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Kathmandu Sunday July 23, 2000 Sharawan 08, 2057.
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Nepal's
electronic commerce, ISPs and policy makers
By Nir Kshetri
While electronic commerce is rising
exponentially in theindustrialised countries, its development is very slow in most of the
developing countries. Business-to-consumer electronic commerce or on-line retailing in
Europe and North America in 1999 grew by 200% and 145% respectively. Business to business
electronic commerce is rising more rapidly and estimates suggest that by 2004, 24% in
America, 11% in Europe, 9% in Asia-Pacific and 7% in Latin America business-to-business
commerce will take place on-line. Enterprises are saving a large proportion of their
transaction cost by replacing their off-line commerce by on-line ones and consumers are
enjoying the benefit of convenience, among other things. Internet is described as world
altering event and distribution by Internet as "21st century distribution
revolution". Although some of the developing countries like Malaysia, Chile and
Venezuela are doing exceptionally well, many of the other developing countries are lagging
far behind. Electronic commerce for the enterprises in developing countries, in the
language of World Trade Organisation (WTO) is "fresh opportunities to participate in
global markets" as well as "new dangers of marginalisation". Studies have
found that many organisations from developed countries will only accept new supplier if
they can demonstrate an electronic data interchange (EDI) or Internet capability. There
are many cases of companies "particularly traditional, small, older firms, who have
gone out of business because of inability, or unwillingness to comply or disbelief in the
need to comply."
Electronic commerce is virtually
non-existent in least developed countries like Nepal. One indicator of the penetration of
electronic commerce in a country is the number of Internet hosts. In countries like USA,
the number of Internet hosts per 10000 people is 1131, whereas the figure is 0.17 for
low-income countries and 0.23 if China and India are excluded from low-income countries.
Nepal's number of Internet hosts of 0.07 per 10000 people is much below the average of
low-income countries.
If one argues that electronic
commerce has much to do with technology and technologically poor countries like Nepal
cannot participate in it, it is baseless argument. According to United Nations Conference
on Trade and Development (UNCTAD), the greater challenge for countries like Nepal is of a
'psychological and conceptual nature rather than 'economic or political nature'.
Why is the development of
electronic commerce is still non-existent in Nepal? Of course economic backwardness
matters. But more important obstacles is 'cowboyish' mentality of policy makers and
defective business plan of enterprises and Internet service providers.
While Internet service providers
have started offering unlimited free Internet service in developed countries, Internet
service providers in Nepal started forming cartel. The recently fixed the "minimum
monthly charge for unlimited use of Internet" at Rs 1600, according to a recent news
in The Kathmandu Post. Given per capita monthly national income of Nepal as Rs. 1225, an
average Nepali has to spend 131% of his/her total income (not disposable income) to access
Internet.
As reported by The Kathmandu
Post, Internet Service Providers Association of Nepal (ISPAN) calculated "the real
amount they spend on an Internet user" as Rs 1450 a month. Also according to the
report, the violator "will be fined Rs 50000." It is absolutely not
understandable to me how they can reach into such a figure. Under what assumptions was the
calculation made? Won't the figure decrease with the increase in the number of users? If
the Internet service providers look for profit from the first day of the operation of
their business, the business plan is totally defective. If I am an Internet service
provider and my strategy is based on attracting more consumers by offering the service at
lower price, is there anything wrong in my strategy? Is it unhealthy competition? Also, I
don't know the legal implication of imposing a fine of Rs. 50000 to the
"violator".
According to Metcalfe's law, the
utility value of a network is the square of the number of users in the network. As the
number of user increases, the utility of increases and the cost automatically decreases. A
sound business plan of an Internet service provider should take into account this law.
Better strategy will be to provide Internet service at lower cost to attract large number
of users. Forming cartel and artificially increasing the price is totally irresponsible
way of conducting business and is likely to lead to their own marginalisation and
marginalisation of other enterprises (which are their customers) in this age of
globalisation and intense competition.
Finally, the development of
electronic commerce, to a large extent, depends upon the friendliness of the policies.
Regulation has been a key issue in many of the countries for the proper development of
electronic commerce. Recognition of electronic signature and electronic contract is a must
for transactions to take place in electronic market. Also issues related to intellectual
property rights, consumer protection, security and confidentiality need to be addressed
soon. Studies suggest that electronic commerce cannot develop in a country, which has a
state monopoly in the telecommunications sector, and the market is not open for investment
in telecommunication and Internet service providers.
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