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E-Commerce in Bangladesh Status Constraints & Potentials [Md. Abdur Rakib]


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This assignment is solely prepared by me. It is on E-Commerce in Bangladesh Status Constraints & Potentials.

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E-Commerce in Bangladesh Status Constraints & Potentials [Md. Abdur Rakib]

  1. 1. . Assignment On E-Commerce in Bangladesh---Status, Constraints & Potentials
  2. 2. Assignment On E-Commerce Course: 425 Topic: E-Commerce in Bangladesh---Status, Constraints & Potentials Prepared for: Md. Moktar Ali Associate Professor Department of Marketing Faculty of Business of Studies University of Dhaka Prepared by: Md. Abdur Rakib Roll No: 041 Section: A Department of Marketing (14th) Faculty of Business Studies University of Dhaka Date of Submission: 17th November, 2011 eng. Page | 1
  3. 3. E-Commerce in Bangladesh---Status, Constraints & Potentials Status of E-Commerce in Bangladesh: E-commerce refers to the buying and selling of products or services over electronic systems through Internet and other computer networks. In other words, e-commerce involves digitally enabled commercial transactions between and among organizations and individuals. Digitally enabled transactions include all transactions mediated by digital technology. Commercial transactions involve the exchange of value across organizational or individual boundaries in return for products or services. The most popular medium in which e-Commerce is conducted is the internet. It combines a range of process such as:  Electronic Data Interchange (EDI)  Electronic mail (E-mail)  World Wide Web (WWW)  Internet Applications  Network Applications It does not include transactions over telephone, fax or any payments made online for transactions whose terms were negotiated offline or by physical means. Some common applications related to electronic commerce are the following:  Email  Enterprise content management  Instant messaging  Newsgroups  Online shopping and order tracking  Online banking Page | 2
  4. 4.  Online office suites  Domestic and international payment systems  Shopping cart software  Teleconferencing  Electronic tickets Why E-Commerce for Bangladesh? With the increasing diffusion of ICTs, more specifically the Internet, the global business community is rapidly moving towards Business-to-Business (B2B) e-Commerce. The buyers/ importers gain a clear advantage when the Internet gives them access to the global market, by which they can compare prices across regions, find out whether prices vary by order fragmentation, get awareness about substitute/ alternative products. Consequently, the sellers/ exporters make sure that they are well portrayed in the cyber world through websites and portals. Like buyers, sellers also benefit from increased and more efficient access to the global market through the Internet. Bangladesh is pursuing an economic policy of export-led growth. With the rising forces of globalization, it is becoming increasingly important that the private sector, particularly the export sectors are well prepared to meet the requirements and expectations of the importers and also stand out in the competition against exporters in other countries. In such a scenario, two issues are becoming particularly important for Bangladeshi export sectors – one, whether businesses are automating their internal processes with the use of ICTs to become increasingly efficient and competitive in a global context, and two, whether businesses have effective presence and participation in the cyber world. International organizations such as UNCTAD (United Nations Center for Trade and Development) and WTO (World Trade Organization) have, over the last several years, put much emphasis on the importance of eCommerce for developing countries. UNCTAD has special programs to facilitate developing countries to transition into e-Commerce. The WTO has also developed rules and guidelines for global e-Commerce transactions. Page | 3
  5. 5. A huge digital divide exists among the city of Dhaka, Chittagong and other parts of the country. Private-public partnership is a crucial issue for information and communication technology (ICT) development and application. Private enterprise and capital can lead ICT revolution in Bangladesh. This, however, would require the government to provide the basic business environment. Rapid growth in ICT is not possible without massive investments for ICT infrastructure and human resource development in the computer and electronics l and telecommunication engineering courses through ensuring quality education. Still now call charge of cell phone is not competitive in Bangladesh. Under the private initiative, Internet was started in 1996 by ISN in Bangladesh. ISN is the first ISP operator in this country. Still now all the Internet service providers have the server in abroad, for which they are facing competitive disadvantage, as cost remains high. Security problem is still high in this country. In this connection it may be stated that Bangladesh bank is trying to implement automated clearinghouse through utilizing (Magnetic Ink Character Recognizer) MICR procedure. But in developed nations MICR procedure is now replaced by more sophisticated procedure such as cheque truncation process. Total numbers of Banks in Bangladesh are forty seven. Banking sector in Bangladesh on the basis of utilization of electronic devices can be subdivided into three groups: i)Foreign Commercial Banks and Private Commercial banks especially 2 nd(except few banks) and 3rd generation Private Banks :Fully Online banking; ii)1st generation private banks and some 2 nd generation Private Commercial Banks: Medium range Online banking system ;iii)Nationalized Commercial Banks , Specialized Banks and Few foreign Bank branches of this subcontinent :Low grade online banking system. At present the banks in Bangladesh are using the limited electronic banking services. It is expected that bank can attain more profit and offer better services to its customers by, introducing on line banking facilities. The foreign commercial banks operating in Bangladesh like Standard Chartered Bank, City Corp. N.A. and the HSBC are the pioneers to introduce the electronic banking facilities. They provide ATM, Debit Card, Credit Card, Home Banking, Internet Banking, Phone Banking, on line banking etc. services. Page | 4
