E commerce development in agricultural trade promotion in vietnam

VIETNAM NATIONAL UNIVERSITY, HANOIHANOI SCHOOL OF BUSINESS DOAN TRAN NHAN E-COMMERCE DEVELOPMENT IN AGRICULTURAL TRADE PROMOTION IN VIETNAM.. Based on the concept of E-commerce and trade

VIETNAM NATIONAL UNIVERSITY, HANOI

HANOI SCHOOL OF BUSINESS

DOAN TRAN NHAN

E-COMMERCE DEVELOPMENT IN AGRICULTURAL TRADE

PROMOTION IN VIETNAM.

MASTER OF BUSINESS ADMINISTRATION THESIS

Hanoi, 2012

VIETNAM NATIONAL UNIVERSITY, HANOI

HANOI SCHOOL OF BUSINESS

DOAN TRAN NHAN

E-COMMERCE DEVELOPMENT IN AGRICULTURAL TRADE

Electronic commerce (E-commerce) is a new field and showing great role in tradepromotion, products trading through the global Internet E-commerce can helpbusinesses reduce costs because they can introduce to consumers about productsand services through its own Website, frequently contact with their customers andlearn about customer needs via E-mail, and conduct transactions directly withcustomers online Moreover, businesses can attract the large customer because E-commerce is not limited by geography The targeted consumers are not onlydomestic but also foreigners

Due to benefits of E-commerce, now many companies over the world apply thismodel in their business operation In Vietnam, according to E-commerce Report

2010 of the Ministry of Industry and Trade (MoIT), among more than 3400enterprises surveyed are almost 100% of businesses applied E-commerce indifferent levels The application of E- commerce has brought efficiency to theenterprise, especially in access to customers and operations management and sales.However, purchasing through E-commerce websites only popular for some kinds ofgoods and services such as airline tickets, electronics, cell phones, computers,books, tours, hotels, cosmetic, etc

Trade promotion is the series of activities to promote the sale of the business ingeneral and target market Since the traditional trade promotion activities aregeographically limited, higher costs and taking long time, so the application of E-commerce seems to overcome such drawbacks

In Vietnam agriculture, the E-commerce application is concerned, facilitated andclearly oriented by the Government agencies Besides the traditional tradepromotion activities are being applied in agriculture such as surveys, trade fairs andexhibitions E-commerce will create a new promotion method that is simple,convenient, fast and save cost In the present, there are some Agri-businessesapplying E-commerce in marketing activities and business of their products.Moreover, understanding the current trend of IT application, there are some

professional websites have built and they operate as the trading platform forVietnam and foreign agricultural products However, only a few businesses canachieve success from these activities and many websites have built with boringcontent, out of dated information, and the websites cannot attract customers to visitand deal with suppliers in the website.

During the MBA course at the HSB, I received the enthusiastic support fromlecturers and guidance on methods of studying and working Moreover, all oflecturers create good conditions to help me constantly expand, improve knowledgelearned in practice

In the process of working in Trade Promotion Center for Agriculture (Agritrade), I

have discovered and proposed research project “E-Commerce development in agricultural trade promotion in Vietnam” and developed this subject into my

thesis During the implementation of the subject, I have received much help fromthe lecturers, leaders, and staff of Agritrade Which I particularly thank:

Lecturer: Ha Nguyen who has dedicated to guide me in the implementation process

of this project

Mr Nguyen Van Thang - Director of Agritrade who has created good conditions for

me to complete this thesis, the research and given many ideas for my thesis

In the process of completing this thesis, by the terms subjective and objective canyou also flawed So I hope to receive guidance and comments from all lecturers

I sincerely thank you!

Supervisors: Dr Tran Doan Kim

Ha Nguyen, MBA

May 2012, 93 pages

Subject “E-Commerce development in agricultural trade promotion in Vietnam” isbased on actual duties of the author at the Trade Promotion Center for Agriculture(Agritrade) This is a unit under the Ministry of Agriculture and Rural Developmentand they responsible for planning and implementation of trade promotion programsfor Vietnam agricultural sector; consulting agricultural policies on the exportpromotion and trade development; and supporting businesses in developingmarkets

Based on the concept of E-commerce and trade promotion, the macro environmentanalysis; the real situation of E-commerce development in Vietnam, and operation

of Agritrade, author has proposed the solutions of applying suitable E-commercemodel for trade promotion activities in agricultural sector, thereby helping topromote agricultural enterprise’s image, expanding market and searching for asustainable business contracts, moreover, helping Agritrade implementation moresuccessful their political duties

Structure of this thesis including:

- Chapter 1: Theoretical framework

- Chapter 2: Background and Real situation of Agricultural trade promotion of

AGRITRADE

- Chapter 3: Conclusion and the proposal solution of E-commerce

development for Agritrade

TÓM TẮT

PHÁT TRIỂN THƯƠNG MẠI ĐIỆN TỬ TRONG XÚC TIẾN THƯƠNG MẠI

NÔNG NGHIỆP TẠI VIỆT NAM

Đề tài “Phát triển thươ ng maị điêṇ tửtrong xúc tiến thương maị nông nghiêpp̣ taị

Việt Nam” được thực hiện dựa trên thực tế nhiệm vụ công tác của tác giả tại Trung

tâm Xúc tiến thương mại Nông nghiệp (Agritrade) Đây là một đơn vị trực thuộc BộNông nghiệp và Phát triển nông thôn có nhiệm vụ lập kế hoạch và thực hiện các chương trình xúc tiến thương mại cho ngành nông nghiệp Việt Nam; tư vấn xây dựng các chính sách nông nghiệp về xúc tiến xuất khẩu và phát triển thương mại;

hỗ trợ các doanh nghiệp trong phát triển thị trường

Dựa trên các khái niệm về thương mại điện tử và xúc tiến thương mại; các phân tích môi trường vĩ mô; thực trạng phát triển thương mại điện tử tại Việt Nam; và hoạt động của Agritrade, tác giả đã đề xuất giải pháp ứng dụng thương mại điện tử phù hợp cho hoạt động xúc tiến thương mại ngành nông nghiệp, qua đó giúp cho các doanh nghiệp nông nghiệp quảng bá hình ảnh, mở rộng thị trường và tìm kiếm các hợp đồng kinh doanh bền vững, đồng thời giúp Agritrade thực hiện thành công hơn các nhiệm vụ chính trị của mình Kết cấu của đề tài bao gồm:

