Potential Impacts and Impediments of Electronic Commerce in Developing Nations

Table of Contents

1.0 Introduction

2.0 Electronic Commerce Defined

3.0 An Account of Ecommerce Evolution

4.0 Types of E-commerce
4.1 (B2B) Business-to-Business
4.2 (C2C) Consumer-to-Consumer
4.3 B2C (Business-to-Consumer)
4.4 C2B (Consumer-to-Business)

5.0 Potential Impacts Of E-commerce In Developing Nations

6.0 Impediments to Ecommerce Adoption In Developing Countries
6.1 Lack of Required Skills
6.2 Legal and Regulatory Framework
6.2.1 Taxation
6.2.2 Immigration Laws
6.2.3 Intellectual Property Issues
6.2.4 Legal Validity Of Electronic Transactions
6.2.5 Licensing And Contracting Of Digital Information Products
6.3 Infrastructural Barriers
6.4 Political Barriers
6.5 Financial Challenges
6.6 Social/Cultural Impediments
6.7 Owner/Manager Characteristics

Conclusion

References

1.0 Introduction

The beginning of third millennium has seen a rapid shift of the society into an internet-based society. Figures released by International Telecommunication Union (ITU) in January 2014 indicated that by the end of 2014, the world would have a total of 3 billion internet users. Three quarters of these users was expected to come from developing countries. As a result, a number of areas have been affected by this transformation, but perhaps the most noticeable effect of this transformation is in the change of how business is conducted. A good number of people now conduct their business transactions over electronic networks. However, some decades after the so called ‘internet revolution’, the conduct of business over these e-networks -which is popularly known as ecommerce-still remains a somewhat new, evolving and continually shifting area in developing countries. Developing countries still lag far behind their developed counterparts in terms of ecommerce infrastructure, ‘tech-savvy’, and adoption. As a result, they have minimally benefited from this paradigm shift.

This is despite the efforts made by scholars and media in popularizing this new approach to conducting business and its acknowledged far-reaching benefits. Arguments and counter-arguments have been advanced as to why this could be the case. Some debates have centred on the impacts as well as the benefits that ecommerce could bring to the businesses and economies of the developing world. Others have tried to look at the impediments and attempted to come up with solutions. The main goal of this essay is therefore to expose the challenges that hinder widespread and rapid uptake of ecommerce in the developing world despite its popularization and apparent benefits.

As a way of introduction, the paper will also try to bring to light the meaning and types of ecommerce and then give a brief overview of how ecommerce has evolved over time. Attempt will also be made to highlight the how successful implementation of ecommerce models could impact the businesses and economies of these countries.

2.0 Electronic Commerce Defined

According to Turban, McLean and Wetherbe (2004) cited by Tan (2007), ecommerce is the process of buying and selling of goods and services within an electronic market place, and also servicing customers, collaborating with business partners and conducting electronic transactions within an organisation. All these ecommerce activities are conducted over electronic networks such as internet, Local Area Networks (LANs), Value-added networks (VANS) or on a single computerized machine such as purchasing postage stamps where someone pays using a cell phone, credit card or debit card.

In public sector, the application of ecommerce and related technologies is regarded as e-government.

Turban et al (2008) provides a number of additional perspectives from which ecommerce can be viewed in order to have a deeper understanding of its meaning, scope and application. These are:

- Business Process

According to Weill & Vitale (2001) quoted by Turban et al (2008), from the business point of view, electronic commerce involves conducting business electronically by way of completing business process and procedures over electronic network, thus substituting information for physical business process.

- Services

Ecommerce can be viewed as a tool that helps governments, organizations, customers, administration and management to offer high quality services at reduced cost. This improves the overall customer experience.

- Learning

From this viewpoint, ecommerce is seen as an enabler of education, research and learning. Schools, Colleges, Universities and even organisations nowadays conduct online training and education to their clientele.

- Collaboration

Ecommerce allows collaboration between individuals and groups within an organisation. It also offers tools for collaboration between two or more organisations.

- Community Perspective.

Ecommerce technologies provide a platform that enable people to form social networks. Members of these social groups can create, share or exchange information, ideas, pictures and videos. This helps them to learn from each other.

3.0 An Account of Ecommerce Evolution

The development of electronic commerce applications dates back to the early 1970s (Turban et al, 2008). Electronic funds transfer (EFT) applications were the first to be adopted into ecommerce. By using EFT, organisations could electronically exchange or transfer cash from one account to another. This exchange could either take place within a single organisation or across multiple organisations, over computerized systems. However, due to the high transaction costs, only a few big financial institutions, large multinationals and some other big firms could use these applications.

Electronic Data Interchange (EDI) technology, which came into the scene in 1960s, was then adopted by both small and medium enterprises (Turban et al, 2008).These systems enabled trading partners to exchange business documents electronically rather than manually. Business documents that could be exchanged included local purchase orders, invoices, bill of lading, documents form customs, payment settlement documents, and inventory documents.

EDI offered a myriad of benefits such as reducing and sometimes eliminating expenses linked to paper use, document printing, duplication, storage, filing, postage and document retrieval (Vollmer, Gilpin, and Rose, 2011).

