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Breaking the psychological barrier

By Syed M. Aslam
Mar 12 - 25, 2001

Shocking as it may sound, the local businesses are operating in global isolation for want of e-commerce adaptation due primarily to an all-prevalent reluctance to get in tune with the changing business culture the world over. The virtual absence of electronic trading and failure to invest in it, notwithstanding valid reasons, by the local industries and trades, particularly export-oriented, is taking a heavy toll on the national economy. On the one hand, it is restricting the productivity and on the other, it is denying access to markets, both local as well as foreign, which are only a mouse-click away.

In a world which offers convenience to buy a merchandise, or a service, without leaving the house backed by an automation which has fully transformed the ways of doing business, the failure to develop e-commerce as a tool of trade could be economically fatal.

Some times a shortcoming can be a blessing in disguise. This is the case with Pakistan which still much remains a virgin IT community. The benefits, and the vast potential, to tap IT as a cure-all remedy to solve the economic woes were realised just a few years ago with the news of software exports, the volume of which has multiplied since then. The late entry can be Pakistan's very strength, particularly for a value-added internet service like e-commerce. Businesses in the wired world of today just cannot afford to neglect e-commerce irrespective of the reasons, no matter how valid they may be.

Internet offers an unique opportunity for developing countries, and Pakistan is no exception. Pakistan has already made inroads in software exports and it should now encourage e-commerce on top priority basis for the simple reason that some 500 million people, that's 8 per cent of the global population, are projected to have an internet access by end this year. The potential to find international markets to enhance the export base is immense. This offers local businesses and trade, be it a giant textile unit, a medium size sports goods manufacturer, or an individual or a group of individuals to reach the potential buyers through the internet at fraction of the cost.

Though it's true that unlike the developed world the fixed-line telephone infrastructure in Pakistan is not driven by the internet demand, the PTCL will be better off to prepare itself for it in the near future. With an all-pervasive awareness about the IT which now surpasses all other choices as the most preferable career option and the financial benefits which internet offers over fax and telephone calls, the demand will definitely follow.

As the traditional ways of doing business has been replaced, and revolutionised by the internet to allow unlimited communication and networking the local businesses and trade fails to invest in developing business and sale oriented websites. While the virtual absence of business-to-consumer (B-2-C) is not expected to take place due primarily to negligible PC and internet penetration plus an even more negligible number of ATM and credit card users, the electronic trading between businesses has not picked up as well.

The volume of e-commerce in Pakistan is the lowest in the region. As highlighted in a previous issue there are only 100 business-to-business (B2B) users in Pakistan compared to 75,000 in Hong Kong which tops the list. Pakistan ranks lower than even Sri Lanka which has ten-times the B2B users. Iran has a same number of B2B users it enjoys a better rating than Pakistan as far as infrastructure readiness, awareness/education and investment in the e-commerce is concerned.

So what restricts the growth of e-commerce as the most effective and the cost-cutting internet tool not only to do business but also to provide a perpetual access to international markets no matter where they are. A purpose-developed website does not only allow a company to make its presence felt on the internet but also to create an increased trade flows. This primarily is the objective of e-commerce.

Customised e-commerce software can help a company to sell products on line, browse catalogs and trace orders placed. This is expensive. However, with local software houses successfully winning high-end orders from blue-chip companies globally the software can be developed right here in the country. This would help the local IT industry in two distinct ways, providing a much needed local base for the local software houses and having a customised application much cheaper than buying a foreign product.

Unarguably, automation makes operations not only efficient but also results in increased customer satisfaction, good governance and administrative cost-cuts. Moreover, it gives a business a competitive edge, particularly in exports. While even a cursory look at the Annual Reports of companies listed at the local stock exchanges provides an ample proof that the corporate sector is investing in the IT, the sad part is that the bulk of it remains restricted to PC purchases, internal automation. Hardly any funds are allocated for the real automation to link operations, customer feedback, online sales the e-commerce tools. What could explain the reluctance of the corporate sector, businesses and trade to invest in e-commerce?

Banks and financial institutions have played a pioneering role to provide the base for the e-commerce in the developed world. Without credit cards which have turned the developed world into the bastion of plastic money and the Automated Teller Machines (ATMs) the e-commerce could hardly be facilitated. The same is true for Pakistan as local banks have resorted to aggressive marketing plans to encourage credit card and ATM use to facilitate automated banking. Much, however, remains to be done as only a negligible portion of the population use credit cards and ATMs for its day-to-day needs. Unlike the developed countries where ATM cards are seen as a way to encourage non-personal banking for the inherent cost-cutting benefits which it allows to the banks, ATM users in Pakistan have to pay an annual fee to use the facility. The same is also true for the cards which charge annual and user fee not to mention the high interest rates.


Informed sources in the banking industry told PAGE that huge investments, recurring costs and absence of economies of scale are some of the major bottlenecks to invest in online banking in Pakistan.

