Supplementary Reading

The Strategy on Issues in Electronic Commerce Development in China

1.Introduction

EC development has largely improved the transaction efficiency，and lowered the transaction cost.In advanced countries，EC development is prospering in a way that has happened before，transactions through the Internet have become a fashion.EC is a critical opportunity for a developing country.Due to historical reasons，our country has missed a very good chance to be on par with the world in the previous two industrial reforms；however，we are striving to be on the same step with advanced countries in the world in the new economic competition.To develop Chinese EC would carry substantial weight on deciding whether we could reserve a position among the future economies.Therefore，the EC new economy that is built on the foundation of Internet would become a height of strategy target pursued by the global market.With this background，this dissertation analyzes the development and suggests relevant strategies on EC development in China.

2.The Environment and Situation of the EC Development

1）The external environment of the EC development

The broadban disgrowing at the tremendous fastrate，which has provided an assurance on resource for Internet development.The Internet has become one of the industries with greatest impact，the fastest growing rate and the largest potential.

2）The situation of the development of EC

There are a total of 20 millions business set-ups in China now，about 50 ％ of the 15，000 large and medium state-owned enterprises have already linked with the Internet，quite a large number of import and export enterprises could carry out EC businesses proficiently.At present，the number of net users participating in EC has reached 74 million people，the ratio is 28.6％ and annual growth rate is 60％.But the ratio is still on the low side when compares with advanced countries.The ratio of Korean net users who are participating in EC is 60.6％，the American ratio is 71％，and the ratio of net users participating in on-line purchase is 40％ globally.

3.Analysis Comparisons of Existing Problems in EC Development

1）Analysis comparison with overseas countries

Although size of EC in China continues grows annually，however，there is still a big gap comparing with the speed of development in advanced countries.In recent years，American EC has always been leading as a head among the others.Therefore，we could select America as reference and compare its differences with Chinas EC development，so that problems along the course of Chinas EC development could be found.

（1）Cost difference

①Information cost.In the aspect of saving information cost，both China and Americas EC websites have exerted great purposes.However，we are still lag far behind America on intermediary Web site development.In America，there are lots of intermediary Web sites，such as Excite Shopping，Deal Time and so on，but the development of such type of intermediary Web sites in China is still much lower than expected.Only lalasho com has a certain size.Therefore when comparing cost，which is on price of commodity，Chinese consumers would have to undertake a higher cost than American consumers would.

②Cost of evaluating genuine information.The American credibility system is better than China.In America，either the main trading body or an individual person，there would be relevant credit organization to evaluate the credibility between the trading parties.Also，as EC transactions are done through credit card settlement in America，all dealings would be recorded by the credit bureau.Any conspiracy behavior would cause the mal-behaviors to face serious consequences；therefore few would take the risk in making use credit card on the net.It is exactly due to the monitoring of credit organization and the widely issuance of credit cards and its relevant punishment system，the cost on verifying the individual identity of consumer in EC trading is very low.While in China，not only are there no a professional organization like credit bureau，but also the usage of credit card is very low，which causing the evaluation cost in EC transaction extensively increased，and this is the main reason causing many on-line transactions failed at the end.

③Contract cost.The main issue during the contract-signing phase in EC is the safety of information.Therefore，during the setting up of a contract in EC transaction.It causes the contract cost and risks of consumers to increase，which smashes the pro-active attitude of consumers in participating EC transactions.

④Performance cost.All EC websites in America have 7 to 10 days for goods verification time.During this time，payment from purchaser would not be transferred onto the account of the seller，but to a third partys account（usually its the EC website）.If there is unsatisfactory for the goods，seller would guarantee on returning goods，change of goods，or refund，hence uncertain risks undertaken by the consumer would now be undertaken by the seller，which would further reduce their goods verification cost at the consumers end.There is still no third party guarantee mechanism been formed in China yet，and it is normally undertaken by the seller，which is a very high cost in credibility recognition for the seller.But sellers guarantee on returning goods could hardly be accepted by the consumer.

