Progress On E Commerce In Pakistan

Electronic commerce e-commerce was often thought simply to refer to buying and selling using the Internet; people immediately think of consumer retail purchases from companies such as Amazon. But e-commerce involves much more than electronically mediated financial transactions between organizations and customers. Now it is broadally defined as “all types of electronic transactions between organizations and stakeholders whether they are financial transactions or exchanges of informaion or other services.” (Cheffey, 2009). The Internet is a force for change, creating new business economies (Lambert, 2002) and altering considerably the world’s economies (Rayport and Jaworski, 2001). The literature stresses the importance of such new technologies to the economy as a whole and to SMEs in particular. Although, Martin and Matlay (2003) contend that such wide-ranging beliefs over the Internet have yet to be supported by any empirical evidence. Tidd et al. (2001) consider the Internet to be one of the “defining symbols” of twenty-first century innovation that has transformed our conceptual notions of how we value knowledge to new economy.

E-commerce has become well over 100 billion dollars market with a growth rate of almost seventy percent per year (Aamir Atta 2008). It is not very costly investment to do business on internet. It is estimated that in near future, almost 25% of the traditional business will be converted into internet business. The business and the corporate world, suitably supported by the IT industry, already stands shifted, which is estimated to exceed $400 billion this year (Dr. Mushtaq A. Sajid 2003). At the end of 2008 nearly 1,596 million people or 23.8 % of total populations of the world had access to the Internet. This represents an increase of 342.2% over the year 2000. Asian countries account for 474.9 % growth while rest of the world grew by nearly 280.7 % in the same period (The Internet Coaching Library, 2009).

This is a departure from the post-industrial business age that is typified by physical goods, towards a knowledge led economy where service, information and intelligence are the main currencies (Rayport and Jaworski, 2001). There have always been “new economies” (Clayton, 2002). What makes this innovation different are four distinct characteristics: immediate access to world-wide markets of information; better speed to market; the transformation of business processes; and the shift in the balance of power between suppliers and customers as information becomes more widely available.

It is suggested by most studies that e-commerce runs through four steps. The first step is to let the world know about your existence through building your own website. The website contains useful information about your company, the product/services you sell and other related information, which certainly increases the chance to of your success. The second step involves convincing customers to loose their pockets and buy your product/services online.

Adoption of advance level of software capable of handling orders is required in this step. In the third step, the business is managed by improving inventory management and last but the most important step is to provide payments facility through online banking partnership between buyers and sellers, which is the most difficult and complex part of e-commerce (Nissanoff, Daniel 2006).

The most widespread and admired forms of e-commerce are business-to-business (B2B) and business-to-consumers (B2C). Government-to-citizens (G2C) and Business-to-government (B2G) and are other forms, running on the internet but with low steam. However, the use of earlier two still dominates the internet (Chaudhury, Abijit; Jean-Pierre Kuilboer 2002).

E-commerce in Pakistan

In the underdeveloped societies only a few businesses have attempted e-commerce and most have failed to identify economic benefits considering it a waste of time and resources. There is no convincing and detailed study of e-commerce opportunities in poor societies. Most of the parameters, which have contributed to the growth of e-commerce in developed countries, are missing in these underdeveloped societies (Shahid Mahmood 2008).

According to International Telecommunication Union (ITU), internet access has been available in Pakistan since the mid-1990s. PCTL started offering access via the nationwide local call network in 1995. By early 2006 Internet penetration remained low. There are 18.5 million internet users in Pakistan as of June 2009, which is 10.4% of total population. It was 0.1% in 2000 with total internet users of just 134,000 (Internet World Stat 2009). Since we are now promoting global e-commerce in Pakistan, it should be known to us that almost 78% of the e-commerce activity takes place in the USA. This is obviously not possible without the use of internet in that country (Attock News 2010).

Pakistan can make good use of this opportunity with proper planning and execution. To begin with, let us focus on the domestic front before going all out for the global market. Currently the growth of c-commerce in Pakistan is vulnerable by various factors. The pace of growth is slow due to some barriers. It is therefore inevitable to remove these barriers for E-commerce to grow in the country (Business Recorder 2008).

