COVER STORY

 

E-COMMERCE

 

 

The ultimate marketing tool?

 

By SYED M. ASLAM
Nov 11 - 17, 2002

 

 

 

Internet has turned the world into a global village and in the process has revolutionalised the way it does business. It has ushered in an era of automation abolishing traditional barriers of distance and time to facilitate business at anytime from the convenience of one's own home or office. It has opened up markets never dreamt possible before not only for the big companies but has created immense opportunities for enterprising individuals who previously could not afford to do business due to high start-up costs. Internet is an ultimate equalizer offering individuals and small & medium enterprises a unique, and real, opportunity to maintain a presence on the world-wide-web just like the giant multinational corporations and big companies.

Electronic commerce, thus, is considered by many as the ultimate marketing tool in the digitalised world of today. This is true to a great extent but not entirely as having a presence on the worldwide web alone does not guarantee one a share of the e-commerce which has touched new heights over the years prior to 11.9 which sent global economy in a spin which it is still trying to shake-off. One of the biggest advantage that e-commerce offers to an entrepreneur is that it allows any company, entrepreneur and individual to maintain a presence on the world-wide-web irrespective of location, size or product and that too at costs which are affordable. This has allowed individuals, small and medium enterprises to maintain a presence on the web at prices that are affordable and for opportunities that it offer.

Electronic commerce has become the most convenient way of doing business in the developed world offers anyone having the resources to host a site to maintain a presence on the web. In theory, e-commerce, and for that a website, offers a unique opportunity for anyone to share the trillion dollar global e-commerce business.

Thus, e-commerce, the value-added aspect of internet offers an unique opportunity for all developing countries, Pakistan being no exception, for the simple reason that about 10 per cent of the world population now have access to internet. However, Pakistani businesses and trade have yet to use internet to not only find new clients overseas but also increased consumers and customers within the country.

In practise, however, this great promise of e-commerce as an equalizer has failed to benefit developing nations like their developed counterparts. Despite realizing the importance of e-commerce trade, businesses and entrepreneurs in the developing world are lagging far behind to benefit from the immense opportunities that e-commerce offers. Like many developing countries e-commerce still remains more of an academic topic here in Pakistan for a range of reasons highlighted later in this article. This, however, in no way lessens the importance of e-commerce as the ultimate marketing tool.

In last couple of years PAGE has been in the vanguard to highlight the importance of developing e-commerce infrastructure, and culture, in Pakistan along with the impediments discouraging its takeoff. However, an important development recently offers a distinct opportunity to encourage e-commerce facilitation in Pakistan.

PAKISTAN NOMINATED CHAIRMAN OF AFACT

Pakistan has been nominated the Chairman of Asia Pacific Council for Trade Facilitation and E-Business (AFACT) for 2002-03. AFACT is a non-government organisation that consists representatives of member governments and experts from private sector within the Asia-Pacific region. AFACT works under UN/CEFACT (Centre for the Facilitation of Trade and E-Commerce), a UN body working for the promotion and harmonisation of the standards and procedures for trade facilitation and e-business. The predecessor of AFACT, ASEB was launched in 1990, which played its role to disseminate EDIFACT (Electronic Data Interchange for Administration, Commerce and Transport) in the Asia Pacific region.

Currently, 16 countries are members of AFACT, which supports policies and activities dedicated to guide, stimulate, improve and promote the ability of business, trade and administrative organisations in the member countries to exchange products and relevant services effectively.

Pakistan became a member of AFACT in September 2000 at Taipei, Taiwan and was nominated its Chairman last month at AFACT 2002 held in Kuala Lumpur, Malaysia. The three-member delegation was led by Javed Naushahi while Director General of Export Promotion Bureau Syed Irshad Ali and Member of Sindh IT Board Syed Khursheed Akbar Shah were the other two members. Javed Naushahi was nominated by Minister for Science and Technology Dr Ata-ur-Rehman. AFACT 2003 will be hosted by Pakistan next year.

Talking to PAGE Javed Naushahi said that hosting AFACT 2003 will be a unique honour for Pakistan as over 200 delegates from 16 member countries would participate in the six-day long deliberation. He said that Pakistan will immensely benefit from AFACT as it lays down the rules for trade facilitation and e-business, which are extended off-shoot of e-commerce.

