Chapter 1
Problem and Its
Background
Introduction
Business-to-business marketing is considered by
companies to be a sound business strategy and more so when the electronic means
is utilized (Ramsdell, 2000). For buyers, B2B marketplaces promise not only to
deliver more competitive prices but also to rid the supply chain of a host of
inefficiencies. For sellers, B2B creates a channel for their product
distribution thus minimizing the cost of transaction attained when they
themselves engage with the end-users of their products.
In
business-to-business trade among buyers and sellers, the relationship involves
complex products traded where there are high levels of inter-dependencies. In
these situations it is necessary to co-operate in order to maximize the opportunities
for the network of companies, and to build in protection measures against
opportunistic behavior, either through trust developed over time, contracts, or
a combination of both (Agrawal and Pak, 2001; Ramsdell, 2000; Hollad, 1996).
Factors
such as trust and reputation are critical, and there is also the notion of
cooperative strategies based on mutual benefit rather than the simplistic idea
of maximizing revenues to individual organizations (Farrely and Quester, 2003; Archer and Yuan,
2000; Abramson and Ai,
1999).
There is widespread research and anecdotal evidence of the importance of
relationships in business-to-business markets and concepts such as the virtual
value chain (Rayport and Sviokla, 1995) and cooperative supply chain structures
(
extend the theory to market networks of separately owned organizations choosing
to work closely together.
practice, relationships in business-to-business marketing have come to mean
trust that results in protective and complementary relations in
resources (Hamzah-Sendut et al, 1990 in Abramson and Ai, 1999, p.10).
These factors are all part of the Asian concept of guanxi, the six key
constructs of which being: Mutual trust between parties; Commitment towards
mutual benefit; Empathy towards all parties; Maintenance of relationship;
Provision of favors to partners; and Full reciprocation of favors; (Abramson
and Ai, 1999, p.10).
seller--usually share information at each stage of the supply chain and
transaction process, and the nature and amount of what they share depends on
the quality of their relationship (Agrawal and Pak, 2001). Thus, the successful
exchange of information in the transaction of B2B reflects the amount of
investment and trust buyers and sellers bestow to each other.
The B2B
relationship is even more controversial in the emerging market of B2B
retailing. The business is lucrative where Internet business-to-business sales will reach $1.3 trillion by 2003 and;
by 2004, business-to-consumer sales will reach $100 billion (Lord, 2000). Aside
from the potentially huge market offered by the internet, E-commerce
technologies provide effective and efficient ways in which corporate buyers can
gather information rapidly about available products and services, evaluate and
negotiate with suppliers, implement order fulfillment over communications
links, and access post-sales services (Chaston and Mangles, 2003). From the
supplier side, marketing, sales, and service information is also readily
gathered from business partners. Building and maintaining B2B relationships is
the key to success in e-commerce and, unless service is maintained, customer
loss may result, more than offsetting any cost efficiencies due to introducing
e-commerce technology (Archer and Yuan, 2000). Since the core of e-commerce is
information and communications, support for managing customer relationships
particularly trust is of primary consideration in the buyer-seller relationship
(Archer and Yuan, 2000).
Although there is some
evidence of a move towards electronic markets, there is also strong evidence to
support the hypothesis that electronic communication technologies will forge
closer relationships rather than create more fragmented ones. This is
particularly true in business-to-business markets where the levels of
interdependencies between buyers and sellers are typically extremely high
compared with business to consumer markets (Johnston and Lawrence, 1988,
Konsynski and McFarlan 1990).
Background of the Problem
There is little empirical research that examines the
effects of business-to-business marketing orientation on the two most important
relationship marketing concepts, namely trust and commitment (Farrely and
Quester, 2003). Farrely and Quester (2003) argued that the business
relationship dyad aimed at securing long lasting sponsorship relationships
between the buyer and the seller is largely affected by the market orientation
of both parties.
due to the fast advancing B2B marketplace and its impact on changing the
business environment as a whole, the need to recognize the adaptation of
businesses to a new form of inter-organizational relationships need to be
addressed. They suggested that not only must B2B relationship focus on customer
relationship but also, suppliers and retailers must also establish a
relationship in order to maximize their business gains.
A glance in any business or consumer magazine will
clearly demonstrate that marketers are putting this suggestion into practice.
The Internet's one-to-one promise still appears to lie in the future. Duboff
and Spaeth (2000) suggest that the online population will more closely mirror
the general population in age and income demographics in the
the
cost of entry into this business, the necessary (product) ingredients, the
relevant differentiators and the unmet needs of potential customers. While
these factors will vary by product category and consumer segment, businesses
can gain insight by studying today's lead online consumers and successful
online businesses. Therefore, continuous market research is necessary in order
to understand the characteristics and dynamics of the online marketplace. Not
every business can sell online, but every business must bond with its most
profitable customers. Thus, an on-going dialog between marketers and their
customers is mandatory. In fact, an ongoing dialog can enable small businesses
to effectively compete against larger ones.
example of a company that has achieved virtual integration with its suppliers,
which has enabled the company to achieve remarkable growth and customer service
levels. Similarly, in business markets, CISCO system has also demonstrated
massive cost savings and strategic benefits from linking closely with customers
and suppliers (Klineberg 1998). It is clear that developments in
business-to-business markets will continue to create new methods of working.
these business-to-business examples are not examples of pure electronic markets
in which there is rapid switching between customers and suppliers. The
relationships between separate companies in business markets clearly matter particularly
in the retail industry where it is characterized as of high levels of
inter-dependencies.
