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European Online Journal of Natural and Social Sciences 2013; www.european-science.

com
vol.2, No.3 (s), pp. 188-194 ISSN 1805-3602

The role of electronic data interchange in electronic commerce


Zohre Mobarakian Mousavi, Mojtaba Poormazahaeri, Abdollah Zehtabi Khozani
Borujerd Branch, Islamic Azad University, Borujerd, Iran

Abstract relations among people, firms, and governments.


Trade exchanges among individuals themselves,
At the beginning of the third millennium, the enterprises, individuals and enterprises and govern-
world has experienced a new era. Rapid and exten- ments have quickly changed their traditional norm,
sive changes in all aspects have developed commu- which mainly relies on communicating information
nications wider and faster. Commerce is not an ex- based on paper documents, which are moving to-
ception in this regard and has widely and quickly wards exchanges through the use of electronic sys-
changed as well. With the growth of internet and tems. Therefore, new methods have been invented
popularization of electronic commerce and lack nationally and internationally with regard to the
of need to invest much in implementing electronic development of computer science in order to elimi-
commerce for small and medium-sized enterpris- nate paper-based methods so that electronic com-
es and organizations, EDI users have been prompt- merce, exchanging paperless business information
ed to direct their business process flow towards and complementing commercial activities directly
electronic commerce and make use of it as a tool by means of computers are some of their accom-
for changing organizations operating methods. In plishments. To achieve above mentioned goals, EDI
this process, not only are paper-based transactions is the main axis or in other words the backbone of e-
eliminated, but also changes are emphasized to be commerce. EDI is an acronym for Electronic Data
made in the way organizations conduct transac- Interchange. EDI is the exchange of commercial
tions with their commercial parties which in turn data in an standardized pattern among the com-
will restructure processes within the organizations. puters. In electronic data interchange, informa-
Indeed, the optimal productivity and efficiency are tion is organized based on a certain pattern which is
achieved when this technology is implemented after identified by both exchangers so that they allow the
complete investigation and analysis of intra-organi- computers to exchange date without requiring any
zational processes and even after the implementa- human interventions or re-entering information in
tion such processes should be constantly reviewed two ends of the path. In fact, EDI is an electronic
and restructured. This paper has introduced elec- gadget which enables enterprises to exchange their
tronic data interchange and has studied its role in commercial documents in an electronic context. In
electronic commerce and its implementation re- international trade, electronic commerce and elec-
strictions. tronic data interchange are considered as “the se-
crets to survival” and nowadays countries seriously
Keywords: electronic commerce, electronic try to equip themselves with such tools. Electron-
data interchange (EDI), internet,(value added net- ic data interchange is not a unilateral closed system
work (van) double space. and taking advantage of it requires collective and
voluntary participation of all relevant business part-
Introduction ners. It is important to encourage small and large
business enterprises and firms which have various
Many changes have been made in economic financial resources to participate in taking advan-

Corresponding author: Mojtaba Poormazahaeri, Borujerd Branch, Islamic Azad University, Borujerd, Iran.
E-mail: Hafez_29@yahoo.com.

Copyright © Zohre Mobarakian Mousavi et al., 2013


European Online Journal of Natural and Social Sciences; vol.2, No. 3 (s), pp. 188-194

