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The Reality of E-commerce
with Developing Countries
Prepared by
John Humphrey (IDS)
Robin Mansell (LSE)
Daniel Paré (LSE)
Hubert Schmitz (IDS)
March 2003
The research for this project was conducted jointly
with researchers based in Bangladesh, Kenya and
South Africa. Members of the project team at the
London School of Economics and Political Science (LSE)
and the Institute of Development Studies (IDS), at
Sussex are especially grateful for contributions by Zaid
Bahkt, Bangladesh Institute for Development Studies,
Dhaka; Mary Njeri Kinyanjui, Dorothy McCormick,
and John Njoka, Institute of Development Studies,
University of Nairobi, Kenya; Mike Morris, Sagren
Moodley, and Myrian Velia, School of Development
Studies, University of Natal, South Africa; and Norma
Tregurtha and Nick Vink, Department of Agricultural
Economics, University of Stellenbosch, South Africa.
Working papers prepared in connection with this
project by various members of the research team are
available at: www.gapresearch.org/production/
ecommerce.html
The project team members are very grateful to the
respondents from Bangladesh, Kenya and South
Africa, and to the interviewees in the United Kingdom
and elsewhere in Europe who contributed their time
to this study. Our interviewees and respondents were
from private firms, the public sector and various other
stakeholder organisations and they gave us many
valuable insights. We also acknowledge the assistance
of staff at the International Trade Centre, UNCTAD/
WTO, who have provided opportunities for the
dissemination of the research results.
This project was funded by the UK Department for
International Development (DFID) whose support
and encouragement is gratefully acknowledged.
The project formed part of a DFID-funded programme
of research on Globalisation and Poverty (see
www.gapresearch.org for details). Members of
the project team benefited substantially from the
administrative and editorial support provided by the
Globalisation and Poverty Programme at IDS and by
Kathy Moir at LSE.
The views contained in this report are those of the
authors. We accept full responsibility for any errors
or omissions.
John Humphrey is a Professorial Fellow of the Institute of Development Studies at Sussex. He has researched
extensively on global value chains in the automotive and horticulture sector. He is convenor of an international
network of value chain researchers and director of a DFID-funded programme of research on globalisation
and poverty.
Robin Mansell holds the Dixons Chair in New Media and the Internet at the London School of Economics
and Political Science. Her research examines the integration of new technologies into society, the interaction
between engineering design and the structure of markets, and sources of regulatory and policy effectiveness
and failure.
Daniel Paré is a Research Fellow in the Interdisciplinary Programme in Media and Communications at the
London School of Economics and Political Science. His research focuses on Internet governance, e-commerce
developments and issues of scientific and technological innovation.
Hubert Schmitz is a Professorial Fellow of the Institute of Development Studies at Sussex. He is co-ordinator
of a research programme on interactions between local and global governance and the implications for industrial
upgrading, undertaken jointly by IDS and the Institute for Development and Peace at the University of Duisburg.
Acknowledgements
About the Authors
THE REALITY OF E-COMMERCE WITH DEVELOPING COUNTRIES
i
1. Business-to-business (B2B) e-commerce is widely
believed to promise a radical change in the way that
firms trade with one another. B2B e-commerce
applications are being promoted as tools that will
enable producer firms in developing countries
to reduce their costs substantially, thereby easing
their access to global markets. The vision of B2B
e-commerce is driven by a simple idea. The Internet
provides an open global network and access to this
network is relatively cheap. Internet-based B2B
e-commerce should help producers in developing
countries obtain better information on global markets
and give them direct access to new customers.
2. The key question is: does the implementation of
Internet-based B2B e-commerce actually lead to new
trading opportunities for producer firms in developing
countries? Some of the hype has gone out of the
Internet debate, but policy makers and development
assistance organisations continue to have a very
optimistic view about the potential of the Internet
and information and communication technologies
(ICTs), more generally. They are concentrating on
removing the obstacles that hold back the use of ICTs
by developing country firms. Helping these firms to
bridge the ‘digital divide’ and take advantage of
‘digital opportunities’ is a very high priority.
3. This project examines the expectations and
assumptions behind this drive to invest in ICTs and B2B
e-commerce, in particular. We arrive at an alternative
set of conclusions about the appropriate priorities for
policy and action. These come from investigating what
actually happens on the Internet and from talking
to producers and other stakeholders in developing
countries who are involved in international trade and
in some types of B2B e-commerce.
4. Our overall finding is that the main effect of B2B
e-commerce is to enhance the relationships between
existing trading partners. Its use does little to help
forge ongoing relationships with new firms. There is
a clear message for policy makers and practitioners
– understanding how international trade is organised
and how inter-firm relationships are developed is
essential if the use of some types of B2B e-commerce
is to assist producer firms in gaining more equitable
access to international markets.
5. In spite of the optimism about the potential
benefits of B2B e-commerce for developing country
firms, there is remarkably little evidence about the
way that it is actually used by producers in developing
countries. This project aimed to fill this gap by
addressing three research questions.
• Is B2B e-commerce opening new and cheaper
access to global markets for developing country
producer firms or, conversely, is it strengthening
existing relationships between producers and global
buyers and reinforcing existing power relations?
• Are developing country producers being
marginalised by the spread of B2B e-commerce
trading relationships that depend on sophisticated
information and communication technologies and on
efficient logistics systems, electronic payment systems
and new certification procedures?
• How can government or technical assistance
agencies help producers in developing countries
to participate in B2B e-commerce on an
equitable basis?
6. The project focused on B2B e-commerce
applications that can be accessed using the Internet.
Two industrial sectors – garments and horticulture
– were selected. Both are important for employment
and export-led growth in developing countries and
both produce a mix of ‘difficult to standardise’ and
more easily standardised products, which rely on
a range of services to ensure quality, timeliness of
delivery and payment.
7. We examined Internet-based ‘e-marketplace’ sites
that claimed to be supporting exporting firms in the
two sectors. More than 180 of these ‘many-to-many’
e-marketplaces were examined to identify how they
were supporting firms seeking to trade in
international markets. We also interviewed 74
managers of exporting firms in the garments and
horticulture sectors in Bangladesh, Kenya and South
Africa about their experiences with B2B e-commerce.
A further 37 key informants were interviewed in
these countries and several e-marketplace providers
in Europe were consulted.
8. The results of our empirical research depart
substantially from the predominant vision of B2B
e-commerce. Our results show that even when some
of the expectations about the benefits of better access
to information and reduced communication costs are
met, business with new firms is rarely generated by
using Internet-based B2B e-commerce in the form of
‘many-to-many’ e-marketplaces. We found that very
little business with new firms was being generated by
using Internet-based B2B e-commerce.
Executive Summary
THE REALITY OF E-COMMERCE WITH DEVELOPING COUNTRIES
ii
9. The vast majority of the Web-based e-marketplaces
had no applications or services in place to support the
completion of transactions on-line. Only a tiny
percentage of these sites were providing facilities for
payment on-line. The vetting of users was infrequent
and buyers and sellers had to rely on information
provided at the discretion of their trading partners.
The e-marketplace providers were not accepting
liability and were doing very little to build trust
between potential trading parties.
10. Registration with such e-marketplaces was
extensive, but the results were disappointing for most
of the firms. Almost one quarter of the firms had
registered with Bulletin Boards and seven had bought
or sold a product. This does not indicate widespread
access to Internet-based trading for developing
country producers. Some of these firms were traders
who were making contacts on-line to supplement
traditional ways of finding customers. The contacts
were then followed up ‘off-line’ using face-to-face
meetings, telephone calls and faxes. Overall, sale
volumes were low, and a number of firms expressed
disappointment at the high level of transaction costs
involved in following up contacts made through
Bulletin Boards.
11. The low level of on-line transacting is not
surprising. In the garments and horticulture sectors,
business relationships are forged through personal
and inter-firm networks. They depend upon non-
contractible commitments involving complex
information that cannot be provided easily by using
relatively unrestricted access to e-marketplace
systems. These exporting firms are integrated within
global value chains. Some of them had been invited
by their buyers to participate in private, exclusive on-
line auctions. This was not resulting in new business
partners; it was a means of promoting competition
between existing producer firms.
12. In our study, the primary B2B e-commerce
application was e-mail. E-mail was being used to
maintain contacts along the value chain. Its use
was extensive, if not universal, in the two sectors to
co-ordinate production schedules, provide complex
information on shipping (for example, the layout of
pallets in air-freighters), and to send digital images to
verify the quality of products. The primary perceived
benefit of e-mail by producer firms in developing
countries was to reduce communication costs.
13. Our results show that B2B e-commerce
applications are used primarily to exchange
information and to enhance global supply chain
integration. The use of the Internet to forge new
trade relationships is more likely for trade in
occasional products. For core products, developing
country exporters operate in global value chains that
encourage repeat transactions and require high levels
of co-ordination. Supply chain integration using
the Internet is likely to expand as information is
integrated through the use of multiple Internet-based
information channels. However, access to new
applications running on the Internet is likely to be by
invitation from the e-marketplace operator or buyers.
14. The use of the Web was being limited by
inadequate and costly domestic telecommunication
infrastructures and slow connection speeds. The use
of Web-based applications might increase as ICT costs
decline, but the costs of dealing with new suppliers
and customers will continue to be high. Most of the
B2B e-commerce activities of developing country
exporters are not dependent on very sophisticated
ICT requirements. However, cost-effective and reliable
access to telecommunication and Internet services
is required.
15. The emphasis of B2B e-commerce policy on
developing legal frameworks for on-line trading
(for example, digital signatures and electronic trust
services) is questionable. However, high priority does
need to be given to strengthening logistics and
transport infrastructures to support time-sensitive,
increasingly tightly integrated, global supply chains.
Capacity building for B2B e-commerce is also
important, but it needs to focus on the characteristics
of specific sectors, countries and firms.
16. For Internet-based B2B e-commerce to become
more widespread in a way that benefits producer
firms in developing countries, much greater attention
will need to be given to how firms relate to each
other within global value chains and to the specific
types of transactions they are involved in. Even
though B2B e-commerce is not very effective for
finding new trading partners, the ability to access
and use Internet-based trading systems is critical for
producer firms that need to be effective partners in
their existing global value chains.
17. ‘Top-down’ government policies promoting
‘e-readiness’ will be unsuccessful unless much greater
effort is given to examining how Internet applications
are actually being used and to the circumstances
around the implementation of new technologies.
Policy makers, firms and development assistance
agencies should support ‘bottom-up’ approaches that
are based on realistic assessments of B2B e-commerce
opportunities and obstacles, and region- and value
chain-specific solutions.
Contents
Executive Summary i
Contents iii
Tables iv
Figures iv
Boxes iv
Acronyms v
1 Introduction 1
2 B2B E-commerce: Issues for Developing Countries 3
2.1 B2B e-commerce: expectations and assumptions 3
2.2 The limited evidence base for B2B e-commerce optimism 6
3 The Research Strategy 7
3.1 Diversity in B2B e-commerce 7
3.2 Distinguishing between types of B2B e-commerce 7
3.3 Mapping the attributes of B2B e-marketplaces 8
3.4 Developing country producer firms and key informants 9
4 The Reality of E-Marketplaces 11
4.1 E-marketplaces: transaction- or information-oriented? 11
4.2 Support services in e-marketplaces 12
4.3 Trust services in e-marketplaces 13
4.4 The operation of open e-marketplaces 14
5 The Experience of Firms in Developing Countries 17
5.1 Firm use of open e-marketplaces 17
5.2 Using the Web for information purposes 19
5.3 Supply chain integration: e-mail. 20
5.4 Extent of technological advance 21
5.5 The use of private, exclusive e-marketplaces 22
5.6 B2B e-commerce or ‘business as usual’? 23
6 Business Relationships and B2B E-commerce 25
6.1 B2B e-commerce and arm’s-length transactions 25
6.2 Inter-firm networks and supply chain integration 26
6.3 Learning, intermediaries and global networking 29
7 Conclusions and Policy Implications 31
7.1 B2B e-commerce: new opportunities or marginalisation 31
7.2 Implications for policy makers and practitioners 32
7.3 Commerce first, technology second 35
7.4 Next steps: what can be done? 35
Appendix 1: Research Methodology 38
Appendix 2: Characteristics of the Garments Sector Firms 41
Appendix 3: Characteristics of the Horticulture Sector Firms 43
References 45
iii
THE REALITY OF E-COMMERCE WITH DEVELOPING COUNTRIES
THE REALITY OF E-COMMERCE WITH DEVELOPING COUNTRIES
iv
Tables
Table 3.1: Number of interviews by country 9
Table 4.1: Types of B2B e-marketplaces 12
Table 4.2: Availability of on-line information about trading partners 13
Table 4.3: Availability of product information 14
Table 5.1: Registration with open e-marketplaces 17
Table 5.2: Registration at open e-marketplaces by size of firm 18
Table 5.3: Firms using the Internet to buy or sell products internationally 18
Table 5.4: Frequency of firm Web sites 20
Table 5.5: Use of e-mail to place or accept product orders 22
Table 7.1: Obstacles to B2B e-commerce and assessment 34
Figures
Figure 4.1: Payment arrangements for 184 e-marketplaces 12
Boxes
Box 2.1: Policy implications of the optimistic B2B e-commerce model 5
Box 4.1: Types of applications in B2B e-marketplaces 11
Box 4.2: Assurances to buyers and sellers from an e-marketplace provider 15
Box 5.1: Perceptions of open e-marketplaces 17
Box 5.2: Using e-marketplaces to find buyers for fruits and vegetables 19
Box 5.3: The on-line showroom 20
Box 5.4: Use of the Web for information purposes 21
Box 5.5: Random identification via a Web site 21
Box 5.6: E-mail in the South African horticulture sector 22
Box 5.7: E-mail in the Kenyan horticulture sector 23
Box 6.1: Global sourcing networks 28
THE REALITY OF E-COMMERCE WITH DEVELOPING COUNTRIES
v
Acronyms
AGOA Africa Growth and Opportunity Act
AISI Africa Information Society Initiative
B2B Business-to-Business
B2C Business-to-Consumer
DFID Department for International Development, UK
E-commerce Electronic Commerce
ICT Information and Communication Technology
ISO International Organisation for Standardisation
IDC Leading provider of data on providers and users of information technology
ITC International Trade Centre, UNCTAD/WTO
MRO Maintenance, Repair and Operations
PC Personal Computer
SA Social Accountability standard of Social Accountability International
SGS Société Générale de Surveillance
SME Small and Medium-sized Enterprise
UN United Nations
UNCTAD United Nations Conference on Trade and Development
UNIDO United Nations Industrial Development Organisation
USAID United States Agency for International Development
WTO World Trade Organisation
1
THE REALITY OF E-COMMERCE WITH DEVELOPING COUNTRIES
This report is about the potential offered by Internet-
based business-to-business (B2B) e-commerce for
improving access to global markets for firms in
developing countries. It addresses three questions:
• Is B2B e-commerce opening new and cheaper
access to global markets for developing country
producer firms or, conversely, is it strengthening
existing buyer – producer relationships and
reinforcing existing power relations?
• Are developing country producers being
marginalised by the spread of B2B e-commerce
trading relationships that depend on sophisticated
information and communication technologies
(ICTs) and on efficient logistics systems, electronic
payment systems and new certification procedures?
• How can governments or technical assistance
agencies help producers in developing countries
to participate in B2B e-commerce developments
on an equitable basis?
These questions have been answered by a research
project which focused on how Internet-based
electronic marketplaces were actually working in
2001-2002 and how firms in developing countries
were using Internet applications to support and
enhance their business operations. This study does
not examine any aspects of business-to-consumer
(B2C) e-commerce.
The conclusions of this research call into question
many of the more optimistic views about the spread
of B2B e-commerce and its potential for integrating
developing country firms into the global economy.
In this respect, the findings reinforce some of the
more pessimistic assessments of the potential of B2B
e-commerce in both industrialised and developing
countries following the collapse of the dot.com boom.
However, the research also shows that firms are using
a variety of Internet applications in their businesses.
Even if there has been no massive shift to on-line
trading, the Internet is increasingly important for
firms doing business internationally. Recognition of
the excesses of the e-commerce bubble should not
blind policy makers to the increasing use of the
Internet in the management of inter-firm relationships
in the global economy.
At the end of the 1990s, many analysts and policy
makers believed that B2B e-commerce would lead
to a radical change in the way that enterprises trade
with one another. The extent of this change, it was
claimed, would pose stark choices for developing
country firms. If they did not change their way of
doing business and move into the digital age, they
could be marginalised from global markets. As
UNCTAD put it, ‘enterprises in developing countries
that are or plan to be involved in international trade
need to start incorporating ICT and the Internet into
their business models in order to stay competitive’
(UNCTAD 2001: 18). e-competitiveness would
become a condition for survival.
The optimistic view was fuelled by the expectation of
specific advantages that B2B e-commerce might bring
to firms in developing countries. Use of the Internet
was expected to reduce the effect of geographical
distance, providing better information on final markets
and lowering the costs of registering a presence in
global markets. Some observers even went so far as
to suggest that producer firms in developing countries
could ‘leap-frog’ earlier generations of ICTs and use
them to build stronger buyer-seller relationships. This
was expected to lead to substantial benefits in the
form of improved access to international markets and
strengthened competitiveness. The ability of Internet-
based B2B e-commerce systems to facilitate business
linkages across the world seemed to open up new
possibilities even for small and isolated rural enterprises
and communities.
The high levels of optimism about the potential benefits
of B2B e-commerce were not accompanied by any
substantial evidence on whether and how firms were
using it. The focus on the ‘electronic’ in e-commerce
– telecommunication infrastructure, Internet penetration
and new types of intermediaries – was not
accompanied by an equivalent focus on the realities
of conducting business. The trading practices of
producer firms in developing countries and their use
of B2B e-commerce have been largely undocumented.
This report addresses this gap. It focuses specifically
on the use of Internet-based B2B e-commerce by
developing country exporters. Electronic trading using
closed, dedicated systems has been developing for
several decades. The Internet, however, offers the
potential for establishing low-cost, open, ‘many-to-
many’ trading systems. By the end of the 1990s,
international agencies were encouraging the
governments of developing countries to formulate ICT
Strategies in which Internet-based B2B e-commerce
would have a central role. The private sector was
investing heavily in infrastructure and electronic services
to cash in on the expected B2B e-commerce bonanza.
This study provides empirical evidence about how
Internet-based B2B e-commerce operates in practice.
It examines how B2B e-commerce enables, or fails to
enable, firms in developing countries to do business.
It provides a detailed examination of B2B e-commerce
activities in two sectors – garments and horticulture.
Both are important for employment and export-led
growth in developing countries.
1. Introduction
2
THE REALITY OF E-COMMERCE WITH DEVELOPING COUNTRIES
This study focuses on Internet-based ‘e-marketplaces’
and on the ways in which firms may use the
opportunities opened up by the Internet to do
business. Many analyses of B2B e-commerce mainly
examine technology impacts. In contrast, we examine
the features and services that were being provided
at B2B e-marketplaces on the World Wide Web in
2001-2002. We assess how these trading forums
were operating and how firms in developing countries
might be able to conduct business using them.
The examination of e-marketplaces is supported by
research in three developing countries – Bangladesh,
Kenya and South Africa. Garments and horticulture
firm managers were interviewed about their use of
B2B e-marketplaces and about their use of the
Internet in their businesses. How were they making
use of the Internet to buy or sell products? How were
the new opportunities for communication being used
to change the way they were doing business with
buyers and suppliers in their global supply chains? In
spite of the limited empirical reach of this study, the
results throw considerable light on the prospects for
B2B e-commerce in developing countries.
Our results confirm the crucial importance of empirical
investigations of how B2B e-commerce is actually being
developed and used. As of 2002, very little B2B
e-commerce using ‘many-to-many’ e-marketplaces was
found in our sample of firms. This finding is consistent
with OECD country experience which indicates that
‘... the leading reason cited by businesses for not
conducting transactions electronically was a view that
electronic commerce was not suited to the nature of
their business’ (OECD 2002: 70).
