Home-based e-business - an option for the self-employed?

 

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Chapter 5 – Analysis and Conclusion

 

5.1. Comparison between different types of e-businesses

It is obvious that the requirements of the four different types of e-businesses are vastly different in terms of the knowledge and commitment required, and also potential risks and profit. In this section, the different types of e-businesses will be compared with regards to (1) start-up costs, (2) running costs, (3) specialist knowledge, (4) technical knowledge, (5) time to profit, (6) risk (7) profit.

 

 

Start-up Costs

 

Running Cost

Specialist Knowledge

Technical Knowledge

Time to

Profit

Risk

Profit

Affiliate Programs

 

Low

Low to

High

Low to High

Low to Medium

Very

Long

 

Very Low

Low to Medium

Physical products

•  Auction Sites

 

•  Online Shop

 

 

Low

 

Low to

Medium

 

Low

 

Low to Medium

 

 

Low

 

Low to Medium

 

Low

 

Medium to

High

 

Short

 

Medium

 

Low

 

Medium

To High

 

Low to Medium

 

Medium to High

Soft Products

 

Low to High

 

Medium to High

Low to High

Medium to High

Medium

Medium

To High

Low to

Very High

Services

 

Low to High

Low to High

 

Medium to Very High

Medium to Very High

Medium

Medium to High

Low to High

(Exhibit 24)

Source: By the Author's research and analysis

 

5.1.1. Start-up Costs

The start-up costs are lowest for businesses that derive income from affiliate programs and selling physical products through auction sites. Online shops require expenditure in setting up a web site with a carting system and payment gateway. Web sites selling soft products or services may require to pay additional fees to third parties for use of their products or services e.g. resellers licenses for software, integration into airplane ticket booking systems.

5.1.2. Running Costs

There is little running cost for businesses selling physical products through auction sites. An online shop selling physical products may have to pay for web hosting, use of cart/shop-front system, and access to a payment gateway. Web sites offering soft products and services may have to pay extra because of the extra demand in web hosting resources and also recurrent reseller or rental fees for software or integration into other computer systems. Successful publishers earning money through affiliate programs often run web sites that require a lot of web resources. There are also substantial advertising costs involved in each category with the exception of selling physical products through auction sites. The advertising costs vary greatly and depend very much on the demand of the products or services offered.

5.1.3. Specialist Knowledge

Obviously, businesses providing specialized services such as advice on legal, financial and medical matters require a very high degree of specialist knowledge. Those that sell physical products require some degree of knowledge of the products they sell. Prospective customers are more likely to buy from sites that provide clear and detailed information on the products. Those that sell complicated soft products such as software require a high degree of specialist knowledge in order to help the customer install and run the software. The specialist knowledge required for affiliate programs is variable but generally, web sites that offer better information on the subject are much more likely to do well than those that do not. This is because surfers are more likely to trust web sites that provide good specialist information and buy the products that the web site is promoting.

5.1.4. Technical Knowledge

For the purpose of this study, technical knowledge refers to competency with the technical aspects of e-business discussed in the previous chapter. Businesses that sell physical products through auction site do not require much technical knowledge except in using the auction site. Online shops require some degree of technical knowledge in order to be set up correctly although TURNKEY solutions may make the task much easier. Similarly, businesses that sell soft products may need to set up password protected directories or download areas and thus need some degree of technical knowledge. Web sites that sell services require the highest level of technical knowledge, as it may require the integration of the web site into other computer databases such as those for airline and hotel reservation, or use of complex technologies such as streaming video for adult sites.

5.1.5. Time to profit

For the purpose of this study, the time to profit is regarded as the time taken to reach a decent profit, it is not the same as time to profitability. Publishers may start to earn a little income from affiliate programs straightaway but it will probably take months or years before a decent profit can be returned as a long time is needed for a large volume of traffic to build up on their site(s). Businesses that sell physical products on auction sites can turn in a good profit straightway provided that the right products are available. Web sites that sell physical products, soft products and services will take a few months for medium volume traffic to build up if their site is listed on search engines and directories.

5.1.6. Risks

Setting up as a publisher and joining affiliate programs carry minimal risk except in terms of the time and money spent in setting up and maintaining and promoting the web site(s). There is very little risk with selling physical products through auction sites unless one takes in a lot of stock that could be left unsold. The risks are higher for an online shop because of the extra money involved in setting up the site and also the possibility of taking in stock that could not be sold. Similarly, selling soft products may involve the purchase of expensive reseller's licenses or development costs for a particular soft product. The situation is similar with services where one may have to pay expensive reseller fees.

5.1.7. Profit

It is very difficult to turn in a high profit earning exclusively from affiliate programs because it is extremely difficult to produce and maintain high volume traffic web sites. In the case of selling physical products through auction, the margins are generally much lower than those of an online shop, and the profit realized is somewhat unpredictable. The profits that can be obtained are higher for sites that sell physical products, soft products, and services as are the risks involved. The highest profits of all can be derived from adult sites but the competition is also the highest.

