Online Business and E-Commerce Services in Libya as a developing country - Literature review Example

?Online Business and E-Commerce Services in Libya as a developing country. Chapter 2. Literature Review. 2 Theory and definition of terms. Events in Libya are changing things very quickly and there is every sign that a more open society will provide conditions more favourable to all kinds of business activity, including e-commerce. The importance of E-Commerce in the globalised business context cannot be overestimated: “the emergence of e-commerce is the most important development since the industrial revolution.” (Purohit and Purohit, 2005, p. 3) This is not something which is happening in isolation: “E-Commerce forms part of a broader process of social change, characterised by the globalisation of markets, the shift towards an economy based on knowledge and information, and the growing dominance of technology in everyday life.” (Hamed et al, 2008, p. 88) Before E-Commerce can be adopted on a wide scale, however, there are many obstacles to be overcome. This chapter reviews the literature in terms of issues to be considered when planning the expansion of online business and e-commerce services in a developing country. The introductory section looks at definitions of e-commerce and theories as they apply to developing countries. Section 2.2. is wide-ranging and covers a selection of the large number of empirical studies conducted in different developing countries across the world. After this (Section 2.3) there is a consideration of previous work done on the readiness of society to accept and use e-commerce within developing countries with Arabic language and culture. Finally the literature on e-commerce potential in Libya is reviewed, including any specific challenges facing this particular context. The term “e-commerce” emerged in the late twentieth century with the increasing use of computers in everyday life. It can be defined very simply as “goods and services transacted over Internet” (Purohit and Purohit, 2005, p. 8) A more expansive definition is the following: “the sharing of business information, maintaining business relationships and conducting business transactions through telecommunications networks” (Zwass, 1996 and 2003, p. 8) This definition emphasises the importance of all the links in the chain from supplier to business and to customer. Zwass is keen to point out that it is not simply a matter of customers and businesses being linked through the World Wide Web by means of computers, but in fact it is a phenomenon that requires radically different organisational developments behind the scenes, involving both telecommunications and computers: “The most important of these are interorganizational information systems, standards for exchanging business documents, such as electronic data interchange (EDI), distributed database management systems, and collaboration technology.” (Zwass, 2003, p. 9) All of these dimensions are widely available in the developed world, and research in improving them, increasing innovation and leveraging more efficiency and profits from their use is continuing at a fast pace. Current interest in newer technologies such as digital signatures is growing but their usefulness in developing countries is questionable, since most transactions there depend on longstanding company to company relationships and there is a reluctance to enter into B2b relationships with people who are not familiar. (Humphrey et al, 2003, p. i) The phenomenal success of huge global retailers such as eBay and Amazon have demonstrated the value in creating flexible market places, with standard pricing, auctions and customer participation in both buying and selling as part of the whole business culture. One meta-analysis of articles on the adoption of online shopping cited the dot com bubble and the sudden crisis that occurred there as a reason why the early promise of huge growth in online business did not quite occur in the way that was originally predicted. (Chang et al., 2004) but all the signs are that these teething problems have been dealt with, and E-Commerce is set to grow steadily from now on. This success is not mirrored to the same extent in developing countries, and this is due to a number of key factors. These are explored in the next section which deals with empirical studies. 2.2 Empirical Studies on Online business and E-Commerce in Developing countries. “While many developing countries have abundant cheap labour, there still remains the issue of developing IT literacy and education to ensure the quality and size of the IT workforce.” (Lawrence and Tar, 2010, p. 24) These authors sees the main barriers to the adoption and diffusion of e-commerce as infrastrucure (technology costs, and problems of access to it); socio-cultural barriers (transactional trust, language/content, lack of face to face contact) and socio-economic barriers (economic conditions, education, payment system and logistics) (Lawrence and Tar, 2010, p. 25) Of these barriers the trust barrier is one of the most difficult to overcome: “In the developing world, trust is established and reinforced through family association, repeated personal contact and interaction.” (Lawrence and Tar, 2010, p. 29) In the developed world there are reliable forces of law which can help build trust and obtain refunds if transactions go wrong, but in developing countries these assurances are very often not possible. In China there has been a particularly large problem with trust because of very high levels of internet fraud. This has been due to asymmetric information, in terms both of consumer ignorance about how to use the online facilities, and also problems with the quality of goods and services advertised online: “as at June 30, 2007, the total number of Internet users in China has reached 162 million, second only to the United States with 211 million Internet users, ranking second in the world. But in terms