Electronic Commerce:Opportunities and Challenges

for East Asia

Tung X. BuiMatson Professor of Global Business

College of BusinessUniversity of Hawai’i

Issues of the Day

Where are we with EC in the East Asia region?

Opportunities?

Challenges?

First Things First,the East is Wired!

Internet traffic: double every 100 days (UK-DTT consulting, 1/99)

Within one year (9/97 - 5/98 ) number of Web sites jumped by 75% (IDC, Asia, July 1998)

Even information sensitive countries, like Vietnam, has now Internet cafes

Taiwan most connected, China fastest growth, Singapore the best use of Internet

A profile of China’s Internet UsersAGE

26-30 years29%

31-35years11%

Over 36years8% Under 21 years

12%

21-25years40%

(International Market Insight Report, 3/99)

A profile of China’s Internet UsersLOCATION

Guangdong12%

Shanghai8%

Beijing25% Western

provinces6%

Other eastern provinces

49%

(International Market Insight Report, 3/99)

A Profile of China’s Internet UsersTIME ON-LINE PER WEEK

10 hours and more41%

5-10 hours27%

1-5 hours25%

Less than 1hour7%

... Then, the A-bone An Internet backbone that directly links the

countries of the Asia Pacific region:

T-1 class or higher

9 countries: Japan, Hong Kong, Singapore, Korea, Taiwan, Indonesia, Malaysia, Thailand, and the US

Connections to China, India, Vietnam, Australia and Europe will be established

A-Bone has 245 Mbps link to the U.S.

… Then, Asian Expectations

EC would do well in Asian, because:

Quick adopter of technology (HK positions itself as technology hungry)

Leapfrog “mentality”

Export-driven economies

All Share a Standard Policy Toolkit

Promote I.T. industry

– Promote Internet applications within government organizations

– Promote public awareness

Build Infrastructure

– liberalization and privatization of telecom markets

Expand access to infrastructure and services

– Special tariff for Internet access (Malaysia, Sing.)– Special tariff for under-served areas (Thailand)

Last but not least, East Asia in Search for Internet/EC Policies

Internet regulation?

– Content China and Vietnam: Very information sensitive Malaysia and most other countries: “indecent content”,

search for “methods of classifying contents”

– Copyright law: Singapore strict, some others not

– Jurisdiction: as confusing as the rest of the world

– Market structure: APEC worries about tendencies towards market concentration

So, What Do Experts Predict?

Internet use in Asia will continue to increase

E-commerce will gain in importance

The need to overcome physical and psychological isolation will be a major driver of Internet usage

Comments: Nothing real surprising and unique to East Asia

Internet Use (millions of registered users)

0

5

10

15

20

25China

Hong Kong

Taiwan

South Korea

Australia

(IDC, 3/99)

E-commerce Revenue Projections for 2001 In (US$) millions / ITU, 1999

$200

$200

$800

$847.80

$1,000

$0 $200 $400 $600 $800 $1,000 $1,200

Indonesia

Philippines

Singapore

China

Malaysia

Global Opportunities EC makes big companies look small and

small companies look big

– small Asian companies could now be competitive (Hanoi hotel versus Int’l chain)

Cost-effective access to global markets

– Asian Internet users: 80% of time browsing U.S Web sites; quick technology transfer

Cost-effective market research (easy access to competitors’ product information and marketing strategies)

Let’s get beyond these canned and rosy statements, and think...

Some Reality Checks

For most East Asia countries:

Still a very small share world Internet hosts

Price of Internet access high (relative to income per capita)

Infrastructure shortage (phone lines)

English language deficiency (80% of world web sites in English)

Technology Technology gap:

– Quanitity: 15% per year (92-97) but still a tip of the iceberg

– Quality: slow due to obsolete technology and high demand

Infrastructure: speed and integration with other MIS software, payment system

Security obsession could hinder market transactions

Distribution of Internet Hosts, January 1999

Other5%

Australia, japan & New Zealand

6%Europe24%

Canada & US65%

Developing Asia-Pacific

3%

Latin America and Caribbean

2%

Africa0%

(Internet Society, 1999)

East Asian Countries still ill-prepared for E-commerce

A case: China

Current Internet use:

– China Telecom: 1995– Central government ministries– Large cities

Beijing goals:

– 80% of local government linked to the Internet by end of 2000

– 80% of 80% of Chinese companies wired by 2001

China [2]

Implementation issues

– High costs, slow speed– Bureaucratic hassles– But getting better

Only access to a few

China [3] Use issues

– increasing disparities between farmers and non-farmers

– pornography– diverse political views from overseas

Shanghai: software vendor got 2 year jail term for holding 3,000 email addresses of US-based online dissidents

– Mostly resolved

Similar in other Asian countries, Singapore, Malaysia, and Vietnam

There are indeed challenges and issues!

National Challenges

EC will help foster domestic markets within East Asian countries

– Same national language– Reduce the burden of slow transportation logistics– Will facilitate dissemination of information

E-commerce yet to be nurtured

Regional Challenges

EC will pose more challenges to East Asia than more opportunities on international trade

Business-to-business -- opportunities to join the global value chain integration (e.g., software development round the clocks)

Business-to-consumers -- toward market segmentation

Regional Challenges Multiple languages

Multiple cultures

Lack of trust, accentuated in a virtual markets

Still prefer face-to-face buying with bargaining culture

Asian banks mistrust online transactions

Face tougher competition as other Asian countries will be also online

Regional Challenges

Lots of market asymmetries

– uneven income distribution– high product differentiation

Uneven telecom infrastructure

– Teledensity: Taiwan (44%), China (7.3%), Philip (4.7%)

– Singapore highest Internet penetration, Indonesia lowest

Global Challenge: Technology

EC technology is complex and expensive

– only MNCs can afford– maintain technological edge

Technology is driven by the U.S.

– takes time for East Asia to appreciate, learn, adpat and use

Global Challenge: Products

Presumptions: not all products and services and suitable for electronic transactions

Product asymmetries

– Western countries: sells information, digitized product suitable for Internet commerce

– EC for hard (physical) product is more difficult

Global Challenge: Market

Market infrastructure

Product transparencies better in the West (to include quality control)

Financial system fully supported

Economies of scales: small East Asian businesses versus MNC

Global Challenge: Transportation

Transportation: required fail-safe front-end payment and reliable delivery system

– Malyasia: Internet-based delivery system on line, but takes 8 days for real delivery

Global Challenge: Culture

Western brand name recognition -- global consumer products versus national goods

Languages -- English as global language for business as opposed to multiple regional languages

Global Challenge: Management Skills

Entrepreneurs might not be ready for high-pace market driven economy

“Value of EC not fully understood” (XinHua, 6/16/99)

Business level

World-class brain power

Massive venture capital lacking

Legal system to protect investors and inventors lacking

Business level

Companies that can afford EC are state-owned enterprise systems

but inadequate integration of capital, management and technology

Need incentive package to attract hi-tech companies

Final Thoughts Opportunities at three levels: national, regional and

global

Segmentation

– product uniqueness and competitiveness– market monopolies or alliances– e.g., tourism

Challenges: Reduce asymmetries

A solution: Strike a medium -- between virtual world and real necessities of doing business

“Damned if you do. Doomed if you don’t”

Thank you!