A Conceptual Model Of Operating Internet-based B2C Business In Fast-growing Industries

Most existing econometric studies approached the issue of Internet-based Business-to-Consumer (B2C) operation by analyzing one or two specific relations, but few studies have been done to picture the entire dynamics of online (Internet-based B2C) and offline (traditional brick & mortar) operation in fast-growing industries. Taking the System Dynamics (SD) perspective, this paper offers a comprehensive conceptual model that portrays dynamic processes of simultaneously running online and offline business in fast-growing industries. All major functional operations such as R&D, manufacturing, marketing, product delivery, after sales service, online store construction, as well as online and offline customer interflow are included in the causal loop diagram. Five reinforcing loops and three balancing loops significantly influencing corporate performance are identified and analyzed. The implications of this conceptual model to practitioners in fast-growing industries are discussed. INTRODUCTION The Business-to-Consumer (B2C) e-business model is a business model that extends the traditional brick & mortar-based business practice by introducing an online channel to customers. It has been widely accepted by many western computer suppliers, even though dot.coms have experienced dramatic boom and bust in the past five years. It was argued that as the competition in the conventional computer market became increasingly intense, an online business channel would emerge as a strategic imperative for companies to build competitive advantages (Segal 2000). However, in the last few years the whole business world has witnessed dot.com’s boom and bust. Dot.coms were one of the fastest growing businesses, while they dropped like stone as fast as they grew. Having seen all these that happened, many companies in developing countries have been extremely cautious about investing in the Internet based B2C, doubting the return on investment as an early mover into the local online market (Mellahi 2000). Two questions arise here: 1) What are the underlying processes of operating conventional business and online business simultaneously? 2) To what extent and how does the introduction to online business affect a company’s performance? By approaching these questions, we expect to help practitioners understand the key issues that may influence corporate performance when they consider the Internet-based B2C business. Considerable research has been done on B2C performance using econometric approach, but few studies examine B2C as a dynamic system with complex interrelationships. In this paper, an enterprise-wide conceptual B2C model is developed from the System Dynamics (SD) perspective. The model portrays a typical operation model of a common manufacturing company in fast growing industries that does sales through both the conventional channel and the emerging online channel. The focus of the model resides on the interaction among the major functional departments of the company and the interweaving effect between the online market and the conventional market. Based on the model, we expect to illustrate the major loops that can affect the performance of the company and to pave a path for quantitatively exploring the critical decision factors that significantly influence the company performance, and the behavior with regards to customers’ reaction to the company’s B2C platform. The result will be of high value to business practitioners with intention to building B2C capabilities in fast-growing industries. PROBLEM DESCRIPTION The existing literature has extensively studied the benefits companies can obtain from the B2C model (Fan 2001). However, some major challenges still exist for companies that are adopting B2C, including reduced barriers to entry, huge marketing investment, lack of qualified after sales support workforce, the potential of online market growth in developing countries, etc. Reduced Barriers to Entry Internet is drastically reducing barriers to computer market. Current B2C players’ market share is constantly being challenged. It is easy for anybody to build a web presence to take customer orders in ways such as email, message board. Customers are free to switch instantaneously to competitors since the comparative information about the product of any competitor can be obtained effortlessly. Enormous Marketing Investment Much investment is needed to attract potential customers to online stores. Business on the Internet is just like a battle for people’s attention. In order to capture customers, investment needs to be ongoing and huge. High-Qualified After Sales Service Workforce The existing literature in e-business has also studied distinct roles that customer service plays. Parasuraman (1991) found that online customers pay great attentions to service quality. It is also found that customer service in e-business may have different characteristics than that in traditional service (Cox 2001). Some determinants in traditional service are not relevant in e-business while some other determinants such as accessibility, communication, credibility, understanding, availability are equally applicable to e-business (Cox 2001). Thus distinct online service quality seems to be important in increasing online customer satisfaction and needs to be addressed be handled differently. Potential of Online Sales Market The online selling can only be conducted through computers that are already linked up to Internet, provided that the computer user wants to shop through the Internet. Although the Internet growth rate in developing countries, such as China, appears to be exciting, the overall penetration rate is still much lower than that of the developed countries. Whether the amount of computers and users can push forward the online retailing market is still remaining to be addressed. Other Major Concerns Other factors such as security of payment, the Internet access cost and quality may also affect the performance of online selling. PRELIMINARY LITERATURE REVIEW Prior Studies associated with this topic is reviewed as the basis of this research. These literatures fall into three categories: 1) Growth Management In Fast Moving Organizations; 2) The Impact of IT Evolution on Business; 3) Skills and Customer Service Dynamics. In the paragraphs to come is a summary of the studies in these fields. Growth Management for fast moving organization Managing growth is the focal managerial issue for companies in fast-growing industries. A generic model “ Growth and Underinvestment” points out the lag between the support needs and the technical support capacity, which is caused by significant delay of capacity building (Lyneis 1998). The article takes Gateway as an example and emphasizes that the service capacity should be expanded at least as rapidly as the growth in shipments. Also presented is trade-off between huge investment in expansion and short-term profit. See Figure 1 Super-Exponential Growth in Installed Base 0 50