After the contract is performed，another critical problem is related to the liability in safety of transaction，after signing of contract；both parties of the transaction have to face the non-performance risk by the opposite party.The American government has determined a series of principles guidelines and frame work for EC transactions，but the social system in China is still not mature enough to absorb impacts on Internet commerce and form an innovative mechanism to counter new transaction cost brought by technical advancement，which cause EC transaction to become a type high risk status. Performance cost in America is lower than in China，which would result in a steady growth of on-line transaction volume in America and EC would speedily expand in various areas.Costs at various junctions of the transactions in China are comparatively higher，making the EC development in China to be unable to reach the expected outcome.

（2）Cultural difference

Culture has a fundamental function in the economic growth.Cultural value is the foundation of the motive for depressing or accelerating growth.

2）The existing problems in current models

（1）Problems that B2B faces

There are 4 main problems that B2B in China faces：Lack of capital，short of security recognition organization，relevant laws and immature system，insecure operational techniques and environment.At present，B2B is in a flooding stage，new website appears constantly every day and continuously website goes bankrupt.B2B seems easy，but it is difficult in actual fact.If one wants to build up an electronic liaison between suppliers and customers，it is not easy，and to attract customers would be even more difficult Commission income as a network intermediary would be reduced and as on-line trading would be widely adopted；when large suppliers started to build their own websites，intermediary would be abandoned.To the investor，there is great crisis hidden in the B2B.Currently，values of certain portion of B2B shares are being overestimated，and the rest are being underestimated.It is very difficult to determine the actual value of the shares.Also，there is a difficulty to truly evaluate these websites，as some of the websites would calculate their sales turnover by rolling in other business income，whereas some websites would take the net on-line commission as income；as with such different definitions of incomes，there might be lots of exaggeration and misleading to the investors.

（2）Problems lie in the B2C

①On-line payment has not yet become a main trend.According to survey from CNNIC，users think that there lies inconveniency in payment when shopping on-line，which is related to worry of consumers over secure payment and trust over B2C website，etc.There is still long way to go to realize a full on-line payment.

②Problem in commodity delivery is getting more and more serious.From CNNICs survey，users generally provide feedback on problems like time-consuming in goods delivery，in proper delivery channels，etc.Customers are getting more and more demanding on goods delivery time and channel，but the development speed in logistic service is slower than expectation of users.

③There is no obvious change physiologically for the consumers.CNNIC has carried out a survey recently showing “the largest problems at present on-line transactions”：safety and quality of product are not being assured，after-sales service and credibility of the company are not being assured，including time consuming in goods delivery，improper delivery channels，inconvenience in payment.

④“The three-flow issue”（the information flow，logistic flow and the capital flow）is always baffling the B2C development in China.At present，the logistics means in China are not convenient enough.Goods purchased on-line would require rather long time before it could be delivered，and purchaser needs to pick up personally.Electronic payment means and system are imperfect，long settlement time.Sometimes it needs one or two weeks to complete the settlement.On-line credibility urgently needs further improvement，such as dealing parties only liaise through on-line.If there is not perfect credibility evaluation system，transaction would be at a risk.

3）Legal and political issues

At the moment，the status of our EC market is：the laws are lagging behind implementation.First，there lies the phenomenon of “Slow in setting up new laws，and slow in amending old laws”.In recent years，only simple rules and regulations have been announced on computer nformation network management.As for EC，particularly on the basic operation rules，there are still no systematic laws.The existing laws and rules have tremendous limitation and inadequacy；however，there are still no relevant amendment cases on such laws.Next，presently there lies the phenomenon of many managing confusions set-up over laws.Various departments that EC touches on，like the telecommunication，banking，industrial and commercial tax，custom and public security，etc.，respectively only make rules for issues concerning their own department，hence，having jurisdiction over the same matter under various departments would cause further confusions.

