After Market Entry Barriers in E-Commerce Markets

ABSTRACT The goal of this research is to examine the relationships among the barriers after market entry and firm performance, and build a model of barriers in e-commerce markets using structural equation modeling. Despite the fact that many e-commerce businesses failed shortly after market entry, there is very little research about the causes of failures. This study utilizes 27 barriers faced by companies after they enter the e-commerce markets. The analyses indicate that there are significant relationships among the barriers and firm performance. The e-commerce resources construct impacts firm profitability while the sustainability construct influences e-commerce resources and the capital requirements barriers construct impacts sustainability. In addition, the sustainability barrier construct affects the competitive advantages of the rival firms construct positively. Keywords: barriers in E-Commerce, E-Commerce adoption, E-Commerce sustainability, competitive advantages, competition, market entry 1. Introduction The number of Internet users and the amount of purchases on the Internet have increased drastically during the last decade. A survey conducted in April 2006 by Pew Internet and American life Project shows that Internet penetration among adults in the U.S. has hit an all-time high. Seventy-three percent of respondents were Internet users, up from 66 percent in the January 2005 survey. The Internetwordstatistics.com (2007) indicates that the increase is not just in the U.S, but is around the world. The eMarketer (2005) forecasted the U.S. retail e-commerce revenues would increase from $94 billion in 2003 to $232.1 billion in 2008. According to the same source, the U.S. e-commerce revenues jumped more than 25% in 2005. The gains were broad-based across virtually every category of retail and leisure travel spending. The sales figures for the business-to-business e-commerce (B2B) are much higher and were estimated to be more than $6 trillion in the U.S. (E-Commerce Times, 2008). Despite the slowdown of the Internet economy between 2001and 2004, successful Internet businesses have recently emerged. YouTube, MySpace, and Facebook are such examples. Opportunities for the growth of e-commerce are likely to continue. Zwass (2003) identified five domains of opportunities for e-commerce including commerce, collaboration, communication, and connection, and computation. He suggested that these five aspects would present opportunities for businesses. However, many business operations not suitable for electronic commerce have also declared bankruptcies. An article appeared on the C|Net.com by German (2008) lists the top ten dotCom flops and the years of operations as follows: 1) Webvan.com (1999-2001); 2) Pets.com (2000); 3) Kozmo.com (1998-2001); 4) Flooz.com (1998-2001); 5) eToys.com (1997-2001); 6) Boo.com (1998-2000); 7) MVP.com (1999-2000); 8) Go.com (1998-2001); 9)Kibu.com (1999-2000) and 10) GovWorks.com (1999-2000). This research attempts to examine the barriers faced by e-commerce businesses including brick- and-click, and pure-click firms after entry into e-commerce markets. The rationale for the study is the large number of dotCom failures even in a short period of time. Understanding the barriers or obstacles faced by companies after they enter the e-commerce markets will contribute to the literature and assist companies to develop strategic plans before and after they enter the e-commerce markets. The literature review showed that research in this area is scant. Indeed, most of the research about barriers in e-commerce markets deals with barriers to technology or e-commerce adoption. Although barriers to technology or e-commerce adoption studies are useful in understanding the barriers and the adoption process, they usually do not include the factors that relate to competition and the business environment. While there are numerous barriers before and after entry into e-commerce markets, the major barriers include lack of venture capital (Langnau 2002), lack of technical know-how, inadequate technology and infrastructure, and customer concerns about Internet security. …