188
Social science section

tage of this technology and not to be isolated. This mal sub-structuring for developing information and
technology aims to promote the firms efficiency communication technology in corporate structure
through improving information flow. This paper together with sufficient cognition and positive atti-
tries to introduce electronic data interchange and tude of managers towards the necessity of the pres-
also to investigate its role in electronic commerce. ence of this phenomenon in activities of the organi-
zation. International trade is deeply and amazingly
Statement of the problem and significance changing and developing .the countries which don’t
of the study achieve electronic commerce technology and elec-
tronic data interchange will be isolated and elimi-
To get a quick, easy, and secure access to com- nated from global trade environment.
mercial information and investment opportuni-
ties, to do business transactions in minimum pos- Literature Review
sible time with minimum cost and also to achieve
sustained economic growth and development and The use of electronic technologies in business
to get a greater share of world trade, it is necessary affairs has a nearly long history. The first attempts
to be equipped provided with modern technologies in this regard refer back to 1965. The possibility of
,tools instruments and important facilities and in- getting money through auto teller machines and
frastructures which are required for taking advan- shopping by credit cards are among the first activi-
tage of modern trade methods. Electronic com- ties which have been done in this regard (Molla, &
merce and electronic data interchange (EDI) are Like, 2001).
the methods which could make great changes in According to (Senn, 2000) this trend was fol-
economic structure of a country if they are real- lowed by generating inter-organizational systems
ized. Firms and organizations are very sensitive to which made it possible to exchange information
developments and changes in outside environment among organizations and to direct businesses elec-
and selecting the best alternatives in the best time tronically (Senn, 2000).
to achieve better benefit and situation in competi- In early 1990s, the need to exchange commer-
tion with others which leads to generating a big gap cial information among big firms was so vital that
between them and other organizations that lack a they themselves began to generate computer net-
proper understanding of environmental changes works with limited access before the development
particularly new technologies. Business enterpris- of internet-based technologies. At that time, the
es’ benefiting from information-technology and method of exchanging information was called elec-
entering the world of electronic commerce in re- tronic data interchange or EDI. Web invention and
cent decade have been considered not only as a mo- development provided an appropriate context for
tivational approach and quality but also as a basic high-volume data transferring among countries,
approach which is necessary of great importance organizations, and individuals. It was this context
for survival and continuity of activity in industry which made electronic commerce possible as stat-
in the field of intellectual competition available ed by(Vadapalli, 1998). Communication scientists
in all areas of production and services. Moreover, consider electronic commerce development on one
electronic commerce growth is the most impor- hand related to the development of information
tant consequence of economic globalization of the technology capabilities and on the other hand asso-
countries whose elements are electronic market, ciated with the reduction in costs due to the use of
electronic data interchange, and electric commerce this technology. From this perspective, information
which indicates the close relationship between in- technology is in an era which is called Internet Era.
formation and communication technology and This era is considered as the third era of informa-
management and market processes. Therefore, in tion technology mutation (Seddon, 1997).
order for the managers to survive in the field of eco- This process is divided into three 20-year-old
nomic competition, various informative and com- periods as the following:
municative tools should be provided and run with a 1955-1974: Electronic Data Processing (EDP) era;
clear perspective and according to the organization 1975-1994: Management Information Systems
needs. Finally, what is greatly important to man- (MIS) era;
agers in the field of electronic commerce is opti- 1995-2014: Internet era;

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Each mentioned period has provided electronic on digital data because they determine the structure
commerce facilities proportionate to technological and the concept of exchanging data. Standards for
capabilities of that period. In the first era, auto tell- electronic data interchange are numerous and even
er machines and credit cards were invented, and in various industries in different countries own their
the second era, the possibility to make use of elec- own standards. Some of these standards include:
tronic data interchange (EDI), SWIFT interna- A: ASCX12 Standard:it is the main standard for
tional banking system, and electronic funds transfer electronic data interchange which is formulated and
(EFT) was provided. But the greatest developments developed by the U.S. Standards Committee.
occurred within the third era that is in the age of in- ANSI or American National Standards Institute
ternet development and its commercial uses. These is an institute which has established and monitored
changes were so dramatic that they made a distinc- the U.S. standards since 1918. ANSI has several
tion between conventional and online e-commerce committees such as X12 standard committee which
(Molla and Licker, 2001). is also called ANSI/ASCX12. This committee also
One of the distinguishing features of the third has some sub-committees each of which is respon-
age of electronic commerce is the huge mass of data sible to establish the standards of one certain indus-
available through the internet. Nowadays, the in- try. Through general consensus they set or modify a
ternet with a series of servers and communica- standard. Such standards make the electronic data
tive switches and small and large webs has created interchange possible.
a connected world. Web is one of the most popu- B: EDIFACT Standards: EDIFACTS means
lar ways to access the internet by means of Browser Electronic Data Interchange for Administration,
technology. Millions of internet sites which are dai- Commerce, and transport. EDIFACT is an EDI
ly increasing are accessible in this way. Electronic standard developed by the United Nations in 1987
commerce has connected the commercial software and was recommended to be applied for electronic
of partners to each other by means of internet and commerce. It includes a series of rules and instruc-
web technologies. tions which could be used to convert the informa-
However, due to its consistent and standard- tion of a commercial document to EDIFACT elec-
ized nature, electronic data interchangeis still one tronic messages by means of translator software and
of the most useful and leading applications of mod- then these messages could be transmitted to client’s
ern electronic commerce. With the advent of inter- computer via International Telecommunications
net and XML a new chapter season was opened in Network.
electronic data interchange and its conventional use EDIFACT provides international standards for
was replaced by electronic data interchange under EDI; it also provides a set of syntax rules, data ele-
WEB. Moreover, this technology could be used to ments, segments, codes, and messages.
reconstruct companies with a more effective ap- C: HL7 Standard:This documentation standard
proach and an entirely different attitude. is designed by the American National Standards
Institute and is used in hospital systems.
Components of Electronic Data EDI Structure
Considering the technology trend and the epi-
Three main components of electronic data in- demic use of electronic commerce and with regard
terchange are: to the history of EDI, at present, there is a group
1. Standards for electronic data interchange called CEFACT Steering Group (CSG) in the
2. Software for electronic data interchange structure of UN-CEFACT under the United Na-
3. Third party networks for communication tions Center for trade facilitation and electronic
business which has 15 members so that Asia has two
Standards for Electronic Data Interchange representatives there and one of its Asian members
The standard is in fact a method for encod- is the Islamic Republic of Iran. CEFACT steering
ing data in order to facilitate its electronic transfer. Group (CSG) established six working groups to
Electronic document interchange is done in a pre- carry out its functions:
fabricated form which is agreed by two transaction • International Trade Procedures Working
parties and extensive efforts have been made to for- group (ITPWG)
mulate such standards at the international level. The • Business process analysis working group
standards for electronic exchanges are mainly based (BPAWG)

