Electronic Commerce

by

K.K. Bajaj

Deputy Director General
National Informatics Centre
New Delhi, India

Introduction

ESCAP defines Electronic Commerce as the process of using electronic methods and procedures to conduct all forms of business activity. Internet commerce is EC over the Internet. EC is not just about using network based technologies to conduct business. It is about moving organisations to fully electronic environment through change in their work procedures, reengineering their business processes, integrating them with their business partners beyond their traditional boundaries. EC has brought about a veritable revolution in the way businesses are conducted. There is a paradigm shift from paper based transactions to fully electronic organisations. Networking, and messaging over networks are the key to the new scenario in which there is globalisation of organisations, and of markets. Information and Communication Technology (ICT) has wrought a new industrial revolution, which is being referred to as the Information Age, or post industrial society. Globalisation of the market place, and the means of accessing the same through the national and global information superhighways have given a new dimension to the concept of information. It is the Internet which has helped realise globalisation of markets seamlessly. A business connected to the Internet is immediately global in reach and connectivity with no additional cost.

There are various estimates of the volume of electronic commerce. They seem to be converging on around US$ 600 billion in the year 2000 which is about 10% of all trade. One third of all the business transactions conducted electronically will be done through commerce on the Internet. This figure is $ 200 billion. The trend is thus unmistakable. The Internet is becoming a force to reckon with as a comparatively cheap carrier for EC transactions. A report of INPUT predicted that the 1nternet will do for personal networking what the microcomputer did for personal computing".

IT and business were never so closely related. Together they are defining new organisations, new products and services, new ways of delivering them, new ways of satisfying the needs of customers. Today's business is a networked organisation, a knowledge-based organisation which is forever in a learning mode to handle competition, customer, cost and change.

The new industrial revolution referred to as the Information Age is similar to. the one which took place at the turn of the last century. In fact, the new industrial revolution is much more profound. It requites profound change in the way we consider enterprise, develop our businesses, the way we manage and the structures within which we manage. The new revolution is not just a change in the markets, but a fundamental change in the economic relationships between people, between economies, and between societies. Information, and Information Technology (IT) are the key drivers of this Age.

Ther Internet has redefined time and space. It knows no geographical boundaries. The Internet has redefined methods of communication, work, study, interaction, leisure, entertainment, education, health, trade and commerce. The way we conduct commerce, the way we distribute information, the way governments deliver services to their citizens, the way transactions are carried out; everything is changing. And this change has been brought about by the Internet

All the countries have to adapt themselves to the Information Age. The technology that is revolutionising trade and commerce and other aspects of society may be perceived to have been thrust upon the developing world by the western countries due to continuing innovation in information technology. But technology knows no frontiers and barriers. It is here that the technology has to be seized by the developing countries to their advantage.

The Information Age is characterised by the extensive use of global communication networks. The networked organisation is the new paradigm. There has been no end to the creative imaginations of those who have put to use the Internet for business and commerce already. New methods have been developed for distributing data, delivering entertainment over telephone, while at the same time connecting cable TV and satellite networks to the Internet. Merging of data, information, entertainment electronics has opened up new vistas for businesses. While new businesses are getting created around the convergence of computer, communication, and consumer electronics; the existing businesses, companies, corporates and organisations are restructuring and re-organising themselves to take advantage of the Internet into their scheme of things. The technology and tools of Internet commerce have begun to transform industries in many fundamental ways. Moreover, economic growth is now directly related to growth in IT. Studies have pointed out that sustained economic growth of the US in the past decade could primarily be attributed to growth in the ICT sector. It is estimated that by the year 2001 nearly 40% of US population will be online, compared to only 13 % in Europe. (Emerging Digital Age: 1998). It is also estimated that the EC market will be three times more significant to the economy in the US than in Europe. The reasons cited in the report include the following:

• Europe is too late to the game
• It has slow-growing online constituency
• Consumers rarely prefer to buy online
• Technological mismatching in terms of Internet appliances
• Telecommunication costs are approximately five times higher in Europe

The situation in developing countries is far worse than in Europe. If the trend continues unchecked, the gap between information-rich and information-poor countries will further widen.

