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Cover Story

"If 1980s were about quality and 1990s about re-engineering then 2000s would be about speed"

By Dr. Javaid Leghari
Nov 04 - 11, 1999

Rapid advances in Communication and Information Technology (IT) have changed the way we conduct business at the end of the twentieth century. IT today defies all norms of business communication, and new codes and technologies continue to be re-written and re-defined: e-mail, e-commerce, e-business, e-revolution. It appears as if earth has been invaded by a superior race of cyber-aliens who wish to run businesses and governments in their own way. And those who do not follow are to perish or eventually die their own death, much like the dinosaurs. And it is the Internet which has led to this e-revolution.

It took 35 years for the telephone to reach a quarter of the US population; 26 years for the television; 13 years for the mobile phone; but it took less than 5 years for the Web to take over the world. If cars had followed the same technological trajectory as computers, the cars of today would have cost less than $2000, got about 42,500 km to a liter, and have a top speed of 14 million km per hour.

The industrial revolution of the 20th century, which the United States, Japan and the Western World took advantage of, is now very much history. The present age is the age of the IT, which is growing by leaps and bounds at the rate of 40% per year. Today, within a growth period of less than 50 years, the global IT market is worth over US $643 billion. The IT industries at Silicon Valley, a 80 km strip of land in California, have a market value of $452 billion and account for the largest growth in US economy since 1993, surpassing even Wall Street valued at $405 billion, according to Business Week.

E-commerce has directly impacted upon the global economic growth. In the 1400's, the global per capita income rose at only 0.1%. Over the next five centuries, that rate moved steadily upwards, finally reaching 3% in the second half of the 20th Century. Now it appears that the growth rate may average upto 5% in the 2lst Century. Why? We have entered the Internet age, and finally arrived at the e-commerce. The evolution of the Internet as a persuasive phenomena has meant that the traditional factors of production, capital and skilled-labour, are no longer the main determinants of the power of an economy. Today, the economic potential is increasingly being linked to the ability of a nation to control and manipulate information. A recent study by the Italian Treasury estimated that IT made up 3.6% of the American GDP vs. 2.9% in Japan, 2.4% in Germany and 1.5% in Italy.

The e-community is rapidly growing at an unprecedented rate. Internet connectivity, world-wide, has surged from 27 million in 1996 to 50 million in 1997, 70 million in 1998, and has exceeded 97 million this year. It is projected that within the next 5 years, by 2004, the connectivity will be more than double to 240 million.

The country with the largest number of Internet users today is USA, with about 37 million on-line connectivity (in 1998). This figure is expected to exceed 67 million by 2003. Asian Internet users alone are currently estimated at 22 million but are expected to double within the next two and a half years, and exceed 60 million in four years (by 2003) surpassing even the number of US users by 2005. China is expected to be the largest user in Asia (16 million). The projected number of users in India by 2003 is 8 million (currently under l million). On the other hand, Europe has over 14 million Internet users and is expected to exceed 47 million by 2003. In other words, by 2003, almost every household in the developed world with a PC, Television, Telephone or Personal Digital Assistant will be connected to the Internet.

The most widely used application today is e-mail. It was earlier believed that e-mail would be cold and impersonal and people could never develop relationships on-line. In fact, the opposite has happened. Last year, the volume of e-mail in the US surpassed the volume of hand delivered mail.

The number of e-mail messages sent on an average day in the US was 300 million in 1995, and is expected to exceed 3.5 billion this year. By 2002, the traffic will total 8 billion messages a day.

From its initial usage of sharing of research and exchange of data, e-mail and surfing, the Internet is increasingly being used today for e-commerce.

E-commerce is defined as any form of business transaction conducted electronically using the Net. E-commerce has many advantages: It allows companies to streamline business processes; it reduces costs in the face of global competition; it provides market value-added services; it forges more profitable links to suppliers and customers around the world, it improves effectiveness in terms of widening market potential; and it creates globalization. The disadvantages of e-commerce, on the other hand, are privacy loss; censorship; transaction security; vendor reliability; getting customers to the Net; and customer retention. However, with the development of secure transmission of credit information, transactions are now playing an increasingly larger part in Internet activity.