- Chương 1: Cơ sở lý luận

- Chương 2: Bối cảnh và thực trạng hoạt động xúc tiến thương mại nông nghiệp của AGRITRADE

- Chương 3: Kết luận và đề xuất giải pháp phát triển thương mại điện tử tạiAgritrade

TABLE OF CONTENTS

ACKNOWLEDGEMENTS i

ABSTRACT iii

TÓM TẮT iv

TABLE OF CONTENTS v

LIST OF ABBREVIATIONS vii

LIST OF TABLES, FIGURES, CHARTS, DRAWINGS viii

INTRODUCTION 1

1 The imperative of subject 1

2 Establish the main research subject 3

3 Research’s objectives 3

4 Research scope 3

5 Delimitation of the research’s contents 4

5.1 The basic elements of E-commerce model 4

5.2 Assign content to develop E-commerce model for Agritrade 5

6 Research methods 5

6.1 Data collection methods 5

6.2 Data analysis methods 7

CHAPTER 1: THEORETICAL FRAMEWORK 8

1.1 E-commerce 8

1.1.1 The concept of E-commerce 8

1.1.2 Characteristics of E-commerce 10

1.2 The formation of E-commerce 10

1.2.1 The reasons of E-commerce 10

1.2.2 The formation of E-commerce 11

1.3 The situation of E-commerce development in Vietnam 12

1.4 The operation forms and E-commerce transactions 14

1.4.1 The forms of E-commerce activities 14

1.4.2 Transaction forms of E-commerce 17

1.5 Benefits of E-commerce for businesses 22

1.5.1 E-commerce reduces costs 22

1.5.2 Impact on enterprise architecture 24

1.6 The E-commerce requirements 25

1.6.1 Technological Infrastructure 25

1.6.2 Human Infrastructure 26

1.6.3 Security and safety 26

1.6.4 Automatic Financial payment system 27

1.6.5 Consumer Protection 28

1.6.6 Economic and legal infrastructure 28

1.7 Definition and content of Trade promotion 29

1.7.1 Definition: 29

1.7.2 The purposes of trade promotion 30

1.7.3 Types of Trade Promotions 31

1.8 Trade Promotion in E-commerce 32

1.9 The difference of E-commerce applications in agricultural trade promotion 33

CHAPTER 2: BACKGROUND AND REAL SITUATION OF AGRICULTURAL PRODUCTS PROMOTION OF AGRITRADE 34

2.1 Overall assessment of domestic market for Agricultural product 34

2.2 Overall assessment of agricultural trade promotion activity of Agritrade 38

2.2.1 Overview of Trade Promotion Center for Agriculture (Agritrade) 38

2.2.2 Agritrade’s main missions: 40

2.2.3 Recent years’ Main Activities: 42

2.2.4 Overview of agricultural trade promotion activities of Agritrade 43

2.3 Assessing the impact of external environmental factors to E-commerce application at Agritrade 46

2.3.1 Impact of economic environment 46

2.3.2 Impact of political legal environment 50

2.3.3 Impact of socio-cultural environment 51

2.3.4 Infrastructure and Internet services for E-commerce 52

2.3.5 Competitors 55

2.3.6 Customers 57

2.3.7 Human resources for E-commerce 59

2.4 Assessing the impact of internal environmental factors to the E-Commerce applications in trade promotion activities of Agritrade 61

2.4.1 Impact of human resources 61

2.4.2 Impact of financial resources 62

2.4.3 Impact of technology infrastructure 63

2.5 Analysis the results of survey and discussions 63

2.5.1 The results of survey 63

2.5.2 Results of expert interviews 75

CHAPTER 3: CONCLUSIONS AND THE PROPOSAL SOLUTION OF E-COMMERCE DEVELOPMENT FOR AGRITRADE 77

3.1 The conclusions and findings through the research process 77

3.1.1 The achievements and limitations of Agritrade 77

3.1.2 The findings of the research process 79

3.2 Orientation and perspective of development of Agritrade in the future 80

3.2.1 Development orientation of Agritrade 80

3.2.2 Agritrade’s views on the E-commerce application 81

3.3 Proposal solutions of deploying E-commerce application in Agritrade 81

3.3.1 Group of Human Resource solutions 81

3.3.2 Solutions related to infrastructure and technology 82

3.3.3 Solutions related to business processes 85

3.3.4 Solutions related to electronic marketing promotion 87

3.3.5 The other solutions: 89

CONCLUSION 91

LIST OF REFERENCES 94

Business – to – ConsumerConsumer – to – ConsumerElectronic CommerceEnterprise content managementElectronic Data InterchangeGeneral Statistics Office Of VietnamInformation Technology

