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A study of B2B e-market in China: E-commerce process perspective
Information & Management 45 (2008) 242–248
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Information & Management journal homepage: www.elsevier.com/locate/im
A study of B2B e-market in China: E-commerce process perspective Jing Zhao a,*, Shan Wang b, Wilfred V. Huang c a
Center for International Cooperation in E-Business, College of Management, China University of Geosciences, Wuhan 430074, PR China Department of Management Science, School of Business, Renmin University, 59 Zhong Guan Cun Avenue, Haidian District, Beijing 100872, PR China c College of Business, Alfred University, Alfred, NY 14802, USA b
A R T I C L E I N F O
A B S T R A C T
Article history: Received 18 January 2005 Received in revised form 7 November 2007 Accepted 21 January 2008 Available online 23 April 2008
In China, B2B electronic markets are still in their early stages of development. The lack of basic business infrastructures has delayed the development of e-markets. The intervention and support of government and IT firms was needed to provide technical support and services to e-markets. We developed a conceptual model to aid in evaluating value creation strategy in B2B e-market; it can also be used to determine the complexity of such activities in Chinese B2B e-markets. Based on a case study of two Chinese e-markets, a process-oriented approach was found to be more suitable in modeling the value creation and therefore was selected. The model addressed two major factors: the transaction process and controlling complexity. The crucial value creation activities and strategies in the four phases of the transaction process are identified, and the controlling complexity of these activities is evaluated in the model. Our results offer an approach for studying the dynamic structure of e-commerce processes while focusing on the special issues of e-market development in China. ß 2008 Elsevier B.V. All rights reserved.
Keywords: B2B e-market model Transaction process Controlling complexity Value creation strategies E-commerce activities Value creation factor
1. Introduction The way businesses perform commerce is changing significantly. E-commerce has resulted in new business relationships and enabled new markets, new business, and new marketing paradigms [1,12,15]. B2B is an e-market between enterprises and is generally more profitable than the B2C market since the volume of trade is 10 times that of the B2C market [21]. It links buyers and sellers via online transactions and is both efficient and effective. As B2B transactions increase on the Internet, it has become critical for firms to rely on web-based supply chains in order to provide near-real-time response in the marketplace [5,9,19,24]. Our research was initiated to develop a conceptual model that was suitable for analysing B2B e-markets in China: to help in seeking effective strategies in creating an effective e-market in the Chinese business environment. The model highlights (1) the critical value creation activities in each phase of the transaction process, and (2) the importance of transactional control, especially in the context of China. The strategies for controlling transactions are also illustrated. Our results offer a new way of studying the B2B e-market to explore e-commerce strategies and innovative market mechan-
* Corresponding author. Tel.: +86 27 67885183; fax: +86 27 87801763. E-mail address: [email protected] (J. Zhao). 0378-7206/$ – see front matter ß 2008 Elsevier B.V. All rights reserved. doi:10.1016/j.im.2008.01.007
isms directed towards the needs of customers. The model can be used by businesses as a reference point to guide their e-market process design, especially for businesses in developing countries with similar business environment to China. 2. B2B electronic markets in China 2.1. The development of B2B e-markets in China The Chinese government showed early interest in the impact of B2B e-business on the Chinese economy and capabilities of Chinese organisation, and began building a nationwide data communication network in 1993. Today, the network reaches more than 2200 cities and towns [4]. With the infrastructure in place, the government has built advanced and unified public data and multimedia communication platforms that form the national Internet backbone. Various government ministries, banks, major China-based conglomerates, universities, and research institutions are the primary users of these services. Some have become dominant players in e-commerce today. In 1998, government ministries and some forward-thinking IT firms spearheaded e-commerce development by creating commercially oriented derivatives of the existing Internet backbone. The networks resulted in B2B e-markets. Their roles include aggregating suppliers and buyers, and providing trustworthy and secure market information. Examples of support sites are [13,23]:
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China International e-Commerce Network is a window through which businesses can find the latest information on foreign trade policies, management practices, government legislations and regulations, and the general market environment. China Materials Information Center shows the availability of raw materials, equipment, and other inputs of production, so that businesses can derive economic benefits. China Crops Exchange Network provides information on the world crops market, and supports online trading in some parts of China. China National Commodity Exchange Center and China Economic Information Network and China market collectively form a virtual exchange, facilitating the flow of goods. National Inventory Adjustment Network was built by the Ministry of Interstate Commerce help reduce inventory and improve utilization of capital. China Commercial Airlines Reservation System, China Securities and Investment Information Network, China Futures Information Network, China Online Banking System, and Beijing E-Commerce Project and Shanghai Information Center, etc., also aid the process. These networks relieve businesses of substantial initial investment, yet provide them the ability to experiment with and understand e-commerce. Entrepreneurs, especially SMEs, have derived substantial profit from the use of the network. Some of the e-commerce networks have gradually evolved from information intermediaries to being able to bring together buyers and sellers and provide them aggregated information and services. 2.2. The business environment of Chinese e-markets Various aspects of the Chinese consumer economy, such as purchasing habits, modes of exchange, and payment methods, are different from those of developed countries. IT has not yet been widely deployed. The development of full-scale e-commerce processes may encounter the following obstacles [16,28]: The business infrastructure for supporting e-commerce is not in place. Hempel and Kwong [8] commented on problems, such as financial, logistic and legal infrastructures that are taken for granted in developed economies. Purchasing in small enterprises is still made with cash. Also it will take time for the e-commerce procedures and transactional processes to be accepted due to human resistance to change. Inefficient transportation systems and the absence of professional distribution outsourcers also prevent businesses from going completely online. Corporate culture in most enterprises does not promote the innovation of IT. Business alliances and partnerships are dominated by longstanding personal ‘‘old-boy’’ connections [27]. Moreover, the enterprise IS is still under-utilized and most business executives will not implement e-commerce under current conditions. A random sample of 1300 managers in 520 large stateowned enterprises and local backbone enterprises released by the National Council on Economics and Commerce in 2001 indicated that 69% of businesses hosted their own websites, 21.6% had a proposed e-commerce strategy, 4.1% completed procurement over the Internet and 3.4% engaged in Internet marketing [14]. Trust and security are barriers to the development of e-commerce in China. Currently, credit problems plague the Chinese economy. It is estimated that immature credit system and regulation allow a loss of 10–20% of the national GDP [25]. Data from State Administration of Industry & Commerce indicated that, each year the loss from contract frauds and violations was about 5.5 billion RMB, and the loss from low quality goods and counterfeits was around 200 billion RMB. In the planned economy, the government controlled companies,
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and a credit system was not needed, as it was considered a mechanism of the market economy. The virtual characteristics of the online business impose special challenges to trust and credit problems [2,7,18]. Among the complaints announced by the China Association for Quality Promotion, online frauds ranked fifth, after food, automobiles, appliances, and travel [6]. 3. Case studies 3.1. Methodology We used two case studies to build a model that could help us highlight some special issues such as trust and security in the Chinese B2B e-market. Case research is effective when new theories need to be generated, or constructs need to be polished to describe a real life setting [17,26]. Since e-markets are new phenomena, especially in China, theories must be built, and the business infrastructure of the country cannot be separated from the e-market phenomenon. We investigated two e-markets in China, Alibaba and China National Commodity Exchange Center (CCEC) from 1998 to 2006. These were chosen because of the excellent design of their ecommerce processes. Interviews and onsite observations were our primary data collection method. In Alibaba we interviewed cooperate executives and staffs for a total of 8 h and spent 1 day in observing their business processes. One research assistant attended a 7-day training session on the Alibaba transactional process. To obtain data on CCEC, we interviewed cooperate executives and staffs face-to-face at the China International E-Commerce Annual Conference and also by phone for a total of 6 h. We also learned from peers who had investigated both operations, and received secondary data from their websites. These multiple sources of data reduced the probability of subjectivity. During case investigation, we were particularly interested in the organizations’ development of online transaction processes using web technology, and also the way the markets handled security and trust issues to alleviate buyers and sellers’ concerns. 3.2. Case description 3.2.1. China National Commodity Exchange Center The CCEC, an online B2B Exchange firm in China, enjoyed success ever since its introduction of a B2B system early in 1997. Its registered members, both current and past, have exceeded five million. The B2B exchanges offer more than 500 classified products in 26 industries for its members. It collects and distributes extensive information about commodities and enterprises and also provides various trade functions, such as online negotiations, signing agreements, inviting tenders, bidding, purchasing and selling, settlement, and distribution services. Buyers and sellers can complete entire transactional processes through the CCEC ecommerce system, including the contracting, payment, and delivery of digital products in real time. In the first 3 months of 2007, their transactional volume of online sales reached 5.3 million RMB [3]. Before 1997 China’s main outlet to the international market was the Chinese Export Commodities Fair (CECF), often known as the Canton Fair. CECF took place every spring and autumn and attracted thousands of Chinese companies seeking opportunities to trade with foreigners. However, their practices were ineffective and uneconomical in terms of labour, materials, and finance. In the spring of 2005, there were 35 exhibition districts, including 27,000 international standard exhibition places. However many companies were not able to participate due to lack of time and space.
