2. INTRODUCTION
Electronic commerce (e-commerce) is the use of
the internet and web to transact business. More
formally, digitally enabled commercial
transactions between and among organizations
and individuals. Electronic Commerce (E-
Commerce) has almost overnight become the
dominant on-line activity. Equally quickly it has
become a significant element in commercial
activities globally, particularly in the developed
countries where suitable infrastructure support
is available. Several types of e-commerce are
available:
• 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-commerce
This paper will treat the general topic of e-commerce. Further, with regards to this
paper, e-commerce has to be seen as one aspect of Information and
Communications Technologies-ICTs. There is the widely held view that ICTs have
the potential to transform underdeveloped economies. In general, ICT projects to
alleviate poverty have tended to see the technology either as a gateway to new
income generating employment opportunities through eCommerce for craft goods, or
as a way into outsourcing markets, where very low wages will make them
competitive. In other words, the projects attempt to find new ways for people in
poverty to earn cash.
It has been argued that one of the ways to alleviate poverty is through income
generation. This view calls for market efficiency and accessibility by producers in the
poor countries. It has been suggested that the internet and its related technologies
offer the mechanism to do just this. In particular e-commerce has been put forward
as a key way to access markets in the developed countries. A World Bank report
(2000) suggests that the most effective antipoverty policies maybe those that
enhance the efficiency of markets used by the poor. The report further went on to
argue that Information and Communications Technologies (ICT) can break down the
geographical isolation that the poor usually face.
That technology can accelerate growth is nothing new. Schumpeter, Kondratieff and
others have demonstrated this in their seminal works1. What is unique is that the
1
Kondratief’s ”Long Wave Theory”. The role of technology in the”upwave”.
Schumpeter: technology as the engine of economic growth. Mensch: Only innovation can overcome
economic depression.
Francis Stevens George Krooman Consulting
12/2004 www.krooman.com
3. new technologies have attained mass penetration unprecedented in history.
Furthermore, they have properties that are universal. For example, to view a web
page, all one needs is a browser and an internet connection.
I will take a narrow definition of poverty and ignore the broader concept of poverty
that includes other aspects of human deprivation- such as illiteracy, malnutrition,
and bad health, poor access to water and sanitation, and vulnerability to economic
shocks. Thus, the definition focuses on lack of income or income generating
opportunities. I believe that this is justified as we are looking at e-commerce-which
is one aspect of ICTs.2
I have not ignored the significance of e-commerce for gender development. Many of
the small businesses in developing countries are owned by women. While we do not
make any explicit treatment of the gender factor in this paper, we nonetheless
recognized its importance.
This paper will examine ways in which e-commerce can alleviate poverty. At the
same, the paper will also show that for this to happen, there are has to be other
factors 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 through
education (e-learning), health (e-health, telemedicine, online medical libraries), and
empowerment(e-government, OLRT market information).
Francis Stevens George Krooman Consulting
12/2004 www.krooman.com
4. POVERTY ALLEVIATION
Electronic Commerce can alleviate poverty in the
following 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 businesses
3
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 traditional
marketplace.
Francis Stevens George Krooman Consulting
12/2004 www.krooman.com
5. 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 Consulting
12/2004 www.krooman.com
6. NICE…BUT
The above points will not achieve the desired results in
the 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 Consulting
12/2004 www.krooman.com
7. E-COMMERCE AS A THREAT TO LOCAL ECONOMIC
DEVELOPMENT
This 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 from
the wrong end. Lack of cash is the effect of poverty, not its cause. Poverty is bound
up in the structures and processes of communities and the relations within them,
and among those communities and other communities large and small. Attempts to
eradicate poverty by increasing cash flow are starting at the wrong end.
The controversial Tim Flannery’s Future Eaters looks at two societies that reveal
important truths about poverty. When discovered by Europeans, the peoples of
Easter Island and Tasmania were in the latter stages of economic catastrophe.
The overriding characteristic of both societies was a
deep and very practical aversion to change,
experimentation, and innovation. When the margin
of survival is very slim, the economy cannot afford
to fail even once; failure would cause total collapse.
It is therefore quite reasonable that poor
communities will be very cautious of the supposed
benefits of ICT.
This factor will be compounded by the very patchy
record of success in the implementation of e-commerce in the West, allied with the
very spectacular failures of the late 1990s. If the inventors and proponents of the
technology cannot figure out how it is supposed to work, those on whom it is being
pressed will tend to see themselves less as beneficiaries than as guinea pigs.
Our experience in working in West Africa supports this view. Technology innovation
is a risk in societies where people do not tolerate failures. We have come across
skepticism from many sectors. Indeed enthusiasm and now turned to skepticism. 5
5
Internet power ”fails the poor,” http://news.bbc.co.uk/2/hi/business/2910809.stm
The power of the internet has been much vaunted as a way of enabling poorer countries to
increase their share of trade with richer countries. As such, many countries have adopted – or are
in the process of adopting - expensive technology infrastructure to harness that power, often
egged on by software firms. But the reality of e-commerce is very different, according to a new
report researched in Bangladesh, Kenya and South Africa and funded by the UK Department for
International Development.
"We didn't find any big firms that are migrating to e-commerce in developing countries," John
Humphrey 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 broaden
business opportunities," said Robin Mansell, one of the report's 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 to
take the plunge and source their wares from Africa or other unfamiliar trading partners.
Francis Stevens George Krooman Consulting
12/2004 www.krooman.com
8. A subsistence economy operating close to the edge of survivability will also be
operating at quite high levels of efficiency and may only be
able to make use of the new technologies by re-
engineering itself. This has been the experience in the
West, and it will probably be even more important in
developing communities, as long as we fail to investigate
and understand in advance the appropriate areas in which
ICT 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 of
exporting firms, the report concluded that little business with new firms was being generated from
business-to- business websites.
There are, of course, some shiny examples of newfound trading partners that have met
courtesy of the world wide web. A small trading company in Nairobi, for example, is selling
macadamia nuts to Switzerland, carrots to Romania and oranges to Ukraine. And an international
avocado buyer in Chile has stumbled across a new supply source in South Africa, thanks to the
power of the search engine.
But such success stories are likely to be confined to niche markets and remain small fry in terms of global
trade, Mr Humphrey said.
Francis Stevens George Krooman Consulting
12/2004 www.krooman.com
9. CONCLUSION
In a short space of time, e-commerce has been a stunning technological success. Its
business success though has been limited. Nonetheless, e-commerce has
implications for the firm and industry value chains, industry structure and global
business strategy. It also calls for a multidisciplinary approach
Questions to do with poverty alleviation and economic growth have to be re-
examined in light of these new developments. Development and poverty eradiation
are stages that countries go through. The argument has been made that ICTs can
help countries leap-frog some of these stages. For, example an economy needs a
pool of skill people to be economic agents. Such pool is
attained through an educational system design as
such. Depending on the skills, it may take 10-20 years
to build such pool. Today, with e-learning and its
associated technologies, such skills can be attained in
half the time. It has also been argued that most of the
skills required in the information economy are largely
self taught as the pace of change is so quick.
Multimedia technology makes it easier for people to
learn these skills.
While e-commerce provides the potential to eradicate
poverty through income generation, it must be accompanied by a set of factors not
least information literacy skills.
If these factors are present and small businesses in the poor countries reengineer
their processes, the future can only be brighter.
Francis Stevens George Krooman Consulting
12/2004 www.krooman.com
10. 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 2002
Francis Stevens George Krooman Consulting
12/2004 www.krooman.com