of online shopping only 25.5 percent of Chinese netizens do online shopping... only 3.9% Chinese netizens make online travel booking while more than 60 percent of the American internet users have made full use of the online travel booking network.” (Ruan and Tian, 2008, p. 776) An interesting finding of this study was that the higher education users had, the less trust they had in using the internet for commercial transactions. A major reason for this is the extent of ID forgery and fake products and so systems for personal credit use need to be improved in China, along with better protection against ID fraud. Company membership of the TRUSTe organization is cited as a useful aid to improving these issues. Other studies have found that culture and trust are related, and that culturally specific reason for resistance to internet purchasing among Chinese customers include negative perception about incurring debts, and also the ancient practice of guanxi which is a network of personal contacts, which depends traditionally on frequent face to face meetings. (Efendioglu et al., 2005, p. 4) The study concludes: “even though a developing country government may make the necessary investments in infrastructure (as China has done to a significant degree), unless the e-commerce industry participants understand and address the cultural issues that are unique to that country and relate to off-site transactional process, the large scale diffusion and success of such endeavors will be greatly impeded.” (Efendioglu et al., 2005, p. 7) The development of Korean internet infrastructure has followed the government-led examples of Singapore and the United States, with a plan to set up a nation-wide information superhighway by the year 2015. (Lee and Ahn, 2001, p. 1) The focus has been on the technology side: “... consumers may face problems regarding privacy, security, authentication, non-repudiation and so on. Unlike the United States, Information industries in Korea have focused their efforts on systems development, while paying little attention to related commercial problems.” (Lee and Ahn, 2001, p. 16) The authors conclude that this is because of the relative immaturity of the Korean market, and that these missing features will develop in time, especially when the demographics change to provide a wider pool of educated and users who are competent to use computers. Interestingly in this study, there was a recognition of possible methodological problems, since the authors surveyed a small circle of mainly male and academic users in Korea, while obtaining a much more balanced sample in the United States comparison. A study based on the UK found also that there was a difference in the way that male and female respondents to a survey regarded the issue of trust: men were more likely to trust a large company, while size of company was not particularly relevant for women. (Khazaei, 2006, p. 102) If this is true in the UK, where male and female roles are more standardised, then it is likely to be even more true in a developing country like Libya where there is greater differentiation between men and women. This is an important area to keep in mind when designing research involving developing countries, and when reading the literature on these countries, since demographic and practical limitations can cause significant bias in the results. Dey et al. (2009) conducted a survey in Bangladesh on the reasons for lack of trust in e-commerce and found that besides the usual infrastructure and knowledge problems, there was also evidence that online vendors were not delivering the quality of goods that customers expect. Trust is a dynamic program, and this kind of experience is disappointing because it discourages the very customers who are willing to try the new electronic ways of purchasing. Purohit and Purohit (2005) examined the experience of India which instituted a three stage government sponsored communications and technology investment programme, starting in the 1980s. More recently WTO sponsored E-Commerce programmes are building further on that base. India’s telecom network is the 6th largest in the world but with a low telephone penetration rate of only 8.20 per hundred of population, there is still huge potential for growth. (Purohit and Purohit, 2005, p. 22) B2B commerce is growing very fast, but the digital divide between economically developed parts of the country and the vast areas of less developed low income inhibits take up of internet activities in the general population. This study suggested a number of “policy imperatives” to underpin the expansion of E-Commerce in India, including: reducing the cost of access and bridging the digital divide reduction in cellular tariff affordable internet subscriber tariff subsidizing rural tariff implementation of national internet backbone strengthening regulations for E-Commerce tightening information security convergence of all communications urgency of last mile connectivity. This analysis suggests that public and private organisations need to work together to make sure that all of the pieces of the puzzle fit together, if India is to realise its potential in the field of E-Commerce. Looking at the introduction of E-Commerce to South Africa, Molla and Licker use the concept of eReadiness, which is a way of measuring how well positioned an individual company is to take advantages of the potential of this way of doing business. They point out that in any one developing country there are some organisations which do manage to venture into E-Commerce, and many which do not. This suggests that managers have a crucial role in determining how far along this path a company can go, and warns against the simplistic assumption that a lack of general infrastructure prevents such innovation. They conclude that “organizational factors especially the human, business and technological resources, and awareness are more influential than environmental factors in the initial