Ministry of Agriculture and Rural DevelopmentMinistry of Industry and Trade

Maintenance, repair and operation

United Nations Commission on International Trade LawValue Added Network

Vietnam E-Commerce and Information Technology AgencyWorld trade Organization

LIST OF TABLES, FIGURES, CHARTS, DRAWINGS

Tables

trade promotion

households in Hanoi in 2010

level of contents of E-commerce application

Evaluation of Agritrade’s customers (consumers and

applicationEvaluation of Agritrade’s customers (consumers and

E-commerce application

Charts

Chart 2.1 Organization structure of Agritrade

Figure 1.1 Models of E-commerce transactions

Figure 2.1 GDP quarterly growth from 2008 – 2010

Figure 2.2 Monthly CPI development in 2010

Evaluation of enterprises of obstacles to e-commerce

Figure 2.3

applicationFigure 2.4 Number of computers in enterprises through recent years

Page 18Page 47Page 48Page 52Page 53

Figure 2.8 Methods of Internet access of enterprises in 2009

Number of E-commerce training schools between 2008Figure 2.9

and 2010Figure 2.10 The proportion of E-Commerce schools by level

Figure 2.11 Enterprises’IT and e-commerce training methods for

employees through recent years

Figure 2.12 Ability to achieve the targetset for trade promotion

activities of traditional methods

Figure 2.13 Evaluation of Agritrade’s employees on whether to apply

E-commerce in agricultural trade promotion

Figure 2.14 The E-commerce model to apply

Figure 2.15 The most important factor when apply E-commerce

Figure 2.16 Evaluation of Agritrade’s consumers on whether to apply

E-commerce in agricultural trade promotion

Figure 2.17 Evaluationwilling level of Agritrade’s consumers to

Page 55Page 59Page 60Page 60Page 68Page 68Page 69Page 69Page 71Page 73

ix

1 The imperative of subject

Internet was born as a turning point in communications history of mankind andplays more important role in all activities of man Experienced two boom in 1986,

1991 to date, the Internet has brought humanity to overcome many limitations ofspace and time Also, dependent on preeminent and universal primacy of Internet, ithas quickly applied in many fields, especially economic activities and trade Sincethen, the term Electric Commerce (E-commerce) was born And today, the E-commerce has become a global trend, the rapid development, the motivation to helpthe world economy forward

In developed countries, E-commerce transactions through other forms of B2B, B2C,

or C2C has become very popular, becoming the new consumption habits, theproportion of E-commerce transactions compared to traditional trading constantlyincreasing With agricultural and food products manufacturing and trading sectors,the application of E-commerce in the distribution of products to help customersaccess to product quickly, and gives the company huge revenue such asalibaba.com, japonshop.com

In Vietnam, the E-commerce is in the process of formation and has taken hugestrides in recent years According to the E-commerce report 2009 of the Ministry of

Industry and Trade (MoIT): “Along with the recent rapid development of Internet

and e-commerce, forms of trading via the Internet gradually developed and became popular to a segment of consumers, especially office workers and students in big cities.

The most popular form of trading via the Internet was the sale and purchase of goods and services on e-commerce websites So far, many enterprises have sold their goods and services via e-commerce websites, especially enterprises in sectors

of aviation, tourism, general supermarket ”1

With the situation as on the development, sale and purchase of goods and servicesonline has become a real trend, and certainly there will be strong growth in the

1 Viet Nam E-Commerce Report 2009, Page vi.

coming period as electronic payments become more popular and are familiar withboth individual consumers and businesses.

Trade Promotion Center for Agriculture (Agritrade) is a department under theMinistry of Agriculture and Rural Development (MARD) Agritrade has thefunctions to act as the implementation of trade promotion activities of Vietnamagriculture and rural development They also manage “the Exhibition Fair andCommerce Transaction Area” at No 2 Hoang Quoc Viet Street, Cau Giay District,Hanoi Every year Agritrade organizes tens of domestic and abroad trade promotionevents in the agricultural sector The typical events are the International AgriculturalTrade Fair (Agroviet), workshop and training in the provinces, Trade Fair andmarket research at foreign markets

Besides trade promotion programs, Agritrade also developed an importantpromotion activity that is agricultural products displaying Start this activity,Agritrade deploy a permanent display area at “the Exhibition Fair and CommerceTransaction Area” with the main objectives are displaying, introducing and sellingagricultural products and local specialties to markets of Hanoi and neighboringprovinces Through this area, many agricultural products find a foothold in marketand gradually built a stable brands such as Gao tam Dien Bien, Seng Cu rice, DaDui rice, Son La mushrooms On the rise of this area, Agritrade orient to develop

it into a great agricultural showroom for agricultural products and local specialties.Thereby, showroom will become a frequent destination for both seller and buyer tocome, exchange product information, and deal with each other The deployment ofboth display area and organizing trade promotion events, Agritrade will performwell as connections between producers and consumers

However, the effective of the current display area and traditional trade promotionprograms are not really high and it also faces some restrictions Therefore, it isnecessary to develop new models to improve the effective of trade promotion to theAgricultural products in particular and Vietnam Agriculture in general According tothe general trend of the times, E-commerce application seems to be the goodsolution for Agritrade

Due to these factors, along with experience on commerce application, using commerce model is extremely necessary, feasible in the present time; contributionhelp to Agritrade to accomplish its functions and duties of promoting and marketing

E-of regional agricultural products; realize the strategic expansion E-of business towarde-commerce applications

2 Establish the main research subject

Through the learning process, survey and investigation, the authors found that therequired objectivity and subjectivity are imposed Agritrade in the short term (1-3years) and long term are:

- AGRITRADE will become a focal point for trade promotion activities in Vietnam Agriculture

- Approach E-commerce development trend and apply IT into operation on promoting agricultural products and local specialties

- Develop E-commerce model to provide a link between producers, traders and consumer of agricultural products

So I would propose the subject of my graduate thesis is “E-Commerce development

in agricultural trade promotion in Vietnam”.

