Commerce in Arab Countries - Research Paper Example

E-Commerce in Arab Countries: What are the Benefits? Table of Contents Introduction 3 E-Commerce 4 Business to Business E-Commerce 5 Business to Consumer E-Commerce 6 E-Commerce in Arab Countries 7 Benefits of E-Commerce in Arab Countries 10 Conclusion 14 References 16 Bibliography 17 Introduction Global business scenario has gone through a significant change and one of the main drivers of such change is internet and other web-based technologies. Traditional market place has changed into a web-based global market place where people from any corner of the world can purchase or sell goods and services. Over the past decade importance of internet based commerce has increased significantly as number of internet users has increased sharply. E-commerce has increasingly become an important component of most of the companies’ overall business strategy. Organisations, irrespective of their size and business model are found to be using the online platform to sell their products and services. Relationships among individuals and organisations have been revolutionized by the massive application of information technology. Such massive use of information and communication technologies has resulted to simpler processes, enhanced productivity, increased customer participation, and reduced costs. As a result large numbers of organisations have shifted from the traditional business platform to the online platform of running business. All these factors have greatly influenced the economies of almost all the developed and developing countries over the past few years. The effects are more prominent in case of developing countries like Arab countries. Generally the list of Arab countries includes Algeria, Djibouti, Bahrain, Iraq, Egypt, Lebanon, Kuwait, Jordon, Mauritania, Libyan Arab Jamahiriya, Palestinian Autonomous Territories, Oman, Qatar, Morocco, Saudi Arabia, Syrian Arab Republic, Sudan, United Arab Emirates, Yemen and Tunisia. Economies of all these countries especially Saudi Arabia, United Arab Emirates, Egypt, Oman, Sudan and Kuwait are found to be growing fast. As a result use of internet and other related technologies in these countries has increased over the past year and most importantly this use is expected to increase at a faster rate than it was ever before. This paper focuses on e-commerce activities in Arab countries. The paper also contains the benefits of e-commerce having on the economies of Arab countries. The report includes a brief overview of the main concepts of e-commerce. E-Commerce Commercial activities, as we all know, comprise those that are required to carry out trade between different parties. Generally the exchange of products and/or services is settled as per conditions that are mutually acceptable by the parties and hence the objective of any commercial transaction is to ensure that all the parties that are involved in it are benefitted. However, a major precondition of any commercial activity is that the parties should have faith in each other. Owing to changing trends in the global business environment, present-day organisations virtually operate in markets that do not have distinct boundaries. Increasing complexities have necessitated the firms to abide by equally complex rules, regulations and procedures. Simultaneously, speed of business activities has increased manifold to meet the challenges of stiff competition as well as fast-changing consumer-requirements. Electronic commerce (e-commerce) epitomises the developments that the global business realm has experienced in the age of technological advancements. It may be defined as “a modern business methodology that addresses the needs of organisations, merchants, and consumers to cut costs while improving the quality of goods and services and increasing the speed of service delivery by using Internet” (Goel, 2007). E-commerce differs from traditional commerce as “it enables the trading of goods, money and information electronically from computer to computer” (Goel, 2007). The main advantages of this genre of business are that the commercial activities, on account of being performed electronically, preclude the necessity of physical currency as well as goods, and the transactions take place in the virtual space defined by the World Wide Web. The impacts of e-commerce can be experienced more in the form of a global revolution and as a response to this phenomenon different Internet sites have taken the initiative to create services that cater to multiple e-commerce needs. The inherent characteristics of e-commerce enable SMEs (Small and Medium Sized Enterprises) to save huge amounts that would otherwise be required to meet setup costs in terms of warehousing, sales promotion, sales personnel and a host of other overheads. As e-commerce is centred on “buying and selling of goods and services across the Internet” (Goel, 2003), it reduces the hassles of the firms as well as their consumers. E-commerce also helps entrepreneurs set their businesses on the World Wide Web. This in turn enables prospective customers to access the websites as well as the virtual catalogues of products and/or services. As placement of orders as well as billing can be done online, the firms have to only focus on timely delivery of the items. In general, there are four categories of e-commerce, viz. “Business to Business (B2B), Business to Consumer (B2C), Government to Business, and Government to Citizen” (Goel, 2003). Business to Business E-Commerce Figure 1: B2B E-Commerce Model (Source: Sun & Finnie, 2004) The B2B model of e-commerce can take multiple forms and many of these are in practice since quite a long time. A popular form of B2B model