adoption of eCommerce (Molla and Licker, 2005, p. 887) Once businesses have made the step into doing business using eCommerce, the environmental factors such as government policies do have an impact, but the important point is that decisions within the company to invest in the technology and raise awareness are the most critical factor in a start-up situation. The barriers, it seems, are more in the minds of managers who are unwilling to try this new venture, than in the actual constraints on the ground. The situation in the African continent is improving, but there are still concerns that it is lagging behind other areas of the world: “The digital divide is largest in Africa, with only 1.4% of the population having access to the internet, as compared to 50% in most developed countries.” (Toland, 2006, p. 309). Critics note that progress also very slow in Africa, with a real danger that this whole continent will be left behind: “Africa’s minimal goal of readiness for extracting meaningful benefits from virtual commercial transactions has proven elusive.” (Almeida et al., 2007, p. 10) The figures for access to the internet in the Middle East are also low, at about 6.7% (Toland, 2006, p. 309) and so we turn now to issues affecting particularly those developing countries which have Arabic language and culture. 2.3 E-Commerce in countries which have Arabic language and culture. One issue which affects the Middle Eastern and North African (MENA) countries is a preference for cash transactions and a relatively low rate of credit card use, even in relatively wealthy regions and sectors of the population. This is not a problem in standard shop based businesses but it becomes an issue for online activities. A more serious issue for MENA countries is the lack of standardisation in banking procedures, and a lack of trustworthy oversight: “The legal and regulatory framework for payment and securities settlement systems in the Arab region is one of the weakest in the world.” (Cirasino and Nicoli, 2010, p. 6) In areas of the world where there are large populations of Muslims, there are cultural issues such as the likelihood of negative reactions to any attempt to sell pornographic magazines or alcohol using E-Commerce. (Hamed et al, 2008, p. 91) International companies who wish to be successful in these countries need to tailor their advertising and their product range to take account of these Muslim values and avoid alienating customers from their company, and from engaging with E-Commerce generally through such bad experiences. Aleid et al (2010) consider that language and religion have recently been barriers to the expansion of e-commerce in Saudi Arabia but they maintain that new developments such as increasing availability of websites in Arabic, and the development of the Islamic credit card which avoids dealing with riba (interest) and complies with Sharia (Islamic law) have now removed these barriers. Remaining issues in Saudi Arabia are worries about privacy, since data is often leaked because of contacts in different companies, worries that credit cards can encourage the building up of large debts, lack of trust in the abilities of authorities to track down internet crime, low incomes which prevent customers from buying products online, and lack of insurance in case of losses. (Aleid et al., 2010, p. 375) Beyond these customer related issues there are also deficits in terms of legislation to protect companies and customers, and there is a general lack of awareness about e-commerce in the population at large. The Saudi government is just beginning to venture into e-government and this may be a positive step in creating awareness and trust. The study’s main conclusion was that “Applying pay offline technology ... may help consumers to adopt e-commerce in developing countries.” (Aleid et al, 2010, p. 377) There is a tendency in many Arabic states to limit the ability of individuals to deal with foreign currency, and this can inhibit E-Commerce development. A good strategy is adopted in Morocco, for example where companies who export are allowed to have preferential access to international exchange. (Mann, 2000, p. 8). An extensive study by Khushman on website acceptance concluded that Arab tourists were far less trusting than UK tourists and that they preferred word of mouth recommendation to surfing for information. This has to do with the collective rather than individualistic nature of Arabic cultures. This led to the interesting suggestion that in the Arab context “an effective method for encouraging e-business website acceptance would be through organisations and the workplace.” (Khushman, 2009, p. 181) Another study with application to Jordan concluded that small businesses had little in the way of concrete benefits from any websites that they had set up but nevertheless “they held a great belief about its potential to their businesses in the future.” (Al-Qirim, 2010, p. 4) It seems then, that the moment has come to transform that hope into something more realistic and effective in terms of concrete business outcomes. 