B2B to work, good governance is needed in order to nurture the relationship
with the companies and organizations. Given that the marketplace is highly
competitive and conflict must be avoided in order to retain the loyalty of the
organizations, the seller usually establishes a strategy of management of
customer relations to avoid defections.
the factors affecting the relationship of business-to-business short-term and
long-term transactions, the impact of trust and commitment on the business
decisions of the supplier and buyer, the foundations of building trust in B2B
relationships and the challenges faced by this relationship. Moreover, the
relationship shall also be examined in the context of the worldwide web or the
e-commerce in terms of customer
electronics business markets.
Statement of the Problem
property rights, but businessmen can still make deals on the strength of a
handshake. Social scientists have argued that formal methods of enforcing
cooperation, like contracts, financial incentives, and the law, do not tell the
whole story. Trust may also play a part - as an alternative, informal means of
sustaining cooperation, which works alongside more formal guarantees, or even
in their absence. Some theorists claim that trust is a social virtue that
cannot be reduced to strategic self-interest; others argue that trusting
another person is ultimately a rational calculation based on information about
that person and the incentives they face. Lewis & Weigert (1985)
characterized trust as the "undertaking of a risky course of action on the
confident expectation that all persons involved in the action will act
competently and dutifully" (p. 971). Similarly, Robinson (1996) defined
trust as a person's "expectations, assumptions, or beliefs about the
likelihood that another's future actions will be beneficial, favorable, or at
least not detrimental to one's interests" (p. 576). Other influential
definitions construe trust as a more general attitude or expectancy about other
people and the social systems in which they are embedded (Garfinkel 1963,
Luhmann 1988).
the study intends to identify how buyers make choice of suppliers in term of
trust in
home furnishing and customer electronics business markets. Specifically, the
study intends to answer the following questions:
- How does a business-to-business
marketing relationship developed specifically in - How is trust
developed in the B2B marketing relationship between buyers and sellers? - What is the role of relationship marketing and trust in a
business-to-business trade orientation? - What are the effects of trust in the buyer-seller relationship in
terms of the company’s:
Complexity
Relationships as investments – their long-term nature
Adaptation
Power and dependence
Arial'>e.
Conflict and cooperation
Arial'>f.
Reciprocal trust rather then formality
- Is there a significant relationship between customer and company
trust and the overall performance of the company in terms of sales?
of the Study
The
topic on B2B relationship has been seldom discussed in recent literature,
specifically through electronic means. This might be due to its inherent
contemporary nature. This study would be a welcome addition to the existing,
although scarce, materials on e-commerce and B2B marketing. It shall as well be
an addition to the ample resources on the concept of trust between suppliers
and consumers.
The
study shall be contributing to the works on human behavior. The interaction
between the buyer and seller is of utmost focus of the study. Likewise, a greater
understanding of the process of acquiring trust shall be also uncovered through
the course of this study.
of Terms
Business-to-business
company and another company, as opposed to a transaction involving a consumer.
The term may also describe a company that provides goods or services for
another company.
Consumer
An individual who buys products
or services for personal use and it is not for manufacture or resale.
E-commerce
businesses and consumers over the Internet. Subdivided into three categories:
business to business or B2B (Cisco), business to consumer or B2C (Amazon), and
consumer to consumer or C2C (eBay); also called electronic commerce.
Online Trading
selling securities over the Internet, or to a lesser extent, through a broker’s
proprietary software.
an asset for payment. It is also referred in accounting as any event or
condition recorded in the book of accounts.
Chapter 2
REVIEW OF RELATED LITERATURE
Ten years ago, personal salespeople in
business-to-business activity would have scoffed at the idea of using direct
marketing techniques as a sales approach applicable for an industrial customer.
In fact, it was considered that these tools were only for the use of companies
selling items to mass markets. This chapter shall evaluate the relationship
between companies in a business-to-business relationship, the values such as
trust and commitment in the relationship and the threats and opportunities of
the B2B market and relationship. Moreover, e-commerce shall also be evaluated
and assess since it provides the contextual basis for the relationship of B2B.
Business-to-Business
Commerce
Business- to- business commerce includes a broad
range of intercompany transactions, including wholesale trade as well as
company purchases of services, resources, technology, manufactured parts and
components, and capital equipment. It also includes some types of financial
trans actions between companies, such as insurance, commercial credit, bonds,
securities and other financial assets.