Policy Issues

The convergence of computers, communication and broadcasting is occurring at technological level as a result of digitalisation of data, voice and video. It is the technology that is seen to be pushing the convergence phenomenon. The Internet as the global vehicle for electronic commerce is a prime example. Any kind of data, sound, pictures, video, audio, animation can be readily accessed from anywhere in the world through a PC connected to the Net. Technology and network platforms have an enabling role for electronic commerce. But there are other stages of convergence too, and they are more difficult to handle. A uniform regulatory environment has to be established as part of the policy and regulatory framework for convergence, in place of separate policy and regulatory frameworks currently existing in their respective fields. Services and markets are converging as a result of technological convergence. There are new players for providing services, as also industry alliances and mergers. High speed economy, networked organisations, constantly changing business environment characterise the globe today. Earlier, technology would change in 30 year cycles. Regulators had enough time to adapt. But now, technology changes very rapidly. The governments find it difficult to create policy regime in Internet years. Governments have to respond to this challenge.

Government of India policy regime

Recognising the importance of IT in general as an agent of transformation of every facet of human life which will bring about a knowledge based society in the twenty first century, and that of the Internet in particular, the Prime Minister of India set up the National Task Force on Information Technology and Software Development in May, 1998. The IT Task Force has placed tremendous emphasis on Electronic Commerce, and towards this end made a number of recommendations for universalising the Internet through private Internet Service Providers at affordable costs. It recognised that the way computers and networks process and access information across multiple platforms significantly influences the trade pattern, especially for products and services that can be transmitted digitally. If a country cannot participate efficiently and actively in EC, its trade gap is bound to widen in future. Network connectivity has been identified to be the single major area of concern.

The Government of India have taken the following steps to promote electronic commerce (EC), and to facilitate smooth integration into the global framework :

• Access to the Internet is being made easier through the entry of a number of private Internet Service Providers (ISPs). Till recently ISPs could use the state owned VSNL international gateway only. Connection to private international gateways has now been allowed. Even the establishment of high speed Internet backbone by private sector has been permitted.
• Telecommunication sector has been further deregulated by allowing competition from the private sector to the state-controlled DoT even in provision of basic services. Regulatory Authority has been strengthened to resolve disputes, allow fair competition, provide services to citizens at affordable rates. A Group on Telecom has enunciated a New Telecom Policy.

It seeks to address the issues relating to weak telecom infrastructure in the country. In addition to cellular telephony, basic services have also been privatised, DoT corporatisation has been recommended, competition has been strengthened, licensing fees have been restructured to make it attractive for institutional investors as well as for joint ventures. The objective is to increase teledensity rapidly.

• Legal framework for EC will soon be created through the Information Technology Bill, which proposes a comprehensive enabling Act for EC. The bill will be taken up by the parliament in the next session.

• Patent, trademark and copyright issues related to EC are under discussion. IPR Protection on the Internet, jurisdiction of courts only in some countries to try cases of infringement are of concern.

• Several projects are underway in the government to make government agencies EDI-capable. Private sector is being encouraged to adapt the EC technology for taking advantage of the global market.

While we are taking proactive steps to integrate India into the global EC framework, there are matters which are of concern to us. These include the following :

The Internet, the global vehicle for EC, which was created by the US government is sought to be converted into a privately managed resource through a structure based in the US. The Internet Corporation for Assigned Names and Numbers (ICANN) was incorporated in USA in November, 1998 as a non-profit company to take over responsibility for Internet management under direct supervision of the US government. Internet is no longer a resource of one country. It is the vehicle for global electronic commerce. It is to be managed exclusively by the private sector. Obviously, the developed world has advantage by being there ahead of others, and controlling it. The private-sector approach for Intemet development ignores alternative views from other countries, and that certain policy areas -such as privacy and consumer protection - may require government regulations and international cooperation. There is no room for intervention or direction from any of the international agencies. The governments have no participation in the control of the structure.

There are issues related to trademarks, patents and copyrights which fall in the domain of national laws which may have to submit to the framework created by this private structure. ICANN is insufficiently international, since it has no representatives of other countries or of intergovernmental organisations like the ITU, WIPO or WTO. It is devoid of genuine international legitimacy, at least under the public international level. It is difficult to accept exclusion of governmental input into domain-name reform affecting trademark law and so national sovereignty.

• The security of electronic transactions is of vital importance to all. The technology for this is controlled, and can be altered with tremendous financial burden to all players. It is controlled to the advantage of some countries. They may have the technology to break the security of so-called publically available encryption technique.

