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Proposed Title of project:
A study of a proposed online and offline approach to encouraging and enhancing global scale knowledge entrepreneurship and the challenges and opportunities for small and medium size enterprises in Singapore and Malaysia, in the environment of rapid adoption of information technology and the emergence of electronic marketplaces.

Background of the study

Electronic Commerce value creation around the world is exhibiting accelerated growth, exceeding most market projections and expectations. Critical mass has not yet been achieved, which means that further explosive growth is yet to come. Total business-to-business product and service transactions over the Internet clearly shows the most spectacular growth. Gartner has determined that Business-to-Business Electronic Commerce spending will reach a phenomenal US$800 billion in 2003. A mind boggling US$20.3 trillion was zapped around the US electronically in 2000, saving consumers US$700 m in postage alone. About 6.9 billion worth of transactions were created from the growing acceptance of direct-deposited paychecks, online payments by consumers and businesses and corporate solutions such as EDI, a 14% increase from 1999.

The Asia Pacific market reveals a much higher compound annual growth rate of 109% relative to the US B2B market of 68% and regional share of the worldwide market to shift from 5% in 2000 to 12% in 2005. US Shares will decline from 41% to 36%. Traditional Brick and mortar companies will drive the EC trend in the Asia Pacific market. Among the early adopters are the financial institutions.

Gartner group has identified four distinct and progressive phases of web-enabled electronic commerce. Clearly, different markets around the world are entering and progressing through the different phases at different speeds. Phase 1 is the establishment of the first commercial web presence for the purpose of providing contact, product and marketing information. This was already a “given” in 1999. Evolution in the online interaction phase is underway. Corporate intranets and extranets are integrating with user-customized web pages, expanded site search capabilities and extensive business-to-business partner site links. The demanding elements, which constitute Phase 3, came into focus last year. Implementation in this phase will not begin to reach maturity until the middle of the next decade. End-to-end transaction and fulfillment capabilities, multinational electronic data interchange via the Internet, web-based corporate procurement, supply chain management and user-managed interfaces define this current roster of challenges. Optimized supply chain and customer relationship management functions; industry-specific commerce software and services; and fully customized interfaces with real-time end-to-end site functionality will be the focus of expanded Internet commerce activities over the next five years.

This dissertation is involved in the study of coordination of business activities in Mid sized enterprises. In an attempt to cross boundaries, the study blends various theoretical concepts, like markets, networks, hierarchies, information technology, electronic commerce, and business media, into a business value framework. The proposed framework will be used to describe some observed forms of new organizational structures that are emerging in open electronic networks such as the Internet. I will first give a condensed introduction on the effects of information technology, followed by an outline of the research project.

That information technology (IT) has a significant impact on industrial organization as well as on individual organizations is a long established and well researched fact.

Current literature suggest that companies are changing the way they operate and the markets in which they operate due to significant changes in time and spatial arrangements, and striking reductions in the cost of obtaining, processing, and transmitting information as well as the concurrent information links within and between these firms. The increasingly global data processing and telecommunication infrastructure has supported the development of large global enterprises.

But electronic information links have also resulted in the disintegration of industrial structures, thus resulting in smaller firms, virtual organizations, and the increased interest in inter-organizational systems. It is important to note that these alterations imply a continuous evolution of the firms’ value chains and industries’ value systems (Porter 1985), as IT transforms not only intra-organizational structures and processes but also the nature and structure of linkages between them. The redefinition of such relationships is spurred by the emergence of electronic markets.

The new IT infrastructures will allow circumvention and elimination of intermediaries in value systems and in supply chains in particular. Many examples from different industrial sectors, like clothing, books, wine, and tourism show the trend towards direct sales by the supplier or manufacturer to the final customer.

However, the same emerging electronic marketplaces offer revenues and profits for specialized intermediaries. Technical and institutional obstacles, high information cost, lacking transparency, and security flaws provide a lucrative field for intermediation, in some cases even re-intermediation.

As a result established intermediaries diversify and build web subsidiaries and a new set of players emerges: the entry barriers for electronic commerce are low and global visibility allows even highly specialized businesses to generate sufficient revenues. New players often show a better understanding of the characteristics of hypermedia and computer-mediated environments while traditional players face the challenge of preventing their past from becoming a burden, which limits their flexibility, agility, and understanding of the new medium. Sarkar et al. (1995) labeled these new intermediaries in cyberspace; cybermediaries. Their analysis suggests that greater rather then less intermediation is just as plausible an outcome. Cybermediaries bundle regional, product or service information and provide a number of value-added services like retrieval assistance, product evaluation etc. Firms offering such services are often new or do not belong to that particular industrial sector.

Microsoft for example has built among others a huge site for tourist information and provides an online market for cars. The car industry faces competition not just from mighty Microsoft, but from new entrants such as DealerNet. Similar new entrants can be identified in many industries.

Ghosh (1998) calls them “customer magnets”, or “category destinations”. The concept of the cybermediary is expanded to embrace not just the intermediation function of a digital marketplace but the product bundling function, too. In fact these product and service integrators create new digital values by offering additional information or transaction services, by repackaging their current information assets and by integrating third-party products and hence by creating entirely new value propositions.