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The advent of CCEC removed the limitation imposed by the traditional way of holding trade fairs. Not only did it provide cost savings, but also opportunities for SMEs to play a role in international trade. CCEC is a non-stop trade fair where companies can negotiate business online at anytime. CCEC is a result of the efforts of the National Economic and Trade Council. As an operator of the ‘‘Gold Trade’’ project designed to promote e-commerce under the auspices of 13 government ministries and commissions, the center undertakes pilot and demonstration tasks. CCEC is thus one of the pioneers of B2B e-commerce in China. It has branches in more than 200 localities throughout China’s 40 provinces, municipalities, and autonomous regions with additional sites still in planning or under construction. CCEC, with government support, has the responsibility of supervising and controlling all transactional processes. It ensures the security of buyers’ funds and sellers’ products using an application suite of by laws, scientific management methods, and comprehensive services. The greatest value created by CCEC is on its integrated operation enabling a complete solution of monitoring both buyers and sellers. The transaction process is shown in Fig. 1. 3.2.2. Alibaba Alibaba is the dominant e-market in China, with a market share of more than 60%. Its two main sites, Alibaba International (www.alibaba.com) and Alibaba China (www.China.Alibaba.com), were established in 1998 in Hong Kong and in Hangzhou, which is a medium-sized city located in East China. Alibaba International is an English site with international trade orientation. It now has 300,000 visits daily. Alibaba China is a Chinese site for domestic trade. It has more than 7 million registered users. Its featured functions are: product listing, requests for quote/information, real time negotiation (TradeManager), buyer/seller credit reports (CreditDirect), news and business intelligence, online payment, online community, online auction, search engine advertising, hosting trade shows, etc. Users are charged an annual subscription fee for the services. Alibaba.com offers an open environment for SMEs, who can join with minimum requirements. It ensures a reliable online payment process through a third-party payment website (Alipay). Its premium TrustPass1 Membership is another notable credit enhancing mechanism. Only members who have completed an authentication and verification procedure conducted by a third-party credit agency are granted this qualification. It
Fig. 1. The transaction process of CCEC.
serves to provide transparency of the identity and legitimacy of sellers and potential trading partners via Alibaba.com. Information quality for TrustPass1 membership is also guaranteed, and thus it provides buyer confidence. More than 85% of all buyers prefer to do business with members who have TrustPass1 qualification. The transaction process of Alibaba.com is shown in Fig. 2. While the transactional processes of Alibaba.com and CCEC are similar, the major difference is that CCEC maintains communication and feedback from the negotiation phase to the delivery phase, thus ensuring honesty of both buyer and seller in the decisionmaking process. Alibaba, however, provides the credit mechanism through TrustPass1 member identity verification and third-party payment websites for buyers and suppliers to make their transaction directly. 4. The B2B e-market model based on the e-commerce process The success of CCEC and Alibaba was based on their ability to offer real value to their buyers and sellers, helping them conduct better transactions at lower cost and low risks. The value creation activities occur in each step of their transactional processes, so a process approach was adopted to develop the conceptual model. This approach allowed us to detail the effective strategies in building a B2B e-market in China. CCEC and Alibaba’s services and ways of addressing risks are similar. However, Alibaba is more successful since its transactional process is better in providing service modules for user study, information sharing, and operating transactions. 4.1. Value creation of CCEC and Alibaba activities The B2B e-market model consists of a matrix of twodimensions: transactional process and controlling complexity. For Chinese e-markets, transactional processing was slightly different from the definition in the four phase models (information, agreement, settlement and communication) proposed by Schmid and Lindemann [20] and Selz and Schubert [22]. The settlement phase was divided into payment and delivery due to their different value creation strategies. Communication occurs in every stage of the transactional process in the China e-market, so it is not seen as a separate phase. Therefore, in our model, four phases of transactional process are identified: information, negotiation, payment and delivery. They are connected and sequenced
Fig. 2. The transaction process of Alibaba.com.
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Table 1 CCEC and Alibaba’s e-commerce activities
according to the trading process. The control dimension includes supervision and control of transactional process for security and trust. If the transactional process is common to all e-markets, controlling complexity allows us to show the special feature of B2B e-market development in China. Table 1 illustrates how CCEC and Alibaba operated in the framework of our model. It provides an insight of the execution of a successful strategy in the business climate of China. The main activities of e-markets in each phase of the transaction process are shown, as is the complexity of controlling them. 4.1.1. Personalized and customized services Because the number of registered members in CCEC increased dramatically from 9000 to 5 million between 1999 and 2002, customers from different backgrounds (small to large enterprises) expected flexibility in selecting sellers and products, and control in building and operating their own online transactions. In the information phase, CCEC provided a Member’s office, which enabled customers to have an office to manage their business information. CCEC customers could therefore control, revise, change, or dispose of their business information, including registration, issuance, counter offers, partners’ offers, contract signing, and trade codes. In the negotiation phase, CCEC provided customization and flexibility to customers through multiple modules, such as online catalogues, a negotiation house, and ‘‘Sample House’’ services. Customers selected these services as they wished. Diversified
services allowed new opportunities to be created by matching sellers with buyers quickly. Customization is enhanced though the active involvement of managers in the B2B exchange who were available to help customers.
Fig. 3. CCEC’s fulfilment process. (1) Sign contract, (2) pay deposit, (3) transmit information, (4) request for delivery, (5) deliver goods, (6) bill of lading, (7) request for payment, (8) pay money, (9) transmit information, (10) transmit bill and receipt, (11) verify report, (12) request for settlement and (13) settlement.