is the EDI (Electronic Data Interchange) which was created in order to automate as well as speed the sharing of information among firms that regularly do business together, and it facilitates the exchange of business information through private networks. The nomenclature of this model being self-explanatory, it implies that “B2B e-commerce is all about two businesses conducting transactions on the web” (Sun & Finnie, 2004). It also involves the industrial markets “which are defined as individuals or groups that purchase a specific type of product for resale, for use in making other products, or for use in daily operations” (Sun & Finnie, 2004). From the growing popularity of this platform, it has been anticipated that it will shape the course of global business in the near future. It has been observed that “B2B e-commerce is used by businesses perhaps most commonly to improve communication within the organisation and to cut the cost and increase the efficiency of business processes” (Sun & Finnie, 2004). B2B e-commerce is a buyer-centred platform which rests on the fundamental ides that sellers definitely come if there are buyers in the market. Business to Consumer E-Commerce Figure 2: B2C E-Commerce Model (Source: Sun & Finnie, 2004) The B2C platform represents a major type of e-commerce that is perceived to be the most comprehensively developed form of the online trade platform. Its applications comprise direct interfaces between businesses and their consumers (Sun & Finnie, 2004). Important examples of this model include retail websites that feature the products and/or services that the consumers can directly access and purchase. As can be deciphered from the figure appended above, the B2C model precludes the requirements of sales personnel and the physical existence of showrooms as well as catalogues. Owing to these facilities organisations save considerable funds which they can subsequently channelize into other business activities. Quite clearly, the B2C platform along with the B2B model of e-commerce has sufficient potentiality to ease the course of business activities and enhance their efficiency. E-Commerce in Arab Countries Figure 3: Role of the Internet in Global Economy (Source: Azzam, 2002) In the backdrop of modern business environment, globalisation plays the most prominent role and the most powerful tool that has been adding fillip to the globalisation drive is the Internet that has successfully erased all possible boundaries and created a virtual realm within which organisations conduct their business activities. The various segments that are extensively served by the Internet are software, hardware chips, media portals and platforms, WAP (Wireless Application Protocol), interactive platforms, and the new marketplace that is characterised by specific platforms such as B2B, B2C, C2C, etc. (Azzam, 2002). The main driving force behind the popularisation of e-commerce is the development of ICT (Information and Communications Technology). It has been observed that the development of this sector as well as “promotion of its involvement in economic and social development play a key role in supporting regional integration in the ESCWA (Economic and Social Commission for Western Asia) region and in building an Arab information society” (United Nations Economic and Social Commission for Western Asia, 2008). As the Arab nations are catching up fast with the technological interventions that aim at enhancing the efficiency of global business activities, it has also been observed that Bahrain, Lebanon, Kuwait, the United Arab Emirates (UAE) and Qatar have collectively surpassed the world average in terms of Internet usage. This is a positive indicator of the future prospects that e-commerce may enjoy in the Arab nations. Most of the Arab nations have been taking serious initiatives to develop specialised institutions in order to reap “direct benefits in terms of human and economic development, especially in e-business and e-commerce” (United Nations Economic and Social Commission for Western Asia, 2008). Literature review has revealed that these nations have taken necessary steps towards creating an enabling environment wherein the ICT sector may be favourably promoted. It has been seen that these nations are also taking steps to liberalise this sector and put an end to monopolies. This will attract Arab as well as foreign capital which in turn will integrate telecommunications networks both at regional as well as international levels. Some of these nations have “taken vigorous action to meet the challenges presented by globalisation” (United Nations Economic and Social Commission for Western Asia, 2008), and have focussed on further developing the ICT sector. These nations have also been accelerating economic as well as social development, particularly by exchanging knowledge and experience with other nations as well as international organisations that are exponents of ICT. In the Syrian Arab Republic (SAR), the government has set up an e-governance portal in order to provide electronic services to the citizens. These initiatives definitely tantamount to major steps in creating awareness of information technology and the multitude of benefits that are offered by it. These in turn create an environment that will sustain e-commerce and will enhance the scope of business in the Arab nations. Analysis of the Arab nations has shown that the consumers in that zone have “healthy appetites for the services available on the Internet, and most governments have accepted the fact that the new economy is here to stay” (Azzam, 2002). Figure 4: Internet Usage in the Arab Nations (Source: Azzam, 2002) From the figure appended above (Figure 4), it