However, this negative picture is not the only one.
Some forms of B2B e-commerce are opening up
opportunities for some types of firms. The Internet
is having an impact on the ways that firms do
business – particularly on the way firms handle
relationships with their existing trading partners.
The main effect of the use of the Internet is to make
communication with existing trading partners cheaper
and quicker. It was not being widely used to forge
relationships with new trading partners.
These conclusions have substantial implications for
policy makers who are seeking to maximise the
benefits of B2B e-commerce for firms in developing
countries. The emphasis of most ‘e-readiness’
strategies is on sophisticated technology, legal
infrastructures, and awareness and training. Most of
these strategies presume that B2B e-commerce occurs
in ‘many-to-many’ e-marketplaces and that exporting
firms are constantly searching for new international
trading partners.
Our results show that firms in developing countries
are using some types of B2B e-commerce
applications, but their primary uses are to strengthen
existing business relationships and to deepen
integration between suppliers and buyers. This has
very important implications for the policy framework
needed to realise some of the expected benefits
of B2B e-commerce for developing country firms.
In section 2, we set out why the vision of B2B
e-commerce is creating issues for producer firms in
developing countries and highlight the weakness of
the evidence based in this area. The research strategy
for the project is set out in section 3. Sections 4
and 5 provide the empirical evidence, first, on the
characteristics of B2B e-marketplaces and, second,
on the views of respondents from the firms and key
informants about the impact of these e-marketplaces
and B2B e-commerce. In section 6, our analysis of this
evidence emphasises the main features of the nature
of B2B e-commerce and the business relationships
of firms that are operating within global value chains.
Section 7 provides the answers to our three main
research questions and emphasises the urgency of
changing policy priorities for B2B e-commerce. The
objective must be to support producer firms in
developing countries to achieve more equitable
access to global markets.
3
THE REALITY OF E-COMMERCE WITH DEVELOPING COUNTRIES
Optimism about the potential of B2B e-commerce
depends upon the idea that the major obstacle to
increased sales is the cost of making products known
to potential buyers in industrialised countries. What
is particularly relevant for developing countries is the
fact that the transfer of information over the Internet
operates largely irrespective of physical location and
that the basic hardware and software are widely
available and relatively cheap. According to this view,
therefore, Internet-based B2B e-commerce should offer
particular advantages for firms in developing countries.
Before the dot.com shake out in 2000, this vision
of the benefits of this new form of transacting was
accompanied by the expectation that firms in
developing countries would achieve widespread
access to ICTs. Growing use of digital technologies
as a result of actions to tackle the ‘digital divide’ was
expected to enable much greater access to global
markets for smaller and larger firms in developing
countries. The spread of the Internet and growing
use of the World Wide Web were expected to
generate new economic activity through the use
of open networks and e-marketplaces.
This section makes explicit some of the expectations
and assumptions surrounding the optimistic views
of the potential of B2B e-commerce for firms in
developing countries. It considers the policy
implications that arise from these expectations and
assumptions. It also examines the strength of the
evidence supporting projections of rapid growth
in B2B e-commerce transactions.
2.1 B2B e-commerce: expectations
and assumptions
The idea that B2B e-commerce would radically
transform the way firms do business can be summed
up in four propositions about how this form of
e-commerce is expected to work. These are taken from
the publications of just two UN organisations concerned
with trade and development, UNCTAD and ITC.
However, they broadly reflect the general state of the
expectations for B2B e-commerce in 2000 and 2001.
Proposition 1: e-commerce works through
‘many-to-many’ e-marketplaces
B2B e-commerce marketplaces are on-line spaces
where many buyers and sellers can come together
in one trading community and obtain sufficient
information to make decisions about whether to
buy or sell. UNCTAD’s 2001 E-commerce and
Development Report suggested that ‘many-to-many’
e-marketplaces would become the dominant
component of e-commerce activity and argued that:
‘E-markets involve a large number of buyers and
sellers that engage in many-to-many transactions
and relationships. They create a trading community
in which buyers’ orders are matched with sellers’
offers and the trading partners benefit from other
forms of collaboration’ (UNCTAD 2001: 65).
Proposition 2: ‘Many-to-many’ e-markets will be
supported by complementary business functions
If buyers and sellers are to make decisions to transact
on-line, then sufficient information must be provided
on-line for the transaction to be completed and the
systems must be in place to arrange binding contracts
and payment:
‘B2B e-marketplaces and the implementation of
their business models rely to a very large extent on
technology infrastructure. The market maker must
possess or have access to a technology that is capable
of handling the full range of commercial processes
from ordering to order fulfilment and settlement. The
technology must support transactions involving large
numbers of users over the Internet and be capable of
handling complex business practices, user relationships
and integration with third-party commercial
applications’ (UNCTAD 2001: 74).
Further, effective on-line business also needs the
complementary services required to complete
transactions. The types of services that may be
offered by the marketplaces include:
‘[The] ability to process payments, credit financing,
credit validation, tax laws, trade restrictions,
integrated business management accounting, on-line
exchange of information and transaction-supporting
documents, such as invoices and shipping documents;
import/export compliance; providing on-line linkage
to transportation and logistics and other third-party
services linked to purchases, support for multi-
currency and multi-language transactions; tariffs and
tax data collection and management; automated
landed cost calculations, customs compliance and
documentation’ (UNCTAD 2001: 73).
2. B2B E-commerce: Issues for Developing Countries
4
THE REALITY OF E-COMMERCE WITH DEVELOPING COUNTRIES
Proposition 3: B2B e-commerce offers greater
returns to firms in developing countries than
other trading channels
B2B e-commerce offers two important advantages for
developing country firms. First, e-commerce related
transaction costs are less sensitive to distance than
traditional marketing channels, so access to global
markets is made easier. Second, by simplifying and
making market channels more efficient, B2B
e-commerce should enable developing country firms
to retain a larger share of the final consumer price
of products. The process is not necessarily one of
disintermediation, but rather one of more efficient,
Internet-based intermediation:
‘Traditional marketing and export channels [for
primary products] tend to be inefficient and
dominated by multiple intermediaries … Developing
countries, using existing local commodity exchanges
and commodity export associations as a foundation,
can use B2B on-line trading as a means of
transforming existing commodity marketing systems
to great advantage’ (UNCTAD 2001: XXII).
Proposition 4: B2B e-commerce particularly helps
smaller firms to enter global markets
Reductions in the costs of accessing global markets
are particularly important for SMEs:
‘E-trade opens new commercial opportunities to the
export-oriented enterprise. In particular, it empowers
the small and medium-sized enterprise (SME), allowing
it to participate in international markets where
previously market entry and promotion costs were
prohibitive. It enables the firm to source production
inputs more expeditiously, to streamline (ie. eliminate
intermediaries) its own supply- and export-distribution
chains and to reduce business transaction costs’
(International Trade Centre 2000: 8).
‘E-commerce gives small and medium-sized
enterprises (SMEs) the ability to access international
markets that used to be difficult to enter due to high
transaction costs and other market access barriers’
(UNCTAD 2002: 4).
Not all analysts and policy makers held the
expectations reflected in these propositions. Indeed,
even in the publications from which these
propositions are taken there are more nuanced views
on the different forms that B2B e-commerce might
take and the obstacles that might limit its growth.1
Nevertheless, these nuances were largely submerged
in the wave of optimism about the impact of B2B
e-commerce. Both analytical and business forces
drove this optimism.
Analytically, the surge of enthusiasm for B2B
e-commerce reflected a tendency to focus inordinately
on the impact of technology. Alternatively, the focus
was on the ways that the uses of technology might
impact on transaction costs and the role of
intermediaries within industry value chains.
The complexity of industrial sectors was treated as
an issue subsidiary to the technical solutions and to
the measurement of transaction costs.
Transaction cost analysis suggests that if ICT use
provides a basis for reducing transaction costs, then
firms will benefit from reduced barriers to
international trade (Wigand 1997). Many of these
transaction costs are associated with the need to
co-ordinate relationships between distant buyers and
sellers – searching for products, services, sellers, and
buyers; negotiating and fulfilling contracts; ensuring
that contract terms are met; and adapting contracts
to changes in circumstances (Milgrom and Roberts
1992). The use of ICTs is also expected to alleviate
information asymmetries between buyers and sellers
by making it easier to monitor the performance of
firms in the value chain.
Towards the end of the 1990s, there were high
expectations that B2B e-commerce would encourage
substantial changes in the way firms buy and sell
products and that this would be associated with
major reductions in the costs of transacting on the
international market. It was suggested that:2
• buyers and sellers could eliminate the ‘middlemen’
or intermediaries, establish one-to-one on-line
trading and rationalise marketing channels;
• electronic trading would create opportunities for
developing country producer firms to enter new
markets and to strengthen their position in
international trade.
E-marketplaces hosted on World Wide Web were
expected to offer advantages to these firms as a
result of:
• the rapid, low cost, distance-insensitive transfer
of information, reducing the costs of trading across
geographical boundaries;
• the spread of open types of Internet-based
e-marketplaces; and
• the availability of digital technologies and
software applications.
1. See, for example, Mansell (2001) for a review of the many factors that influence B2B e-commerce developments.
2. See, for example, Benjamin and Wigand (1995), Xie (2000), and Goldstein and O’Connor (2000).
5
THE REALITY OF E-COMMERCE WITH DEVELOPING COUNTRIES
The force of this analytical vision was reinforced by
business trends. At the end of the 1990s, investments
in the Internet and its underlying infrastructure were
increasing rapidly and considerable investments
were also being made in e-marketplaces as a form
of B2B e-commerce. In a scramble for critical mass,
first-movers were soon followed by imitators. The
competing firms invested heavily in pursuit of the
goal of being the leading global or regional provider
of e-marketplaces in particular lines of business.
As part of the process of attracting a client base,
these firms had a vested interest in exaggerating
the potential size of the market, playing down the
obstacles to trading on-line and over-estimating
the growth of their businesses.
At many conferences about B2B e-commerce during
this period, multiple presentations by representatives
of firms building e-commerce businesses would each
claim that they were aiming to be the number one
portal or e-marketplace in a particular business area.
The firms building e-marketplaces themselves were
supported by firms developing support services and
by specialist financial investors seeking to build up
B2B e-commerce portfolios.
The hype around B2B e-commerce spread to
developing countries. The message was that
significant parts of global trade would switch to
e-commerce and those firms and countries that did
not jump on the bandwagon would be marginalised.
An article published in the journal of the Fresh
Produce Exporters Association of Kenya offers one
example of the message being given to the
businesses in Africa:
‘As the world switches over to e-commerce as the
modern way of transacting businesses [sic], Africa
has been urged to join the fray or risk losing out...
The solution for Africa to take part in the global
market lies in developing “E-markets”, electronic
meeting places for buyers and sellers with defined rules
for e-purchasing, e-bidding and e-selling... A wider
global reach opens new markets for African products
globally, while elimination of trading inefficiencies will
result in better prices... “For Africa to get a slice of this
business it will have to commence on-line trading
exchanges which create tremendous efficiencies such
as reducing processing costs by up to 90%, reducing
cycle time by up to 80% and improving staff
productivity between 20% and 300%”, the Managing
Director of Electrade said’ (Fresh Produce Exporters
Association of Kenya 2000: 14).
The expectations and assumptions about B2B
e-commerce seemed to lead to a clear set of policy
implications. If B2B e-commerce involves complex
on-line transactions requiring sophisticated forms of
transaction support, and if these capabilities become
a requirement for trading successfully in global
markets, then certain policy consequences must
follow. The consequences are shown in Box 2.1 and
they appeared to be relatively straightforward.3The
next section examines the very limited evidence base
upon which these assertions rested.
Box 2.1: Policy implications of the optimistic B2B e-commerce model
1. B2B e-commerce is essential for market access and export growth. Developing country governments
must give priority to ensuring that the conditions for the participation of their businesses are met.
2. B2B e-commerce transactions are complex and information-intensive. The ICT infrastructure must be
sophisticated enough to handle the data required. A quantum leap in telecommunications capabilities
may be required.
3. Governments should ensure that telecommunication services are modern and efficient in order to lower
the prices of network usage through effective competition and market liberalisation. Governments
should also reduce tariffs to support trade in ICT hardware and software.
4. A legal framework to support electronic transactions has to be in place in order for firms to buy and sell
on-line. This framework must include effective authentication and certification mechanisms (ie. digital
signatures, secure settlement procedures) and a means of protecting against on-line fraud as well as
achieving redress in cases where disputes arise.
5. Significant amounts of business will migrate to B2B e-marketplaces with complex requirements.
Governments should support investment in human resources.
6. Governments must ensure that national regimes for taxation, security and privacy protection are
compatible with international governance regimes.
3. Policy statements can be found in various places. In addition to the documents cited above, see, for example, UNIDO (2000)
and McConnell International (2000).
6
THE REALITY OF E-COMMERCE WITH DEVELOPING COUNTRIES
2.2 The limited evidence base for
B2B e-commerce optimism
The evidence base for the prevailing assessment of B2B
e-commerce and the consequent policy priorities was
limited. Three types of evidence were marshalled to
support the idea that on-line trading was developing
rapidly across a diverse range of business sectors:
1. Anecdotes about the development of B2B
e-marketplaces. These stories were subject to bias
because the providers of e-marketplaces had an
interest in talking up their successes as part of the
process of attracting new business. Furthermore,
the success of one type of e-marketplace would not
necessarily indicate that other types of business could
be successfully transacted on-line. At the most basic
level, data on the development of B2C e-commerce
(such as the sale of books, music and airline tickets)
were cited as an indication of the potential for
B2B e-commerce.4
2. Many discussions of the potential of B2B
e-commerce for developing countries quoted
predictions of its likely growth that were circulating
in various reports. Companies such as eMarketer,
Forrester Research, ActivMedia and IDC frequently
projected growth rates of B2B e-commerce of 100
per cent per annum.5Different bodies projected
different numbers, but they all projected rapid
growth and the increasing importance of B2B
e-commerce relative to B2C e-commerce.
3. In the absence of evidence about B2B e-commerce,
data on the spread of telecommunication services
and Internet hosts and users were used as proxies
for the growth of Internet-based B2B e-commerce.
Many reports also relied on indicators of B2C
growth or on the availability of Internet Web sites
offering products as an indicator of B2B growth
prospects (see, for example, UNIDO 2000: 34-35).
By 2002 the optimistic predictions for the growth
of B2B e-commerce were giving way to
acknowledgements that growth had been much
slower than anticipated. The new forms of trading
should be expected to have different impacts
depending on the business sector and the specific
form of B2B e-commerce that is introduced
(Standifird and Sandvig 2002; OECD 2002).
Independent empirical evidence for the OECD
countries was becoming available on the growth
of B2B e-commerce, but it was based on aggregate
indicators (OECD 2002).
In 2001 when this project started, development
programmes and technical assistance agencies were
strongly promoting the potential of B2B e-commerce
for producer firms in developing countries, but they
were doing so in the absence of systematic empirical
evidence. More recently, in-depth analysis of B2B
e-commerce use by firms in a number of sectors in
OECD countries has shown that B2B e-commerce use
is limited (OECD 2002). Quite apart from the lack of
reliable quantitative data, there is limited understanding
of the interaction between B2B e-commerce and the
buyer-supplier relationships that are forged between
firms in a given industrial sector value chain.
The development of various types of B2B e-commerce
is likely to differ depending on the existing structure
of an industrial sector and its value chain. Earlier
studies of the development of electronic trading
networks suggest that there is scope for the
elimination of some types of intermediaries, but that
there are often new roles for existing and new
intermediaries in the value chain. The costs of
transacting may increase or decrease depending on
how B2B e-commerce is introduced and whether
it is developed in open or restricted electronic
environments (Kraut et al. 1998; Hawkins et al. 1999;
Mansell et al. 1991; Mansell and Jenkins 1992).
Studies that provide empirical evidence on the
development of B2B e-commerce suggest that
a cautious approach to assessing its benefits and
opportunities for firms in developing countries is
important.6By providing information about how
B2B e-marketplaces actually operate and about how
firms are using Internet applications to support their
business activities, this report helps to fill a major gap
in the evidence base.
4. See, for example, Coppel (2000) and some of the papers in O’Connor and Goldstein (2002).
5. See, for example, UNCTAD (2000: 7), UNCTAD (2001: 71) and Coppel (2000: 7).
6. See, for example, Moodley, Morris and Velia (2002), Tregurtha and Vink (2002), Kinyanjui and McCormick (2002), Moodley, Morris
and Barnes (2001) and Maitland (2001) who have undertaken studies that reveal the relationships between B2B e-commerce and
commercial practice.
7
THE REALITY OF E-COMMERCE WITH DEVELOPING COUNTRIES
This study focuses on the commercial aspects of trade
between buyers and sellers in their value chains. It
examines the issues that developing country producer
firms, governments and technical assistance agencies
need to consider when promoting B2B e-commerce.
Our research strategy differs from that used in many
studies of B2B e-commerce which focus on
connectivity, network access and security, ICT skills,
and e-commerce legislation.7
The study was designed to investigate relationships
between enterprises and their actual and potential
customers and suppliers and the potential for changes
when the Internet is used to support B2B e-commerce.
The study draws on industrial sector expertise that has
been developed through ongoing research initiatives
in the United Kingdom and in Bangladesh, Kenya and
South Africa (see acknowledgements). This study
focuses mainly on the ‘commerce’ aspects of B2B
e-commerce rather than on the ‘e’ or technology
aspect. We focus particularly on the operation of
e-marketplaces and on the way firms are using the
Internet to support their business activities.
3.1 Diversity in B2B e-commerce
What is e-commerce? Much of the debate on
definitions is concerned with quantification – what
transactions to include or not to include. This gives
rise to broad and narrow definitions, distinguished
by whether they focus solely on Internet-generated
transactions, or include computer networks
more generally:
‘An electronic transaction is the sale or purchase
of goods or services, whether between businesses,
households, individuals, governments, and other
public or private organisations, conducted over
computer mediated networks. The goods and services
are ordered over those networks, but the payment
and the ultimate delivery of the goods or service may
be conducted on or off-line’ [broad definition].
‘An Internet transaction is the sale or purchase
of goods or services, whether between businesses,
households, individuals, governments, and other
public or private organisations, conducted over the
Internet. The goods and services are ordered over
those networks, but the payment and the ultimate
delivery of the good or service may be conducted on
or off-line’ [narrow definition] (OECD 2002: 89).
However, one OECD report on e-commerce offers a
broader approach, focusing on the use of the Internet
and related applications to support business. It
emphasises that e-commerce ‘is more than a
technology or application’ and that it has implications
for the entire value chain of business processes
(OECD 2000: 10). In this study we follow this broader
approach, focusing on the use of the Internet to
support inter-firm business dealings.
3.2 Distinguishing between types
of B2B e-commerce
One consequence of focusing on the business
dimensions of B2B e-commerce from the point of
view of the users rather than of the service providers
or policy makers, is that it is important to distinguish
between the different types of Internet applications
that are being used. The Internet is a set of protocols
that enables communication between computers and
a physical infrastructure linking computers across the
world.8E-commerce involves the use of applications
that run on the Internet and these applications
influence the commercial relationships between firms.
The different types of applications are often conflated
into the general category of B2B e-commerce. The
variety of ways that firms do business with each other
on-line tends to be grouped under the generic term
‘e-marketplace’, concealing the diversity of ways firms
relate to each other through Internet-based
applications. Most attention focuses on whether or
not transactions take place on the Internet or through
dedicated channels. The research strategy in this
study involved an effort to distinguish between the
different kinds of B2B e-commerce applications that
might be supported by e-marketplaces.
