NEW STUDY PROVIDES REALITY CHECK ON UPTAKE OF E-COMMERCE IN AFRICA

digtool

Balancing Act’s e-commerce correspondent Cordelia Salter-Nour talks Robin Mansell from the London School of Economics, one of the co-authors of a new study on e-commerce in developing countries. Its conclusions - based on research in the horticulture and garment manufacturing sectors - are fairly down beat. It identifies six obstacles: poor ICT structure; poor transport infrastructure; weak or absent legal and institutional infrastructure; weak trust infrastructure for certification and effective redress; lack of preparedness and the need for training and capacity building and resistance and cynicism.

The conclusions drawn show quite clearly that ICT issues such as connectivity and bandwidth are far less important than previously thought and that old-world barriers are still as powerful as ever. Were these the results you were expecting when you started your study or were you expecting ICT capabilities to have more of an impact on e-commerce?

We approached the study with an open mind in terms of what we might find. It would be reasonable to say that we suspected that the types of B2B e-commerce that we would find in use would fall short of the ‘grand’ models espoused by some proponents of e-commerce. We knew that email was the predominant application in use in poor countries with limited infrastructure access and high costs. The teams of researchers within the three countries and at IDS had a deep knowledge of the two industrial sectors before we started the study.

What we did not know was whether and to what extent the firms in these countries and sectors might be taking advantage of B2B e-marketplaces that had been established when we started the study. Many of these were claiming that they could assist firms in strengthening their international trading positions. We were inclined to expect that a very broad range of capabilities - including ICT capabilities - would influence how and with whom the firms in our sample would be managing their international trading relationships. On the basis of the team’s sector specific knowledge we started the study with an expectation that a firm’s position within its supply chain would be likely to influence its trading arrangements. What we did not know was the extent to which any use of e-commerce, however defined, would be regarded favourably by our sample of firms.

The six obstacles which you have defined as barriers to ecommerce are barriers to development in general. Does this mean that ecommerce has now joined the list of other developmental areas such as health care and education?

This is a difficult question to answer because it suggests that adopting a ‘standard’ model of B2B e-commerce might help to reduce poverty in the same way that investment in improved health care and education may do. We would put the issue somewhat differently. To the extent that some applications of ICTs in support of international trade help to diminish existing barriers in this area, e.g. unequal terms of trade, disadvantageous positioning in supply chains, such that firms in industrial sectors are able to strengthen their trading positions by deepening or extending the scope of their markets or improving their profit margins, then there may be opportunities for economic gains for a given country. Whether these potential economic gains will be distributed in an equitable way throughout an economy is an issue as well in terms of whether the benefits help to overcome poverty and contribute to more equitable development. I would argue that the priorities must be established on the basis of country (sector specific) information and by local leaders so that choices with respect to investment can be assessed and decided.In some cases, investment in improving various aspects of a variety of models of B2B e-commerce may make sense but not as an automatic solution for overcoming barriers to development.

In retrospect it can be seen that the Internet boom years made false promises about the impact of ecommerce on the global economy. How damaging do you think that hype has been to the opportunities that do exist if realistic attitudes are adopted?

In general, the information and communication technology supply industry (including software) is notorious for promising more than it can deliver. In that sense the early expectation that business practices including trade in a wide variety of goods would migrate to B2B e-commerce applications very rapidly and that ‘many-to-many’ trading platforms would take off simply because they could be hosted on the Internet is not out of line with earlier technological developments. Hype is the norm in this industry and the Internet dot.com boom years were a good example of this. The idea that B2B e-commerce using the Internet would rapidly spread globally to provide an equitable and inclusive foundation for firms based in developing countries that seek to trade internationally was a fantasy that took little or no account of the way markets actually function or of the positioning of these firms in their supply chains. The dot.com crash did bring an end to some of the false promises, but sadly there are still plenty of claims being made about how B2B e-commerce should be developed for firms in developing countries.

Even if the claims are somewhat more realistic today, the emphasis of those seeking to promote online trading in one form or another continues to be placed first and foremost on the ICTs (networks, software, etc.) and on creating an appropriate legal environment rather than on the practices of firms. Our argument is that it is the latter that must be understood if appropriate choices and investment decisions are to be made with regard to the former. A continuing failure to do so is likely to be damaging and to encourage what has been called ‘ICT strategy fatique’ by observers based in developing countries. This can only lead to cynicism. More realistic attitudes and actions to support and enable developing country firms are likely to flow from careful analysis of how certain ICT applications based on the Internet are likely to affect business practices in a given sector. In some cases these may lead to real benefits for these firms, but in others there may be considerable costs.