• The standards are established by the selected few countries at a pace which means rapid obsolescence, and hence cost for the developing countries.

EC opportunities as we see them

While the Government of India has a few concerns on issues such as Internet management, security of transactions, encryption technology, trademark patent rights on the Net, jurisdiction of courts in other countries to try these case etc., it realises the opportunities provided by EC.

• India has a pool of talented software professionals and a mature IT industry which is well versed with EC technology and is putting together the right solutions and implementing them in the country.

• The government is taking the lead in establishing an EC Community System around the Customs as the hub. A large number of agencies are being integrated into it; these are largely regulatory agencies of the government. These are to be interconnected with its counterparts in other countries.

• Stock exchanges have been EC-enabled.

• Banks are in the process of acquiring EC capability. In a few cases, Internet banking has been experimented with.

• The private sector is taking the lead, creating marketplaces on the web. The software industry has a tremendous opportunity for developing and implementing EC solutions in various parts of the world. Net-based service centres such as Call Centres can be set up. Content creation can become a big industry. In India, content needs to be created in several local languages. Standards have to be developed and this process has started.



• The government has embarked upon a major program to deliver its services electronically to citizens, using the EC technology. It recognises that EC tools can be used to change the methods of governance. Electronic governance, as it has come to be known, uses the Internet and other proprietary networks to deliver services to citizens, bring in transparency between governments and citizens. Information can be retrieved, forms can be submitted, returns can be filed electronically. Procurement of goods and services by governments is becoming electronic. New methods and procedures are reengineered from the existing processes to, reduce time, cut red tape and present an efficient government to citizens. After all, government is all about transacting business with the public in areas such as taxation; issue of documents such as passport, driving licences; processing documents to issue import licences, other type of permits etc. The citizen-IT Interface is being developed to remove the layers of bureaucracy.

• We do realise that the benefits of setting up National Information Infrastructure (NII) and connecting it to Global Information Infrastructure (GII) are substantial. For example, the US President's Council of Economic Advisers estimated 500,000 new jobs in the economy by 1996 merely as a result of speeding up the deployment of NII through telecommunication reforms. In France, on the other hand, according to the Breton Report, the French market for tele services is expected to be worth 90-190 billion Francs in the year 2005. Similar projections have been made by the Japan's Ministry of Posts and Telecommunication : 56 trillion yen ($ 560 billion) in revenue from new applications and 2.4 million new jobs by the year 20 10. The National IT Task Force of the Government of India envisages an investment of Rs.30 billion to set up infrastructure for providing IT education. In order to achieve the target of software exports of US$ 50 billion in the year 2008, India will need 3 million software persons.

• The content industry alone employs 2.6 million people in the US, while in Europe the corresponding number is 1.8 million. In India this industry is almost non-existent as of now. While holding tremendous employment potential, it also underlines the point that unless we have our own content on the Net our citizens will be forced to view the cultural content of US and Europe only.

Experience of Customs EDI System

The implementation of the Customs EDI Project has brought to the fore several challenges. First and foremost was making customs EDI-capable. The internal automation of customs functions was a challenge. Moving them to a fully electronic environment, as a paperless organisation was a challenge. Changing their procedures required changing the mindsets of people. Change management was a challenge. It was not merely superposing an IT solution. It was actually embedding a new method of working replacing their old work culture; creating an electronic organisation.

Network connectivity was another major issue. The infrastructure was weak and took a long time to stablise. EDI solution in terms of software costs were expensive.

The Business Process Reengineering (BPR) carried out in the agencies involved, has not reached the ideal stage of reducing harassment to the trade, but multiple interactions have been considerably removed. Much more remains to be achieved. The benefits already visible are the following:

• Transparency of the system
• No physical movement of document thereby reducing processing time
• Faster clearance of consignment
• Minimum interaction with Customs Officers
• On-line enquiry
• Nearly 50% of consignments are given Green Channel clearance (i.e. no examination of documents as assessed by the system)
• Uniform assessment
• Precedent Search
• Electronic submission of documents over NICNET from anywhere
• Higher efficiency in customs operations
• Truly a trade facilitator

Other Areas

Even with the introduction of EC and EDI solutions, Net connectivity and so on, the physical movement of goods remains at the same level. If anything, with faster information movement about the goods and transactions, the role of trade not only remains important, but is increasing. Only a tiny fraction of goods which are convertible into digital form, such as software, audio, video, print magazines, can be traded over the Net. In due course, the services would also be more and more available via the Net. These may include banking, insurance, and stock exchange transactions. But we do not anticipate that the role of trade would diminish in any way whatsoever, because the physical movement of goods would remain at the current level or even increase since volume of trade will go on increasing.

