What are Advantages and Disadvantages of Doing Business on the Internet

The past a few years saw the boom and bust of the Internet sector, which is perhaps one of the most dramatic business events for several decades. Shutdowns of Internet companies more than doubled in 2001. However, based on a conservative estimate, only at most ten percent of significant Internet companies have shut down or declared bankruptcy. With the burst of the Internet bubble, people now are becoming more rational. Internet has become an important part of business and government, and less a part of frenzied speculation.

Electronic commerce, which covers a much broader scope than mere Internet companies, has been penetrating our life to various degrees. It is no longer time to consider whether it should get involved in our existence but time to examine its implications and so as to make it bring positive changes to us. This paper provides an overview of e-commerce and an analysis of the opportunities and challenges for the world, especially the developing countries. Emphasis is placed on the evaluation of trade-related issues.

Electronic Commerce Defined Kevin Kelly, the author of New Rules for the New Economy, describes the new business landscape, “It is global. It favors intangible things – ideas, information, and relationships. And it is intensely interlinked. These three attributes produce a new type of marketplace and society, one that is rooted in ubiquitous electronic networks. ” That is, the New Economy has been transformed by digital technology in the “postindustrial” period.

Value creation for customers has shifted from physical goods to an economy that favors service, information, and intelligence as the primary sources of value creation.

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E-commerce may be understood in a broad sense or a narrow sense. The former refers to all the business activities (like buying, selling, and other transactions) that are conducted via communication and business technologies. By this definition, a transaction may be done through telephone, fax, credit card, TV shopping, and the Internet.

A narrow sense of definition for e-commerce is different, which refers only to the Internet-based business activities. What we are discussing here is related to the latter kind, i. e. business activities conducted with the help of Internet. According to the World Trade Organization (WTO), electronic commerce is the production, advertising, sale and distribution of products via telecommunication networks. It includes: 1) the searching stage where producers and consumers, or buyers and sellers, first interact; 2) the ordering and payment stage once a transaction has been agreed upon; and 3) the delivery stage.

In addition, the member states of the Organization for Economic Co-operation and Development (OECD) have agreed on a working definition of e-commerce: the networks over which E-commerce activities are carried out (Internet or others), the specific business processes related to e-commerce and the different actors involved (businesses, households or Governments). Economically speaking, e-commerce is a cheap way, by connecting computers everywhere, to carry out those activities which used to cost so much time and money from businesses.

All those actions like product promotion, invoicing of merchandise, inventory control, communication with suppliers and customers, etc. can be accomplished over the Internet. With the help of Internet, your communication with your boss or employees two thousand kilometers away is as convenient and efficient as if you were in the same city. The market used to leave too little room for small businesses. However, things are different for the e-commerce.

In e-commerce, so long as the business, no matter it is big or small, can move onto the electronic highway, you just go ahead with your business. It is up to the e-commerce consumers to decide which company they like and what products they would like to buy. In a way we may say that e-commerce has brought a “revolution” to businesses in an all-round way. Unfortunately, up to now, quite a number of companies have not yet realized the significance of e-commerce, not to speak of taking real steps to meet the challenge.

Advantages E-commerce has opened an enormous market for all businesses. More and more companies have started doing business on/via the Internet. In Canada, one out of ten companies sold goods and services on the Internet in 1999. The total value for the customer orders received over the Internet was $4. 4 billion (with or without online payment). At present, according to Toronto research firm International Data Corp. the Internet business has grew to a total of US$ 435 billion worldwide by the year 2002. What business owners are mostly concerned about is in what way they can benefit from doing e-business over the Internet, which sounds quite reasonable and understandable. Actually, once you set up a store on the Internet, you have expanded your market to the whole world, which is beyond the customs tariff or the political influence.

Although not all visitors to your Net store will ever do any shopping at your store, you should try your best to win them over by your marketing strategies. In fact, what you do for your products/services promotion on the Internet is only a supplementary effort to – and not a replacement of – your traditional ways of promotion. By your careful designing, consumers are encouraged to become more involved with your products or services. It is highly necessary for e-commerce to think of some special programs.

Like the traditional way of building consumer’s loyalty, companies on the Net may practice the membership reward programs. Many consumers are interested in programs like “Frequent Buyers”, “Point Accumulation” or “Free Internet Access” offered by the credit card companies/banks, airlines, or bookstores. There are a number of ways to conduct B2B transactions online. Ever since the late 1960s, big companies have been doing business on the standardized electronic forms by using EDI.