  6. 6. E-Commerce in Different Sectors in Bangladesh: Despite being a under developed country, selected segments of the Bangladeshi business community has embraced technology with reasonable success. The Facsimile in the 1980‟s and mobile telephones in the 1990‟s popularized modern technology in the mass market. Personal computers and the Internet are also emerging as day-to-day business tools. These positive indicators are favoring the prospects of e-commerce in Bangladesh.  RMG Sector  Banking on the Web (Online Banking)  Online Shopping  Web Hosting, Domain  Online cards, gifts  Pay Bill  Education Overview of Implementation Stage of E-Commerce in Bangladesh:  Ministry of Commerce, Ministry of Information and Communication and Planning Commission jointly implementing the e-commerce in Bangladesh  There is e-Commerce committee headed by commerce secretary  Ministry of Information and Communication is working for enacting a law regarding “Electronic Transaction act”  Online order from foreign buyer has started  here registration of joint stock company started as online  Online non-financial transaction has started by all bank from 31-7-2002  Intra-bank transaction started from 31-7-2003  About 2 months Bangladesh Bank give permission of Ecommerce in local currency through banks within the country. Page | 5
  7. 7. The Existing Situation and Potential of E-Commerce in Bangladesh: Internet services are presently available in Bangladesh. Its usage for e-commerce by the Bangladeshi producers to export as well as to access inputs will be dependent on their willingness and ability to use this medium as well as that of the buyers of final products and the sellers of intermediate goods and services. The Three Dimensions of E-Commerce: B2B Partner Enterprises Business Consumers Government Figure: 1 depicts the three dimensions of e-commerce. (Source: International Telecommunications Union, Millennium, October 1999, Geneva) Page | 6
  8. 8. Business-to-Consumers (B2C) ecommerce is practically non-existent within Bangladesh, while a very limited level of Business-to-Business (B2B) and Business-to-Government (B2G) transactions exists. The potential for use of e-commerce by Bangladeshi consumers and businesses with foreign firms is much brighter, and can play an important role in boosting the country‟s exports. A significant volume of B2G is also possible, as the government remains the biggest spender. Business-to-Consumer (B2C) Scenarios: Business-to-Consumer (B2C) e-commerce is unlikely to be of much use in the foreseeable future in Bangladesh. At the domestic level, low per capita income, limited infrastructural facilities (e.g. low teledensity), weak legal environment (inadequate contract laws, poor implementation and enforcement), and lack of trust and confidence between business and consumers are going to hinder B2C. In the backdrop of such limitations, the low wage economy, with high levels of unemployment and underemployment, will continue to rely on the physical presence of buyers and sellers during a transaction in most cases. B2C for cross border trade is inhibited by the factors suggested for the domestic front. Business-to-Business (B2B) Scenarios: As mentioned before, the Business to Business (B2B) scenario prevails in Bangladesh to a very limited extent. The B2B scenario exists mostly in the export sector, especially in the Ready Made Garments (RMG) industry. RMG has the lion‟s share of the export earnings in Bangladesh, accounting for 75 percent of total exports. The current value of annual exports of the RMG sector is close to $4.35 billion. The RMG sector has begun to use the Internet, and its dependence on e-commerce is likely to grow significantly in the coming years. E-commerce through the Internet is poised to be an effective business tool for the RMG exporters. The Internet would enable them to seek information about potential buyers as well as raw material suppliers.  RMG Sector: The RMG sector emerged during the early 1980s in Bangladesh and information has been the strategic partner in its phenomenal growth. Telex was the only tool of cross border data communication in those days. International courier services were the means of receiving the approved designs from the buyers. The Facsimile Page | 7