E-marketplaces based on the Web may include
on-line auctions, trade leads, requests-for-quotes
and on-line catalogues. Some Web sites offer multiple
e-marketplaces, each organised around a particular
trading system such as a request for quotes. The
companies that host one or more of these trading
systems at their Web sites have been called ‘e-hubs’,
‘portals’, or ‘market makers’ (Kaplan and Sawhney
1999). The term ‘e-marketplace’, applied
indiscriminately to all of these types of applications,
implies that they all support on-line buying and
selling. Frequently they do no such thing. The term
‘e-marketplace’ is misleading because:
3. The Research Strategy
7. These issues are the focus of most studies of developing country ‘e-readiness’, see Bhatnagar (1999), Braga (2000), Hossain (2000),
Mann (2000), McConnell International (2000; 2001), World Information Technology and Services Alliance (2000).
8. ‘The Internet, like many networks, has a layered architecture. That is to say, all the tasks necessary to communicating via network are
divided among several functional layers, and the programs residing on these layers co-operate in standardised ways. Applications and
their associated protocols occupy a layer above the basic Internet protocols that supervise basic data transmission’ (Wu 1999: 1164).
8
THE REALITY OF E-COMMERCE WITH DEVELOPING COUNTRIES
• it signifies transactions, obscuring the fact that
Internet-based applications may not support on-line
trading (in the sense of firms making decisions to
buy or sell on-line);
• even if decisions to buy and sell are taken on-line,
the ‘marketplace’ may not support the completion
of transactions on-line; and
• it suggests that business is conducted by agents
that encounter each other in ‘marketplaces’,
obscuring the importance of the complementary
information flows and relationships required to
support business transactions.
Nevertheless, given the widespread use of the term
‘e-marketplace’, we use it in this study to denote
any type of application aimed at promoting trade
between firms available at a particular Internet site.
This study is mainly concerned with the diversity of
B2B e-commerce applications and their implications
for access by developing country firms to global
markets. Given the range of B2B e-marketplaces that
were being hosted, it was also important to consider
three aspects of their features. The research strategy
distinguishes between: (i) information content and
services for transaction preparation; (ii) information
content and services for transaction completion; and
(iii) the means of access to the e-marketplace.
For example, in the case of transaction preparation,
information may be available about products and
trading partners but it may not be sufficient for firms
to decide whether or not to trade. The quality and
the timeliness of the information will affect whether
it can be used to make decisions about whether to
buy or sell. Some e-marketplaces provide only trade
leads or classified ads that must be followed up using
e-mail, hyper-links, the telephone, fax or the post.
Other e-marketplaces provide firms with access to
on-line auctions or catalogues that may enable them
to make quick decisions about whether to buy or sell.
In the case of transaction completion the services
involved might include on-line payment, logistical
support and dispute resolution services. E-marketplaces
that give potential buyers a good idea of whether
they would want to make a purchase may not enable
firms to complete the process on-line. Other e-
marketplaces offer direct or indirect access to a
means of carrying out a transaction and purchases
and payments can be made on-line.9
The ease with which firms can participate in a B2B
e-marketplace varies considerably. Some providers of
e-marketplaces may permit completely unrestricted
access by firms, requiring only that firms complete
a short, on-line registration procedure. Others
may restrict access in various ways. Registration
requirements may include trade or bank references or
deposits. In other cases, access may only be available
to firms that are invited by those who own or control
the site. These private e-marketplaces may exist
within a Web site located on the public Internet and
be protected by firewalls or passwords. Alternatively,
they may employ Internet protocols within a network
supported by private telecommunication links.
To examine these variations and their implications for
producer firms in developing countries, the research
strategy included two components. The first was to
map attributes of the e-marketplaces that could be
accessed via the public Internet. The second was to
assess the views of producer firms in developing
countries that might be actual or potential users of
these e-marketplaces.
Given the focus on real user businesses and
operational e-marketplaces, the research had to focus
on particular sectors. Two sectors, garments and
horticulture, were chosen because of their importance
for employment and export growth in poorer
developing countries.
3.3 Mapping the attributes
of B2B e-marketplaces
The diversity of the e-marketplace attributes contrasts
with the expectations and assumptions outlined in
Section 2, where B2B e-commerce is portrayed as
involving on-line transactions with support services
for business conducted mainly or entirely on the Web.
This type of B2B e-commerce is expected to offer
packages of services such as payment and settlement
mechanisms; insurance and logistics systems;
inspection services; certification of quality services;
and customs clearance services that are attractive
to producer firms in developing countries. These
expectations are confronted in this study with the
reality of the functions and services that are actually
provided at ‘e-marketplaces’.
In 2001, a large number of e-marketplaces were
hosted at Web sites for products in the garments and
horticulture sectors. The study examines 117 Web sites
or portals that were supporting a total of 184 different
e-marketplaces in 2001.10 The way in which these
e-marketplaces support trade was examined using
a taxonomy of functions and services that might be
needed to trade on-line (see Appendix 1 for an account
of how these e-marketplaces were located).
9. The B2C equivalent of this would be Amazon.com. The user can decide to make a purchase, pay for it, and expect it to be delivered
without further effort. It should be noted, however, that Amazon (i) relies on an array of logistics services (credit card payments, the mail,
etc.); (ii) is selling products whose characteristics are widely known; (iii) is retailing products whose manufacturers are often well-known
brands; and (iv) acts as a reseller, taking ownership of the products and assuming liability with the purchaser. These characteristics are not
found in most B2B e-commerce applications.
10. A single Web site or portal can host a number of distinct e-marketplaces. Therefore, the number of providers of these portals (117)
is lower than the number of e-marketplaces (184).
Each of the selected e-marketplaces was examined
to assess:
• The type of application used to enable interaction
between buyers and sellers.
• The kinds of information about products, buyers
and sellers that was available to users.
• Who supplied this information and how (if at all)
it was verified.
• The services offered to support transaction
completion, arrangements for payment, logistics
services, etc., and whether these were offered by
the Web site provider or by other agents.
The findings of this analysis were supplemented by
some interviews with e-marketplace providers in
Europe. The findings of this phase of the research
are presented in Section 4.
3.4 Developing country producer
firms and key informants
The second component of the research examined
whether the development of Internet-based B2B
e-commerce is influencing the way producer firms
in developing countries engage in international trade
in the garments and horticulture sectors. The B2B
e-marketplace activities were examined in the context
of the integration of these firms within the global
markets for their products. Firm-level research was
undertaken in Bangladesh, Kenya and South Africa.
In Bangladesh, only the garments industry was
studied. The number of interviews by sector and by
country is shown in Table 3.1.
The 38 key informant interviews were conducted in
the three countries with industry experts, business
association representatives, chambers of commerce
representatives, e-commerce solution providers and
government officials. The details of the sample are
set out in Appendix 2 (Garments) and Appendix 3
(Horticulture).
The garments sector is by far the most important of
all export sectors in Bangladesh. Horticulture (fresh
vegetables, fresh fruit and flowers) is a major export
industry in Kenya and South Africa. South Africa
and Kenya are also exporters of garments to both
the United States and the European Union and the
potential for growth in exports to the United States
has been enhanced by the introduction of the African
Growth and Opportunity Act (AGOA) (Gibbon 2002).
These two sectors have some common features in
addition to their significance for developing country
exports. Although some of the products they produce
can be standardised reasonably easily, for the most
part, the products are difficult to standardise.
Competitiveness strengths are built on product
differentiation and this is what both global buyers
and producers in developing countries are trying to
achieve. Such differentiated products are not the ones
which fit most naturally into the world of ‘many-to-
many’ e-marketplaces. However, the study of these
sectors can provide a basis for generalisations about
the value of these e-marketplaces and the use of
e-commerce applications by firms that have relevance
to many other sectors.
The more general conclusions about B2B e-commerce
and the use of the Internet that we draw in sections
6 and 7 of this report are not specific to garments and
horticulture. It would be wrong to believe that there
is extensive potential for open, B2B e-marketplaces
trading in standardised products that a study of
garments and horticulture would fail to capture. Insofar
as we find empirical evidence that B2B e-commerce
is not developing in line with the dominant vision
summarised in section 2, there are grounds for
proposing that these findings have broad relevance
to other sectors:
• Even products that are relatively standardised in terms
of product characteristics often require distinct
bundles of services to facilitate trade. Aspects of trade
such as reliability of delivery, consistent quality and
responsiveness to changes in order requirements
cannot be negotiated easily on-line.
9
THE REALITY OF E-COMMERCE WITH DEVELOPING COUNTRIES
Table 3.1: Number of interviews by country
Country Garments Firms Horticulture Firms Key Informants Total
South Africa 28 12 16 56
Kenya 12 15 14 41
Bangladesh 7 NA 8 15
Total: 47 27 38 112
Note: NA = not applicable.
10
THE REALITY OF E-COMMERCE WITH DEVELOPING COUNTRIES
• Open e-marketplaces for standard products such as
steel have been collapsing, and some providers of
this type of site have been moving to providing
private, exclusive sites for large companies.11
• Apparently, open e-marketplaces may, in fact, deal
with small numbers of global firms, trading in
excess inventory and facilitating price transparency.
Various B2B commodity exchanges bring together
firms that know each other well.
• The growth of private trading sites on the Internet
indicates the importance of pre-qualification of
suppliers and a preference for repeat transactions
to generate confidence between buyers and sellers
in many lines of business.
The firms in the country samples were selected because
they were known to be active on the international
market. They were expected to be implementing B2B
e-commerce or to be considering implementation in the
near future. The firm interviews focused on the ways
that firms might use Internet applications to generate
or sustain their business relationships. Respondents
were asked about their:
• connections to the Internet;
• use of Internet applications for communication
and information-seeking;
• transactions that involved any use of the Internet;
• experiences with e-marketplaces.
This focus on firms in the garments and horticulture
sectors allowed a broad range of B2B e-commerce
experiences to be analysed and the two sectors
display a wide variety of business relationships.
In parts of horticulture, for example, production and
exports are managed by large firms that supply major
retailers on the basis of long-term contracts. Traceability,
maintenance of the cool chain, collaboration over
product innovation and concerns with safety, quality
and reliability of delivery lead to tight and complex
linkages along the value chain.12 In other parts of the
business, auctions, spot markets and one-off
transactions prevail, particularly for smaller markets
and for smaller retailers. Representatives of businesses
of different types, and at different stages in the value
chain (growers, small traders, large exporters, etc.),
were interviewed in order to assess the potential of
B2B e-commerce applications for different types of
firms in the value chain.
In the garments sector, a majority of the firms
studied were global contract manufacturers. They
were making finished products according to the
specifications of foreign buyers. They were making-
to-order rather than making-to-stock. Only one firm,
based in South Africa, was adding higher-order
services such as styling and design to its garments.
These were supplied to small independents and
boutiques in the United Kingdom.13
The results of this phase of the study are set out in
Section 5 of this report. Section 6 provides an analysis
of the implications of the two empirical components
of the research for producer firms in developing
countries and a realistic assessment of the likely
impact of B2B e-commerce. Section 7 answers the
initial research questions for this study (set out in
section 1) and provides the main messages for policy
makers. The next section turns to the results of the
B2B e-marketplace attribute mapping.
11. See, for example, Connectis, 20 September 2001, http://specials.ft.com/connectis accessed 31 January 2003 reporting on e-Steel –
‘Large steel customers targeted earlier by exchanges, such as Ford, are not interested in randomly picking up critical steel by an unknown
producer on an exchange’, says Michael Levin, chief executive of e-Steel. He adds that ‘90 per cent of steel mills’ customers stay on their
books year after year after year, because of interests including quality requirements, transportation and demand’.
12. These issues are discussed extensively in Dolan and Humphrey (2000; 2001).
13. A detailed review of the way leading export-oriented garment producers in South Africa are using B2B e-commerce is provided
by Moodley et al. (2002).
11
THE REALITY OF E-COMMERCE WITH DEVELOPING COUNTRIES
How do e-marketplaces operate in practice? The
answer to this question is based on the mapping of
the characteristics or attributes of 184 e-marketplaces
in the garments and horticulture (including some sites
concerned with a broader range of agricultural
products) sectors. Box 4.1 illustrates the types of
applications that were present at the e-marketplaces
based on the Web which were included in the sample.
4.1 E-marketplaces: transaction-
or information-oriented?
The 184 B2B e-marketplaces were classified according
to the types of applications they supported. The
results shown in Table 4.1 indicate that most sites did
not support on-line buying and selling of products.14
The most common e-marketplace application was the
posting of trade leads or classified advertisements by
buyers and sellers. This accounted for 45 per cent of
the 184 e-marketplaces. Direct buyer and seller links
was the second most frequent type of application,
accounting for 17 per cent of the 184 e-marketplaces.
A third application, requests for quotes, accounted
for another 15 per cent of the e-marketplaces. These
usually involved firms posting statements about
products they wished to purchase from or sell to
specific buyers or sellers. Interested parties then made
contact with the prospective buyer or seller.
Taken together, trade leads and classified advertising,
direct buyer and seller links, and requests for quotes
accounted for 77 per cent of the 184 e-marketplaces.
For these e-marketplaces, conducting business on-line
meant only the provision of applications that enable
firms to identify trading partners that they could
contact off-line with a view to doing business. The
follow-up to an initial contact generally was taking
place through other channels such as e-mail, a hyper-
link, the telephone, fax, or the post.
These so-called ‘e-marketplaces’ are not marketplaces
at all. Little or no buying or selling was taking place on-
line. Rather, the providers were mimicking catalogues
and trade directories, etc. The e-marketplaces classified
as ‘on-line auctions’ accounted for 15 per cent of the
sample and e-Retail applications accounted for 5 per
cent of the sample total. These latter two applications
might be expected to provide for on-line transaction
preparation and completion. The specific services
offered by these e-marketplaces are discussed in
greater detailed below.
4. The Reality of E-Marketplaces
Box 4.1: Types of applications in B2B e-marketplaces
Direct Buyer/Seller Links: Provide a means for sellers to post direct links from a Web site to their own
company Web sites. Potential buyers can follow these links to a vendor’s Web site. Alternatively, there may
be no link and only product and contact information about particular firms (e.g. electronic showrooms,
on-line directories, on-line catalogues).
On-line Auctions: Applications may take three forms: (i) Listing-Agent Auctions where the service provider
acts as an agent running Web-based auctions on the behalf of independent sellers who list their own
auctions; (ii) Merchant Auctions where no independent sellers are identified, and the service provider acts
as a retailer which happens to conduct its transactions by auction; (iii) Hybrid Auctions where elements
of the first two categories are combined. These auctions may take place instantaneously in much the same
way that a product might be sold in a physical auction house, or they may involve buyers placing bids over
the period of time (e.g. the model used by eBay for B2C auctions).
Request for Quotes: This consists of a seller or buyer posting a message to a forum within an on-line
environment or to individual members, indicating a desire to buy or sell items. Buyers and sellers may
be able to select the firms to which their quotes are sent as well as the individual firms from which they
receive quotes. Messages may include price information.
Trade Leads/Classifieds: Buyers and/or sellers post messages to an on-line forum or to individual members
indicating a desire to buy or sell items. Buyers and sellers do not have control over which user firms can
access messages posted to the forum. Messages generally do not include price information.
e-Retail: The service provider sells products directly to users. Visitors take the role of buyers and the site
provider takes the role of a seller. These platforms parallel the exchange processes common on B2C Web sites.
14. For a more detailed discussion of these applications, see Paré (2003).
12
THE REALITY OF E-COMMERCE WITH DEVELOPING COUNTRIES
4.2 Support services in e-marketplaces
To what extent were providers of e-marketplaces
offering affordable services to support the settlement
of transactions on-line? On-line trading might be
greatly facilitated by services that:
• enable payments to be made; and
• facilitate the delivery of the product.
Our examination of the e-marketplaces in the sample
showed little or no evidence of these support services.
Users of these e-marketplaces had to arrange payment
and delivery for themselves (see Figure 4.1). In 80 per
cent of the 184 e-marketplaces, users had no access
to supplementary applications or support services to
facilitate the settlement of transactions on-line. Only
seven per cent of the e-marketplaces provided facilities
for payment on-line. A further four per cent of
e-marketplaces were facilitating off-line payment.
Product delivery was equally unsupported. The
companies hosting e-marketplaces rarely played a direct
role in arranging for the delivery of products. For 80 per
cent of the e-marketplaces, the buyers were left to take
responsibility for arranging for the delivery of the
products once they had been purchased. This was
facilitated by links from some of these e-marketplaces
to third party service providers.
For an additional cost, e-marketplace users could
access logistic services including shipping and delivery
services, financial services, customs brokering,
insurance services and travel services. Shipping and/or
delivery support services were accessible to users in
34 per cent of the 77 horticulture and 53 per cent of
Table 4.1: Types of B2B e-marketplaces
Type of e-marketplace Horticulture Garments All
No. % No. % No. %
Trade Leads/Classifieds 43 56 39 36 82 45
Direct Buyer/Seller Link 7 9 24 22 31 17
(includes link to seller
Web page, storefronts,
showrooms)
Request for Quotes 10 13 18 17 28 15
On-line Auction 8 10 20 19 28 15
e-Retail 7 9 3 3 10 5
Unknown†23 3 35 3
Total 77 100 107 100 184 100
† Type of application not specified
Figure 4.1: Payment arrangements for 184 e-marketplaces
Not specified 9% Payment
off-line 4% Payment
on-line 7% Trading Parties decide 80%
13
THE REALITY OF E-COMMERCE WITH DEVELOPING COUNTRIES
the 107 garments e-marketplaces. It was not possible
to assess the effectiveness of these services using the
method employed in this study, but in many cases the
Web site provider merely provided a link to the Web
site of the provider of these services.
4.3 Trust services in e-marketplaces
A crucial issue for the use of e-marketplaces is how
to establish trust. Firms purchasing products on-line
need assurances about the companies they are
dealing with and about the products they are buying.
Firms selling products on-line need to be confident
that payment will be made. Trust-enhancing processes
to support the use of e-marketplaces are very
important and these were very weakly developed
in the e-marketplaces included in this study.
An extremely limited amount of product and partner
information was available to users of the e-
marketplaces. ‘Buyer and seller beware’ was the
norm. Of the 117 e-marketplace providers, 46 per
cent noted on their Web sites that they did not
mediate between firms using their sites. It was the
user’s responsibility to evaluate whether to enter into
an exchange agreement with another firm.
For potential trading partners with no prior relationship
with each other, the registration requirements and the
screening procedures applied by the providers of these
e-marketplaces were unlikely to generate trust
between ‘strangers’. Before entering into a commercial
arrangement with a ‘stranger’, access to information
about credit history, annual turnover and previous
trading associates would be desirable. Firms could then
evaluate the legitimacy and credibility of a potential
trading partner.
Information about trading partners was available only
to a very limited extent from the e-marketplaces, as
shown in Table 4.2. Most sites required some form of
registration, but this by itself would provide very little
assurance to users. Key informants suggested that
registration has to be kept as simple as possible.
Complex registration requirements tend to reduce the
number of firms registering. It seems likely that many
e-marketplace providers do little more than weed out
obviously fraudulent firms. Some type of additional
participant screening was offered by slightly more
than 50 per cent of the e-marketplaces, but the
effectiveness of the screening was not assessed.
The provision of further, firm-specific information on
firms was even more limited (see Table 4.2). Credit
rating information on participating firms was available
in only 17 per cent of the e-marketplaces. In these
instances, the information was available only for an
unspecified fee by contacting a third party or a
‘strategic partner’ linked to the site, e.g. Dun and
Bradstreet, The CIT Group, etc. Reputation statements
about buyers or sellers were available in only 6 per
cent of the e-marketplaces.
Assessment of quality or product characteristics either
via the Internet or by following up contacts off-line
could, in principle, be managed in a variety of ways.
