Old business in new ways...
The digital economy is reshaping international trade, as
business practices change and new business intermediaries emerge.
Old business in new ways, but also new business opportunities: this
is what e-trade is all about.
The changing marketplace
E-trade opens new opportunities to export-oriented firms,
especially small ones. Firms can source production inputs more
expeditiously, streamline (i.e., eliminate intermediaries) supply-
and export-distribution chains and reduce business transaction
costs. In short, e-trade allows the enterprise to reposition itself
in the international marketplace.
E-trade capability does not mean that the exporter must be able
to conduct each stage of the international transaction
electronically. For the moment the market does not demand it.
Export development in the digital economy is not an "all or
nothing" proposition.
The challenge is, nevertheless, to work towards acquiring
e-trade capability at every stage of the transaction. This requires
a concerted response not just from the entrepreneur, but also from
the public-sector strategy-maker and managers of trade support
institutions (including banks).
A staged approach
Firms should aim to acquire e-competency in stages. In brief,
start by building capacity among a few individuals; create a basic
web presence; "wire" the firm so that a communications
infrastructure is in place for all to use; extend the electronic
network and practices to partners, clients and suppliers outside
the firm; and finally, rethink competitive strategies to take
e-competency into account (see below). Small and medium-sized
enterprises (SMEs) in developing and transition economies need
not acquire this ideal level of e-competency in the short term.
Nor do public-sector e-trade competency and development programmes
need to be geared to this level of sophistication.
Rather, public-sector programmes should ensure that
export-oriented enterprises attain an e-competency level that can
establish an e-presence in the international marketplace, and begin
to introduce e-business systems into internal operations. (This
would be equivalent to Stage 3 below.)
Eventually, firms should move towards acquiring a total
competitiveness response capability. Signals from the international
marketplace confirm that this is the minimum level of e-competency
expected of an export-competitive firm.
New business opportunities
Three major categories of export opportunities have emerged:
services exporting, software and hardware. Services exporting
opportunities that exploit information and communication technology
(ICT) are on the rise, as business practices change and new
intermediaries emerge. Both software development and hardware
exports are areas of opportunity, principally through partnerships
with multinationals.
Services
The Internet allows service providers to "go international", by
broadening market reach. They can add value by offering a wider
range of services, as well as more customization. New export
opportunities for traditional service providers (such as
engineering design and research) work best for companies with an
established export track record. There are also major new
opportunities - called "web-enabled services". These include portal
site management, content development, web site design and
promotion, e-training, online project management and telehealth
consulting.
Software development
For most software creators in developing and transition
economies, the best way to secure export business is to partner
with software producers and solutions companies located in major
markets. Why? Because most software developers outside industrial
economies do not have the brand recognition or market acceptance
needed to commercialize their own products on an international
scale. "[For] maintenance, customized development and IT consulting
services, subcontracting to firms in developing and transition
countries is becoming an extremely important aspect of today's
digital economy," notes Kamar M.S. Aulakh of Quark, Inc., a major
software developer (see below).
Hardware markets
World import demand for ICT equipment and components (excluding
electrical machinery) was close to US$ 600 billion in 1998,
according to ITC calculations based on the United Nations COMTRADE
statistics. Demand is growing at a rate of 12%-15% a year. As new
technologies stimulate broader and deeper demand for Internet-based
services and devices, the world import market for ICT equipment is
expected to exceed US$ 1 trillion before 2005. The ICT sector has,
in fact, become one of the major, if not the major, growth
industries in foreign trade, exceeding world trade in agriculture,
automobiles or textiles.
Partner with multinationals
"The best strategy is to work with the MNCs [multinational
corporations], rather than against them. They themselves are
looking for partners," said R.K. Verma, Executive Director,
Electronics Research and Development Centre of India, during the
Executive Forum discussions.
The ICT hardware market is dominated by multinational
corporations. From the perspective of the exporter in a developing
or transition country, the market is characterized by:
• formidable entry barriers to independent producers;
• geographic and organizational separation of research and
product development, production and marketing activities;
• task- or component-specific focus, rather than complete
product focus (i.e., component production or assembly);
• concentration on the lower end of the market's "complexity
scale" (i.e., integrated circuits and computer parts) and
limitations on moving up the value chain;
• increasing competition among task and component suppliers,
with the highest premium given to price and capability to respond
to the sector's compressed product life cycle; and
• competitiveness determined largely by proximity to major
markets and growth poles (a paradox, given the distance-elimination
nature of ICT technology).
Firms in developing and transition countries that have
established themselves in the ICT hardware market have done so
primarily through participation in the expanding supply and
subcontracting networks of multinationals.
E-competency in the firm: A staged
approach
IStage 1: Effective individuals. With the increasing pressures
of the digital economy for total response capability, place initial
attention on ensuring that personnel are familiar with new
technologies, and know how to use the Internet and e-mail
effectively.
Stage 2: Basic web presence. Develop a web site and
promote it among clients and suppliers through business cards and
company letterheads. Use a professional web site designer.
Concentrate on well-structured information, sound navigation and
quick access. Avoid sophisticated imagery or technology.
Stage 3: "Infostructure". Modify internal processes to
the online models of buy-and-sell cycles that involve customers,
partners, suppliers and employees. Integrate other basic business
systems into the infostructure development process. Establish an
internal network through which enterprise personnel can access
information through a single point of entry.
Stage 4: The extended organization. Deepen the level of
shared information. Begin developing an external business network
by providing clients and commercial partners with limited,
firewall-managed access to the enterprise's infostructure.