3 Research’s objectives

- To systematize basic concepts relating to E-commerce model and trade promotion

- Survey and research the activities of trade promotion activities of

agricultural products and local specialties at Agritrade

- To propose solutions to develop E-commerce for agricultural trade

promotion

4 Research scope

- The scope of research in space: this is graduated subject so the scope of the

research only for micro and limited to Agritrade Specifically, the scope of theresearch is to study the basic concepts related to a review topic, agribusinesssituation and propose solutions to develop E-commerce model for agricultural tradepromotion activities of Agritrade

- The scope of research on time: The time for studying the subject and collecting

survey data from January to March 2010 at Agritrade This data combined withsecondary outside data in last three years

5 Delimitation of the research’s contents

5.1 The basic elements of E-commerce model

Table 0.1: The basic elements of E-commerce model for agricultural trade promotion

4

structure

Management

Team

5.2 Assign content to develop E-commerce model for Agritrade

In this research, to develop E-commerce model for Agritrade, I will developresearch methods to conduct surveys on the actual situation of Agritrade’s activities.Overall assessment of the impact factors inside and outside the organization It alsocombined with analysis of results compiled from surveys, interviews with staffs andcustomers of Agritrade and agricultural expert Since then, I will assess theapplication ability and plans to develop an E-commerce model for Agritrade

Based on survey results, analysis of primary data and secondary sources, I willdevelop E-commerce model based on market factors, human resources, finance, andinfrastructure for deploying this model Moreover, I will also improve sales process,handle orders, and deliver the product and other support services

6 Research methods

In the process of collecting data for the study and implementation of the thesis, theauthor has used the method of data collection as follows:

6.1 Data collection methods

6.1.1 Method of investigation of primary data

 For customers of Agritrade: The need of the applying E-commerce model on promoting agricultural products.

The survey note will be collected, updated to the database of the Microsoft excel forprocessing and analysis The aim to apply this method is gathering information mostquickly, most economical and precise handling in order to best assess and make themost accurate results

+Advantages and disadvantages of this method

 Advantages: Fast, convenient and efficient

 Disadvantages: customers have little time to study carefully the questionnaire and they may feedback with incorrect answers

+Sample of survey: I issue 45 questionnaires to Agritrade’s staffs and 30 copies to the Agritrade’s customers

- expert questionnaire

+Content of Interview: Comments on the agricultural products andfoodstuffs market in the future, the company's business strategic related toagricultural products, local specialties and food The needed of a suitable E-commerce model applying to current trade promotion activities of Agritrade;the difficulties and advantages of deploying E-commerce model inagricultural promotion at Agritrade (content expert interviewed is attached inAppendix)

+Method of Investigation: Organizing Interview at Agritrade’s office

+Objects of interview: Director and head of Business Department

+Advantages and disadvantages of this method:

6

 Advantages: Observed visual attitude and the way to answer thequestions, then we will assess the accuracy of the information and get thesubjective comments of Agritrade on the agriculture.

 Disadvantages: Difficult to get an overview and objective

assessment of the market, the business model of Agritrade

6.1.2 Methodology of Survey with secondary data

Through documents, reports and statistical relevance of reputable sources such as commerce report of Ministry of Industry and Trade, the relevant documents on thewebsite of Agritrade

E-6.2 Data analysis methods

6.2.1 Quantitative Methods

The method of synthesis and analysis data is based on the average value After allsurvey forms have been collected, results will be synthesized and analyzed byMicrosoft Excel on the average value and statistical models The statistics from theperformance of the company are handled by two methods: detailed analyticalillustrations and diagrams

6.2.2 Qualitative methods

Analyzing and evaluating information through interview questions The interviewquestions are built from the whole industry to the intensive companies Meta-analysis method in the form of induction assess various issues, collect and releasecommon identify and characteristics

CHAPTER 1: THEORETICAL FRAMEWORK1.1 E-commerce

1.1.1 The concept of E-commerce 1

Electric commerce (E-commerce) is a relatively new field In the developmentprocess it has many different names: “Online trade”, “Cyber trade”, “ElectronicBusiness”, “paperless trade or commerce” etc Recently the name “E-commerce”has become familiar and became the general convention, which appears in theinternational legal documents Besides, another name is still used and understoodwith the same content

- The concept of e-commerce in the narrow sense

In narrow sense, E-commerce merely restricted in sale and purchase of goods andservices through electronic facilities, especially Internet and other communicationnetworks

According to the World Trade Organization (WTO), “E-commerce, a new area of

trade involves goods crossing borders electronically Broadly speaking, this is the production, advertising, sale and distribution of products via telecommunications networks The most obvious examples of products distributed electronically are books, music and videos transmitted down telephone lines or through the Internet.”2

According to the E-commerce Commission of the Asia - Pacific Economic

Cooperation (APEC), “E-commerce is business that conducted through the data

transferring and digital information technology.”

- Broadly defined concept of e-commerce

In broad sense, E-commerce is financial and commerce transactions by electronicmeans such as electronic data interchange, electronic funds transfer, sending orwithdrawals by credit card and other activities

According to this view, there are two definitions generalize the most complete range

of E-commerce activities:

1 Source : “Thương mại điện tử”, www.wikipedia.org

2 Understanding WTO: Electronic Commerce, www.wto.org

According to the definition in Model law of UNCITRAL, the scope of E-commerce

is wide and covering almost fields of economic activity, among them the sale andpurchase of goods and services is only a small range in E-commerce Model Law

defines “The term “commercial” should be given a wide interpretation so as to

cover matters arising from all relationships of a commercial nature, whether contractual or not Relationships of a commercial nature include, but are not limited to, the following transactions: any trade transaction for the supply or exchange of goods or services; distribution agreement; commercial representation

or agency; factoring; leasing; construction of works; consulting; engineering; licensing; investment; financing; banking; insurance; exploitation agreement or concession; joint venture and other forms of industrial or business cooperation; carriage of goods or passengers by air, sea, rail or road”1

According to the definition of European Commission, “E-commerce refers to

conducting business via electronic means It is based on the processing and transmission of electronic data in the form of text, sound and images.” Therefore the

term “Commerce” in “E-commerce” is not only normal trade in goods and services,but also covering a wider range The application of E-commerce will change theactivity forms of most economies

Nowadays people usually understand the concept of E-commerce that is all businessapproaches and management processes through electronic channels in which theInternet or at least the techniques and protocols used in Internet plays a fundamentalrole and IT is considered as a prerequisite One other important aspect, E-commerce

is not to change the media, a feature of conducting traditional business To do thisE-commerce requires extensive integration of the business features