These include the use of digital photographs, the
provision of product samples, laboratory reports on
products, inspection of facilities and provision of
information about certification to international
standards such as the ISO 9000 quality standard and
the SA 8000 social accountability standard.15 Such
information was generally not made available for the
products being offered for sale in the e-marketplaces
studied (see Table 4.3). In more than three-quarters
of the 184 e-marketplaces, it was left to the buyers
and sellers to decide the amount and type of product
Table 4.2: Availability of on-line information about trading partners
Availability of Buyer/Seller Assurance†
Type of e-marketplace (N=184) Registration Participant Credit Buyer/Seller
Required Screening Rating Info Reputation
Statements
Trade Leads (N=82) 63 34 11 6
Request For Quotes (N=28) 27 19 8 3
Auction (N=28) 25 18 8 3
e-Retail (N=10) 9 4 1 0
Direct Buyer / Seller Link (N=31) 30 16 3 0
Unknown (N=5) 4 4 0 0
Total 158 95 31 12
% of all marketplaces 86% 52% 17% 6%
† The data indicate the number of times specific mention was made of users having access to quality assurance
applications. In some instances more than one was mentioned.
14
THE REALITY OF E-COMMERCE WITH DEVELOPING COUNTRIES
information provided. The providers of e-marketplaces
did little to assist buyers and sellers to assess a priori
the quality of the products.
The results of the e-marketplace analysis presented
in Table 4.3 clearly demonstrate that e-marketplace
users had very limited access directly or indirectly to
product information. Even when facilities inspection
services and information about product certification
were promoted on a Web site, it almost always
required users to contact third parties or ‘strategic
partners’ such as the Swiss company, Société
Générale de Surveillance (SGS). When these services
were mentioned, or offered, it was often unclear
whether they were provided at prices that would
be affordable for developing country producer firms.
Key informants who are involved in e-marketplace
development suggested that the take-up of these
services has been very limited. Initial expectations of
widespread use of trust services do not seem to have
been realised.
Finally, there was little evidence that mechanisms
for redress were directly available to users of
e-marketplaces. Most e-marketplace providers were
avoiding this responsibility claiming that although
they were facilitating trade, they were not legally
party to it. Of the 117 e-marketplace providers, only
six indicated that they would assist firms in the event
of a dispute. The site providers stated explicitly in
their contractual terms and conditions that all deals
were to be made directly between the trading parties.
4.4 The operation of open
e-marketplaces
The providers of e-marketplaces in the sample were not
directly facilitating the provision of affordable services
that would support the settlement of transactions on-
line. These e-marketplaces were all ‘open’ in the sense
that any firm could visit the e-marketplace and decide
whether to provide registration information to the site
provider. The users of these e-marketplaces had the
responsibility for deciding:
• the payment settlement mechanism;
• whether to employ third parties to help in assessing
the creditability and legitimacy of trading partners;
• whether to employ third parties to arrange for
delivery of the product;
•the channels for redress in the case of a dispute.
Given that many of these kinds of open e-marketplaces
were promoted in the period up to 2000 as being
transaction-based and offering support services to
make on-line transactions a reality, why were these
sites so limited in their scope and functionality?
The e-marketplace operators in the sample appeared
to be mainly concerned with reducing the cost of
searching for products, services, sellers and buyers.
They wanted to attract as many buyers and sellers to
their sites as possible in order to gain visibility, market
liquidity, or critical mass. Interviews with providers of
Bulletin Board services suggested that increasing the
costs of running the ‘marketplace’ by using
sophisticated systems would drive firms to other sites.
Table 4.3: Availability of product information
Availability of Product Quality Assurance†
Type of e-marketplace Product Sample Lab Reports Facilities Certification
(N=184) Photos Offered Inspection
Trade Leads (N=82) 32 5 3 17 3
Direct Buyer / Seller Link (N=31) 26 3 2 8 1
Request For Quotes (N=28) 10 7 5 11 5
Auction (N=28) 12 3 1 12 2
e-Retail (N=10) 6 1 1 1 1
Unknown (N=5) 3 0 1 0 0
Total 89 19 13 49 12
% of all e-marketplaces 48 10 7 27 6
† The data indicate the number of trade forums where specific mention was made of users having access
to quality assurance applications. In some instances more than one was mentioned.
15
THE REALITY OF E-COMMERCE WITH DEVELOPING COUNTRIES
Box 4.2: Assurances to buyers and sellers from an e-marketplace provider
How does [Company A] qualify members?
Customers are screened in several ways:
• Personal contacts and visits with suppliers and buyers through country representative networks
and trade shows.
• Upon registration buyers and sellers enter contact information for two trade references and banking
references. We will verify these references before the members can post products or place bids
• National and international organizations and government entities are consulted as needed
How does [Company A] make sure products will be high quality?
• Personal contacts and visits with suppliers at trade shows allow us to develop relationships with, and
knowledge of, our suppliers and their products
• When we enter a market we target the leaders in each industry to ensure that the quality of products
offered is high
• In addition, country representatives assess suppliers through their local networks
• In-house traders can usually obtain samples for potential buyers upon request
• All buyers are advised to require certificates from Société Générale de Surveillance or other creditable
inspection agencies
How am I assured of the credibility of the buyers/sellers?
[Company A] aims to deal with buyers who can take a position on, or have possession of, goods. Users
are pre-screened by the company in order to assess their legitimacy, however, we cannot guarantee their
credibility. To minimise risk, it is strongly recommended that all contracts contain the necessary provisions
to ensure both parties are covered in the case of a problem. A clause should be included in the contract
specifically stating that the quality of the final product should meet those of the sample or of standards
otherwise noted. In addition, performance bonds are highly recommended, as are inspections at the time
of delivery.
What is [Company A’s] responsibility (shipment is not received, payment is not made, product is not
good quality, etc.)?
[Company A] is a neutral party in all transactions. [Company A] does not assume legal responsibility for
items lost, damaged, not delivered, etc., nor does it assume responsibility for items not paid for. Contracts
are between buyer and seller only.
How do I know the quality of the product if I do not know the seller?
We suggest that the contract contain all quality provisions required by the buyer. We strongly recommend
that buyers and sellers use secure contracts and payment terms to ensure that both parties fulfil their end
of the agreement. For example, performance bonds are highly recommended, as are inspections at the time
of delivery. It is, however, up to the buyer and the seller to settle any disputes that may result from a trade.
Source: Company A’s Web site.
15. These standards and certification schemes are discussed in Nadvi and Wältring (2002).
16
THE REALITY OF E-COMMERCE WITH DEVELOPING COUNTRIES
Most e-marketplace providers explicitly avoided taking
any responsibility for the activities of firms trading
through their e-marketplaces as indicated in section
4.3. They were assuming that such responsibilities
would open them up to potentially large legal
liabilities. As market intermediaries, they appear
to have three options:
• To act as resellers: Resellers take ownership of the
product, and buyers and sellers have a legal
contract with the reseller, not with each other. They
only have to establish trust with the reseller whose
reputation is at stake. However, this places the onus
on the reseller to obtain assurances about the
trading parties and their products. This strategy is
most likely when products are easily valued and
assessed and in very specialised product areas in
which the reseller has extensive knowledge.
• To act as brokers: Brokers bring the trading parties
together, but the legal contracts are between the
parties. The broker’s own specialised knowledge
may provide some assurances to the parties, but
the broker accepts no legal liability.
• To act as pure e-marketplace providers: Offering
a Web site and related applications that enables
potential trading parties simply to come together.
The more open or unrestricted the access to an
e-marketplace, the less likely it is that the providers
will risk acting as a reseller or providing assurances
about participating firms.
Information from an e-marketplace in the food sector
is shown in Box 4.2 to illustrate the steps taken by
the provider to assess participating firms. The site
provider claims that the parties are carefully screened.
However, this type of screening is expensive and,
if implemented extensively, would reduce the number
of participating firms. The assurances about
participant screening are followed by clear statements
about the non-acceptance of liability by the provider
and a clear warning that firms using the e-marketplace
are responsible for protecting themselves against risk.
In fact, the so-called ‘marketplace’ only helps firms to
identify potential trading partners.
Identifying potential trading partners is a key element
in the trading process, but partner identification is
not sufficient to achieve an overall lowering of the
barriers to international trade. Direct access to
affordable services that could help to reduce the costs
of negotiating and fulfilling contracts and to ensure
the fulfilment of contract obligations was rarely
available in this sample of e-marketplaces. The
strategy of writing complex contracts, recommended
in Box 4.2, is unrealistic and ineffective. Complete
contracts (foreseeing all contingencies) are impossible
to write and expensive or impossible to enforce.
Do these characteristics make these e-marketplaces
completely unviable? Not necessarily. Participating
firms may be able to follow up initial contacts made
on-line and obtain the necessary assurances through
direct contact with the potential trading partner. This
can be managed most easily if at least one of the
trading partners is an intermediary.
There is some evidence to suggest that intermediaries
are major users of open e-marketplaces. For example,
a survey of users conducted by ECeurope.com Limited
(Electronic Commerce Europe),16 a leading global public
Bulletin Board service provider, suggests that more
than half of its registered users classified themselves
as trading houses, importers, exporters agents or
distributors. This result supported the company’s own
perception of the types of firms that were using the
e-marketplace. If other Bulletin Board services have
similar user demographics this could suggest that
the costs of completing transactions may be reduced
because of an intermediary’s capacity to offer
logistics services, information about trade regulations
and a means of payment. This might enable producers
from developing and transition economies to gain
easier access to a wider range of intermediaries,
thus achieving the goal of widening access to
global markets.
The next section considers the perceived value of e-
marketplaces and various forms of B2B e-commerce
from the vantage point of firms and key informants in
the garments and horticulture sectors in Bangladesh,
Kenya and South Africa.
16. The user survey was sent to 2000 registered users by ECeurope.com Limited (Electronic Commerce Europe), from whom 254 responses
were received. The results of this survey are Copyright 2001 ECeurope.com Limited (Electronic Commerce Europe). All Rights Reserved.
The authors thank ECeurope.com Limited and its Chairman, Jonathan Cutting, for permission to cite this material.
17
THE REALITY OF E-COMMERCE WITH DEVELOPING COUNTRIES
A more complete understanding of the potential for
B2B e-commerce to facilitate the access of developing
country firms to global markets requires information
from the firms and other key informants. Section 3
and Appendices 2 and 3 provide details of the
method used in this component of the research.
Managers from a total of 74 firms in the garments
and horticulture sectors were interviewed in 2002
(see section 3, Table 3.1), together with 38 key
informants. Because of the relatively small sample
sizes for each sector in Bangladesh, Kenya and South
Africa, we have not provided cross-country
comparisons of the use of Internet applications
to support B2B e-commerce activities.
The respondents were asked about their experiences
with B2B e-commerce and the open kinds of
e-marketplaces and, more generally, about their use
of Internet applications in their businesses. The results
of these interviews confirm the observations in the
previous section. There were limited opportunities for
on-line trading using ‘many-to-many’ e-marketplaces.
Relatively few firms were finding new customers
through these e-marketplaces. Nevertheless, the
Internet was seen as becoming more important for
firms in developing countries. The firms were using
Internet applications in a variety of ways to support
their external business operations.
5.1 Firm use of open e-marketplaces
The use of B2B e-marketplaces appeared to be
marginal, on the basis of the interviews for this
study. The respondents’ use of e-marketplaces
is summarised in Table 5.1 which shows that:
• 57 firms or 77 per cent of the respondents had
not registered with an e-marketplace.
• Of the remaining 23 per cent (17 firms) that had
registered with one or more e-marketplace, only
seven had completed at least one sale as a result of
having posted trade leads or having been identified
by a buyer using another type of application at the
site, e.g. a direct buyer/seller link.
The majority of respondents in the two sectors
suggested that ‘many-to-many’ e-marketplaces
did not offer many benefits to their businesses
(see Box 5.1). Their main concerns were a perceived
incompatibility between the use of e-marketplaces
and the formation of trusted relationships; support
for product quality assurance; support for trade
involving ‘significant’ volumes of product; and,
the need to use logistics and marketing services
provided by intermediaries.
5. The Experience of Firms in Developing Countries
Table 5.1: Registration with open e-marketplaces
Garments Horticulture Total
Firms Firms Number %
Have not registered 41†16 57 77
Have registered, but no 3 7 10 14
sales have materialised
Have registered, and 3 4 7 9
sales have materialised
Total 47 27 74 100
† In this group, two firms had been registered with closed private e-marketplaces. These firms had not
registered with any ‘many-to-many’ e-marketplaces.
Box 5.1: Perceptions of open e-marketplaces
‘Users [garment producers and buyers] of e-marketplaces are on the margins of the industry – basically
the lunatic fringe. The garments sector just isn’t set up to deal with e-markets’.
‘If the volume is not sufficient, the hassles of B2B e-marketplaces are not worthwhile’.
‘There is a general lack of interest in B2B trading portals. As far as actual commercial transactions taking
place over the Internet ... we are a long way from it. There is also the question of how appropriate
e-commerce is for the clothing industry. At the moment its relevance is debatable’.
‘On the vegetable side this would be very difficult unless we move into ready-to-eat meals or something
like that … I can’t see going to the Web and saying ‘I want to buy ten tonnes of beans’.
18
THE REALITY OF E-COMMERCE WITH DEVELOPING COUNTRIES
In the garments sector, six firms had experienced
some involvement with an e-marketplace but only
three had managed to conclude a sale. One
Bangladesh firm had sold a small number of sweaters
after its Web site was identified by an international
buyer who had visited the Alibaba.com Bulletin Board
service. This supplier did not have long-term
established customers.
The other two firms making sales were from Kenya.
The first firm produced tents, canvas goods, plastic
containers and uniforms. It had sold some of its
products internationally via an e-marketplace with
which it was registered. The second firm manufactured
ladies’ garments and shirts. It had registered with a
Web-based international trading site located in Dubai
and had successfully sold its garments via this site
on numerous occasions. It had also bought garment
accessories such as buttons, linings and lace using
the site.
Of the four horticulture firms that had sold their
products via an e-marketplace, one was selling cut
flowers and the other three had sold small quantities
of fruits and vegetables.
Interest by firms in e-marketplaces is associated with
firm size. Table 5.2 compares the firms registering
with open e-marketplaces by firm size. While only
10 per cent of the larger firms had registered with
an e-marketplace, 40 per cent of the smaller firms
had registered, which is statistically significant.17
The significance of firm size does not extend more
generally to the use of Internet applications for
finding buyers and sellers internationally. This is
shown in Table 5.3, which indicates that for firms
completing purchases or sales using any Internet
application (including e-marketplaces and firm Web
sites), the likelihood of reporting that products had
been bought or sold using the Internet is unrelated
to the size of the firm.18
The way in which these sales took place was far-
removed from the prevailing view of e-marketplaces
and B2B e-commerce. The e-marketplaces enabled an
initial contact to be made. This contact was followed
up using other channels such as telephone calls,
e-mails and personal visits. An example of the way in
which one fruit and vegetable exporter was involved
in such activities is given in Box 5.2.
Similarly, in the garments sector the firms that had
successfully completed sales as a result of their use
of e-marketplaces had identified ‘small deals’,
negotiated with buyers using e-mail, the telephone,
fax and personal visits. Payments were made using
letters of credit. The importance of off-line
negotiations is emphasised again in Box 5.3 which
shows the consequences of joining an on-line
showroom for a firm in the garments sector.
Some of the firms were able to generate business
through e-marketplaces without offering a product
for sale. For example, one small food and beverage
trading house was scanning large numbers of food
and beverage e-marketplaces to identify potential
trade leads and to source requested products from
local suppliers. This respondent claimed that between
17. Spearman rank order correlation coefficient, r = 0.350, significant at the p< .05 level.
18. Test of independence of ordinal variables - buying and/or selling products using the Internet and firm size –using Goodman-Kruskal
Gamma = 1.458, p>.05; Kendalls tau-b = 1.352, p>.05; and Stuart’s tau-c = 1.332, p>.05.
Table 5.2: Registration at open e-marketplaces by size of firm
Number of Employees Have Registered Have not Registered Total
with an e-marketplace with an e-marketplace
≤500 13 21 34
≥501 4 36 40
Total 17 57 74
Table 5.3: Firms using the Internet to buy or sell products internationally
Number of Employees Have Used Internet Have not Used Total
to Buy or Sell Internet to Buy or Sell
≤500 8 26 34
≥501 8 32 40
Total 16 41 74
19
THE REALITY OF E-COMMERCE WITH DEVELOPING COUNTRIES
1-in-50 and 1-in-100 inquiries resulted in the
successful completion of a deal. He felt that this
success rate compared favourably with the use of
off-line services such as trade directories.
The information provided by the interviews with firms
indicated that there is some scope, albeit very limited,
for the use of ‘many-to-many’ e-marketplaces to seek
new business opportunities. These open e-marketplaces
can be made to generate business with new buyers and
suppliers in spite of their limitations with respect to the
verifiability of the information provided and their lack of
support services. They seemed to be most attractive to
firms that already specialise in small, one-off sales and
those that operate in highly fragmented markets.
5.2 Using the Web for
information purposes
In addition to information about their experiences
with e-marketplaces, the firms also provided
information about their use of the Internet more
generally. All 74 firms in the sample could access and
use the Internet and the Web but the respondents all
said they preferred to rely primarily on interpersonal
networks and face-to-face meetings to share certain
types of information. More than 75 per cent of the
74 respondents indicated that their firms ‘seldom’
or ‘never’ used Web-based applications to obtain
general information about input and product markets
or information about specific customers or suppliers.
Of 62 firms in the sample that were asked about their
Web sites, 66 per cent did not have one. Of those with
a Web site, there was a positive correlation between
firm size and the presence of a Web site based on
a test of significance of the data in Table 5.4.19
In both the garments and horticulture sectors the
Web sites were mainly ‘static’ sites. They were serving
as marketing tools to promote production capabilities
and to provide product and contact information. The
firms with Web sites had received varying numbers
of queries. Not all of these were product related or
Box 5.2: Using e-marketplaces to find buyers for fruits and vegetables
The firm was a small trading company in Nairobi selling fruit and vegetables. It had increased the amount
of business it was generating by registering with an open e-marketplace and was deriving about one-third
of its business through this channel. The company had registered with a number of e-marketplaces,
including (at various times) arabsites.com and ecEurope.com. The company only registered with sites that
did not charge a registration fee.
The firm was dealing with various e-mail-originated inquiries, including ones for Macadamia nuts from an
agent in Switzerland, carrots from Romania, and oranges from the Ukraine. The owner of the firm outlined
his procedures for dealing with an e-mail inquiry:
• Discard any inquiry from a firm with a hotmail or Yahoo e-mail address.
• Check to see if the company making the inquiry has a Web site, and possibly consult Web-based
‘Yellow Page’ business directories.
• Consider the product requested. It is better to deal with robust products (for example, fruit rather
than vegetables), as the logistical requirements are simpler.
• Check the quantities, decide on sea or air transport and then contact a local shipping agent to find
out about freight rates, timing, etc.
• Check on the Internet to see who the competitors are in the market being supplied, and in particular
to see when there are supply gaps in the market.
• Follow up the inquiry with a quote based on the cost of local sourcing, packaging, freight costs and
the exporter’s mark-up. Contact with the customer is predominantly by e-mail.
From this point onwards, the process depended upon the particular customer’s requirements. The customer
might require a physical sample to be sent or a particular type of packaging to be used. If a contract was
agreed, payment terms would be set. Dealing with these e-mail inquiries raised the same challenges as
with orders coming through more traditional means. After some unfortunate experiences of non-payment
both with both e-marketplaces and traditional customers, the exporter was demanding a 50 per cent down
payment and the remainder on proof of shipment.
The values involved in these trades were generally low. The company’s overall turnover was less than
US$30,000 per annum, and so the 30 per cent of business generated through bulletin board leads was
less than $10,000.
19. Spearman rank order correlation coefficient, r = 0.255, significant at the p< .05 level.
20
THE REALITY OF E-COMMERCE WITH DEVELOPING COUNTRIES
directed specifically to their firms. Some respondents
said these inquiries were along the lines of, ‘you’re in
the garment business, do you know where I can get
my hands on some yarn’. Only one firm, advertising
product over-runs on its Web site, reported having
recorded ‘a few sales of very limited value’.