The traditional one-to-one transaction model has been gradually renewed with the advent of Internet: sellers sell directly from their websites; almost all computer-related companies have their own stores on the Net; and some smart virtual marketplaces attempt to bring both sellers and buyers together in one place. It is not hard for us to see that Internet has brought more vitality to the business transactions. Disadvantages of E-commerce As you begin to write your first column in the electronic commerce series, you realize that some business processes may never lend themselves to electronic commerce.

For example, unique and high-cost items, such as jewelry or antiques, may continue to be difficult to inspect from a remote location. Most of the disadvantages of electronic commerce today, however, stem from the newness and rapidly developing pace of the underlying technologies. ?? These disadvantages will disappear as electronic commerce matures and becomes more available to and accepted by the general population. Many products and services require that a critical mass of potential buyers be equipped and willing to buy via the Internet.

Another example of a technology problem on the Web today is that the color settings on computer monitors vary widely. Clothing retailers find it difficult to give customers an accurate idea of what a product’s color will look like when it arrives. Most online clothing stores will send a fabric swatch on request, which also gives the customer a sense of the fabric’s texture. As technology improves, this disadvantage will become less of an issue. Businesses often calculate their potential profits before committing to any new technology.

These calculations have been difficult to perform for investments in electronic commerce because the costs and benefits have been hard to quantify. Technology costs can change dramatically during electronic commerce implementation products (processes) because the technologies can change so rapidly. Many firms have trouble recruiting and retaining employees with the technological, design, and business process skills needed to create an effective electronic commerce presence.

Another problem facing firms that want to do business on the Internet is the difficulty of integrating existing databases and transaction-processing software designed for traditional commerce into the software that enables electronic commerce. In addition to the technology and software issues, many businesses face cultural and legal impediments to electronic commerce. Some consumers are still afraid to send their credit card numbers over the Internet. Other consumers are simply resistant to change and are uncomfortable viewing merchandise on a computer screen rather than in person.

The legal environment in which electronic commerce is conducted is full of unclear and conflicting laws. In many cases, government regulators have not kept up with technologies. Laws that govern commerce were written when signed documents were a reasonable expectation in any business transaction. As more businesses and individuals find the benefits of electronic commerce to be compelling, many of these technology- and culture-related disadvantages will disappear. Values that Electronic Commerce Creates

Electronic commerce creates value by vastly lowering the cost of transferring many types of information, on a one-to-one, one-to-many, or many-to-many basis. On the demand side, the advantages are improved information about the available goods and services, improved access to them as well as more customization that matches the taste of the buyers. On the supply side, electronic commerce can streamline transaction processes and reduce cost. When Cisco Systems replaced its phone and fax ordering process with online ordering, the company saved more than half a billion dollars and reduced error rates from 25% to 2%.

Study also shows that there is a lot of cost savings in delivery directly to the home rather than doing so through a store. Internet makes the time when transactions take place flexible, a very important feature in a global economy with different time zones. Thus 24-hour online banking service has brought much convenience at low cost both to the banks and the customers. E-commerce also enables better matching of buyers and sellers, which means more transaction volume and higher market efficiency. In addition, e-commerce has created opportunities for brand new products and industries.

Examples are Internet appliances, such Palm Pilots, and Internet-based services, such as PC-to-Phone calls. Moreover, e-commerce creates new markets where preciously transaction and coordination costs were prohibitively high. New View Technologies, formerly known as eSteel. com, aggregates steel producers and purchases from around the world into a single online marketplace. On the macroeconomic level, it is widely recognized that e-commerce, both B2C and B2B models, reduces overall transaction cost, allocates resources better, increases economies of scale and improves the competitiveness of business in general.

Despite some existing murkiness, recent studies show that e-commerce does have a positive impact on national growth of productivity and GDP. It is expected that European countries will catch up quickly with the United States, and developing countries, with a certain degree of preparedness, could also converge in productivity with the leading e-commerce countries. Prerequisites of Electronic Commerce The benefits of being integrated in e-commerce look inviting, especially in trade-related issues. But in order to reap these benefits, there are many prerequisites.

First, the implementation of e-commerce needs sufficient technologies and infrastructures of computer and telecommunication, whose development is ever accelerating. Countries should have reached a certain stage of Information and Communication Technologies (ICT) development so that the buyers and suppliers can actually materialize the possibility of conducting e-commerce. Second, electronic commerce also requires the technological and processing capability to make on-line payments and to deliver goods and services to consumers both physically and over the Internet.

The appropriate development of financial services and logistics is also an indispensable part of the e-commerce. Despite its prevalence in certain sectors and regions, e-commerce is still in its infancy. There is urgent need, both on the national and international levels, for the establishment of standards, regulations and laws to create an environment of certainty, trust and security of the purchase and sales, as well as for the conveyance and use of information provided online. What E-commerce Means to Developing Countries?