Although in its infancy, e-commerce promises to dramatically alter the structure and processes of commerce. E-commerce managers will have to invent new business modes that reemphasize scale, differentiation, and brands to compete effectively on the electronic infrastructure. With low transaction costs, they will also have to spend substantial time redesigning transaction processes and participating in industry groups to develop new e-commerce conventions. Effectively implementing these strategies and simultaneously reconciling new and existing business modes will be the key to a firm's success.

An irony of the Net is that it is a marketplace with low barriers to new entrants, but only if you get there first. It can uproot established business.

Two years ago, Yahoo Inc. was still a web search index. Since then, it has evolved into a major media company that commands a $40 billion market capitalization. Money losing startups such as Amazon.com and e-Toys Inc. today command multi-billion dollar market caps, and have an edge over mega-stores like Barnes and Noble and Toys R US. Amazon.com last year posted sales of $1.2 billion, equal to about 235 Barnes & Noble super stores. Intel today is the largest on-line seller with sales exceeding $1 billion a month. Within three years, world-wide on-line business-to-consumer retail sales are estimated at $ 184 billion.

Six industries are expected to have the greatest impact of e-commerce on the network: Computing & Electronics, Telecommunications, Financial Services, Retailing, Energy, and Travel. The combined e-business of these industries today is estimated at $110 billion. By 2003, the estimated business to e-business is of the order of $1.25 trillion.

The Banking industry has also joined the e-revolution, and many banks are already operating on-line. According to Merill Lynch, the banking industry's average cost per transaction at the branch is about 51.07, 54 c on the telephone and 27 c at an ATM. Today, on the Internet, this cost has further reduced to l c per transaction. It is estimated by the Banking Industry that by year's ends 3 million US households will have on-line accounts, with $374 millions in deposits. By 2003, there will be 9.7 million households with on-line accounts totaling $3 billion. On-line mortgage loans are also expected to grow from $18 billion in 1999 to more than $91 billion in 2003.

Nowhere has e-revolution had a greater impact than on capital markets. European merchant bankers used carrier pigeon networks in the 18th century to get an edge on their rivals. Because of the telegraph and the telephone, stock trading in the nineteenth century went from a local business to a national one dominated by Wall Street. In 1980, the world stock of equities, bonds, and cash totaled some $11 trillion; by 2000, these assets will total $78 trillion. The stock market activity on the Net has already risen due to e-agents. By next year, robot shoppers, or automated shopping agents (called 'bats') will crawl the net, not only searching out the best deals on behalf of the buyers, but will also be authorized to make purchases if they find the right price and features.

All these e-development will severely impact on the availability of trained personnel. It has become obvious today that for companies on the Internet, the resource in the shortest supply will be neither raw material nor capital, neither powerful technology nor new markets.

Capital can be accessible and smart technologies easily copied. However, talented people will be the prime source of competitive advantage. The world economy will go through a seismic shift from capital investment to intellectual capital. By 2003, attracting and retaining people in IT will be the number one force in strategy. The number two strategy for competitive advantage will be human resource training and development, as the half-life of technology will keep growing shorter all the time.

Where does Pakistan stand in all this e-revolution in the global world of IT? Nowhere! Very few quality graduates are produced each year. The telecommunication infrastructure is very poor both in terms of bandwidth and tariffs, and is highly regulated. The electric power infrastructure is also very poor in terms of outages, fluctuation and surges, damaging or even necessitating the use of expensive equipment worth millions of rupees. There is very little domestic consumption of IT. Outsourcing has been hindered due to lack of infrastructure, high tariffs, and shortage of trained personnel.

There have been some recent positive developments. The Government of Punjab has signed two separate but similar agreements with Microsoft and Oracle for training of software professionals. Microsoft has committed $150 million worth of software and training materials to produce 5,000 Microsoft certified professionals per year. Similarly, Oracle has committed $13.5 million in the form of free software and course materials to train 1,000 Oracle certified professionals.

So as e-commerce flourishes, we must all take initiatives to join it because there is no turning back. In the end only the 'connected' will survive. Pakistan can choose to either become e-literate or become extinct. The choice is ours.

Dr. Javaid Leghari is the Project Director of SZABIST