Adopt now or wait-and-see: How do firms measure intangible benefits?
Internet-related issues are incorporated throughout ITC's work, and reported regularly in Forum. The articles ahead complement the previous issue of Forum, which presented a review of Internet trends, tips, cases, references and expert opinions targeted to exporters and importers in developing countries. This issue features practitioners' views on e-commerce (Exporting Better and Partners News and Views sections), an overview of ITC's latest work on the Internet (Close Up section), as well as feedback from a recent Internet Café in Senegal (ITC and the Internet section).
1. Internet use is growing faster than any other technology in recent history.
Internet use worldwide is growing fast. Between 1993 and 1997, the number of Internet hosts (computers connected to the Internet) grew from 1 million to 20 million; by 2001 that figure is expected to rise to 120 million.
Estimates of the value of global Internet commerce range from 1.3% to 3.3% of global gross domestic product by 2001 - equivalent in size to the economies of Australia and the Netherlands added together.
2. The intensity of Internet use roughly reflects levels of economic development.
Canada, Nordic countries and the United States adopted Internet technologies most rapidly. Many other countries in the European Union, Australia, Hong Kong Special Administrative Region of China, Japan, New Zealand, the Republic of Korea, Singapore, and Taiwan Province of China have now almost caught up with the early adopters.
In developing countries across South-East Asia, Argentina, Brazil, China, and in some island states such as Barbados, Fiji and Tonga, uptake of the Internet has also been growing rapidly since about 1996, although growth continues to be hindered by problems with telecommunications infrastructure.
It seems unlikely, however, that the Internet will have any significant impact on countries that consciously discourage Internet use during the next few years.
3. The Internet is a powerful tool for trade.
Using the Internet to lower communications costs and reduce time-to-market for goods and services exports makes it a very valuable medium for firms engaged in international trade. Its ability to deliver information of almost any sort in digital format at low cost offers significant efficiencies that firms can pass on to customers in the form of lower prices. It can also help manage supply chains for goods and services in cross-border trade, cutting overheads associated with marketing, transport and distribution.
The Internet also creates new opportunities to raise service levels, which are increasingly the key to successful business-to-business and business-to-consumer trading.
4. The Internet is an emerging global trading platform.
As Internet technology advances and overcomes problems with reliability and speed, it is likely to be used in almost every conceivable way to trade goods and services.
Many large firms now integrate on-line technology into their older proprietary Electronic Data Interchange (EDI) systems, and are building new Internet-based business systems for supply chain management and other inventory control.
Other trading systems, such as financial and commodity markets, are now in the early stages of moving to an Internet base. New supply and demand aggregation services, such as buying-groups and on-line auctions are leading markets in directions that were not feasible before the advent of the Internet.
5. The real impact is still to be seen.
As more and more countries use the Internet for trade, learning and social interaction, and as the number of industries affected by it grows strongly, it seems inevitable that the Internet's influence on international trade will grow very quickly.
Despite its portrayal as a popular communications medium (e-mail, games, chat), there are many more business-to-business than social transactions on the Internet; the ratio is as much as 4-to-1, according to US surveys. The Internet's biggest impact will come from efficiency improvements it introduces within firms that use the Internet to streamline product and market research, improve production and marketing efforts around the world, form and develop business alliances and better integrate the entire value chain, from suppliers to end-customers.
These business benefits suggest that the impact on trade will continue to grow - and outstrip benefits to individuals.
6. Where are the areas of strongest growth?
Although the sale of goods - such as books and music - is the most visible area of e-commerce growth, the biggest advances so far are in the supply and distribution of services. These include software services, finance, education, entertainment and professional services.
Manufacturing companies, too, are beginning to use the Internet to manage global supply chains that radiate from the United States, Europe and parts of East Asia.
Trade distribution and logistics industries deal with two flows: a flow of goods and a 'counter-flow' of information about the goods and about their movement. The efficiency of these industries is being dramatically improved by Internet-based methods of moving information allowing them to reduce transport, insurance and border administrative costs.
These supply-chain efficiencies have made global direct retailing of consumer products such as clothing, processed foods and health products possible.
The Internet seems set to become a major marketing tool for at least some commodities and enable producers, buyers and marketing authorities to develop closer relationships with final overseas customers and to improve information flows in price-sensitive markets.
7. Small and rural businesses may be among the biggest beneficiaries.
By reducing transaction costs, the Internet provides unprecedented opportunities for small- and medium sized firms to trade across borders.
Lower transaction costs also provide opportunities for many rural and regional communities to revitalise their economic bases. Skilful use of the Internet can create opportunities by giving farmers, small business people and communities the capacity to present a regional image to the world, create focal points for inquiries about local businesses and their offerings, create global businesses and develop new products and services.
8. Measuring benefits is a problem.
As yet we have little data on the value of these commercial benefits. That is one of the reasons ITC chose e-commerce as a topic for its first Virtual Conference (see page 23). Few firms - whether or not the Internet plays an important role in their business - have assessed the benefits of the Internet. Many do not know how to begin such an assessment.
It is easy to measure increases in sales and the ratio of revenue to costs in the new sales that are generated. But many of the benefits that the Internet offers are intangible and difficult to measure. For example, how should a firm measure the benefit of forming strategic alliances across the Internet to develop new products or service new markets? How should the competitive advantage of instant global contact and 24-hour customer access be measured? What value should be placed on improved access to tender or specification documentation?
These opportunities may not have a direct dollar value and might never feature in estimates of on-line trading, but nevertheless are very important.
9. Trade is trade.
Internet commerce, like all other forms of exchange across borders, can be affected for good or ill by domestic policies.
There is a wide variety of potential barriers to e-commerce but, so far, the traditional barriers of taxation of trade are probably the least concern. The Organization of Economic Cooperation and Development (OECD) Ministerial Meeting in 1998 reaffirmed that the policy of the industrialised countries will be not to tax the trans-border movement of information across the Internet. Of course, goods and services which transit borders as a result of an Internet exchange are still subject to border regulations, such as tariffs.
There are, however, other potential barriers to the openness of e-commerce markets. In some countries, there are restrictions or heavy taxes on the advertising or delivery of financial services, and restrictions on Internet competition with (monopoly) telephone services. Some countries have strict controls or heavy taxes on public presentation of information about companies. In some countries, controls on the dissemination of culturally sensitive materials are effective in limiting access.
Peter Gallagher heads an Australian consulting firm specializing in the development of Internet business, and is the author of ITC's on-line "Guide to the World Trading System". He served as moderator to the ITC Virtual Conference on Electronic Commerce. He can be contacted at email@example.com