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E commerce and_poverty_pdfversion E commerce and_poverty_pdfversion Document Transcript

  • HOW CAN E-COMMERCE ALLEVIATE POVERTY? Francis Stevens George Krooman Consulting © 2004 www.krooman.comFrancis Stevens George Krooman Consulting12/2004 www.krooman.com
  • INTRODUCTIONElectronic commerce (e-commerce) is the use ofthe internet and web to transact business. Moreformally, digitally enabled commercialtransactions between and among organizationsand individuals. Electronic Commerce (E-Commerce) has almost overnight become thedominant on-line activity. Equally quickly it hasbecome a significant element in commercialactivities globally, particularly in the developedcountries where suitable infrastructure supportis available. Several types of e-commerce areavailable: • B2C-Business to Consumer • B2B-Business to Business • B2G-Business to Government • C2C-Consumer to Consumer • P2P-Peer to Peer e-commerce • M-commerce-Mobile e-commerceThis paper will treat the general topic of e-commerce. Further, with regards to thispaper, e-commerce has to be seen as one aspect of Information andCommunications Technologies-ICTs. There is the widely held view that ICTs havethe potential to transform underdeveloped economies. In general, ICT projects toalleviate poverty have tended to see the technology either as a gateway to newincome generating employment opportunities through eCommerce for craft goods, oras a way into outsourcing markets, where very low wages will make themcompetitive. In other words, the projects attempt to find new ways for people inpoverty to earn cash.It has been argued that one of the ways to alleviate poverty is through incomegeneration. This view calls for market efficiency and accessibility by producers in thepoor countries. It has been suggested that the internet and its related technologiesoffer the mechanism to do just this. In particular e-commerce has been put forwardas a key way to access markets in the developed countries. A World Bank report(2000) suggests that the most effective antipoverty policies maybe those thatenhance the efficiency of markets used by the poor. The report further went on toargue that Information and Communications Technologies (ICT) can break down thegeographical isolation that the poor usually face.That technology can accelerate growth is nothing new. Schumpeter, Kondratieff andothers have demonstrated this in their seminal works1. What is unique is that the1 Kondratief’s ”Long Wave Theory”. The role of technology in the”upwave”.Schumpeter: technology as the engine of economic growth. Mensch: Only innovation can overcomeeconomic depression.Francis Stevens George Krooman Consulting12/2004 www.krooman.com
  • new technologies have attained mass penetration unprecedented in history.Furthermore, they have properties that are universal. For example, to view a webpage, all one needs is a browser and an internet connection.I will take a narrow definition of poverty and ignore the broader concept of povertythat includes other aspects of human deprivation- such as illiteracy, malnutrition,and bad health, poor access to water and sanitation, and vulnerability to economicshocks. Thus, the definition focuses on lack of income or income generatingopportunities. I believe that this is justified as we are looking at e-commerce-whichis one aspect of ICTs.2I have not ignored the significance of e-commerce for gender development. Many ofthe small businesses in developing countries are owned by women. While we do notmake any explicit treatment of the gender factor in this paper, we nonethelessrecognized its importance.This paper will examine ways in which e-commerce can alleviate poverty. At thesame, the paper will also show that for this to happen, there are has to be otherfactors in place, not least, information literacy.2 It is worth noting that the case has been made for the role of ICTs in alleviating poverty througheducation (e-learning), health (e-health, telemedicine, online medical libraries), andempowerment(e-government, OLRT market information).Francis Stevens George Krooman Consulting12/2004 www.krooman.com View slide
  • POVERTY ALLEVIATIONElectronic Commerce can alleviate poverty in thefollowing ways: • E-commerce is ubiquitous, meaning that its available just about everywhere. This has the potential to reduce or eliminate market inefficiencies, which can lead to significant economic gains. E-commerce can help reduce transaction costs and barriers to entry, and improve market efficiency. For example, though e-commerce sellers in the poor countries can reach buyers without the need for intermediaries that usually represent a large chunk of the final price. This is becoming increasingly the case. Textiles manufacturers in the Indian Ocean used to go through a myriad of intermediaries to reach wholesalers and retailers in Europe and in the US. These days most simply reach buyers through specialized portals.3 • Global Reach. E-commerce permits commercial transaction to cross cultural and national boundaries. To the extent that this extends the market4 for producers in the develop countries, it is bound to bring some economic gains, albeit small in some cases. Pashmir cloth producers in Nepal, now potentially has a global market, through e-commerce. Early in 2000, we worked with a small company in Kenya making bait for fly fishing. The owner a lady was enthusiast about the e-commerce as it gave her the opportunity to reach new markets. She told us she has been able to employ more people. Through a transmission mechanism, one can assume wages passed on the local economy. • The Internet and the web improve information density. The quantity and quality of this information, available to all actors, reduces a major disadvantage of producers from the developing countries. E-commerce reduces information collection, storage, and processing and communications costs. This reduces significantly the cost of participating in the global economy from actors in the poor countries • E-commerce offers opportunities to entrepreneurs to develop new products and expand into new markets. E-commerce provides unique business opportunities for creative entrepreneurs. This is supported by the fact that virtual enterprises are now possible. In particular digital products can now be delivered without the need for a local presence in the market. A student I once taught in Ghana has now started an eco-tourism guide on the internet. Recently after a discussion I had with him, he has now started an e-tourism guide for members of the Ghanaian hotel industry. These two businesses3 These are also known as Vortals. A vortal is a vertical portal.4 In e-commerce one refers to the market as “marketspace”, instead of the traditionalmarketplace.Francis Stevens George Krooman Consulting12/2004 www.krooman.com View slide