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In these two phases Alibaba also offered personalized and customized services. Hundreds of product categories from 42 industries were present in this market. Members were offered a utility called ‘‘Ali-assistant’’ (or My Alibaba) to manage their product listing and internal websites. A wide array of trading functions was available for buyers and sellers, such as online auctions, online categories hosted in each member’s site, and real time negotiation conducted through ‘‘Trade Manager’’. Unlike CCEC, the staffs in Alibaba were not much involved in matching buyers and sellers. Alibaba provided three other services: Alicollege, an online school maintained by Alibaba, showed users how to conduct business online; Ali-forum, an online discussion site, offered a blog hosting service; TrustPass1 was a credit rating and user authentication service. Through these services, Alibaba was able to provide users better service with less human involvement. 4.1.2. Structure and control of the fulfilment process CCEC’s payment process is intertwined with the delivery phase; it involves multiple players from transportation and storage providers to customs agents and banks. CCEC and its branches act as a neutral supervisor. The structure of the fulfilment process involves CCEC and its branches, a specified bank, a buyer, and a seller and contracted transport companies as actors (see Fig. 3). The system aggregates information from the different participants and delivers this data to the appropriate parties. Due to the extensive involvement of CCEC branches located national wide, CCEC provides a reliable, secure and efficient transactional environment under controlled conditions. But this approach is costly, and can only succeed with the support of the Chinese government. However, this process is especially useful since intentionally delayed shipments and payments occur. Alibaba’s fulfilment process involves a seller, seller’s bank, a buyer, buyer’s bank, and Alipay, a third-party payment service and a subsidiary of Alibaba (see Fig. 4). Alibaba does not supervise the entire process or help arrange deliveries. It is up to buyers and sellers to find a transportation company for goods delivery. Alibaba’s local branches do not get involved in the fulfilment process but focus on marketing the e-market service. This reduces Alibaba’s ability to control the process, but allows it to reduce operating cost significantly. Alibaba’s payment process is more flexible than CCEC’s, since buyers can use different banks. The control of transactional risk is achieved through an escrow service, where payment is held by Ali-pay, until buyers confirm receipt of goods. In case of disputes, Ali-pay agents will intervene. The
reputation rating system, in which buyers and sellers can rate each other or leave comments after each transaction, also reduces fraudulent behaviours. 4.1.3. Strategic partners network CCEC’s payment and delivery are handled through a network of financial institutions, logistics companies and CCEC branches. Such a logistic network offers convenience and cost saving potential to users. The ability to track and supervise transactions by coordinated CCEC branches adds to the safety of transactions. Both parties in the Chinese market normally rely on personal relationships to ensure execution of contracts; legal actions seldom take place. Hofstede’s research [10,11] suggested that China has a long-term orientation, indicating a society’s long-time perspective. In China, arrears and quality issues may arise, as in other nations, so both parties are worried about problems in virtual market, having reservations about security and trust in online trading. In the B2B e-market, it needs a strategic partner’s network of the bank, the transportation entity, and the quality inspection entity to provide a secure and reliable process. CCEC now develops and guides affiliated branches that are managed by the provincial economic and trade councils. These branches form strategic alliances with banks, financial institutions and other trade fulfilment partners (quality assurance, insurance, and delivery companies) that initiate joint-ventures with IT companies and local government agencies for special exchange markets. The coexistence of a strategic network involving both business alliances and government governance has greatly helped CCEC expand its market and customer base. Alibaba also maintains a network of business partners, including banks and third parties (mainly business credit rating companies and authentication agents). Although Alibaba has tried to maintain good relationships with the government, it is a private entity. Furthermore, Alibaba does not help the buyer or seller arrange for delivery of goods. However, the Ali-pay partially alleviates any problem of quality inspection and refund since it supports product return and refund. In summary both Alibaba and CCEC provide support in all four phases of a transaction. Even though Alibaba helps less in the delivery phase, it aids participants in meeting a contract effectively. It is interesting that buyer and seller prefer to operate their own online transaction under controlled transactional risk. Alibaba has reached beyond the needs of users and is considered more successful than CCEC. Alibaba’s transactional process design requires less human involvement and the scalability of Alibaba’s network has reduced its operational cost.
Fig. 4. Alibaba’s fulfilment process. (1) Sign contract, (2) deposit money in full amount, (3) request delivery, (4) deliver goods, (5) inspect goods and send confirmation, (6) settlement with Ali-pay, and transfer money to seller’s bank’s account and (7) rate each other.
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Table 2 B2B e-market model
4.1.4. Controlling complexity In the information phase, the control of complexity is low; data about buying and selling business is freely disseminated. Most emarkets in China have this basic capability. The payment and delivery phases entail an end-to-end goods delivery and monetary transaction from suppliers to buyers. Shipment of bulk commodities involves multiple players from various transportation and storage providers, etc. The e-market has to coordinate these players so that the right information is delivered to the right person at the right time while supervising the execution of the transaction in a secure and reliable manner. It is necessary to create a partner network to accomplish collaboration, requiring a higher level of control of complexity. 4.2. Value creation strategies of e-markets in China The model with critical value creation strategies is shown in Table 2. This offers a perspective for exploring critical strategy components of value creation. The value creation factors in the four phases for the current business climate in China are therefore: Information phase: providing quality information to potential users The crucial duties for the e-market involve managing information content, providing any classified information, and helping buyers and sellers to issue and obtain information more quickly and easily. Customization is recommended to enhance the value of information available to each buyer/seller. Negotiation phase: matching buyers with sellers and delivering exchange mechanisms Electronic market managers need to offer online negotiations (tendering and bidding), contract signing, account management, etc. The principal challenges are to lay down rules of exchange in a neutral, effective manner for fair and efficient negotiations by customers, and to offer services to aid in purchasing decisions. Payment phase: controlling the risk for secure and reliable transactions Financial transactions take place between buyers and sellers. Customers demand secure, reliable, and flexible payment. While the financial system in China is being modernized, the e-market must be creative in identifying alternative payment methods and effectively controlling risk. Delivery phase: managing collaboration End-to-end goods delivery from suppliers to buyers, together with payments forms the fulfilment process. Thus shipment of bulk commodities involves multiple players. As an emerging industrial economy, China does not yet have the logistics