  9. 9. machine, in the mid 80s, radically replaced both of these orthodox communicating media (i.e. telex and courier). This “Office Automation Equipment” contributed towards accelerating RMG exports. Faster and cheaper data communications coupled with realtime design-pattern development enabled the buyer and manufacturer expediting business negotiations. A specific use of internet technology would be to access The Bangladesh Garment Manufacturer Exporter Association‟s (BGMEA) website, which provides a list of member companies and key information regarding those firms.  Oil and Gas Sector: International Oil Companies (IOCs) are the dominant players in the exploration and production of the oil and gas industry. IOCs use the vendors' web pages extensively in order to obtain product information. This exercise is also limited to the international vendors as the Bangladeshi business community has yet to become sufficiently cyber-centric. The IOCs make all the payments to the international vendors through Telegraphic Transfer. This is one good example of making cross border payments without following the complex mechanism of the Letter of Credit (L/C). The local vendors, however, receive their payments by check. Business-to-Government (B2G) Scenarios: The government is a major buyer of goods and services from the private sector. Typically, the government procures goods and services by inviting tenders. This has been the traditional method of any government procurement for goods and services. Tender notices are published in the major national dailies followed by selling the Request for Proposal (RFP) documents to the interested bidders. If any bidder seeks clarification on any aspect of the RFP, the customer is mandated to notify that clarification to all bidders by mail. In addition to costing money and taking time, such notification sometimes forces the customer extending the bid-closing deadline. Bidders also obtain the RFP document “unofficially” for a comprehensive understanding of the „scope of work‟ as well as for assessing their own capability. The availability of the RFP and other relevant documents on-line provides an alternate choice, thereby reducing the monopoly rent that can be extracted. In order to prevent such unfair practice, the Bangladesh Telegraph and Telephone Board (BTTB) initiated publishing the RFP documents of selected projects in its website. This immediately stopped the illicit practice of unofficially selling the RFP document, and only competent bidders were able to procure the RFP documents. In addition to reducing the Page | 8
  10. 10. extra administrative burden of BTTB, it also enabled BTTB to close those bids within a reasonable timeframe. In addition, transactions involving information collection, obtaining various governmental forms, registering activities can be conducted on-line. This will reduce time costs, corruption and the necessity of going through lengthy bureaucratic procedures as well as increasing transparency. Some E-Commerce Shop in Bangladesh:          Page | 9
  11. 11. Constraints to E-Commerce in Bangladesh: Out of 64 districts, Internet services are available only in 6 major district headquarters. BTTB is planning to gradually roll out an IP network up to the 64 district headquarters. In January 2002, the Internet facilities were extended to 12 districts. The project is running on very fast and today almost 40 plus districts are getting Internet facilities. Followings are the barriers of e-commerce in Bangladesh:  Very minimum number of users of web sites  Poor telecommunication infrastructure with limited fixed-line access, unreliable connectivity and low bandwidth (9K)  High price of computer and hardware: The per capita income of our people is less than US$520. But in order to buy a computer it is needed US$500 and for this reason, it is beyond the capacity for a villager‟s to buy it.  Lack of technically efficient personnel  Lack of investment in hardware and software  The banking infrastructure in terms of electronic payments and inter-bank connectivity is poor. As such, the customers of 5770 branches of the local banks are unable to operate their account with the other branches of the same bank. Inter-bank transaction is more cumbersome as the clearing-house of the central bank is not online. An inter-bank transaction may take even 2 weeks if the branches are different cities. Only branches of the private banks are interconnected with their respective head offices. They are also satisfactorily computerized. This represents only 25% of the entire banking sector.  Small number of Credit Card users  Limitations of supportive legal system such as, exchange controls, protection of telecommunication monopolies, restrictive trade practice and prohibitions  Absence of cyber law  People's mindset and very slow and expensive Internet services  Enterprise managers' lack of initiative and leadership in taking advantage of ecommerce Page | 10
  12. 12. Potentials of E-commerce for Bangladesh:  Network Infrastructure  Intra-bank and Inter-bank Connectivity  Local and Global  Bank-Client Connectivity  Security of transaction  Banking mechanism  Automation  Convertibility of the Bangladesh currency  Retention quota  International credit cards  Capacity Building: Human, Technical and Regulatory  Quick Settlement, Online credit Information, Skilled e-Manpower,  Regulatory Framework  Investment  Legal Infrastructure  Currency Convertibility: Access to Global Finance  E- Culture TO succeed over the competitors‟ organizations needs to be changed their strategy and they are gradually become bound to adopt e-business. At these stages successful implementations depends on all the stages of the Hierarchy of the Management i.e. starting from the Top Management level to the lower level management. On line banking system works as a complementary factor of electronic business. Though electronic business has a greater set of field but on line banking can work as a subset of the e-business .Benefits derived from the e-business largely depends on successful implementation of the business process. Managing external pressure as well as internal pressure should be coordinated by the management so that e-business can supersede traditional business processes of organizations .Moreover, transformation process requires huge cost especially organizations of Bangladesh. Greater and cautious resource management especially financial capability should be handled by the management of the organizations. Changing processes should consider socio-economic and cultural environment as Page | 11