If the system link from the fields of applications have different features or linksthrough the boundaries of the enterprise for this purpose, this is a traditionalapplication areas of enterprise application integration Enterprise contentmanagement (ECM) is considered one of the basic technologies for e-business

1 UNCITRAL Model Law on Electronic Commerce with Guide to Enactment 1996, Page 3.

1.1.2 Characteristics of E-commerce

E-commerce and traditional commerce, including the steps:

1 Consumers and providers find each other, consumers want to find areliable supplier, while suppliers are conducting promotional activities,marketing, consulting and customer support, create trust and enticeconsumers to own

2 Evaluation, negotiations and discussions;

3 Organization coordination and delivery of goods;

5 Confirm the correctness of every step in the purchasing process.However, the E-commerce still contains its own characteristics compared withtraditional trade It is the ability to create a “virtual store” on the Internet Thevirtual store open 24 hours a day, 7 days a week, 365 days a year, and no days off(Death of time) It is potentially everywhere and not bound by geographical distance(Death of Distance) In the virtual store, it no needs to conduct transactions throughintermediaries (Death of Intermediary) It can create an online marketing channels(Online Marketing) and can do online survey E-commerce is particularly suitablefor providing online some materials (especially goods) or services such as movies,music, electronic books, software, consulting The successful factor in the networkeconomy does not belong to large companies, rich in economic potential, it depends

on the ability of companies to change flexibly and quickly adapt to changes in theeconomy whether virtual or otherwise companies must have high sensitivity

1.2 The formation of E-commerce

1.2.1 The reasons of E-commerce

E-commerce was born as an inevitable development in the harsh competitiveenvironment To survive, Businesses must apply technological advances in effectiveway IT brings the magic of transformation itself and affects most sectors includingthe economy It changes the world The development of mature tools such asInternet, Email, and World Wide Web is the reason to release a new tradingmethod: E-commerce

Traditional transaction that includes document is more expensive and takes a longtime This method has greatly hindered with the international trade, especially whenthe trading volume is increasing Moreover, traditional transactions reveal manyweaknesses Therefore, this is the best time to launch new trading methods withmore advantages.

1.2.2 The formation of E-commerce

In 1969, the US Department of Defense established the Advanced Research ProjectsAgency Network (ARPANET) ARPANET was the world's first operational packetswitching network and the core network of a set that came to compose the globalInternet Along this time, the automation in the financial services industry began totake shape and develop, such as processing of checks, followed by processing creditcards and Electronic Funds Transfer (EFT) that allows online payment and taken tothe escrow account and direct debit Early 80's, the E-commerce activities becomeexpansion between businesses with the form of electronic data interchange (EDI)and electronic mail (E-mail) EDI allows companies to send and receive onlinebusiness papers such as the command order Late 80's, E-commerce has become animportant part in business activities, although it still did not make through the publicInternet Around the same time, E-commerce technology came out in the healthydevelopment of the global Internet However, it was new to the user and themajority of procedures are not convenient and automatic

In 1992 marked the advent of the global network (World Wide Web) It makes theInternet easier to use, interface and graphics are also better compared with thetechnical skills needed in the past

E-commerce is developing rapidly on the global scale based on the industrialdevelopment of information technology (IT) IT industry is gradually occupied theleading position in the national economy of many countries Especially the organiccombination of three components: industrial computers (networks, computers,electronics, software and other services), communications (landline telephone andsatellite) and internal information (databases, audio-visual products, entertainment,

publishing and providing information ) This combination is creating a new natureand role of the IT industry.

1.3 The situation of E-commerce development in Vietnam

Although not a measure of the level of E-commerce application, the number andquality of the website is also an important criterion to evaluate the development ofE-commerce When the connection between the systems of strategic partners toexchange directly electronic data in Vietnam is still developing, the website is themost popular channel for enterprises to advertise products, promote services andconduct E-commerce transactions both B2B and B2C form

According to E-commerce report in 2005 of MoIT, among 504 surveyed enterprises,46.2% of businesses already have website However, most of the surveyedenterprises located in cities or the key industrial zones of provinces where theinfrastructure of IT and communications are relatively well In 2008, with a survey

of 1,600 companies across the country, the result showed that most businesses haveimplemented E-commerce applications in different levels Investment in E-commerce has been focused and it brings back effective to businesses Percentage ofenterprises having website reached 45%, increases 7% over 2007 Rate of websitethat is updated regularly and has online ordering functions are increasing rapidly In

2010, almost 100% of businesses surveyed were implementing E-commerceapplications in many sizes and different levels According to survey results, 100%

of surveyed businesses were equipped with computers and each enterprise has 25.8computers on average There are 98% of businesses have Internet connections inmany different forms, in which 89% are connected by broadband (ADSL) andleased line Businesses have also focused on exploiting Email, the basic applications

of E-commerce There are more than 81% of enterprises use email for businesspurposes, in which, the rate of using of large enterprises is 96%, small and mediumenterprises is 80%

After four years of implementing the overall Plan for E-commerce developmentfrom 2006 to 2010, E-commerce is not only located on two major cities, Hanoi and

Ho Chi Minh City, it has grown at most provinces of the country In the survey in

2009 of MoIT, there are 53% of the total surveyed enterprises located at otherlocations outside of Ho Chi Minh City and Hanoi The results show that, 100%Local businesses were equipped with computers Each enterprise, on average, has21.5 computers (10.3 employees have one computer) Most local businesses areconnected to the Internet, mainly using ADSL; only about 2% are connected toInternet by dial up line.

