Introduction
Electronic Commerce is about doing business electronically. It is based on the electronic processing and transmission of the data, including text, sound, and video. It encompasses many diverse activities including electronic trading of goods and services, online delivery of digital content, electronic fund transfers, electronic share trading, electronic bills of lading, commercial auctions, collaborative design and engineering, online sourcing, public procurement, direct consumer marketing, and after sales service. It involves both products (e.g. consumer goods, specialized medical equipment) and services (e.g. information services, financial and legal services); traditional activities (e.g. health care, education) and new activities (e.g. virtual malls)
E-Commerce is still in its nascent stages in India. Meanwhile, we have already witnessed the dot com debacle. The biggest reason for the dot-com debacle was the widespread misapplication of a deeply flawed idea – New Growth Theory (NGT). NGT argued that people possess an almost infinite ability to combine physical resources into value-creating ideas and that these recipes are a key source of economic growth. NGT went wrong when companies bet trillions of dollars to build the very expensive first copies of these recipes on NGT’s failed premise that companies would reap tens of trillions in profits as demand soared while the cost of incremental copies converged on zero. Another reason of the dot com debacle was that many entrepreneurs and investors didn't consider principles of consumer behavior when they were developing their internet-based businesses.
Inspite of all this, we have learned some precious lessons from it. One of the most important lessons is that the use of technology itself cannot guarantee a successful business venture. It has to be backed by a sustainable business model as well.
In these testing times where most e-commerce/business ventures have failed to succeed, the world has witnessed a few success stories as well. Seven Eleven Japan Co. Ltd. is one of them. One should appreciate that we can learn a lot from its experiences with regard to developing sustainable e-commerce/business models in the Indian context. With this end in view the e-tailing model adopted by Seven Eleven Japan is discussed as under.
About Japan
Although comparing Japan with India in absolute terms would not be correct; moreover, the lessons learned there cannot be strictly applied in the Indian context. However, since Japan resembles India to a great extent in terms of the consumer behaviour, the way of life, culture, high cost of connecting to Internet etc. it would not be completely out of context to discuss a Japanese e-tailing model. But before we delve deeper into the topic let us first have a brief look at the history of Japan.
After its defeat in World War II, Japan recovered to become an economic superpower and a staunch ally of the US. While the emperor retains his throne as a symbol of national unity, actual power rests in networks of powerful politicians, bureaucrats, and business executives. The economy experienced a major slowdown starting in the 1990s following three decades of unprecedented growth. Today Japan is amongst world's largest and technologically advanced producers of motor vehicles, electronic equipment, machine tools, steel and nonferrous metals, ships, chemicals, textiles and processed foods.
Japanese consumers, just like their Indian counterparts like to visit a number of shops before buying a product. Moreover, they also like to have a feel of the product in person before buying and generally do not trust Internet sites for sharing their credit card numbers and personal information. Last but not the least, they love to walk into a convenience store, and this can be confirmed from what Makoto Usui, Director, Seven-Eleven Japan had to say on this:
“The Japanese person who does not pass a convenience store on the way back home from the train station does not exist.”
In May 2000, the Economist Intelligence Unit (EIU) surveyed 60 countries and ranked them on a ten-point scale on the basis of their readiness for e-business. The countries were divided into four categories namely:
E-business leaders
These countries already have most of the elements of "e-readiness" in place, though there are still some concerns about regulatory safeguards.
E-business contenders
These countries have both a satisfactory infrastructure and a good business environment. But parts of the e-business equation are still lacking.
E-business followers
These countries--the largest group in our rankings--have begun to create an environment conducive to e-business, but have a great deal of work still to do.
E-business laggards
These countries risk being left behind, and face major obstacles to e-business growth, primarily in the area of connectivity.