  • have advertising as their revenue models. • Through the Development of Computer Related Services Exports. Costa Rica and India have demonstrated that e-services can contribute significantly to enhancing export competitiveness. In Costa Rice, software services export as a share of total services exports have increased from 0% to over 3% in three years. India’s IT services exports have almost doubled in two years and stands at 16% of total exports. • The development of virtual communities along side commercial e-commerce. These virtual communities are developed in association with web-sites and linking these to their associated products or sponsors. The business model here is based on the assumption that these "virtual communities" represent a set of consumer "loyalties" which have commercial value and thus these communities can have a commercial value (and can be bought and sold sometimes at very significant values!). In the context of income generation, the issue is not the creation of a "virtual" community but rather the creation of a linkage between a real physical community and the "virtual" world where this community may undertake certain of its activities. The availability of these community linkages for transfer into the virtual domain provides an opportunity for local entrepreneurs to use these community ties as a framework within which to construct economic and trade relationships. Thus for example, a community can use the Net to "sell" themselves either as a market or as a supplier of goods or services into the commercial E-Commerce sphere - e.g. we are 2000 purchasers of fertilizers, how much will you fertilizer suppliers charge us on a per ton basis for our fertilizers and such a message can go out globally.Francis Stevens George Krooman Consulting12/2004 www.krooman.com
  • NICE…BUTThe above points will not achieve the desired results inthe absence of several prerequisites. • An enabling environment. In many poor and developing countries, internet access is quite expensive. On top of this, prices of hardware are beyond the reach of most small businesses. Internet access in some countries is still the preserve of the State Telecom Monopoly. Services are poor, expensive and bandwidth low. In such environments developing e-commerce is a challenge to say the least. • Marketing and leadership of local entrepreneurs. E-commerce by itself is not a panacea for poor marketing skills. When knowledge in marketing and marketing research is lacking, then EC can offer very little benefit. Most e-commerce venture is manifested in a website. It has been argued (Francis George) that without the necessary e-marketing knowledge, then the website will do little to advance the interests of sellers from the poor countries. • Application Service Provider model (ASP). Many of the skills needed to run a successful EC business are usually lacking or in short supply in the developing countries. In addition, many of the entrepreneurs have access to the World Wide Web through a telecentre. To engage in EC would impose costs in terms of software and hardware that may be prohibitive to many. Using an ASP model, SMEs will not need to own extra equipment beyond that of the telecentre. This model will also accelerate the rural web micro enterprises.Francis Stevens George Krooman Consulting12/2004 www.krooman.com
  • E-COMMERCE AS A THREAT TO LOCAL ECONOMICDEVELOPMENTThis paper made the point that income generation is of the primary ways that e-commerce can alleviate poverty. It has been argued that this attacks poverty fromthe wrong end. Lack of cash is the effect of poverty, not its cause. Poverty is boundup in the structures and processes of communities and the relations within them,and among those communities and other communities large and small. Attempts toeradicate poverty by increasing cash flow are starting at the wrong end.The controversial Tim Flannery’s Future Eaters looks at two societies that revealimportant truths about poverty. When discovered by Europeans, the peoples ofEaster Island and Tasmania were in the latter stages of economic catastrophe.The overriding characteristic of both societies was adeep and very practical aversion to change,experimentation, and innovation. When the marginof survival is very slim, the economy cannot affordto fail even once; failure would cause total collapse.It is therefore quite reasonable that poorcommunities will be very cautious of the supposedbenefits of ICT.This factor will be compounded by the very patchyrecord of success in the implementation of e-commerce in the West, allied with thevery spectacular failures of the late 1990s. If the inventors and proponents of thetechnology cannot figure out how it is supposed to work, those on whom it is beingpressed will tend to see themselves less as beneficiaries than as guinea pigs.Our experience in working in West Africa supports this view. Technology innovationis a risk in societies where people do not tolerate failures. We have come acrossskepticism from many sectors. Indeed enthusiasm and now turned to skepticism. 55 Internet power ”fails the poor,” http://news.bbc.co.uk/2/hi/business/2910809.stmThe power of the internet has been much vaunted as a way of enabling poorer countries toincrease their share of trade with richer countries. As such, many countries have adopted – or arein the process of adopting - expensive technology infrastructure to harness that power, oftenegged on by software firms. But the reality of e-commerce is very different, according to a newreport researched in Bangladesh, Kenya and South Africa and funded by the UK Department forInternational Development."We didnt find any big firms that are migrating to e-commerce in developing countries," JohnHumphrey from the Institute of Development Studies told BBC News Online."Over and over we are told that capitalizing on personal contacts is the way to broadenbusiness opportunities," said Robin Mansell, one of the reports authors. The problem,according to Ms Mansell, is that international trade rarely occurs between complete strangers.The internet and e-mail alone are unlikely to generate the type of trust needed for US buyers totake the plunge and source their wares from Africa or other unfamiliar trading partners.Francis Stevens George Krooman Consulting12/2004 www.krooman.com