A survey about e-commerce in Pakistan was conducted by propakistani that found some hard realities about current status (Teabreak 2008). However, in contrary to my findings, Mr. Abdul Quayyum Khan Kundi, CEO of a US based firm get Pakistan.com in an interview says that he sees a lot of activities of e-commerce in the country these days. Committees are formed to discuss various issues and educational institutes are doing seminars. All this may look good on the surface but I still feel for successful adoption of e-commerce we need a greater commitment from regulators and private sector. The key is not identifying the need the key lies in the speed of execution. Unfortunately we are lagging behind other economies in the region in this regard (Getpakistan.com).

Progress on E-commerce in Pakistan

Pakistan is one of the fifteen members of Asia Pacific Council for the Facilitation of Procedures and Practices for Administration, Commerce and Transport aiming to support the United Nations Centre, a non-governmental organization that promotes trade facilitation, electronic business policies and activities in the Asia-Pacific region (Ecommerce Journal 2009). Global Technology Forum identifies some developments made so far made in this area by the government (Ebusinessforum 2006):

Almost 4,000 bank branches are computerised, many of them offer online funds transfers from overseas.

E-merchant accounts were permitted by State Bank of Pakistan in February 2001 but due to inadequate infrastructure and security concerns, only Citibank offered these accounts to a limited number of business sectors.

In December 2005, the Central Board of Revenue (CBR), the tax authority, started online tax facilities including online tax returns.

The Information Technology and Telecommunications Division was established in July 2000. The purpose was to provide various e-commerce related incentives to industry and the provision of resources for educational and infrastructure building.

The National Information Technology Policy was launched by the Ministry of Science and Technology in August 2000.

As per latest information, the total spending (by the government and private sector) on information, communications and technology in Pakistan was US$10bn during 2005/06.

Various e-commerce projects and programs were started in both public and private sectors in August 2006.

The government had planned new IT and e-commerce projects worth well over PKR 4.5bn up to 2007. The government further aimed to produce 100,000 graduates a year in IT studies from the seven new IT universities it has already set up (Global Technology Forum 2006).

The Lahore Chamber of Commerce & Industry (LCCI) has recently signed a Memorandum of Undersanding (MoU) with Punjab Information Technology Board (PITB) to improve productivity by providing tailor-made IT solutions to Small & Medium Enterprises (SMEs) in the country. PITB will arrange IT Workshops for the staff of the companies in SME sector to develop human resource and businesses in accordance with global IT advancement. Both partners has further agreed to promote awareness about IT parks among business community to explore potential for joint ventures related to technology with foreign computer firms (Aamir Attaa 2010). They have further agreed to improve the strategy to integrate IT into businesses. This will no doubt pave the way of e-commerce for SMEs.

The book entitled ‘Secrets of Electronic Commerce’ (ITC 2009) addresses issues such as understanding of various technical terms, devising electronic commerce strategies, protecting consumer privacy and intellectual property, sending electronic signatures and generating traffic for small/new web sites.

SMEs in Pakistan

Martin and Matlay (2003) suggest SMEs are a “heterogeneous and complex mix of economically active units”. Most working definitions of SMEs emanate from the Bolton Committee report of 1971, which defines a small firm as independent, owner managed and with a small market share. The Bolton report offered a variety of statistical definitions, namely that the size of the firm was relevant to the sector it was in and that in certain sectors it was more suitable to classify the size of the firm by the number of employees. The use of so many definitions has its critics who argue that it impedes statistical analysis. Such criticism is often dismissed by claiming that these definitions all have their different uses (Beaver, 2002). Pakistan is more closed to Germany to define the limits of company to fit under SME; with maximum 250 employees, paid up capital of Rs.25 million (USD 0.3 million) and annual sales of up to Rs.250 million (USD 3 million). The Federal Government, in line with the economic development of Pakistan may, from time to time modify the eligibility criteria as it sees fit. All providers of services receiving funding from the Government may define more narrow scopes for specific targeting purposes. Moreover, different institutions have set their own criteria to define SME.