infrastructure to support online commerce in an effective and efficient manner. The most critical challenge has been to ensure the smooth flow of information, products, and services among the players. Collaboration is a critical component of customer satisfaction. Our examination of Alibaba and CCEC showed that both companies have managed to address the value creation and risk control issues in their transactional processes. Alibaba better met the needs of users while reducing their cost of operation and thus achieving success. Our model implies a planned and controlled approach in identifying and integrating different business components and IS. With the unique business environment in China, our model provides a conceptual basis for analyzing and understanding the primary e-commerce activities and the innovative e-commerce strategies of electronic market in emerging markets. 5. Conclusions The evolving B2B e-market in China provided a field for defining a new model of e-commerce markets. We have attempted to approach the value creation strategies of a real B2B e-market, describing and analysing them from a process perspective. A case study of two Chinese online B2B e-markets was presented. It showed the performance of e-business strategy needs in the transaction processes of e-markets. Critical ecommerce activities emerged from the analysis. They are personalized and customized services, the structure and control of transactional process, and strategic partners network. Payment and delivery are, of course, important business activities. A new B2B e-market model of e-commerce value creation was proposed. It illustrated the relationship between the business components that support the processes and the control of complexity. It allowed us to capture and study the critical strategy and activities rooted in the e-commerce process, which targeted customer’s needs and had a direct impact on value creation under current conditions. The analysis of B2B e-markets in China offered important managerial implications. Our model provided guideline in identifying the effective strategy, crucial business activities and value creation opportunities in each all phases of the e-commerce process. It also showed that the key to creating value in e-market in China was the selection of qualified partners and thus controlling the risk in the payment and delivery channels for a secured and reliable e-commerce process. Finally, we must discuss some limitations of our study. First, its time frame spanned 1998 to April 2006. However, the fast pace of change in e-commerce companies suggests that some new services
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of CCEC and Alibaba may have been missed. Second, we adopted a process perspective and ignored others. The model has helped explain the different value creation strategies for Chinese e-markets. We hope it will aid in understanding how the unique business environment of other developing countries affect value creation strategies in their e-markets. Acknowledgments The authors are grateful to editor and three anonymous reviewers for their helpful comments and suggestions on the paper. This research has been supported by grants from the National Natural Science Foundation of China under Grants 70172034 and 70672064, the Humanities and Social Science Foundation of the Ministry of Education of China under Grant 06JA630068 and Sciences and technology project of Wuhan Municipality under Grant 200770834321. References [1] A. Barua, R. Chcllappa, A. Whinston, The design and development of internet and intranet-based collaboratories, International Journal of Electronic Commerce (1996/1997) 32–58. [2] J. Cai, Y. Zhang, X.Y. Qiu, The analysis of information dissymmetry in e-business market, Jiangsu Commercial Forum 4 (2006) 66–67. [3] CCEC.com, http://www.ccec.com, May 15, 2007. [4] T.M. Data, Data telecommunication development in China, China Information 48 (5) (1998) 10–32. [5] R.J. Glushko, An XML framework for agent-based e-commerce, Communications of the ACM 42 (3) (1999) 106–114. [6] GUANGMING DAILY, March 27, 2006. [7] X.M. Guo, J.K. Yang, The analysis of market transaction, credit economy and credit hiatus, Journal of Finance 7 (2006) 96–101. [8] P.S. Hempel, Y.K. Kwong, B2B e-commerce in emerging economies: I-metal.com’s non-ferrous metals exchange in China, Journal of Strategic Information Systems 10 (2001) 335–355. [9] L.L. Henriott, Transforming supply chains into e-chains, Supply Chain Management Review Global Supplement (1999) 12–18. [10] G. Hofstede, M.H. Bond, The Confucius connection: from cultural roots to economic growth, Organisational Dynamics 16 (1988) 4–21. [11] G. Hofstede, M.H. Bond, C.L. Luk, Individual perceptions of organisational cultures: a methodological treatise on levels of analysis, Organisational Studies 14 (1993) 483–503. [12] S.L. Jarvenpaa, P.A. Todd, Consumer reactions to electronic shopping on the WWW, International Journal of Electronic Commerce (1996/1997) 59–88. [13] X.P. Jiang, Electronic Commerce and Cyber-marketing, Tsinghua University Press, Beijing, 1998, pp. 107–132. [14] Juns, E-Commerce Development in China, Beijing Jens E-Commerce R&D Center, Available: http://www.juns.com.cn, 2002. [15] R. Kalakota, A.B. Whinston, Electronic Commerce: A Manager’s Guide, Addison Wesley, 1997, pp. 3–28. [16] M.G. Martinsons, Electronic commerce in China: emerging success stories, Information & Management 39 (2002) 571–579. [17] M. Miles, M. Huberman, Qualitative Data Analysis, Sage, Beverly Hills, CA, 1994. [18] T. Pan, Analysis on the Fraud in Cyber Market, Business Economics and Administration 6 (2006) 31–34. [19] M. Raghunathan, R.M. Madey, A firm-level framework for planning electronic commerce information systems infrastructure, International Journal of Electronic Commerce 4 (1) (1999) 121. [20] B.F. Schmid, M.A. Lindemann, Elements of a reference model for electronic markets, in: Proceedings of the Thirty-First Hawaii International Conference on System Sciences, vol. 4, 1998, pp. 193–201. [21] A.B. Sculley, W.W. Woods, B2B Exchanges: The Killer Application in the Businessto-Business Internet Revolution, ISI Publisher, Chinese edition, Beijing Modern Publication, 2001, p. 58.
[22] D. Selz, P. Schubert, Web assessment—a model for the evaluation and the assessment of successful electronic commerce applications, in: Proceedings of the Thirty-First Hawaii International Conference on System Sciences, vol. 4, 1998, pp. 222–231. [23] J. Tan, K. Tyler, A. Manica, Business-to-business adoption of e-commerce in China, Information & Management 44 (2007) 332–351. [24] T.S.H. Teoa, C. Ranganathan, Adopters and non-adopters of business-to-business electronic commerce in Singapore, Information & Management 42 (2004) 89– 102. [25] R.L. Wang, Breakthroughs in e-commerce strategy, 2006. Available: http:// www.yesky.com. [26] R.K. Yin, Case Study Research: Design and Methods, International Educational and Professional Publisher, Thousand Oaks, 1994. [27] J. Zhao, Analysis of Business to Business Electronic Markets in China: Theoretical and Practical Perspectives, in: Proceedings of the 5th International Conference On Enterprise Information Systems, France, (2003), pp. 377–385. [28] J. Zhao, S. Yu, Intermediary Electronic Commerce Model in China, in: Proceedings of Second International Conference on Telecommunications and Electronic Commerce, Nashville, (1999), p. 208. Jing Zhao is Professor of Management Information Systems and the Director of the Center for International Cooperation in E-Business in the College of Management at the China University of Geosciences (CUG), Wuhan, China. Prior to joining CUG, she has considerable experience in automobile manufacturing in China. Her research interest focuses on modeling the impact of e-business on the organizational transformation, ebusiness value creation and B2B e-market. Her work has been published in professional journals such as Information & Management, IEEE Transactions on Engineering Management, the Journal of Business Forum, Family Business Review, Journal of Tsinghua University (Sci&Tech), and others. She has co-edited special issues in Electronic Markets—The International Journal. She has been a co-chair for the Wuhan International Conferences on Electronic Business (WHICEB 2000, 2002, 2004, 2005, 2006 and 2007) since 2000. Shan Wang is an assistant professor at the School of Business at Renmin University. She received her Ph.D. in MIS from McMaster University. Her research interests include business to business electronic marketplaces, supply chain management, the adoption and impacts of e-commerce. Her work has been published in several peer reviewed journals, such as Supply Chain Management—An International Journal, Journal of Computer Mediated Communication, and Electronic Markets.
Wilfred Vincent Huang is the George G. Raymond chair in family business and professor of management information systems at Alfred University. He is the technical director of Cisco Academy Training Center at Alfred University and the coordinator of SAP Program in Alfred University. He is also a certified quality engineer (CQE) of American Society of Quality and Cisco certified academy instructor (CCAI). He received the Ph.D. degrees in industrial engineering from State University of New York at Buffalo. His research interests include entrepreneurship, e-business and data analysis. He has published articles in European Journal of Operations Research, International Journal of Computers and Industrial Engineers, Decision Support Systems, Family Business Review, etc. He has been an associate editor of the International Journal of Modeling and Simulation (IJMS) since 2001. He has served as the division head of the Industrial Engineering Department of Alfred University 1991–1997.