While e-commerce still much remains a concept rather than a reality, another ongoing project to improve Pakistan's competitiveness in international trade and to also play an important role to serve as a prerequisite for e-commerce. The project called Trade and Transportation Facilitation Project is aimed to make Pakistan's international trade competitive by adopting internationally recognised best trading practices and introduce efficient transport and communication systems.

The Ministry of Commerce, in collaboration with the World Bank and the United Nations Conference on Trade and Development (UNCTAD), launched the $ 2.9 million project started last year. It aims at modernising trade and transport-related laws, simplifying and streamlining trade and transport procedures, aligning relevant documents with international standard formats and introducing modern Electronic Data exchange and e-commerce techniques. The project, in its own distinct way, will help facilitate e-commerce in the country to fulfil one of the prerequisite towards a full scale e-commerce in the country.

The Chief Technical Advisor of the project is T. Shanta A. De Silva and PAGE talked to him to better understand the impact of the project on what may be variably called the development of e-commerce, e-business or e-trade culture in the country.

Mr. Silva stressed that Pakistani traders fail to benefit from trade opportunities in the international market as unlike their counterparts in other parts of the world they more or less fail to respond to demand from the buyers. "The project aims to make Pakistani traders use the latest communication and IT technologies to develop supply chains managed from the other side the international buyers. He said that the project has many partners in both the public and private sector including Ministries of Commerce, Finance, Railways, institutions like CBR, Customs, KPT, as well as importers, exporters, transport providers, banking and insurance institutions. He said that the project will help these inter-connected foreign trade partners gain a better understanding of issues to be addressed when implementing simplified and standard international practices and procedures.

Mr. Silva said that simplification and harmonisation of Customs procedures, trade documents of Customs form used in Pakistan into one format will simplify the paperwork to help Customs effectively implement computerisation to not only encourage increased foreign trade but also to help government lessen pilferage in revenue by documenting the foreign trade.

The project will tremendously increase the operational efficiency with respect to the foreign trade by eliminating the unnecessary procedures and documentation in relation to external trade and transport. It will also introduce aligned trade and transport documents based on international standards. In addition, it will help modernising of institutional and procedural practices related to transport, banking, freight forwarding even in dry ports including bonded-carriage and insurance. In addition, it will help upgrade the operational efficiencies and coordination between key organisations involved in the external trade.

While e-commerce still remains a wayward dream the development and the project highlighted above are expected to serve as sort of catalysts for e-commerce in the country.

So while the local businesses keep operating more or less in global isolation due to absence of call it what you like; e-commerce, e-business, e-trade culture at least a beginning is in the process of being made thanks to the development and the project mentioned above. The virtual absence of electronic trade, particularly by the export-oriented industries, which is taking a heavy toll on the national economy by limiting the productivity on the one hand and access to the international markets on the other, can now be expected to benefit from these developments.

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.

While business-to-consumer portion of e-commerce is not expected to increase in near future due primarily to low PC and internet penetration plus an even more negligible number of such e-commerce enablers and prerequisistes as ATM and credit card users, even electronic trading between businesses has not picked up in Pakistan. Industry, business and trade in Pakistan still prefer to use the traditional ways of doing business enjoying personal contacts and mode of payments cash or draft/cheque.

Pakistan, thus, reels from an extremely low volume e-commerce which is the lowest in the region: It has about 100 business-to-business (B2B) users compared to 75,000 in Hong Kong the top e-commerce user nation in the region. Even Sri Lanka has more b-B2B users than Pakistan. And though the number of B2B users in Iran is about the same as Pakistan, it has an edge over us as it enjoys a better rating as far as infrastructure readiness, awareness/education and investment in the e-commerce is concerned.

AUTOMATION

With or without e-commerce, the automation in itself is good for the local industry, trade and business as it improves not only operational efficiency but also better customer satisfaction by encouraging good governance and cuts in administrative cost. While the industry, trade and business are investing in the IT, the bulk of this investment is spent on hardware, software and internal automation. Little, if any, funds are spent on such basic tools like linking the operations, customer feedback and online sales for developing the e-commerce infrastructure.