 

5.2. Conclusions

Based on the findings and analysis reported previously, the author has arrived at the following conclusion:

 

5.2.1. It is more difficult to set up home-based e-business in Hong Kong than the United States

First of all, there are fewer e-business start-up options available for Hong Kong people. It is obvious that many e-business programs such as “Vstore”[36], “Travel Agency in a Box”[16] or “Yahoo Shopping” mainly caters for US residents. The same applies to many affiliate programs that are not open to Hong Kong residents. The choice of e-business solution providers is much more limited to Hong Kong residents. Where available, TURNKEY shop-front programs and payment processing are very expensive. However, it must be said that with the availability of PAYPAL [27] and international payment processors like Worldpay [37], the gap has closed considerably. There is a general lack of experience and technical knowledge with regards to e-business in Hong Kong, which is hindering the growth of e-business in Hong Kong . This is also the main reason why a lot of SMEs in Hong Kong are still hesitant in setting up a fully-fledged function e-business.

  Although web site design in Hong Kong is now as good as anywhere else, there is still a lack of experience in web site promotion in Hong Kong which reduces markedly the chances of success. Internet surfing is very popular in Hong Kong , and is reported to be among the highest in the world. However, due to the dot.com failure and the traditional Chinese shopping culture, there is still a perception in the society that e-business is not secure and is non-profitable. Although Mr Tung Chee Hwa, the chief executive of HKSAR has shown his concern on the development of high technology in Hong Kong since his first term of office, little has been done to help on the SMEs with the application of e-business.

 

5.2.2 Home-based e-business is not applicable for everybody

Unless the target market is entirely based locally or in Greater China, it is essential to have good competency with English in order to communicate effectively through the Internet. It is especially true if the business is to sell physical products or to provide services online. A certain degree of technical competency with the Internet is required in order to run a successful e-business. Different types of e-businesses may require different level of investment in terms of cost, specialist and technical knowledge. However, all types of e-business demand a great deal of commitment in time and effort. Therefore, to set up and maintain a successful home-based e-business, one should have good self-management skills. Most people working at home may find it difficult to define work and home business. They may be distracted continually at home by their children, or work so much that their family life is distracted. After all, an online business is a 24 hour a day, 7 days a week business. Therefore a lot of self-discipline and motivation is required in building up a home-based business.

 

5.2.3. The most suitable type of home-based e-business for Hong Kong residents

After reviewing the various opportunities available, the author has come to the conclusion that selling physical products is the most viable option for a home-based business in Hong Kong . Firstly, it is relatively easy to source products cheaply and import tax-free in Hong Kong . Secondly, the postal services are pretty efficient, and Hong Kong has a stable currency that is linked to the U.S. dollar. Lastly, trading goods has always been something that Hong Kong is renowned for, and is one of the key pillars of the local economy. However many products can now be obtained more cheaply in the U.S because distributors there are able to obtain much larger discounts through high volume orders [23] compared to those in Hong Kong. As a rule though, most online shops in the U.S do not ship outside the U.S. thus providing an opportunity for businesses based in Hong Kong . It is now very easy for a person to start trading physical products through eBay [11] and other auction sites. Moreover, it is now much easier to set up an online shop as TURNKEY solutions are available through a number of web-hosting companies in Hong Kong and abroad. It also much easier to accept credit card payments online for Hong Kong residents nowadays.

It would be extremely difficult for Hong Kong residents to earn a full-time income through affiliate programs alone. Firstly, it is extremely difficult to build up web sites with high volume traffic, and secondly, many companies offering affiliate programs will not accept Hong Kong residents. Many of the opportunities available for selling soft products function in a very similar to multi-level marketing (MLM). Unless one gets in very early, there is very little profit to be made. That is unless one is willing to spend the time and investment in creating a unique soft product oneself. Even then, piracy could severely limit the profit that can be made. Although vastly profitable, adult sites are not for the average person. Unless one has a specialized service to offer, it is normally very difficult to set up a successful online business. Similarly as in the case of soft products, many of these so-called opportunities like “Travel agency in a box” function like an MLM business.

 

5.3. Final Conclusion

Setting up a home-based e-business is now a viable proposition for self-employed individuals in Hong Kong , as the author can attest to this. Although still lagging behind North America and Europe , the basic infrastructure is here, especially the means to accept online payments. The level of competency in English is high in Hong Kong and there are efficient and economic postal and courier services. However, a home-based e-business is not for everybody as a fair degree of competence in the use of e-business resources is required. The most suitable type of e-business for Hong Kong residents is the selling of physical products either through auction sites, or through online shops. The ever-increasing amount of unemployment, and with the waiver of the business registration fees for 2002 should encourage more people to set up e-businesses.