The potential size of B2B e-commerce in the economy
is vast, though somewhat difficult to pin down. Jupiter Communications (2000)
estimates that overall transactions of goods (excluding services) between
businesses in the
States
2000, of which $336 billion are conducted electronically. By 2005, they expect
the online component to represent $6.3 trillion out of a total of $15.1
trillion. A bit more modestly, Goldman Sachs (2000) projects B2B e-commerce
transactions to r each $4.5 trillion worldwide by 2005. The Gartner Group
estimates that there were $90 billion in internet B2B transactions in 1999, by
comparison with only $16.7 billion in Internet business- to- consumer
transactions, including brokerage fees for online financial trading as well as
retail sales of goods (Uchitelle, 2000).
Expectations about productivity gains from B2B
e-commerce can be usefully divided into f our areas: possible efficiencies from
automation of transactions , potential economic advantages of new market
intermediaries, consolidation of demand and supply through organized exchanges
, and changes in the extent of vertical integration of companies .
Factors for Success in B2B
far. The technology standards needed to connect buyers and sellers, such as XML
(an enhanced World Wide Web language designed to support commercial
transactions), are still in development; meanwhile, many software vendors are
advancing their own versions of these standards
2000). Other technical hurdles
remain, too. Consider the cost and time that must be devoted to building
intracompany enterprise resource-planning (ERP) systems, (James and Wolf, 2000)
which have grown into a market worth some $20 billion a year (Chapman, et. al.,
1997). Then think how much more difficult and costly it will be to create a
cross-enterprise system that integrates many different supply chains.
marketplaces built at great expense will fail. Several factors will influence the
outcome of the shakeout. As in all markets, the B2B marketplaces most likely to
succeed are those with the greatest liquidity
2000). The more buyers trade on a
marketplace, the more suppliers will be tempted--or forced by strong buyers--to
join them, which in many cases will lead to lower spreads (James and Wolf,
2000). Those companies that bring liquidity to the marketplace are its logical
founding partners and therefore have the best chance of capturing the value it
creates in the form of lower prices for the goods and services purchased
through it (Ramsdell, 2000)
announced in the automotive and petroleum industries, will be built around
large pools of buyer spending. But the buyers are not always in control. A
seller (such as Cargill, the producer of basic food ingredients) that has a
wide range of buyers might also be in a position to take ownership of the
marketplace. In functionally based marketplaces, where the buying and selling
sides are likely to be more fragmented, the natural owner may well be a
Web-based intermediary that steps in to roll up the volume on behalf of buyers
and sellers.
marketplaces--to work, good governance is needed to ensure that buyers agree on
the terms of their involvement and commit themselves to supply liquidity
suppliers notice that buyers in an on-line marketplace can't agree about issues
such as common specifications or how to limit the number of suppliers, they
will soon exploit such divisions to drive through their own deals outside the
marketplace, offering rewards to defectors (Chapman, et. al., 1997).
Conversely, to win business, suppliers will reward well-run marketplaces with
better terms.
Good governance is the way to avoid conflict between
different buyers. It is likely to require the appointment of a team of
managers, loyal to the marketplace, who are independent of the buyers but
empowered by them to negotiate contracts with suppliers on their behalf
(Chapman, et. al., 1997). Such a management team will be critically important
if a big buyer had a hand in setting up the marketplace, for rival companies
will not participate in it unless they believe that it is neutral.
(B2B) e-commerce is driving a new
generation
of Internet applications that can dramatically automate trans-corporate
industry processes only if the business systems and data that drive these
industry processes are integrated across the component organisations (Skinstad,
2000). Here industry processes includes both business transactions, and
business processes and workflows. These Internet applications can only automate
industry processes if there is a method to describe collaborative processes
across organisations and to provide data interoperability. Industry process
re- engineering is the re-engineering of trans-corporate processes
as electronically managed processes. Companies that have implemented this
e-business vision are saving tens of millions of dollars per year (Feldman,
2000).
all across this range are to be managed in the distributed and diverse
e-business environment. High-level emergent processes are business
processes that are not predefined and are ad hoc. These processes typically
take place at the higher levels of organisations (Skinstad, 2000), and are
distinct from production workflows (Feldman, 2000).
Cost Efficiencies from Automation
of Transactions
Traditionally,
interbusiness transactions begin with a buyer looking for inputs or a supplier
seeking buyer s for its goods and services. Buyers and suppliers search for
each other through advertising, trade shows, brokers, and dealers. Suppliers
send out sales agents. Buyers then negotiate with potential sellers concerning
product specifications and prices, and per haps conclude a s pot transaction or
form a long-term contract. After the agreement has been reached, the
transaction still involves ordering, billing, arrangements for transportation,
confirmation of payments, and acceptance of delivery
2000).
When a company is
dealing with one or two drum quantities, the cost of comparison s hopping can
be more than the value of the product (Jones, 1999). Sales personnel acting as
sales representatives have traditionally carried out such mundane tasks as
tracking product availability and pricing and supplying such information to
customers. By automating these information services, e-commerce relieves sales
personnel of these tasks, allowing them to concentrate on account management
and marketing strategy (Slade, 2000).
B2B and Company Goals and Benefits
B2B e-commerce
offers direct links between a manufacturer, its supplier and its customer, and
it supports business transactions, processes and information exchange. It
enables a manufacturer to bypass other middlemen and shorten the length of
distribution channel. Another prominent feature of B2B e-commerce is to provide
a channel to develop new products and services for both existing and new
customers. It offers a manufacturer the ability to dominate the electronic
channel and therefore controls the access to customers and set terms of trade.