Contents lists available at ScienceDirect
Information & Management journal homepage: www.elsevier.com/locate/im
A study of B2B e-market in China: E-commerce process perspective Jing Zhao a,*, Shan Wang b, Wilfred V. Huang c a
Center for International Cooperation in E-Business, College of Management, China University of Geosciences, Wuhan 430074, PR China Department of Management Science, School of Business, Renmin University, 59 Zhong Guan Cun Avenue, Haidian District, Beijing 100872, PR China c College of Business, Alfred University, Alfred, NY 14802, USA b
A R T I C L E I N F O
A B S T R A C T
Article history: Received 18 January 2005 Received in revised form 7 November 2007 Accepted 21 January 2008 Available online 23 April 2008
In China, B2B electronic markets are still in their early stages of development. The lack of basic business infrastructures has delayed the development of e-markets. The intervention and support of government and IT firms was needed to provide technical support and services to e-markets. We developed a conceptual model to aid in evaluating value creation strategy in B2B e-market; it can also be used to determine the complexity of such activities in Chinese B2B e-markets. Based on a case study of two Chinese e-markets, a process-oriented approach was found to be more suitable in modeling the value creation and therefore was selected. The model addressed two major factors: the transaction process and controlling complexity. The crucial value creation activities and strategies in the four phases of the transaction process are identified, and the controlling complexity of these activities is evaluated in the model. Our results offer an approach for studying the dynamic structure of e-commerce processes while focusing on the special issues of e-market development in China. ß 2008 Elsevier B.V. All rights reserved.
Keywords: B2B e-market model Transaction process Controlling complexity Value creation strategies E-commerce activities Value creation factor
1. Introduction The way businesses perform commerce is changing significantly. E-commerce has resulted in new business relationships and enabled new markets, new business, and new marketing paradigms [1,12,15]. B2B is an e-market between enterprises and is generally more profitable than the B2C market since the volume of trade is 10 times that of the B2C market [21]. It links buyers and sellers via online transactions and is both efficient and effective. As B2B transactions increase on the Internet, it has become critical for firms to rely on web-based supply chains in order to provide near-real-time response in the marketplace [5,9,19,24]. Our research was initiated to develop a conceptual model that was suitable for analysing B2B e-markets in China: to help in seeking effective strategies in creating an effective e-market in the Chinese business environment. The model highlights (1) the critical value creation activities in each phase of the transaction process, and (2) the importance of transactional control, especially in the context of China. The strategies for controlling transactions are also illustrated. Our results offer a new way of studying the B2B e-market to explore e-commerce strategies and innovative market mechan-
* Corresponding author. Tel.: +86 27 67885183; fax: +86 27 87801763. E-mail address: [email protected] (J. Zhao). 0378-7206/$ – see front matter ß 2008 Elsevier B.V. All rights reserved. doi:10.1016/j.im.2008.01.007
isms directed towards the needs of customers. The model can be used by businesses as a reference point to guide their e-market process design, especially for businesses in developing countries with similar business environment to China. 2. B2B electronic markets in China 2.1. The development of B2B e-markets in China The Chinese government showed early interest in the impact of B2B e-business on the Chinese economy and capabilities of Chinese organisation, and began building a nationwide data communication network in 1993. Today, the network reaches more than 2200 cities and towns [4]. With the infrastructure in place, the government has built advanced and unified public data and multimedia communication platforms that form the national Internet backbone. Various government ministries, banks, major China-based conglomerates, universities, and research institutions are the primary users of these services. Some have become dominant players in e-commerce today. In 1998, government ministries and some forward-thinking IT firms spearheaded e-commerce development by creating commercially oriented derivatives of the existing Internet backbone. The networks resulted in B2B e-markets. Their roles include aggregating suppliers and buyers, and providing trustworthy and secure market information. Examples of support sites are [13,23]:
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China International e-Commerce Network is a window through which businesses can find the latest information on foreign trade policies, management practices, government legislations and regulations, and the general market environment. China Materials Information Center shows the availability of raw materials, equipment, and other inputs of production, so that businesses can derive economic benefits. China Crops Exchange Network provides information on the world crops market, and supports online trading in some parts of China. China National Commodity Exchange Center and China Economic Information Network and China market collectively form a virtual exchange, facilitating the flow of goods. National Inventory Adjustment Network was built by the Ministry of Interstate Commerce help reduce inventory and improve utilization of capital. China Commercial Airlines Reservation System, China Securities and Investment Information Network, China Futures Information Network, China Online Banking System, and Beijing E-Commerce Project and Shanghai Information Center, etc., also aid the process. These networks relieve businesses of substantial initial investment, yet provide them the ability to experiment with and understand e-commerce. Entrepreneurs, especially SMEs, have derived substantial profit from the use of the network. Some of the e-commerce networks have gradually evolved from information intermediaries to being able to bring together buyers and sellers and provide them aggregated information and services. 2.2. The business environment of Chinese e-markets Various aspects of the Chinese consumer economy, such as purchasing habits, modes of exchange, and payment methods, are different from those of developed countries. IT has not yet been widely deployed. The development of full-scale e-commerce processes may encounter the following obstacles [16,28]: The business infrastructure for supporting e-commerce is not in place. Hempel and Kwong [8] commented on problems, such as financial, logistic and legal infrastructures that are taken for granted in developed economies. Purchasing in small enterprises is still made with cash. Also it will take time for the e-commerce procedures and transactional processes to be accepted due to human resistance to change. Inefficient transportation systems and the absence of professional distribution outsourcers also prevent businesses from going completely online. Corporate culture in most enterprises does not promote the innovation of IT. Business alliances and partnerships are dominated by longstanding personal ‘‘old-boy’’ connections [27]. Moreover, the enterprise IS is still under-utilized and most business executives will not implement e-commerce under current conditions. A random sample of 1300 managers in 520 large stateowned enterprises and local backbone enterprises released by the National Council on Economics and Commerce in 2001 indicated that 69% of businesses hosted their own websites, 21.6% had a proposed e-commerce strategy, 4.1% completed procurement over the Internet and 3.4% engaged in Internet marketing [14]. Trust and security are barriers to the development of e-commerce in China. Currently, credit problems plague the Chinese economy. It is estimated that immature credit system and regulation allow a loss of 10–20% of the national GDP [25]. Data from State Administration of Industry & Commerce indicated that, each year the loss from contract frauds and violations was about 5.5 billion RMB, and the loss from low quality goods and counterfeits was around 200 billion RMB. In the planned economy, the government controlled companies,
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and a credit system was not needed, as it was considered a mechanism of the market economy. The virtual characteristics of the online business impose special challenges to trust and credit problems [2,7,18]. Among the complaints announced by the China Association for Quality Promotion, online frauds ranked fifth, after food, automobiles, appliances, and travel [6]. 3. Case studies 3.1. Methodology We used two case studies to build a model that could help us highlight some special issues such as trust and security in the Chinese B2B e-market. Case research is effective when new theories need to be generated, or constructs need to be polished to describe a real life setting [17,26]. Since e-markets are new phenomena, especially in China, theories must be built, and the business infrastructure of the country cannot be separated from the e-market phenomenon. We investigated two e-markets in China, Alibaba and China National Commodity Exchange Center (CCEC) from 1998 to 2006. These were chosen because of the excellent design of their ecommerce processes. Interviews and onsite observations were our primary data collection method. In Alibaba we interviewed cooperate executives and staffs for a total of 8 h and spent 1 day in observing their business processes. One research assistant attended a 7-day training session on the Alibaba transactional process. To obtain data on CCEC, we interviewed cooperate executives and staffs face-to-face at the China International E-Commerce Annual Conference and also by phone for a total of 6 h. We also learned from peers who had investigated both operations, and received secondary data from their websites. These multiple sources of data reduced the probability of subjectivity. During case investigation, we were particularly interested in the organizations’ development of online transaction processes using web technology, and also the way the markets handled security and trust issues to alleviate buyers and sellers’ concerns. 3.2. Case description 3.2.1. China National Commodity Exchange Center The CCEC, an online B2B Exchange firm in China, enjoyed success ever since its introduction of a B2B system early in 1997. Its registered members, both current and past, have exceeded five million. The B2B exchanges offer more than 500 classified products in 26 industries for its members. It collects and distributes extensive information about commodities and enterprises and also provides various trade functions, such as online negotiations, signing agreements, inviting tenders, bidding, purchasing and selling, settlement, and distribution services. Buyers and sellers can complete entire transactional processes through the CCEC ecommerce system, including the contracting, payment, and delivery of digital products in real time. In the first 3 months of 2007, their transactional volume of online sales reached 5.3 million RMB [3]. Before 1997 China’s main outlet to the international market was the Chinese Export Commodities Fair (CECF), often known as the Canton Fair. CECF took place every spring and autumn and attracted thousands of Chinese companies seeking opportunities to trade with foreigners. However, their practices were ineffective and uneconomical in terms of labour, materials, and finance. In the spring of 2005, there were 35 exhibition districts, including 27,000 international standard exhibition places. However many companies were not able to participate due to lack of time and space.
