Introduction

The topic of online shopping has been of particular interest to practitioners, academics and marketing strategists and lot of research has already gone into determining whether online companies perform better than their brick-and-mortar counterpart and whether expanding operations online improves profitability, revenue and brand reputation. (Ind et al., 2001) There are some exceptional examples of online companies like Google, Yahoo and Amazon which have grown to become major global brands in their own right. These companies are purely online companies while there are others like Tesco.com who have hugely successful online operations but their online operations only support their regular operations. The study examines the problems faced by companies looking to expand its operations online and concentrates on operational, staffing, distribution and financial/legal issues.

Analysis and Discussion

Before examining the problems associated with expanding online operations, it is important to highlight the benefits organizations tend to gain by going online. It will then be easier to compare the benefits against the risks.

Major advantages of online operations is its reach. By going online the organization can reach a wider range of audience. This also comes at a low cost as compared to offline operations. In the digital world, consumers have become net savvy and prefer shopping from home. The online environment provides them with a hassle free shopping experience.

However there are issues which the organization has to consider before going online:

Operational issues / Risks – There are huge operational concerns which needed to be taken into consideration. Online fraud is on the rise and has taken several dimensions. In 2005, online fraud losses were 1.13% of £44.2 billion annual sales and a year later in 2006 some £700 million was lost representing 1.14% of £61.8 billion in annual sales. (Web 1) Identity fraud is one such dimension. The organization is not able to verify whether the credit card/ debit card used in payment is of the actual customer or a stolen one. Closely related to identity fraud is the lack of authentication, it can never be predicted if the payment card used is authorized by the card holder. Also, internet sites are subject to hacking where customer details might be easily hacked by a program which makes robustness of the website extremely important. Legal issues might come into picture once bank or other payment details are hacked and the organization can lose a lot of money on it. Any lack in website security can lead to a lack of trust among customers and a dent to the organizations’ brand image. (Light, 2001) Therefore, huge amount of technical knowledge and a firm know-how on security of systems is an absolute must. Other operational risks could be associated with virus infection which again can make customer data susceptible to hacking. Unauthorized access to customer data in any form at any part of the transaction is likely because of virus or other security issues. (Merrilees et al.,2002) Systems failure and data corruption issues also cannot be ruled out. Other operational issues can be duplication of payments or companies denying an order was received. This happens because the payment takes time to go through and once internet connection is lost within this period, neither the customer nor the company is sure if the payment has gone through which might lead to duplication of payment. Customers sometimes might also deny receiving the goods. Operational issues will be a major concern for the organization looking to go online. As John Prideau, Executive Vice President of Visa points out, ‘Internet Crime is the most significant problem Visa is dealing with in Europe’. (Web 2) points out that from a consumer perspective, the issue of personal, informational privacy is of growing concern for online businesses.


Staffing - Staff misuse of company system can be another major concern for the organization. There have been numerous cases where staff has tried to hack the payment details of customers. A recent example comes from an Outsourcing firm in India where a staff used his own hacking skills and hacked customers payment details. (cited in Web 3) Because, staff are able to access customers details and payment data online, customers details become susceptible to misuse. The security issue highlighted above can partly be resolved by developing a robust and secure site which is only possible by employing a highly technical staff with loads of web site development experience behind him/her and experience and skills come at a cost, so rise in staff costs in terms of their salaries can be another staffing concern.

Financial Issues and Legal issues – With security comes financial and legal issues. Online businesses have to work within the regulatory frameworks and are penalized harshly if the regulatory guidelines are breached. There are jurisdictions to protect consumers from unethical business conduct. There are also regulations dealing with licenses required to sell, certifications needed to deliver a service, mandatory contractual terms (regardless of what you say in your website agreement), “cooling off” periods in which a customer can change their mind without liability, and so on. (Eatock et al.,2002) All of this adds to organization’s financial burden. In addition, there are often voluntary standards that are ignored only at great risk. The organization has to make itself aware of all applicable regulations and legislative requirements in the jurisdictions where they conduct online business, as well as all applicable voluntary standards. (Amit et al.,2001)

Distribution Issue –. For the organization looking to expand its operations, internet serves as an added distribution channel and it should have a distribution infrastructure to back this. Cycle times are greatly reduced with the business going online which has an effect on inventory management. The inventory management may require Just in Time type of stock control as availability of stock becomes an important issue. Firstly, the organization has to ensure that only the available stock is advertised because stock unavailability after the customer’s order can lead to a lack of trust and can have an affect on brand reputation. The organization also needs to set up a reliable delivery service which might entail a lot of cost if its offline operations does not support it.


Feasibility Study

After considering all the issues associated with expanding the business online, the organization has to decide whether the pros outweigh the cons in the industry sector in which they operate. A feasibility study should also be conducted by the organization which should answer some key questions like:

• What are the goals and objectives of the company and why does it want to go online?
• What does the company want to achieve by going online?
• Who are and will be the companies target customers and what benefit will they gain from the company going online?
• Does the company want to add new products, does it want to reach a wider audience or both?
• What are the companies technological strengths ?
• What is the distribution system available through online market?
• Who are the companies online competitors?
• What is the online selling strategy the company is going to adopt? :
(Daneels et al.,2003)

The organization has to ask itself these key questions and should have definitive answers to them before it launches its online operations. Also, a lot depends on other factors like the industry sector in which the organization operates, its customer, the region in which majority of its customer are based, its product offerings, whether its operations are international or restricted to the regional level and the organization’s branding strategies. Only after considering all these factors, a final decision with regards to online expansion should be made.

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