The impact of e-commerce on the B2B sector has been already manifesting itself
in a number of different ways. However, the future will bring more discussion
between manufacturing company and its business partners on a number of levels
within the supply chain that will result in an even greater need to harness the
benefits of B2B e-commerce can bring (Walters and Lancaster, 1999; Fraser and
Fraser, 2000).
B2B e-commerce
supports the transactions between organizations. A network-based form of
organizations is enabled, where small and flexible firms rely on their
partner-companies for component supplies, product distribution, etc. in order
to satisfy their customers more effectively. These collaborative links between
companies are often called integrated or extended SCM (Kalakota and Whinston,
1997).
One of the
principal objectives of using B2B e-commerce is to achieve efficiency in
communicating the needs of the manufacturers' production lines to the suppliers
of component parts. Electronic trading was expected to bring about a number of
benefits to the industry, including improved manufacturing supply chain,
increased productivity, improved product quality, enhanced customer service,
and a movement towards lower inventory requirements as manufacturers moved
towards just-in-time production. Through this industry cooperation, individual
companies were placed in a better position to compete for overseas contracts to
supply parts to other than their local customers, thus gaining a competitive
advantage directly from their adoption of B2B e-commerce.
Networked B2B
applications, especially on the Internet and through inter-organizational information
systems, have resulted in many changes in the way B2B transactions can be
carried out. Benefits from such approaches include rapid data exchange, low
inventories and quick response time. All these require a high degree of
interaction and some degree of system integration between supplier and customer
(Archer and Yuan, 2000). A key challenge for B2B is to overcome the difficulty
in data interchange between supplier and customer. Traditional ways of B2B
e-commerce, such as by EDI, seems beyond the resource capacity of many small
and medium-sized manufacturers, but it is often a requirement for doing
business with a large company. The innovative B2B-EC provides a means of
achieving a desired degree of interconnectivity without a huge investment on time,
money and sophisticated technology.
The significance
of Internet-based B2B e-commerce is clearly highlighted in the management
literature (Angeles, 2000). B2B e-commerce may replace some of the traditional
activity in the "manufacturing supply chain". One great advantage to
manufacturers is that the information exchange between them and their customers
and suppliers can be direct and quick.
Benefits of B2B in the Company
The potential
benefits of B2B e-commerce include online communication integrated with
information systems of business partners, which may lead to customized products
and services; a more diversified global market; better understanding of
customer needs; accurate real-time information exchange; and, cost-efficient
productivity. In the future, B2B e-commerce may influence supply chain systems
in various ways. First, it can be used as a fast and efficient means of
communication between companies in the whole value chain. Customer orders,
order confirmation, transport booking and invoicing may increasingly use B2B
e-commerce. The same applies to planning information - sales forecasts,
production plans, up-to-date sales figures, and stock levels, for example; any
may be accessed online by strategic partners (Skjoett-Larsen, 2000).
According to
Lucking-Reiley and Spulber (2000), expectations about productivity gains from
B2B e-commerce can be usefully divided into four areas:
possible
efficiencies from automation of transactions;
potential
economic advantages of new market intermediaries;
consolidation of
demand and supply through organized exchanges;
changes in the
extent of vertical integration of companies.
The power of B2B e-commerce is that it allows a
company to reduce costs, and more importantly, manipulates information from all
sectors along the chain to exploit growth opportunities (Keeffe, 2001).
providing real-time information regarding to product availability, inventory
levels, shipment status, and production requirements. B2B e-commerce may have a
vast potential to facilitate collaborative planning among supply chain partners
by sharing information on demand forecasts and production schedules that
dictate supply chain activities. Furthermore, B2B e-commerce may effectively link
customer demand information to upstream supply chain functions such as
manufacturing, distribution and sourcing and subsequently facilitate
demand-driven supply chain operations in the shifting environment from mass
production to mass customization.
B2B e-commerce
adoption improves cost saving
B2B e-commerce innovations
aim to reduce the cost of procurement before, during and after the transaction.
At every stage, B2B e-commerce avoids the need to translate computer files into
paper documents, a process that generally involves errors, delay and costly
clerical personnel. B2B e-commerce automates this process by mediating
transactions through Websites and EDI (Lucking-Reiley and Spulber, 2000). By
reducing clerical procedures and eliminating paper handling, B2B e-commerce can
accelerate ordering, delivery, and payment for goods and services while
reducing operating and inventory costs (McIvor et al., 2000). Manufacturers,
especially small and medium-sized enterprises, increasingly rely on
international networks of suppliers, distributors, and customers, frequently
via the Internet, to improve their global competitiveness through reducing
fixed and operating costs (Graham and Hardaker, 2000). In fact, electronic
businesses are attempting to use the Internet to seamlessly integrate
enterprise systems, databases, and workflows across organizational boundaries
and planning frameworks. Organizations have been investing significantly in
building information links with their suppliers and buyers in order to reduce costs,
lead times and quality problems, and improve time customized delivery (Prasad
and Tata, 2000).