A relatively small number of firms were using Web
applications. About 33 per cent of the 27 firms in
the horticulture sample were obtaining information
regularly about their product markets via the Web.
The perceived benefits of Web use are suggested
by the case in Box 5.4. While many firms supplied
customers on the basis of long-term contracts and
fixed prices, for those dependent upon auctions and
spot prices, and those working through intermediaries,
market price information could be valuable.
Only four firms in the horticulture sector indicated
that they were using the Web regularly to obtain
information about specific customers. One of these
four firms was also using the Web to obtain
information about specific suppliers. Yet another firm
in the horticulture sample was also using the Web to
obtain information about specific suppliers. A third
way in which the Web was used, albeit only by two
additional firms in the sector, was to obtain
information about product input markets.
Respondents from four firms indicated that access to
the Web had played a role in increasing the number
of international buyers with which they traded. In
three cases, there had been only a marginal increase.
In one instance, Web use had lead to a firm being
identified by an international buyer who was interested
in one of its secondary products (see Box 5.5).
In one case, a single trader indicated that his use
of the Web had ‘revolutionised’ the way that he did
business. One other firm referred more generally
to its use of the Internet (rather than specifically the
Web) in this context. Another firm was obtaining
seeds, irrigation equipment, agri-chemicals, fertilisers,
packaging and boxes from a larger number of
suppliers as a result of its use of the Internet. Overall,
the Web was having minimal influence on the buying
or selling of core products.
5.3 Supply chain integration: e-mail
The use of open e-marketplaces for buying and selling
products was limited in this study. Nevertheless, it was
clear that the Internet was having a considerable
impact on the way that the firms were doing business.
Use of the Internet appeared to be changing the
way that firms involved in repeat transactions were
co-ordinating their activities. The use of e-mail, in
particular, was changing inter-firm communication
patterns. E-mail was by far the most important
Internet application for facilitating international trade
for the firms in this study. It was used in the garments
and horticulture sectors to facilitate communication
with existing customers and suppliers. It was
particularly important for conveying most of the
information for generating repeat orders, including
inquiries about production schedules and the progress
of orders, prices from international and domestic
clients, and delivery dates and related information.
Table 5.4: Frequency of firm Web sites
Number of Employees Have Firm Do not have Firm Total †
Web Site Web Site Web Site
*500 7 18 25
≥501 20 17 37
Total 27 35 62
† Note: Total sample is 62 firms due to missing data for Kenyan garments firms on this indicator.
Box 5.3: The on-line showroom
A firm had registered with an on-line trading service providing an on-line showroom. In the 12 months
following registration, the firm received about 20 product inquiries via e-mail. Negotiations were entered
into with three potential clients. After personally visiting all three companies, a successful transaction was
negotiated with one of them.
This buyer became a regular client and accounted for six per cent of the exporter’s sales. The respondent
was satisfied with the business that had been generated, but he was not prepared to renew the
subscription for the on-line showroom service because of the additional costs incurred in assessing the
credibility of potential buyers.
21
THE REALITY OF E-COMMERCE WITH DEVELOPING COUNTRIES
E-mail also was providing a means of exchanging
information about waybills and other invoices,
logistics and shipping dates, and dates for meetings
with clients.
Buyers were using e-mail to request quotes, exchange
cost and price details, disclose supplier appraisals,
communicate business forecasts and to plan for new
capacity, as can be seen in Table 5.5. All but three of
the 47 respondents or 95 per cent of the firms in the
garments sector were using e-mail to place or accept
orders with existing international trading partners.
In general, these were generally followed up with
paper invoices and related documents. E-mail was
seen as offering a means of substantially reducing
communication costs. Respondents stated that ‘e-mail
has substantially replaced the telephone for us – the
result is miraculous for us in terms of cost’ and ‘one
of our main expenses has always been at the level of
communication and e-mail has been a blessing’.
In the horticulture sector, e-mail was regularly used
for co-ordinating schedules. In many instances, it
was serving as a substitute for more expensive
alternatives, such as the telephone and the fax.
However, it was also being used for new purposes.
For example, marketing agents emphasised that e-mail
was increasingly being used to send and receive digital
photographs of unloaded produce to assess quality.
One respondent observed that ‘for our business, the
most significant e-commerce innovation was the
introduction of digital cameras’. The use of e-mail was
not necessarily present throughout the value chain.
As the example in Box 5.6 suggests, farmers in South
Africa have been relatively slow to use e-mail. There
were very real constraints on e-mail use especially in the
rural areas of Kenya as shown in Box 5.7.
The interviews with firm respondents and key
informants suggest that there had been an
extensive switch to e-mail communication among
intermediaries, particularly importers and exporters.
E-mail was contributing to considerable cost
reductions and to greater ease in the transfer of
complex information, although growing reliance
on e-mail also was leading to the inconvenience
of screening out junk mail or spam.
5.4 Extent of technological advance
The penetration of the public Internet and the
development of the telecommunication infrastructure
in Bangladesh, Kenya and South Africa are very
different. In Bangladesh around the time of this study,
there were 0.34 main telephone lines per 100
inhabitants, there were 0.25 Internet hosts per 10,000
inhabitants, 0.09 PCs per 100 inhabitants and about
2.3 per cent of those PCs were connected to the
Internet. In 2001, Internet usage costs were among
the highest in the world.
In South Africa, there were 11.4 main telephone lines
per 100 inhabitants, there were 43.0 Internet hosts per
10,000 inhabitants, 6.18 PCs per 100 inhabitants and
approximately 7.0 per cent of these were connected
to the Internet. These country averages do not indicate
the very great rural/urban disparities and those
between different socio-economic groups. The cost
of Internet usage was higher than the average for
77 countries surveyed (World Economic Forum 2002).
Box 5.4: Use of the Web for information purposes
One company had directly benefited from using the Web as a resource for obtaining price information. This
respondent was the proprietor of a small flower exporting firm that operated through a flower exporter in
Nairobi. He frequently visited the floraHolland Web site to check average prices for specific periods of sale
and for the types of flowers that his company exported to the auction. This was done in order to compare
the prices listed at the auction site with those received from the local broker for his product.
He noted that ‘truth is, you lose quite a bit. … Not really sure the prices they tell you are sure’. He described
how Web-based information had enabled him to challenge his broker about differences between what the
broker was paying him and the prices paid for his products at the auction. The discussions with his broker
often proceeded along the lines of, ‘the average this day was 10 Ksh, so why are they giving only 3 Ksh!’
He was planning to work with a new export agent because large discrepancies between the auction price
and the prices paid by the local broker were being identified with increasing regularity and frequency.
Box 5.5: Random identification via a Web site
The proprietor of a large family-owned avocado farming operation had developed a Web site that had led
indirectly to the successful completion of a commercial transaction. An international buyer based in Chile
identified the site by chance when conducting an Internet search. The buyer made an inquiry about one
of the farm’s secondary crops – nursery trees – via e-mail. This was followed by telephone negotiations and
e-mail exchanges. Once the producer received payment for the trees, they were dispatched to Chile.
22
THE REALITY OF E-COMMERCE WITH DEVELOPING COUNTRIES
Kenya was not included in the Forum report, but
it had about 1.0 main telephone lines per 100
inhabitants in 1995, and although the mobile
subscription rates are growing, network expansion
and costs of usage remain very high. Dialup Internet
usage costs for 20 hours are approximately US$ 123
per month, and there were only 34 Internet Access
providers in 2000 (See AISI 2000 and USAID 2000).
Of the 47 firms in the garments sector, 63 per cent
were using an analogue modem to access the
Internet, 29 per cent were using Integrated Services
Digital Network (ISDN) connections.20 Only four per
cent or two firms had access to a Digital Subscriber
Line (DSL) or a cable modem. Similarly, in the
horticulture sector, of the 27 firms, 52 per cent were
using analogue modems and 33 per cent were using
ISDN connections. In this case, two firms were using
faster Digital Subscriber Lines and one was using
a cable modem (see Tables A2.3 and A3.3 in the
appendices). In the garments sector, 34 per cent or
16 of the 47 firms were using an Intranet and seven
were connected to an extranet. Most of these
connections were in South Africa and mainly for links
within the domestic market (Moodley et al. 2001).
In the horticulture sector, two firms were using an
Intranet, but none had access to an extranet (see
Tables A2.4 and A3.4 in the appendices). Despite
their predominant use of older ICTs, none of the firms
felt directly pressured by their buyers to introduce
more advanced technology. Those respondents who
were enthusiastic about technology tended to regard
their buyers in the industrialised countries as being
somewhat ‘behind the curve’ in terms of their
willingness to rely on e-mail exchanges in place of the
fax and face-to-face communication for monitoring
the production cycle.
5.5 The use of private, exclusive
e-marketplaces
Respondents from two Bangladesh and two South
African garment firms had received informal requests
to participate in private, or closed, electronic trading
environments. Some of their buyers were planning
to implement auction trading. Two South African
respondents had used the Internet to link into the
e-procurement systems of large retailers in the United
Table 5.5: Use of e-mail to place or accept product orders
Garments Firms Horticulture Firms Total
Always 24 11 35 (47%)
Frequently 20 5 25 (34%)
Seldom 0 7 7 (9%)
Never 2 3 5 (7%)
No response 1 1 2 (3%)
Total 47 27 74
Box 5.6: E-mail in the South African horticulture sector
Only a third of the South African firms were using e-mail to accept orders from buyers. Orders generally were
being negotiated face-to-face or by telephone. E-mail was being used in the same way as the fax machine to
follow up with ‘routine’ information on orders. For placing orders, communication with suppliers (the farmers)
involved the use of the fax, telephone, and personal visits. The marketing agents indicated that their firms
frequently sent out reports, newsletters and related information to growers via e-mail.
South African farmers were said to be relatively slow to use e-mail. There was a ‘lack of sophistication
on the growers side ... they are not tuned into technology’. In line with long established business practice,
these firms relied strongly on personal contacts. ‘Personal contact is the only way to get a feel of the
market and farmers appreciate it ... they need to hear your voice once a week ... this makes them feel
more involved’.
20. ISDN supports data transfer rates of 64 Kbps (64 000 bits per second). ISDN uses a modified Public Switched Telecommunication Network
(PSTN) creating a basic 'call' rate of 64 kbits second and an all-digital end-to-end channels.
23
THE REALITY OF E-COMMERCE WITH DEVELOPING COUNTRIES
States in order to bid for contracts. One had
participated in a private Internet-based ‘auction’21
organised by a large discount retailer in the United
States. The bid was successful and an order of
200,000 pieces was received. The other firm had
participated in a closed, forward auction through
another US retailer’s Web site. Despite having offered
the lowest auction price, the contract had been
awarded to one of this retailer’s existing suppliers.
In Bangladesh in the ready made garments sector, the
participation of some firms in on-line auctions and
the electronic entry of packing lists was mainly driven
by buyer firms. This suggests that in this area buyers
were playing a significant role in the way e-commerce
is likely to develop. One Bangladesh firm had been
invited to participate in a closed Web-based bidding
process by an international buyer. The buyer invited
a limited number of firms to participate in a bidding
process. The firm had participated in two of these
events for the same buyer – one in which it won a
contract and one in which it did not.
A second firm in Bangladesh had participated in
a similar closed bidding process established by one
of its French buyers. After having received product
samples from the supplier, the French company invited
the supplier to participate in its on-line auction. A local
buying agent based in Dhaka hosted the auction.
Although some of the bidders had access to the Web
they were not able to participate in these events from
their offices. Instead, all local bidders had to be
physically present at the local buying agent’s offices at
an appointed time to submit their tenders electronically.
This firm had been informed by Walmart, one of its
major clients, that it would be introducing a similar
on-line bidding procedure for its suppliers. Although
participating in on-line bidding had become a regular
occurrence for the firm, this respondent did not
appreciate these events because he said that they had
a tendency to push prices down to very low levels.
In this study, the firm sampling strategy was aimed at
eliciting information about the use of Internet-based
open e-marketplaces and it may therefore under-
represent the prevalence of these private, exclusive
Internet-based e-marketplaces.
5.6 B2B e-commerce or
‘business as usual’?
The findings of this research are in line with those of
an OECD study on the impact of B2B e-commerce on
various types of supply chains. It concluded that ‘at
the level of market systems, the “new economy” is
in fact not very different from “business as usual’’ ’
(Desruelle et al. 2001: 6). In the present study, there
were few signs of radical changes in the way that the
firms were trading even when some forms of B2B
e-commerce had been introduced.
In spite of the ability of garments firms in Bangladesh,
Kenya and South Africa to access and use the
Internet, most commercial practices were being
conducted in the conventional manner. There was
a preference for using existing personal networks
and for face-to-face meetings to share certain types
of information. E-mail was being used to support
some kinds of information exchange. These included
collecting and evaluating information about suppliers,
customers, and products; negotiating the terms of
a sale such as price, delivery date, etc.; ordering
Box 5.7: E-mail in the Kenyan horticulture sector
In Kenya, telecommunication penetration in rural areas is extremely low,22 but the mobile telephone market
was experiencing explosive growth. Much of this growth was concentrated in Nairobi and Mombassa at
the time of this study.23 The rapid growth of mobile telephone subscriptions was providing Kenyan
horticulture firms with a new means of maintaining contact with their growers. Slightly more than half
of the 15 Kenyan respondents reported using cellular phones and text messaging.
All 15 indicated that their firms ‘frequently’ or ‘always’ accepted orders via e-mail from their established
buyers. In Kenya international buyers place weekly orders for products throughout the growing season and
international buyers frequently fax and e-mail their orders simultaneously.
Three Kenyan respondents were critical of a perceived unwillingness from their European buyers to make
greater use of ICTs: ‘They are dumb ... we couldn’t believe it. We had to push them ... because telecom is
so easy in Europe, they’re used to calling someone. For us e-mail was a blessing’.
21. Although the respondents informally referred to these procurement systems as ‘auctions’, they were not involved in competitive bidding.
They provided a means for existing suppliers to submit tenders for production runs. The suppliers did not have access to any information
about the prices that their competitors were quoting to the buyer. Once the tenders were evaluated by the buyer, the successful supplier
was notified, usually via e-mail and fax.
22. In late 2001, Kenya’s fixed network capacity was about 480 000 lines, of which only 340 000 to 350 000 were connected to end users.
There were only about 120 000 fixed lines serving more than 5.2 million households and offices in Kenya’s rural areas. Outside urban
centres, the basic infrastructure requirements for e-mail were virtually non-existent, see Mureithi (2001)
23. Mobile telephones exceeded half a million subscribers by October 2001 (Kane 2002). The cost of this service and of acquiring a mobile
telephone, as well as the activation fees charged by the two mobile telephone operators, Kencell and SafariCom, were beyond the
means of most rural Kenyans.
24
THE REALITY OF E-COMMERCE WITH DEVELOPING COUNTRIES
products; and after-sales services. Network
connectivity was seen as a valuable tool, but generally
it was thought to have a minimal impact on sales and
purchasing efficiency. Its key benefit was a reduction
in communication costs.
For horticulture firms in Kenya and South Africa, the
use of the Internet was primarily associated with
messaging and, to a lesser extent, with marketing.
Few export sales with new clients were being
generated through the use of the Internet. Industry-
specific factors were clearly limiting the spread of the
B2B e-commerce applications available to the firms in
the sample. In this sector, as in the garments sector,
trade depended on personal contacts and networks.
Similarly, network connectivity was seen as an
important tool, but was believed to be having little
influence on sales prospects or the firms’ efficiency.
This study shows that in 2001-2002 there was very
little evidence of Internet-based transactions. The
firms in the sample were responding to changes
in their international supply chains by using a
combination of on-line and off-line services. There
were many different ways of implementing ‘B2B
e-commerce’. These depended upon a variety of firm,
sector and country-specific factors. Within each sector
there was differentiation between product categories
and in the problems created by the high costs of
telecommunication infrastructure development.
In this study, ‘B2B e-commerce’ is best described
as the use of:
• exchanges of business information via e-mail to
support communication associated with negotiating
and completing transactions;
• on-line Bulletin Boards serving as on-line ‘dating’
agencies for firms seeking new trading partners
by facilitating initial introductions, but leaving the
negotiation and completion to conventional
methods; and,
• some limited use of closed or exclusive
on-line auctions.
In the garments and horticulture sectors, trading
relationships tend to be fostered over extended time
periods and personal networks are strong. These
business relationships are difficult to transfer to
Internet-based e-marketplace systems. Establishing
trust and maintaining direct contacts between buyers
and sellers, as well as the structure and governance
of the sector value chains, are the key determinants
of B2B e-commerce developments. In addition,
although some types of B2B e-commerce are being
used, there was little evidence of a decline in the
importance of intermediaries in these sectors.
Business relationships in the garments and
horticulture sectors depend on many non-contractual
activities and the information requirements are
complex. The importance of the relationships among
firms in the global value chains suggests that there
is considerable potential for closed, private
e-marketplace development.
The next section provides a discussion and
interpretation of the empirical results presented
in this section and in Section 4.
25
THE REALITY OF E-COMMERCE WITH DEVELOPING COUNTRIES
6. Business Relationships and B2B E-commerce
The term ‘B2B e-commerce’ encompasses many
different applications, and this study illustrates the
variety of the applications supported by open e-
marketplaces. A limited number of these applications
were actually used by firms in the garments and
horticulture sectors in Bangladesh, Kenya and South
Africa. The main use of the Internet was for e-mail
communication and there was limited Web searching
and information posting.
This study of e-marketplaces and firms in developing
countries suggests that there is very limited use of
B2B e-commerce applications to support commercial
activities in these sectors. On-line trading activities
have been identified, i.e. the limited use of Bulletin
Boards to identify contacts and the use of other
Internet applications such as e-mail to support supply
chain integration. But these are not those envisaged
in much of the analytical and policy-oriented literature
on B2B e-commerce.
This result is not surprising. The potential for B2B
e-commerce needs to be evaluated in the context
of complex buyer-seller relationships. It also depends
on the limited extent to which ICTs can be used to
enable greater market transparency and lower
transaction costs.
This section discusses the limitations of various
types of B2B e-commerce in supporting arm’s-length
transactions between firms (section 6.1) and the
ways in which inter-firm networks involving repeat
transactions might benefit from the use of Internet
applications (section 6.2). It then considers the issue
of technological innovation and learning in the ICT
area as it applies to B2B e-commerce developments
(section 6.3).
6.1 B2B E-commerce and
arm’s-length transactions
This study has focused principally on Internet-based,
open e-marketplaces. The popular view is that B2B
e-commerce takes place in ‘many-to-many’
transaction-oriented e-marketplaces, sometimes in
the form of ‘screen to screen trading’. This is most
likely when the products involved are standardised
and easily valued. The availability of B2B e-
marketplaces is expected by many analysts and policy
makers to reduce trade-related transaction costs, to
increase market transparency, and to reduce barriers
to entry for developing country producer firms.
This expectation does not withstand empirical
scrutiny. Can the findings presented in sections 4
and 5 be generalised to other sectors and countries?
Horticultural products vary substantially in quality and
trade presents many complex logistical challenges.
Garments trading can also present problems of
description and valuation. Nevertheless, there are
good reasons for suggesting that our findings have
much broader applicability. We have been able to
highlight important limitations to on-line trading
in open e-marketplaces and the limitations more
generally of various types of B2B e-commerce as
a facilitator of global market access for developing
country firms.
The key issue for B2B e-marketplaces is trust. If firms
are to trade with ‘strangers’, they must be confident
about both the reliability of the trading partner
and the product information. The vast majority
of e-marketplaces that we examined provided no
assurances in these respects. Buyers were almost
entirely dependent upon sellers for information
about the products. The e-marketplace providers
were not employing two possible means of resolving
this problem.
First, they were not willing to assume the role of
resellers or guarantors of either product or payment.