The lack of interest on the part of the industry, business and trade to invest in e-commerce enabling tools and infrastructure can be attributed to absence of credit culture in Pakistan. Unlike the developed world, cash and bank draft still remain the favourite modes of payment. Though credit card and ATM culture has started gaining roots in Pakistan its use still remains restricted to affluent segment of the society thus depriving it a solid base possible only when the benefits of credit allowed to be reached to the mainstream. The situation has be worsened as ATM and credit cards are seen more as symbol of status than the tool of convenience that it really are. The psyche to show-off in turn has encouraged the banks to charge interest and fees which they do not even dare to charge in the developed part of the world where people view credit as their right and banks see them as bread and butter. ATM services in the developed world is absolutely free but in Pakistan the banks even charge the customers for this convenience. The credit card use in Pakistan is subjected to a number of fees like annual and user fee which are not charged elsewhere in the world. In addition, credit cards are also subjected to extremely high interest rates. The small base of ATM and credit card users in Pakistan is one of the bottleneck for developing e-commerce infrastructure and encouraging e-commerce culture in the country.

LIMITED ROLE OF THE BANKING SECTOR

The lack of interest to facilitate e-commerce on the part of the banks in Pakistan unlike the pioneering role played by their counterparts in the developed world, can be attributed to huge investments to develop the infrastructure and recurring maintenance costs. But the single most important factor discouraging the investment is the absence of economies of scale due mainly to low credit card and ATM use, low saving and purchasing power and most of all the low per capita income.

Banking industry in Pakistan reels from absence of e-commerce infrastructure and they don't facilitate internet merchant accounts. A bank, or two, have introduced pre-paid card to facilitate strictly domestic purchases over the net but that even the usage of the same remains extremely low as pre-paid card is no substitute on a credit card. In addition, the card allows one to buy merchandise only locally from a limited number of selected shops thus depriving buyers of choice in terms of variety and price. Lack of economies of scale is, thus, discouraging investment in electronic trade, electronic business and electronic banking all of which are required to facilitate a real-time 7-days-a-week 24-hours-a-day operations.

While its true that chances of business-to-consumer part of the e-commerce has little future in Pakistan as B-2-C is primarily a high-end market having access to a small segment of the society having access to a PC, internet and most of all, a credit card. In addition, B-2-C would have a hard time to replace the traditional visits to markets and bazaars and personal touches associated with it, the feel-and-bargain. However, the B-2-B does have a future because it offers potential for high volume sales at costs which are low. It can help large businesses to organise their distribution networks on line to improve efficiencies all around be it administrative, productive, marketing and sales. Most importantly improving the efficiencies comes at costs which are affordable.

The export-oriented sectors and the industries can benefit from the B-2-B, particularly traditional exports like textile, surgical goods, sport goods, and commodities as rice and cotton. Adapting the B-2-B will help expand the existing base of exports in term of quality and would also help us 'create' new markets.

Similarly, the stock, capital and financial markets should be automated on the top priority basis to provide the much needed impetus for e-commerce. It is high time to break the psychological, cultural and traditional barriers to adapt the all-pervasive, and affordable, value-added component of the internet tool.

IMPROVING THE EFFICIENCIES

By many standards capital investment in e-commerce may look discouraging for many companies, including the big ones. However, benefits of e-commerce justifies the investments because it enhances trade efficiencies by eliminating the delays and cutting the documentation costs by allowing trade partners to exchange transaction data digitally. It also reduces errors to help increase productivity and efficiency.

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 offer Rs 18 billion in costs savings from increased competitiveness from efficiency gains in the manufacturing sector, logistics, financial, information and various other services.

E-commerce is becoming increasingly important for another reason beyond logistics efficiency and productivity gains. There are indications that in near future the digital enability may become of the conditions for trade with other countries. Developing an e-commerce infrastructure is important for Pakistan.

Trends show that generally the economies where services sector contribute about two-third to the GDP enjoy a high per capita income of $ 20,000 and above. Services sector has immensely benefited from the e-commerce to play an increasingly important role in the knowledge-based economies of the developed world.

Information and Communication Technologies (ICTs) is one of the major catalyst and has played a distinct role to increase the economic prowess of the developed world. In many countries it is the single top contributor contributing as much as 37 per cent to the GDP.

The share of services sector in the GDP of Pakistan remains extremely low. Services sector is contributing a negligible 5 per cent to the GDP of which about 3 per cent comes from the ICTs sector and around 2.5 per cent from the financial services. Increasing the share of services sectors including ICT, sectors in the GDP would only come in due time. However, a beginning should at least be made to develeop e-commerce infrastructure in the country and the private sector can be its catalyst.