Stage 5: Business transformation. Build the external
business network to include the concept of "communities". Tailor
the web site to the visitor and develop capacity to track usage and
enhance the visit. Redesign business processes behind the web site
to ensure that they meet not only internal efficiency needs but
also the requirements of clients and partners with access to the
enterprise's infostructure.
Stage 6: Strategic transformation. At this stage, the
Internet will have become an integral part of the enterprise's
systems, its processes and, above all, its thinking. It is now time
for management to rethink the nature of the enterprise's business
and apply its e-competency to redefine, as appropriate, what
products and services it offers, how it offers these products and
services, and the implications for its relationships with clients
and business partners.
Source: I. Worrell, I. Sayers, P. Williams, ITC
Where are software development opportunities for
developing countries?
What a major software developer has to say about
suppliers from developing and transition
countries:
"To remain a market leader we must retain the best and brightest
software engineers. To do so, we have established software
engineering centres in a number of developing countries.
"Software development is Quark's core business and must remain
an in-house function. This is standard practice in the
product-oriented software industry. Consequently we do not
outsource software development to independent companies, no matter
how good and price-competitive they may be. Rather, we set up
subsidiaries in countries where competitively priced expertise
exists.
"But in areas other than product engineering, such as
maintenance, customized development and IT consulting services,
subcontracting to firms in developing and transition countries is
becoming an extremely important aspect of today's digital
economy.
"Generally the selection criteria for internationally
subcontracted IT work are the same as for any other type of
business. The importing companies look at two primary factors -
cost and quality. Another important factor for software companies
is the ability to deliver on schedule.
"In addition to China, India and Singapore, there are several
countries in eastern Europe and Asia that have already displayed
capabilities or are making headway in this area. The secret to a
successful working relationship in the software industry between
head office and offshore subsidiaries or subcontractors is
communication, as software development is a somewhat long and
arduous process that requires constant consultation between team
members. The advantage that Commonwealth countries have is their
ability to communicate in English.
"For the national export strategy-maker, the focus should be on
education, experience and infrastructure."
Summary of an interview with Kamar M.S. Aulakh,
Vice-President, Research and Development, Quark, Inc., a major
software development company headquartered in the United States.
The full text of ITC's interview is available on the Executive
Forum web site under "July Brainstorming".
Are Developing Countries Ready?
Three ITC Surveys
A series of surveys conducted in preparation for the Executive
Forum 2000 indicates that e-competent firms are the exception. The
survey results, and the Executive Forum 2000 consultation, reveal
that there has not been a concerted effort within the business
community of most developing and transition economies either to
acquire e-competency or to use the Internet as a tool to increase
or, at the very least, maintain international competitiveness. This
is particularly the case of the SME sector - the sector that, in
the majority of developing countries, makes the greatest
contribution to national export performance.
Exporting SMEs - use of ICTs
In one survey, ITC contacted 50 "connected" SMEs in South-East
Asia, North Africa, the Middle East and eastern Europe. Each has a
web site. The objective was to acquire their views on ICT as a
business development tool and in so doing, gauge their e-trade
readiness.
The survey produced surprising results. It revealed that
connectivity is seen as a valuable communication tool, but not as
an essential aspect of competitiveness. The use of ICT was
acknowledged as important to establishing a modern and innovative
business culture within the enterprise but was regarded as having
no, or minimal, direct impact on sales prospects or purchasing
efficiencies.
Few of the managers contacted considered web strategy an
integral part of their overall business. Nor did they believe that
the application of ICT would become a fundamental element of their
long-term business development strategy. For the vast majority, the
seamless e-transaction is a long way off because of perceived
difficulties in introducing online financing and payment, and
customs collection and taxation applications.
Garment exporters - electronic purchasing
practices
A second survey of developing country SMEs focused on the use of
the Internet to generate purchasing efficiencies. The survey
covered garment exporters in Bangladesh, the Philippines and Sri
Lanka who imported a significant amount of their fabric
requirements. The survey confirmed that e-mail was the only
application so far used by these enterprises. Most did not see a
need to use the Internet to find new supply sources. None used the
"request for quotation" facilities provided by Internet-based
applications. None bought or managed international logistics over
the Net.
National trade promotion organizations
A third survey of 51 developing and transition economy trade
promotion or-ganizations showed uneven response to the demands of
the digital economy. Less than half canvassed by ITC indicated a
specific e-trade component in their national export development
strategies. Among the countries that have an e-trade strategy, few
have an integrated approach to ensuring that the right environment
exists for e-trade growth and even fewer have established a
comprehensive programme of support to the business sector.
Brian Barclay, ITC, coordinated the Executive Forum 2000.
Natalie Domeisen co-moderated the e-mail discussions for Executive
Forum 2000.
E-trade capability defined
"E-trade capability" means a firm can:
• Conduct preliminary market research and identify possible
commercial partners.
• Promote capacities and establish an e-presence through a web
site.
• Initiate and maintain regular contact with prospective clients
and suppliers through e-mail.
• Acquire credit references.
• Negotiate terms and contract specifics.
• Exchange and sign contracts on the basis of digital
signatures.
• Order materials to produce contracted goods, and monitor
production and delivery status.
• Expedite clearance of imported materials through customs.
• Coordinate production and delivery with subcontractors.
• Provide the buyer with information on order production and
delivery.
• Coordinate shipment with freight forwarders.
• Acquire certificates of origin and other export
documentation.
• Organize payment to suppliers through the local banking
system.
• Receive payment from the buyer through the international
banking system.