COST EARNINGS ANALYSIS ON AQUATIC PRODUCT

E-COMMERCE

ZhuoFan Yang and ShuHua Ren

Zhejiang Ocean University, Wenhua Road, Dinghai District, Zhoushan, 316000, Zhejiang, China

Keywords: Aquatic product trade, e-Commerce, Increasing marginal benefit.

Abstract: With the development of e-commerce in the global trade, e-commerce has brought substantial profits, so it's

necessary to put e-commerce into Chinese aquatic enterprises. From the Angle of cost and earnings analysis,

this article discusses the feasibility of e-commerce in Chinese aquatic enterprises. We got this conclusion

that e-commerce can let purchase and trade cost down and increase the transition cost accordingly. In the

early stage of e-commerce development, the switching cost is very high, but along with the development of

e-commerce, the switching cost will drop, meanwhile, the earnings of aquatic product trade will rise.

1 INTRODUCTION

Conventional economic theories believe that land,

labor and capital are the important resources. With

the rapid development of internet and information

technology in recent years, Information network has

touched all economic activity space, and played an

increasingly important role in the modern enterprise

management and operation process, based on which

all kinds of business models also were built.

Especially e-commerce, which builds on the

network technology, revolutionizes the transaction

model, appears enormous economic trade potential

in the economic resources allocation, cost reduction

and the client relationship improvement, and has

been one of the main ways of promoting economic

increase.

From the global market, China is one of the

biggest exporters for aquatic products. The

proportion of Chinese aquatic products import and

export has been increasing in recent years.

International trade pattern of Chinese aquatic

products is export-oriented self-produced domestic

seafood and aquatic products processing. According

to the data of Chinese agriculture ministry, by Oct

2010, Seafood exports continued first in agricultural

commodities export, accounting for 27.7% of

agricultural exports (384.5 million dollars). The

main countries of seafood export is Japan, America,

Europe, Korea respectively, and the export situation

is better than last year, value of export is

significantly double-digit growth. Seafood trade

development requests aquatic enterprises to keep

pace with international information economy

development and realize electronic and information.

2 CHINESE AQUATIC PRODUCT

E-COMMERCE SITUATION &

PROBLEM

Aquaculture is an important part of agriculture in

China, and is one of traditional basic industries.

Compared to other industries, aquaculture has its

own development characteristics, for example,

aquatic enterprises are small and scattered, technical

ability is limited. Aquaculture has strong resource

dependency and distinct regional characteristics,

especially aquatic fresh products have high request

for the storage and transport. Most current aquatic

products’ transaction still rely on the traditional way,

information level is low. With rapid development of

information technology and wide use of the Internet,

it is possible to improve aquatic enterprises'

informational level and change the transaction ways

of aquatic products.

In terms of fishery website construction, at

present, Chinese aquaculture websites have reached

more than 300, and has initially formed an industry

websites tribe including all kinds of aquatic website.

Aquatic website development promoted the

combination Internet technology with aquaculture,

111

Yang Z. and Ren S..

COST EARNINGS ANALYSIS ON AQUATIC PRODUCT E-COMMERCE.

DOI: 10.5220/0003435601110115

In Proceedings of the 13th International Conference on Enterprise Information Systems (ICEIS-2011), pages 111-115

ISBN: 978-989-8425-56-0

 2011 SCITEPRESS (Science and Technology Publications, Lda.)

but the high quality and sustainable development of

websites are rare (WeiPing Lu & Ran Hua 2003).

In recent years, with the development of

e-commerce and the increasingly popular for online

shopping, domestic seafood online sale shows rapid

development momentum. Besides aquatic product

processing and sales enterprises established their

own marketing and publicity websites, some seafood

dealers also use domestic well-known C2C network

marketing platform such as "taobao" and "baidu" to

promote their products. They mainly sale

ready-to-use seafood, secondly seafood dry

including Boiled Black Ginseng with Shrimp,

shrimp, dried shrimp, Shendai, seasoned shredded

squid, Roast taipa crab, sea cucumber, abalone,

dried cuttle fish, seaweed, jellyfish etc., These

products are easy to store and ship, which provide

the possibility for e-commerce. Besides, Some of

Chinese frozen seafood enterprises also begin to use

e-commerce for online trades, which mainly traded

between producers and dealers, and it belongs to the

pattern of B2B

(

http://www.shuichan.cc/news_view.asp?id=30792).

Accordingly, aquatic fresh products online

trading also gradually rise, especially online sales of

freshwater hairy crabs, but because the

transportation conditions of fresh products are

limited, it is easy to cause death and decay，and it is

common that crabs are dead when the buyers check

goods，online sales of aquatic fresh products are still

in the initial stage in China now.

In addition, Chinese aquaculture e-commerce

studies are focus on web page design, assessment on

website content and development stage, e-business

influence, changes of aquatic enterprises and

e-commerce marketing strategy, and so on.

