Virtual Business

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Description of a Virtual Business. Explanation.




Definition Virtual Business. Description.

A Virtual Business is a company operating with a very limited physical presence. Often these non-conventional organizations are built from scratch, relying much on the use of information and communication technology, in particular Internet technology (E-Business). But they can also be formed from an existing traditional firm through Outsourcing most or all of its functions, such as designing, manufacturing, marketing, selling its products and services. Outsourcing occurs when a company uses an outside firm to provide a necessary business function that might otherwise be done in-house. In its most advanced form, outsourcing makes it possible to build an entirely Virtual Company with only one single employee: the entrepreneur himself.

Typical advantages of Virtual Business Models over conventional companies include:

  • Lower Information gathering and search costs.

  • Lower negotiation and settlement costs.

  • Lower inventory and building costs.

  • Access to wider markets.

  • Flexibility in sourcing inputs.

  • Improved transaction automation and data mining capabilities.

  • Ability to bypass intermediaries (Disintermediation).

  • Lower menu costs enabling more rapid response to market changes.

  • Ease of bundling complementary products.

  • Ease of offering 7X24 access.

  • No limitation on depth of information provided to potential customers.

Completely virtual businesses are relatively rare. However many firms have implemented its underlying logic at least partly to focus on activities that they are good at (Core Competence), or that contribute to their Competitive Advantage. Firms opting for a mixed business model are referred to as Bricks and Clicks companies.

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