E-commerce development hampered by cultural barriers

By Teddy Setiawan Wijaya

JAKARTA (JP): Online shopping is booming in developed countries. In the United States, sales tripled last Christmas and more new consumers came online than most cyber retailers expected. Comparing the situation in the U.S. with Indonesia is like comparing a tiger with a kitten. In fact, we are still far behind even when compared to Singapore and Malaysia, our country's closest neighbors.

Many people will say that security is a major problem in electronic trade, or e-commerce, but this doesn't explain why the U.S., Singapore or Malaysia is relatively ahead of us in the development of this industry.

Our next excuse then might be the lack of phone line penetration or infrastructure. This is not wrong. Indonesia's phone line density (lines in services per 100 inhabitants) was 2.67 percent, according to data from PT Telkom in September 1998.

But there are many other indicators of e-commerce growth. For example, the access to a personal computer, which is mostly available only to white collar workers and university students in big cities.

People with computers and phone connections are also not necessarily online consumers. Usually, only people with high incomes are attracted to buying things over the Internet. In 1998, U.S. households with annual incomes of more than US$50,000 accounted for 74 percent of online sales (Business Week, Jan. 18, 1999).

Another problem limiting e-commerce in Indonesia is that people are just not accustomed to buying things through the net. Most people need to see and touch things before they buy them.

The e-commerce scenario -- where a customer visits a website, views pictures and information on products, and pays by credit card -- is unpopular here. Education plays an important role. The higher one's level of education, usually the easier it is for him or her to accept new technology or new ways of doing things. Culture and education thus represent a demographic barrier for the development of e-commerce.

E-commerce can actually be divided into two major categories: business-to-consumer sales and business-to-business sales. The web-based company Amazon.com is an example of the first category, and is the most successful Internet bookstore, selling books, videos, and music recordings directly to end-user consumers. In the business-to-business category, firms deal with other firms, coordinating their business programs. EDI (Electronic Data Interchange) is one of the electronic services that people argue will be replaced by business-to-business e-commerce.

In an international conference on e-commerce, hosted by Telkom in October 1998, one participant put forward an interesting argument. She said that companies in Indonesia are currently more concerned with survival than thoughts of e-commerce.

Shinta Witoyo, cofounder of PT Bubu Kreasi Perdana, an innovative Internet content provider, said that "educating" her customers (meaning firms) is one of the biggest problems in marketing her company services.

"Most companies here simply do not find any compelling reasons to embrace e-commerce. They ask 'What's so great about e- commerce? Can e-commerce save our company?'," she said.

Until there is proof that companies here can run better businesses using the Net, there is little chance that they will make the plunge into e-commerce. This is a classic catch-22 situation. If no companies here get involved in e-Commerce, how will we get the proof?

As a matter of fact, there are many benefits of e-commerce. From a customer's point of view, e-commerce offers more choices and more control. This control comes from the easy availability of information. There are various network-based intermediaries on the Net that can help consumers find what they want. Examples of these intermediaries are: commercial directories (e.g. The All- Internet Shopping Directory), search services (e.g. Lycos), online shopping centers (e.g. The Asian American Mall), and information suppliers (e.g. Andersen Consulting's BargainFinder). Better information will allow customers to get better quality and better prices.

Using online shopping is also more convenient for customers, as travel time and geography are not constraints. Customers can browse and buy products anytime, anywhere.

From the company's point of view, e-commerce will facilitate a better relationship with customers by providing a means for two- way communication. They can see immediately the customers' preferences, and can tailor products to suit their needs. A better relationship will lead to better customer loyalty. E- commerce can also function as a more efficient sales and distribution channel, as firms can provide more product information to a greater number of potential customers at a lower cost.

The savings come in two ways. First, with e-commerce, more of the responsibility for sales is transferred to customers, who must fill out order forms themselves. Customers find product information, select the product they want fill in this information in the order. This makes the online merchant less dependent and can reduce sales people to a minimum. Second, through electronic commerce, firms are able to save on customer support expenses.

In 1997, Cisco Systems, the largest supplier of routers for Internet traffic, moved 70 percent of its customer support online, including everything from manuals to software. This has eliminated an estimated quarter million phone calls a month, saving over US$500 million.

Bigger savings for firms exist in business-to-business e- commerce. With the proper process and technology, firms can increase forecast accuracy, decrease planning cycles and lead times while at the same time better manage relationships with their suppliers and retailers. Real-time sales information can be gathered at the end of supply chain, enabling firms to compare their information and modify their forecasts to be more accurate. More accurate and timely forecasts enables manufacturers to make products only when they are needed, and allows retailers to cut down on back-up stocks because they know that the products will arrive in time. Stock shortages are also reduced considerably.

Another benefit of business-to-business e-commerce is that the vendor can manage an inventory in which the supplier controls the flow of goods, relieving the downstream manufacturer from having to check for raw material requirements and make panicked phone calls to place orders.

The Internet can act as a low-cost communication backbone for suppliers to know their customers' inventory levels and analyze usage patterns, and customers can also be aware of their order status.

Shell Chemical Co., based in Houston, Texas, markets itself as a "utility" company that supplies chemical products to customers without interruption, and issues invoices once a month. Its customers can use a web browser to reach Shell's SIMON (Supplier Inventory Management Order Network), and enter their daily inventory levels. SIMON receive the data, forwards it to the SAP R/2 system, which calculates the dates when customers need their next shipment. After approval from an account manager, information is returned to SIMON, which is programmed to notify the customer, by e-mail, as to when the products will be delivered.

To a large extent, Internet has come to symbolize this powerful yet uncertain world. Internet is not just a news service or a new communications network, but it is a technology that shapes a new kind of global economy -- the closest thing yet to a unified "borderless" world market.

Electronic trade, which can remove distances and frontiers, also provides an escape route from marginalization.

The International Telecommunications Union has a special development initiative called "The ITU Electronic Commerce for Developing Countries (EC-DC) Project". This project, launched at the ITU World Telecommunication Development Conference 1998 in Valletta, Malta, aims at empowering developing countries as global players to market their products and services in the global marketplace and receive a fair return on their investment.

Looking at the benefit and the increasing role of e-commerce in the new global economy, we definitely have to continue with its development.

Developing e-commerce needs the cooperation of various parties, including the government as the policy maker and possibly an early trader. Universities and non profit organizations can educate, conduct research, and provide important investment in human resources. And finally it is the private firms who will be the main participants, and reap the most rewards, in the global electronic marketplace.

The writer is analyst, Process Competency Group, Andersen Consulting, Jakarta.