can be observed that e-commerce in Arab countries is still in its nascent stage and occupies just six per cent of the total Internet usage pie. However, it may be safely anticipated that the determined steps taken by the governments will be greatly helpful in adding to this nondescript wedge. Other significant initiatives should be taken by service-providers and vendors who should “move fast to set up online operations to complement their conventional businesses, or face the consequences of a diminishing client-base” (Azzam, 2002). Coming to the UAE, it is seen that the government as well as the private enterprises have focussed significantly on the “promotion of modern technology in administration and business development” (Al-Abed, Vine & Hellyer, 2004). It has been anticipated that e-commerce will continue to flourish in the UAE if the incentives as well as infrastructure is maintained efficiently. ICT sector as well as e-commerce in the UAE is developed to the extent that ancillary industries are also using these platforms to develop their businesses. It has been observed that the property business which is booming in the UAE is benefitting from online marketing as well as payment solutions and the developers and brokers associated with this sector are depending largely on the Internet in order to publicize latest information pertaining to projects and properties. Another Arab nation – Kuwait – is also capitalising heavily on e-commerce and its “online community is reaching a critical mass for a wide range of mobile software applications, online content and e-services” (Oxford Business Group, n.d.). E-commerce solutions on account of being innovative are becoming incrementally popular and are being extended into sectors such as entertainment, banking, food and beverages, airlines and supermarkets. This is enhancing the popularity of this beneficial platform across different industries and helping in escalating multi-sector transactions at a faster pace. While focussing on the categories of e-commerce, it has been found that the demand for B2B services has experienced some degree of slump. However, “business-to-consumer services are benefitting from enhanced connectivity” (Oxford Business Group, n.d.). Benefits of E-Commerce in Arab Countries Principle benefits of e-commerce are that it helps to reduce the cost and increase the productivity. Each of these benefits is discussed below. Cost Reduction: E-commerce is found to be having the high potential of lowering the costs that are associated with the execution of a sale, procurements of production inputs, production and delivery of products and services and finally management of logistics. In e-commerce, all the traditional physical establishments, required for keeping products and services are replaced by virtual storefronts. One e-commerce website is enough to replace all the physical stores. Moreover this site can be accessed by anybody who has a computer and internet connection. It simply does not matter whether the person is visiting the site from Asia or Europe or America. As a result in e-commerce costs are involved with creating and maintaining the website and this cost is much lower than the costs of building and maintaining physical stores. Costs that are associated with the processing of payments over internet are found to be significantly lower than the costs regarding the traditional payment process. It is found that the marginal cost of processing a paper check in a bank is around $1.20. Furthermore $0.50 is paid by the merchants for the purchasing of debit card and credit card. It has been projected that the cost will be around $0.01 if all these processing is done online. Increased Productivity: It is found that information technology has made significant contribution to the productivity growth in US over the last few years. Now, internet is a major component of information technology. As a result it can be concluded that this productivity growth was greatly influenced by massive use of internet. Since e-commerce simplifies the processes, increase the speed of the processes and enhance the availability, productivity increases significantly. Evidence shows that service sector has seen the maximum increase in productivity due to extensive use of internet and other web based technologies (Nabi, Luthria, 2002). Improved Availability of Service: E-commerce platform enables the customers to purchase products and services from any part of the world. The only thing they need is a computer with internet connection. It is found that a significant portion of population the developed and developing countries are using e-commerce platform for purchasing goods and services. Saudi Arabia is one of fastest developing countries in the Arab region. In 2008 a survey report was published by Arab Advisor Group. According to this report almost 3.5 million consumers use e-commerce platform. The survey also reveals that 48.36% of all the internet users in the country purchase products and services through e-commerce platform. According to Jawad Abbassi, the president of Arab Advisors Group “Saudi Arabia’s large population, its booming economy and increasing internet access and usage all provide an ideal environment for a thriving e-commerce scene.” Considering such situation in Arab countries it can be expected that the benefits of e-commerce will be more prominent in the countries like Saudi Arabia (Oxford Business Group, 2008). Improved Timeliness of Service: Since e-commerce is an online platform, customers can enjoy 24 hour service in a day. The system of e-commerce is more flexible than the traditional system of commerce. Increased Accessibility of Customer Markets: Organisations