The top ten countries according to the survey were US, Australia, UK, Canada, Norway, Sweden, Singapore, Finland, Denmark and Netherlands. Japan was placed in the 18th position and was categorized as an E-business Contender. This was a very bad performance for a G7 country. India on the other hand was placed in the 45th position and was categorized as E-business follower. The same survey conducted in July 2002 placed Japan in the 25th position i.e. seven positions down from its previous position. However, India moved two positions up from 45th to 43rd position. However, the survey conducted in the year 2004 in 64 countries for e-readiness ranked Japan at 25th position and India at 46th position.
The dismal performance of Japan and India in the e-readiness rankings can somewhat be attributed to the high cost of telecom and ISP charges. According to eMarketer, in the year 2000 Japan had the world's highest combined telecom and ISP charges, at $67.12 per 20 hours, compared to the next highest, India, at $42.30, and the US at $30.05. The governments around the world have now realised that Internet can act as an important catalyst in the economic growth and development and as a result policies aiming at increasing the Internet penetration have been framed and implemented, bringing down the overall telecom and ISP charges.
7-Eleven, Inc. USA
7-Eleven, Inc. of US is the world's largest operator, franchisor and licensor of convenience stores with more than 27,500 stores worldwide. The company’s name was changed from The Southland Corporation after approval by shareholders in 1999. Founded in Dallas, Texas in 1927 as an ice company, 7-Eleven pioneered the convenience store concept during its early years when its ice docks began selling milk, bread and eggs as a convenience to customers. The name 7-Eleven originated in 1946 when the stores were open from 7 a.m. until 11 p.m. Today, offering customers 24-hour convenience, seven days a week is the cornerstone of 7-Eleven’s business.
Approximately 5,800 7-Eleven and other convenience stores are operated and franchised in the United States and Canada. Together, these stores serve approximately 6 million customers daily. Every store focuses on meeting the needs of convenience-oriented customers by providing fresh, high-quality products and services at everyday fair prices, speedy transactions and a clean, safe and friendly shopping environment. Each store's selection of up to 2,500 different products and services is tailored to meet the preferences of local customers. Stores typically vary in size from 2,400 to 3,000 square feet and are most often located on corners for the greatest visibility and easiest access. In addition, 7-Eleven offers a number of convenient services, including automated money orders, copiers, fax machines, ATMs, phone cards and, where available, lottery tickets.
Approximately 3,200 of 7-Eleven, Inc.’s 5,800 stores in North America are operated by franchisees, and approximately 485 are operated by licensees. The remainders are company-operated stores. 7-Eleven, Inc.'s licensees and affiliates operate more than 20,000 7-Eleven and other convenience stores in Japan, Australia, Mexico, Taiwan, Singapore, Philippines, United Kingdom, Sweden, Denmark, South Korea, Thailand, Norway, Turkey, Malaysia, China, Singapore and Guam.
Since 1991, IYG Holding Company along with Seven-Eleven Japan Co. Ltd holds around 74% of the outstanding shares of 7-Eleven, Inc. IYG Holding Company is the parent company of Seven-Eleven Japan. Therefore, it is also the parent company of 7-Eleven, Inc. Meanwhile, Seven-Eleven Japan alone owns 36.2 percent of the outstanding shares of 7-Eleven, Inc. Therefore, 7-Eleven; Inc. can be considered an affiliate of Seven-Eleven Japan.
Seven-Eleven Japan
Seven-Eleven Japan was set up in 1973. Seven-Eleven Japan cut the tape for its first store in Toyosu, Koto-ku, Tokyo, in May 1974. By the mid-1980s it had already replaced old-fashioned cash registers with point-of-sale (POS) systems that monitor customer purchases. By 1992 it had overhauled its information-technology systems four times. But the biggest overhaul of all took place in 1995. The new system that Seven-Eleven installed was based on proprietary technology—albeit state of the art—rather than on the still barely tested open structure of the Internet.