According to Turban et al (2008), the era after EDIs saw widespread emergence of several new electronic commerce applications ranging from reservations systems used in the travel industry to new applications in stock trading.

Internet, which is the driver of global ecommerce today, started as an experimental project of the United States Government in 1969 (Turban et al, 2008).It was used by the government agencies, scientists and researchers in academia. In the early 1990s, internet became commercial when many users started using the World Wide Web. Around the same time, the term ecommerce was coined and ecommerce started to gain ground. Since then, ecommerce use has continued to grow exponentially

4.0 Types of E-commerce

Turban et.al (2008) provides a mode of classifying ecommerce on the basis of the nature of e-transactions conducted or the relationships among parties involved in the transaction. He therefore single out four main categories:

4.1 (B2B) Business-to-Business

Business-to-business ecommerce model involves inter-organizational business transactions which are conducted over electronic networks such as internet, extranets, intranets or private networks (Turban et.al (2008). For instance, if manufacturers do business transactions with their corporate distributors, suppliers, corporate customers and government agencies over any or all of these electronic networks, then, this is referred to as Business-to-Business ecommerce.

According to Turban et.al (2008), B2B is driven principally by existence of a secure and efficient broadband internet platform, availability of secure private and public B2B electronic market places, need for collaborations between suppliers and buyers, the ability to save money, reduce delays and improve collaborations, and the emergence of effective technologies for intra- and inter-organization integration.

As competition among business intensifies, B2B ecommerce will become more vital in enhancing the competitiveness of these organizations.

4.2 (C2C) Consumer-to-Consumer

Nanehkaran (2013) defines C2C (Consumer-to-Consumer) ecommerce as a business model in which two consumers do business with each other over electronic networks. Manzoor (2010) provides three scenarios which are the basis for C2C ecommerce, namely, where a consumer acts as a vendor, a consumer acts as a purchaser, and an intermediary for connecting buyers and sellers so that transactions can take place.

The development of the C2C ecommerce business model has by and large been made possible by the emergence of efficient online payment systems such as PayPal, stripe and authorize.net which allow people to easily send and receive money online (Nanehkaran, 2013). Without these payment systems, C2C ecommerce would remain a dream. Also, trust has been cited in many forums as one important factor that determines the development of C2C ecommerce. Xu, Zhang and Chen (2009) cited by Manzoor (2010) argue that mutual trust among the participants and participants’ trust in the intermediary are critical to the success of C2C business model.

Good examples of C2C ecommerce include individuals selling their residential houses, personal used goods, cars, personal art work, clothing designs and so on in online classified advertisements. In Kenya for example, OLX.co.ke and Pigiame.co.ke are perfect examples of C2C websites that have revolutionalised how person-person online transactions are conducted. A look at these two platforms reveals that personal second hand goods such as cell phones, personal computers, laptops, furniture, electronics, cars, plots, furniture, and general household goods are the most advertised items on OLX and Pigiame.In other places, other platforms for C2C ecommerce are popular. According to Manzoor (2010), these include classified advertisements such as Craigslist.com and Excite.com, e-marketplaces such as eBay and peer-to-peer electronic platforms such as Napster, eDonkey and Kazaa. In addition, platforms combining both auction and classified advertisements such as Synthzone have come to be popular players in C2C ecommerce.

4.3 B2C (Business-to-Consumer)

Manzoor (2010) define this type of business model as a situation where businesses/firms sell their products or services to the general public by utilizing catalogues which use shopping cart software. Transactions that fall in B2C category include: individuals shopping for outfits online, TV viewers subscribing to pay TV providers and paying for the service via online payment option. Slyke, Belanger and Comunale (2004) quoted by Manzoor (2010) observes that despite the massive failures of dot-com ventures in 2000s, B2C ecommerce has witnessed a steady growth both in the developing and developed countries.

Some of the most popular B2C business models include the online retailers such as Drugstore.com, Beyond.com, Amazon.com, and Barnes and Noble.com. When a business adopts this business model, transaction costs such as searching costs are reduced, and it can also easily venture into new markets beyond borders at relatively low cost. Transaction costs are reduced since consumers have access to information on a variety of products and services and therefore, they can easily find the most favourable price for a product or service. Manzoor (2010) argues that the cost of putting up a company website is much cheaper than the cost of establishing a conventional business structure for the company. This reduces barriers to market entry . In addition, a firm is able to save on additional costs such as the cost of establishing a physical distribution network.

4.4 C2B (Consumer-to-Business)

C2B is an ecommerce business model where individuals use electronic networks, mostly internet, to sell products and services to organisations (Turban et.al (2008). According to Manzoor (2010) the C2B model is based on three players, namely, where a customer acts as a vendor, an organisation (business) acts as a purchaser and an intermediary connects the two parties.

A well-known example of C2B is Fotolia.com where individuals can sell images to graphic design companies for use in their advertisements, flyers, websites and monthlies. Another example is Elance.com where individuals post their projects with charges online and companies bid for the project.

