E-COMMERCE IN DEVELOPING COUNTRIES
How important is e-commerce to SMEs in developing countries? How big is the SME e-business market?
For SMEs in developing countries e-commerce poses the advantages of reduced information search costs and transactions costs (i.e., improving efficiency of operations-reducing time for payment, credit processing, and the like). Surveys show that information on the following is most valuable to SMEs: customers and markets, product design, process technology, and financing source and terms. The Internet and other ICTs facilitate access to this information. In addition, the Internet allows automatic packaging and distribution of information (including customized information) to specific target groups.
However, there is doubt regarding whether there is enough information on the Web that is relevant and valuable for the average SME in a developing country that would make investment in Internet access feasible. Underlying this is the fact that most SMEs in developing countries cater to local markets and therefore rely heavily on local content and information. For this reason, there is a need to substantially increase the amount and quality of local content (including local language content) on the Internet to make it useful especially to low-income entrepreneurs.
How is e-commerce useful to developing country entrepreneurs?
There are at least five ways by which the Internet and e-commerce are useful for developing country entrepreneurs:
1. It facilitates the access of artisans47 and SMEs to world markets.
2. It facilitates the promotion and development of tourism of developing countries in a global scale.
3.It facilitates the marketing of agricultural and tropical products in the global market. It provides avenues for firms in poorer countries to enter into B2B and B2G supply chains.
4. It assists service-providing enterprises in developing countries by allowing them to operate more efficiently and directly provide specific services to customers globally.
Developing country SMEs in the services sector have expanded their market with the increased ability to transact directly with overseas or international customers and to advertise their services. This is especially true for small operators of tourismrelated services. Tourism boards lend assistance in compiling lists of service providers by category in their Web sites.
In addition, for SMEs in developing countries the Internet is a quick, easy, reliable and inexpensive means for acquiring online technical support and software tools and applications, lodging technical inquiries, requesting repairs, and ordering replacement parts or new tooling.
The Internet is also instrumental in enabling SMEs in developing countries to join discussion groups with their peers across the globe who are engaged in the same business, and thereby share information, experiences and even solutions to specific technical problems. This is valuable especially to entrepreneurs who are geographically isolated from peers in the same business.
What is the extent of ICT usage among SMEs in developing countries?
Currently the Internet is most commonly used by SME firms in developing countries for communication and research; the Internet is least used for e-commerce. E-mail is considered an important means of communication. However, the extent of use is limited by the SMEs’ recognition of the importance of face-to-face interaction with their buyers and suppliers. The level of confidence of using e-mail for communication with both suppliers and buyers increases only after an initial face-to-face interaction.
E-mail, therefore, becomes a means for maintaining a business relationship. It is typically the first step in e-commerce, as it allows a firm to access information and maintain communications with its suppliers and buyers. This can then lead to more advanced e-commerce activities.
ICT usage patterns among SMEs in developing countries show a progression from the use of the Internet for communication (primarily e-mail) to use of the Internet for research and information search, to the development of Web sites with static information about a firm’s goods or services, and finally to use of the Internet for e-commerce.
Many firms use the Internet to communicate with suppliers and customers only as a channel for maintaining business relationships. Once firms develop a certain level of confidence on the benefits of e-mail in the conduct of business transactions and the potential of creating sales from its use, they usually consider the option of developing their own Web site.
Studies commissioned by The Asia Foundation on the extent of ICT use among SMEs in the Philippines, Thailand and Indonesia, show common use patterns, such as:
1. wide use of the Internet for e-mail because of the recognized cost and efficiency benefits;
2. use of Web sites more for promotion than for online sales or e-commerce, indicating that SMEs in these countries are still in the early stages of e-commerce;
3. common use of the Internet for basic research; and
4. inclination to engage more in offline transactions than in e-commerce because of security concerns.
SMEs go through different stages in adopting e-commerce. They start with creating a Web site primarily to advertise and promote the company and its products and services. When these firms begin generating traffic, inquiries and, eventually, sales through their Web sites, they are likely to engage in e-commerce.
In addition, many Web sites providing market and technical information, agronomic advice and risk management tools for SMEs (to coffee and tea farmers in developing countries, for example) have emerged.
What are the obstacles, problems and issues faced by SMEs in their use of ICT in business or in engaging in e-commerce?
According to recent surveys conducted in select Southeast Asian countries, the perceived external barriers to e-commerce include the unfavorable economic environment, the high cost of ICT, and security concerns. The internal barriers are poor internal communications infrastructure within SME firms, lack of ICT awareness and knowledge as well as inadequacy of ICT-capable and literate managers and workers, insufficient financial resources, and the perceived lack of relevance or value-added of ICTs to their business.
