Electronic Commerce:Opportunities and Challenges
for East Asia
Tung X. BuiMatson Professor of Global Business
College of BusinessUniversity of Hawai’i
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)
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)
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
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