E-commerce in Developing Countries

Commerce is the exchange of goods and services for a consideration, commonly money. Thus e-commerce is exchange of goods and services facilitated electronically. For the purpose of this paper we will adopt the broad definition of e-commerce to mean any use of information and communications technology by a business that helps it improve its interactions with a customer or a supplier (Payne E. J 2003). E-commerce uses the internet, telephone and fax. This are all those that allow for business to be conducted in near real time conditions.

In advanced countries, e-commerce has led to a boom in Business Processing Operations (B.P. O’s) and Call Centers. While the developing world is gearing itself to catch up to e-commerce, some countries have displayed outstanding achievements; India is worth mentioning in this context.

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Indeed India’s advancements in e-commerce even rival those in advanced countries, and in some cases, surpass them. Today, maybe as a consequence, India is emerging as a technological superpower. One crucial benefit that developing countries are envisioning to gain from e-commerce is the expanded market for commodities and services while at the same time eradicating the role played by middle men in traditional distribution chains.
For example, in Kenya the mobile phone has helped the farmer many kilometers from major markets access the current prevailing prices thus avoid exploitation by the middlemen. Developing countries are keen to replicate the achievements made by advanced countries together with India in e-commerce. This is with the view of reaping the economic gains that are obvious to all stake holders to date. However certain difficult decisions have to be made in the journey to establishing a vibrant e-commerce sector in these countries.
Worth noting is that the infrastructure in the developing world is in dire need of a major upgrade. For example, the internet and the World Wide Web are absolutely vital for the realization of successful e-commerce. The systems in place in majority of the developing world are both costly and far below the expected standards necessary for the implementation of near real time trade. These costly infrastructural improvements will bring about the following: ? Faster connection speeds to the internet to facilitate data transfer.
? Clearer and superior voice and sound clarity to enable fulfillment of intra global trade involving conferencing and discussion over the World Wide Web. ? Extremely low operating costs together with higher output capacities which facilitate business profitability and sustainability. This paper is of the view that though e-commerce has high set up costs, major organizational adjustments and infrastructural considerations, developing countries stand to gain massive economic benefits offered by a successful harnessing of the e-commerce sector. Main Text
Modes of E-commerce There are different modes of e-commerce – Phone, Fax and Internet. Phone e-commerce happens where the provider of the goods or service communicates with the buyer through a phone. Phones come in various application modes such as satellite phone, mobile phone, telephone etc. Fax e-commerce is where communication between the buyer and seller is done over the fax. Its advantages are in the speed of transactions, the reach available and the lower cost implication compared to face to face conversation or other traditional modes.
The Internet and the World Wide Web are the latest major additions to e-commerce and they have brought remarkable solutions in voice and data communications that were erstwhile unimagined. For example, the concept of a twenty four hour mobile office where goods and services are available to all and sundry on the globe in the comfort of ones residence is still strange in many business people in the developing world. Arguments against E-commerce in developing countries. There has been much of the debate on e-commerce especially regarding the role played by the internet and the World Wide Web.
The major issues raised are listed below: ? Infrastructural cost. ? Change of mindsets to embrace the new forms of technological advancement. The present infrastructure needs major adjustments to enable it support e-commerce. Firstly, energy costs in developing countries are among the highest in the world. Per unit charge in consumption of electricity in the developing countries need to be brought down to levels comparable to those in advanced nations. For this to happen, the systems for power generation need to be upgraded to the latest technologies which tout higher efficiency at extremely low operating and maintenance costs.
In addition to this, it has become almost general knowledge that much of the populations in the developing countries do not have access to electricity in the homes. The situation is grave since electricity supply can only be guaranteed in urban centers only, while the majority of the people live in rural areas. Secondly, the technology that supports internet and World Wide Web connections is inferior to those employed in advanced countries. This inferiority is in terms of its weak performance characteristics whereby it is slow and expensive in terms of data exchange, and cannot support a consistent voice dialog over the internet.
This is issues can only be rectified with the introduction of the technology available abroad that includes installation of fiber optic cable connection, and inexpensive commercial satellite uplink among other technologies geared towards cutting down the cost of communication while improving performance. Other considerations take the nature and form of those that Pare D. J. (2002) brings to light. The cost of doing business will include, but not confined to network security and regulatory environment.
Where as the business in a developed country would comfortably produce goods or services in the standards of the environment it operates in, it is forced to adopt standards of the buyer (receiver of the goods and services) who happens to be based in a more advanced country. Problems therefore emerge such as how to remit payments in a secure way, how to confirm that the items selected for purchase are as those displayed over the World Wide Web and other security oriented fears. ARGUMENT FOR E-COMMERCE IN DEVELOPING COUNTRIES.