Based on the report, in recent years, with the strong development of Internet and commerce, online sales has gradually developed and become more familiar withofficers, students and housewives in large urban areas Nowadays, the most popularonline sales form is trading goods and services through E-commerce website Untillate in 2009, the purchase through e-commerce website has become quite popularfor some kinds of goods and services such as airline tickets, electronics, cell phones,computers, books, tour travel, hotel rooms, perfume, flowers, etc… Paymentmethods and delivery is also done very flexible by businesses to meet mostrequirements of buyers The most popular payment methods applied by sellers areonline payment, bank transfer and pay by cash Besides the specialized E-commercewebsite, in recent years, there are many multiple social networks has appeared withthousands of members With a large number of members, the social networking isbecoming real market for businesses Many businesses and individuals have theappropriate form of investment to capture this potential market segments such assetting topic and hiring permanent position in website to sale or advertisingservices The sellers exchange directly information and dealing with customers onthe topic and the sale goods and services through flexible and multiple modes andacceptance by consumer With the development as above, the online trading ofgoods and services has become a real trend, and certainly it will be strong growth inthe coming years when electronic payments become more popular and familiaritywith consumer

E-According to survey of E-commerce website owners, 87.6% of businesses aim tothe other businesses and organizations, while 65.7% of businesses focused on

consumer Thus, the method of B2B transactions will be the first choice forcompanies to deploy E-commerce applications in the future.

One of the factors that help evaluate the quality and professional of a website is rate

of information updated In other words, it is the effort and time investment of thebusinesses to maintain their website More than half of businesses surveyed saidthat they only update the website once a month or less Less than 30% of businessesreview daily the website Because there are only about 30% of these websiteshaving E-commerce function Therefore, the statistics show that Vietnam businesses

do not proper recognized the role of the website as a channel of communication andpermanent interaction with customers Thus, they do not invest appropriately thetime and resources to build, maintain and exploit efficiently their website

Further analysis of the website management model of businesses showed that 56.2%

of the businesses managing their website and 43.8% using the service of otherproviders This is one of the reasons why the information and communicationfeatures of the website are poor

About investment, the survey showed that the density investment of E-commerceapplication is fairly low in total annual operating expenses Over 80% of businessessaid they invested maximum 5% the operational costs for deploying E-commerce,including purchase of E-commerce software, website maintenance and humanresource for these activities Only about 14% of businesses invest 5-15% of totaloperating expenses and a very small percentage (3.6%) of total businesses surveyedinvest more than 15% for E-commerce application

1.4 The operation forms and E-commerce transactions

1.4.1 The forms of E-commerce activities

a E-mail

Like ordinary correspondence, partners (consumers, businesses, governmentagencies) use email to send information to each other "online" through the network,called E-mail (Electronic mail) E-mail has faster transfer speed and it can be sentsimultaneously a same content to multiple receivers at anytime, anywhere in the

world Moreover, the cost of E-mail is much lower than mailing by mail andtelephone.

b Electronic payment

Electronic payment is payment via electronic messages instead of cash handing.With the development of E-commerce, electronic payment has expanded into newareas should be addressed:

Financial Electronic Data Interchange (FEDI) specializes in serving theelectronic payments between companies trading electronically with eachother

Internet cash is money to buy from a place of issuance (bank or creditinstitution), then freely convertible into other currencies through Internet.Internet cash is widely use within a country and between countries, and alldone with digitalizing technology, so internet cash is also called “digitalcash” The buyers purchase internet cash by local currency then they use theInternet to transfer to the sellers Payment by internet cash is on the risequickly, because a series of advantages:

o Can be used for payment of small value items, even paid subscription (due to transaction costs and purchase money is very low);

o Do not require a regulation to be agreed upon in advance, can take between two people or any two companies, the payment is unknown;

o Cash is guaranteed to receive real money, avoid the risk of counterfeitmoney

c Electronic purse

Electronic purse, known as electronic wallets, is a place for internet cash, mainly theInternet smart card The money is paid to anyone who read that card and thetechniques applied to this purse similar to Internet cash

d Smart card

It looks like a credit card, but in the back of the card, instead of the magnetic strip, itcontains an electronic chip with a small memory for storing digital money, money

that is paid only when used and the message (e.g confirmation of payment ofinvoices) be authenticated to be true.

e Digital banking and digital securities trading

Electronic payment system of banks is a great system, which includes many systems: (1) Payments between banks and customers via telephone and Internettransactions, electronic funds transfer, credit cards… (2) Payments between banksand settlement agents (restaurants, supermarkets ); (3) a payment within thebanking system; (4) payment between two banking systems

sub-f Electronic Data Interchange

Electronic Data Interchange (EDI) is the transfer of information from this computer

to other computers, among other companies or organizations have agreed to tradeautomatically with each other without human intervention (called structured data,because the parties of transaction have prescribed format of the informationstructure before) This is the form most commonly used According to UNCITRAL,

“EDI means the electronic transfer from computer to computer of information using

an agreed standard to structure the information” 1 EDI is widely used on the global

scale, mainly for the purchase and distribution of goods (sending orders, theconfirmation, shipping documents, invoices ) It is also used for other purposes,such as payment for medical examination and exchange of test results ate EDImainly done through the external network (extranet) and often referred to

“commercial networks” (net commerce) EDI came out into society before Internet

At this time they use “Value Added Network” (VAN) to link EDI partners together.The core of VAN is an electronic system that allows electronic computerscommunicated with each other, and act as a means of storing and searching Whenconnected to the VAN, a business can communicate with computers located in manycities around the world

g Digital Delivery of Content

Content data is the goods that people need its content (in other words, the content is

a commodity) not themselves carrying content such as news, books newspapers,

1 UNCITRAL Model Law on Electronic Commerce with Guide to Enactment 1996, Page 4.

music, movies, radio programs, television and software programs The advisoryopinion, plane tickets, movie tickets, theater, the insurance policy now included

in the list of content data

Previously, Content data assigned in physical form by introducing disk, tape, printedbooks, packaging and handling to users or to distribution points (such as shops andstalls newspapers, etc.) The buyer will come to this point and purchase, receivecontents directly Today, the content data is digitized and transmitted by the network(digitalizing delivery) So now all kinds of economic and business information onthe Internet are very rich, and an important task of the communication today is Webexploitation and comprehensive analysis of information received

h Retail of tangible goods

Take advantage of multimedia of Web and Java, the sellers build online the “virtualstore” to make the sale Users of Internet/Web search Website of the store; see thegoods displayed on the screen; send the confirmation message to buy and pay byelectronic payment Originally, purchasing is in such a primitive form, the buyerschoose goods then order through the form that is placed on the Website