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• Techniques and Methodologies Working to electronic data interchange messages and trans-
Group (TMWG) mit them.
• Law Working Group (LWG) B: Interactive Electronic Data Interchange:In
• Edifact Working Group (EWG) most cases, electronic data interchange messages
• Code Working Group (CWG) are processes as classified and marked ones. How-
ever, an interactive view is sometimes necessary for
Electronic Software electronic commerce. An example of such condi-
One of the most important contexts in elec- tions is flight or hotel reservation which must be
tronic commerce realization is the software con- confirmed.
text. EDI software is comprised of computer in- C: Electronic Data Interchange Via Web: Elec-
structions which convert specific prefabricated data tronic data interchange via new standards and inte-
of the firms to prefabricated form of electronic ex- gration with other online technologies is developing
change and then sends the message. Therefore, the leading to internet electronic data interchange.
main role of EDI software is to convert and for-
mat data and to send the messages. One of the most Technologies Associated with Electronic
important and basic infrastructures for electron- Data Interchange
ic commerce is making a practical program. Ca-
pability and efficiency of applied programs require Electronic Funds Transfer:This technology is
accurate analysis of needs and recognition of cur- mainly used to transfer funds between banks and
rent situation of operational programs and restric- enterprises. It is older and safer than payment tech-
tions andimprovement of methods. Even though in nologies.
successful design of an applied program, accurate Financial Electronic Data Interchange: Finan-
analysis of operational process and improvement of cial electronic data interchange includes comput-
methods are needed, the success of an applied pro- er to computer transfer of payment order and de-
gram highly depends on capability and efficiency tails and the total of items by means of international
of the software which is used in producing the ap- messages.
plied program. Capabilities and efficiencies of op-
erating system and database are known as the main Electronic Commerce and Electronic Data
elements of applied programs. Interchange

Contracted Networks Economics and trade corporation with infor-


One of the contracted networks in electronic in- mation and communications technology results in
terchange is the value added network (VAN). This “electronic commerce” which is known as “second
network is a telecommunications network which is industrial revolution”. All normal trends of com-
mainly designed for data transmission and some- merce including searching and choosing products
how processes data; therefore, the network offers and services, providing funds and paying cost, de-
services which are more than simple transmission livering and services which were physically done
of data. Developing value added networks increases and were tangible for the customers, could be car-
strategic goals and reduces overhead costs. ried out electronically in electronic commerce.
Electronic commerce could also be defined as
Types of Electronic Data Interchange buying and selling information, products, and ser-
A: Electronic Interchange of Combined Data: vices via computer networks. New items could be
This kind of electronic interchange allows all trade added to this definition so that it is defined as :
exchanges to be done in such a way that all parties “Supporting all forms of commercial transac-
seem to benefit from electronic data interchange. tions via digital structures whose elements are elec-
By the use of combined electronic data interchange, tronic market, electronic data interchange, and
messages which are sent to the parties which are not electronic commerce” (Sarafzade, 2004).
able to use electronic interchange are sent as the Clarke (1997) believes that electronic com-
fax on pieces of paper or as postal letters. Further- merce is any kind of data interchange related to
more, in some cases some software solutions have commercial affairs via electronic tools.
been offered which translate non-electronic data In the past.competition among firms was sum-
interchange messages of active parts of commerce marized in two factors of quality and price, so