that are having e-commerce platform can easily reach to its target market. E-commerce enables the organisation to reach its target market irrespective of its location. A company located in USA, can easily contact its customer who might be seating in China. Any new market that has opened up in any country can be targeted from any other country through the e-commerce platform. Use of e-commerce platform is found to be heavily increasing in Arab countries. Growing economy of these countries is one of the most important drivers behind such increase in e-commerce concept. Infrastructures regarding the internet and other related web technologies are continuously improving in these countries, especially in Saudi Arabia, United Arab Emirates and Egypt. People in these countries are also found to be becoming more and more internet dependent. Large number of people purchases goods and services online. The popularity of the concept of e-commerce, as a result, is increasing significantly. Quite obviously economies of Arab countries are getting greatly influenced by the e-commerce. It is found that both business to business and business to consumer e-commerce will be growing at fast rate in Saudi Arabia. According to Anthony Shoult growth rate of business to consumer e-commerce is close to 40%, whereas the growth rate of business to business e-commerce is around 75% (Shoult, 2006). People in another Arab country, United Arab Emirates are found to be heavily using e-commerce platform. According to Arab Advisor Group, almost 1 million people in the country use internet for e-commerce. Almost 1 billion dollar is spent per annum in the purchasing and selling of goods and services online. According to various surveys e-commerce is growing at a rate of 25% in UAE (Oxford Business Group, 2008). E-commerce is also growing fast in other Arab countries like Oman, Sudan, Syria and Egypt. All these above mentioned figure regarding the use of e-commerce in Arab countries show the importance of e-commerce in the economies of these countries. One of the most important benefits that e-commerce have on the economies of Arab countries is that the volume of economic activity is growing at a fast rate. As a result the total gross domestic product of these countries is also increasing significantly. In other words growth rate of economy is increasing. Increase in e-commerce activities has resulted to the increase in total productivity especially in the service sector which plays an important role in the economy of all the developing countries. Increased productivity is likely to increase the total output from this sector and increased output will certainly result to increased GDP. Increase in use of e-commerce activities will help the countries to stay ahead in the global competition in the long run. In the present global economic situation sign of a developing economy is the increasing use of internet and e-commerce platform. Furthermore e-commerce platform enable people of one country to communicate with people from another country. As a result people with different culture and different language are able come together. As a result people throughout the world will be enriched. E-commerce has greatly influenced the volume of trade across different countries. Processing time that involve with the purchasing and selling of goods and services requires much lesser time in e-commerce as compared to processing time that requires in the traditional system of purchasing and selling. As a result, with the increase in use of e-commerce total volume of trade at a given period of time also increase. If such increase in trade continues to take place over the entire financial year, economy of any country will be automatically boosted. This situation is found to be happening in case of Arab region countries. So, it can be said that e-commerce is playing a crucial role in the economic development of almost all the Arab region countries. Conclusion Internet has played a significant role in changing the global business scenario. It is expected that this role will be more prominent in coming future. E-commerce is referred to the commerce or trades that take place through internet. The volume of commerce that takes place through e-commerce platform is found to be increasing continuously. In most of developed as well as developing countries role of e-commerce is becoming more and more important. Economies of most of the Arab countries are developing in nature. Internet dependency of people in these countries is found to be increasing day by day. As a result amount of money spent in e-commerce activities in these countries is also increasing significantly. There are several benefits of e-commerce because of which such huge acceptance of e-commerce concept is observed. E-commerce is found to be extremely effective to reduce cost and enhance productivity. Moreover, through e-commerce platform, customers can access the e-commerce platform from anywhere in the world and companies also reach their target market from any corner of the world. References 1. Al-Abed, I., Vine, P. & Hellyer, P. 2004. United Arab Emirates Yearbook 2005. Trident Press Ltd. 2. Andam, R. Z. May 2003, e-ASEAN Task Force. 3. Azzam, T. H. 2002. The Arab World Facing the Challenge of the New Millennium. I. B. Tauris. 4. Goel, R. 2003. Computer Applications in Management. New Age International. 5. Goel, R. 2007. E-Commerce. New Age International. 6. Nabi, I. & Luthria, M. 2002, Building Competitive Firms: Incentives and Capabilities. World Bank Publications. 7. Oxford Business Group. No Date. The Report: Kuwait 2010. Oxford Business Group. 8. Oxford Business Group. 2008. 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