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The advent of CCEC removed the limitation imposed by the traditional way of holding trade fairs. Not only did it provide cost savings, but also opportunities for SMEs to play a role in international trade. CCEC is a non-stop trade fair where companies can negotiate business online at anytime. CCEC is a result of the efforts of the National Economic and Trade Council. As an operator of the ‘‘Gold Trade’’ project designed to promote e-commerce under the auspices of 13 government ministries and commissions, the center undertakes pilot and demonstration tasks. CCEC is thus one of the pioneers of B2B e-commerce in China. It has branches in more than 200 localities throughout China’s 40 provinces, municipalities, and autonomous regions with additional sites still in planning or under construction. CCEC, with government support, has the responsibility of supervising and controlling all transactional processes. It ensures the security of buyers’ funds and sellers’ products using an application suite of by laws, scientific management methods, and comprehensive services. The greatest value created by CCEC is on its integrated operation enabling a complete solution of monitoring both buyers and sellers. The transaction process is shown in Fig. 1. 3.2.2. Alibaba Alibaba is the dominant e-market in China, with a market share of more than 60%. Its two main sites, Alibaba International (www.alibaba.com) and Alibaba China (www.China.Alibaba.com), were established in 1998 in Hong Kong and in Hangzhou, which is a medium-sized city located in East China. Alibaba International is an English site with international trade orientation. It now has 300,000 visits daily. Alibaba China is a Chinese site for domestic trade. It has more than 7 million registered users. Its featured functions are: product listing, requests for quote/information, real time negotiation (TradeManager), buyer/seller credit reports (CreditDirect), news and business intelligence, online payment, online community, online auction, search engine advertising, hosting trade shows, etc. Users are charged an annual subscription fee for the services. Alibaba.com offers an open environment for SMEs, who can join with minimum requirements. It ensures a reliable online payment process through a third-party payment website (Alipay). Its premium TrustPass1 Membership is another notable credit enhancing mechanism. Only members who have completed an authentication and verification procedure conducted by a third-party credit agency are granted this qualification. It
Fig. 1. The transaction process of CCEC.
serves to provide transparency of the identity and legitimacy of sellers and potential trading partners via Alibaba.com. Information quality for TrustPass1 membership is also guaranteed, and thus it provides buyer confidence. More than 85% of all buyers prefer to do business with members who have TrustPass1 qualification. The transaction process of Alibaba.com is shown in Fig. 2. While the transactional processes of Alibaba.com and CCEC are similar, the major difference is that CCEC maintains communication and feedback from the negotiation phase to the delivery phase, thus ensuring honesty of both buyer and seller in the decisionmaking process. Alibaba, however, provides the credit mechanism through TrustPass1 member identity verification and third-party payment websites for buyers and suppliers to make their transaction directly. 4. The B2B e-market model based on the e-commerce process The success of CCEC and Alibaba was based on their ability to offer real value to their buyers and sellers, helping them conduct better transactions at lower cost and low risks. The value creation activities occur in each step of their transactional processes, so a process approach was adopted to develop the conceptual model. This approach allowed us to detail the effective strategies in building a B2B e-market in China. CCEC and Alibaba’s services and ways of addressing risks are similar. However, Alibaba is more successful since its transactional process is better in providing service modules for user study, information sharing, and operating transactions. 4.1. Value creation of CCEC and Alibaba activities The B2B e-market model consists of a matrix of twodimensions: transactional process and controlling complexity. For Chinese e-markets, transactional processing was slightly different from the definition in the four phase models (information, agreement, settlement and communication) proposed by Schmid and Lindemann [20] and Selz and Schubert [22]. The settlement phase was divided into payment and delivery due to their different value creation strategies. Communication occurs in every stage of the transactional process in the China e-market, so it is not seen as a separate phase. Therefore, in our model, four phases of transactional process are identified: information, negotiation, payment and delivery. They are connected and sequenced
Fig. 2. The transaction process of Alibaba.com.
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Table 1 CCEC and Alibaba’s e-commerce activities
according to the trading process. The control dimension includes supervision and control of transactional process for security and trust. If the transactional process is common to all e-markets, controlling complexity allows us to show the special feature of B2B e-market development in China. Table 1 illustrates how CCEC and Alibaba operated in the framework of our model. It provides an insight of the execution of a successful strategy in the business climate of China. The main activities of e-markets in each phase of the transaction process are shown, as is the complexity of controlling them. 4.1.1. Personalized and customized services Because the number of registered members in CCEC increased dramatically from 9000 to 5 million between 1999 and 2002, customers from different backgrounds (small to large enterprises) expected flexibility in selecting sellers and products, and control in building and operating their own online transactions. In the information phase, CCEC provided a Member’s office, which enabled customers to have an office to manage their business information. CCEC customers could therefore control, revise, change, or dispose of their business information, including registration, issuance, counter offers, partners’ offers, contract signing, and trade codes. In the negotiation phase, CCEC provided customization and flexibility to customers through multiple modules, such as online catalogues, a negotiation house, and ‘‘Sample House’’ services. Customers selected these services as they wished. Diversified
services allowed new opportunities to be created by matching sellers with buyers quickly. Customization is enhanced though the active involvement of managers in the B2B exchange who were available to help customers.
Fig. 3. CCEC’s fulfilment process. (1) Sign contract, (2) pay deposit, (3) transmit information, (4) request for delivery, (5) deliver goods, (6) bill of lading, (7) request for payment, (8) pay money, (9) transmit information, (10) transmit bill and receipt, (11) verify report, (12) request for settlement and (13) settlement.