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Social science section

that every firm which was offering goods with bet- es. Electronic data interchange expands the range
ter quality and lower price could get greater share of electronic commerce models from large financial
of the market in hand. Due to the development of institutions to wider dimensions.
information technology and the break of monopo- According to Information Technology Asso-
lies related to trade information and their transpar- ciation of America, electronic commerce revolu-
ency, the competition has dramatically increased tion gave hope to small companies to trade beside
among the firms. Therefore, in order to survive in big corporations. Small companies should join the
the market, in addition to price and quality, elec- electronic commerce system; otherwise, they could
tronic commerce is also considered as a competitive not survive in business competition. Electronic data
advantage nowadays. interchange is one of the oldest and the most basic
One of the most important goals of electronic tools for integrating commercial activities. Due to its
commerce is the ease and speed of offering what- consistent and standardized nature, electronic data
ever a consumer needs. EDI with the highest speed interchange is still one of the most useful and lead-
increases accuracy as well and prevents human in- ing applications of modern electronic commerce.
tervention and its related errors. Moreover, EDI re- Therefore, this golden opportunity is provided for all
duces the costs because by eliminating manpower enterprises especially small and medium-sized en-
and related faults and delays, over head costs aris- terprises (SME) to be able to work in an internation-
ing from this matter will be dropped and other costs al level like a multinational enterprise while their ex-
such as storage, etc. will significantly reduce. This changing costs are much less than before.
matter encourages organizations and firms to use Worldwide web development, related standards
electronic commerce. and protocols and the use of information technol-
One of the benefits of electronic commerce is ogy tools attracted more and more users to internet
the reduction of interchange costs. According to and electronic and developed electronic commerce.
EIU report the current value of global exports of Electronic commerce via internet is done in two
goods and services is about 7000 billion dollars and ways: the first one is electronic data interchange in
500 million dollars out of this amount is spent to pre- its current form via internet; that is internet is used
pare and exchange the related documents; In other for commercial communications as a free or low
words about 17% of the value of global transactions cost network instead of more expensive value added
is the cost of preparing and exchanging documents. networks. The second one is the worldwide website
The cost of exchanging documents will dramatical- which offers goods, services, and information. E-
ly reduce via electronic interchange. It is estimated commerce has grafted the commercial software of
that the use of electronic data interchange instead of business partners onto each other by means of web
conventional paper-based methods will reduce 21- and internet technologies.
70% of the costs of various commercial activities. Large volume and number of transactions, high
Electronic commerce generally and electronic integrity of the systems, too many business partners
data transfer particularly have been predicted and and strong relationships between business partners,
designed as tools for making changes in operational results transmission via electronic transaction and
methods of organizations. In this process, in addi- rich contents are the advantages of using electron-
tion to the elimination of paper-based transactions, ic data interchange under web which is now con-
changes are also emphasized to be made in the way sidered as one of the most useful tools in electronic
organizations conduct transactions with their com- commerce.
mercial parties and also in their response to elec- The advantages of electronic data interchange in
tronic data interchange which in turn will restruc- international trade and its general effects on coun-
ture processes within the organizations. Indeed, the tries’ macroeconomic could be outlined as follows:
optimal productivity and efficiency are achieved • Significantly lowering operating costs
when this technology is implemented after com- • Doing sales (imports and exports), making
plete investigation and analysis of intra-organiza- international bids, controlling inventories, banking
tional processes and even after the implementation affairs and payments, doing customs activities, etc.
such processes should be constantly reviewed and more easily, quickly, and accurately
restructured. • Increasing production level and quick in-
Electronic data interchange could be used and vestment return (exports promotion)
exploited in all other kinds of commercial exchang- • Implementing and coordinating working con-

