General Influence Factors on Chinese Online Pharmacy Management: A Study Based on Literature Analysis

MENG Ling-quan, WU Zhi-ang, ZHOU Ying

(School of Business Administration, Shenyang Pharmaceutical University, Shenyang 110016, China)

General Influence Factors on Chinese Online Pharmacy Management: A Study Based on Literature Analysis

MENG Ling-quan, WU Zhi-ang, ZHOU Ying

(School of Business Administration, Shenyang Pharmaceutical University, Shenyang 110016, China)

Objective To explore the development channels for online pharmacy in China. Methods Influence of electronic commerce on traditional enterprises were analyzed to obtain online pharmacy management factors. Results and Conclusion There are some general factors on the online pharmacy management in China, including e-commerce transaction platform construction, loyal consumer groups, electronic business operation team, enterprise credit and external policy environment, etc.

electronic commerce; literature research; online pharmacy management; general influence factors

Futurist Nicholas Negroponte said in the book of“Being Digital”[1]: human survival in the future is digital, Electronic Commerce (EC) is destined to become the core of leaders of the 21st century high-tech trend and it will change the way of human economic activities, the composition of the industry and enterprises as well as financial operation mechanism and human consumption.

Pharmaceutical industry, like other industries, is developing EC and it has formed three forms which includes the independent third-party B2B platform (public platform), pharmaceutical enterprise self-built B2B (pharmaceutical wholesale online), and the pharmaceutical retail chain B2C (online pharmacies). According to Robbins’ description about enhanced EC[2]: The traditional organization has the ability to establish electronic business, which usually refers to EC ability, but also maintains its organization form of entity, and according to Interim Provisions on the Internet for Examination and Approval of Drug Transaction Services, online pharmacies are required to have pharmaceutical retail chain plus online pharmacies platform, which belongs to the enhanced EC. EC will inevitably affect the organization’s management.

1 Impact of EC on traditional enterprises

1.1 EC literature research of the impact on traditional enterprise

Like other enterprises, the pharmaceutical companies are affected by EC. This paper used “electronic commerce”+ “enterprise”, or “e-commerce impact on enterprises” as the key words to search in the CNKI. in April 2012, we found nearly 50 related articles. After reading, we selected some representative articles which were shown in Table 1.

We can make the concusion that the influence caused by EC on enterprises includes from the way of sales, composition of the supply chain and the customer relationship management, etc.

1.2 EC literature review on the impact of traditional enterprises

1.2.1 EC impact on the enterprise management ideas

EC goes beyond the scope of products, technologies and becomes the carrier of the new management model which pushes the innovation of management thoughts. EC has the features of globalization, information technology, socialization and virtualization[13]. First, EC faces the global resources allocation directly through the Internet. Therefore, enterprises need to establish the concept of globalization. Second, EC takes information as the carrier, when the enterprises become globalized; it also requires enterprises should have the concept of setting up the information construction. Furthermore, EC has changed the way of information transmitting so that enterprises can have access to the comprehensive real-time information quickly and release information as well. It requires companies to adjustorganization structure, such as building virtual organization, league form to adapt to the change of virtualization. Enterprises should have the concept of efficient transaction. Finally, EC can be successful with the help of several parties, such as the buyers, sellers, the government, intermediate service providers, CA authentication, online payment, logistics distribution, and EC platform provider. Therefore, enterprises need to develop core competitiveness and the concept of social cooperation.

Table 1 EC literature research of the impact on traditional enterprise

1.2.2 EC influence on enterprise organization and management

(1) Changes in the form of enterprise organization

EC enables enterprise to enter the era of speed competition; more and more enterprises realize that it is hard to adapt to rapidly changing business environment only by its own resources and ability and start trying to build a more flexible organization and management model. A variety of virtual enterprises, outsourcing and strategic alliance, emerged rapidly in the forms of business organization[14]. Such management model represents the traditional enterprise organization form under EC “deconstruction”and “restructuring”. It requires enterprises with EC focus on core business; some of the non-core business should be outsourced or purchased.

(2) Business process reengineering

Since the business process reengineering was based on the physical trading of transfer, EC is called direct economic. The seller and the buyer can have direct communication, which reduces the intermediate links in the circulation of commodities. Consumers can participate in production and circulation and commodities actually has been sold out, reducing market uncertainties. Manufacturers are much easier to learn the market demand which will reduce operating costs, such as inventory and it can improve efficiency[6].

According to the business process reengineering, the main means of communication for enterprise with EC is network, “many-to-many” model becomes the mainstream of the information transfer which breaks the traditional one of step by step information transfer or one to one mode. Business coordination is easy to have the cross-regional, cross-departmental and cross-levels conduct[14].

(3) Service mode transformation

The development history of EC has experienced three stages of information release, online trading and transferred business center[6]. EC changed the traditional enterprise market competition from the product quality and price into all-round service competition. It means traditional“manufacturers centered” was converted into “customercentric” business model. Amazon CEO Jeff Bezos believed[8]the Internet is like a hurricane, and customer is the eternal wealth because the network world can spread good fame and bad fame equally fast. Personalized service[15]has increasingly become the key to the success of EC, and enterprise should have innovation means to improve customer service quality, and strengthen the communication between enterprise and customer.