The more open the e-marketplace, the more risky
these roles become. Second, the development of third
party trust services as guarantors of payment and
providers of independent checks on product quality
was incipient, at best. Further development of
trust services seems likely to be expensive, thus
undermining one of the key supposed advantages
of this type of B2B e-commerce. Firms that opt to
use most e-marketplaces have little if any means
of assessing the risk of trading on the basis of the
services provided directly by the provider.
One way of avoiding this problem is to trade on the
basis of brands. A brand is a way of providing a signal
to the market about a product. The product or
company name provides an indication of certain
characteristics of importance to the buyer. However,
developing a brand is expensive and requires
considerable economies of scale. Branding also
reinforces the market power of large firms and is
most effective when a producer is selling to many
buyers. Developing country firms generally do not
have the resources for branding in global markets,
and they are more likely to be in a situation of ‘many-
to-many’ or ‘many-to-few’ trading. Even if firms have
access to the Internet for various types of B2B e-
commerce applications that are tailored to their types
of trading, this alone cannot be expected to provide
greater access to international markets.
Firms frequently deal with information asymmetries
in arm’s-length transactions by using them mainly
or solely for purchasing products that: (i) are easily
valued; (ii) are not critical for the performance of the
buying firm; (iii) are potentially recognised brands;
and, (iv) are handled by resellers. This is the case,
26
THE REALITY OF E-COMMERCE WITH DEVELOPING COUNTRIES
for example, with MRO (maintenance, repair and
operations) products. These products have the
advantages of common standards and ease of
description, and non-criticality for the reliability and
continuity of the purchasers’ core operations. MRO
goods are low value, non-strategic items with limited
impact on the products being manufactured by the
buyer. A 2001 survey of European procurement
managers found that:
‘Most of the [e-commerce procurement] activity is
within the maintenance, repair, operation supplies
(MRO) sector, which includes items used in daily
operations, such as pens and chairs, but not material
used to manufacture goods. More than one-half the
respondents who buy on-line have purchased MRO
goods, while about one-quarter have bought materials
used in manufacturing products’ (IDC 2001).
Another strategy is to avoid using ‘many-to-many’
e-marketplaces and this is what we have found in
our study. In B2B e-marketplaces, the processes of
product valuation and risk management tend to
proceed in a way that is similar to that which occurs
in following up a conventional trade lead. Firms
follow up trade leads using the trade press or at trade
fairs. When buyers and sellers are accustomed to
trading with firms that are not previously known to
them, there may not be a need to follow up off-line.
However, in most cases, experienced traders will have
significant advantages over newcomers to the market.
B2B e-marketplaces do not level the playing field.
B2B e-marketplaces may also be based on restricted
participation, with the right of access determined
by those involved in operating a site on the Internet
or by firms using private extranet/intranet
configurations. In this study, we focused on open
B2B e-marketplaces, but we found a few instances
of closed, exclusive e-marketplaces. These forms of
on-line trading were being promoted by single large
buyers within their supply chains to facilitate the
streamlining of their sourcing activities.
The private, closed B2B e-marketplaces may not focus
exclusively on facilitating transactions since they can
support greater integration of their supply chains as
well. Supply chain management software packages
are being used to integrate the activities of buyers
and key suppliers without necessarily including price
discovery or supplier selection functions. Private
e-marketplaces are also being designed to include
both supplier selection and price determination
mechanisms (auctions, request for quotes, catalogues)
as well as supply chain management.24
The limited evidence in this study about these closed
types of B2B e-marketplaces suggests their use will
grow as some buyers develop them for integrating
their existing supply chains.25 The closed types of
e-marketplaces are likely to provide product quality
information to suppliers and shipment tracking
services, etc., but they are unlikely to promote
purchasing of products from new suppliers.
In the horticulture sector, products have to be
traceable and conform to quality standards and food
safety regulations. The further development of these
e-marketplaces is unlikely to open up markets and sales
contacts for producer firms in developing countries
unless they are already integrated within a supply
chain for buying and selling complex and difficult to
standardise products. In the garments sector, product
safety and traceability are not as important, but
reliability, quality and being able to work with customer
designs, are salient factors. These features all favour
repeat transactions between trading partners that
know each other.26 Arm’s-length relationships and
‘many-to-many’ trading is not the norm in these and
other sectors with similar characteristics.
6.2 Inter-firm networks and supply
chain integration
Open B2B e-marketplace providers have rarely been
able to resolve trust issues as established in section
6.1. This reduces their value for firms in developing
countries. However, there is a second reason why
open B2B e-marketplaces may not facilitate trade
for these firms. This relates to the nature of inter-firm
relationships and the impact of B2B e-commerce
on transaction costs.
Mariotti and Sgobbi (2001) have argued that the use
of ICTs does not necessarily promote anonymous
arm’s-length trading. The use of ICTs is expected to
reduce the cost of inter-firm co-ordination more than
the cost of intra-firm co-ordination. As a result, firms
may favour outsourcing as the cost of co-ordinating
activities with other firms falls. However, outsourcing
does not necessarily mean relying on spot markets or
establishing arm’s-length relationships between firms
in the supply chain. It can also lead to strong inter-
firm networks and to closely tied relationships.
Mariotti and Sgobbi make this point for the specific
case of e-commerce:
24. Personal communication with Jan Stenger of eFoodmanager, interviewed December 2001.
25. Interviews with three fresh fruit and vegetable importers in the United Kingdom in 2001.
26. For an example of supply chain co-ordination using the Internet and involving a Vietnamese firm and a European supplier,
see UNIDO (2000: 45).
27
THE REALITY OF E-COMMERCE WITH DEVELOPING COUNTRIES
27. For a recent collection of work in this area, see Gereffi and Kaplinsky (2001).
28. Three types of goods can be distinguished according to their quality characteristics. ‘Search’ goods have qualities that can be clearly
defined and specified in advance. The qualities of ‘experience’ goods can only be judged through consumption. ‘Credence’ goods have
characteristics that cannot be directly experienced. Claims about their characteristics are either extrinsic to the product or hard to verify
in later stages of the production and distribution process. Credence characteristics include hard-to-verify product characteristics such as
safety and nutritional value, place of origin, and adherence to labour and environmental standards in production.
29. The way that supermarkets in the United Kingdom control the production, processing and transport of fresh vegetables from Africa
without taking ownership of the product until it arrives in their distribution centres is discussed in Dolan and Humphrey (2000).
‘Yet, [the] market is not the sole co-ordination
mechanism of on-line transactions. A quick surf
across corporate Web sites shows that diffusion
of e-commerce has been sided [sic] by an impressive
growth of equity and not-equity technological and
commercial agreements among firms. This evidence
suggests that not negligible ‘imperfections’ exist in
electronic markets too. Agreements between firms
emerge as an intermediate solution to optimise
the trade-off between market and hierarchy via
e-commerce’ (Mariotti and Sgobbi 2001: 114).
The importance of inter-firm networks and
co-ordination for international trade has been
emphasised by researchers working with the concept
of global value chains.27 This work has noted the
increasing complexity of inter-firm networks in the
global economy, particularly in sectors where global
buyers have created production and distribution
systems to meet their requirements without
themselves taking ownership of production or
distribution facilities. The development of such
networks in the garments industry has been analysed
by Gereffi (1994; 1999) and, in the case of the
footwear industry, by Schmitz (1995; 2000). Similarly,
the co-ordination of the activities of independent
firms along the value chain in the case of the
horticulture industry has been examined by Dolan
and Humphrey (2000; 2001).
The work on global value chains suggests that greater
integration is driven by factors such as: (i) the role of
global buyers in product innovation which requires the
supply chain to deliver customised products; (ii) the
complexity of logistics arising from time pressure, seen
clearly in parts of the horticulture industry; (iii) the
increasing complexity of the regulatory environment
(particularly, but not exclusively, in the food industry)
and the rise of goods with ‘credence’ characteristics;28
and, (iv) the importance of ‘non-contractibles’ in
transactional relationships, such as the reliability of
delivery and co-operation in product innovation.
The way that globally dispersed production and
distribution systems are co-ordinated substantially
influences how firms in developing countries are
linked into the global economy. This has clear
consequences for the types of B2B e-commerce that
will be attractive for producer firms in these countries.
Much of the enthusiasm about the B2B e-commerce
opportunity has been predicated on the assumption
that international trade for these firms consists mainly
of arm’s-length transactions which can occur easily
in on-line environments.
However, in sectors such as garments and
horticulture, a large volume of global trade is
conducted through explicitly co-ordinated value
chains. In contemporary horticultural supply chains,
large retailers do not source products without
conducting extensive audits of the suppliers’ premises
and their quality, management, traceability and
related systems. The product is usually customised to
the retailer’s requirements. Information about product
specifications and demand is often commercially
sensitive and it is unlikely to be shared outside the
existing supply base. New sources of supply are
developed only after careful analysis of a supplier’s
production, quality and management systems.
Explicit co-ordination in the value chain is reflected
in growers increasingly working under contract to
exporters. Exporters develop close ties with importers
and retailers. This reflects the growing complexity
of horticultural products. Rapid product innovation,
the need for reliable delivery of consistent-quality
products and concerns about pesticide residues,
environmental impacts and labour standards, have
led to very tightly co-ordinated supply chains.
Horticultural products have been transformed from
basic commodities to differentiated branded products
requiring high levels of consistency and quality. These
are product attributes that the spot market has
difficulty assuring.29
In the case of garments, in contrast, global value
chains tend to be fragmented and dispersed. There
are large upstream and downstream firms as well as
many small and medium-sized firms throughout the
chain. There are few vertically integrated firms and
few firms that cover the entire value chain. The global
sourcing networks in the garments sector are
multifaceted and dense. In this sector, market
fragmentation creates a possibility for some types of
B2B e-commerce to be implemented in different parts
of the value chain.
The garments firms in this study were largely selling
to buyers that define the products and specify the
processes and standards to be used. In some instances,
the garments buyers were also stipulating the sources
of fabrics and trim needed to produce the final
product. In some cases, certification and quality control
were being handled by end-customer in-country
buying offices, e.g. American retailers such as Gap,
Target, JC Penney and Walmart. However, in most
cases, certification and quality control services were
contracted to independent local buying agents or to
local branches of global sourcing and quality assurance
28
THE REALITY OF E-COMMERCE WITH DEVELOPING COUNTRIES
firms such as Li & Fung, Linmark Westman
International, or Mast Holdings.30 These global sourcing
agents are responsible for identifying vendors, placing
orders, tracking production, and acting as quality and
compliance assurors.
Our analysis of the garments firms indicates that it
would be very costly in terms of R&D, overseas visits,
sampling, etc., and very difficult due to lack of
knowledge, to bypass agents to deal directly with end-
customers. The agents already have a sophisticated
market intelligence system and well-developed, multi-
layered global sourcing networks. They have long-term
relationships with overseas customers based on trust
and reputation (see Box 6.1).
The importance of existing global sourcing networks in
the garments sector was highlighted by a respondent
in Bangladesh. He observed that one of the biggest
mistakes made by those who promote the use of
the Web is the idea that it will help to bypass
intermediaries. He insisted that this view is wrong
because it does not acknowledge that third party
intermediaries play a central role in co-ordination and
quality control in the garments sector. Another said
that, ‘you cannot just locate JC Penney on the Web
and then hope to do business with them – it doesn’t
work that way’. He argued that establishing a business
relationship with JC Penney is a complex process that
entails input factor inspections and quality control.
These global value chain structures have clear
consequences for B2B e-commerce possibilities. They
largely rule out the use of spot markets and ‘many-to-
many’ e-marketplaces. For some products, particularly
in standardised, low-end market segments, the use
of private, buyer-controlled e-marketplaces and
competitive bidding between suppliers may become
more evident. For all products, greater supply chain
integration and co-ordination are likely to lead to an
increasing emphasis on ‘e’ competence. Global buyers
increasingly expect their suppliers to possess basic
competencies in using ICTs. E-mail use is extensive and
it seems that e-mail and the Web will be used more
extensively for value chain co-ordination. Production
schedules, quality information, shipping and inventory
management along the value chain could be better
integrated by using some types of restricted-access
Internet applications in areas related to supply
chain management.
Value chain integration is already evident in the
electronics industry. Examples such as Cisco Systems’
use of ICT for supply chain co-ordination are cited
in the literature.31 But the nature of the application
of ICTs to achieve value chain integration in other
sectors will vary. Following Sturgeon (2002) and the
value chain work of Gereffi, Humphrey and Sturgeon
(2003), it may be that the types of e-marketplaces
that develop will correspond to two different types
of market structures.
In one type of market structure, technical standards
simplify the interfaces between firms and reduce asset
specificity. The exchange of complex information is
feasible without customised interchanges and both
buyers and sellers work with a variety of partners.
The cost of switching value chain partners is relatively
low. This market structure would favour industry-
level, relatively unrestricted e-marketplace exchanges.
Depending on the degree of concentration in the
industry, the number of buyers and sellers could be
quite small.
In a second type of market structure for products
where information is difficult to codify or standardise,
relationships between buyers and sellers are more
likely to be bilateral and exclusive, and this would
favour closed, firm-sponsored e-marketplaces or
direct value chain co-ordination without using
e-marketplaces.
Box 6.1: Global sourcing networks
In South Africa, a key informant described the sourcing process:
‘If JC Penney wants to source T-shirts from South Africa, this is what would happen. JC Penney will go
to Linmark which is an international sourcing agent which has a South African office. Linmark may have
enough information to identify the suppliers or else they will go to the Export Council. They will say to the
Export Council that JC Penney is the customer, this is what they are looking for, and who do you think we
can do business with? The complexity of the needed information is such that you couldn’t do it by surfing
through corporate Websites or through a B2B trading hub. It will be very painful and risky to do it
electronically. The sourcing agent will need to know whether the supplier is able to deliver the right finish,
the right quality, how reliable the supplier is, etc. It doesn’t lend itself to e-commerce’.
30. Linmark Westman International is part of the Taiwanese-owned, but Singapore-based, Roly International Holdings Group; Li & Fung is the
largest global garment sourcing company in the world and has its headquarters in Hong Kong; Mast Holdings is an American company
and is owned by The Limited.
31. See, for example, Christiaanse and Markus (2003: 2).
29
THE REALITY OF E-COMMERCE WITH DEVELOPING COUNTRIES
In this study, three main business related reasons
appeared to account for the fact that the producer
firms in developing countries were not making
greater use of the potential offered by the Web.
The first was the importance of developing trusted
relationships with trading partners. Many respondents
indicated that Web-enabled relationships can not be
substituted for face-to-face encounters. One
respondent said, ‘Either you go to visit or they come
here. After that they feel comfortable... seeing and
feeling is very important’. Another suggested that
‘the buying and selling relationship is 100 per cent
about personal relationships. Anyone who forgets
that is dead’. And yet another – ‘this is a closed
industry, therefore, we need a recommendation
... we don’t just ship to anybody’.
The second reason was that many firms were not
actively trying to find new outlets for their products.
They either had a stable customer base or were
seeking to establish one. This involved building
relationships through personal contacts and networks.
This was one reason that firms in the horticulture
sector seemed to shun auctions. According to two
large horticulture firms in Kenya, prices at flower
auctions (electronic and traditional) were unstable
and generally lower than those offered by long-term
contracts with large retailers. These respondents
preferred to operate with a system that arranges
a customer before the product has been planted.
The third reason was that firms were often cautious
about using the Internet or e-marketplaces to develop
new sources of supply when the risks arising from
poor supplier performance were high. When it was
suggested to one large horticulture firm that seeds
could be purchased on the Web, the response was
that core inputs, such as seed supplies, were so
important to the business that they would only be
sourced from known suppliers. Agronomists from the
firm visited seed suppliers to verify the quality of the
product prior to purchase.
These considerations varied with the size of a firm
and the nature of its purchases as well as with the
criticality of the products being purchased. One
respondent said that although they accounted for
only a very small percentage of the firm’s overall input
purchases, packaging materials, seeds and packing
equipment had been purchased on the Internet.
Another pointed out that technical publications that
were not available in Kenya had been purchased
using the Web.
It should come as no surprise that private, exclusive
B2B e-commerce arrangements are likely to be more
attractive to buyers and sellers within established
supply chains. Earlier uses of ICTs supporting
information processing and corporate communication
networks were developed in both open and private or
corporate forms. For example, leased line networks
were developed by the large firms (and by smaller
firms through network sharing arrangements) on a
closed basis at least since the 1960s (Mansell 1993;
Noam 1992).
Internet protocols can be configured for the open
access to the Internet or for private, restricted access
networks (extranets/intranets). This bifurcation of
networks and applications is consistent with the
interests of some buyers and sellers in maintaining
a degree of information asymmetry. A transaction
cost analysis may suggest that there are strong drivers
to eliminate or reduce such asymmetries in order to
reap efficiency gains. However, our analysis of the
industrial structure and commercial practices of
garments and horticulture firms in this study suggests
that there are incentives to maintain such
asymmetries. This is likely to favour the development
of private, exclusive B2B e-marketplace developments.
6.3 Learning, intermediaries
and global networking
The foregoing observations about how some types
of B2B e-commerce are facilitating commercial
trading resonate with the experience of technological
innovation in the ICT sector more generally. It is
crucial to examine the specific technologies and
applications that are in use to understand their
potential impact. There are strong parallels between
our analysis of the importance of global value chains
and market structures for the development of
Internet-based B2B e-commerce and experiences of
the development of information systems to support
intra- and inter-firm information processing over the
last two decades (Roche and Blaine 2000; Mansell
2002; Mansell and Steinmueller 2000). Some of
the work on information systems focuses on the
experiences of firms and public sector organisations
in developing countries (Roche and Blaine 1996;
Avgerou and Walsham 2000). The central message
of this research is that:
‘Information and communication technologies, and
related systems, have significant potential to aid the
economic growth and improvement of social
conditions in the developing world; however, such
potential is not released by simply transferring
technologies and processes from advanced
economies. … people involved with the design,
implementation and management of IT-enabled
projects and systems in the developing countries
must improve their capacity to address the specific
contextual characteristics of the organization, sector,
country or region within which their work is located’
(Avgerou and Walsham 2000: 2).
30
THE REALITY OF E-COMMERCE WITH DEVELOPING COUNTRIES
Research on the development of information systems
also confirms that the role of intermediaries is often
essential in facilitating the learning processes that
enable users to assess whether the applications are
beneficial to them (Steinmueller 2000; Lundvall and
Johnson 1994; Johnson et al. 2002). The types of B2B
e-commerce, i.e. e-mail, Bulletin Boards, that become
attractive to producer firms in developing countries
depends upon whether the system designs reproduce
capabilities for comprehending and utilising
information that is essential for trading (Lombard
and Ditton 1997; 2000).
Although the use of digital photography to support
B2B e-commerce activities may enable improved
information exchanges, research is needed to identify
the tasks for which an electronic medium actually
enhances the information exchanges that are necessary
for transactions. Learning to use the technologies that
may be used to facilitate B2B e-commerce will also
be a relatively slow process and this is especially so for
smaller firms.
The difficulties of building capabilities for developing
and using various types of B2B e-commerce, and the
complexity of global value chains which involve many
intermediaries, buyers and suppliers, create both
barriers and opportunities for the use of Internet-
based applications. In many instances, in international
markets, intermediaries are not simply serving as
costly friction in an otherwise friction-free
marketplace. They are playing key roles in the markets
in which they operate. There may be a potential for
those roles to be performed more effectively and
efficiently if the intermediaries and the other firms
in the supply chain take advantage of some forms
of Internet-based B2B e-commerce. However, this
potential must not be taken for granted and B2B
e-commerce must not be assumed to be the lowest
cost alternative.
If intermediaries and suppliers and buyers are tightly
linked within the global value chains, they are likely
to remain so, even as electronic means of facilitating
trade are introduced. Despite the potential for global
networking offered by the Internet, there is no a
priori reason to expect that B2B e-commerce will
replace conventional means of organising trade.