The new system allows Seven-Eleven to transfer multimedia content at high speeds and interconnect all its stores scattered across Japan. It built the system by procuring hardware from NEC and software from Microsoft. By 1998, the overhaul, which cost ¥60bn ($490m), was complete. The new system replaced the ragbag of systems used before. A pipeline to Microsoft’s offices in Seattle provided instant support. The software backup constantly monitored and automatically rebooted the system when it crashed, and alerted local maintenance firms if such errors occurred more than twice.
All Seven-Eleven stores now have a satellite dish. The company has used satellite dish as they are cheaper than using ground cables. Further, this is often the only option for shops in rural areas and in earthquake-prone Japan, the satellite dish provides an extra layer of safety on top of two sets of ISDN telephone lines, and separate mainframes in Tokyo and Osaka.
Seven-Eleven’s new technology gave it the following four advantages:
• The first was in monitoring customer needs, which were changing as deregulation made shoppers more demanding.
• Second, Seven-Eleven used sales data and software to improve quality control, pricing and product development. The company can collect sales information from all its stores three times a day, and analyse it in roughly 20 minutes.
• Third, technology has helped to predict daily trends. As customers become more fickle, product cycles are shortening.
• Finally, Seven-Eleven’s electronic investment has also improved the efficiency of its supply chain. Orders flow quickly and are electronically processed in less than seven minutes. They are sent to 230 distribution centres that work exclusively for Seven-Eleven. Truck drivers carry cards with bar codes that are scanned into store computers when they arrive with a delivery. If a driver is often late, the operator will review his route and might add another truck to lighten the load.
In the same way, Seven-Eleven helps vendors and manufacturers to control their inventories. It uses its database to instruct them on all sorts of small details, such as what sauce to put into its ready-made noodles in order to maximise sales. It is, however, hedging its bets by studying how international rivals such as Wal-Mart use the Internet for global product procurement.
Seven-Eleven is already using the Internet to lower its annual overhead costs of around ¥70bn. It plans to install an e-commerce software package offered by the Japanese arm of Ariba, an American e-procurement company, to bulk-buy goods and services such as office equipment and insurance policies for its employees.
The Payment Mechanism
The company has increased its customer traffic by turning shops into payment and pick-up points for Internet shoppers. This was a clever move in a country in which people are still wary of using credit cards over the Internet, preferring instead to pay cash at a store. Seven-Eleven’s stores now sell almost 50% more on average every day than those of its closest rival. Its Internet site, 7dream.com, was launched last July with seven other companies, including NEC and Nomura Research Institute. The site offers a wide range of goods and services, including books, CDs, concert tickets and travel. A customer can log on to the website and place the order. He can specify the Seven-Eleven store where he would like to pick up the merchandise, in case he does not want the company to ship the same at his address. The Order Centre notifies the pick up date to the customer via email. The customer has also been provided the facility to pay online for the merchandise or take a print out of the payment slip and pay personally at the store.
When it comes to running such online businesses, Seven-Eleven seems likely to have just as much difficulty as others have done: lots of costs, few customers. For the convenience store, as for other businesses, the real savings are likely to come from deploying the Internet as a management tool. It already knows how to cut costs by replacing paper with electronic delivery: it has trimmed ¥300m a year over the past decade by becoming a “paperless” business.
Conclusion
In only three decades since its establishment in 1973, Seven Eleven Japan Co. Ltd. has successfully popularized the convenience store business model in Japan and positioned itself as the convenience store sector’s undisputed leader.
The Indian retail sector, which is estimated to be around $180 billion, is witnessing tremendous growth with the changing demographics and an increase in the quality of life of urban people. However, 98 per cent of the sector constitutes of "traditional retailing" and much of the business being handled by local Kirana stores. Due to the fragmented structure it suffers from limited access to capital, labour and suitable real estate options. Therefore, at this moment, it is still premature to say that the Indian retail market will replicate the success stories of names such as Walt-Mart, Sainsbury and Tesco; but at least the sector has shown signs of aligning itself with global trends.