Developing countries are faced with surging unemployment levels that cause discontent and saps development gains by straining resources and amenities. These economies have long held the notion that by expanding the sectors in there economy, they will be able to have more participation of its people in viable income generating activities. E-commerce is touted as one such sector that, as evidenced by the Indian success, millions of people can be absorbed in this sector which has positive trickle down effects and sound complementarities with other existing sectors in the economy.
In addition, a positive labour diffusion process will arise were by now-skilled laborers from developing countries migrate to advanced countries to get jobs that promise higher wages. It has been found that these nationals are responsible for shipping large amounts of foreign currency back home to assist there relatives. This foreign income is enables these countries to improve there balance of payments, hence accelerating development. A case in point is the dynamic tertiary sector in India that is spurred by the computer technology industry.
India has remarkable strength in software development, which employs a large number of Indian technocrats. In fact, India produces such a large number of skilled personnel that major multi national firms in IT set up base in India. The dynamics here are that the large number of skilled labor concentrated in one area pushes down wages as competition for employment thrives. Due to these dynamics, India has at its disposal an abundance of relatively less expensive and highly learned work force.
There is, as a consequence, a high population of Asians of Indian origin fulfilling duties in the IT sectors of major world powers, including the United States of America and Great Britain. This export of human labor accounts for a significant amount of foreign currency transfer back home. I agree with (Humphrey J. et. al) when he argues that e-commerce will create a new culture. By embracing the way the world wants things done, developed countries will by extension be taking the initiative in creating home grown solutions to global problems, thus providing unique solutions that are customized to suit local contexts.
This will create anew breed of workers unique to the developing countries. It is thus clear that where as e-commerce will be pretty expensive to embrace in the short term. In the long run however, the benefits accruing easily outweigh the costs. By embracing e-commerce the developing countries will be killing two birds with the same stone; generating economic growth and expansion by providing the necessary infrastructure and creating a new economy and culture for the learned in the country.
Added to this is the bonus of providing a bigger market for its entrepreneurs, and a break away from the well known reliance that developing countries’ economies have in there primary and secondary sectors. THE KENYAN CASE In Kenya, the pioneer company in e-commerce is Kencall Ltd. Its basic vision is to lead the way in outsourcing business [Kencall. com]. Being the first major outsourcing company in Kenya, it was faced with a myriad of problems. Some of these problems are listed below: ? Lack of a pool of experienced labor force as is the case in India and South Africa.
? Attempting to change local mindsets with its new concept, largely unknown in that part of the world. Where as BPO was already been taken to developing countries namely India and South Africa this was still a very strange idea in Kenya. ? Expensive telecommunication infrastructures, coupled with slow reforms in the Kenyan communications sector to enable it adjust to global developments. There was need for fast internet uplink to allow for real time transfer of data and voice to the clients. This particular problem was not easy to overcome.
With the gateway controlled by the government and operating on obsolete technology with a knack for breaking down. It was another eighteen months before Internet gateways were liberalized and the company could now get good speeds courtesy of dedicated satellite uplinks. ? Under performance of the Kenyan economy coupled with a less than friendly relationship atmosphere that existed between Kenya and its development partners. Although this situation was improving, the pace was slow as the government pledged top implement much needed reforms in government.
These altogether impacts negatively on investments and industry expansion. ? An unstable political climate in Kenya that was characterized by an over politicized climate. This has the effect of shifting concentration from economic growth and development issues to politics. With the implementation of certain reform pledges that led to restored confidence between Kenya and its development partners, there came a turn around in the Kenyan economy. It started to grow. The industry specific results were a marked expansion in investment, higher employment and an increase in per capita incomes.
In addition there was a wider pool of returning graduates from developed countries who knew what BPO was all about. They came with much needed know how and information on the role of e-commerce in development. These included the directors of Kencall Ltd, in particular Mr. Nick Nesbitt [Kencall. com]. His contribution to the Kenyan economy has led him to be recognized by the government in through an honorary award bestowed to him by the president of the republic. With the realization by the government that in e-commerce lay a ‘goldmine’ [kencall.
com], they sought to exploit it by first laying a fiber optic cable all around Nairobi. By connecting to this the speeds were greatly enhanced although the costs still remain high. To reduce cost the government sought to lay an underground fiber optic cable. With partnership of Southern African countries they wanted to have the cable running from Cape Town to Somali. Politics has put this noble idea in the back burner. The Kenyan government on its part has chosen to go it alone, as it recognizes the importance of e-commerce. Plans are already at an advance stage to have a cable between Mombasa and Fujaira in Oman.
