The Social and Economic Importance of E-Commerce

The Social and Economic Importance of E-Commerce

Introduction

Electronic commerce, the use of the internet for purposes of buying and selling services and goods (Bidgoli 18), has been gaining importance, in recent years. Many organizations have now embraced e-commerce to enhance the rate at which their products and services access the market. This is in addition to the drastic reduction in their operating cost, compared with the use of other conventional modes of selling. E-commerce activities have had an impact on various sectors of the economy, notably, finance, retail trade, communications, and business services (Decker 85), amongst others. From a social perspective, e-commerce has held the buyers and sellers to maintain social relationships, and his has been beneficial to the two parties involved. The intention of this report therefore is to help shed light on how electronic commerce has influenced us, both economically and socially.

Economic importance of e-commerce

Although sales attributed to electronic commerce are modest in comparison with the total economic activities, nonetheless electronic commerce is gaining prominence. For example, according to the Office for National Statistics (2009), there was an increase of 17.1 per cent of internet sales in the United Kingdom, in January 2009, relative to the same period in 2008. This is an indication that the use of electronic commerce can greatly boost the economy of a country. According to statistics released by the U.S Department of Commerce (2), internet sales only formed 1 % of the entire retail sales realized in the United States in 2002. Although internet sales had been on the decline in the United States for a period of three eyras, between 2006 and 2008, nonetheless there was a 1.8 % rise in 2009, despite the impact of the global financial crisis (Office for National Statistics 3). The effect that e-commerce has on the market and by extension, the economy, is two-fold. First, e-commerce is crucial in increasing market transparency (Zhuang 12). Accordingly, e-commerce helps open up markets for goods and services. For this reason, manufacturers enjoy a bigger market for the products they make, and this may in fact help them to increase on their production capacity. In the process, the manufacturing and distribution industries of products benefits from the creation of more jobs.

E-commerce enables consumers to search for goods and services that are within their desired price region. Moreover, consumers have the choice of not only buying goods and services at a low price, but also from foreign sellers as well (Lubbe and Van Heerden 184). In addition, sellers to have a chance to reach an increasing number of buyers. This results in the creation of more transparent markets for goods and services. Based on these arguments e-commerce can be a useful tool for intensifying competition. When competition becomes intense, the profit margins of the companies involved in e-commerce ends up reducing. On the other hand, when the market becomes broader thanks to e-commerce, this is a chance for the organizations involved to take advantage of economies of scale. The result is that consumers end up paying for their desired goods at a lower price than would; have been the case in the absence of e-commerce. In addition, the fact that e-commerce is characterized by high transparency levels results in reduced search as well as transaction costs. This is in terms of both money and time. E-commerce also helps to balance the supply and demand of goods and services in the market because of the increased choice and information (Chaudhury & Kuilboer 64). For this reason, product manufacturers for example, are in apportion to make adjustments to their production processes with more precision to cater for the existing demand in the market.

Since e-commerce has ensured that information exchange between for example, a firm and its customers or suppliers is efficient and fast, organizations are therefore in a position to reduce costs related to production, procurement and sales. Owing to an improved supply chain management facilitated by e-commerce, efficiency of the business process is thus attainable (Nabi & Luthria 135). Moreover, new goods and services have also emerged thanks to e-commerce. However, there are also negative effects to the economy that are associated with e-commerce. For instance, good reputation and economies of scale though a good thing for some firms, might in fact provide several e-tailers (for instance, Amazon). In addition, competing firms may use increased transparency as a technique to compare prices offered by rival companies, thereby enabling them to establish pricing strategies.

E-commerce can also assist competitors to differentiate their products due to intensified competition. As a result, consumers would find it har