Electronic Commerce is about doing business electronically. It is based on the electronic processing and transmission of the data, including text, sound, and video. It encompasses many diverse activities including electronic trading of goods and services, online delivery of digital content, electronic fund transfers, electronic share trading, electronic bills of lading, commercial auctions, collaborative design and engineering, online sourcing, public procurement, direct consumer marketing, and after sales service. It involves both products (e.g. consumer goods, specialized medical equipment) and services (e.g. information services, financial and legal services); traditional activities (e.g. health care, education) and new activities (e.g. virtual malls)
– A definition by European Commission.
E-Commerce is still in its nascent stages in India. Meanwhile, we have already witnessed the dot com debacle. The biggest reason for the dot-com debacle was the widespread misapplication of a deeply flawed idea – New Growth Theory (NGT). NGT argued that people possess an almost infinite ability to combine physical resources into value-creating ideas and that these recipes are a key source of economic growth. NGT went wrong when companies bet trillions of dollars to build the very expensive first copies of these recipes on NGT’s failed premise that companies would reap tens of trillions in profits as demand soared while the cost of incremental copies converged on zero. Another reason of the dot com debacle was that many entrepreneurs and investors didn't consider principles of consumer behavior when they were developing their internet-based businesses.
Inspite of all this, we have learned some precious lessons from it. One of the most important lessons is that the use of technology itself cannot guarantee a successful business venture. It has to be backed by a sustainable business model as well.
In these testing times where most e-commerce/business ventures have failed to succeed, the world has witnessed a few success stories as well. Seven Eleven Japan Co. Ltd. is one of them. One should appreciate that we can learn a lot from its experiences with regard to developing sustainable e-commerce/business models in the Indian context. With this end in view the e-tailing model adopted by Seven Eleven Japan is discussed as under.
About Japan
Although comparing Japan with India in absolute terms would not be correct; moreover, the lessons learned there cannot be strictly applied in the Indian context. However, since Japan resembles India to a great extent in terms of the consumer behaviour, the way of life, culture, high cost of connecting to Internet etc. it would not be completely out of context to discuss a Japanese e-tailing model. But before we delve deeper into the topic let us first have a brief look at the history of Japan.
After its defeat in World War II, Japan recovered to become an economic superpower and a staunch ally of the US. While the emperor retains his throne as a symbol of national unity, actual power rests in networks of powerful politicians, bureaucrats, and business executives. The economy experienced a major slowdown starting in the 1990s following three decades of unprecedented growth. Today Japan is amongst world's largest and technologically advanced producers of motor vehicles, electronic equipment, machine tools, steel and nonferrous metals, ships, chemicals, textiles and processed foods.
Japanese consumers, just like their Indian counterparts like to visit a number of shops before buying a product. Moreover, they also like to have a feel of the product in person before buying and generally do not trust Internet sites for sharing their credit card numbers and personal information. Last but not the least, they love to walk into a convenience store, and this can be confirmed from what Makoto Usui, Director, Seven-Eleven Japan had to say on this:
“The Japanese person who does not pass a convenience store on the way back home from the train station does not exist.”
In May 2000, the Economist Intelligence Unit (EIU) surveyed 60 countries and ranked them on a ten-point scale on the basis of their readiness for e-business. The countries were divided into four categories namely:
E-business leaders
These countries already have most of the elements of "e-readiness" in place, though there are still some concerns about regulatory safeguards.
E-business contenders
These countries have both a satisfactory infrastructure and a good business environment. But parts of the e-business equation are still lacking.
E-business followers
These countries--the largest group in our rankings--have begun to create an environment conducive to e-business, but have a great deal of work still to do.
E-business laggards
These countries risk being left behind, and face major obstacles to e-business growth, primarily in the area of connectivity.