In anticipation of this, a fibre optic cable has already been laid between Nairobi and Mombasa with the rest of the nation in the pipeline. All this has lead to a proliferation of BPO providers. Skyweb and Pacis have already joined into the fray. Smaller firms are doing the same but on a small scale. On Wed 11th July, Skyweb launched into the market a solution that allows a firm offer BPO on the strength of only 5 computers. Expect in the next year to be a growth in this area. Safaricom, the biggest mobile phone operator has thrown a challenge to BPO providers.
To show they can handle around 100,000 calls a day while maintaining quality and they will be given the account. This is a challenge to be taken seriously if e-commerce is to grow to match if not pass the pioneers like India and China. Due to the time difference, while other one part of the world sleeping the other is in the middle of a trading day, while another is waking up. There is need for a 24 hr approach to e-commerce in order to take advantage of all situations arising. Kencall has overcome this by operating on 8hr shifts for 24 hrs. This has been made possible by the good security provided by the government.
Kencall Ltd [Daily Nation (2007)] has grown from an initial work force of 20 members to the present over 300 staff. The have also had to move location to a more spacious building where growth is possible. The amount of work handled ahs also grown six fold. This has led to Kenya been recognized as an upcoming force in e-commerce. By extension businesses in Developed countries feel comfortable when dealing with Kencall since they have the capacity to deliver. With the technological strides, Kencall can with a degree of certainty claim to be in a position to guarantee the integrity of its business partner’s information.
In addition, Ken call has with itself the unique opportunity of spinning itself into and e-hub provider. With its wealth of experience, it can mitigate high turnover by providing training to would be e-commerce players. This way it will eliminate the need for people to seek employment only for them to quit after six to twelve months once they are trained and have an understanding of e-commerce and by extension BPO. CONCLUSION: Pare D. J 2003 is of the opinion that the mere bringing of total strangers together in an online environment will not necessarily reduce overall transactional cost to achieve long-term economic gains.
This paper has tried to disprove this by clearly showing that the opposite is true. By improvement of the working environment, the long term economic gain is clear for any to see. The fibre optic link currently being enjoyed by all not only Kencall Ltd. More effective security is but one of the major achievements being enjoyed by Kenyans. On their part Kencall Ltd is reaping the fruits of persistence. They are defining the parameters in e-commerce simply because they have been longer in the game on the Kenyan context.
Any new entrant will have to start form a point of disadvantage as compared to Kencall at present. With the present business environment where businesses are looking to outsource labour intensive operations, Kencall stands at an advantage. In addition, with all the people trained by Kencall, Kenya is at an advantageous position to exploit new business in e-commerce. The completion of the fibre optic link will greatly enhance this. Not only will the cost of doing business come down, it will also enable Kenya position itself as the regional hub of e-commerce.
The reference point to all who desire to enter into this business – this will be all who know what is geed for them. The local producers now have the whole world open to them. The floriculture industry is a good example of successful exploitation of e-commerce in sourcing markets. It has taken only a decade for Kenya to command a healthy 30% of cut flowers sold in the world. This growth and success can be replicated in other areas. For example the floriculture industry is faced with rapid expansion problems and it is investing in technology from Israel and other countries leading in floriculture to fulfill this needs.
Kenya can turn the big swaths of land on the northern part of Kenya to be great producers of horticulture as the global demand in Kenyan cut flowers increases, albeit stimulated by the easy access to market information facilitated by e-commerce. Hence a concerted effort involving both the citizens and the government is needed to enhance awareness and accelerate infrastructure provision to enhance the benefits of e-commerce in providing remarkable industry specific economic solutions. As Annan K. rightly put it, e-commerce is the most visible example to how ICT can contribute to economic growth.
By improving trading efficiency and helping developing countries integrate into the world economy. Allowing entrepreneurs to compete more create more jobs and by extension create more wealth. REFERENCE: Payne, Judith E. [2003]. E-Commerce readiness for SME’s in developing Countries: A guide for development professionals. Pare, Daniel J. [2003]. Does this site deliver? B2B E-Commerce services for developing countries: Humphrey, J. Mansell, R. Pare, and D Schmitz, H. [2003] . The reality of E-Commerce in developing countries: Does e-commerce provide developing country businesses with easy access to global markets?
Annan, K [2003]. UNCTAD Secretariat, E -Commerce and Development Report 2003, United Nations Conference on Trade and Development, United Nations, New York and Geneva. (In Forward). Okuttah. M. Outsourcing: The latent goldmine: http://www. kencall. com/goldmine. htm OTHER SOURCES http://www1. worldbank. org/devoutreach/spring00/article. asp? id=79 E-commerce for Developing Countries: Expectations and Reality, Volume 35, Number 1, 1 January 2004 , pp. 31-39(9) http://learnlink. aed. org/Publications/Concept_Papers/ecommerce_readiness. pdf

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