In Pakistan, SMEDA (Small and Medium Enterprise Development Authority), established in October 1998, is a premier institution of the Govt. of Pakistan under Ministry of Industries and Production, to take on the challenge of developing Small & Medium Enterprises (SMEs) in Pakistan. It thrives to provide an enabling environment and business development services to small and medium enterprises. SMEDA is not only an SME policy-advisory body for the government of Pakistan but also facilitates other stakeholders in addressing their SME development agendas (SMEDA 2009). In a survey report arranged by Asian Development Bank (ADB), it has been revealed that Pakistan has become the slowest-growing country in South Asia during the last decade. Large scale manufacturing has recovered significantly in the last couple of days, but there are still concern about its sustainability, spread and robustness. Small and medium scale industry has not made a corresponding recovery yet (Bari, Cheema, Haque 2005). They have mentioned seven constraints in the growth of SME in the country but none of them covers e-commerce. SME growth in not inhibited by technological barriers to entry (Kemal 1993).

E-commerce for SME

Issues & Challenges

E-commerce is an issue-driven field. The issues that concern us are those with the potential to throw weighty spanners in the works of ecommerce players. They form aspects of a climate that affects all players equally. Open legal, technical, and cultural issues have the power to flex the architectures of the best-prepared ecommerce player (May P. 2000). The author in his book has identified some issues e.g. (1) Legal issues such as Intellectual Property, Responsibility & Privacy, Regulation & Taxation, (2) Technical issues such as Platform risk, Communication disconnect, Skills and (3) Market issues. In this context, we will therefore, try to find issues being faced by SME in Pakistan to adopt e-commerce.

Numerous studies into the use of e-commerce in SMEs recently have been of an exploratory and qualitative nature (Drew 2002). While there is rapid growth and development of dot-coms and the ‘new economy’, SMEs in developing countries have been slower to adopt e-commerce than their developed countries (Intrapairot and Srivihok 2003).

Moreover, there are several issues that have been raised in recent SME literatures, which include:

Exploring the advantage and disadvantage of e-commerce in Thai SMEs (Intrapairot and Srivihok, 2003)

The importance of e-commerce infrastructure in facilitating the e-commerce adoption initiatives for SMEs in developing countries (Jennex et al. 2004, Stylianou et al. 2003).

The use of e-commerce by manufacturing sector of Italian SMEs (Santarelli and D’Altri, 2003).

Adoption attributes that may affect e-commerce use in Brunei SMEs (Seyal and Rahman 2003)

Factors influencing e-commerce adoption decisions in small and medium enterprises (SMEs) in Thailand (Lertwongsatien and Wongpinunwatana 2003)

The use of e-commerce in Australian SMEs (MacGregor et al. 1998).

In addition, the business press and trade journals have also given coverage to many of the issues faced by SMEs in moving into e-commerce (Matlay and Addis 2003, Phillips 1998, Schlenker and Crocker 2003). However, there are some issues that have received very little attention in research to date, such as:

Framework that helps SMEs evaluate the strategic use of e-commerce as well as guiding the adoption process.

Assessment of e-commerce application and post adoption experiences in different sectors of Pakistan’s SMEs.

There is limited research on how businesses have integrated e-commerce strategy into existing business strategy, although authors (such as Doherty and McAulay 2002) have suggested it is important that e-commerce investments be driven by corporate strategies.

Strategy

Developing an e-commerce strategy requires a fusion of existing approaches to business, marketing, supply chain management and information systems strategy development. In addition to traditional strategy approaches, commentators have exhorted companies to apply innovative techniques to achieve competitive advantage. Around the start of the new millennium, many articles, fuelled by the dot-com hype of the time, urged CEOs to ‘innovate or die’ (Chaffey 2009).

Strategy defines the future direction and actions of an organization or part of an organization. (Johnson and Scholes 2006) define corporate strategy as: “the direction and scope of an organization over the long-term: which achieves advantage for the organization through its configuration of resources within a changing environment to meet the needs of markets and to fulfill stakeholder expectations”.

It can also be described as an organization’s sense of purpose. However, he notes that purpose alone is not strategy; plans or actions are also needed (Lynch 2000). E-commerce strategy share much in common with corporate, business and marketing strategies. The organizations have different levels of strategy, particularly for larger or global organizations (Johnson and Scholes 2006). They have not expressly stated about strategy for SMEs but since they have mentioned that larger orgnizations do have different strategy, therefore, we can assume that strategy of SMEs must be different. However, the difference in strategies is not the core of our debate here. We should be familiar with the integeration of e-commerce strategy into existing strategy.

