IMPORTANCE OF ECOMMERCE IN DEVELOPED AND

DEVELOPING NATIONS

BY
NAVYA SN
SHRESTA GD
INSTITUTE OF PUBLIC ENTERPRISE

ABSTRACT
Electronic commerce provides an altogether new way of conducting commercial transactions.
The opportunities emerging from e commerce will have far reaching economic and social
implications. It dramatically reduces the economic distance between producers and consumers.
The benefits of improved information, lower transaction costs and hence lower prices, larger
choices and instant delivery present global access to the market place with relative ease.
Electronic commerce may have large economic effects in the future. Internet commerce will
change the face of business forever. The e-commerce has affected the global economy in many
different ways. First of all, it has affected the information technology, and all the economic
sectors, all and above e-commerce has enhanced the productivity growth worldwide. Some
countries are already benefiting from the results, they are now in apposition to benchmark their
economies with competitors internationally and there are many ways to accelerate the growth of
productivity but the reason for this is rather controversial. Banks and financial services
companies in the developing countries will need to adopt online payment system, to obtain etrade finance and equity investment, tourism and its internet incarnation is regularly cited as one
of the fastest growing ecommerce sectors. E-business continues to grow vigorously in developed
countries, but divergences are surfacing among developing countries, says E-commerce and
Development Report 2003. More and more governments and businesses in the developing world
are nonetheless beginning to eliminate obstacles to the adoption of information and
communications technologies (ICT). While the immediate effects are not necessarily dramatic,
the Report predicts that improvements in the e-business environment should eventually result in
productivity gains in these economies.

INTRODUCTION
What is e-commerce?
E-commerce is a way of doing business transactions via the internet. E-commerce or e-business
is based on the electronic processing and transmission of data, including text, sound, and video.
E-commerce as it is commonly known is the use of technology to conduct financial transactions
online.
E-commerce market models:
1.
2.
3.
4.

Business to Business
Business to Costumer
Customer to Business
Customer to Customer
HOW E-COMMERCE WILL AFFECT THE ECONOMY?

The electronic economy will force change within nation states. The modern nation state remains
the most prevalent unit of governance in the developed and the developing world. The concept
has, in the last 50 years, been extended rather than retracted. When we consider the impact of ecommerce on the global economy it is said to be very influential and far reaching. E-commerce
is one that has a profound and radical effect for businesses that is located all over the world. It is
more powerful than the traditional resources that were adopted by businesses all over the world.
With the aid of e-commerce it is possible for people to shop online from their comforts of their
home irrespective of the geographical location. Ecommerce has been able to remove the
geographical barriers successfully and helped customers to come into contact with vendors
without hassles.
The impact of ecommerce is one that has brought a drastic change in the traditional
market. It is one that has been welcome with open arms as it has clicked immensely for many
businesses and now most of the businesses that exist without ecommerce cannot exist.
Ecommerce has also helped many small businesses as they no longer require to have a physical
office that caters to a particular geographical location. The impact of ecommerce on the global
economy is so immense that the targeted audience can be reached without wasting time and

economic resources. The target market is easily reached with the aid of effective internet
marketing techniques.
The impact of ecommerce on the global economy has influenced everything right from the
production to the service levels that many companies are able to able to do business with. This
change is a very significant one and it is here to stay. With ecommerce these businesses are faced
with the main challenge of having to stay ahead of their market competitors with the shifts in
technology. They should be able to embrace and wheel the power of marketing successfully to
their advantage so that they can have the edge in the market competition.
E-COMMERCE IN DEVELOPED COUNTRIES
E-commerce is rapidly growing in developed countries, given the availability of e-commerce
infrastructure. Internet usage in developed countries has seriously grown compared to developing
countries. There is growing awareness in of the benefits and opportunities offered by ecommerce amongst developed countries. Ecommerce activity in developed countries has steadily
grown as a result of vast improvements in telecommunication services. Meanwhile, in the
developed world, the commercial deployment of next-generation technologies and devices will
increase usage of advanced mobile services, which in turn will open up many new, e-commerce
business opportunities and especially in developing countries. Despite the contraction in the
high-tech industry during the recession, firms have continued to enter and expand their presence
in e-commerce, and consumers have increased the number of purchases made online. As e
commerce grows, so will its impact on the overall economy. The primary route by which ecommerce will affect the economy at large is through its impact on productivity and inflation.
Business and consumers that use e- commerce benefit from a reduction in costs in term of the
time and effort required to reach for goods and services and to complete transactions. This
reduction in costs results in higher productivity. An even larger increase in economy wide
productivity levels may result from productivity gains by firms not engaged in ecommerce as
they respond to this new source of competition. Continued expansion of e- commerce may also
lead to downward pressure on inflation through greater competition, cost savings, and changes in
price-setting behavior of sellers. It was examined that economic factors that have contributed to
the rapid growth of e-commerce and assesses how the future growth of e- commerce may affect
the overall economy. That concluded e-commerce continues to grow rapidly, it could lead to an