1.4.2 Transaction forms of E-commerce

The E-commerce transaction takes place between three main groups involved:business, government and customers These transactions took place by using activeforms of E-commerce and are conducted at many different levels:

 Consumer to Business – C2B

Figure 1.1: Models of E-commerce transactions

In these types of transactions mentioned above, these are three types will becommon applied in Vietnam

a Business to Business transaction (B2B)

“B2B describes commerce transactions between businesses, such as between a

manufacturer and a wholesaler or between a wholesaler and a retailer”1

Basically, electronic transactions between businesses is not new, they have existedfor many decades Businesses sent and received orders, invoices and notice ofreceipt by the EDI from the late 1970s But at the time, only large enterprisesparticipated because the cost of data transfer and training are very expensive

Currently E-commerce Business to Business development with rapid growth,because it brings many benefits to businesses, for example, businesses can shortenproduction cycle by combining with other businesses, each specializing in a field, or

1 Business-to-business: www.wikipedia.org

business can save time and cost to find and purchase materials for their productionprocess by the business of buying raw materials providing the online sales network.

About payment, in a form of B2B, payment is made on the basis of the clearing atthe end of the period and it can implement following the traditional methods but stilldoes not reduce its significance Meanwhile, in the B2C model, payment will beattended specially, because the buyers will pay immediately for the goods that theyorder in the website This is radically different between B2B and B2C models.There are several B2B models for different business types, in which the most typicalmodels as following:

Sales model through agents system

Purchase model through a set of suppliers

Mix model (Extended site)

Auction modes

Tender models

b Business to Consumer transaction (B2C)

B2C is transaction between businesses and consumers in which consumer purchasesgoods and services through the Website

Although the B2B method accounts for a large proportion of business transaction,but today there are many prospects for B2C method, because many families want tosave shopping time and just sitting at home by clicking on the screen then they canask the seller delivered to their door or consumers can use the service of provider,

typically, the fun activities and entertainment services such as music, reading,reading newspapers, watching movies etc.

Nowadays, the goods that exchanged on the Internet are not only tangible goods butalso intangible goods The traditional trading transaction lost their advantage overelectronic transactions

+ Intangible Goods:

Most of the electronic transactions of intangible goods are brought directly topersonal computers of consumer through network The merchandise consists of fourareas: entertainment, travel, magazines and newspapers, financial services andemail

+ Tangible Goods:

The goods that sold mainly by means of electronic are books, clothing, food andbeverage It is expanding the online transaction of goods including householditems

We can draw some comments as follow:

The key factor to the success of a B2C E-commerce website is its ability to attract and maintain the interest of consumers

The B2C E-commerce model is more suited to the traders and service providers

The success of companies using B2C model is based on the advantages ofbuying products that they offer to customers This process is slightly similar

to traditional customer service Companies like Amazon.com, ebay.com, etc

have attracted a large number of online customers because they satisfy

perfectly the online customer’s needs

b Consumer to Consumer (C2C)

Different from B2C and B2B, these models are based on business; C2C tradingmodel takes place between individual consumers In this model, the sellers uploadtheir products’ information into the internet; the buyer will search and look upinformation, negotiate with the sellers and order online

C2C model depends very much on the level of E-commerce It requires each

member of transactions to have knowledge and clear understanding of E-commerce

At present, the numbers of website as well as information posted on these sites growfairly fast These website provide mostly information about goods and services for sale, buying, along with some facilities such as research tool, consumer advice, etc There are some main features of this model:

This model includes transactions between customers Here, customers makepurchases directly with the other customers Bazee.com and Ebay.com are typicalcases, in which sellers can advertise and sell their products to other buyers.However, to perform these transactions, the sellers and buyers must register withservice providers on E-commerce website that they want to buy and sell Moreover,sellers have charged a fixed fee for the service provider (the E-commerce website);buyer can pay for the product without paying any extra fee

With the cases of ebay.com, Chodientu.vn, Half.com, in this model, objects aremainly businesses and customers The characteristics of this model are similar to the

B2C model, but the client (individual) is the seller, and businesses are buyers.Specifically, the business (buyer) in this model will look up information of productthat posted by seller and place an order, the customer (seller) receive and accept theorders and ship the product.

1.5 Benefits of E-commerce for businesses

1.5.1 E-commerce reduces costs

E-commerce affects to most major types of business costs in the production processand conducting commercial transactions, including:

- Cost of sales:

The greatest impact on the cost of applying E-commerce is allowing businesses thatcan replace a range of grocery stores by the virtual in the website Because thewebsite operates 24 hours a day, 7 days a week with the global market, sobusinesses can serve a larger set of customers Compared with the management ofmultiple stores, the management of a virtual store allows companies to cut morecosts in the management process, especially the inventory cost Moreover,customers can access to the virtual store 24 hour per day This convenience is apreeminent characteristic of virtual business operations

With the provision of products or services’ information online, customers candevelop their skills and knowledge to assess the prices of goods as well ascharacteristics of the implementation process In the future, the E-commerceenvironment would allow customers regular access to the website; understand moreand more product information and pricing attributes Since then the communicationbetween clients and professional sales or support staff will be made at higher levels.Cost savings through applying direct payment in Website is significant amount forE-commerce enterprise For example, the bank service fee for payment by paperchecks between banks and the seller is about $ 1.2 for a payment transaction, but thecost of electronic payments process via the Internet can be reduced to about $ 0.01

or lower

Clearly, E-commerce is changing fundamentally the sales process of the enterprise

It forced businesses operating in the market to reconsider how to communicate with

customers Even new businesses in the market also needs research to adopt commerce, exploiting the advantages of E-commerce to approach new customers.

