e-Commerce and e-Business

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PREFACE
One the many challenges facing the countries in the Asia-Pacific today is pre-
paring their societies and governments for globalization and the information and
communication revolution. Policy-makers, business executives, NGO activists, aca-
demics, and ordinary citizens are increasingly concerned with the need to make
their societies competitive in the emergent information economy.
The e-ASEAN Task Force and the UNDP Asia Pacific Development Information
Programme (UNDP-APDIP) share the belief that with enabling information and com-
munication technologies (ICTs), countries can face the challenge of the information
age. With ICTs they can leap forth to higher levels of social, economic and political
development. We hope that in making this leap, policy and decision-makers, plan-
ners, researchers, development practitioners, opinion-makers, and others will find
this series of e-primers on the information economy, society, and polity useful.
The e-primers aim to provide readers with a clear understanding of the various
terminologies, definitions, trends, and issues associated with the information age.
The primers are written in simple, easy-to-understand language. They provide ex-
amples, case studies, lessons learned, and best practices that will help planners
and decision makers in addressing pertinent issues and crafting policies and strat-
egies appropriate for the information economy.
The present series of e-primers includes the following titles:
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The Information Age
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Nets, Webs and the Information Infrastructure
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e-Commerce and e-Business
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Legal and Regulatory Issues for the Information Economy
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e-Government;
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ICT and Education
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Genes, Technology and Policy: An Introduction to Biotechnology
These e-primers are also available online at www.eprimers.org. and
www.apdip.net.
The primers are brought to you by UNDP- APDIP, which seeks to create an ICT
enabling environment through advocacy and policy reform in the Asia-Pacific re-
gion, and the e-ASEAN Task Force, an ICT for development initiative of the 10-
member Association of Southeast Asian Nations. We welcome your views on new
topics and issues on which the e-primers may be useful.
Finally, we thank all who have been involved with this series of e-primers-writ-
ers, researchers, peer reviewers and the production team.
Roberto R. Romulo
Shahid Akhtar
Chairman (2000-2002)
Program Coordinator
e-ASEAN Task Force
UNDP-APDIP
Manila. Philippines
Kuala Lumpur, Malaysia
www.apdip.net

