COST EARNINGS ANALYSIS ON AQUATIC PRODUCT
E-COMMERCE
ZhuoFan Yang and ShuHua Ren
Zhejiang Ocean University, Wenhua Road, Dinghai District, Zhoushan, 316000, Zhejiang, China
Keywords: Aquatic product trade, e-Commerce, Increasing marginal benefit.
Abstract: With the development of e-commerce in the global trade, e-commerce has brought substantial profits, so it's
necessary to put e-commerce into Chinese aquatic enterprises. From the Angle of cost and earnings analysis,
this article discusses the feasibility of e-commerce in Chinese aquatic enterprises. We got this conclusion
that e-commerce can let purchase and trade cost down and increase the transition cost accordingly. In the
early stage of e-commerce development, the switching cost is very high, but along with the development of
e-commerce, the switching cost will drop, meanwhile, the earnings of aquatic product trade will rise.
1 INTRODUCTION
Conventional economic theories believe that land,
labor and capital are the important resources. With
the rapid development of internet and information
technology in recent years, Information network has
touched all economic activity space, and played an
increasingly important role in the modern enterprise
management and operation process, based on which
all kinds of business models also were built.
Especially e-commerce, which builds on the
network technology, revolutionizes the transaction
model, appears enormous economic trade potential
in the economic resources allocation, cost reduction
and the client relationship improvement, and has
been one of the main ways of promoting economic
increase.
From the global market, China is one of the
biggest exporters for aquatic products. The
proportion of Chinese aquatic products import and
export has been increasing in recent years.
International trade pattern of Chinese aquatic
products is export-oriented self-produced domestic
seafood and aquatic products processing. According
to the data of Chinese agriculture ministry, by Oct
2010, Seafood exports continued first in agricultural
commodities export, accounting for 27.7% of
agricultural exports (384.5 million dollars). The
main countries of seafood export is Japan, America,
Europe, Korea respectively, and the export situation
is better than last year, value of export is
significantly double-digit growth. Seafood trade
development requests aquatic enterprises to keep
pace with international information economy
development and realize electronic and information.
2 CHINESE AQUATIC PRODUCT
E-COMMERCE SITUATION &
PROBLEM
Aquaculture is an important part of agriculture in
China, and is one of traditional basic industries.
Compared to other industries, aquaculture has its
own development characteristics, for example,
aquatic enterprises are small and scattered, technical
ability is limited. Aquaculture has strong resource
dependency and distinct regional characteristics,
especially aquatic fresh products have high request
for the storage and transport. Most current aquatic
products’ transaction still rely on the traditional way,
information level is low. With rapid development of
information technology and wide use of the Internet,
it is possible to improve aquatic enterprises'
informational level and change the transaction ways
of aquatic products.
In terms of fishery website construction, at
present, Chinese aquaculture websites have reached
more than 300, and has initially formed an industry
websites tribe including all kinds of aquatic website.
Aquatic website development promoted the
combination Internet technology with aquaculture,
111
Yang Z. and Ren S..
COST EARNINGS ANALYSIS ON AQUATIC PRODUCT E-COMMERCE.
DOI: 10.5220/0003435601110115
In Proceedings of the 13th International Conference on Enterprise Information Systems (ICEIS-2011), pages 111-115
ISBN: 978-989-8425-56-0
Copyright
c
2011 SCITEPRESS (Science and Technology Publications, Lda.)
but the high quality and sustainable development of
websites are rare (WeiPing Lu & Ran Hua 2003).
In recent years, with the development of
e-commerce and the increasingly popular for online
shopping, domestic seafood online sale shows rapid
development momentum. Besides aquatic product
processing and sales enterprises established their
own marketing and publicity websites, some seafood
dealers also use domestic well-known C2C network
marketing platform such as "taobao" and "baidu" to
promote their products. They mainly sale
ready-to-use seafood, secondly seafood dry
including Boiled Black Ginseng with Shrimp,
shrimp, dried shrimp, Shendai, seasoned shredded
squid, Roast taipa crab, sea cucumber, abalone,
dried cuttle fish, seaweed, jellyfish etc., These
products are easy to store and ship, which provide
the possibility for e-commerce. Besides, Some of
Chinese frozen seafood enterprises also begin to use
e-commerce for online trades, which mainly traded
between producers and dealers, and it belongs to the
pattern of B2B
(
http://www.shuichan.cc/news_view.asp?id=30792).
Accordingly, aquatic fresh products online
trading also gradually rise, especially online sales of
freshwater hairy crabs, but because the
transportation conditions of fresh products are
limited, it is easy to cause death and decayand it is
common that crabs are dead when the buyers check
goodsonline sales of aquatic fresh products are still
in the initial stage in China now.
In addition, Chinese aquaculture e-commerce
studies are focus on web page design, assessment on
website content and development stage, e-business
influence, changes of aquatic enterprises and
e-commerce marketing strategy, and so on.