One might question why the presence of e-commerce has expanded very rapidly in recent years. The answer is simply because of the opportunities and benefits that are evident from the current implementation by many organisations. The concept of strategic use e-commerce through the utilisation of Internet software and services also endeavours to link Internet use with opportunities it offers to the firm (Sadowski et al. 2002). It further recognises that the strategic potential Internet use allows exercising the control over the bounds of relationships and interfaces used in relationships between customers and the business, which are also related to the firm’s strategies.

E-commerce has offered a variety of potential benefits both to SMEs and large business. Numerous studies claim their findings on the benefit and impact of e-commerce. Those findings are summarised into the following points (Chan 2001, Schneider 2002):

E-commerce offers unmatched savings in terms of transaction costs

The reduction of cost in advertising and promotion

Speed communication between buyer and seller

Companies can shorten their traditional supply chains, minimise transport obstacles, and reduce delivery costs.

Physical limitations of time and space are removed.

Despite the attractive benefits that SMEs may obtain from adopting e-commerce into their business, SMEs possess significant problems in identifying the appropriate application of e-commerce and its strategy due to the lack of knowledge and planning. Consequently, it is hardly surprising to witness that most of the SMEs’ owner/managers will finally develop their strategy through a ‘trial-and-error’ method.

An assessment of success factors for e-commerce strategy implementation in SMEs has been produced by Jeffcoate et al. (2002). They suggest 11 critical success factors, which can also be usefully applied to larger organizations:

1. Content: The effective presentation of a product or services

2. Convenience: The usability of the web site

3. Control: The extent to which organizations have defined processes that they can manage.

4. Interaction: The means of relationship building with individual customers.

5. Community: The means of relationship building with groups of like-minded individuals or organizations.

6. Price sensitivity: The sensitivity of a product or service to price competition on the Internet.

7. Brand image: The ability to build up a credible brand name for e-commerce

8. Commitment: A strong Motivation for using the Internet and the will to innovate

9. Partnership: The extent to which an e-commerce venture uses partnerships (value chain relationships) to leverage Internet presence and expand its business.

10. Process improvement: The extent to which companies can change and automate business processes.

11. Integration The provision of links between underlying iT systems in support of partnership and process improvement.

Adoption

E-commerce has introduced new opportunities for small and large organizations to compete in the global marketplace. Many experts have noted that one of the biggest changes introduced by electronic communications is how approaches to transmitting and transforming information can be used for competative advantage. The electronic commerce provides significatn opportunities for many businesses to build closer relationships with their existing customers and suppliers online to help achieve customer retntion. Its usage by stakeholders can significantly reduce costs while providing a new, convenient channel for purchase and customer service. Organizations can build lasting relationships with their stakeholders by providing high-quality online services. We should assess the impact of e-commere on our market place and organizations (Cheffey 2009).

Business adoption of e-commerce and e-business is driven by benefits to different parts of their organization. First and foremost, they are concerned how the benefits of e-commerce will impact on profitbility or generating value to an organization. The two main ways in which this can be achieved are:

Potential for increased revenue due to extended reach to a large number of customers, repeat transactions among existing customers and encouraging loyality.

Reduction in cost achieved by delivering services electronically. This includes staff clost, transport and material cost such as stationery, etc (Cheffey 2009).

Until a few years ago, the academic literature was giving very little information on why SMEs adopt e-commerce. However, now rather more information could be found on the broader aspects of information and communication technology (ICT) adoption and the use of the Internet in general. Thus, the reasons for ICT, Internet and e-commerce adoption by SMEs are complex and often interrelated. It is thought that much of this early adoption of the Internet was motivated by a mixture of management eagerness, the need for better communications and that for most businesses it presented an affordable admission price to world markets prior to establishing more important business relationships (Simpson and Docherty 2004).