(4) The globalization of markets

In some ways, enterprises with EC are in the form of multinational companies. EC, with the help of theInternet, shows the characteristics of globalization. It breaks through the traditional enterprise sales of goods and consumer groups, which enables the enterprises to enter global electronic market with similar cost. Enterprises of large, medium and small are pulled in the same starting line, directly in the face of every customer in the market and competitors, sharing consumption group and network information resources. EC becomes the best platform for small and medium enterprises to compete with the large enterprise with equal competition ability and international development.

(5) The demand of inter-disciplinary talent

Talent is the core factors of enterprise development and management. Enterprises with EC need to have the following talent[9]. First is those who have the concept of globalization and rapid innovation, which is the inevitable requirement for the large amount of information and fast transmission. Second is those who have the capacity like industry knowledge, business knowledge, the information and internet knowledge so that they can skillfully operate and conduct EC activities. Third is those who have the ability to keep learning. For in EC era, the knowledge update fast and one needs to keep learning new things. Fourth is these who have good professional integrity and credibility. EC is a deal between the virtual bodies which require traders to be honest.

(6) Change the way of management

Traditional management, both Taylor’s piecework system management and Fayol’s research organization management is the resource management[7]. In the era of EC, knowledge and information become the most active factor of productivity, motivation and source. Traditional enterprises both from manufacturing, internal management and after-sales service will be based on information technology. For EC trading information and customer information, enterprises can extract the valuable market and customer information and make countermeasures through data mining technology[8]. It is inevitable for enterprise management mode to change from resource management to information management.

2 The way of changing traditional enterprises into EC

2.1 Standardization of business processes

Michael Porter defines value stream as a series of activities[16]in which companies want to achieve a particular result, and the activities will be passed to specific customer. In the era of EC, when enterprises want to carry out EC, they should design a process to facilitate the proper physical and information transferring with electronic standardization.

2.2 The integration of enterprise management information system

A complete EC system requires enterprises to have highly integrated information systems with internal and external parts. After specifying business process, the enterprise shall establish and perfect the enterprise internal management networks covering the various functional departments for it is vital to enhance the application level of the management information system for EC development.

2.3 The organization form of virtualization

In the era of EC, organizations tend to be flat, decentralized, and working groups or the team is more suitable for flexible virtual market. Business cooperation, by sharing resources, can rapidly form a virtual enterprise dynamic alliance when the market opportunity comes to take advantage of this market. Therefore, the enterprise should emphasize the cooperation with customers, suppliers, and even competitors to achieve resource sharing when the enterprise makes EC strategy, then they can face risks and opportunities together.

2.4 Standardized EC trading platform

EC trading platform, also known as electronic market, is the platform for product information publishing and online trading. It is essential for enterprises to develop EC. The platform construction should be standardized so that a large number of business information and data can be transferred on the platform in receiving and processing information among enterprises. At present, China’s online store mainly has the following five business models, such as enterprise self-built model, independent third party trading model, independent third party information gathered and alliance model, joint venture etc[17]. Enterprises may choose a suitable EC development pattern.

2.5 Electronic payment system

The perfect EC refers to online marketing and online payment. The incomplete EC refers to online marketing but offline payment[18]. But with the development of EC, the perfect EC will become dominating. One of the importantfeatures of the EC is the payment process information. In addition to the online browsing goods and orders, customers can do shopping at home which brings convenience to them.

2.6 Modern electronic logistics

When transacting EC, speed is the winning factor in market competition, only goods and services are delivered to consumers through logistics, trading activities of EC is truly completed. Therefore, logistics is a mean to ensure the flow of commerce which can solve the problem between manufacturers and consumers. Without modern electronic logistics, EC can not bring any convenience to the consumer. Therefore, electronic logistics is the ultimate guarantee to achieve “customer-oriented” concept[11].

3 Analysis of online pharmacy management factors

Figure 1 The commodity circulation based on the B2C EC conditions

In order to adapt to the development of EC, traditional enterprise links with its suppliers, customers and partners through the Internet, Intranet and Extranet. Based on the B2C, EC commodity circulation is shown in Figure 1.Online pharmacies can actually be regarded as general B2C e-commerce (online shopping store) and it can be applied in the pharmaceutical industry. Its development, first of all, must follow the general law of B2C e-commerce, namely, online pharmacies and other online shopping store management is the same.

3.1 A new business enterprise operation mode with consciousness

EC reduces the procurement transportation, warehousing, marketing, customer service operations, management costs with convenient network operation, fast information transmission, improving work efficiency and strengthening supply chain management. EC is new management mode based on the electronic technology, information technology and network technology, the enterprise management mode of operation must be updated.

