Economic impacts of e-commerce


Research question

What is the impact of e-commerce on the productivity of businesses inthe retail industry?

Theoretical background

E-commerceis a product of the internet. E-commerce is described as conductingbusiness activities online (Hartley, Burgess &amp Bruns, 2013).Consumers can now buy goods and services without their physicalappearance during the transaction. Goods and services purchased aredelivered offline. The digital society of today has increased theironline presence and thus increasing virtual professional and businessactivities. Businesses can use such opportunities to carry out theiractivities online. Therefore, businesses do not need to be physicallypresent in a given area in order to reach consumers. Mostorganizations have utilized the Internet to increase awareness of itsproducts and services. Social sites such as Facebook can be used topromote a new product to existing and potential customers. This way,businesses increase their market share and sales. As a result,organizations that have employed this technology in their operationswill experience increased productivity.

Throughe-commerce companies can reduce a significant amount of their productcosts. Minimization cost of production is a means of increase theprofitability of a company (Cho et al., 2012). E-commerce hasprovided a wide range of opportunities to businesses to cut the costof conducting their operations. The transactions that a companycarries out online are more efficient than it was before.Business-to-business and business-to-customer transactions are havebeen simplified through e-commerce. When the efficiency oftransactions increases, the cost incurred to facilitate the processalso reduces (Martínez-López, 2014). Virtualization has enabledorganizations to cut product costs through the reduction of physicalrequirements such as buildings and equipment.

Businesseshave also benefited from e-commerce through increased access toinformation. Information is a valuable resource that organizationscan use to gain insights about their environment. Data-drivendecision-making is one of the invaluable techniques that managers usein identifying and analyzing problems. Appropriate decisions are thendeveloped to address the issues and improve the productivity of afirm.

Costreduction through electronic commerce results in significantreduction of the price of goods and commodities. The reduction is anadvantage to buyers and business organizations. According to the lawof demand, when the price has reduced, the consumption of goods andservice increases (Gillespie, A. 2013). Consumers can save some cash,which they can use to address other needs. As a result, the cost ofliving reduces. Increase consumption of products is a sign of highdemand. Therefore, businesses will increase their production in orderto meet consumer needs. Their sales and financial performanceimprove. Due to the improving financial status of organizations, theycan expand their operations easily.

Thistechnology creates and destroys employment opportunities. Individualswho are specialized in managing tools and business processes that aresupported by e-commerce have higher chances of being employed (TerziN, 2011). Due to virtualization, people from developing countries canwork for companies in industrialized nations. On the other hand, theadoption of e-commerce results in some employees losing their jobssince their services is considered unnecessary. The technologyreduces the complexity of various business activities and thus,demanding a small number of employees to handle them. Someorganization uses this approach to reduce their production costs. Thegrowth of businesses is the joy of any government since it is a signof increased, trade, GDP, and economic developments in a country.When the productivity of firms and consumption of goods increases,the tax collected by the government also increases. Furthermore,inflation of a country also reduces.

Thebenefits of e-commerce are unlimited. Research can help to discovermore about how governments, organizations, and individuals arebenefiting from businesses conducted over the internet. This studyaims at determining the economic impact of e-commerce.


Study design

Thequantitative research design, correlational study, will be used. Thisstudy will investigate the relationship between the financialperformance of companies in the US retail industry and e-commerce.Therefore, the correlational design is suitable for examining therelationship. The impact of the technology on the growth of revenueof the retail industry will also be investigated.


Surveywill be conducted to identify organizations in the retail industrythat operated within a period of five years before and after adoptinge-commerce between 2002 and 2012. Random sampling will facilitateselection of 50 companies. This sampling technique will be used toensure representativeness of sample and reliability of data.

Data collection

Thestudy will use secondary data provide industry performance during the10-year period. The data about the industry will represent otherfactors that may have influenced the performance of the selectedorganizations. This approach is important since it will enable thestudy to acknowledge the effect of other factors in the industry on acompany’s productivity. Therefore, the reliability of the data willbe increased. Data will be grouped into two categories five yearsbefore and after the adoption of e-commerce. The data about thefinancial performance of organizations will be obtained from theirfinancial reports. Details of the industry revenue will be retrievedfrom trusted secondary sources.


E-commerceis independent variable while the economic performance is thedependent variable. The number of orders received online annuallywill be used as a measure of e-commerce. The financial performancewill be measured in terms of annual revenue in US dollars. The annualgrowth rate of the companies and retail industry during the 10 yearperiod will be calculated. Industry revenue will be used as a controlvariable.


Thestudy will use regression analysis. First, the unidimensionality ofthe variables will be verified using the procedures for confirmatoryfactor analysis. Linear regression analysis will be used to determinethe relationship between orders received online and revenues of thecompanies in retail industry. Table 1 below will be used to presentthe result of analysis. Table 2 will be used to determine thestrength of relationship between e-commerce and economy.

Table 1: Variables and measures


Before adoption

After adoption





Industry revenue

Orders received

Company revenue


∆ R2


Table 2: Measurement of Association

Absolute value of measure

Description of association


No relationship


Weak relationship


Moderate relationship


Strong relationship


Very strong relationship


Perfect relationship


Theresults of this study will show how e-commerce influences theperformance of a company, especially in the retail industry. Apositive correlation will indicate that increased use of thetechnology results in the growth of the revenue of a business andretail industry. Since negative impacts of the technology were notaccounted for in this study, future studies should focus on how abusiness can incur losses when it adopts e-commerce. Such studies mayhelp businesses to develop ways of maximizing the benefits ofe-commerce by addressing the associated risks.


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Gillespie, A. (2013).&nbspBusiness economics. OxfordUniversity Press

Hartley, J., Burgess, J., &amp Bruns, A. (2013).&nbspA companionto new media dynamics.Wiley-Blackwell

Martínez-López, F. J. (2014).&nbspHandbook of Strategice-Business Management. (Handbook of strategic e-businessmanagement.) Berlin, Heidelberg: Imprint: Springer.

Terzi, N. (2011). The impact of e-commerce on international trade andemployment.&nbspProcedia-Social and Behavioral Sciences,&nbsp24,745-753.