The next section answers the research questions set
out in section 1 and shows how our analysis should
influence B2B e-commerce and other policies aimed
at improving developing country producer firms’
access to international markets.
31
THE REALITY OF E-COMMERCE WITH DEVELOPING COUNTRIES
7. Conclusions and Policy Implications
Facilitating B2B e-commerce is high on the policy
agenda of national governments and international
development agencies. The United Nations High
Level Panel on Information and Communication
Technologies, for example, concluded in 2000 that
when firms in developing countries are connected
to global networks they will be able to compete on
a more equitable basis (United Nations 2000). This view
was echoed in the UK Government White Paper on
‘Making Globalisation Work for the Poor’ (Department
for International Development 2000). The focus of the
G-8 countries’ Digital Opportunities Task Force (2002)
is shifting to broader ‘e-development’ issues including
a greater concentration on ICT access and connectivity
for health, education and skills-building initiatives.
However, applications for businesses and local
entrepreneurs are still high on the priority list for
new investment.
Viewing B2B e-commerce as the great ‘equaliser’,
most policy documents focus on resolving the digital
obstacles to the spread of B2B e-commerce and
on taking advantage of ‘digital opportunities’. This
report also recognises that there is a ‘digital divide’
and that there are many opportunities. However,
we do not regard digital technology as the highest
priority issue for developing country producers who
are seeking to strengthen their export position in
the global marketplace.
7.1 B2B e-commerce: new
opportunities or marginalisation
In this project our research questions focused on
whether B2B e-commerce is really creating new
opportunities for producer firms in developing countries
or whether it threatens to marginalise these firms
because they are not responding to the vision for B2B
e-commerce that is so prevalent in the literature. We
asked first:
Is B2B e-commerce opening new and cheaper access
to global markets for developing country producer
firms or, conversely, is it strengthening existing buyer
– producer relationships and reinforcing existing
power relations?
B2B e-commerce, in its open, ‘many-to-many’
e-marketplace form, is not very effective in opening
global markets for producer firms in developing
countries in the garments and horticulture sectors.
This is because of the nature of business transactions
in the two sectors.
Measures to tackle the ‘digital divide’ by improving
ICT infrastructure do not address this problem, and
attempts to create electronic trust mechanisms are
not likely to change the picture significantly.
Davenport et al. (2001) and others confidently
suggest that the resolution of trust issues is a key
element in the take-off of independent B2B e-
marketplaces. This confidence is misplaced. On-line
trust mechanisms cannot address many of the trust
issues highlighted in this report.
Some types of Internet-based B2B e-commerce are
developing, but these appear to be the private,
exclusive models, where access is restricted to firms that
are already integrated within their sector supply chains.
Some types of B2B e-commerce using e-mail and
Bulletin Boards are helping to reduce communication
costs for producer firms in developing countries. They
are also helping to reduce the costs of accessing certain
types of product and price information.
Improved access to global markets for developing
country producer firms does not follow simply from
these and other types of B2B e-commerce. Some
costs of transactions associated with trading in the
global market may increase as a result of the need
to invest in hardware and software. The costs of
maintenance of equipment and of accumulating a
new skills base may also increase. Producer firms in
developing countries are moving to implement some
types of B2B e-commerce, but the technology is
being implemented within a much wider strategic
context. This study shows that in 2002 the role of
‘many-to-many’ B2B e-marketplaces was marginal.
Our interviews with major buyers also confirmed that
this was the case. The forms of e-marketplaces that
were developing were not destabilising the existing
positions of firms within their global value chains.
B2B e-commerce was not opening up new or cheaper
access to global markets. Where new access
possibilities were available to developing country
producer firms, this was much more likely to be due
to changes in a firm’s position within its existing
global supply chain. In sectors such as horticulture
and, to an extent, garments, the position of global
buyers is becoming stronger in the global supply
chains. This study suggests that the structure of these
chains and the co-ordination needs of buyers and
sellers will strongly influence the specific types of B2B
e-commerce that develop in the future.
There are few if any signs that B2B e-commerce
in the form of ‘many-to-many’ e-marketplaces
is responsible for strengthening buyer-producer
relationships or reinforcing existing power relations.
Nor does it appear to be weakening buyer-producer
relationships or undermining existing power relations.
Further research is needed to evaluate the
implications of private, exclusive e-marketplaces.
In this project, we asked secondly about how
sophisticated ICTs are affecting the prospects
of developing country producers.
32
THE REALITY OF E-COMMERCE WITH DEVELOPING COUNTRIES
Are developing country producers being marginalised
by the spread of B2B e-commerce trading
relationships that depend on sophisticated ICTs and
on efficient logistics systems, electronic payment
systems and new certification procedures?
The garments and horticulture firms in this study were
based in Bangladesh, Kenya and South Africa. They
were selected on the basis of key informants’ and
local researchers’ assessments that they were trading
their products on the international market and that
they were likely to be using, or planning to use, some
form of B2B e-commerce. A few firms were identified
through our analysis of e-marketplaces.
The spread of the Internet and the development
of the telecommunication infrastructure in these
countries are following distinct patterns. The ‘digital
divide’ between these countries and the wealthy
countries is huge. However, regardless of whether
the firms that participated in this study were located
in rural or urban areas, they all had access to the
Internet in 2002. They were all using computers and
most were making use of e-mail communication and
to a much lesser degree, the Web. The technology in
use was not leading-edge as connectivity was mainly
achieved using analogue networks and modems (see
Appendices 2 and 3).
There were no signs that developing country
producers were being marginalised by the spread
of B2B e-commerce or by the emergence of trading
relationships that depend on sophisticated ICTs.
Despite the high costs of accessing and using the
telecommunication infrastructure in Bangladesh and
Kenya, and to a somewhat lesser extent in South
Africa, the use of the Internet and a limited number
of applications was enabling firms to bypass the voice
telephone infrastructure. They were using data
communication services provided by Internet Service
Providers, and even cyber-cafés. In this sense, the use
of the Internet was offering a basis for the inclusion
of these firms, rather than their marginalisation.
Market conditions for producer firms in developing
countries are influenced more by the existing market
structures and commercial practices than by the
introduction of new ICTs. However, if buyers in the
industrialised countries do increase their use of
broadband networks and extend the use of
extranet/intranet applications in support of global
supply chain co-ordination, the gap in the extent
of digital network developments and the costs of
Internet access could become a barrier for producer
firms in developing countries.
Similarly, buyers in the supply chains in which
developing country firms are integrated may move
to introduce costly supply chain management systems
that require sophisticated information management
systems, costly data input procedures, and the need
to provide and monitor commercially sensitive
information in electronic form. The consequences
of weak capabilities and restricted financial resources
among producer firms could become more visible
in this case. This could pose a threat that would
contribute to a marginalisation of producer firms
in developing countries.
It may not be in the buyers’ interests, however, to
promote greater use of sophisticated ICT systems
in the short- and medium-term. In the garments and
horticulture sectors, the producer firms repeatedly
claimed that the sector characteristics of their
industries are creating strong incentives for ‘business
as usual’.
7.2 Implications for policy makers
and practitioners
B2B e-commerce has been growing more slowly than
expected at the end of the 1990s in Europe. In the
United States, B2B e-commerce is certainly growing,
but not nearly as quickly as predicted initially. When
the commercial practices of firms have been
examined in detail at the firm level on a sector-by-
sector basis in the OECD countries, the key predictor
of change in the sector value chains is a change in
commercial practices, not in technology: ‘... the “new
economy” is in fact not very different from “business
as usual’’.’ This conclusion is confirmed by the results
of our study and it has major implications for policy.
Our third major research question was:
How can government or technical assistance agencies
help producers in developing countries to participate in
B2B e-commerce developments on an equitable basis?
Our strongest recommendation to policy makers and
practitioners is that achieving equitable participation
in B2B e-commerce development requires a wholesale
rethinking of the goals of policy in this area. The
goals of B2B e-commerce policy and ICT strategies
need to be linked first and foremost to the goals
that are set for the more equitable participation of
producer firms in developing countries in international
markets. These goals need to come first and they
need to inform the priorities for government policy
and measures taken by technical assistance agencies.
In this section, we comment on six of the key pillars
which normally support B2B e-commerce policies
and strategies.32 We argue that some of these pillars
should receive a lower priority when the main
objective is to strengthen the position of producer
firms in their global value chains. We follow this
assessment with a discussion of the fundamental
importance of gaining a much better understanding
32. The notion of policy ‘pillars’ is adapted from Shadrach (2003 forthcoming) who links the need to re-assess the priorities for policy
to the equally important need to undertake participatory research and evaluation of ICT initiatives for development.
33
THE REALITY OF E-COMMERCE WITH DEVELOPING COUNTRIES
of value chains and business relationships (section
7.3) and with suggestions about short- and medium-
term measures that can be taken by policy makers
and practitioners (section 7.4).
Poor ICT infrastructure
Much B2B e-commerce policy is focused on reducing
the ‘digital divide’. It puts technology first and
encourages strategies to increase the rate of growth
of the spread of telecommunication networks,
Internet Service Provider services, etc.
This study shows that the absence of a robust and
cost-effective telecommunication infrastructure is not
a key factor influencing the types of B2B e-commerce
that are being used by producers in developing
countries. In fact, for some types of B2B e-commerce,
an extensive telephone network is not required.
Present uses of B2B e-commerce require reliable and
cheap access to the public Internet (which means
there must be a possibility to access and use basic
links to the underlying telecommunication
infrastructure). These uses also require personal
computers and a reliable source of electricity. There
is no evidence that a more sophisticated ICT
infrastructure would significantly change the way
firms engage with B2B e-commerce applications.
Many firms are using analogue networks and modem
technology which means that there are limitations
on their use of the Web. Telecommunication service
reliability and high costs continue to be significant issues
in some developing countries, but they should not be
the principal concern in the light of the preferred uses
and configurations of B2B e-commerce at present.
While policy and regulatory measures to extend
access and reduce the cost of using networks are
important, the policy lesson for B2B e-commerce is
that further take-up depends on how value chains
and business relationships develop. This issue is not
the principal focus when all the attention rests on
the ICT infrastructure as the driver of change.
Poor transport infrastructure
There is no point in trying to sell on-line if products
cannot be delivered at reasonable cost to the buyer’s
desired locations. For digital or immaterial products this
is not a problem. But most developing country exports
are not digital, they are material. The availability of
some forms of B2B e-commerce often raises
expectations for faster delivery. This makes the transport
infrastructure even more critical for the development of
B2B e-commerce and for the participation of producer
firms from developing countries in international
markets. These firms must meet increasingly stringent
quality and time-to-market requirements.
The policy priority is to address ‘old’ issues of
providing efficient road and rail links, better port
facilities and faster customs clearance. This is essential
for operating in the global economy. Far from
disappearing in the digital age, these issues acquire
increasing importance, but they tend to be neglected
in the policy debate on B2B e-commerce.
Weak or absent legal and institutional infrastructure
for B2B e-commerce
The absence or weakness of the legal and
institutional infrastructure attracts much attention
in B2B e-commerce discussions. There are major
international and regional efforts to establish
frameworks and rules for digital signatures, electronic
security and payment systems.
These measures do not appear to be critical for the
types of B2B e-commerce that are currently being
implemented in developing countries. This is because
there is very little on-line buying and selling of
developing country producer firms’ products. Contract
commitments and payments are not generally being
made on-line. Conventional commercial practices in
these areas are favoured by firms, even those which
find buyers or suppliers through B2B e-marketplaces.
Once again, there is no evidence that radical new
business models would emerge if these legal issues
were resolved. We found no pent-up demand for
on-line trading in the sectors studied. Improving
legislation and rules for B2B e-commerce is desirable,
but it should not be a priority for policy makers who
want to improve access to international markets for
exporters in developing countries.
Weak trust infrastructure to support B2B e-commerce
A trust infrastructure to support B2B e-commerce with
respect to quality assurance and buyer and seller
redress may be important for some kinds of
transactions. This is especially so for small value trading
of standardised products in ‘many-to-many’ markets.
But the sophistication of electronic trust services
comes at a high price. The advantage of a very
common form of B2B e-commerce observed in this
study – the use of Bulletin Boards – is that they are
cheap and do not offer complex services. For SMEs,
this lack of sophistication and cheapness is an
attraction. For trade in many products, however, the
information requirements are very complex and they
are difficult to address through on-line trading,
certification and redress systems. Business processes
that are non-contractible such as reliability and
willingness to solve problems with business partners
are very important, but they are not addressed by
such systems.
More sophisticated technical solutions do not seem
likely to be regarded as substitutes for existing means
of building trust through personal contacts and face-
to-face relationships. For boosting opportunities for
producer firms in developing countries much more
attention needs to be given to commercial practices
and especially to the role of intermediaries and
brokers in building trust within global value chains.
34
THE REALITY OF E-COMMERCE WITH DEVELOPING COUNTRIES
Lack of preparedness, awareness and need for
training and capacity building
Lack of preparedness, awareness and the need for
training are very important issues. There is a need to
build capacities in ICT use and general capacities in
the industrial sectors of developing countries. ICT
competence is becoming a pre-requisite for inclusion
in global value chains. On-line buying and selling may
not be developing, but there is a clear growth of
on-line co-ordination of supplier-buyer relationships.
But policy makers and practitioners working in
technical assistance agencies should ensure that their
responses are not driven by broad-brush ICT and B2B
e-commerce strategies. Instead, their responses
should be driven by an understanding of how
producer firms are integrated in their supply chains
and by what they can do to combine their sector-
based strengths with the potential of carefully
selected applications of ICTs.
Capacity building and training are crucial for
operating in international markets, but the
contribution of B2B e-commerce must be carefully
defined. Capacity building initiatives must be
governed by the context in which producer firms
are operating in international markets.
Enthusiasm, resistance and cynicism about
B2B e-commerce
In the B2B e-commerce policy area there has been
a tendency to assume that managers of firms based
in developing countries will uniformly welcome the
application of sophisticated ICTs and that reductions
in transaction costs will justify their enthusiasm. These
assumptions are unhelpful, if not wrong, in two ways.
Enthusiasm on the part of younger managers is
contrasted with resistance on the part of older
managers. The potential for reduced transaction costs is
not a convincing argument for persuading the sceptics.
This study shows that many younger entrepreneurs in
developing countries are enthusiastic about the new
technology applications. When these entrepreneurs
are able to access and bear the costs of digital
technologies, they are sometimes ahead of their
buyers in the industrialised countries in devising
effective means of integrating these technologies into
their business practices. They are sometimes critical
of their industrialised country counterparts for their
reluctance to introduce changes in commercial
practices and routines.
However, there is resistance to changes in commercial
practices and to the adoption of ICTs in the case
of many of the older managers for whom strong
inter-firm networks and ties are at the core of their
business strategies. The issue for policy makers and
practitioners is to avoid simply assuming that the ‘old’
commercial practices are less efficient than the new
electronic means of trading. This creates cynicism
which may mean that inefficient practices become
entrenched and the effective deployment of some
types of B2B e-commerce is postponed. In some
cases, the use of ICTs does lead to reductions in
transaction costs and to efficiency gains, but that is
not the whole story. There are many non-ICT related
costs to be considered by producer firms.
Table 7.1 summarises these six key pillars that are
usually seen as obstacles that stand in the way of the
rapid development of B2B e-commerce in developing
countries. It also summarises our assessment of their
relevance and priority based on the results of this study.
Table 7.1: Obstacles to B2B e-commerce and assessment
Obstacle Assessment
Poor ICT infrastructure Not as relevant as often assumed.
Poor transport infrastructure Very important.
Weak or absent legal and Not as important as often assumed.
institutional infrastructure
Weak trust infrastructure for Open e-marketplaces are not assuming the risks and expense
certification and effective redress need to generate trust. The off-line trust infrastructure is a
higher priority.
Lack of preparedness, awareness Training and capacity building should not be driven by
and need for training and broad-brush ICT and B2B e-commerce strategies.
capacity building
Enthusiasm, resistance and cynicism Getting the balance between ‘old’ business practices and
appropriate ‘new’ B2B e-commerce solutions is a high priority
for both younger and older managers of producer firms.
35
THE REALITY OF E-COMMERCE WITH DEVELOPING COUNTRIES
7.3 Commerce first,
technology second
Value chains and business relationships are the key
issues for policy makers and practitioners in the B2B
e-commerce area and in efforts to enhance producer
firm prospects for trading in global markets.
Governments and development agencies are trying
to ‘mainstream’ the use of ICTs. This is a slow but
essential process and it must apply to strategies for
B2B e-commerce too.
This means that the promotion of B2B e-commerce
should be tackled through sector- and industry-
specific studies. These studies are needed to shed
greater light on how the organisation of global value
chains is affecting supplier-buyer relationships and on
the incentives of firms to exchange information and
to negotiate prices in on-line and off-line ways.
Our identification of major discrepancies between
the prevailing vision of Internet-based B2B
e-commerce and the experience of exporting firms
in developing countries suggests the need to re-assess
existing ‘e-readiness’ policies. These policies should
give much greater attention to the characteristics
and positioning of developing country producers
within global value chains. They should focus on
the technical, financial, and organisational structures
within which these firms operate.
It is essential to build up a base of empirical
knowledge about the many ways in which analogue
and digital technologies are being used by producer
firms in developing countries. Always focusing on the
potential of the most sophisticated ICTs is a high risk
strategy. The greatest risk is a failure to build on the
strengths of producer firms that are integrating older
and newer technologies into their businesses in useful
and cost-effective ways.
This study emphasises the importance of firms’
commercial practices and the operation of exporting
firms within their industrial structures. It offers
insights into the priorities for an informed discussion
about the opportunities and limitations of ‘many-to-
many’ e-marketplaces and into the likely development
of private, exclusive on-line trading applications using
the Internet. The latter is likely to have substantial
impacts on global supply chain integration in the
medium-term and on the positions of producer firms
in developing countries within these chains.
On the basis of this study our key propositions for
B2B e-commerce (in contrast to those set out in
section 2) are as follows:
Proposition 1: B2B e-commerce ‘many-to-many’
e-marketplaces are not the most important
development for producer firms in developing
countries that are already trading in global markets.
Instead, private, exclusive Internet-based trading and
new ways of integrating supply chain information for
better co-ordination are the key developments.
Proposition 2: ‘Many-to-many’ e-marketplaces may
be supported by business functions to help firms
to transact on-line in a few cases, but firms in
developing countries are not likely to change their
off-line business practices and relationships unless
they see major benefits for their positioning in global
value chains.
Proposition 3: B2B e-commerce does not offer greater
returns to firms in developing countries than other
channels for conducting trade. Producer firms in
developing countries continue to rely on their
preferred intermediaries and conventional trade
channels. Geographical distance still matters despite
the distance-reducing potential of the Internet.
E-marketplaces only reduce transaction
costs marginally.
Proposition 4: ‘Many-to-many’ B2B e-commerce is
unlikely to help most smaller firms to enter global
markets. This is because of the high costs of global
branding, the need to form trusted relationships, and
the need to meet the quality and other standards of
buyers in global value chains. Although smaller firms
may register at ‘many-to-many’ e-marketplace sites
or use the Internet to find new trading partners, they
are not more likely than larger firms to buy and sell
their material products using the Internet, and very
few in this study were doing so.
Given these propositions and the overall conclusions
of this study, what are the next steps?
7.4 Next steps: what can be done?
We conclude with: (i) observations about the need
for a radical change in policy priorities that will help
stakeholders in developing countries to find their own
region- and value chain-specific solutions for developing
B2B e-commerce; (ii) suggestions for making more
realistic assessments of B2B e-commerce opportunities
and obstacles.
What should policy makers and practitioners who are
keen to assist their local producers do?
Change the pillars of B2B e-commerce policy
The first pillar of policy for B2B e-commerce should
be the firms that are trading internationally. The
assumption must be that the configuration of
problems varies enormously between and within
developing countries, and often also between and
within sectors. Finding out from those firms seeking to
increase exports and other local organisations what
obstacles they encounter in their region or sector is
essential. Linking this information to an improved
understanding of the firms’ position in the global
value chain and to assessments of commercial
practices and procedures is an essential first step.
