Value creation through expanding the online distribution channel

Pages714-729
DOIhttps://doi.org/10.1108/IMDS-08-2019-0424
Published date07 February 2020
Date07 February 2020
AuthorFrank Wiengarten,Hugo K.S. Lam,Di Fan
Subject MatterInformation & knowledge management,Information systems,Data management systems,Knowledge management,Knowledge sharing,Management science & operations,Supply chain management,Supply chain information systems,Logistics,Quality management/systems
Value creation through expanding
the online distribution channel
Frank Wiengarten
ESADE Business School, Ramon Llull University, Barcelona, Spain
Hugo K.S. Lam
Management School, University of Liverpool, Liverpool, UK, and
Di Fan
Research School of Management, The Australian National University,
Canberra, Australia
Abstract
Purpose Current literature provides limited insights into the supply chain contexts within which
e-commerce can create higher value for firms. To address this literature gap, this research explores the value
potential, and thus value creation process, of e-commerce initiatives for supply chain distribution channel
expansions.
Design/methodology/approach Using secondary data collected from multiple sources, this research
conducted an event study to examine the stock market reactions to the announcements of e-commerce
initiatives of Chinese firms.
Findings The results indicate that the e-commerce initiatives increase average firm value by CNY 295.29
million in a three-day window around the initiatives announcement date. Moreover, we find that such stock
market reactions are more positive for firms with poor operating performance, and more negative when firms
deploy initiatives on their own (rather than third-party) platforms. Further, companies that integrate or
complement their online sales with an offline sales channel experience more positive stock market reactions.
Originality/value This study provides new insights into the value creation process of e-commerce from an
operation and supply chain process perspective.
Keywords E-commerce, Event study, Abnormal returns, Distribution channel, China
Paper type Research paper
1. Introduction
Stakeholders in general, and investors in particular, are paying increasing attention to the
booming e-commerce (EC) market. Especially in thriving economies such as China, the
relatively recent adoption and development of EC (e.g., Alibaba and JD.com) has created a
boom in the stock exchanges (Luckerson, 2014). In particular, Alibaba raised more than
US$21.8 billion during its IPO on the New York Stock Exchange in 2014, representing the
biggest IPO in the US history (Krantz, 2014).
Research and industry examples alike have provided evidence that EC initiatives can
have a positive impact on firm sales. In particular, prior studies have suggested that EC
increases sales in three different ways: market expansion, brand switching, and relationship
deepening (Geyskens et al., 2002). However, contradictory arguments have also been
observed. Various reports and research have highlighted concerns regarding the possible
drawbacks of EC, such as increased channel conflict and intensified price competition, which
may hurt a companys future cash flows (Tsay and Agrawal, 2004). Thus, while the benefits
of EC initiatives are recognized from a revenue perspective, the cost implications are less
clear, suggesting that the overall performance impact due to EC initiatives may be more
complicated than expected. Subsequently, our research attempts to provide a more complete
assessment of the performance impact of EC initiatives. In particular, we investigate how
firmsEC initiatives affect their share prices, a proxy for overall firm value that takes sales
and other performance implications into account.
IMDS
120,4
714
The current issue and full text archive of this journal is available on Emerald Insight at:
https://www.emerald.com/insight/0263-5577.htm
Received 6 August 2019
Revised 19 November 2019
Accepted 25 December 2019
Industrial Management & Data
Systems
Vol. 120 No. 4, 2020
pp. 714-729
© Emerald Publishing Limited
0263-5577
DOI 10.1108/IMDS-08-2019-0424
Adopting an EC model does not only cause change to the demand side in terms of
consumer behavior but requires changes to supply chain structures and operations processes
(Geyskens et al., 2002;Power and Singh, 2007). Power and Singh (2007) have noted that IT-
based supply chains must be accompanied by fundamental organizational change.
Therefore, it is unlikely that firms with different operation processes and supply chain
structures will gain the same benefits from EC initiatives. Subsequently, we further examine
how the impact of EC initiatives on share prices varies across different operational and
supply chain conditions. Specifically, we explore how contextual operational and supply
chain factors, in terms of operating cycle, platform ownership, and onlineoffline channel
integration, affect the value creation of EC in terms of increased stock prices.
Conducting an event study of 310 e-commerce initiatives announced by Chinese firms
between 2010 and 2017, our research shows that e-commerce initiatives do create value for
firms in terms of increased stock prices. Moreover, the stock market reactions to e-commerce
initiatives are more positive for firms with longer operating cycle, but more negative when
firms deploy the initiatives on their own (rather than third-party) platforms. Further,
companies that integrate their online and offline sales channels experience more positive
stock market reactions. These findings advance our understanding of how EC initiatives
create value and how operations and supply chain management are key factors in terms of
process efficiencies and distribution strategies when considering EC initiatives. In particular,
our research highlights the important roles that operating performances, supply chain
distribution platforms, and the integration of sales channels play in affecting the value
creation potential of EC initiatives. Our research not only encourages firms (especially those
with long operating cycle) to invest in EC to create value but also urges them to take
advantage of third-party platforms and offline channels in order to reap more benefits from
their EC initiatives.
2. Literature and hypotheses
2.1 Stock market reactions to e-commerce initiatives
Prior studies have suggested that EC can contribute to a firms future cash flows by
reducing costs such as transaction costs and distribution costs and improve sales in
terms of reaching new markets or increasing market shares in existing markets
(Geyskens et al., 2002;Homburg et al., 2014;Subramani and Walden, 2001). In terms of
cost reductions, previous research identified that adding EC, as a form of channel
distribution expansion (Van Bruggen et al., 2010), increases inter-channel competition and
thus contributes to increasing distribution efficiencies. Geyskens et al. (2002) highlighted
that distribution cost reductions can be attributed to ease of transaction processing
(reducing human errors and customer disputes). Further, inventory cost reductions can be
attributed to decreases in intermediaries and marketing functions passed over to
customers (Hoffman et al., 1995). Thus, efficiency is increased through increasing
economies of scale of the production and purchasing power (Homburg et al., 2014). EC
initiatives can help firms to disperse their supply chains and expand their markets by
reaching Internet users who have never visited the firmsphysical stores before. This
benefit is particularly important nowadays because consumers are buying more and more
products and services online (Farber, 2016). On the other hand, firms can use EC to
enable consumers to switch from other competing brands, especially when the focal firms
do not have physical stores in their competitorsareas. Finally, by utilizing various EC
tools and technologies, firms can use EC initiatives to deepen customer relationship and
enhance customer experience, thus generating higher sales (Rigby, 2011). Geyskens et al.
(2002) summarized what they described as demand-side advantagesvia EC as market
expansion, brand switching, and relationship deepening.
Value creation
through
e-commerce
715

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