Throughout aquatic e-commerce research literature,
it is rare to combine aquatic products trade with
e-commerce. According to this, from the Angle of
cost and benefit analysisthis paper will use the
marginal benefit increasing theory of network
economy to discuss that network technology brings
aquatic trade enterprise reform and innovation.
3 COST AND EARNINGS
ANALYSIS ON AQUATIC
PRODUCT E-COMMERCE
3.1 Marginal Benefit Increasing Theory
of Network Economy
In economics, Marginal means the change of the
output caused by input per unit. Marginal analysis
method is more application in management
economics. It is mainly used to analysis in a certain
level of output, if enterprise increases each unit
product, it will have an effect on the total profits.
Formula as follows:
Marginal value=f(x)/X
Where:
X=input,
f(x)=output, Performance for X functions
=Variable
Hypothesis basic value X is in changing, then,
each increases input per unit, the increment of
output caused by this unit is also changing.
In traditional economics, there exist scale returns
diminishing law, that is, rate of output will be
descending with increased input. However, in
network economics, Electronic market unique cost
structure and strong positive feedback and negative
feedback effect, brought some extraordinary
economic effect (
Arthur, W.B. 1996) it shows
opposite tendency, that is marginal benefit
increasing, rate of output will be increasing with
increased input. As figure1:
0
Figure 1: Marginal benefit increasing law.
The reason why appears marginal benefit
increasing is that (
ChunFang Xu 2007)
Higher initial cost
In traditional economics, the lowest product
marginal cost less than the sum of direct materials
and direct labors. In network economics, Research
development expense accounts for most, the sunk
cost of products is high, the marginal cost is
extremely low, close to zero. In addition, network
consumption has a non-exclusive features and
aggravate the marginal cost increasing trend.
Monopoly effect
Inherit monopoly caused by technology
innovation makes high excess profit not be
equalized and makes reward not be diminished.
Network effect
Network effect forms an effective information
Output
Input
ICEIS 2011 - 13th International Conference on Enterprise Information Systems
112
not destroy laws, that is 1-1=11=
Inertia effect
Switching cost and locking enhanced monopoly.
The traditional Matthew effect namely under certain
conditions, something will appear some advantages
or disadvantages, with the inertia, the two will have
self-enhancement effect, and in the last, it will
aggravate expansion. In network economics,
Matthew effect is strengthened, reflect in economics
is that first match wins together with locking
phenomenon, it forms the situation that the strong
gets stronger, the weak gets weaker, the rich get
richer, the poor get poorer, the winner takes all. All
of this above aggravates marginal benefit increasing.
As figure2:
Above all, in network economics, Marginal
returns increasing law takes effect in most situations,
especially for those enterprises based on technology
and knowledge, and those are more focus on
technology, supplemented by processing. However,
Marginal returns decreasing law takes effect in those
products based on raw material including some
factors of technology and processing, besides, it also
takes effect in the initial stage of network
construction and network capacity expansion.
0 Time
Figure 2: The winner takes all.
3.2 Cost and Benefit Analysis on
Seafood e-Commerce
Foreign trade enterprise cost is the sum of normal
and reasonable payment of the purchase cost,
transaction cost and taxes in the process of import
and export in a certain operating periodtax greatly
influenced by the government, so this paper will not
consider it temporarily (
WenQingYu, 2005).
Transaction cost, Mainly refers to the cost
needed in the process of deal, including information
search, the formation and execution of contract,
after-sale service, etc.. Fees paid to know and
confirm transaction object is the information cost or
information search fee, which comes from the
preparation stage before trading; fees paid to get the
trading possibility is the formation and execution of
contract cost, including the expenses of advertising,
renting office, borrowing, inventory turnover
expenses, trade consultation, etc., which is used in
the preparation stage before trading and trading
consultation and signing a contract stage
respectively; in addition to, there are other costs
such as after-sale cost. Commodity procurement cost
is close to commodity purchase cost, it is the sum of
merchandise cost and all costs consumed in the
process of purchasing (
ChunFeng Yang 2007).
In network economics era, International trade
cost structure also includes switching cost. It is the
inputs required by enterprise to develop
international e-commerce. It includes fixed
switching cost (Initial purchase for e-commerce
hardware and software systems, and relevant
personnel training expenses, etc) and variable
switching cost (Daily system technology, security
maintenance fees and network service fees, etc).
Switching cost is not included in traditional
international trade cost structure (ChunFengYang
2007)
. As figure3:
Tradition international trade cost structure
Transaction cost Procurement cost
Network international trade cost structure
Figure 3: The different international trade cost structure in
tradition and network.