2.4 Potential and Challenges in the Particular Context of Libya. It is reasonable to assume that most of the factors mentioned above in relation to E-Commerce in developing countries are likely to be relevant to the situation in Libya. There are, however, some issues which are particular to this country, or especially acute because of recent historical events. One factor is the unusually long and forceful reign of the head of state and the impact which this has had on business development over the past fifty years: “... in Libya, Internet providers banks and postal services are run by the government which will limit the effect of companies in the market.” (Hamed et al, 2008, p. 94) This is a problem in itself, and there are further difficulties with the nature of the services that the government provides: “...the government has to think carefully about the way to develop postal services, especially for countries such as Libya where there is no Post Code or delivery address.” (Hamed et al., 2008, p. 90) The government controls an unusually large range of services in Libya, and also sustains a rather conservative organisational culture, resistant to organisation change, and subject to political influence rather than market forces: “The most common form of organisations in Libya is the classic bureaucratic structure. This structure is inflexible, impersonal and high standardised. Furthermore it is characterised by ... many hierachichal levels, there is a long distance between the top manager and the bottom manager.” Bezweek and Egbu, 2010, p. 4) In many ways Libyan systems run counter to the efficiencies and flatter structures that IT based businesses prefer and so although it is desirable, it will not be easy to change the deep-seated custom and practices of Libyan public bodies. Recent reports welcomed partnerships with Nokia and Alcatal from Finland and France respectively, to expand the communications network, but the infrastructure development is hindered by a lack of adequately trained local workforce and the absence of a growth-oriented private sector to capitalise on these improvements. (North Africa Times Report, 2007). Internet provision is inadequate to meet basic needs, even though internet cafes in the larger cities are popular and demand is high. Until now there has been relatively little research on the Libyan E-Commerce, with the notable exception of Hamed’s (2009) work on the “three-quarter moon” concept which proposes a circle of adoption in Libya involving four main actors: the government, technologically advanced countries, companies and e-commerce users. It will be interesting to see how much of this work continues to be valid in the aftermath of current historic events in Libya. References Al-Qirim. 2010. Toward Electronic Commerce Ecosystems in Developing Countries: Determinants and Implications for Small Businesses in Jordan. IEEE. Aleid, F.A., Rogerson, S. and Fairweather, B. 2010. A Consumers’ perspective on E-commerce: practical solutions to encourage consumers’ adoption of e-commerce in developing countries – A Saudi Arabian empirical study. Advanced Management Science IEEE International Conference Paper 2, pp. 373-377. Almeida, G.A.A. de, Avila, A. and Boncanoska, V. 2007. Promoting E-Commerce in Developing Countries. Internet Governance and Policy Discussion Papers. Bezweek, S. and Egbu, C. 2010. Impact of Information Technology in Facilitating Communication and Collaboration in Libyan Public Sector Organisations. CIB World Congress 2010. Chang, M.K., Cheung, W. and Lai, V.S. 2004. Literature derived reference models for the adoption of online shopping. Information and Management 42 (2005), pp. 543-559. Cirasino, M. and Nicoli, M. 2010. Payment and Securities Settlement Systems in the Middle East and North Africa. The World Bank. Dey, S.K., Nabi, M.N. and Anwer, M. 2009. Challenges in Building Trust in B2C E-Commerce and Proposal to Mitigate Them: Developing Countries Perspective. Proceedings of the 12th International Conference on Computer and Information Technology (ICCIT), pp. 581-586. Efendioglu, A.M., Yip, V.F. and Murray, W.L. 2005. E-Commerce in developing countries: issues and influences. Proceedings of the IBEC, pp. 1- 8. Available online at: http://userwww.sfsu.edu/~ibec/papers/25.pdf Hamed, A. 2009. E-commerce and Economic Development in Libya. PhD. Dissertation, University of Wales Institute, Cardiff. Hamed, A., Ball, D., Berger, H. and Cleary, P. 2008. The three-quarter moon: A new model for E-Commerce adoption. Communications of the IBIMA 4, pp. 88-96. Humphrey, J., Mansell, R., Pare, D. and Schmitz, H. 2003. The Reality of E-Commerce with Developing Countries. London: London School of Economics. Khazaei, A. 2006. The impact of initial trust on consumer behaviour in E-Commerce (B2C). MSc. Dissertation, University of Sheffield, 2006. Khushman, S. 2010. The Relationship between Culture and E-Business Website Acceptance (A comparative Study of Arab and UK cultures). PhD. Dissertation, Coventry University. Khushman, S., Todman, A. and Amin, S. 2009. The Relationship Between Culture and E-Business Acceptance in Arab Countries. IEEE. Lawrence, J.E. and Tar, U.A. 2010. Barriers to ecommerce in developing countries. Information, Society and Justice 3 (1), pp. 23-35. Lee, D. and Ahn, J. 2001. Consumer Adoption and Satisfaction with e-Commerce – A Cross-Country Study. Korean Information Systems Research 11 (2), pp. 1-22. Mann, C.L. 2000. Electronic Commerce in Developing Countries: Issues for Domestic Policy and WTO Negotiations, in R. Stern, (Ed.) Services in the International Economy: Measurement, Modeling, Sectoral and Country Studies, and Issues in the World Services Negotiations, and available online at: http://www.iie.com/publications/wp/00-3.pdf Molla, A. and Licker, P.S. 2005. eCommerce adoption in developing countries: a model and instrument. Information and Management 42, pp. 877-899. North Africa Times Speicial Report: Information and Communication Technology in Libya. North Africa Times, Sunday 9-15, 12, 2007. Purohit, M.C. and Purohit, V.K. 2005. E-Commerce and Economic Development. New Delhi: Foundation for Public Economics and Policy Research. Ruan, L. and Tian, D. 2008. A Research of Trust Based on E-Commerce. International Symposium on Electronic Commerce and Security. (ISECS), pp. 776-779. Toland, J. 2006. E-Commerce in Developing Countries, in M. Khosrow-Pour (Ed.), Encyclopedia of E-Commerce, E-Government and Mobile Commerce. Idea Reference Group, pp. 308-313. World Bank. 2008. Payment Systems Worldwide: A Snapshot. Zwass, V. 1996. Electronic Commerce: Structures and Issues. International Journal of Electronic Commerce 1 (1), pp. 3-43. Zwass, V. 2003. Electronic Commerce and Organizational Innovation: Aspects and Opportunities. International Journal of Electronic Commerce 7 (3), pp. 7-37. Read More