E Expenses related to procurement of the enterprise

The second sector of cost that E-commerce affected is the cost of procurement.Procurement of businesses is including the purchase of products related to themaintenance, repair and operation (MRO) It is no mention to costs of buying finalproducts and raw materials

In traditional commerce, when a business needs MRO supplied, the purchasing staffwill fill in and submit a requirement form After that, staff will research the differentCatalogues to find suitable products at reasonable prices This process includesseveral complicated stages, so the administrative costs for the purchase of indirectinputs often exceed their value According to The Organization for Economic Co-operation and Development (OECD) of the United Nations, on average a companywith revenues greater than $ 500 million, the cost for each MRO products order will

be from 75 USD-150 USD So the goal of applying E-commerce in the procurement

is directly connected buyers and suppliers And the entire purchase process isperformed on the Website The connection of electronic catalogues will helpsbusinesses quickly find products they need and check the accuracy of the product’sinformation, thereby reducing costs of inputs for enterprises

Previously, in large companies, the supply of MRO is done through the application

of EDI over particular proprietary value-added network (VAN) Now, the cost ofEDI on the Website is only about 1/10 of the cost that performed on the VAN Somany EDI users, the large organizations, are now moving MRO procurement onVAN to use the Web

- Expenses related to logistics

E-commerce has changed the logistics activities of business such as packing,delivery and turns it into information- business The impact of E-commerce to thecost of logistics enterprises is great significance, especially for logistic companiessuch as Federal Express (FedEx) or DHL

FedEx is a good example It began receiving orders online, shipping parcelpackages and tracking them through their own networks since 1983 It took nearly

12 years to make the number of clients reached to 50,000 But after only three years(1995-1998), after applying FedEx similar services but through the Web, thenumbers of its customers were up to 1 million Currently, based on the company'sestimate, more than 70% of 3 million packages and parcels each day came fromInternet

Due to Internet applications, enterprise has ability to respond quickly orders that arehighly complex as well as the ability to track and monitor the orders So now, most

of logistic enterprises such as DHL, FedEx, and United Parcel Service (UPS)implement their logistics services: transport and distribution (packing, loading andunloading) of the package and parcel supporting services on the Website

Currently, businesses no longer have to worry about keeping track of their packageswhether to move it anywhere in the world With the benefits the Web offers,monitoring shipping and inspection of goods delivery will become very simple,facilitating the payment process is done faster In addition, it also helps businessesget the flexibility in making decisions about production plans, while reducingunnecessary costs during transportation and unloading of cargo

In summary, by changing the structure, cutting costs of sales, cost of procurementand cost of logistics, E-commerce are making new success factors

1.5.2 Impact on enterprise architecture

IT and communications to allow businesses can trade and cooperate or competewith each other at high speed, lower cost and with amenities never before With E-commerce, began to appear business groups linked together by the type of networklink, creating division and rules combined production and completely new business,more efficient than any real type of unstructured enterprise networking Themechanism of the “virtual networking” between enterprises allows businesses toshare real business risks through new mechanisms of cooperation in all activities onthe basis of comprehensive reform

Businesses applied early E-commerce is often have good conditions to make newbusiness models But when the environment of E-commerce transactions taken fromamong large enterprises, create new business models is not simple anymore.Enterprises who redefine their strategic based on technologies often face greaterrisks if the businesses leaders themselves do not specific identify the rationality ofconversion strategic An interesting example that in 1996 IBM itself hasimplemented two important projects: informat-providing electronic content on thenetwork and World Avenue- an E-supermarket But IBM had early realized that theylack editing capabilities, marketing and retailing capabilities So even in 1996,two projects are canceled.

To become an enterprise that working 24h per day, 7 days a week, it is depending onqualifications and adaptability of human resources and innovative capabilities.Enterprises need to learn to be able to keep up with rapidly changing and complex

of the markets and technologies In E-commerce, businesses should be acquired,processed, using a wide variety of information, so they need to innovate constantly

to understand the basic knowledge and information about the enterprise itself, aboutcustomers, suppliers and markets

1.6 The E-commerce requirements

This infrastructure includes standards of the enterprise and whole country, linkingthese standards with the international standards, engineering and devices And notonly for individual businesses, but it also be a national system, such as a module ofthe area and global information technology system (Internet-based broad sense,meaning that includes the distribution network, and telecommunications systems

worldwide.) And it has to be an individual trading system (up to the individualconsumer).

Technological infrastructure not only means that the existence (availability), butalso implies more economic use (affordability); means that the cost of equipmentand means of IT (telephone, computer, modem, etc.) and cost communicationsservices (telephone, Internet connection fees and network access) cheap enough to

be accessed by users This is especially significant for developing countries, inwhich the living standards are generally low

According to the growth of E-commerce, the current trend is adding up bothsecurity technologies and secure technology into infrastructure of E-commerce.Security and safety are not only significant for the economic organization that alsomeans national security

as well as be able to design software to meet the operational needs of a digitaleconomy, avoid relying solely on the others

Moreover, if using Internet/Web, one more natural requirements of online business

is that all participants must be good at English - language used in traditional tradeand E-commerce over the Internet This is a primarily “problem” of developedcountries This requirement of E-commerce will lead to fundamental changes ineducation and training systems

1.6.3 Security and safety.

Commercial transactions by electronic is setting up very high demands on securityand safety, especially when it operates on the Internet/Web

Until now many people still do not dare to do business over the Web In the field ofpure sales, the buyers are concerned the information in their credit card being