As for aquatic product trade, although the
implementation of e-commerce has increased
seafood trade switching costs, but after inputting
e-commerce, the enterprises’ transaction and
purchase cost is reduced accordingly, the reasons as
follows:
1. E-commerce enabled the information of buyers
and sellers more transparent, which changes the
seller scale economy caused by information
asymmetry in traditional trade. For example, the
buyers can get more price information of raw
materials, thus they can master more price
initiative right in raw material procurement.
2. " Paperless" is one of the major advantages of
e-commerce, it is easier and more efficient for
transnational trade by the electronic contract,
100
winner
loser
Market
share
Transaction
cost
Switching
cost
Procurement
cost
COST EARNINGS ANALYSIS ON AQUATIC PRODUCT E-COMMERCE
113
E-mail and web video etc, the trade link is
simplified, and the cost caused by mail contract
and letters is cut, and thus trade operation
efficiency is improved.
3. E-commerce greatly improves aquatic
enterprises' international image by the global
network, it provides convenience for aquatic
enterprises to develop international market and
promote international brand awareness, thus it’s
good to increase returns from foreign trade.
According to IDC, the advertising on Internet
can improve 10 times the volume of sales, and
the cost is only a tenth of the traditional
advertising.
4. The reduction of trade documents and trade
intermediary and the rapid speed of trade
information search will reduce the transaction
cost.
5. E-commerce pursues "zero inventory" or "little
inventory", less inventory cost makes transaction
costs decrease accordingly.
6. E-commerce establishes an online
communication platform and channel for
enterprises and customers, through online
feedback, the enterprise can quickly and
accurately get customer's evaluation and demand
information, it is good to strengthen customer
relations and improve product quality. In the
meanwhile, customer service costs integrate into
the construction cost of e-commerce, and thus it
can save enterprises’ spending.
However, after e-commerce input into the
enterprises, whether it can gain depends on whether
the increased value of switching cost less than the
total reduced value of transaction cost and
procurement cost.
Switching cost of e-commerce mainly includes:
technology cost (including hardware, Website
construction and maintenance costs, etc.), risk cost
(including the establishment of online payment
system, customer trust, etc) and personnel cost (The
website promotion and technology development
personnel expenses). In the early e-commerce stage,
switching cost is higher, because it needs to put
enormous capital to build and run e-commerce team.
During this stage, the e-commerce earnings will not
appear immediately, because there is a cumulative
effects and first-match-win effect, that is, the earlier
the enterprises put into e-commerce, the higher the
returns get from the market, and it can be
cumulative along with the development of network,
in other words, the longer your website exists, the
higher the popularity and Internet search rate is, and
it’s more easily for customers to visit.
We use weighting factor and Marginal analysis
method to explain the changes of cost and returns
after inputting e-commerce. If switching cost is
higher in the initial e-commerce, we give the 20
weights, and transaction costs and procurement costs
10 weights respectively, increased cost is positive,
reduced cost is negative, then, after inputting
e-commerce, cost changes in the following figure 4:
Figure 4: The changes of cost and returns after inputting
e-commerce.
We will get,
X (the increased input) = 20-11.5=9.5
f(x) (the increased output) =10
Marginal value=f(x)/X=10/9.5>1
So, we can get conclusion that the marginal
returns is increasing.
Here, what needs to explain is that as times go
on, the e-business model will be gradually improved,
especially after e-commerce enters the developing
and mature periods, the e-commerce returns will be
gradually remarkable, by then, the technology cost
will continue to reduce(maintenance cost is
dominate, risk cost will reduce and even disappear,
personnel cost will be fixed), in addition to, with the
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smooth development of e-commerce, procurement
cost and transaction cost will reduce, too.
Meanwhile, the returns will be increasing, and
e-commerce will be a good development condition.
4 CONCLUSIONS
Aquaculture is one of traditional basic industry.
With the development of network economy and
e-commerce, aquatic product e-commerce also has
preliminary development. But the practice in aquatic
product e-commerce is still in the early input and
development stage. From the angle of cost and
returns, in the initial e-commerce, it needs input
enormous manual labors and material resources, and
at this time, it’s in brand accumulation phase, profit
effect will not immediately appear. However,
According to the network economy development
law and future e-commerce development potential,
aquatic product trade e-commerce finally can save
enterprise purchase cost, transaction cost and the
increased switching cost, at the same time, it also
can promote enterprises' international image and
earnings, the marginal benefit present increasing
trend.
REFERENCES
Lu WeiPing & Hua Ran 2003, Fishery informationization
and Web technology application, Fishery
Modernization.
http://www.shuichan.cc/news_view.asp?id=30792
Arthur, W. B., 1996Increasing returns and the new world
of business, Harvard Business Review,
July/August,100-109.
ChunFang Xu, 2007, Developing law of internet economy
and the theory of network information commodity and
service price.
WenQing Yu, 2005, Foreign trade enterprise cost concept
and the meaning of cost control, Journal of Liaoning
Administration College.
ChunFeng Yang, 2007Influence of network economy on
cost structure of international trade.
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