3.2 Fully functional in EC market

A B2C EC trading platform must have the following features: (1) advertising; (2) consultation discussion; (3) online order; (4) helping purchase the shortage goods services; (5) online payment; (6) delivery service; (7) customer opinion collection; (8) transaction management. The high cost of establishing EC platform, especially in marketing, promotion, updating and maintenance fees, is a huge burden for micro, small and medium enterprises. These enterprises should avoid weaknesses and learn to integrate resources effectively in the implementation of EC. Selfbuilt e-commerce platform is not good for these companies. On the contrary, it will waste companies’ money and time, delaying business opportunities. Therefore, they can use the mature EC platform to get the best input-output ratio.

3.3 Loyal consumer groups for EC transactions

Marketing management strategy usually includes[19]consumers, market analysis, competitors, distribution, marketing, economic evaluation and modification. The consumer is the first in the chain. In the era of EC, consumers are faced with numerous alternative EC enterprises and diversified products in the world so that they have a comprehensive understanding of the product information. Therefore, the cost transparency weakens the consumer’s loyalty to enterprise, and even the enterprise’s trust is declining. Enterprises should first consider billions of network consumers around the world when they are developing EC, to understand and grasp the consumer preferences, and their shopping habits and giving quick response becomes vital for enterprises. How to cultivate a number of loyal consumer groups is the key consideration of EC enterprise.

3.4 The network management of a supporting department

Enterprise information is the foundation to carry out EC and enterprise information construction is necessary. Its specific contents include the establishment of a corporate Intranet, creating websites on the Internet so that enterprise can achieve real communication and integrate the isolated department information. It is very important to form stable and fast support collaborative network for the development of EC.

3.5 A composite EC operations team

As to the organizational structure of online pharmacies[20], except for the purchasing department and warehouse department which are closely linked with traditional retail enterprises, it has some characteristics of the Internet industry in such departments as marketing, operations, technology department, customer service, logistics and so on. An online pharmacy EC essentially requires the operations team should not be a “simple”combination of the general staff. Online pharmacies are not the electronic pharmacy easily converted from traditional stores. The operation team is not offline operations team directly copied to the online pharmacy, but the talents with Internet experience and traditional medicine retail experience. It is a high threshold for online pharmacy talents. The shortage of talents exacerbated the effect of this factor.

3.6 Enterprise’s credit evaluation of integrity

With the help of EC, both buyers and sellers around the world can complete the transaction through the network without meeting. EC platform brings together many enterprises and consumers. For the same product, it can be supplied by many different enterprises and numerous consumers want to buy it. According to the game theory[21], when buyers and sellers are on the market information asymmetry there will be a phenomenon that buyers are inferior to sellers. Namely, the seller master more information for the product quality and performance thanbuyers and they can take advantage of it. This fraudulent practice is called moral hazard. When a party with less information once cheated by the other party will call it a juggler, this phenomenon is known as adverse selection. In order to avoid information asymmetry, consumers will compare many enterprises and commodities to have the adverse selection. At the same time, the enterprise will display excellent goods and good reputation. Therefore, enterprise credit information is particularly important.

3.7 An open communication platform for smooth information transmission

Online pharmacy has at least three communication platforms, such as drug transaction, health information and information exchange[22]. Drug trading platform is just one aspect and the latter two will be online pharmacies direction in the future. EC is a non-contact trade, which makes the face-to-face communication and the actual contact to obtain information about goods impossible. Instead, it requires technical staff to communicate with customers effectively. Enterprise can establish a BBS on the communication platform for customers to share user’s true feelings. Consumers’ feedback can be accepted by other consumers. If the drug is quality guaranteed and its effect is reliable, consumer communication is a free publicity of website.

3.8 A safe, reliable and convenient online payment tool

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At present, the electronic payment mechanism mainly includes all kinds of bank card, the third party payment, PayPal, quick money, Shou-yi-xin, FuTong, Qian-bao, advance payment, the medical insurance payment and mobile payments etc. The main forms of electronic payment are as follows: (1) the network card; (2) electronic checks; (3) electronic cash; (4) the electronic purse; (5) the micro payment; (6) Membership card, such as pharmacy pre-paid deposit; (7) the virtual top-up CARDS payments, such as practicable “network virtual top-up CARDS and mobile phone top-up CARDS. Whatever the payment mechanism is, a secure and convenient form of payment is the first choice for consumers[18].

3.9 A timely delivery logistics and distribution system

A perfect EC must deal with information flow, business flow, cash flow and logistics at the same time. Due to the rapid development of information technology and financial system, online processing of information flow, business flow and cash flow is easy. But the logistics has become the most difficult and critical part of the EC.

3.10 A relatively loose external policy environment

The particularity of medicine and the characteristics of EC virtualization bring a “virtual” body for the object of regulation. The rules that are formed under the traditional way of trading are difficult to adapt to trade in the new practice, such as the construction of EC operation platform and its legal status, the online trading subject and market access problems, product delivery issues of special problems etc. Enterprise with EC must take the external policy environment, such as competition, trade and arbitration rules into consideration. Government should create a loose policy environment to ensure the safety of medicine for consumers and enterprises.

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∗ Shenyang pharmaceutical university Bayer science projects;

Author’s information: WU Zhi-ang, Professor. Major research area: Pharmaceutical technology evaluation and drug risk management, etc. Tel: 024-23986542, E-mail: wuerla501@126.com