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Social science section

ditions with other countries especially in terms of compe- • Lack of computerized systems:one of the re-
tition in global markets and also joining economic poles strictions in working with various organizations is their
• Minimizing human errors and providing bet- computerized level. In cases that some administrations
ter opportunities for planning and control have not become computerized earlier and now sud-
• Small and medium-sized enterprises entering denly deal with electronic data instead of convention-
international market, creating employment opportuni- al letters and signed papers, this problem gets more se-
ties, removing poverty, and transferring technology rious. In this case, it is difficult to make them accept
Considering the costs of electronic data inter- common systems and methods; however, the urge of
change, more issues must be investigated in the form their participation and involvement even in the early
of overall benefits at countries’ macroeconomic level stages could not be ignored because they are consid-
and promotion of international communications with ered as an important link of the work chain.
regard to increasing costs of applying old paper-based • Legal issues: in applying electronic data in-
methods; therefore, accurate evaluation of technical terchange as a part of business activity, legal accep-
and economic justification for using this mechanism tance of electronic exchange is an important issue.
will be somewhat difficult in spite of the fact that it is Admitting electronic signatures and electronic me-
necessary to apply it. The costs of electronic data inter- dia as evidence in judicial courts is the prerequisite
change could be generally summarized as the following: for any commercial application of this technology.
• Costs related to public education, improving Therefore, effective laws are needed to be passed so
awareness, and creating legal environment that different plans could run their transactions elec-
• Costs related to establishing hardware which tronically and rules and regulations should also be
usually exist in any mechanisms or costs related to coor- modified whenever necessary to be consistent with
dinating available software this method in order to validate electronic docu-
• Costs related research and studies; that is elec- ments since at present by the term document means
tronic data interchange should be done in the same way information which is written and signed on paper.
which is common in large mechanized projects so that • Telecommunications Media: reliable tele-
costs related to primary research and studies, prepara- communications infrastructures are greatly important
tions of reports containing economic and technical jus- as supporting electronic documents. Recently, small
tification by specialists and counselors should be ac- satellite terminals for rental lines have been discussed,
counted for. but it is practical if its implementation compensates for
• Costs related to required kinds of software its related costs.
• Costs related to contextualizing communica- • Electronic Data Interchange Standards: ad-
tion and telecommunication systems which depend on mission and implementation of electronic data in-
selected tools. terchange standards and their consistency with com-
• Costs related commercial restructuring, run- mercial documents is another issue which requires
ning electronic data interchange in segments related to much effort. Even though some of these docu-
foreign trade such as SWIFT project in central bank and ments such as air and land waybills are widely used
ASYCUDA in Iran customs. all around the world and accepting their electronic
• Costs related to business data networks equivalence in every country is easy, there are some
• Operating and maintenance costs including the other documents which are specific to the commerce
costs of developing systems and new kinds of software of a certain country and their converting plan should
• It should be noticed that from the viewpoint be prepared as well. On the other hand, accepting
of economic technical justification and according documents by the industry is also very important be-
to available reports and experiences, electronic data cause industries are an integral part of the implemen-
transfer and remarkable savings resulting from its ap- tation of electronic data transfer.
plication and also unique competitive effects and ad-
vantages of electronic data interchange for countries Conclusions
or organizations definitely outweighs its costs.
In recent decades, organizations have hur-
Limitations of Electronic Data Interchange ried towards the use of information and commu-
nications technology in business and commercial
Some of the issues and problems of running elec- fields. Moreover, business consulting firms recom-
tronic data interchange are as the following: mends commercial firms to invest and work in ar-

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Social science section

eas where it is possible to access internet and to run merce Standardizing Methods, 4th National
electronic commerce and also to enter transactions conference on Electronic Commerce, Tehran.
with companies which have established electronic Bayat, J. (1999). Necessity of Establishing Electronic
commerce or have strategic plans to completely es- data Interchange (EDI) in IRAN, Master thesis,
tablish it. In electronic commerce, the main goal Mazandaran University of Science and Tech-
is to know new trade models and existing relation- nology.
ships within electronic environment. In addition, it Institute of Commercial Research and studies (1997).
should be noted that electronic commerce is a set of From Electronic Data Interchange to Electronic
telecommunications technologies, processing, and Commerce.
storing data in relation to markets, organizations, Molla, A. & Licker, P.S. (2001). E-commerce Sys-
customers, dealers, and electronic payment sys- tems Success: An Attempt to Extend and Re-
tems. Large centers of EDI are always trying to at- Specify the Delone and McLean Model of IS
tract their smaller business partners to EDI world. Success, Journal of Electronic Commerce Re-
Nowadays, every commerce can enter the EDI search, 2(4), 48-58.
world and take advantage of high speed and econo- Sanayeie, A. (2002). Electronic commerce in the
my thrift which are hidden in electronic commerce. Third Millennium, Jihad Daneshgahi Publica-
With regard to daily expansion of electronic com- tion, Isfahan.
merce for increasing international market shares, it Seddon, P.A. (2010). Re-specification and extension of
is necessary for all private and public sector manag- the Delone and McLean model of IS success, In-
ers to try to establish electronic data interchange in formation Systems Research, 8(3), 24-53.
their own firm or organization. Senn, J.A.(2000). Business-To-Business E-Com-
merce, Information Systems Management.
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Openly accessible at http://www.european-science.com 194