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 (Holland 1996) extend the theory to market networks of separately owned organizations choosing to work closely together.
In practice, relationships in business-to-business marketing have come to mean trust that results in protective and complementary relations in Asia, and will thus include the sharing or pooling of 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).
Two adjacent players–the buyer and the 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 .3 trillion by 2003 and; by 2004, business-to-consumer sales will reach 0 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.
Lu and Anthony (2003) argued that 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 U.S., Germany, the United Kingdom and Scandinavia. Businesses should ask themselves about 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.
Dell is an 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.
However, 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.
Moreover, Ramsdell (2000) suggested that in order for 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.
This paper attempts to investigate 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
Commercial transactions depend upon enforceable 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).
In this light, the study intends to identify how buyers make choice of suppliers in term of trust in Singapore home furnishing and customer electronics business markets. Specifically, the study intends to answer the following questions:
a. Complexity
b. Relationships as investments – their long-term nature
c. Adaptation
d. Power and dependence
e. Conflict and cooperation
f. Reciprocal trust rather then formality
Significance 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.
Definition of Terms
Business-to-business
Is also called B2B. A transaction occurs between a 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
The buying and selling of products and services by 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
The increasingly popular activity of buying and selling securities over the Internet, or to a lesser extent, through a broker’s proprietary software.
Transaction
An agreement between a buyer and a seller to exchange 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 United States should amount to .5 trillion in 2000, of which 6 billion are conducted electronically. By 2005, they expect the online component to represent .3 trillion out of a total of .1 trillion. A bit more modestly, Goldman Sachs (2000) projects B2B e-commerce transactions to r each .5 trillion worldwide by 2005. The Gartner Group estimates that there were billion in internet B2B transactions in 1999, by comparison with only .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
Indeed, no B2B marketplace is fully up and running so 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 (Ramsdell, 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 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.
Given all this, it is quite likely that some 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 (Ramsdell, 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). Most industry-focused marketplaces, such as those 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.
For marketplaces–especially multibuyer marketplaces–to work, good governance is needed to ensure that buyers agree on the terms of their involvement and commit themselves to supply liquidity (Ramsdell, 2000). If 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.
Business-to-Business (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 organizations (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 organizations 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).
Processes 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 organizations (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 (Phillips and Meeker, 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:
1. possible efficiencies from automation of transactions;
2. potential economic advantages of new market intermediaries;
3. consolidation of demand and supply through organized exchanges;
4. 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).
B2B e-commerce may enhance supply chain efficiency by 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 company’s purchasing habits and relationship with suppliers. Continuous improvement of an organizations 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 between manufacturers 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).
Economic Efficiency Gains 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).
Market Structure and 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.
Moreover, 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
Coase’s (1937) 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.”
Advances 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.
One of the challenges faced by companies in B2B e-commerce is the development of software and communications standards. Extensible Markup Language (XML) is being applied to develop data descriptions and protocols to describe practically all aspects of a transaction, including product features, transportation, prices, and credit terms. If standards are generally adopted, manufacturers, suppliers and distributors will be able to exchange commercial information using generally recognized formats (Mitchell, 1999, Bosak and Bray, 1999). Such standardization 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 protocols will require extensive cooperation of buyers and sellers within industries.
Trust
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
Trust is a 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 characterized as high trust are highly valued by exchange participants. Thus, exchange participants are more willing to commit to a relationship if trust is present (Morgan and Hunt 1994). Indeed, some organizations 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 organization 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 organization has with a supplier, the more likely they are to trust that supplier (Doney and Cannon 1997; Ganesan 1994).
Commitment
Relationship 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 organization can be the focus of commitment: (1) the organization itself, (2) the organization s brand and (3) the organization s representatives. Commitment towards the brand or product is a measure of brand loyalty. This linking of commitment with loyalty has emerged as researchers realized that the attitude consumers hold towards a brand on its own is not a particularly strong determinant of behavior, and that commitment to repurchase the brand helps explain the relationship between attitude and behavior (East 1997; Traylor 1981).
Commitment 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 trust in the firm (Doney and Cannon 1997). As 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.
However, it is important to recognize 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 trust and commitment 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 trust in the 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 trust are likely to lead to high levels of commitment to the relationship (Moorman, Zaltman and Deshpande 1992; Morgan and Hunt 1994). Based on this discussion, the following relationship is expected.
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Chapter 3 METHODS AND PROCEDURE
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
The descriptive 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.
The survey on the 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 customer electronics business markets shall be analyzed.
The descriptive 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.
Moreover, the 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
The research described in this document is based fundamentally on both qualitative and quantitative research methods. 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.
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.
The secondary 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.
For this research 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 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 markets. 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. 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 Interpretation
4.50 – 5.00 Strongly Agree
3.50 – 4.00 Agree
2.50 – 3.49 Uncertain
1.50 – 2.49 Disagree
0.00 – 1.49 Strongly Disagree
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. After the questions were answered, the researcher will ask the respondents for any suggestions or any necessary corrections to ensure further improvement and validity of the instrument. The researcher will again examine the content of the interview questions to find out the reliability of the instrument. The researchers will exclude irrelevant questions and will change words that would be deemed difficult by the respondents into much simpler terms.
Administration of the Instrument
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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Credit:ivythesis.typepad.com
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