In general, the main issues of concern that act as barriers to the increased uptake of information technology and e-commerce are the following:
● Lack of awareness and understanding of the value of e-commerce. Most SMEs in developing countries have not taken up e-commerce or use the Internet because they fail to see the value of e-commerce to their businesses. Many think e-commerce is suited only to big companies and that it is an additional cost that will not bring any major returns on investment.
● Lack of ICT knowledge and skills. People play a vital role in the development of e-commerce. However, technology literacy is still very limited in most developing countries. There is a shortage of skilled workers among SMEs, a key issue in moving forward with using information technology in business. There are also doubts about whether SMEs can indeed take advantage of the benefits of accessing the global market through the Internet, given their limited capabilities in design, distribution, marketing, and post-sale support. While the Internet can be useful in accessing international design expertise, SMEs are not confident that they can command a premium on the prices for their goods unless they offer product innovations. They can, however, capitalize on returns on the basis that they are the low cost providers. Furthermore, more often than not, the premium in design has already been captured- for example, in the textile products industry-by the branded fashion houses.
SMEs doubt whether Web presence will facilitate their own brand recognition on aglobal scale.
● Financial costs. Cost is a crucial issue. The initial investment for the adoption of a new technology is proportionately heavier for small than for large firms. The high cost of computers and Internet access is a barrier to the uptake of e-commerce. Faced with budgetary constraints, SMEs consider the additional costs of ICT spending as too big an investment without immediate returns.
Many SMEs find marketing on the Internet expensive. Having a Web site is not equivalent to having a well-visited Web site. One reason is that there may be no critical mass of users. Another reason is the challenge of anonymity for SMEs. Because of the presence of numerous entrepreneurs in the Internet, it seems that brand recognition matters in order to be competitive. Moreover, it is not enough that a Web site is informative and user-friendly; it should also be updated frequently. Search engines must direct queries to the Web site, and news about the site must be broadly disseminated. Significantly, the experience of many OECD countries attests to the fact that the best e-marketing strategies are not better substitutes for the conventional form of media. One solution may be to encourage several SMEs to aggregate their information on a common Web site, which in turn would have the responsibility of building recognition/branding by hyperlinking or updating, for example.
● Infrastructure. The national network/physical infrastructure of many developing countries is characterized by relatively low teledensity, a major barrier to e-commerce. There are also relatively few main phone lines for business use among SMEs.
● Security. Ensuring security of payments and privacy of online transactions is key to the widespread acceptance and adoption of e-commerce. While the
appropriate policies are in place to facilitate e-commerce, lack of trust is still a barrier to using the Internet to make online transactions. Moreover, credit card usage in many developing countries is still relatively low.
Also, consumers are reluctant to use the Internet for conducting transactions
with SMEs due to the uncertainty of the SMEs’ return policy and use of data.
● Other privacy- and security-related issues.57 While security is commonly used as the catch-all word for many different reasons why individuals and firms do not engage in extensive e-commerce and use of Internet-based technologies, there are other related reasons and unresolved issues, such as tax evasion, privacy and anonymity, fraud adjudication, and legal liability on credit cards. In many countries, cash is preferred not only for security reasons but also because of a desire for anonymity on the part of those engaged in tax evasion or those who simply do not want others to know where they are spending their money. Others worry that there is lack of legal protection against fraud (i.e., there is no provision for adjudicating fraud and there may be no legal limit on liability, say, for a lost or stolen credit card). It is necessary to distinguish these concerns from the general security concerns (i.e., transaction privacy, protection and security) since they may not be addressed by the employment of an effective encryption method (or other security measure).
Is e-commerce helpful to the women sector? How has it helped in empowering women?
In general, the Internet and e-commerce have empowered sectors previously discriminated against. The Guyanan experience can attest to this.
Women have gained a foothold in many e-commerce areas. In B2C e-commerce, most success stories of women-empowered enterprises have to do with marketing unique products to consumers with disposable income. The consumers are found largely in developed countries, implying that there is a need for sufficient infrastructure for the delivery of products for the business to prosper and establish credibility.
For example, if an enterprise can venture into producing digital goods such as music or software that can be transmitted electronically or if such goods can be distributed and/or delivered locally, then this is the option that is more feasible and practicable. Aside from the Guyanan experience, there are many more successful cases of ecommerce ventures that the women sector can emulate. Some concrete examples are: Tortasperu.com (http://www.tortasperu.com.pe), a business involving the marketing cakes in Peru run by women in several Peruvian cities; Ethiogift (http://ethiogift.com), involving Ethiopians buying sheep and other gifts over the Internet to deliver to their families in other parts of the country, thereby dispensing with the physical delivery of goods abroad; and the Rural Women’s Association of the Northern Province of South Africa, which uses the Web to advertise its chickens to rich clients in Pietersburg.
While most of the examples involve B2C e-commerce, it must be noted that women are already engaged in wholesale distribution businesses in developing countries. Thus, they can begin to penetrate B2B or B2G markets.