B2B
e-commerce adoption improves inventory control.
Focusing on the flow of
information in the supply chain often brings opportunities to improve response time
dramatically and hence reduce inventory, working capital and therefore cost
(Wilding and Newton, 1996). Inter-organizational information systems (IOS), the
computer based communication between buyers and sellers, can improve inventory
management and control as well as reduce costs for all participants (Wilson and
Vlosky, 1998). Inventory reduction can be achieved through closer integration
with customers and suppliers. By maintaining closer relationships with
suppliers, manufacturers can eliminate the need for raw material warehousing.
Similarly, finished goods on hold can be minimized if the needs of customers
can be accurately determined. Such determination of customer requirements can
be possible if the company has achieved system integration through B2B
e-commerce.
B2B
e-commerce improves SCM.
Manufacturer involves both
buying and selling and as such, development of supplier-manufacturer-customer
relationship has greatly revolutionized supply chain management in recent
times, and it should apply to the manufacturing environment as well. Both SCM
and B2B e-commerce have been widely researched over recent years. However,
there has been no well-founded empirical research on the two together on how
B2B e-commerce can support SCM practices.
B2B
e-commerce improves manufacturing supply chain
The main objective of SCM
is to integrate all key business activities through the improved relationships
at all levels of the supply chain including internal operations, upstream
supplier networks and downstream distribution channels. Shared information
between supply chain partners can only be fully leveraged through process
integration. By process integration means collaborative working between buyers
and suppliers, joint product development, common systems and shared
information. This form of co-operation in the supply chain is becoming ever
more prevalent as companies focus on managing their core competencies and
outsource all other activities. In this new world a greater reliance on
suppliers and alliance partners becomes inevitable and, hence, a new style of
relationship is essential (Christopher and Towill, 2000).
The Internet has the
potential to transfer complex information accurately and to reduce the delays
as information passes both upstream and downstream of the supply chain. Good
SCM is essential for a successful company. SCM can reach beyond the boundaries
of a single company to share that information between suppliers, manufacturers,
distributors, and retailers. This is where the Internet plays a central role
(Graham and Hardaker, 2000).
The objective of a B2B
e-commerce strategy in SCM is to provide purchasing managers with better
control over their companyÕs purchasing habits and relationship with suppliers.
Continuous improvement of an organizationÕs supply chain is directly related to
its performance, and B2B e-commerce applications are being used in procurement
processes more and more frequently to achieve this end. The advantages of B2B
e-commerce in SCM include access to a wide range of suppliers and effective use
of organizational resources that are essential for implementing just-in-time
manufacturing systems (Warren and Hutchinson, 2000).
B2B
e-commerce adoption can help a manufacturer to maintain a better relationship
with its customers
B2B e-commerce provides
effective and efficient ways in which customers can gather information rapidly
about available products and services, evaluate and negotiate with
manufacturers, implement order fulfillment over communications links, and
access post-sales services (Archer and Yuan, 2000). In today’s business
environment, the advances in information technology and the ongoing development
of B2B e-commerce further enhance the relevance of customer-manufacturer
relationship.
Web-based customer service
offers the potential to enrich customers. Using pictures, video, and audio,
company personnel can literally show a customer a product, explain how to use a
product or solve a problem, and explain things in much the same way that are
done in face-to-face interaction with the customers (McGaughey, 1999).
Customers provide manufacturer with information about current inventory status
of products and future orders. In addition, customers should provide
manufacturers with timely and accurate information regarding feedback from
their final customers about their experiences with the product, quality
problems and performance of their products in relation to the competition.
B2B
e-commerce adoption maintain a better relationship with its suppliers
Meanwhile,
supplier-manufacturer relationships are becoming customized with the emphasis
on reducing the number of suppliers and reducing the overall costs. The most
important is how to match the competences of the supplier to that of the
manufacturer, so that the benefits of these more effective relationships can be
passed on to the customer. However, this customization cannot be achieved under
the old systems of command and control, i.e. material requisition planning
(MRP), manufacturing resources planning (MRPII), and enterprise resources
planning (ER).
Traditionally, EDI
provides integrated solutions on data exchange and enhances business
transaction processing. This improves supplier-manufacturer relationships and
creates a competitive advantage. However, wider diffusion of EDI is discouraged
by the huge expense of setting up a network, limiting it as a solution for
global suppliers or manufacturers.
Besides impacting the
external trading arrangements between manufacturers and suppliers, B2B
e-commerce is affecting as well the traditional roles betwemanufacturers and
suppliers. For example, electronic commerce is allowing purchasing
professionals to move from merely clerical activities, such as invoice
processing and expediting, to more interesting and complex tasks such as integrating
suppliers into new product development processes and joint involvement in total
cost analysis (McIvor et al., 2000).
from Intermediation in B2B E-Commerce
Intermediation and market-
making are central activities in a market- oriented economy, bringing buyers
and sellers together. Intermediaries can reduce transaction costs relative to
direct exchange, by reducing the costs of search, certifying product quality,
mitigating communication costs, and providing guarantees for buyer or seller
commitments (Spulber, 1996, 1999). Companies acting as market- makers enhance
transaction efficiency by creating institutions of exchange, adjusting and
communicating prices, clearing markets, allocating goods, and providing
liquidity and immediacy (Spulber, 1998). Business- to- business e-commerce
appears likely to transform the traditional patterns of intermediation in ways
large and s mall. Intermediaries reduce search costs by consolidating markets,
providing market information and offering an assortment of goods and services,
so that buyer s obtain the cost efficiency of one-stop shopping, rather than
spending time contacting multiple suppliers. Many business-to-business
intermediaries seek to offer a broader range of services including communication
of price information and price adjustment. Centralized markets of ten reduce
time costs by replacing bilateral negotiation with formal bidding mechanisms
and information about transaction prices (Shmukler, 2000).