Your study shows that e-marketplaces have little to offer b2b commerce as they verify neither buyers or sellers. Also, despite new technology, known and trusted intermediaries are as important as ever and an unknown outside supplier stands very little chance. This sounds very much like the real world of commerce. Are there any differences?

I think the key here is to recognise that B2B e-commerce is generally not something that occurs on its own and entirely separately from a firm’s offline trading practices. Where some elements of B2B e-commerce (broadly defined) are adopted, e.g. the use of email, document exchange for product specification, supply chain integration software, etc., the question is how these affect existing business practices and whether asymmetries between buyers, intermediaries, and product suppliers are reduced or exaggurated as a result. For instance, if buyers insist that firms sell their goods only via closed auction sites this may disadvantage firms without low cost and reliable access to these auctions. Alternatively, greater use of email attachments to exchange information about product specification may cut costs for producer firms.

Trusted intermediaries that make increasing use of some kinds of B2B e-commerce applications are also likely to maintain their relationships with their producers through more traditional means and so the issue is how does electronic networking those relationships over time. This is an empirical question. Because of the complementarity between online and offline activities, it is essential that both be examined to determine the overall impact on the dynamics of international markets.

Your study also shows that in developed economies the people who are benefitting most from b2b e-commerce are buyers who are joining together to drive down producer prices in their own closed e-marketplaces. It also shows that online auctions drive prices way down. This doesn’t sound very good for producers. Do you think this new flavour of b2b commerce could have a negative impact on emerging economies like so many of the other ‘global’ trade agreements?

Our study certainly provides glimpses of this tendency, but we do not have enough evidence to generalise. We highlight this as an area that needs further study. Generally, if buyers are able to find new ways of creating ‘captive’ producers that are locked into trading then there is likely to be downward pressure on producer prices. But this is a reflection of the competitiveness or lack thereof of global markets and at this stage in the development of B2B e-commerce, especially for the firms in the sectors we examined, the overall impact of the ‘new flavour’ of trading is simply not known for emerging economies. The impacts are likely to vary considerably by sector and in this sense the strengths and weaknesses of a given economy have to be taken into account. What I think we can say is that a ‘one size fits all’ approach to B2B e-commerce based mainly on the experiences of producer firms based in the wealthy countries of the world will almost certainly have a negative impact on emerging economies for the simple reason that if investment is made to try to replicate that experience it will most likely be wasted. Whatever approach is taken, it must be based on the local sector and country specific needs of firms.

There seems to be very little understanding of global supply chains with both buyers and producers not willing to make their information public. In some cases this secrecy can be used to hide low wages and poor working conditions in producer countries. Do you think there should be more awareness and openness about how these supply chains work or do you think the power of "traditional" business will keep them closed?

My IDS colleagues are the experts in supply chain analysis. My own view is that complete transparency that might be associated with a perfectly competitive market is very unlikely. To the extent that there are tightly integrated global supply chains, this can only be achieved and maintained through varying degrees of commercial secrecy and confidentiality. Insofar as firms begin to adopt ethical trading standards and make an issue of working conditions and labour practices as a condition for participation in a given supply chain, this could lead to improvements - although not necessarily greater transparency. If greater attention was given to studying how supply chains work with respect to the firms based in developing countries, it is quite likely that many of the factors that contribute to persistent low wages and bad working conditions would begin to come to light. Of course, this is a big issue that goes far beyond the scope of our study. I do not believe that traditional business has the power to keep such information secret, but I do believe that insufficient resources are devoted to the kinds of studies that are necessary to bring injustices to light.

One of the barriers to ecommerce is lack of trained personnel - something that affects all businesses in Africa. Given how difficult it is to find trained IT staff and how expensive technology can be for African businesses, which sectors of ecommerce do you think would be a good investment for a SMEs in sub-Saharan Africa?

I really can’t answer this on the basis of our research. Small sample and only two sectors. It does appear that if SMEs are able to make use of e-mail to reduce communication costs there can be advantages. However, because of the generally high costs of network access, PCs, etc., it would seem more reasonable to advocate that greater efforts be made to find effective ways of sharing the cost burden. Just as it took a very long time for people to realise that the ‘one household - one telephone’ model for residential customers that emerged in the industrialised countries was in many instances not likely to be a good model for very poor regions of the world, so it needs to be acknowledged that shared access through business centres for SMEs may provide a viable means of obtaining some benefits in the short and medium term. Here, the questions of management, governance and sustainability all come to mind by business leaders, intermediaries, etc. in order to find creative solutions.

What’s the single most important piece of advice would you give to an African business thinking of entering the e-commerce arena?

Difficult question! Think about business needs first, set realistic medium term commercial goals, and then consider what aspects of B2B e-commerce (including technology and people) will contribute to meeting those goals.