4.Strategies for the EC development

1）To reduce transaction cost

（1）To reduce goods delivery cost

In the past，parts deliveries could be performed in a seemingly random way，from the main makers point of view：the schedules and the rhythm of deliveries were more，on a function of their producers capacities and industrial policies，rather than a negotiated strategy.This situation，as noted above，implied the creation of inventories，as parts delivery were a function of production，not demand.Traditionally，it was impossible to ensure a pre-determined and sequential delivery of all the needed parts.

Atypical logistics system includes suppliers，enterprises，customers，logistics resources uppliers and information service suppliers.A productive enterprise needs to produce many kinds of merchandises，and it needs many suppliers to offer material and other accessories.At the same time the enterprise needs to send many kinds of specification and model of productions to theircustomers through the sale channels.Hence the enterprises material stocking work and production distributing work are very complex and a great deal of information needs to be transacted.The traditional logistics system deals with the harmonization and controlling between logistic sparticipants by handwork.This model has the problems such as high logistics cost，low consistence and response speed.Along with the fast development of the computer and communication technology，planting automation technology into the logistics system and the approaches of solving the above problems are becoming feasible.

The enterprise information system creates enterprise-stocking planning and merchandises distribution planning by depending on the receiving information of customs order forms and the market forecasting.Those information might be transferred through Internet，EDI，VAN and all other channels under electronic commerce platform.

The enterprise logistics planning would be the gross goals that should accomplish.After considering about the logistics resources or capacity limitation，the AMLS separates the gross goals into distribution orders and transfers the orders to every parts of the under-controlled logistics units through Internet.

The under-controlled logistics units accomplish the distribution missions by the receiving orders.The under-controlled logistics units would be owned by the production enterprise or be the third party logistics suppliers.The under-controlled logistics units have the capability of exchanging information，so they can transfer the performance information back to the AMLS at the prescriptive time.According to the received logistics units performance information，the AMLS adjusts andoptimizesthe distribution planning to ensure that the gross goals would be finished on schedule.In many enterprises most of the logistics activities are routine and programmable，so the goal of AMLS is to reduce the human intervention in such area.In order to deal with the emergence or unexpected affairs and the shutting down of logistics units，LSMS allowed the manipulators to modify the logistics plans of automatic produced in system.

（2）To reduce additional cost brought by credibility crisis.

For this，credibility mechanism should be built at separate stages.First，we should build oursocietyinto a credit focus society，which would not be accomplished within a short period and would require the joint effort of the whole society.On particular，one should emphasis on the education on youngsters，to carry out moral education from young，to gradually improve the credibility situation of the whole society.Next，to strengthen on the degree of punishment on the discredits，we should let the whole society realize that the price of being discredit is high.We should restrict people sbehaviorsby legal system and cultivate them good habits，thus forming good social atmosphere.

2）To build an EC system with big companies as core center

Large companies have great attractions on their upper and lower suppliers than small and medium companies.There are already many well known large companies in China，they have more than thousands of suppliers for their raw materials，spare parts and products distributors.The secompanies surrounded the core large company and formed a large supply chain system.Therefore，it is a realizable course to build an EC system according to the supply chain relationship with large company.

3）To set up concept that is based on business

To base mainly on business and supplement it with techniques，EC techniques should be mean to realize business targets.Particularly，when network service companies and EC techniques ITprovidersare trying to promote EC techniques，they should respect the business choice and business judgment of the companies.They should seriously study the business needs of the companies in order to confirm its technical proposal and service method.

5.Conclusion

The advent of new software，communication technologies，computer tools and intelligent automatic controlled logistics devices enable enterprises to connect with each other and exchange date nearly instantly，deeply change the relationship between enterprises as well as production processes management and delivery procedures.The EC has the advantage of low logistics cost，high response speed and high robust，and it has the trend of integration with the enterprise strategy；as aresult，we could fulfill the customersneeds more efficiently and obtain more customers and more market opportunities.So the target of EC could elevate the enterprises synthetical competition power distinctly.