increase in productivity growth and downward inflationary pressures that persist for several
years.
E-COMMERCE IN DEVELOPING COUNTRIES
The adoption of e-commerce in developing countries differs greatly from developed countries.
Developing countries often lack the necessary financial, legal, and physical infrastructures for
the development of commerce. In addition, developing countries often have different cultures
and business philosophies, which limit the applicability and transferability of the e-commerce
models designed by Western countries. The greatest obstacle to the growth of e-commerce is low
PC penetration. However affordable Asian technologies and falling microchip prices have fuelled
a market in cloned as well as branded PCs.
E-commerce arguably has a potential to add a higher value to businesses and consumers in
developing countries than in developed countries. Yet most developing country-based enterprises
have failed to reap the benefits offered by modern information and communications technologies
(ICTs). Some business models have emerged that overcome e-commerce barriers in developing
countries. Yet in e-commerce journals, the developing world has received surprisingly scant
attention. More and more governments and businesses in the developing world are nonetheless
beginning to eliminate obstacles to the adoption of information and communications
technologies (ICT). While the immediate effects are not necessarily dramatic, it is predicted that
improvements in the e-business environment should eventually result in productivity gains in
these economies. At the same time, many other developing countries still face difficulties in
identifying and realizing the potential benefits of ICT and the Internet for their economic
development.
BARRIERS TO ECOMERCE IN DEVELOPING COUNTRIES
Economic barriers
Positive economic feedback occurs in the presence of increasing returns to scale. Research has
suggested that a slow Internet diffusion in developing countries has led to a low IT business
value measured by performance and productivity. Barriers associated with the lack of economies
of scale in small developing countries are widely recognized. Slow Internet diffusion in

developing countries can be attributed to market and infrastructural factors controlling the
availability of ICTs. For instance, a lack of electrical supply, a low teledensity and a lack of
purchasing power results in a low rural Internet usage. Moreover, manufacturers of ICT products
focus on large distributors often located in developed countries for their selling initiates.
Unavailability of credit cards is also a major hurdle. Past studies have found such problems for
B2C e-commerce in Russia, India and Latin America. In Asia, 3540% of transactions are cashbased. Other aspects of financial systems are also underdeveloped. In the Caribbean, local banks
do not process online credit card transactions or other forms of electronic payment systems. The
Internet is also less attractive for traditional economic sectors (e.g., agriculture) that account for a
significant proportion of developing countries economies. For instance, a study indicated that
cost savings from e-commerce as a percent of total input costs is only 2% for firms in
traditional sectors such as coal compared to 40% in electronic components. Rapid growth of ecommerce in the US can be attributed to infrastructure already in place and an easy availability
of a physical delivery system. Such systems are rare in developing countries. In the Caribbean
region, logistics challenges are among major barriers to e-commerce diffusion. Finally,
bandwidth availability is low in developing countries. A lower bandwidth means that a longer
time is needed to transfer data and hence a lower relative advantage of the Internet.
Sociopolitical barriers
Sociopolitical barriers can be explained in terms of formal and informal institutions. They often
tend to be more difficult and time consuming to overcome than technological barriers. Social
barriers are related with informal institutions. In Asia, personal relationships are important in
businesses and anonymous online relationships threaten established interpersonal networks.
Preference for personal face-to-face communications over e-mails and precedence of established
relationships over the Internets inter-personal efficiency also work against e-commerce. Political
barriers are applied in an organized way by formally appointed groups. Many developing
countries lack laws that provide legal validity of digital and electronic signatures (DES). Some
developing countries treat ICT products as luxury items and impose import duty, surtax, value
added tax, sales tax, etc. Weak formal institutions also lower consumer trust in e-commerce and
willingness to buy online.

Cognitive barriers
Cognitive factors are related to mental maps of individuals and organizational decision makers.
Some analysts argue that cognitive barriers are more serious than other categories of barriers in
developing countries. Many effects such as inadequate awareness, knowledge, skills, and
confidence serve as cognitive feedbacks. For instance, the top managements a priori evaluation
influences cognitive bias toward e-business. In developing countries, organizations human,
business, and technological resources, a lack of awareness and understanding of potential
opportunities, risk aversion and inertia often lead to a negative cognitive assessment of ecommerce. Consumers lack of awareness and knowledge of ecommerce benefits and their lack
of confidence in service providers have also hindered e-commerce. For instance, in Latin
America, a low rate of credit card usage can be attributed to the lack of trust in than lack of
access to the credit card system. A final consideration with cognitive barriers is related to
general and computer illiteracy and a lack of English language skills. Estimates suggest that half
of the populations of developing countries cannot speak an official language of their own
country. A lack of capability in English language has thus been a major inhibitor among nonEnglish speaking consumers, especially the older generation.
RECOMMENDATIONS
The following are few recommendations for ecommerce implementation in order to ensure ecommerce success in developing countries is to:

Electronic payment systems must ensure interoperability in a global

environment. Standards must be developed and implemented on the
national level, but must be compatible with the global level.

There are also numerous legal issue to be determined. Privacy, liability

intellectual property protection and security are all major questions to
be undertaken, breaking new frontiers in traditional legislature.

To ensure e-commerce success, financial and regulatory issues must

be tackled. Ecommerce defined simply as electronic delivery of a

product or service implies that customs and taxation regulations must

be altered.

Should address high cost of equipment, integration and connectivity.

CONCLUSION

Ecommerce is rapidly growing in both developed and developing countries. It is considered a

significant instrument for development of the economy. Electronic commerce has the potential to
improve efficiency and productivity in many areas and, therefore, has received significant
attention in many countries. Ecommerce is central to the future growth of the world. So
Ecommerce is relevant in developing countries despite the current limitations with the existing
infrastructure and other issues related to the economical and socio-cultural conditions.
Ecommerce will change the mode of doing business, thus offer excellent opportunities for
growth in developing nations.