Although Dixon et al. (2002) found a lack of any empirical research on the effect of ICT on SMEs and of the modest amount that there was much of it involved cross-sectional studies rather than longitudinal comparisons. The comparative wealth of research in the area of ICT adoption (compared to e-commerce) suggests that an SME’s inherent qualities of size and flatter organisational structure make them more predisposed to facilitating innovation. According to Tidd et al. (2001) the major factors for successful innovation are a mixture of having a dedicated and motivated individual, usually the Chief Executive Officer (CEO) and paying attention to a multitude of good management activities and attitudes. This includes the ability to predict and respond to the business environment and industry changes. In part this concurs with Cragg et al.’s (2001) view that SMEs with a CEO with a penchant for Information Technology (IT) and innovation would be more likely to adopt IT. Cragg et al. (2001) concluded that three issues that were likely to have an effect on the take up of the Internet by SMEs was the perceived benefits, organisational readiness and external pressures. However, Dongen et al. (2002) argue that much of the literature supposes that ICT adoption is for opportunistic reasons, based on cost, rather than for strategic reasons. Van Beveren and Thomson (2002) point out that the most cited reasons for e-commerce adoption tend to be those based upon the company’s size and their perceived importance of e-commerce to their business purpose. While Daniel and Myers (2002) found that as a company grows in size it becomes more difficult to communicate with customers and this leads to the adoption of e-commerce. Although the work of Bodorick et al. (2002) did not focus specifically on SMEs they suggest that e-commerce readiness and adoption are likely to vary by industry sector. Martin and Matlay (2003) found that micro-businesses that focus on providing business services were more likely to adopt ICT than similar sized manufacturing firms while Daniel and Myers (2002) found that the older the SME the less likely they were to use

e-commerce. Kalakota and Robinson (2001) see the adoption of e-commerce as more of an external pressure brought about by a new type of customer value proposition of what they want, when and how they want it and at the lowest cost. Daniel and Myers (2002) and Dongen et al. (2002) found that responding to competitors was also likely to be an important driver towards the adoption of e-commerce. Timmers (1999) uses Michael Porter’s five forces model to argue that e-commerce creates almost perfect competition as barriers to entry are reduced, transaction costs lowered, customers are able to obtain better access to information, customer driven pricing is possible and all with the minimum of legislation and regulation. In addition, low entry costs leading to an early return on investment whilst safeguarding such investment was seen as a major attraction of e-commerce (Timmers, 1999). Daniel and Myers (2002) found that the overall reason for the adoption of e-commerce by SMEs was to enhance customer relationships either through improving customer services, developing the brand, seeking out new customers or to allow for discourse with customers. The notion was that these businesses better understand how competitive differentiation can be achieved by developing superior customer relationships. Kalakota and Robinson (2001) have similar views claiming that through the use of e-commerce companies can become the best, most recognisable and also the cheapest. That is, e-commerce can create opportunities for a combination of differentiation and cost leadership strategies to be employed (Campbell-Hunt, 2000). Cragg et al. (2001) found three types of perceived benefits namely, relative advantage, communication (over more traditional methods such as the telephone) and as a business tool i.e. something that is a part of everyday business. Cragg et al. (2001, p. 172) argue that: “Those that have not adopted the Internet must seek a business benefit, for example they may pursue advantages over traditional methods of advertising.” More pragmatic advice can be found in the literature targeted at small businesses and which praises the benefits of e-commerce from both the business and customer perspectives (Bradshaw, 2001). For example, e-commerce allows businesses to trade and receive payments online non-stop and leaves customers satisfied because the business is always open. In addition, e-commerce has other benefits such as lowering the running costs of the business, allowing access to a wider market and saves time for the customer who will also feel in control (Bradshaw, 2001). It has been suggested that some small businesses only exist because of moving onto the Internet and the notion of the Internet as a salvation for some businesses appears to be a relatively new idea (Wroe, 2002).

Barriers

Cheffey (2009) explains about a DTI study conducted in 2002 evaluating some of the barriers to e-commerce, specially to B2B, which remain valid today. The reason of cost is the most important factor, following by some other factors, eighteen in total, which can cause hurdles in the growth of e-commerce in the industry. “Adoption of e-business by established SMEs is generally less han that in larger businesses. This is principally a consequence of he negative attitude of managing directors and CEOs o the business benefits of information and communication technology”.

Our study will highlight the barriers to e-commerce, if there are any, in the country hurdling in the adoption by SMEs. Tunyo (2008) highlights some barriers to the e-commerce in the country. He says that the size of e-commerce in the country is small and also uncertain at the moment and the growth of e-commerce is hampered by a number of factors and it is inevitable to remove these hurdles for e-commerce to grow in the country. The major barriers are;

Misconception about e-commerce

Mistruct

Traditional nature of society

Literacy rate

Access to internet services

Lack of e-transportation services

Poor distribution channels

The study will conclude with an overall assessment of the current status of the adoption of e-commerce by SMEs and forecast of the future of e-commerce in this sector.