  • A subsistence economy operating close to the edge of survivability will also beoperating at quite high levels of efficiency and may only beable to make use of the new technologies by re-engineering itself. This has been the experience in theWest, and it will probably be even more important indeveloping communities, as long as we fail to investigateand understand in advance the appropriate areas in whichICT might be able to generate benefits.Other threats are: • E-Commerce tends to shift economic activity towards pools of skill or in otherwise advantaged locations (because of climate, geography and so on) and away from marginal or disadvantaged regions. • The success of E-Commerce is often at the expense of local enterprises who now find themselves in direct competition with huge number very low cost suppliers who may be located anywhere. • The range of goods available on the Net is very very large and cannot be matched by any supplier let alone smaller local ones thus putting local enterprises at a significant disadvantage in certain sectors. • The cost of developing an effective E-Commerce site has risen dramatically and is now out of the range of many local enterprises. • There is an on-going migration of the variety of information intensive services to the Net and away from local delivery (and local employment) as local distribution or service agents are centralized and down-sized as for example banks, government information offices, the producers of local directories and so on. • Disintermediation allows local purchasers to by-pass local suppliers or local wholesalers and buys directly from manufacturers thus eliminating whole strata of local intermediaries.After investigating 180 open e- marketplace websites and interviewing 74 managers ofexporting firms, the report concluded that little business with new firms was being generated frombusiness-to- business websites.There are, of course, some shiny examples of newfound trading partners that have metcourtesy of the world wide web. A small trading company in Nairobi, for example, is sellingmacadamia nuts to Switzerland, carrots to Romania and oranges to Ukraine. And an internationalavocado buyer in Chile has stumbled across a new supply source in South Africa, thanks to thepower of the search engine.But such success stories are likely to be confined to niche markets and remain small fry in terms of globaltrade, Mr Humphrey said.Francis Stevens George Krooman Consulting12/2004 www.krooman.com
  • CONCLUSIONIn a short space of time, e-commerce has been a stunning technological success. Itsbusiness success though has been limited. Nonetheless, e-commerce hasimplications for the firm and industry value chains, industry structure and globalbusiness strategy. It also calls for a multidisciplinary approachQuestions to do with poverty alleviation and economic growth have to be re-examined in light of these new developments. Development and poverty eradiationare stages that countries go through. The argument has been made that ICTs canhelp countries leap-frog some of these stages. For, example an economy needs apool of skill people to be economic agents. Such pool isattained through an educational system design assuch. Depending on the skills, it may take 10-20 yearsto build such pool. Today, with e-learning and itsassociated technologies, such skills can be attained inhalf the time. It has also been argued that most of theskills required in the information economy are largelyself taught as the pace of change is so quick.Multimedia technology makes it easier for people tolearn these skills.While e-commerce provides the potential to eradicatepoverty through income generation, it must be accompanied by a set of factors notleast information literacy skills.If these factors are present and small businesses in the poor countries reengineertheir processes, the future can only be brighter.Francis Stevens George Krooman Consulting12/2004 www.krooman.com
  • SOURCES: 1. Kenneth C. Laudon & Carol Guercio Traver. E-commerce. Business, Technology and Society. Second edition. 2. M. G. Quibria, Ted Tschang and Mari-Len Reyes-Macasaquit. New Information Technology and Communications Technology and Poverty. Some evidence from Developing Asia. Journal of the Asia Pacfic Economy 7(3) 2002: 285–309 3. ALFONSO MOLINA. The Digital Divide: The Need for a Global e-Inclusion Movement. Technology Analysis & Strategic Management, Vol. 15, No. 1, 2003 4. Jo Rhodes. The Development of an Integrated E-commerce Marketing Framework to Enhance Trading Activities for Rural African Communities. Perspectives on Global Development and Technology: Volume 1, Issue 3-4, 2002 5. John Humphrey (IDS), Robin Mansell (LSE), Daniel Pare (LSE), Hubert Schmitz (IDS) The Reality of E-commerce with Developing Countries. March 2003. 6. The United Nations Conference on Trade and Development: E-commerce and Development Report 2002. 7. ICT & Development -- a strategic perspective. Nagy Hanna, June 2002, Lead Corporate Strategist/Evaluator, World Bank 8. UNDP Evaluation Office: Essentials: Information and Communications Technology for Development. September 2001. 9. Options on the Future. The role of Business in closing the Digital Divide. The Boston Consulting Group. January 2002Francis Stevens George Krooman Consulting12/2004 www.krooman.com