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In these two phases Alibaba also offered personalized and customized services. Hundreds of product categories from 42 industries were present in this market. Members were offered a utility called ‘‘Ali-assistant’’ (or My Alibaba) to manage their product listing and internal websites. A wide array of trading functions was available for buyers and sellers, such as online auctions, online categories hosted in each member’s site, and real time negotiation conducted through ‘‘Trade Manager’’. Unlike CCEC, the staffs in Alibaba were not much involved in matching buyers and sellers. Alibaba provided three other services: Alicollege, an online school maintained by Alibaba, showed users how to conduct business online; Ali-forum, an online discussion site, offered a blog hosting service; TrustPass1 was a credit rating and user authentication service. Through these services, Alibaba was able to provide users better service with less human involvement. 4.1.2. Structure and control of the fulfilment process CCEC’s payment process is intertwined with the delivery phase; it involves multiple players from transportation and storage providers to customs agents and banks. CCEC and its branches act as a neutral supervisor. The structure of the fulfilment process involves CCEC and its branches, a specified bank, a buyer, and a seller and contracted transport companies as actors (see Fig. 3). The system aggregates information from the different participants and delivers this data to the appropriate parties. Due to the extensive involvement of CCEC branches located national wide, CCEC provides a reliable, secure and efficient transactional environment under controlled conditions. But this approach is costly, and can only succeed with the support of the Chinese government. However, this process is especially useful since intentionally delayed shipments and payments occur. Alibaba’s fulfilment process involves a seller, seller’s bank, a buyer, buyer’s bank, and Alipay, a third-party payment service and a subsidiary of Alibaba (see Fig. 4). Alibaba does not supervise the entire process or help arrange deliveries. It is up to buyers and sellers to find a transportation company for goods delivery. Alibaba’s local branches do not get involved in the fulfilment process but focus on marketing the e-market service. This reduces Alibaba’s ability to control the process, but allows it to reduce operating cost significantly. Alibaba’s payment process is more flexible than CCEC’s, since buyers can use different banks. The control of transactional risk is achieved through an escrow service, where payment is held by Ali-pay, until buyers confirm receipt of goods. In case of disputes, Ali-pay agents will intervene. The
reputation rating system, in which buyers and sellers can rate each other or leave comments after each transaction, also reduces fraudulent behaviours. 4.1.3. Strategic partners network CCEC’s payment and delivery are handled through a network of financial institutions, logistics companies and CCEC branches. Such a logistic network offers convenience and cost saving potential to users. The ability to track and supervise transactions by coordinated CCEC branches adds to the safety of transactions. Both parties in the Chinese market normally rely on personal relationships to ensure execution of contracts; legal actions seldom take place. Hofstede’s research [10,11] suggested that China has a long-term orientation, indicating a society’s long-time perspective. In China, arrears and quality issues may arise, as in other nations, so both parties are worried about problems in virtual market, having reservations about security and trust in online trading. In the B2B e-market, it needs a strategic partner’s network of the bank, the transportation entity, and the quality inspection entity to provide a secure and reliable process. CCEC now develops and guides affiliated branches that are managed by the provincial economic and trade councils. These branches form strategic alliances with banks, financial institutions and other trade fulfilment partners (quality assurance, insurance, and delivery companies) that initiate joint-ventures with IT companies and local government agencies for special exchange markets. The coexistence of a strategic network involving both business alliances and government governance has greatly helped CCEC expand its market and customer base. Alibaba also maintains a network of business partners, including banks and third parties (mainly business credit rating companies and authentication agents). Although Alibaba has tried to maintain good relationships with the government, it is a private entity. Furthermore, Alibaba does not help the buyer or seller arrange for delivery of goods. However, the Ali-pay partially alleviates any problem of quality inspection and refund since it supports product return and refund. In summary both Alibaba and CCEC provide support in all four phases of a transaction. Even though Alibaba helps less in the delivery phase, it aids participants in meeting a contract effectively. It is interesting that buyer and seller prefer to operate their own online transaction under controlled transactional risk. Alibaba has reached beyond the needs of users and is considered more successful than CCEC. Alibaba’s transactional process design requires less human involvement and the scalability of Alibaba’s network has reduced its operational cost.
Fig. 4. Alibaba’s fulfilment process. (1) Sign contract, (2) deposit money in full amount, (3) request delivery, (4) deliver goods, (5) inspect goods and send confirmation, (6) settlement with Ali-pay, and transfer money to seller’s bank’s account and (7) rate each other.
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Table 2 B2B e-market model
4.1.4. Controlling complexity In the information phase, the control of complexity is low; data about buying and selling business is freely disseminated. Most emarkets in China have this basic capability. The payment and delivery phases entail an end-to-end goods delivery and monetary transaction from suppliers to buyers. Shipment of bulk commodities involves multiple players from various transportation and storage providers, etc. The e-market has to coordinate these players so that the right information is delivered to the right person at the right time while supervising the execution of the transaction in a secure and reliable manner. It is necessary to create a partner network to accomplish collaboration, requiring a higher level of control of complexity. 4.2. Value creation strategies of e-markets in China The model with critical value creation strategies is shown in Table 2. This offers a perspective for exploring critical strategy components of value creation. The value creation factors in the four phases for the current business climate in China are therefore: Information phase: providing quality information to potential users The crucial duties for the e-market involve managing information content, providing any classified information, and helping buyers and sellers to issue and obtain information more quickly and easily. Customization is recommended to enhance the value of information available to each buyer/seller. Negotiation phase: matching buyers with sellers and delivering exchange mechanisms Electronic market managers need to offer online negotiations (tendering and bidding), contract signing, account management, etc. The principal challenges are to lay down rules of exchange in a neutral, effective manner for fair and efficient negotiations by customers, and to offer services to aid in purchasing decisions. Payment phase: controlling the risk for secure and reliable transactions Financial transactions take place between buyers and sellers. Customers demand secure, reliable, and flexible payment. While the financial system in China is being modernized, the e-market must be creative in identifying alternative payment methods and effectively controlling risk. Delivery phase: managing collaboration End-to-end goods delivery from suppliers to buyers, together with payments forms the fulfilment process. Thus shipment of bulk commodities involves multiple players. As an emerging industrial economy, China does not yet have the logistics