Throughout aquatic e-commerce research literature,

it is rare to combine aquatic products trade with

e-commerce. According to this, from the Angle of

cost and benefit analysis，this paper will use the

marginal benefit increasing theory of network

economy to discuss that network technology brings

aquatic trade enterprise reform and innovation.

3 COST AND EARNINGS

ANALYSIS ON AQUATIC

PRODUCT E-COMMERCE

3.1 Marginal Benefit Increasing Theory

of Network Economy

In economics, Marginal means the change of the

output caused by input per unit. Marginal analysis

method is more application in management

economics. It is mainly used to analysis in a certain

level of output, if enterprise increases each unit

product, it will have an effect on the total profits.

Formula as follows:

Marginal value=△f(x)/△X

Where:

X=input,

f(x)=output, Performance for X functions

△=Variable

Hypothesis basic value X is in changing, then,

each increases input per unit, the increment of

output caused by this unit is also changing.

In traditional economics, there exist scale returns

diminishing law, that is, rate of output will be

descending with increased input. However, in

network economics, Electronic market unique cost

structure and strong positive feedback and negative

feedback effect, brought some extraordinary

economic effect (

Arthur, W.B. 1996) ， it shows

opposite tendency, that is marginal benefit

increasing, rate of output will be increasing with

increased input. As figure1:

Figure 1: Marginal benefit increasing law.

The reason why appears marginal benefit

increasing is that (

ChunFang Xu 2007)：

① Higher initial cost

In traditional economics, the lowest product

marginal cost less than the sum of direct materials

and direct labors. In network economics, Research

development expense accounts for most, the sunk

cost of products is high, the marginal cost is

extremely low, close to zero. In addition, network

consumption has a non-exclusive features and

aggravate the marginal cost increasing trend.

② Monopoly effect

Inherit monopoly caused by technology

innovation makes high excess profit not be

equalized and makes reward not be diminished.

③ Network effect

Network effect forms an effective information

Output

Input

ICEIS 2011 - 13th International Conference on Enterprise Information Systems

112

not destroy laws, that is 1-1=1，1=∞；

④ Inertia effect

Switching cost and locking enhanced monopoly.

The traditional Matthew effect namely under certain

conditions, something will appear some advantages

or disadvantages, with the inertia, the two will have

self-enhancement effect, and in the last, it will

aggravate expansion. In network economics,

Matthew effect is strengthened, reflect in economics

is that first match wins ， together with locking

phenomenon, it forms the situation that the strong

gets stronger, the weak gets weaker, the rich get

richer, the poor get poorer, the winner takes all. All

of this above aggravates marginal benefit increasing.

As figure2:

Above all, in network economics, Marginal

returns increasing law takes effect in most situations,

especially for those enterprises based on technology

and knowledge, and those are more focus on

technology, supplemented by processing. However,

Marginal returns decreasing law takes effect in those

products based on raw material including some

factors of technology and processing, besides, it also

takes effect in the initial stage of network

construction and network capacity expansion.

0 Time

Figure 2: The winner takes all.

3.2 Cost and Benefit Analysis on

Seafood e-Commerce

Foreign trade enterprise cost is the sum of normal

and reasonable payment of the purchase cost,

transaction cost and taxes in the process of import

and export in a certain operating period（tax greatly

influenced by the government, so this paper will not

consider it temporarily (

WenQingYu, 2005).

Transaction cost, Mainly refers to the cost

needed in the process of deal, including information

search, the formation and execution of contract,

after-sale service, etc.. Fees paid to know and

confirm transaction object is the information cost or

information search fee, which comes from the

preparation stage before trading; fees paid to get the

trading possibility is the formation and execution of

contract cost, including the expenses of advertising,

renting office, borrowing, inventory turnover

expenses, trade consultation, etc., which is used in

the preparation stage before trading and trading

consultation and signing a contract stage

respectively; in addition to, there are other costs

such as after-sale cost. Commodity procurement cost

is close to commodity purchase cost, it is the sum of

merchandise cost and all costs consumed in the

process of purchasing (

ChunFeng Yang 2007).

In network economics era, International trade

cost structure also includes switching cost. It is the

inputs required by enterprise to develop

international e-commerce. It includes fixed

switching cost (Initial purchase for e-commerce

hardware and software systems, and relevant

personnel training expenses, etc) and variable

switching cost (Daily system technology, security

maintenance fees and network service fees, etc).

Switching cost is not included in traditional

international trade cost structure (ChunFengYang

2007)

. As figure3:

Tradition international trade cost structure

Transaction cost Procurement cost

Network international trade cost structure

Figure 3: The different international trade cost structure in

tradition and network.

