page 2  (14 pages)
to previous section1
3to next section

PROCEDURAL CONTROLS FOR OPEN ELECTRONIC COMMERCE

Global information infrastructures are rapidly becoming a reality. Such worldwide networks help companies to operate not only on a local or regional level, but also on a global level. Especially for small and medium enterprises (SMEs) this would offer tremendous opportunities to do global business electronically. However, communication networks alone are not sufficient to enable international electronic trade.

In the past it has been shown that the introduction of Electronic Data Interchange (EDI) can have tremendous benefits for the efficiency of trading both between and within organizations (see for instance previous proceedings of the Bled conference). On the other hand it can also been shown that in many cases long and costly negotiations are necessary between the trading partners before they can exchange their first EDI message1.

As a result, most successful EDI implementations have been realized in what could be called 'closed trading relationships', i.e. long-lasting trading relationships, involving a high number of transactions, between parties that have a high level of trust and possibly a close coordination of the parties' business processes (Table 1). In these kind of relationships, parties can gain extra benefits by closely coordinating each others' actions, thus compensating for the extra start-up costs stemming from detailed trading partner negotiations.

However, when the partnership is established for a limited period, covering a few transactions only and on an 'at arm's length' basis, EDI linkages are seldom observed since the costs of the necessary negotiations cannot be recovered from the benefits. These shorter-term partnerships could be called 'open trading relationships' (Table 1). The main aim of our research is to contribute to the lowering of the barriers for using EDI in these open trading relationships.

Open Closed
Level of Trust Low High
Number of Transactions Low High Duration of Relationship Short Long Level of Coordination Low High

Table 1. Open vs. closed trading relationships.

However, when the partnership is established for a limited period, covering a few transactions only, EDI linkages are seldom observed since the costs of the necessary negotiations cannot be recovered from EDI efficiency gains. These shorter-term partnerships could be called 'electronic market relationships'. The aim of this research is to decrease the set-up costs for EDI linkages, thereby facilitating the introduction of electronic market relationships.

Trade Procedures

One of the reasons for the complexity of this negotiation process is the fact that parties have to know about each others' 'way of doing business' before they can start exchanging data electronically. Extra knowledge about the preferred way of doing business of one trading partner has to be conveyed to the other; in other words, the parties have to agree upon the trade procedure 2 they are going to follow. We define a trade procedure as the mutually agreed upon

1 Baker (Baker 91) gives an example of the size of such negotiations: 'At one conference on EDI law, James Pitts, a purchasing manager at R.J. Reynolds, said he spent 18 months negotiating a single trading partner agreement. That left him with only 349 other trading partners to go '.
2 It should be noted that although we call these agreements 'trade procedures', the principle is applicable to other societal areas than trade. The main focus of this paper however is electronic commerce which explains the term 'trade' in the definition. Other terms used to describe this concept are: trade scenarios, business scenarios and