E-commerce is unique in its great capacity to go beyond the boundaries of time, space and information. An OECD study shows that there is a linkage between the openness of an economy and ICT spending. Trade in the goods and services are facilitated by the dissemination of ICTs. Countries where ICT spending has increased sharply usually also have sharp growth in trade. Therefore, given its immense effect on international trade as well as investment, e-commerce influences the development and globalization processes of the world.

To meet the prerequisites of e-commerce requires a great amount of resources and efforts invested over a long period of time, so e-commerce is one more challenge that the developing countries are facing in the era of so-called new economy. In this realm, there is still much to accomplish for the developed countries and the way is probably even longer for the developing countries. United Nations Conference on Trade and Development (UNCTAD) has studied this issue and come up with two scenarios.

In Scenario I, the developing countries may be able to skip certain stages of development, jump on the express train of e-commerce and better integrate themselves in the world economy. A 1% productivity growth in the services sector in Asia would result in welfare gains of US$ 12 billion, GDP growth of 0. 4%, a wage increase of 0. 4% and a growth in services exports of between 2% and 3%. Therefore, e-commerce can become an important tool for development and fast catching-up. However, in Scenario II, developing countries might lag further behind technologically.

While developed countries will have welfare gains of US$ 117 billion, the developing world as a whole will experience a huge loss in welfare (close to US$ 726 billion) and GDP, reduction in wages and deteriorating terms of trade. E-commerce could hence constitute an additional factor widening the gap between developed and developing countries. For individual countries, the trade effect of e-commerce is two-fold: On the one hand, new demand and market for goods and services has been created and expanded. Tourism industry, an information-intensive industry, is an important employer and foreign currency earner for developing countries.

E-commerce can help maintain and improve their comparative advantage over developed country destinations. Although developing countries lack in modern ICT and financial infrastructures, their customers usually come from developed countries where such infrastructures are modern. Therefore, this obstacle is not formidable. With the adoption of e-commerce and other improvements in the business, the developing countries can reach their customers more directly with more comprehensive and flexible tourism products, reducing and/or eliminating the cost associated with a chain of intermediaries.

As a result, the tourist industry of developing countries can become more competitive. E-commerce also makes it possible for consultancy type work such as software development and support to be carried out in the developing countries where consultants are employed to serve customers abroad. This means the sale of services in which the developing country has a comparative advantage (relatively low labor cost), which has not been fully utilized because of restrictions on the movement of natural persons.

Microsoft has just moved its Global Technology Engineering Center to China. This is a net benefit to the exporting country in terms of income, retained earnings and employment. On the other hand, sectors that have been shielded from international competition will now be challenged by foreign producers. This might create serious problems for the developing countries, at least in the short term. In various WTO agreements, they have been granted special treatment for a certain period of time so that their domestic industries will not be overwhelmed all at once.

With the advent of the e-commerce, it has to be determined what degree of openness is optimal so that the countries can gain from efficiency rather than suffer from the by-effects such as threats to national security and sovereignty as well as unemployment. Over the past decade, the regions with the highest annual growth in goods and services exports were Latin America, North America and Asia, whose shares of world exports also rose, while those of Europe, the Middle East and Africa declined. Africa posted the lowest export growth rate (at 1% per year).

The most dynamic regions in terms of exports were also the most dynamic in terms of imports, reflecting a better integration into trade. This shows that although trade has increased in every region of the world, not all regions have benefited equally from the dissemination of trade as a result of new economy, where e-commerce plays a major part. E-commerce helps enhance global economic integration because the new opportunities that it creates bring in certain countries that have previously been left out. For example, www. EthioGift. om is selling “Very big sheep- a 35 KG Sheep for Your Family’s Feast ($97)”, featuring a photo (with zoom view) of an attractive brown and white ovine. This Ethiopia-based website is a model of its kind – an e-commerce venture based in a developing country doing a booming business with clients in the industrialized world. However, without the necessary infrastructure and technology to connect them in the network of e-commerce, the most disadvantaged countries are threatened with even greater exclusion from trade and investment flows.

Africa’s regression in international trade statistics proves that the digital divide does exist. According to OECD, some countries’ exclusion is made even more visible by the digital divide. However, the number of those excluded has been dropping steadily thanks to the new technologies. Although it appears that the developing countries have an interest in trading ICT products, the inequality of access to the new technologies is blatant.

As long as this inequality persists, the problem cannot be totally solved. Therefore, the impact of e-commerce has two sides. Although its overall impact on the world is positive, we cannot assume that, for any single country under current conditions, the net effect of e-commerce is positive, too. Since e-commerce seems an irreversible trend, measures must be taken to make it work better and fairer for each player. Such efforts shall come both internationally and domestically.