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TABLE OF CONTENTS
INTRODUCTION
5
I.
CONCEPTS AND DEFINITIONS
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What is e-commerce?
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Is the Internet economy synonymous with e-commerce and e-business?
7
What are the different types of e-commerce?
9
What forces are fueling e-commerce?
13
What are the components of a typicalsuccessful
e-commerce transaction loop?
15
How is the Internet relevant to e-commerce?
16
How important is an intranet for a business engaging in e-commerce?
17
Aside from reducing the cost of doing business
what are the advantages of e-commerce for businesses?
17
How is e-commerce helpful to the consumer?
18
How are business relationships transformed through e-commerce?
19
How does e-commerce link customers, workers,
suppliers, distributors and competitors?
19
What are the relevant components of an e-business model?
20
II.
E-COMMERCE APPLICATIONS: ISSUES AND PROSPECTS
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What are the existing practices in developing countries
with respect to buying and paying online?
21
What is an electronic payment systems? Why is it important?
22
What is e-banking?
22
What is e-tailing?
25
What is online publishing? What are its most common applications?
26
III. E-COMMERCE IN DEVELOPING COUNTRIES
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How important is e-commerce to SMEs in developing countries?
How big is the SME e-business market?
27
Is e-commerce helpful to the women sector? How has it helped
in empowering women?
32
What is the role of government in the development of
e-commerce in developing countries?
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FOR FURTHER READING
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NOTES
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ABOUT THE AUTHOR
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ACKNOWLEDGMENT
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List of Tables
Table 1: Internet Economy Conceptual Frame
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Table 2: Projected B2B E-Commerce by Region, 2000-2004 ($billions)
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Table 3: Forrester’s M-Commerce Sales Predictions, 2001-2005
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List of Figures
Figure 1. Worldwide E-Commerce Revenue, 2000 & 2004 (as a % share
of each country/region)
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Figure 2. Share of B2B and B2C E-Commerce in Total Global E-Commerce
(2000 and 2004)
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Figure 3. Old Economy Relationships vs. New Economy Relationships
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Figure 4. Top 10 E-Retailers, 2001
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List of Boxes
Box 1. Benefits of B2B E-Commerce in Developing Markets
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Box 2. SESAMi.NET.: Linking Asian Markets through B2B Hubs
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Box 3. Brazil’s Submarino: Improving Customer Service through the Internet
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Box 4. Leveling the Playing Field through E-Commerce: The Case of
Amazon.com
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Box 5. Lessons from the Dot Com Frenzy
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Box 6. Dawson’s Antiques and Sotheby’s: A Case of Creative Positioning
of an E-Business Strategy
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Box 7. Payment Methods and Security Concerns: The Case of China
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Box 8. E-Tailing: Pioneering Trends in E-Commerce
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Box 9. ICT-4-BUS: Helping SMEs Conquer the E-Business Challenge
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Box 10. IFAT: Empowering the Agricultural Sector through B2C
E-Commerce
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Box 11. Offshore Data Processing Centers: E-Commerce at Work
in the Service Sector
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Box 12. E-Mail and the Internet in Developing Countries
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Box 13. Women and Global Web-Based Marketing: The Case
of the Guyanan Weavers’ Cooperative
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Box 14. Women Empowerment in Bangladesh: The Case
of the Grameen Village Phone Network
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Box 15. Data Protection and Transaction Security
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INTRODUCTION
In the emerging global economy, e-commerce and e-business have increasingly be-
come a necessary component of business strategy and a strong catalyst for eco-
nomic development. The integration of information and communications technology
(ICT) in business has revolutionized relationships within organizations and those be-
tween and among organizations and individuals. Specifically, the use of ICT in busi-
ness has enhanced productivity, encouraged greater customer participation, and ena-
bled mass customization, besides reducing costs.
With developments in the Internet and Web-based technologies, distinctions be-
tween traditional markets and the global electronic marketplace-such as business
capital size, among others-are gradually being narrowed down. The name of the
game is strategic positioning, the ability of a company to determine emerging op-
portunities and utilize the necessary human capital skills (such as intellectual re-
sources) to make the most of these opportunities through an e-business strategy
that is simple, workable and practicable within the context of a global information
milieu and new economic environment. With its effect of leveling the playing field,
e-commerce coupled with the appropriate strategy and policy approach enables
small and medium scale enterprises to compete with large and capital-rich busi-
nesses.
On another plane, developing countries are given increased access to the global
marketplace, where they compete with and complement the more developed econo-
mies. Most, if not all, developing countries are already participating in e-commerce,
either as sellers or buyers. However, to facilitate e-commerce growth in these coun-
tries, the relatively underdeveloped information infrastructure must be improved.
Among the areas for policy intervention are:
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High Internet access costs, including connection service fees, communication
fees, and hosting charges for websites with sufficient bandwidth;
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Limited availability of credit cards and a nationwide credit card system;
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Underdeveloped transportation infrastructure resulting in slow and uncertain
delivery of goods and services;
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Network security problems and insufficient security safeguards;
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Lack of skilled human resources and key technologies (i.e., inadequate profes-
sional IT workforce);
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Content restriction on national security and other public policy grounds, which
greatly affect business in the field of information services, such as the media
and entertainment sectors;
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Cross-border issues, such as the recognition of transactions under laws of other
ASEAN member-countries, certification services, improvement of delivery meth-
ods and customs facilitation; and
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The relatively low cost of labor, which implies that a shift to a comparatively
capital intensive solution (including investments on the improvement of the physi-
cal and network infrastructure) is not apparent.

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It is recognized that in the Information Age, Internet commerce is a powerful tool in
the economic growth of developing countries. While there are indications of e-
commerce patronage among large firms in developing countries, there seems to
be little and negligible use of the Internet for commerce among small and medium
sized firms. E-commerce promises better business for SMEs and sustainable eco-
nomic development for developing countries. However, this is premised on strong
political will and good governance, as well as on a responsible and supportive
private sector within an effective policy framework. This primer seeks to provide policy
guidelines toward this end.
I. CONCEPTS AND DEFINITIONS
What is e-commerce?
Electronic commerce or e-commerce refers to a wide range of online business activi-
ties for products and services.1 It also pertains to “any form of business transaction in
which the parties interact electronically rather than by physical exchanges or direct
physical contact.”2
E-commerce is usually associated with buying and selling over the Internet, or con-
ducting any transaction involving the transfer of ownership or rights to use goods or
services through a computer-mediated network.3 Though popular, this definition is
not comprehensive enough to capture recent developments in this new and revolu-
tionary business phenomenon. A more complete definition is: E-commerce is the
use of electronic communications and digital information processing technology in
business transactions to create, transform, and redefine relationships for value crea-
tion between or among organizations, and between organizations and individuals.4
International Data Corp (IDC) estimates the value of global e-commerce in 2000 at
US$350.38 billion. This is projected to climb to as high as US$3.14 trillion by 2004.
IDC also predicts an increase in Asia’s percentage share in worldwide e-commerce
revenue from 5% in 2000 to 10% in 2004 (See Figure 1).
Figure 1. Worldwide E-Commerce Revenue, 2000 &2004
(as a % share of each country/region)