The top ten countries according to the survey were US, Australia, UK, Canada, Norway, Sweden, Singapore, Finland, Denmark and Netherlands. Japan was placed in the 18th position and was categorized as an E-business Contender. This was a very bad performance for a G7 country. India on the other hand was placed in the 45th position and was categorized as E-business follower. The same survey conducted in July 2002 placed Japan in the 25th position i.e. seven positions down from its previous position. However, India moved two positions up from 45th to 43rd position. However, the survey conducted in the year 2004 in 64 countries for e-readiness ranked Japan at 25th position and India at 46th position.
The dismal performance of Japan and India in the e-readiness rankings can somewhat be attributed to the high cost of telecom and ISP charges. According to eMarketer, in the year 2000 Japan had the world's highest combined telecom and ISP charges, at $67.12 per 20 hours, compared to the next highest, India, at $42.30, and the US at $30.05. The governments around the world have now realised that Internet can act as an important catalyst in the economic growth and development and as a result policies aiming at increasing the Internet penetration have been framed and implemented, bringing down the overall telecom and ISP charges.
7-Eleven, Inc. USA
7-Eleven, Inc. of US is the world's largest operator, franchisor and licensor of convenience stores with more than 27,500 stores worldwide. The company’s name was changed from The Southland Corporation after approval by shareholders in 1999. Founded in Dallas, Texas in 1927 as an ice company, 7-Eleven pioneered the convenience store concept during its early years when its ice docks began selling milk, bread and eggs as a convenience to customers. The name 7-Eleven originated in 1946 when the stores were open from 7 a.m. until 11 p.m. Today, offering customers 24-hour convenience, seven days a week is the cornerstone of 7-Eleven’s business.
Approximately 5,800 7-Eleven and other convenience stores are operated and franchised in the United States and Canada. Together, these stores serve approximately 6 million customers daily. Every store focuses on meeting the needs of convenience-oriented customers by providing fresh, high-quality products and services at everyday fair prices, speedy transactions and a clean, safe and friendly shopping environment. Each store's selection of up to 2,500 different products and services is tailored to meet the preferences of local customers. Stores typically vary in size from 2,400 to 3,000 square feet and are most often located on corners for the greatest visibility and easiest access. In addition, 7-Eleven offers a number of convenient services, including automated money orders, copiers, fax machines, ATMs, phone cards and, where available, lottery tickets.
Approximately 3,200 of 7-Eleven, Inc.’s 5,800 stores in North America are operated by franchisees, and approximately 485 are operated by licensees. The remainders are company-operated stores. 7-Eleven, Inc.'s licensees and affiliates operate more than 20,000 7-Eleven and other convenience stores in Japan, Australia, Mexico, Taiwan, Singapore, Philippines, United Kingdom, Sweden, Denmark, South Korea, Thailand, Norway, Turkey, Malaysia, China, Singapore and Guam.
Since 1991, IYG Holding Company along with Seven-Eleven Japan Co. Ltd holds around 74% of the outstanding shares of 7-Eleven, Inc. IYG Holding Company is the parent company of Seven-Eleven Japan. Therefore, it is also the parent company of 7-Eleven, Inc. Meanwhile, Seven-Eleven Japan alone owns 36.2 percent of the outstanding shares of 7-Eleven, Inc. Therefore, 7-Eleven; Inc. can be considered an affiliate of Seven-Eleven Japan.
Seven-Eleven Japan
Seven-Eleven Japan was set up in 1973. Seven-Eleven Japan cut the tape for its first store in Toyosu, Koto-ku, Tokyo, in May 1974. By the mid-1980s it had already replaced old-fashioned cash registers with point-of-sale (POS) systems that monitor customer purchases. By 1992 it had overhauled its information-technology systems four times. But the biggest overhaul of all took place in 1995. The new system that Seven-Eleven installed was based on proprietary technology—albeit state of the art—rather than on the still barely tested open structure of the Internet.