Banks don't have e-commerce infrastructure to facilitate internet merchant accounts (Only one bank, a foreign bank, is offering this service). While delivering channels such as ATMs, home banking are there and so is the PC and communication infrastructure the lack of economies of scale is discouraging investment required to facilitate a real-time online 7-days-a-week 24-hours-a-day banking.

Banks need a centralised database linked to every single of its branch. A bank does not only need a communications software to facilitate communication between all its branches necessary to provide all these services but also has to make massive investment to set up the needed communications infrastructure network. It needs modems, routers, connection controller and encrypters (to protect security and confidentiality). This needs a 'substantial amount' of investment which does not look feasible based on absence of economies locally.

Moreover, the narrow base of telephone lines, and more importantly, the types of lines (much has been done but much still remains to be done to digitalised our telephone infrastructure). Irrespective of the volume of transaction be it small or massive- huge investments are required to facilitate online banking. Not only the capital investment is immense but the recurring costs such as lease payments to the PTCL, the state-owned telecom company, are discouraging nationalised banks to invest. And that explains why none of the nationalised banks have invested in the communication and software infrastructure to facilitate real-time online banking.

In addition, there is that 'last mile problem' not unlike that faced by the developed world as well. This simply means that telephone lines made of copper are not the perfect medium for data transfer, as copper can offer only a limited bandwidth . While PTCL lines are mostly good for voice transfer they still fall below of international standard to accommodate satisfactory transfer of data. While PTCL has improved the 'line conditioning' for better data transfer it remains restricted basically to bigger cities of the country.

The general lack of interest and a lack of competition between the nationalised banks is a major bottleneck for the development of online banking in the country.

Business culture

The president of Pakistan Software Houses Association Hamza Matin stressed the need for changing the culture of doing business in line with the contemporary world of today. Without breaking this psychological barrier starting with the adaptation by the business schools the much needed change would not come. For instance, he said, "I did my MBA from IBA not so long ago in 1994 and yet I feel that most of the academic knowledge that I was imparted has become obsolete today."

He said that even if the local businesses, particularly those export oriented, choose to invest to facilitate electronic trading the export base would not be enhanced without the automation of financial institutions to help conduct online transaction and LC opening, and the workings of CBR, the premier tax collecting authority, Customs, and shipping. Without the automation of these sectors and departments the export processes would remain tied down to intricate and time-consuming paperwork at every level and stage of exports.

In addition, just bank, foreign Citibank is offering internet merchant accounts and the lack of legal infrastructure necessary to protect the security and confidentiality of a prospective buyer and seller is also a major detriment for the development of e-commerce in the country- be it B-2-B or B-2-C. He said that in the absence of sizeable credit card and internet penetration B-2-B have better prospects to take root in Pakistan than B-2-C not to mention that globally the first in on a rise while the later is on a decline. Even the global e-commerce market is limited to the US due primarily to availability of a uniform base.

Hamza said that Pakistan has the infrastructure to accommodate e-commerce. 'We have the best fibre-optic network in the region and the local software houses can develop the customised software at competitive prices to help us reach new international markets.' However, it is imperative that the chains at all levels between supply, distribution and retail as well as the financial institutions, shipping, tax collecting agencies, etc., should have to be connected to facilitate real electronic trading. While it will not happen overnight, whether B-2-B or B-2-C, priority should be given to make investments in e-commerce over a period of years.

The need for automation and its integration over all businesses and at all levels and the conformity which it requires within various government departments, public and private sector can hardly be over-emphasised. We should also wake up to the fact that we are financing the growth of IT companies overseas by providing them with our top IT professionals which are costing us immense amounts of money in training. Some 80 per cent of the funds allocated for the IT sector would go towards education this year, he lamented.

Changing the law is also imperative to encourage e-commerce in the country, he said, as at present it recognises just three modes of payment cash, cheque and pay order. In the contemporary world of today failure to embrace e-commerce as a reality like that of having access to international cable channels mean global isolation and certainly no business today can afford to operate in global isolation. Accept it or not our industry and trade currently remain isolated for absence of e-commerce.

Hamza said that e-commerce is one of the most effective IT tool which comprise many components hardware, software, technology, internet access, legal framework and most of all presence of a market a market of 140 million as is the case with Pakistan. And yet e-commerce fails to get the priority that it deserves to increase our production and manufacturing base not only for the domestic but also for the international markets.

Human dimensions

Zia U.Khan specialises in Java, a e-commerce software application. He has started 'Operation Badr' aimed at developing a sizeable number of top notch Java professionals on fast-track basis in the country. Zia is a big proponent to accord e-commerce the priority which it deserves but is not getting here in the country. He wants us to focus on e-commerce exclusively.

He says that instead of mastering various IT disciplines all at once Pakistan should focus on e-commerce for the inherent benefits which it offers. Listing development of world-class IT human resources should be given the top priority as it is the most important prerequisite for the growth of the local IT industry particularly commerce, the one IT skill that could give us a competitive edge in the near and far future.