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Asia-Pacific e-commerce revenues are projected to increase from $76.8 billion at
year-end of 2001 to $338.5 billion by the end of 2004.
Is e-commerce the same as e-business?
While some use e-commerce and e-business interchangeably, they are distinct con-
cepts. In e-commerce, information and communications technology (ICT) is used in
inter-business or inter-organizational transactions (transactions between and among
firms/organizations) and in business-to-consumer transactions (transactions between
firms/organizations and individuals).
In e-business, on the other hand, ICT is used to enhance one’s business. It in-
cludes any process that a business organization (either a for-profit, governmental
or non-profit entity) conducts over a computer-mediated network. A more comprehen-
sive definition of e-business is: “The transformation of an organization’s processes to
deliver additional customer value through the application of technologies, philoso-
phies and computing paradigm of the new economy.”
Three primary processes are enhanced in e-business:5
1.
Production processes, which include procurement, ordering and replenish-
ment of stocks; processing of payments; electronic links with suppliers; and
production control processes, among others;
2.
Customer-focused processes, which include promotional and marketing ef-
forts, selling over the Internet, processing of customers’ purchase orders and
payments, and customer support, among others; and
3.
Internal management processes, which include employee services, train-
ing, internal information-sharing, video-conferencing, and recruiting. Electronic
applications enhance information flow between production and sales forces
to improve sales force productivity. Workgroup communications and elec-
tronic publishing of internal business information are likewise made more
efficient.6
Is the Internet economy synonymous with e-commerce and e-business?
The Internet economy is a broader concept than e-commerce and e-business. It
includes e-commerce and e-business.
The Internet economy pertains to all economic activities using electronic networks
as a medium for commerce or those activities involved in both building the net-
works linked to the Internet and the purchase of application services7 such as the
provision of enabling hardware and software and network equipment for Web-based/
online retail and shopping malls (or “e-malls”). It is made up of three major segments:
physical (ICT) infrastructure, business infrastructure, and commerce.8

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The CREC (Center for Research and Electronic Commerce) at the University of Texas
has developed a conceptual framework for how the Internet economy works. The
framework shows four layers of the Internet economy-the three mentioned above and
a fourth called intermediaries (see Table 1).
Table 1. Internet Economy Conceptual Frame
Internet
Layer 1 - Internet
Layer 2 -
Layer 3 -
Layer 4 - Internet
Economy
Infrastructure:
Internet
Internet
Commerce:
Layer
Companies that
Applications
Intermediaries:
Companies that
provide the
Infrastructure:
Companies
sell products or
enabling hardware,
Companies
that link e-
services directly
software, and
that make
commerce
to consumers or
networking
software
buyers and
businesses.
equipment for
products that
sellers;
Internet and for the
facilitate Web
companies that
World Wide Web
transactions;
provide Web
companies
content;
that provide
companies that
Web
provide
development
marketplaces
design and
in which e-
consulting
commerce
services
transactions
can occur
Types of
Networking
Internet
Market Makers
E-Tailers
Companies Hardware/Software
Commerce
in Vertical
Online
Companies
Applications
Industries
Entertainment
Line Acceleration
Web
Online Travel
and Professional
Hardware
Development
Agents
Services
Manufacturers
Software
Online
Manufacturers
PC and Server
Internet
Brokerages
Selling Online
Manufacturers
Consultants
Content
Airlines Selling
Internet Backbone
Online
Aggregators
Online Tickets
Providers
Training
Online
Fee/Subscription-
Internet Service
Search
Advertisers
Based
Providers (ISPs)
Engine
Internet Ad
Companies
Security Vendors
Software
Brokers
Fiber Optics
Web-Enabled
Portals/Content
Makers
Databases
Providers
Multimedia
Applications
Examples
Cisco
Adobe
e-STEEL
Amazon.com
AOL
*Microsoft
Travelocity e-
Del
AT&T
*IBM
Trade
Qwest
Oracle
Yahoo!
ZDNet
Based on Center for Research in Electronic Commerce, University of Texas, “Measuring the Internet Economy”, June
6, 2000; available from www.Internetindicators.com.