Ownership of B2B Intermediaries
At the formative stage of
B2B e- commerce, segments of the intermediary marketplace appeared to be highly
competitive. There w ere hundreds of entrants with projections of thousands
more (Latham, 2000, p. 3). Rapid initial entry suggests that entry costs were
low relative to expected returns. Entry costs also appeared to be low because
companies could rent communications and computer facilities without incurring
irreversible capital costs. Moreover, market entrants could outsource operation
of their website to specialized service providers, the so-called e- commerce
platforms. A wide variety of software applications became available. Thus, for
many B2B companies entry costs were primarily focused on the design of e-
commerce services and on marketing and sales expenditures to attract buyers and
sellers.
Returns to scale and the
importance of liquidity suggest that eventually only one or two markets will
operate in each product or service category. Economies of scale result from the
fact that creating an Internet-based market involves large fixed costs, while
the marginal costs of providing trans action information to market participants
appear to be near zero.
as the number of participants at a site increases, buyers and sellers both find
it easier to realize transactions in a market, so that a greater number of
sellers attract more buyers and conversely a greater number of buyer s attracts
more seller s (Latham, 2000).
Effects of E-commerce on the
Organization of Firms
classic article introduced the concept of transactions costs. Coase explained
that the costs of using the market were an important determinant of whether
firms would carry out an economic activity within their organization or rely on
purchases from other firms. When using the market is costly relative to
management costs, companies have an incentive to vertically integrate. Yet,
outsourcing is compelled by the buyer's need for flexibility and focus,
supplier economies of scale and scope, and supplier expertise. To the extent
that e- commerce technology lower s the costs of intercompany transactions, it
should tip the balance toward greater use of external markets. The potential
effects of B2B e-commerce extend beyond saving money on transactions between
existing firms. Cost and allocative efficiencies in e-commerce suggest a more
fundamental change in the w ay that businesses are organized. Vertically
integrated firms engage in substantial internal sales and procurement
activities. With B2B e- commerce, such vertically integrated companies might
reorganize to outsource production of goods. According to AMR Research (2000),
Covisint "has come to the understanding that its main customers aren't GM,
Ford or DaimlerChrysler, but the suppliers."
in computers and communications clearly hold great promise for reducing
transaction costs between businesses. Productivity gains may result from the
automation of transactions, the potential economic advantages of
intermediation, the organization of centralized exchanges, and the
reorganization of firms. An important research question is the measurement of
these economic efficiency gains. Yet, estimation of productivity growth in ser
vices such as B2B e- commerce presents some difficulties. Triplett and Bosworth
(2000) observe that economic changes attributable to e-commerce cross the
traditional production boundary used in national accounts.
B2B e-commerce is the development
software and communications standards. Extensible Markup Language (XML) is
being applied to develop data descriptions
and protocols to describe practically all aspects of a
transportation, prices, and credit terms. If standards are generally adopted, manufacturers, suppliers
and distributors will be able to
commercial information using generally recognized formats (Mitchell, 1999,
enables the computers of both parties to a
transaction to understand precisely what is being traded, so that each
party can automatically update its internal
records, such as billing and inventory. Developing such
cooperation of buyers and sellers within industries.
Understanding
the key constructs of trust and commitment and their respective antecedents,
together with the linkages between these variables is critical if improvement
in relationships in a business-to-business setting is to occur. Trust and
commitment are considered to be central constructs of relationship marketing.
Commitment influences the buyer s choice of seller (Ganesan 1994), and trust is
a key driver in this process. Indeed, commitment and trust are critical to any
discussion of business relationships because they encourage exchange partners
to work at preserving the relationship and achieve mutual gains (Morgan and
Hunt 1994). It is claimed that commitment and trust will produce efficiency,
productivity and effectiveness, all of which are essential for any long-term project.
Once a relationship is established, a high level of commitment and trust in the
sales representative may impact on brand loyalty (Garver and Flint 1995).
Trust
key variable in the establishment of a relationship and is the main antecedent
to commitment. Trust is defined as confidence in an exchange partner s
reliability and integrity (Morgan and Hunt 1994, p. 23). Trust is also a
component of social exchange literature (Morgan and Hunt 1994) and is
identified in the services marketing literature as important in creating
successful exchanges (Berry and Parasuraman 1991). Given the intangible nature
of a service and the fact that a service is consumed as it is purchased, it can
be argued that a high degree of trust in the product and/or supplier required
encouraging purchase and repeating purchase. Trust is also defined as the
perceived credibility and benevolence of a target of trust (Doney and Cannon
1997, p. 36). More generally, dimensions of trust include expertise,
reliability and internationality (Rotter 1967). Although not the focus on this
research, antecedents of trust include vulnerability and uncertainty (Moorman,
Zaltman and Deshpande 1992).