infrastructure to support online commerce in an effective and efficient manner. The most critical challenge has been to ensure the smooth flow of information, products, and services among the players. Collaboration is a critical component of customer satisfaction. Our examination of Alibaba and CCEC showed that both companies have managed to address the value creation and risk control issues in their transactional processes. Alibaba better met the needs of users while reducing their cost of operation and thus achieving success. Our model implies a planned and controlled approach in identifying and integrating different business components and IS. With the unique business environment in China, our model provides a conceptual basis for analyzing and understanding the primary e-commerce activities and the innovative e-commerce strategies of electronic market in emerging markets. 5. Conclusions The evolving B2B e-market in China provided a field for defining a new model of e-commerce markets. We have attempted to approach the value creation strategies of a real B2B e-market, describing and analysing them from a process perspective. A case study of two Chinese online B2B e-markets was presented. It showed the performance of e-business strategy needs in the transaction processes of e-markets. Critical ecommerce activities emerged from the analysis. They are personalized and customized services, the structure and control of transactional process, and strategic partners network. Payment and delivery are, of course, important business activities. A new B2B e-market model of e-commerce value creation was proposed. It illustrated the relationship between the business components that support the processes and the control of complexity. It allowed us to capture and study the critical strategy and activities rooted in the e-commerce process, which targeted customer’s needs and had a direct impact on value creation under current conditions. The analysis of B2B e-markets in China offered important managerial implications. Our model provided guideline in identifying the effective strategy, crucial business activities and value creation opportunities in each all phases of the e-commerce process. It also showed that the key to creating value in e-market in China was the selection of qualified partners and thus controlling the risk in the payment and delivery channels for a secured and reliable e-commerce process. Finally, we must discuss some limitations of our study. First, its time frame spanned 1998 to April 2006. However, the fast pace of change in e-commerce companies suggests that some new services
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of CCEC and Alibaba may have been missed. Second, we adopted a process perspective and ignored others. The model has helped explain the different value creation strategies for Chinese e-markets. We hope it will aid in understanding how the unique business environment of other developing countries affect value creation strategies in their e-markets. Acknowledgments The authors are grateful to editor and three anonymous reviewers for their helpful comments and suggestions on the paper. This research has been supported by grants from the National Natural Science Foundation of China under Grants 70172034 and 70672064, the Humanities and Social Science Foundation of the Ministry of Education of China under Grant 06JA630068 and Sciences and technology project of Wuhan Municipality under Grant 200770834321. References [1] A. Barua, R. Chcllappa, A. Whinston, The design and development of internet and intranet-based collaboratories, International Journal of Electronic Commerce (1996/1997) 32–58. [2] J. Cai, Y. Zhang, X.Y. Qiu, The analysis of information dissymmetry in e-business market, Jiangsu Commercial Forum 4 (2006) 66–67. [3] CCEC.com, http://www.ccec.com, May 15, 2007. [4] T.M. Data, Data telecommunication development in China, China Information 48 (5) (1998) 10–32. [5] R.J. Glushko, An XML framework for agent-based e-commerce, Communications of the ACM 42 (3) (1999) 106–114. [6] GUANGMING DAILY, March 27, 2006. [7] X.M. Guo, J.K. Yang, The analysis of market transaction, credit economy and credit hiatus, Journal of Finance 7 (2006) 96–101. [8] P.S. Hempel, Y.K. Kwong, B2B e-commerce in emerging economies: I-metal.com’s non-ferrous metals exchange in China, Journal of Strategic Information Systems 10 (2001) 335–355. [9] L.L. Henriott, Transforming supply chains into e-chains, Supply Chain Management Review Global Supplement (1999) 12–18. [10] G. Hofstede, M.H. Bond, The Confucius connection: from cultural roots to economic growth, Organisational Dynamics 16 (1988) 4–21. [11] G. Hofstede, M.H. Bond, C.L. Luk, Individual perceptions of organisational cultures: a methodological treatise on levels of analysis, Organisational Studies 14 (1993) 483–503. [12] S.L. Jarvenpaa, P.A. Todd, Consumer reactions to electronic shopping on the WWW, International Journal of Electronic Commerce (1996/1997) 59–88. [13] X.P. Jiang, Electronic Commerce and Cyber-marketing, Tsinghua University Press, Beijing, 1998, pp. 107–132. [14] Juns, E-Commerce Development in China, Beijing Jens E-Commerce R&D Center, Available: http://www.juns.com.cn, 2002. [15] R. Kalakota, A.B. Whinston, Electronic Commerce: A Manager’s Guide, Addison Wesley, 1997, pp. 3–28. [16] M.G. Martinsons, Electronic commerce in China: emerging success stories, Information & Management 39 (2002) 571–579. [17] M. Miles, M. Huberman, Qualitative Data Analysis, Sage, Beverly Hills, CA, 1994. [18] T. Pan, Analysis on the Fraud in Cyber Market, Business Economics and Administration 6 (2006) 31–34. [19] M. Raghunathan, R.M. Madey, A firm-level framework for planning electronic commerce information systems infrastructure, International Journal of Electronic Commerce 4 (1) (1999) 121. [20] B.F. Schmid, M.A. Lindemann, Elements of a reference model for electronic markets, in: Proceedings of the Thirty-First Hawaii International Conference on System Sciences, vol. 4, 1998, pp. 193–201. [21] A.B. Sculley, W.W. Woods, B2B Exchanges: The Killer Application in the Businessto-Business Internet Revolution, ISI Publisher, Chinese edition, Beijing Modern Publication, 2001, p. 58.
[22] D. Selz, P. Schubert, Web assessment—a model for the evaluation and the assessment of successful electronic commerce applications, in: Proceedings of the Thirty-First Hawaii International Conference on System Sciences, vol. 4, 1998, pp. 222–231. [23] J. Tan, K. Tyler, A. Manica, Business-to-business adoption of e-commerce in China, Information & Management 44 (2007) 332–351. [24] T.S.H. Teoa, C. Ranganathan, Adopters and non-adopters of business-to-business electronic commerce in Singapore, Information & Management 42 (2004) 89– 102. [25] R.L. Wang, Breakthroughs in e-commerce strategy, 2006. Available: http:// www.yesky.com. [26] R.K. Yin, Case Study Research: Design and Methods, International Educational and Professional Publisher, Thousand Oaks, 1994. [27] J. Zhao, Analysis of Business to Business Electronic Markets in China: Theoretical and Practical Perspectives, in: Proceedings of the 5th International Conference On Enterprise Information Systems, France, (2003), pp. 377–385. [28] J. Zhao, S. Yu, Intermediary Electronic Commerce Model in China, in: Proceedings of Second International Conference on Telecommunications and Electronic Commerce, Nashville, (1999), p. 208. Jing Zhao is Professor of Management Information Systems and the Director of the Center for International Cooperation in E-Business in the College of Management at the China University of Geosciences (CUG), Wuhan, China. Prior to joining CUG, she has considerable experience in automobile manufacturing in China. Her research interest focuses on modeling the impact of e-business on the organizational transformation, ebusiness value creation and B2B e-market. Her work has been published in professional journals such as Information & Management, IEEE Transactions on Engineering Management, the Journal of Business Forum, Family Business Review, Journal of Tsinghua University (Sci&Tech), and others. She has co-edited special issues in Electronic Markets—The International Journal. She has been a co-chair for the Wuhan International Conferences on Electronic Business (WHICEB 2000, 2002, 2004, 2005, 2006 and 2007) since 2000. Shan Wang is an assistant professor at the School of Business at Renmin University. She received her Ph.D. in MIS from McMaster University. Her research interests include business to business electronic marketplaces, supply chain management, the adoption and impacts of e-commerce. Her work has been published in several peer reviewed journals, such as Supply Chain Management—An International Journal, Journal of Computer Mediated Communication, and Electronic Markets.
Wilfred Vincent Huang is the George G. Raymond chair in family business and professor of management information systems at Alfred University. He is the technical director of Cisco Academy Training Center at Alfred University and the coordinator of SAP Program in Alfred University. He is also a certified quality engineer (CQE) of American Society of Quality and Cisco certified academy instructor (CCAI). He received the Ph.D. degrees in industrial engineering from State University of New York at Buffalo. His research interests include entrepreneurship, e-business and data analysis. He has published articles in European Journal of Operations Research, International Journal of Computers and Industrial Engineers, Decision Support Systems, Family Business Review, etc. He has been an associate editor of the International Journal of Modeling and Simulation (IJMS) since 2001. He has served as the division head of the Industrial Engineering Department of Alfred University 1991–1997.