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What are the different types of e-commerce?
The major different types of e-commerce are: business-to-business (B2B); business-
to-consumer (B2C); business-to-government (B2G); consumer-to-consumer (C2C);
and mobile commerce (m-commerce).
What is B2B e-commerce?
B2B e-commerce is simply defined as e-commerce between companies. This is the
type of e-commerce that deals with relationships between and among businesses.
About 80% of e-commerce is of this type, and most experts predict that B2B e-
commerce will continue to grow faster than the B2C segment.
The B2B market has two primary components: e-frastructure and e-markets. E-
frastructure is the architecture of B2B, primarily consisting of the following:9
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logistics - transportation, warehousing and distribution (e.g., Procter and Gam-
ble);
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application service providers - deployment, hosting and management of pack-
aged software from a central facility (e.g., Oracle and Linkshare);
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outsourcing of functions in the process of e-commerce, such as Web-hosting,
security and customer care solutions (e.g., outsourcing providers such as
eShare, NetSales, iXL Enterprises and Universal Access);
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auction solutions software for the operation and maintenance of real-time auc-
tions in the Internet (e.g., Moai Technologies and OpenSite Technologies);
●
content management software for the facilitation of Web site content manage-
ment and delivery (e.g., Interwoven and ProcureNet); and
●
Web-based commerce enablers (e.g., Commerce One, a browser-based, XML-
enabled purchasing automation software).
E-markets are simply defined as Web sites where buyers and sellers interact with
each other and conduct transactions.10
The more common B2B examples and best practice models are IBM, Hewlett
Packard (HP), Cisco and Dell. Cisco, for instance, receives over 90% of its product
orders over the Internet.
Most B2B applications are in the areas of supplier management (especially pur-
chase order processing), inventory management (i.e., managing order-ship-bill
cycles), distribution management (especially in the transmission of shipping docu-
ments), channel management (i.e., information dissemination on changes in op-
erational conditions), and payment management (e.g., electronic payment sys-
tems or EPS).11
eMarketer projects an increase in the share of B2B e-commerce in total global e-
commerce from 79.2% in 2000 to 87% in 2004 and a consequent decrease in the
share of B2C e-commerce from 20.8% in 2000 to only 13% in 2004 (Figure 2).

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Year 2000
Year 2004
Figure 2. Share of B2B and B2C E-Commerce in Total Global E-Commerce
(2000 and 2004)
Likewise B2B growth is way ahead of B2C growth in the Asia-Pacific region. Accord-
ing to a 2001 eMarketer estimate, B2B revenues in the region are expected to exceed
$300 billion by 2004.
Table 2 shows the projected size of B2B e-commerce by region for the years 2000-
2004.
Table 2. Projected B2B E-Commerce by Region, 2000-2004 ($billions)
2000
2001
2002
2003
2004
As a % of
worldwide
B2B
commerce,
2004
North America
159.2
316.8
563.9
964.3
1,600.8
57.7
Asia/Pacific Rim
36.2
68.6
121.2
199.3
300.6
10.8
Europe
26.2
52.4
132.7
334.1
797.3
28.7
Latin America
2.9
7.9
17.4
33.6
58.4
2.1
Africa/Middle East
1.7
3.2
5.9
10.6
17.7
0.6
TOTAL
226.2
448.9
841.1
1,541.9
2,774.8
100.0
Box 1. Benefits of B2B E-Commerce in Developing Markets
The impact of B2B markets on the economy of developing countries is evident in the following:
Transaction costs. There are three cost areas that are significantly reduced through the
conduct of B2B e-commerce. First is the reduction of search costs, as buyers need not go
through multiple intermediaries to search for information about suppliers, products and
prices as in a traditional supply chain. In terms of effort, time and money spent, the Internet
is a more efficient information channel than its traditional counterpart. In B2B markets,
buyers and sellers are gathered together into a single online trading community, reducing

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