Relationships
that are characterised as high trust are highly valued by exchange participants.
Thus, exchange participa nts are more willing to commit to a relationship if
trust is present (Morgan and Hunt 1994). Indeed, some organisations use trust
as a risk-reduction mechanism. That is, if they believe the supplier to be
credible and able to perform their roles effectively, and benevolent, that is,
the supplier is interested in the customer’s welfare, then the perceived risk
of exchange tends to be lower (Doney and Cannon 1997). Furthermore, a purchaser
who experiences satisfaction with outcomes is more likely to trust their
supplier in the future (Ganesan 1994). In contrast, an organisation that
perceives inequity in the relationship is likely to become dissatisfied and may
view the supplier as exploitive (Ganesan 1994). Finally, it can be argued that
the more experience an organisation has with a supplier, the more likely they
are to trust that supplier (Doney and Cannon 1997; Ganesan 1994).
Commitment
commitment is defined in the literature as an enduring desire to maintain a valued
relationship (Morgan and Hunt 1994, 23). The concept of commitment is new to business-to-business
research; however, it has long been part of the social exchange literature
(Morgan and Hunt 1994). Three elements of an organisation can be the focus of commitment:
(1) the organisation itself, (2) the organisation s brand and (3) the
organisation s representatives. Commitment towards the brand or product is a
measure of brand loyalty. This linking of commitment with loyalty has emerged
as researchers realised that the attitude consumers hold towards a brand on its
own is not a particularly strong determinant of behaviour, and that commitment
to repurchase the brand helps explain the relationship between attitude and
behaviour (East 1997; Traylor 1981).
is an important component of marketing relationships (Morgan and Hunt 1994).
Essentially, commitment captures the buyer s desire to maintain a relationship
with a particular vendor and reflects the strength of relationship the buyer
has with the buyer s representative. Arguably, the relationship with the
consultant is more important than the relationship with the company as a
measure of commitment, as the consultant is viewed as the public face of the
company. This premise requires that salespeople are able to develop and
maintain relationships with buyers. More generally, researchers have
distinguished between trust
in a vendor s representative and
an extension of this view, it is argued that commitment to the vendor s
representative contributes to building high levels of brand loyalty. In
representing the brand to the customer, the sales representative is in a
position to communicate a good deal of information about the product to the
customer and contribute significantly to the development of brand equity.
is important to recognise that brand equity is based on more than simply
information about the brand. The brand equity construct also captures the
positive mental associations held by the consumer in relation to the
brand. A positive relationship between
is predicted. Trust
is a determinant of relationship quality (Moorman, Zaltman and Deshpande 1992)
in that the level of honesty, believability and integrity influence how the
relationship with the service provider is perceived. The perceived quality of
the relationship then in turn influences the level of commitment extended
towards the service provider (Moorman, Zaltman and Deshpande 1992). If the
salesperson is perceived to be honest and reliable, then the outcome is a high
perception of quality in the relationship. Conversely, if there is little
salesperson then the relationship would be perceived as unsatisfactory and no
or little commitment to the salesperson would exist. When the perceived quality
of the relationship is high then there is likely to be high levels of commitment
to continuing the relationship. Hence, high levels of
to the relationship (Moorman, Zaltman and Deshpande 1992; Morgan and Hunt
1994). Based on this discussion, the following relationship is expected.
References
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style='mso-ansi-language:EN-GB'>
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style='mso-ansi-language:EN-GB'>
style='mso-ansi-language:EN-GB'>Chapter 3
METHODS AND PROCEDURE
style='mso-bidi-font-family:Arial;color:windowtext;mso-ansi-language:EN-GB'>This
chapter shall discuss the research methods available for the study and what is
applicable for it to use. Likewise, the chapter shall present how the research
will be implemented and how to come up with pertinent findings.
Method of Research to be
Used
type of research shall be the framework in illustrating the dynamics of B2B
transactions in Singapore’s home furnishings. This can be done through the
demonstration of the activities of companies by interviewing key players in
Singapore’s home furnishings. The interview with the personnel from home
furnishings and electronic industry shall be comprised of two parts: the
structured interview and the survey questionnaire. The interview shall provide
a qualitative probing on the deeper workings of the company, the reason for
their choice of the B2B transaction, the strengths and weaknesses of the
method, the threats and the opportunities of their B2B market and the impact of
this in the home furnishing and the electronic industry. Finally, the
interviewees shall evaluate the value of trust and commitment within B2B
transaction.
other hand shall assess the perceived effects of business-to-business
transactions on the respondents’ companies’ long and short-term goals and how
it is complimented or threatened by the B2B method. Moreover, the strengths,
the weaknesses, threats and opportunities posed by the B2B in the respondents’
respective companies shall be assessed. Consequently, the perception of the
respondents on the worldwide web or the e-commerce in terms of
analyzed.