How important is e-commerce to SMEs in developing countries? How big is the SME e-business market?
For SMEs in developing countries e-commerce poses the advantages of reduced information search costs and transactions costs (i.e., improving efficiency of operations-reducing time for payment, credit processing, and the like). Surveys show that information on the following is most valuable to SMEs: customers and markets, product design, process technology, and financing source and terms. The Internet and other ICTs facilitate access to this information. In addition, the Internet allows automatic packaging and distribution of information (including customized information) to specific target groups.
However, there is doubt regarding whether there is enough information on the Web that is relevant and valuable for the average SME in a developing country that would make investment in Internet access feasible. Underlying this is the fact that most SMEs in developing countries cater to local markets and therefore rely heavily on local content and information. For this reason, there is a need to substantially increase the amount and quality of local content (including local language content) on the Internet to make it useful especially to low-income entrepreneurs.
How is e-commerce useful to developing country entrepreneurs?
There are at least five ways by which the Internet and e-commerce are useful for developing country entrepreneurs:
1. It facilitates the access of artisans47 and SMEs to world markets.
2. It facilitates the promotion and development of tourism of developing countries in a global scale.
3.It facilitates the marketing of agricultural and tropical products in the global market. It provides avenues for firms in poorer countries to enter into B2B and B2G supply chains.
4. It assists service-providing enterprises in developing countries by allowing them to operate more efficiently and directly provide specific services to customers globally.
Developing country SMEs in the services sector have expanded their market with the increased ability to transact directly with overseas or international customers and to advertise their services. This is especially true for small operators of tourismrelated services. Tourism boards lend assistance in compiling lists of service providers by category in their Web sites.
In addition, for SMEs in developing countries the Internet is a quick, easy, reliable and inexpensive means for acquiring online technical support and software tools and applications, lodging technical inquiries, requesting repairs, and ordering replacement parts or new tooling.
The Internet is also instrumental in enabling SMEs in developing countries to join discussion groups with their peers across the globe who are engaged in the same business, and thereby share information, experiences and even solutions to specific technical problems. This is valuable especially to entrepreneurs who are geographically isolated from peers in the same business.
What is the extent of ICT usage among SMEs in developing countries?
Currently the Internet is most commonly used by SME firms in developing countries for communication and research; the Internet is least used for e-commerce. E-mail is considered an important means of communication. However, the extent of use is limited by the SMEs’ recognition of the importance of face-to-face interaction with their buyers and suppliers. The level of confidence of using e-mail for communication with both suppliers and buyers increases only after an initial face-to-face interaction.
E-mail, therefore, becomes a means for maintaining a business relationship. It is typically the first step in e-commerce, as it allows a firm to access information and maintain communications with its suppliers and buyers. This can then lead to more advanced e-commerce activities.
ICT usage patterns among SMEs in developing countries show a progression from the use of the Internet for communication (primarily e-mail) to use of the Internet for research and information search, to the development of Web sites with static information about a firm’s goods or services, and finally to use of the Internet for e-commerce.
Many firms use the Internet to communicate with suppliers and customers only as a channel for maintaining business relationships. Once firms develop a certain level of confidence on the benefits of e-mail in the conduct of business transactions and the potential of creating sales from its use, they usually consider the option of developing their own Web site.
Studies commissioned by The Asia Foundation on the extent of ICT use among SMEs in the Philippines, Thailand and Indonesia, show common use patterns, such as:
1. wide use of the Internet for e-mail because of the recognized cost and efficiency benefits;
2. use of Web sites more for promotion than for online sales or e-commerce, indicating that SMEs in these countries are still in the early stages of e-commerce;
3. common use of the Internet for basic research; and
4. inclination to engage more in offline transactions than in e-commerce because of security concerns.
SMEs go through different stages in adopting e-commerce. They start with creating a Web site primarily to advertise and promote the company and its products and services. When these firms begin generating traffic, inquiries and, eventually, sales through their Web sites, they are likely to engage in e-commerce.
In addition, many Web sites providing market and technical information, agronomic advice and risk management tools for SMEs (to coffee and tea farmers in developing countries, for example) have emerged.
What are the obstacles, problems and issues faced by SMEs in their use of ICT in business or in engaging in e-commerce?
According to recent surveys conducted in select Southeast Asian countries, the perceived external barriers to e-commerce include the unfavorable economic environment, the high cost of ICT, and security concerns. The internal barriers are poor internal communications infrastructure within SME firms, lack of ICT awareness and knowledge as well as inadequacy of ICT-capable and literate managers and workers, insufficient financial resources, and the perceived lack of relevance or value-added of ICTs to their business.