5.0 Potential Impacts Of E-commerce In Developing Nations

There are quite a number of reasons why firms are encouraged to use electronic commerce to support their businesses. First, ecommerce enables the firm’s business to penetrate the global market with its good and services (Turban, McLean and Wetherbe, 2004 cited by Tan, (2007)). When the firm penetrates the international markets, it is guaranteed of increasing its sales volumes and its profitability.

Companies using ecommerce technologies can be able to open and operate their businesses 24 hours a day. This can considerably increase the company’s sales and revenue. Operating on a 24-hour business can enable customers to access the services at any time of the day when they are free.

Turban et.al (2008) also argues that companies can reduce costs by using electronic commerce. This is because companies can operate with less number of workers especially in the sales department and at the same time, they can also reduce other costs such as telephone and utility costs. In addition, they can operate with fewer permits and avoid sales tax. For instance, one does not need to pay for the premises’ license if he is operating from home. This is welcome news for small and medium size enterprises in developing countries who find the cost of these permits and taxes a crippling factor.

While looking at supply chain barriers and inefficiencies in agriculture, World Economic Forum (2014) points out that about 95 per cent of food loss and waste in developing countries is as a result of supply chain inefficiencies such as delays and unnecessary inventories. These inefficiencies have also been blamed for pushing up commodity costs in virtually all business sectors. According to Turban et.al (2008), ecommerce technologies can help solve these problems. It can improve these supply chains by reducing delays and cutting costs thereby reducing such losses and waste. By encouraging customers to order customized products and services, inventories that firms hold can be greatly minimised. Therefore, costs associated with storage can be reduced.

Digitized products such as movies, ebooks, and software can be distributed easily and cheaply electronically. Turban et.al (2008) argues that delivery of such products to clients via electronic networks can be 90% cheaper as compared to manual delivery.

From the consumer’s point of view, ecommerce offers customers competitive pricing and a range of selection of goods and services. When shopping online, customers can compare prices from different suppliers. They can also have access to a very wide variety of goods and services as opposed to shopping in a physical store Turban et.al (2008). This ensures that they get what they need at affordable cost. Other benefits to customers as identified by Ali, Malik and Imam (2012) include less time spent in resolving invoices/orders discrepancies, instant delivery and ability to get customized products and services.

Turban et al (2008) contends that, with internet and ecommerce, thousands of professionals have the choice and flexibility of working from their homes. They can work as internet developers, software engineers, web designers, technical support specialists, bloggers, and social media support specialists among others.

According to Roth, Rhodes and Ponoum (2008), working from home can significantly reduce the consumption of energy associated with travelling to and from the office. It can as well reduce the emission of greenhouse gases. Ecommerce will therefore enable developing countries to reduce their carbon footprint. According to Siikavirta et al (2002), low carbon emission is seen as a good step in curbing environmental degradation and climate change which are among the world’s greatest challenges. Turban et al (2008) argues that if more and more people continue to work from home, then we should expect less traffic on our roads and therefore less air pollution.

A firm using ecommerce can be able to target a niche market without incurring much cost. Customers for “niche products and services” are usually few and not concentrated in one place. Firms dealing with niche markets can spend huge amounts of money before they can generate enough sales volume. But by using the internet, which is the biggest market place, such firms are able to generate viable sales volumes and adequate returns (Ali, Malik and Imam, 2012).

On a national level, ecommerce can enable developing countries to have a more open economy and increase their competitive advantage therefore helping them grow economically as well as assist medium size enterprises in these nations penetrate overseas markets. Kamel (2000) cited by Kamel and Hussein (2002) observes that by adopting ecommerce in Egypt, the country would: grow economically, boost its international competiveness, open up its economy, and see its small and medium-sized enterprises venture into international markets. If this is achieved, there is no reason why the country cannot compete with the developed world in the international trade arena.

Furthermore, it can let the company gain the loyalty of the customers. Through the E-commerce, companies can always make it to customer’s wish and fulfil the customers’ requirement with fast and reasonable cost. Customers will feel satisfied with the service of the company, so it will gain the loyalty from the customers that will increase the sales and profit.

6.0 Impediments to Ecommerce Adoption In Developing Countries

6.1 Lack of Required Skills

In their survey on ecommerce adoption in Sri Lanka by small firms, Kapurubandara and Lawson (2006) singled out inadequate technical skills among employees as one of the chief impediments to adoption of ecommerce applications. Majority of companies do not invest enough resources in equipping employees with adequate technical skills necessary in the use of computers, internet and related technologies.

6.2 Legal and Regulatory Framework

There are a number of legal and regulatory factors that prevent ecommerce adoption in developing countries:

6.2.1 Taxation

Developing countries have tax regimes which make computer and related equipment and software expensive. For example, re-introduction of VAT on this equipment in Kenya has impacted negatively on the growth of the information and communication technology (ICT) sector (Omwansa, 2014). This has resulted in increased prices of ICT equipment and software. Since ecommerce is dependent on ICT equipment and software, its development has slowed down especially in rural areas.

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