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Chapter 4.18 Intelirel’s Transition to
E-Business: Optimizing the Combination of
Electronic Data Interchange and the Internet
Nir Kshetri
The University of North Carolina at Greensboro, USA
Satya Jayadev
The University of North Carolina at Greensboro, USA
EXECUTIVE SUMMARY
Intelirel is a U.S.-based multinational corporation that produces a variety of items with apparel as one of the business divisions. This case provides an overview of Intelirel’s transition to electronic business (e-business) of its apparel division. The company introduced the Electronic Data Inter-change (EDI) technologies in the mid-1980s. Before starting the implementation of e-busi-ness technologies in the late-1990s, the company conducted extensive surveys to assess the attrac-tiveness and convertibility of its various market segments. The analysis of the surveys indicated that a strategic imperative for the company is to
optimally combine EDI and the Internet so as to UHDSWKHEHQH¿WVRIERWKWHFKQRORJLHV
ORGANIZATIONAL BACKGROUND
,QWHOLUHOLVD86EDVHGGLYHUVL¿HGFRPSDQ\ZLWK operations in over 50 countries. The company has apparel as one of its main business divisions. Intelirel manufactures and markets about three dozen apparel brands worldwide. They include basic, non-fashion apparels in various categories. The company employs different channels of distribution to sell its products. In some cases, it directly sells to the consumers through its
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Intelirel’s Transition to E-Business
factory outlet stores and the Internet. Its mass-market channel includes well known retailers in the global market.
Being a manufacturer and marketer of high-quality products, Intelirel has priced its products higher than most of its competitors. The company thus competes on product differentiation such as higher quality fabric, well known brand names, and a variety of styles provided to the custom-ers.
Table 1 provides additional information about the strengths and weaknesses of Intelirel as well as opportunities and threats facing the company. :HEULHÀ\GLVFXVVWKHPLQWKLVVHFWLRQ
Strengths:%HLQJDGLYHUVL¿HGFRPSDQ\ZLWK worldwide operations and a large customer base, Intelirel can enjoy economies of scale and scope in its operations. Another major strength of the company includes its focus on quality products
and services to meet customer expectations. Competing on quality rather than price is of paramount importance in the new economy. Still another strength of the company is its proactive ,7GHSDUWPHQWWKDWKDVSODFHGEXVLQHVVEHQH¿W creation as its mission. Thanks to competent and experienced staff in the IT department, Intelirel KDVEHHQDPRQJWKH¿UVWIHZFRPSDQLHVLQWKH industry to incorporate new innovations in stor-age, networking and security in its system.
Weaknesses:In terms of global competitive-ness, U.S.-based apparel companies fall behind their home textile counterparts. The latter groups have stronger brand names and better inven-tory-management programs (Lloyd, 2000). The industry-level brand problems are worsened by ,QWHOLUHO¶V¿UPOHYHOZHDNQHVVHV1RWZLWKVWDQG-ing its focus on quality, there are several apparel brands that are more well known than Intelirel’s
Table 1. Intelirel’s online apparel business: A SWOT analysis
Strengths
• Competent IT personnel. • `LYHUVL¿HGFRPSDQ\ZLWKEXVLQHVVHVLQDQXPEHU • of segments. •
• Product differentiation as selling propositions: • better quality fabric, more styles and more choice.
• Worldwide operations. • Huge customer base.
• Company’s focus on quality services and meeting customer expectations.
Opportunities
3RVVLELOLW\RI,QWHUQHW¶VXVHLQUHGH¿QLQJFXVWRPHU • expectation. •
$YDLODELOLW\RI³UREXVWUHOLDEOHDQGXVHUIULHQGO\ color correction” on the Internet.
• Apparel industry: one of the fastest to adopt e-commerce technologies.
• Clothing: among the top 3 products bought online
during the holiday season of 2004.
Weaknesses Not strong brand name.
Disintegrated e-business model.
Products priced more than its competitors. Lack of product awareness among the target segments.
Threats
Market attackable from upscale brands.
Powerful big retailers as major customers.