In general, the main issues of concern that act as barriers to the increased uptake of information technology and e-commerce are the following:
● Lack of awareness and understanding of the value of e-commerce. Most SMEs in developing countries have not taken up e-commerce or use the Internet because they fail to see the value of e-commerce to their businesses. Many think e-commerce is suited only to big companies and that it is an additional cost that will not bring any major returns on investment.
● Lack of ICT knowledge and skills. People play a vital role in the development of e-commerce. However, technology literacy is still very limited in most developing countries. There is a shortage of skilled workers among SMEs, a key issue in moving forward with using information technology in business. There are also doubts about whether SMEs can indeed take advantage of the benefits of accessing the global market through the Internet, given their limited capabilities in design, distribution, marketing, and post-sale support. While the Internet can be useful in accessing international design expertise, SMEs are not confident that they can command a premium on the prices for their goods unless they offer product innovations. They can, however, capitalize on returns on the basis that they are the low cost providers. Furthermore, more often than not, the premium in design has already been captured- for example, in the textile products industry-by the branded fashion houses.
SMEs doubt whether Web presence will facilitate their own brand recognition on aglobal scale.
● Financial costs. Cost is a crucial issue. The initial investment for the adoption of a new technology is proportionately heavier for small than for large firms. The high cost of computers and Internet access is a barrier to the uptake of e-commerce. Faced with budgetary constraints, SMEs consider the additional costs of ICT spending as too big an investment without immediate returns.
Many SMEs find marketing on the Internet expensive. Having a Web site is not equivalent to having a well-visited Web site. One reason is that there may be no critical mass of users. Another reason is the challenge of anonymity for SMEs. Because of the presence of numerous entrepreneurs in the Internet, it seems that brand recognition matters in order to be competitive. Moreover, it is not enough that a Web site is informative and user-friendly; it should also be updated frequently. Search engines must direct queries to the Web site, and news about the site must be broadly disseminated. Significantly, the experience of many OECD countries attests to the fact that the best e-marketing strategies are not better substitutes for the conventional form of media. One solution may be to encourage several SMEs to aggregate their information on a common Web site, which in turn would have the responsibility of building recognition/branding by hyperlinking or updating, for example.
● Infrastructure. The national network/physical infrastructure of many developing countries is characterized by relatively low teledensity, a major barrier to e-commerce. There are also relatively few main phone lines for business use among SMEs.
● Security. Ensuring security of payments and privacy of online transactions is key to the widespread acceptance and adoption of e-commerce. While the
appropriate policies are in place to facilitate e-commerce, lack of trust is still a barrier to using the Internet to make online transactions. Moreover, credit card usage in many developing countries is still relatively low.
Also, consumers are reluctant to use the Internet for conducting transactions
with SMEs due to the uncertainty of the SMEs’ return policy and use of data.
● Other privacy- and security-related issues.57 While security is commonly used as the catch-all word for many different reasons why individuals and firms do not engage in extensive e-commerce and use of Internet-based technologies, there are other related reasons and unresolved issues, such as tax evasion, privacy and anonymity, fraud adjudication, and legal liability on credit cards. In many countries, cash is preferred not only for security reasons but also because of a desire for anonymity on the part of those engaged in tax evasion or those who simply do not want others to know where they are spending their money. Others worry that there is lack of legal protection against fraud (i.e., there is no provision for adjudicating fraud and there may be no legal limit on liability, say, for a lost or stolen credit card). It is necessary to distinguish these concerns from the general security concerns (i.e., transaction privacy, protection and security) since they may not be addressed by the employment of an effective encryption method (or other security measure).
Is e-commerce helpful to the women sector? How has it helped in empowering women?
In general, the Internet and e-commerce have empowered sectors previously discriminated against. The Guyanan experience can attest to this.
Women have gained a foothold in many e-commerce areas. In B2C e-commerce, most success stories of women-empowered enterprises have to do with marketing unique products to consumers with disposable income. The consumers are found largely in developed countries, implying that there is a need for sufficient infrastructure for the delivery of products for the business to prosper and establish credibility.
For example, if an enterprise can venture into producing digital goods such as music or software that can be transmitted electronically or if such goods can be distributed and/or delivered locally, then this is the option that is more feasible and practicable. Aside from the Guyanan experience, there are many more successful cases of ecommerce ventures that the women sector can emulate. Some concrete examples are: Tortasperu.com (http://www.tortasperu.com.pe), a business involving the marketing cakes in Peru run by women in several Peruvian cities; Ethiogift (http://ethiogift.com), involving Ethiopians buying sheep and other gifts over the Internet to deliver to their families in other parts of the country, thereby dispensing with the physical delivery of goods abroad; and the Rural Women’s Association of the Northern Province of South Africa, which uses the Web to advertise its chickens to rich clients in Pietersburg.
While most of the examples involve B2C e-commerce, it must be noted that women are already engaged in wholesale distribution businesses in developing countries. Thus, they can begin to penetrate B2B or B2G markets.
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