research method uses observation and surveys. In this method, it is possible
that the study would be cheap and quick. It could also suggest unanticipated
hypotheses. Nonetheless, it would be very hard to rule out alternative
explanations and especially infer causations. Thus, this study will use the
descriptive approach. This descriptive type of research will utilize
observations in the study. To illustrate
the descriptive type of research, Creswell (1994) will guide the researcher
when he stated: Descriptive method of research is to gather information about
the present existing condition. The purpose of employing this method is to
describe the nature of a situation, as it exists at the time of the study and
to explore the cause/s of particular phenomena. The researcher opted to use
this kind of research considering the desire of the researcher to obtain first
hand data from the respondents so as to formulate rational and sound
conclusions and recommendations for the study.
descriptive type of research also presents a lesser time frame in completing
the research without sacrificing the needed data for the study. The interview
and the survey can be administered within an allowable timeframe. In addition,
since working for the home furnishing and electronic industry for a long time,
it had allowed the researcher to establish contacts with people who can be
interviewed and surveyed for this study.
Research Design
described in this document is based fundamentally on both
This permits a flexible and iterative approach. During data gathering the
choice and design of methods are constantly modified, based on ongoing
analysis. This allows investigation of important new issues and questions as
they arise, and allows the investigators to drop unproductive areas of research
from the original research plan.
style='mso-bidi-font-size:12.0pt;line-height:200%;mso-ansi-language:EN-GB'>The
primary source of data will come from interviews conducted by the researcher
among companies and organizations involved in business-to-business transactions
with Singapore’s Home Furnishings. After the target interviewees had been
identified, a history of financial transactions between the two companies shall
be requested in order to quantify the extent of the relationship financially.
The data shall be compared to the total amount spent on similar products in
order to ascertain the value of the B2B relationship.
sources of data will come from published articles from business and e-commerce
journals, theses and related studies on business management, particularly those
related to buyer-seller relationships.
design, the researcher will gather data, collate published studies from
different local and foreign universities and articles from social science
journals; and make a content analysis of the collected documentary and verbal
material. Afterwards, the researcher
will summarize all the information, make a conclusion based on the null
hypotheses posited and provide insightful recommendations on the dealing with
business-to-business market relationships.
Respondents
of the Study
font-style:normal;mso-bidi-font-style:italic'>The general population for this
study will be composed of selected buyers and sellers engaging in electronic
commerce, particularly those directly related to Singapore home furnishing
and customer electronics business marketsstyle='mso-bidi-font-family:Arial;mso-ansi-language:EN-GB;font-style:normal;
mso-bidi-font-style:italic'>. The researcher seeks to gather information from
these personalities, five for each of the chosen company, totalling twenty-five
(25) respondents.
Instruments
to be Used
To determine
the effects of e-commerce to the Singapore home furnishing business, the
researcher will prepare a set of guide questions for the interview that will be
asked to the intended respondents.
To determine
the perception of the respondents on B2B transaction in Singapore home
furnishings, the researcher prepared a questionnaire and a set of guide
questions for the interview that was asked to the intended respondents.
Arial'>The respondents graded each statement in the survey-questionnaire using
a Likert scale with a five-response scale wherein respondents will be given
five response choices. The equivalent weights for the answers will be:
Range
– 5.00 Strongly
Agree
3.50 – 4.00
2.50 – 3.49
1.50 – 2.49
0.00 – 1.49
font-family:Arial;mso-ansi-language:EN-GB'>
style='font-size:12.0pt;mso-bidi-font-size:10.0pt;line-height:200%;font-family:
Arial;mso-ansi-language:EN-GB'>Validation of the Instrument
For
validation purposes, the researcher will initially submit a sample of the set
of interview questions and after approval; the survey will be conducted to five
respondents from five different companies engaging in e-commerce.
researcher will ask the respondents for any suggestions or any necessary
corrections to ensure further improvement and validity of the instrument.
of the interview questions to find out the reliability of the instrument.
questions and will change words that would be deemed difficult by the
respondents into much simpler terms.
style='font-size:12.0pt;mso-bidi-font-size:10.0pt;line-height:200%;font-family:
Arial;mso-ansi-language:EN-GB'>
style='font-size:12.0pt;mso-bidi-font-size:10.0pt;line-height:200%;font-family:
Arial;mso-ansi-language:EN-GB'>Administration of the Instrument
style='mso-bidi-font-size:12.0pt;line-height:200%;mso-ansi-language:EN-GB'>The
researcher will exclude the five respondents who will be initially used for the
validation of the instrument. The
researcher will also tally, score and tabulate all the responses in the
provided interview questions. Moreover, the interview shall be using a
structured interview. It shall consist of a list of specific questions and the
interviewer does not deviate from the list or inject any extra remarks into the
interview process. The interviewer may encourage the interviewee to clarify
vague statements or to further elaborate on brief comments. Otherwise, the
interviewer attempts to be objective and tries not to influence the
interviewer's statements. The interviewer does not share his/her own beliefs
and opinions. The structured interview is mostly a "question and
answer" session.
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