers, the prices they can charge, and logistical side appears seamless to customers. This
the general spending patterns of Chinese consumers with chapter focuses on these issues.
respect to their offerings. Almost since the inception of e-commerce, the
• Alleviates the need for a local business license to estab- world of e-payments has been dominated by credit
lish an online store. This can be a complex, lengthy, and cards, debit cards, and third-party surrogates like
costly endeavor. PayPal tied directly to cards or bank accounts. Today,
• Eliminates many of the typical interchange costs associ- this world is in flux. While the traditional e-payment
ated with card-based payment systems and reduces over- methods still dominate worldwide, this is changing rap-
all logistical costs by speeding transit time. idly. The changes are being driven by the rise of omni-
channel retail, the expanding use of mobile devices,
In terms of limitations, the operation: innovations in the world of digital or virtual currencies,
as the changing demographics of B2C consumers.
• Restricts them from advertising on Tmall Mainland and The first part of this chapter deals with this chang-
Taobow which accounts for 80% for China’s online sales. ing payment world. First, it examines the underlying
They have to rely on company name and brand recogni- shifts driving the changes. Next, it looks at the major
tion to drive business. forms of payment worldwide including cards, third-
• Charges merchants a deposit fee ($25,000), an annual fee party systems, mobile payments, and virtual curren-
(somewhere between $5000 and $10,000), a sales com- cies. The chapter also explores the players and
mission fee of 2–5% of the product price and logistics processes associated with the various payment alterna-
fees, and an Alipay fee of 1% of the product price and tives along with the underlying reasons why some have
logistics fees. been widely adopted while others have not.
• Eliminates a key element of their business strategy— The latter sections of the chapter delve into the sec-
membership fees. ond of these issues—order fulfillment and logistics.
Order fulfillment and logistics are part of the larger
There’s no assurance that Costco will succeed in the arena of supply chain management and execution. Their
Chinese online B2C market. There is tremendous competi- importance was recently highlighted by Tong Wenhong,
tive pressure coming from leading Chinese retailers and the CEO of Cainao (discussed in the opening case),
from other cross-border retailers and manufacturers. If they when he stated, “If e-commerce was the focus of China’s
are successful, eventually they will probably have to go the economy in the past 10 years, logistics will be the focus
local route, establish an independent online presence in for the next 10.” In this chapter, we will describe the role
China in order to reduce their overall costs. that fulfillment and logistics play in EC along with some
Sources: Alizilia (2015), Goodale (2014), Mahajan of the major logistics problems that are encountered and
(2015), PayPal (2015), Pymnts (2015), and Tran (2015) (all the solutions designed to alleviate those problems.
accessed May 2016).