The new system allows Seven-Eleven to transfer multimedia content at high speeds and interconnect all its stores scattered across Japan. It built the system by procuring hardware from NEC and software from Microsoft. By 1998, the overhaul, which cost ¥60bn ($490m), was complete. The new system replaced the ragbag of systems used before. A pipeline to Microsoft’s offices in Seattle provided instant support. The software backup constantly monitored and automatically rebooted the system when it crashed, and alerted local maintenance firms if such errors occurred more than twice.
All Seven-Eleven stores now have a satellite dish. The company has used satellite dish as they are cheaper than using ground cables. Further, this is often the only option for shops in rural areas and in earthquake-prone Japan, the satellite dish provides an extra layer of safety on top of two sets of ISDN telephone lines, and separate mainframes in Tokyo and Osaka.
Seven-Eleven’s new technology gave it the following four advantages:
• The first was in monitoring customer needs, which were changing as deregulation made shoppers more demanding.
• Second, Seven-Eleven used sales data and software to improve quality control, pricing and product development. The company can collect sales information from all its stores three times a day, and analyse it in roughly 20 minutes.
• Third, technology has helped to predict daily trends. As customers become more fickle, product cycles are shortening.
• Finally, Seven-Eleven’s electronic investment has also improved the efficiency of its supply chain. Orders flow quickly and are electronically processed in less than seven minutes. They are sent to 230 distribution centres that work exclusively for Seven-Eleven. Truck drivers carry cards with bar codes that are scanned into store computers when they arrive with a delivery. If a driver is often late, the operator will review his route and might add another truck to lighten the load.
In the same way, Seven-Eleven helps vendors and manufacturers to control their inventories. It uses its database to instruct them on all sorts of small details, such as what sauce to put into its ready-made noodles in order to maximise sales. It is, however, hedging its bets by studying how international rivals such as Wal-Mart use the Internet for global product procurement.
Seven-Eleven is already using the Internet to lower its annual overhead costs of around ¥70bn. It plans to install an e-commerce software package offered by the Japanese arm of Ariba, an American e-procurement company, to bulk-buy goods and services such as office equipment and insurance policies for its employees.
The Payment Mechanism
The company has increased its customer traffic by turning shops into payment and pick-up points for Internet shoppers. This was a clever move in a country in which people are still wary of using credit cards over the Internet, preferring instead to pay cash at a store. Seven-Eleven’s stores now sell almost 50% more on average every day than those of its closest rival. Its Internet site, 7dream.com, was launched last July with seven other companies, including NEC and Nomura Research Institute. The site offers a wide range of goods and services, including books, CDs, concert tickets and travel. A customer can log on to the website and place the order. He can specify the Seven-Eleven store where he would like to pick up the merchandise, in case he does not want the company to ship the same at his address. The Order Centre notifies the pick up date to the customer via email. The customer has also been provided the facility to pay online for the merchandise or take a print out of the payment slip and pay personally at the store.
When it comes to running such online businesses, Seven-Eleven seems likely to have just as much difficulty as others have done: lots of costs, few customers. For the convenience store, as for other businesses, the real savings are likely to come from deploying the Internet as a management tool. It already knows how to cut costs by replacing paper with electronic delivery: it has trimmed ¥300m a year over the past decade by becoming a “paperless” business.
Conclusion
In only three decades since its establishment in 1973, Seven Eleven Japan Co. Ltd. has successfully popularized the convenience store business model in Japan and positioned itself as the convenience store sector’s undisputed leader.
The Indian retail sector, which is estimated to be around $180 billion, is witnessing tremendous growth with the changing demographics and an increase in the quality of life of urban people. However, 98 per cent of the sector constitutes of "traditional retailing" and much of the business being handled by local Kirana stores. Due to the fragmented structure it suffers from limited access to capital, labour and suitable real estate options. Therefore, at this moment, it is still premature to say that the Indian retail market will replicate the success stories of names such as Walt-Mart, Sainsbury and Tesco; but at least the sector has shown signs of aligning itself with global trends.