As we all know, the Internet is a great leveller. While, on the one hand it allows global connectivity to a company with Web presence, it does not distinguish between large and small companies. A web page is a web page. It is created using the same tools, and connected to the same search engines on the Net. Unlike the physical world, where hiring physical office space at decent addresses may cost a fortune, and thus give undue advantage to large companies, the Net treats one and all the same way. Create a web page, connect to the Net. The SMEs thus have a tremendous cost advantage. With a low start up cost, they are globally connected. No need to have expensive offices in multiple cities across the globe. The Indian SMEs have started using the Net. From selling designer clothes, herbal cosmetics to medical and legal services, SMEs are in many fields already. They are deriving the benefits of access to wider markets.

Advertising on the Net has just started in India. There are a few innovative sites receiving millions of hits a day. The ad revenues are still very small, but the direction has been taken by many companies.

The future

A recent survey of corporate India indicates (BT, March 22, 1999) that the corporates are plugged into the digital future. EC is perceived to be a substantial part of corporate strategy in most of the corporates surveyed. EC applications include manufacturing, financial services and IT. They perceive benefits in the form of improved productivity, improved product quality, improved customer service, reduced costs, shortened supply chain, new product development, reaching new markets, and improved cash flows. The barriers to EC are seen to be the following

• Lack of payment facilities
• Partners' technology
• Security
• Infrastructure cost
• Availability of skills
• Inadequate volumes
• Availability of technology
• Mistrust among partners

The Government of India realises that the present indicators of IT penetration in society are far from satisfactory. The PC penetration is 1.53 per 1000, whereas the telephone penetration is 1.52 per 100. The corresponding numbers for the developed countries are 200 per 1000, and 5 5 per 100. The new telecom policy seeks to increase telephone penetration to 7 per 100 by 2005 and 15 per 100 by the year 2010. It encourages development of telecom in rural areas to increase teledensity from the current level of 0.4 to 4 by the year 2010. It also seeks to increase the number of Internet connections from the present half a million to 2 million by the year 2000, and 8 million by the year 2008.

The worldwide population of Internet users is 147 million with 43.23 million hosts. The US has 73 million users, while in Europe there are 34 million users and 14 million in Japan. Asia, excluding Japan has some 11 million Internet users (3.1 million in Korea, 2.5 million in Taiwan, 1 million in China, 0.5 million in India), which is only about 7%. Likewise, for Internet hosts. The Generic Top-Level Domains (gTLDs), namely . corn, . net, . org, . edu, . mil and .gov together accounting for 28.27 million are largely in the US. The country TLDs (ccTLDs) in the US, Canada, Europe, Japan and Australia account for another 12 million hosts. Asia, excluding Japan has less than 1% of Internet hosts, The number for India is a mere 13,000. Clearly, the developing countries, though very large in size and population, and commanding a fare share of the world trade are non-entities in the cyberspace, both as users and information providers.

The worldwide population of PCs continues to increase. And they are invariably connected to the Net. Today it is 300 million. By 2005, it is projected to be 1 billion. The Internet commerce is expected to surpass all the estimates of various surveys. Just to quote one example to substantiate this. Intel Corporation started EC for sales, customer and sales support and expected to do business worth $ 1 billion in the year in 1998. They hit the target in just one and a half month. Today, they are doing business of $ 1 billion a month on the Net. That there is tremendous opportunity in adopting Electronic Commerce technology by developing countries, does not need to be underlined.

The Government of India has taken major policy decisions to improve the communication infrastructure, and make available Intemet connectivity, and put in place appropriate legal and regulatory framework to build trust of business and commerce in EC. There is a long way to go in overcoming barriers to EC. But the process has begun.

The Government of India is aware that EC is global in nature, and that like any other global issue, this too has different angles to it. It recognises IT penetration as the key issue, and has, therefore, taken necessary steps to enhance the information infrastructure of the country so that the gap between the information-rich and information-poor does not widen further. It is undertaking steps to overcome barriers to EC, the essential element of which are building trust of business and consumers. It looks towards international fora to build trust between the developed and developing countries on these issues.