A new business model is emerging: electronic networks, such as the Internet, are breaking up what were previously thought to be firmly controlled value chains and systems. The value chain looses its chain constituent, which is replaced by a web of fluid and flexible relations.

Research objectives, initial postulates, and research methodology

The objective of this dissertation is a contribution to the following three questions:

Question 1 – New forms of organization

The Internet, an archetype of an open electronic network, is often identified as a breeding ground for organizational change. Is the model proposed in this project a distinct exemplar of value generation, compared to other models listed in this study?

Question 2 – The logic of the proposed model

If such an organizational form exists, what are the key characteristics of such a model (on a strategic level), what are its key success factors, and what is its economic rational?

Question 3 – Similarities and differences in the method of value-adding

The study will list other generic value-adding models like the value chain, the value shop, and the value network. What are similarities and differences of these models?

Derived from the research objectives are the following initial propositions:

Proposition 1 – A web clustered around a central web intermediary/broker

The value web is an evolving organizational model with a modular design of suppliers, customers, even erstwhile rivals grouped around and organized by a central value web broker. Its goal is to provide custom-tailored products and services in close association with the customer, who at times effectively becomes a member of the value web.

Proposition 2 – A network organization inclined towards hierarchy

The degree of hierarchy and vertical integration is not given. The value web broker will organize the value web in size, the degree of horizontal and vertical integration, and the type of connections among value web members’, together with the members of the value web, which are linked by information technology.

Proposition 3 – Some industries will have to change sooner

The change, mainly engendered by IT, forces open industrial structures and leads to their modularization. The present research hints that the effects of this modularization will be first felt in industries such as:

a. Interaction-rich industries such as retail, and finance.
b. Information industries such as entertainment and IT.
c. Industries with strong intermediaries such as wholesaling, tourism, automotive distribution.

Limitations of this study and target audience

The dissertation makes a contribution to the analysis of the effects of open electronic networks on the distribution chains of firms. The centerpiece of the study is the description of the actual re-configuration processes observed across a number of industries and the explanatory framework, which is developed and called value web.

The model evolves around the value web broker at the center of a value web. To make this study a viable undertaking, some restrictions to the research were introduced, of which the three most prominent ones are:

a. The study focuses on the marketing channel (i.e. distribution chain) of products and is not concerned with production and supply-side issues. A marketing channel is understood to be a set of institutions, people, and their respective functions, which are required to move the product or service from its producer or provider to the final customer.
b. The study takes an interest in business-to-business (B2B) marketing channels. Such channels also exist in business-to- consumer (B2C) relationships but are not the focus of this study.
c. The inquiry is primarily interested in two viewpoints: first and foremost the viewpoint of the web broker. His viewpoint is primarily determined by the relationship with consumers. This is the second viewpoint considered.

The study is further limited in scope to a deliberate selection of industry case studies and to the environment in which they have been researched. This work is arguably strong in the application of microeconomic and information systems theory to electronic commerce issues, but purposely leaves out adjoining explanatory approaches, such as business frameworks and strategy issues, in-depth market and marketing analysis, and technical topics like electronic product catalogs, effective electronic contracting tools and the like.

The anticipated audience of this study is practitioners with an interest in the changes of the structure of businesses affected by a combination of open electronic networks and changing consumer habits. For the practitioner the present work may serve as useful starting point for similar analysis in other industries and a concurrent re-configuration of existing value systems.

The study will have a live example of an implementation by a web intermediary of an off-line approach to encourage the new form of organization.

Research methodology

Lets take a closer examination of what constitutes “evidence” that can be used to confirm a hypothesis: what is a “fact”, what are the necessary and sufficient conditions for scientific explanation, and what role do paradigms, and individual value judgments play in social research? Social research is one among many ways of constructing “representations” of social life. There are five major research strategies in the social sciences: experiment, survey, archival analysis, history, and case study. The images produced allow the researcher to frame the observed phenomenon. Images are idealizations and serve as a guide: they embody explanations but most explanations are casual

The present study adopts the case research methodology ingrained in the positivist science approach. A case study is an empirical inquiry that investigates a contemporary phenomenon within its real-life context, when boundaries between phenomenon and context are not evident; and in which multiple sources of evidence are used.

The case research strategy is particularly helpful in situations of a “phenomenon in the making” to gain novel and rich insights. These are situations where there are few theoretical foundations and exact measures for the key variables. The strength of the case study approach is that it enables one to capture reality in considerable detail; more than is possible with surveys, experiments or field studies. The factors influencing or organizational processes often include path dependencies that are cumulative and historically conditioned. The research design must hence be longitudinal. Furthermore, the design must enable the multiplicity of factors that may have shaped the process to be deciphered. Finally, the emphasis is on “analytical generalization” as opposed to the traditional “statistical generalization”.

The weaknesses of the chosen approach include the difficulty of generalizing individual case studies, as case studies are often restricted to a single event or organization. If multiple case studies are used, it is possible to deduce the underlying processes that are often generalized in contrast to the unique phenomena in each study. Multiple sources of inference about a phenomenon are analogous to degrees of freedom in statistics.

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