As for aquatic product trade, although the

implementation of e-commerce has increased

seafood trade switching costs, but after inputting

e-commerce, the enterprises’ transaction and

purchase cost is reduced accordingly, the reasons as

follows:

1. E-commerce enabled the information of buyers

and sellers more transparent, which changes the

seller scale economy caused by information

asymmetry in traditional trade. For example, the

buyers can get more price information of raw

materials, thus they can master more price

initiative right in raw material procurement.

2. " Paperless" is one of the major advantages of

e-commerce, it is easier and more efficient for

transnational trade by the electronic contract,

100

winner

loser

Market

Transaction

cost

Switching

cost

Procurement

cost

COST EARNINGS ANALYSIS ON AQUATIC PRODUCT E-COMMERCE

113

E-mail and web video etc, the trade link is

simplified, and the cost caused by mail contract

and letters is cut, and thus trade operation

efficiency is improved.

3. E-commerce greatly improves aquatic

enterprises' international image by the global

network, it provides convenience for aquatic

enterprises to develop international market and

promote international brand awareness, thus it’s

good to increase returns from foreign trade.

According to IDC, the advertising on Internet

can improve 10 times the volume of sales, and

the cost is only a tenth of the traditional

advertising.

4. The reduction of trade documents and trade

intermediary and the rapid speed of trade

information search will reduce the transaction

cost.

5. E-commerce pursues "zero inventory" or "little

inventory", less inventory cost makes transaction

costs decrease accordingly.

6. E-commerce establishes an online

communication platform and channel for

enterprises and customers, through online

feedback, the enterprise can quickly and

accurately get customer's evaluation and demand

information, it is good to strengthen customer

relations and improve product quality. In the

meanwhile, customer service costs integrate into

the construction cost of e-commerce, and thus it

can save enterprises’ spending.

However, after e-commerce input into the

enterprises, whether it can gain depends on whether

the increased value of switching cost less than the

total reduced value of transaction cost and

procurement cost.

Switching cost of e-commerce mainly includes:

technology cost (including hardware, Website

construction and maintenance costs, etc.), risk cost

(including the establishment of online payment

system, customer trust, etc) and personnel cost (The

website promotion and technology development

personnel expenses). In the early e-commerce stage,

switching cost is higher, because it needs to put

enormous capital to build and run e-commerce team.

During this stage, the e-commerce earnings will not

appear immediately, because there is a cumulative

effects and first-match-win effect, that is, the earlier

the enterprises put into e-commerce, the higher the

returns get from the market, and it can be

cumulative along with the development of network,

in other words, the longer your website exists, the

higher the popularity and Internet search rate is, and

it’s more easily for customers to visit.

We use weighting factor and Marginal analysis

method to explain the changes of cost and returns

after inputting e-commerce. If switching cost is

higher in the initial e-commerce, we give the 20

weights, and transaction costs and procurement costs

10 weights respectively, increased cost is positive,

reduced cost is negative, then, after inputting

e-commerce, cost changes in the following figure 4:

Figure 4: The changes of cost and returns after inputting

e-commerce.

We will get,

△X (the increased input) = 20-11.5=9.5

△f(x) (the increased output) =10

Marginal value=△f(x)/△X=10/9.5>1

So, we can get conclusion that the marginal

returns is increasing.

Here, what needs to explain is that as times go

on, the e-business model will be gradually improved,

especially after e-commerce enters the developing

and mature periods, the e-commerce returns will be

gradually remarkable, by then, the technology cost

will continue to reduce(maintenance cost is

dominate, risk cost will reduce and even disappear,

personnel cost will be fixed), in addition to, with the

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smooth development of e-commerce, procurement

cost and transaction cost will reduce, too.

Meanwhile, the returns will be increasing, and

e-commerce will be a good development condition.

4 CONCLUSIONS

Aquaculture is one of traditional basic industry.

With the development of network economy and

e-commerce, aquatic product e-commerce also has

preliminary development. But the practice in aquatic

product e-commerce is still in the early input and

development stage. From the angle of cost and

returns, in the initial e-commerce, it needs input

enormous manual labors and material resources, and

at this time, it’s in brand accumulation phase, profit

effect will not immediately appear. However,

According to the network economy development

law and future e-commerce development potential,

aquatic product trade e-commerce finally can save

enterprise purchase cost, transaction cost and the

increased switching cost, at the same time, it also

can promote enterprises' international image and

earnings, the marginal benefit present increasing

trend.

REFERENCES

Lu WeiPing & Hua Ran 2003, Fishery informationization

and Web technology application, Fishery

Modernization.

http://www.shuichan.cc/news_view.asp?id=30792

Arthur, W. B., 1996，Increasing returns and the new world

of business, Harvard Business Review,

July/August,100-109.

ChunFang Xu, 2007, Developing law of internet economy

and the theory of network information commodity and

service price.

WenQing Yu, 2005, Foreign trade enterprise cost concept

and the meaning of cost control, Journal of Liaoning

Administration College.

ChunFeng Yang, 2007，Influence of network economy on

cost structure of international trade.

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