Only then can a judgement be made on priorities for
action. Another pillar of policy should be to recognise
36
THE REALITY OF E-COMMERCE WITH DEVELOPING COUNTRIES
that economic changes and globalisation mean that
participation in international markets and global value
chains is getting harder for firms producing material
products. Although some countries are developing
forms of B2B e-commerce to support trade in
intangible or immaterial services, for many developing
countries, the expansion of international trade
depends on trade in products that require close co-
ordination with buyers and tight integration within
global supply chains. As producers face greater
competition in their distant markets, investing in
capacity building in their sectors is also essential.
B2B e-commerce policy should not be a ‘policy pillar’
at all in the context of enabling producer firms to
achieve improved access to their global markets.
Instead, it should be recognised that there are no
easy B2B e-commerce formulas that will launch
developing country firms into new markets or help
them to find new customers. What producer firms
actually do with the ICTs they have available to them
and, especially, how they are using or want to use
the Internet, should be assessed in the context of the
first two pillars, ie. from the standpoint of the local
stakeholders and from the standpoint of the players
that influence their external markets. This means that
although investment in the most sophisticated ICTs
and in older networks and digital applications may be
important for producer firms, the choices should be
made based on what is best for highly differentiated
sectors and firms in developing countries, and not
on a highly technical and abstract assessment of
technological potential and its supposed impact
on transaction costs.
Towards realistic assessments of B2B e-commerce
opportunities and obstacles
The radical change in B2B e-commerce strategy
which gives priority to value chains and business
relationships will address the real operational
challenges that producer firms within their global
supply chains are facing. Policy makers and
practitioners in the industrialised and developing
countries should put their resources into encouraging
‘bottom-up’ initiatives to define effective uses of ICTs
and specific forms of B2B e-commerce in the wider
context in which firms are trading.
Policy makers, business leaders and practitioners
working in technical assistance agencies need to
fashion B2B e-commerce policies that match and
enhance the capabilities of the firms they are meant
to support. There is a need to fund more research to
make careful assessments of the availability of on-line
trading and off-line alternatives. The cost, skill,
organisational and other features of on-line and
off-line alternatives must be considered if policies
to promote ‘e-readiness’ are to succeed. The most
promising approach will be to include relevant
stakeholders in both the analysis of the problems
and the formulation of new initiatives.
The stakeholders include the local enterprises that
(intend to) use B2B or other forms of e-commerce,
the producer firms, the business associations, Internet
Service Providers, telecommunication companies,
relevant government agencies and the main foreign
buyers of local products. There are already some
venues and fora in developing countries that are
responsible for capacity building initiatives in the
ICT area. For the most part, these focus on the ‘old
pillars’ of B2B e-commerce or ICT strategy.33 This is
partly because funding is made available to support
investment and capacity building in the ICT area.
Despite the user or stakeholder-centred intentions of
the managers and sponsors of these initiatives, they
do focus on the ‘e’ or the ‘digital’ to a much greater
extent than they do on the sector- and firm-specific
needs. Although digital opportunity initiatives are
important, much more must be done to connect
those participating in the ICT-using sectors with those
who can help to assess and evaluate how to proceed
with realistic ICT or B2B e-commerce strategies. It will
be costly both in time and money to shift the focus
to the real needs of producer firms and to tailor
their choices of technology and on-line and off-line
practices to enhance their participation in global
markets. In our study, it is clear that there is a basis
for some kinds of effective Internet use to build upon.
Key to the ‘new pillars’ approach is that the relevant
actors are able to deepen their understanding of the
problems and own the recommended solutions.
Outside consultants are not superfluous in this
process, but they need to work in a participatory
way. This type of participatory approach will work
best when the focus is on particular value chains and
locations. Policy makers keen on this approach will
need funding to resource the effort that is needed.
• Funds are needed to conduct an appraisal of trade
opportunities and obstacles on a systematic basis
across sectors and countries;
• Expertise for co-ordinating appraisals that connect
industrial sector representatives with those who can
help define realistic uses of ICTs; and,
• Working with industrial sector fora, other
intermediaries, and the firms themselves to decide the
priorities for ICT or B2B e-commerce related actions.
33. See for example, Commonwealth Telecommunication Organisation, Building Digital Opportunities Programme, at
www.cto.int/frame.php?dir=06&sd=11&id=44; some of the International Institute for Communications Programmes at www.iicd.org/;
the LINK Centre’s projects and workshops on ICTs in South Africa at http://pc7.mgmt.wits.ac.za/profile.html; and the programmes run
by LIRNE.NET www.lirne.net/index.htm, all accessed 1 February 2003.
37
THE REALITY OF E-COMMERCE WITH DEVELOPING COUNTRIES
Foreign development assistance agencies can help by
creating a fund that local business and policy networks
can draw upon. They can also help by insisting that the
composition of the participants (both in research and
in policy discussions) encompasses industrial sector
representatives, and not just those who advocate the
potential of sophisticated ICTs.
Some funds may already be available but our study
suggests that too often they promote a vision of B2B
e-commerce that is disconnected from producer firms
experiences. Foreign development assistance agencies
can make available experts with experience in
undertaking rapid participatory appraisals. Methods
for such appraisals exist but they must be adjusted
to diagnosing and resolving specific configurations of
obstacles. They must be used to implement measures
that make ICT applications relevant to developing
country producer firms.
38
THE REALITY OF E-COMMERCE WITH DEVELOPING COUNTRIES
B2B e-marketplaces and e-hubs
The data collection strategy involved two phases. The
first phase took place over six weeks in April and May
2001. Internet sites were randomly selected by
conducting a keyword search using the Google and
Copernic2000 search engines and by visiting their
Web sites.34 The goal was to identify about 50 B2B
portals (sometimes called e-hubs) in each sector that
were providing user firms with the means to engage
in B2B e-commerce using the public Internet. For the
horticulture sector, the search was limited to sites
concentrating on the exchange of fruits, vegetables,
flowers and agro-food products. This technique
identified 177 B2B portals in each sector. The total
number of portals in the initial sample was thus 354.
The second phase involved visiting the Web sites of the
selected B2B portals to conduct an ‘attribute analysis’
using a taxonomy developed for the project. A pilot
study led to minor modifications to the initial taxonomy
to refine the coding of variables and to include services
that were offered by particular portals.
The method offered a means to identify and
code variations in the features of on-line trading
environments that would be most apparent to users.
The first part of the taxonomy focuses on specific
properties and corresponding variables associated
with transaction preparation. Table A1.1 lists these
and provides the rationale for their inclusion. The
second part of the taxonomy focuses on specific
properties and corresponding variables associated
with transaction completion (see Table A1.2).
Appendix 1: Research Methodology
Table A1.1: Elements of transaction preparation
Property Rationale Variables
Content Primarily influences transaction costs associated 1. Sector focus of the portal.
with searching for products, services, sellers and 2. Type(s) of goods exchanged.
buyers. Motivation related costs are linked to users’ 3. Type(s) of information provided.
assessment of the relevance of information available.
Ordering Users must have some assurance that the products 1. Product specification
they wish to purchase meet certain specifications information.
and the people they are dealing with are reputable. 2. Product related quality
assurance mechanisms
3. Buyer/Seller related quality
assurance mechanisms.
Table A1.2: Elements of transaction completion
Property Rationale Variables
Logistics When deciding whether to make a purchase buyers 1. Extent to which portal
must have a reasonable degree of confidence that participates in delivery
the goods will be delivered. of product/goods.
2. Types of logistical support
available.
Settlement The settlement mechanisms used may limit the 1. Types of settlement mechanism
ability of producer firms in developing countries employed in the venue.
from participating effectively in B2B e-commerce 2. Redress mechanisms.
transactions
34. The keywords used in these searches included: for horticulture B2B e-commerce sites – agricultural portal; ag portals; B2B agriculture;
B2B+horticulture; agriculture+ecommerce; B2B+agriculture+portal. For garments, B2B e-commerce sites – garments+portal;
apparel+portal; B2B+apparel; B2B+garments; garments+ecommerce; apparel+ecommerce. Search returns not selected for inclusion in
the sample generally were in one of the following categories: (a) business-to-consumer sites; (b) dead link; (c) job advert; (d) press release;
(e) news/press report; (f) academic or government report; (g) double listing (i.e. identified in another keyword search); (h) personal CV;
(i) non-English. In those instances where the links provided by the returned search engine results was to a directory Web site page(s),
the links listed in the directory were followed-up.
39
THE REALITY OF E-COMMERCE WITH DEVELOPING COUNTRIES
As the mapping of the portals proceeded, 118 B2B
were eliminated from the original garments sample
and 119 were eliminated from the horticulture
sample. Those eliminated were: (i) no longer trading;
(ii) providers of network systems; (iii) failed to meet
the criteria for inclusion (ie. did not support trade
in either fruits, vegetables, flowers, and/or agro-food
products); and, (iv) providers of a proprietary B2B
e-commerce service. The final sample consisted of
58 horticulture and 59 garments B2B portals.
Country Interviews
The study included interviews with respondents from
firms in Bangladesh, Kenya and South Africa that were
expected either to be engaged in some form of B2B
e-commerce or to be trying to establish this form of
trading. The aim was to clarify the potential benefits
of B2B e-commerce applications for firms trading
internationally. Interview data were collected from 74
firms, 47 for garments firms and 27 from horticulture
Table A1.3: Number of interviews per country
Country Garments Firms Horticulture Firms Key Informants Total
South Africa 28 12 16 56
Kenya 12 15 14 41
Bangladesh 7 NA 8 15
Total: 47 27 38 112
Note: NA = not applicable.
Table A1.4: Summary of firm respondents
Garments Horticulture
Position Frequency Per cent Frequency Per cent
Managing Director 14 29 3 11
Missing Cases 12 25
Export Merchandise Director 5 11
CEO 5 18
Proprietor 4 15
Chairperson 3 7
Marketing Director 3 7
Director 3 7 6 22
General Manager 2 4 2 7
Production Manager 2 4
Systems Support Manager 2 7
Divisional Managing Director 1 2
Information Systems Director 1 2
Chief Financial Officer 1 2
Marketing Manager 1 4
Project Advisor 1 4
Operations Director 1 4
Group Finance Officer 1 4
Accounts Manager 1 4
Total: 47 100 27 100
40
THE REALITY OF E-COMMERCE WITH DEVELOPING COUNTRIES
Table A1.6: Age of companies
Garments Firms Horticulture Firms
No. of Years in Business Frequency Per cent Frequency Per cent
1-25 23 49 15 56
26-50 7 15 7 26
51-75 11 23 0 0
76-100 1 2 3 2
Information not provided 5 11 2 7
Total: 47 100 27 100
firms. An additional 38 key informant interviews with
industry experts, business associations, e-commerce
solution providers, and government officials were
conducted in the three countries.
The number of interviews conducted in each country is
listed in Table A1.3. Given project resource constraints,
no attempt was made to achieve a statistically random
sample. However, an effort was made to elicit a range
of experiences of the participating exporting firms. And
the purposive sampling method enabled many key
issues to be addressed.
The firms in the sample were selected on the basis of
interviews with key informants in each country. The
project’s in-country research collaborators also were
able to draw upon their experience to identify potential
participant exporting firms. A few firms were identified
through their participation in the B2B e-marketplaces
examined in the first phase of the project.
The interviews were conducted using a semi-
structured questionnaire and face-to-face interviews.
They were conducted between February and May
2002 and their duration ranged between one and
two hours. All the respondents were promised
confidentiality and individual, firm, and association
names are not provided.
The firm interviews were conducted with individuals in
senior management positions. (see Table A1.4). Of the
47 respondents from the garments firms, slightly more
than half were linked to firms employing less than
1,000 employees, excluding casual labour. Some three-
quarters of the respondents from the horticulture firms
were linked to firms with less than 500 employees,
excluding casual labourers (see Table A1.5). For both
sectors, the majority of firms had been established
within the last 25 years (see Table A1.6).
Table A1.5: Number of employees
Garments Firms Horticulture Firms
Frequency Per cent Frequency Per cent
*500 12 25% 22 81%
501-1000 15 32% 0 0
1001-1500 7 15% 0 0
≥1,501 13 28% 5 19%
Total: 47 100% 27 100%
41
THE REALITY OF E-COMMERCE WITH DEVELOPING COUNTRIES
The dominant export markets for the garments firms
in the sample were continental Europe and the
United States (see Table A2.1)
Of the 47 respondents in this sector, 25 per cent
reported sourcing inputs (fabric, trim and other
components) exclusively from the domestic market
(see Table A2.2). Of those that were importing inputs
from overseas, the primary market was Asia, with the
European Union also being an important destination
particularly for high value-added inputs.
Appendix 2: Characteristics of the Garments
Sector Firms
Table A2.2: Most important countries from
which inputs are sourced, garment firms (N=47)
Frequency Per cent
Asia 30 64
Domestic Market only 12 26
EU 9 19
Sub Saharan Africa 2 4
Middle East 2 4
Mauritius 2 4
US 1 2
South America 1 2
Note: Percentage column adds to more than 100 per
cent because of multiple responses.
Table A2.1: Export markets, garment firms (N=47)
Garments Firms
Frequency Per cent
EU (including UK) 29 62
US 29 62
UK 21 45
Sub Saharan Africa 6 13
Middle East 1 2
Australia 1 2
Japan 1 2
Canada 1 2
Note: Percentage column adds to more than 100 per
cent because of multiple responses.
Some 32 per cent of the 28 South African firms, and
17 per cent of the 12 Kenyan firms were sourcing
inputs exclusively from domestic suppliers. With the
exception of one firm that produced all its inputs
in-house, none of the six other Bangladeshi firms
reported sourcing their inputs exclusively from the
domestic market. They relied primarily on suppliers
from Asia.
The export transactions of these firms tended to be
highly intermediated and direct selling or purchasing
was exceptional. The firms generally reported using
one or more intermediaries to reach the end-
customer. Only a few of the firms had achieved the
status of ‘core supplier’ to United States or European
end-customers.
Only 25 per cent of the 28 South African
respondents reported that their firms had direct links
with end-customers in the export market and 10 per
cent claimed to link into export markets via their
parent companies. The remainder were dependent
upon third parties (ie. global buying and/or quality
assurance agents, independent agents, and
importers/wholesalers).
42
THE REALITY OF E-COMMERCE WITH DEVELOPING COUNTRIES
All of the seven Bangladeshi respondents reported
that they had no direct links with end-customers
in the export market. The majority of their sales
were being conducted through local buying houses.
Information about the nature of customer links for
Kenyan firms was not obtained.
All 47 firms in this sector used computers and had
connections to the Internet. In order to connect to
the Internet the firms were either using analogue
modems or an ISDN connection (see Table A2.3).
Only three of the firms, all based in Bangladesh,
reported using high-speed Internet connections.
One-third of the 47 firms had an Intranet installed,
and approximately 90 per cent of these firms were
based in South Africa (see Table A2.4). None of the
12 Kenyan firms were reported to have an Intranet.
When these networks were in place they typically
were used to enable staff to read company
information and to allow staff to access databases.
None of the 47 firms had implemented an extranet.
The prospects for developing an external business
network by providing clients and commercial partners
with limited, firewall-managed access to the firm’s
internal network were limited. However, respondents
from four of 28 South African, two of the 12 Kenyan,
and one of the seven Bangladeshi firms mentioned that
their firms were accessing the extranets of their buyers.
Table A2.4: Adoption of Internet technologies,
garment firms
Frequency Per cent
Public Internet 47 100
Intranet 16 34
Extranet 7 15
Note: Percentage column adds to more than 100 per
cent because of multiple responses.
35. ISDN supports data transfer rates of 64 Kbps (64 000 bits per second). ISDN uses a modified Public Switched Telecommunication Network
(PSTN), upgraded so that the basic ‘call’ is a 64 kbit per second, all-digital end-to-end channel.
36. SDSL provides high speed data networking over a single-pair of copper telephone lines. Equal amounts of bandwidth are provided
in the upstream and downstream direction. It is faster than ISDN, with speeds ranging from 160 kbps to 1.544 Mbps.
Table A2.3: Type of Internet connection,
garment firms
Frequency Per cent
Analogue 30 63
Integrated Services
Digital Network35 14 29
Symmetric Digital
Subscriber Line (SDSL)36 24
Cable 2 4
Total 47 100
43
THE REALITY OF E-COMMERCE WITH DEVELOPING COUNTRIES
The dominant export markets for the horticulture
firms in the sample were continental Europe, and
United Kingdom and the Middle East (see Table A3.1).
The vast majority of the 27 firms in this sector were
sourcing their inputs (ie. seeds, chemicals, packaging
and other components) exclusively from the domestic
market (see Table A3.2). Of those firms sourcing
inputs from abroad, the three primary markets were
the Netherlands, Israel and South Africa.
For international sales, the 12 South African and
15 Kenyan horticultural producers rarely market their
crops independently. The export transactions were
highly intermediated and direct selling or purchasing
was exceptional. None of the 27 firms in this sector
had direct links with end-customers. They were
dependent on intermediaries such as brokers,
importer/wholesalers and auctions.
Appendix 3: Characteristics of the
Horticulture Sector Firms
Table A3.1: Export markets, horticulture
firms (N=27)
Frequency Per cent
EU (including UK) 24 89
UK 11 41
Middle East 11 41
Far East 7 26
Netherlands 5 18
US 4 15
India 2 7
Canada 1 4
Note: Percentage column adds to more than 100 per
cent because of multiple responses.
Table A3.2: Most important countries from which
inputs are sourced, horticulture firms (N=27)
Frequency Per cent
Domestic Market only 21 79
Holland 3 11
Israel 3 11
South Africa 3 11
UK 2 7
US 2 7
EU 1 4
Note: Percentage column adds to more than 100 per
cent because of multiple responses.
Table A3.3: Type of Internet connection,
horticulture firms
Frequency Per cent
Analogue 14 52
Integrated Services
Digital Network 9 33
Symmetric Digital
Subscriber Line (SDSL) 2 7
Cable 1†4
No Response 1 4
Total 27 100
† The offices of this firm were located adjacent to
a local ISP with each enterprise housed in the same
building. The proprietors of these two companies
had negotiated a private agreement wherein the
horticulture firm’s computers were directly linked.
44
THE REALITY OF E-COMMERCE WITH DEVELOPING COUNTRIES
All 27 respondents reported that their firms used
computers and had Internet connections. Firms
predominantly were using analogue modems or an
ISDN connection to access the Internet (see Table A3.3).
Only two firms, one in South Africa and one in
Kenya, reported having implemented an Intranet (see
Table A3.4). These were used to enable staff to read
company information and to allow staff access to
databases. None of the firms had developed and/or
implemented an extranet. The prospects for
developing an external business network by providing
clients and commercial partners with limited, firewall-
managed access to the firm’s internal network
appeared to be limited.
Table A3.4: Adoption of Internet technologies,
horticulture firms
Frequency Per cent
Public Internet 27 100
Intranet 2 7
Extranet 0 0
Note: Percentage column adds to more than 100 per
cent because of multiple responses.via an Ethernet
connection, to the ISP’s servers.
45
THE REALITY OF E-COMMERCE WITH DEVELOPING COUNTRIES
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47
Design: LSE Design Unit (www.lse.ac.uk/designunit)
Institute of Development Studies
at the University of Sussex
Brighton
BN1 9RE
United Kingdom
John Humphrey
email: j.humphrey@ids.ac.uk
Hubert Schmitz
email: h.schmitz@ids.ac.uk
Interdepartmental Programme in Media and Communications
The London School of Economics and Political Science
Houghton Street
WC2A 2AE
United Kingdom
Robin Mansell
email: r.e.mansell@lse.ac.uk
Daniel Paré
email: d.pare@lse.ac.uk