If developing world-class IT force to meet the drastically increasing demand is obvious from the fact that the US with its envious IT budget is not able to meet the requirement instead choosing to import the skilled workers from other countries, specially developing ones like ours creating a real brain-drain problem.

Calling B-2-C as machine-to-human sales he did not hesitate to write it off to take root here in the country which has culture to feel and to bargain in person. The machine-to-machine communication , and thus trading, which offers a distinct low cost high-volume sales at affordable costs, he said, does have a future.

This is primarily due to the fact that B-2-C is, and will remain, restricted to the high-end market as only a negligible percentage of the population have access to a PC, internet access and credit card. For businesses catering to low-end markets, e-commerce is not any more feasible, particularly B-2-C. However, large businesses can organise their distribution networks by going on line which in turn can help improve administrative, production, marketing and sales efficiency at fraction of the costs.

The internet, he said, has enabled companies no matter how unknown, small big they are to reach prospective buyers not only locally but also globally, an opportunity which did not exist even in the developed world just a decade. Not long ago only big businesses can afford to use dedicated telecom lines. For instance, US fast food giants like Pizza Hut and McDonald used dedicated lines to track its stocks, sales, etc. The internet now allows any business to have a similarly effective network at affordable costs.

Zia called awareness, infrastructure and professional manpower as the three basic prerequisites to facilitate e-commerce in the country. The present government has done much to create the awareness and the infrastructure like international internet access is now available in 300 cities across the country. It is now time to focus on developing IT professionals specialising in e-commerce, he added.

It is the right time for our traditional exports such as textile, surgical goods, sport goods, and commodities as rice and cotton should to adapt B-2-B part of the e-commerce to increase the volume of exports and to create new markets which thus remain untapped. The government and trade groups should invest in developing B-2-B portals and measures should be taken to develop a mechanism to initiate 'audit of quality' to ensure that a supplier gets what he is promised, he added.

The negligible base of credit card users restricting the development of e-commerce can be addressed by introducing web cards to help transact online trading and sales to help facilitate B-2-B and B-2-B business. Similarly, the stock, capital and financial markets should be automated on the top priority basis to provide the much needed impetus for e-commerce, he added.

The time to act is now

It may be fair to say that the time has come to break the psychological, cultural and traditional barriers to adapt the all-pervasive, and affordable, value-added component of the internet tool. It's time to make the most out of the e-commerce spillover for many advantages which it offers to replace the traditional ways of doing business.

E-commerce enhances trade efficiencies by eliminating the delays and cutting the documentation costs by allowing trade partners to exchange transaction data digitally and reduces errors to help increase productivity and efficiency. Most importantly, it removes geographical barriers to have access to international markets at affordable.

But the question is: where will it begin? Like elsewhere, the financial sector should play a pioneering role to serve as the springboard for providing e-commerce base, this is not only a necessity but also a prerequisite.

As highlighted in different issues of PAGE the official e-commerce action plans to connect over 2,400 branches of 25 local banks, including five major nationalised commercial banks as well as all foreign banks with the e-commerce network, EC Pak Service, in twelve major cities of the country this year. Initially five biggest commercial banks have been selected to be connected. In the initial phase branches of these banks in the same city will be connected to their main office. In phase 1, branches in various cities will be linked with the head office while in phase 2 all these banks plus all other DFIs/NBFIs, the central bank 'State Bank of Pakistan', and overseas link will be connected to the system. In the next phase public and private stakeholders such as the premier tax collecting agency CBR, provincial governments, National Savings centres, post offices, utilities companies, government bodies, money changers, trade houses, airlines, shipping lines, clearing agents, insurance companies and other public and private institutions will be linked. Ultimately the EC Pak service will include the financial, trading, customs networks; international links.

It is time to revamp the state-owned Pakistan Telecommunication Company Limited from strictly a voice-base system to update it to improve it data services system without which e-commerce activities could not be facilitated. This is for the benefit of PTCL itself as global trends show that while revenues of the telecommunications operators from voice service are on a decline, their revenues from data service is on the rise. As is, data services account for less than one per cent of PTCL's revenue and value-added internet service like e-commerce can help increase its overall earnings. The same is true for Internet Service Providers which thus far provide just the connectivity services remaining oblivious to substantial revenues they can earn by providing value-added services.

A study conducted by Pakistan Institute of Developmental Economics in 1999 shows that the full scale implementation of e-commerce would help widen the tax-net by Rs 42 billion due to electronic documentation. It would also help save Rs 18 billion in cost savings and increased competitiveness from efficiency gains in the manufacturing sector, logistics, financial, information and various other services.

The priority should be given to facilitate international B-2-B which make up 80 per cent of all electronic trade and requires special infrastructure unlike B-2-C, which primarily require internet which make up 20 per cent of the remaining share.

Do we have a choice other than joining the global electronic trade without which we our business and trade would keep on operating in isolation?