Sources: DiMartino (2000, p. 41); Tedeschi (2004); Interviews with an e-business manager at Intelirel; and au-thors’ research
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Intelirel’s Transition to E-Business
EUDQGV$ODFNRIVWURQJEUDQGHTXLW\LVUHÀHFWHG in its brand awareness level which is lower than VRPHRILWVFRPSHWLWRUV$¿QDOZHDNQHVVFRQFHUQV Intelirel’s lack of integration across its business divisions (e.g., apparel and various non-apparel businesses). Since each division has its own e-business system, such disintegrated model has hindered the realization of potential economies of scale and scope.
Opportunities: The Internet has additional YLUWXHIRU¿UPVLQWKHDSSDUHOLQGXVWU\DYDLODELOLW\ RI³UREXVWUHOLDEOHDQGXVHUIULHQGO\FRORUFRU-rection” (DiMartino, 2000, p. 41). These features KDYH UHGH¿QHG FXVWRPHU H[SHFWDWLRQV LQ WKLV industry. Research has consistently shown that apparel is among the top few products in terms of online sales.
Threats:$VXUYH\FRQGXFWHGE\*UHHQ¿HOGLQ July 1999 indicated that 56% of the respondents would not buy apparel online because of the con-cern about not being able to touch and feel (Kelly & Andersen, 2000). The proportion declined to 41% in December 1999 but it is still a substantial proportion (Kelly & Andersen, 2000). Although apparel is among the popular online categories, some big retailers have discontinued online sales of this category. To take one example, Wal-Mart discontinued selling clothing online since 2001 mainly because of high handling costs associated with merchandise returns (Merrick, 2003). As we mentioned earlier, there are other brands that are more well known than Intelirel. The company is thus susceptible to threat from other well known and more upscale brands. Another threat concerns its dependence on powerful retail giants. Some of them are likely to develop their own brands.
$VLWZLOOEHFRPHFOHDUVKRUWO\¿UPVLQWKH apparel sectors faced intense competition from retailer giants to adopt electronic data interchange (EDI)1 technologies in the 1980s. Although Intelirel had assimilated the EDI technology by the mid-1980s, the company was relatively slow in integrating the Internet-based e-business technologies. The company failed to realize the
importance of a full-blown e-business strategy until 1998. A number of factors contributed to Intelirel’s slow start in moving into the Internet. First, like many big companies that have invested in private networks such as EDI, Intelirel concentrated on utilizing the existing technology in a better way. Rob Unger, director of electronic billing and payment at NACHA (http://www.nacha.org/) argues:
7KH>FRPSDQLHV@ZKRGLG(`,LQWKH¿UVWSODFH — the Wal-Marts, Sears …are going to continue WRWU\WRPD[LPL]HHI¿FLHQF\ZLWKLQWKHLUSULYDWH networks. (Electronic Commerce News, 2002, p. 1)
Second, like many big companies (e.g., Ghosh 1998), Intelirel was slow to realize the importance of integrating the Internet in the business strategy. Intense competitive pressure forced the company to consider combinations of EDI and the Internet. Like many vendors (Radosevich 1997), Intelirel started searching new ways to marry the two technologies: EDI and the Internet.
Given several limitations of conventional EDI including high costs associated in responding to customers, experts have argued that EDI must be combined with e-commerce on the Internet, or other measures directed towards enhancing customer services (e.g., McAtee, 1999). Nonetheless, to produce a given combination of differentiators (e.g., advertising, promotion, e-commerce, customer ser-YLFHVHWFGLIIHUHQW¿UPVFKRRVHGLIIHUHQWOHYHOV of involvement with each technology (Spralls, 2001). This case examines how Intelirel moved into the realization of optimum combination of the two technologies.
SETTING THE STAGE
7UDGLQJUHODWLRQVKLSEHWZHHQWZR¿UPVLVDIXQF-WLRQRIWKHGHJUHHRI³¿W´EHWZHHQWKHWHFKQRORJLHV used by them or what Ford et al. (1998, p. 24) refer
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