  13. 13. well as labor surplus country. Business process reengineering may be designed with the aim that personnel of the organizations will use the technological functionalities which will lead to further enhancement of the organizations. Managers‟ functionality to implement e-business is a stressful task for which their mindset should be strong and they should consider not only global considerations but also consider domestic situations. Successful e-business depends on sharing of strategic knowledge for which dissemination of the information and free flow of knowledge around the globe is required. On line banking can provide twenty four hours banking facilities. Through electronic data interchange customers are able to draw money from one branch to another. Letter of credits can be sent through SWIFT or electronic fund transfer from one country to another can be feasible. Actually on line banking provides faster, reliable services. Encryption and decryption can be used to send money from one place to another. As such on line bank management handles customers in a far better way. In Bangladesh decision makers are generally reluctant about advancement of technology. It is difficult for people who do not have much technical knowledge to understand the necessity of adoption of new technology. So the pace of computerization in various offices, business enterprises and sectors are low. Another problem of initiating E- business is that in our country policy makers, managements are generally reluctant to accept something new. To avail the advantage of E- business, organizations including banks have to invest for software, hardware, infrastructure development etc. The owners are uncertain about the positive return on investment as transformation from manual system to electronic transaction involves huge cost. This is a great drawback to implement E-business at a full swing. But the organizations are not interested to invest because they consider huge expenses. In Bangladesh most of the business organizations are running centralized manner. As such visions, missions, goals of the top management of various organizations are very important. Top management should change their mindset and like Bangladesh Bank, they should encourage ebusiness process. Top management views are reflected to the mid level management and lower level management. Unfortunately most e-business efforts fail for non-performing visions, missions, goals and tactics at the business processes of the organization. Page | 12
  14. 14. Recommendations: The assessment of the e-commerce environmental forces of Bangladesh leave us some room to recommend some steps and measures, that should be undertaken by the policy makers and business stake holders for the full fledged implementation and development of e-commerce in Bangladesh. The recommendations are:  There should be an EFT (Electronic Fund Transfer) Gateway, which will connect all finance and banking institutions, ATMs, POS and related websites. Such Gateway will speed up the transactions among banks, commercial institutions. This sort of infrastructure needs to be implemented on priority basis.  A CCG (Credit Card Gateway) should be established. A credit card gateway is a server that makes online credit card transactions safe (Skinner, 2005). The software protocols in the CCG use the information provided to check for availability of funds and to make sure the credit card is not expired, lost or stolen. This takes only seconds. Conclusion: A key reason why e-commerce, especially the business-to-business segment, is growing so quickly is its significant impact on costs associated with inventories, sales execution, procurement, intangibles like banking, and distribution costs. If these reductions become pervasive, e-commerce has the potential to be the application that ushers in the large productivity gains. Achieving these gains is therefore contingent on a number of factors, including access to e-commerce systems and the needed skills. However, what is unique about ecommerce over the Internet and the efficiency gains is that it promises the premium placed on openness. To reap the potential cost savings fully, firms must be willing to open up their internal systems to suppliers and customers. This raises policy issues concerning security and potential anti competitive effects as firms integrate their operations more closely. Page | 13
  15. 15. References:  The Asia Foundation, 2000. Bangladesh Export-Apparel Industry: Into the 21st Century the Next Challenges, October, Dhaka.  Azad Dr. A. K., Dr. M. M. H. Joarder and Md. Iqbal, 1996, Summary of Reports on Uruguay Round Agreements and Related Issues, Ministry of Commerce, Government of the People‟s Republic of Bangladesh.  Bakht, Zaid, 1999. Policy Induced Constraints to SME Development in Bangladesh, a report prepared for the USAID funded JOBS Project.  Bangladesh Bank, 1999. Annual Report 1997-98, Dhaka.  Bangladesh Bank, 1993. Circular No. 48, Foreign Exchange Control Division,  Bangladesh Bank, Foreign Exchange Guidelines, Chapter 20, Bangladesh Bank, Dhaka.  Bangladesh Bureau of Statistics, 1998. Report on The Household Expenditure Survey 199596, Dhaka.  Bangladesh Computer Samity, 2000. Brochure of the BCS Software Expo, 2000, BCS, August 2000, Dhaka.  06/the_importance.html    E-commerce: Business, Technology, Society-C. Laudon Kenneth, Guercio Traver Carol, 4th Edition, Page:46-47   The Financial Express, January 12, 2009 Page | 14