Electronic Business to Business trade.

Electronic business-to-business trade

Business-to-business trade covers a wide variety of intercompany transactions, such as wholesale trade and firm acquisitions of resources, tools, capital equipment, manufactured parts, and services. It also covers some kinds of financial transactions involving businesses, including those involving bonds, securities, insurance, commercial credit, and other financial assets.

The potential economic impact of B2B e-commerce is enormous yet hard to estimate. According to Jupiter Communications' estimation from 2000, there were $11.5 trillion worth of goods-only transactions between firms in the United States, $336 billion of which were electronic. (Note that GDP, which is a measure of total value created, may likely be exceeded by total transactions, which are revenue metrics.) Jupiter anticipates that by 2005, the online component will account for $6.3 trillion of the $15.1 trillion total. A little more cautiously, Goldman Sachs (2000) anticipates that by 2005, global B2B e-commerce transactions would total $4.5 trillion. In 1999, the Gartner Group estimates that Internet business-to-business transactions totaled $90 billion.y

Business-to-business e-commerce is expected to increase productivity in four key areas: transaction efficiency, financial benefits of new market intermediaries, demand and supply consolidation through structured exchanges, and changes in the degree of vertical integration of firms.

Expense savings via transaction automation

Interbusiness interactions often start with a buyer searching for inputs or a supplier looking for customers for its products and services. Advertising, trade exhibitions, brokers, dealers, and other methods of finding one another are used by buyers and suppliers. Vendors dispatch sales representatives. Then, buyers and potential vendors bargain over product parametersand costs, as well as perhaps completing a spot transaction or creating a long-term contract. Even when an agreement has been made, the transaction still comprises placing an order, paying the bill, making transportation arrangements, verifying payments, and accepting delivery.

their peers in other businesses on the specifics of the deal.

There might be significant cost reductions in this area. Online transactions might significantly lower expenses by a factor of five, ten, or more compared to processing a purchase order manually, which can be fairly expensive and involves paperwork, data input, phone calls, faxes, and approval requests. Anecdotal evidence suggests that such cost savings are feasible. According to British Telecom, switching external procurement operations to electronic commerce has resulted in a $113 per transaction cost reduction (Phillips and Meeker, 2000, p. 31). According to MasterCard, processing purchase orders now costs $40 instead of $125 and takes 1.25 days instead of 4 days to complete (Alaniz and Roberts, 1999, p. 13).

Improvements in Economic Efficiency through B2B E-Commerce Intermediation

In a market-oriented economy, connecting buyers and sellers through intermediaries and market-making is key. By lowering the expenses of search, confirming product quality, minimising communication costs, and offering assurances for buyer or seller obligations, intermediaries can lower transaction costs relative to direct exchange (Spulber, 1996, 1999). By establishing exchange institutions, modifying and communicating prices, clearing markets, distributing products, and providing liquidity and immediacy, companies that operate as marketmakers increase transaction efficiency (Spulber, 1998).

Royal Dutch/Shell Group, and Totalfina Elf Group along with financial services firms Deutsche Bank, Goldman Sachs, Morgan Stanley Dean Witter, and Societe Generale to replace transactions that were primarily carried out bilaterally by telephone (Shmukler, 2000). The transmission of information to traders regarding creditworthiness and other qualities is one of the innovative elements of the Intercontinental Exchange market that is anticipated.

The number of intermediaries would increase if B2B e-commerce encourages outsourcing to replace some transactions that were previously internal to the company, if businesses can use intermediaries to outsource some of their current external purchasing and sales efforts, or if businesses can use specialised intermediaries to avoid ineffective one-on-one direct meetings between businesses and their suppliers (Spulber, 1999).

By creating a system to calculate prices, auctioneers play a more active part in transactions. The cost of holding auctions has been greatly reduced by internet technology. When market clearing prices are sufficiently unpredictable, auctions are desirable as compared to posted prices. For sellers, several auctioneers conduct excess inventory auctions; two examples are MetalSite (steel) and One Media Place (advertising space). Reverse auctions are held by other auctioneers when vendors compete with one another for a contract. The largest "reverse auctioneer," FreeMarkets Online, was created in 1995; according to its 1999 financial records, the company generated $20.9 million in revenue and over $2.7 billion in transactions. With dozens of clients, including Quaker Oats, Deere & Co., and others, FreeMarkets has conducted procurement auctions (Gupta, 2000).

Market Organization and B2B Intermediaries' Ownership

In the early days of B2B e-commerce, certain areas of the intermediate industry seemed to be extremely competitive. There were hundreds of participants, and thousands more were expected (Latham, 2000, p. 3).

The necessity of liquidity and returns to scale, however, indicate that eventually there will only be one or two marketplaces for any product or service category. Creating an Internet-based market has high fixed costs, but it appears that delivering transaction information to market participants has marginal costs that are close to nothing, which leads to economies of scale.

The effectiveness of electronic communications networks like Instinet, Island, and Archipelago, which had accounted for 30% of Nasdaq trading in the United States, contributed to this concentration of stock exchanges (Morgenson, 1999).

their service was actually available.

Early B2B e-commerce businesses were frequently unaffiliated startups supported by venture funding. Some, like VerticalNet, started trading on stock exchanges. At least 600 online trading exchanges were supported by venture capital companies by the middle of the year 2000. (Latham, 2000, p. 3).

A number of antitrust concerns have been highlighted by the development of B2B exchanges. B2B websites might enable competitors to share pricing information, which could encourage collaboration to fix prices, according to antitrust officials. Antitrust regulators are also concerned that B2B websites may prevent competitors from participating, excluding them from certain market areas. The FTC and automakers bargained over the Covisint industry-sponsored parts exchange's independence (Leonhardt, 2000).

E-impact commerce's on how firms are organized

The idea of transaction costs was first established in a 1937 classic paper by Ronald H. Coase. According to Coase, whether businesses would conduct an economic activity within their organisations or rely on purchases from other businesses was significantly influenced by the expenses of accessing the market. Businesses have an incentive to vertically integrate when utilising the market is expensive compared to managerial expenditures. Nevertheless, the buyer's requirement for flexibility and focus, the supplier's economies of size and breadth, and the supplier's experience force the buyer to outsource. David Lucking-Reiley and Daniel F. Spulber's analysis and conclusions

The automotive sector provides a clear illustration of this transition. The car industry demonstrated a significant inclination for vertical integration at the start of the twentieth century. "From Mine to Completed Vehicle, One Organization" was Ford's catchphrase (Casadesus-Masanell and Spulber, 2000). General Motors "had expanded its scope so that, in addition to all the engines used in its cars, a large portion of such units as gears, axles, crankshafts, radiators, electrical equipment, roller bearings, warning signals, spark plugs, bodies, plate glass, and body hardware were produced either by a General Motors unit or by a subsidiary by 1920." (Edmonds, 1923). The combined supply chains of these three enterprises are over $250 billion, hence Covisint may rank among the top Internet corporations (Moore and Trenker, 2000).

Conclusion

The development of computers and communications plainly holds considerable potential for lowering the cost of corporate transactions. Transaction automation, possible intermediation economic benefits, the setup of centralised exchanges, and business rearrangement are all potential sources of productivity increases.

The abundance of players and business strategies, as well as the huge returns from market consolidation, imply that there will be a significant amount of entrance and leave of businesses before the advantages of B2B e-commerce are realised. The economic importance of intercompany transactions leads one to believe that even modest improvements in transaction efficiency will eventually result in very huge cost reductions for the economy.