WorldTrade News.com - Transnational Association

A possible definition of electronic commerce would be: "any form of commercial transaction in which the parties interact electronically instead of by means of direct physical contact or interchange". However, this definition does not really capture the spirit of electronic commerce, which in practice can be seen more as one of those cases in which the need for change and new technologies join together to revolutionise the manner in which business is carried out.

Modern commerce is characterised by an increase in the capacity of suppliers, global competition and the consumer's expectations. In response, world-wide commerce is changing in terms of both the way in which it is organised and the way in which it behaves. The old hierarchical structures are being surpassed and the divisional barriers in companies are being eradicated, as are the barriers that exist between companies and their clients and suppliers.Commercial processes are being redesigned in such a way that they cross those limits. There are now many examples of processes that affect the whole company and also some which are undertaken jointly by a company and by its consumers and suppliers.

Electronic commerce is a means of making such changes possible and tenable on a world-wide scale. It allows companies to be more efficient, and more flexible with respect to their internal operations, to work more closely with their suppliers and to provide a better response to the needs and expectations of their clients. It allows them to select the best suppliers, without having to take into account geographical location, and sell to a world-wide market.

A special type of electronic commerce is electronic sales, whereby a supplier provides a client with goods and services in exchange for payment. A particular case of electronic sale is that in which the client is an ordinary consumer instead of another company.

However, even though these cases have considerable economic importance, they are only examples of a more general form of commercial transaction or operation that takes place through electronic means. Other equally valid examples are internal transactions within a company or the supply of information to an external organisation, whether or not it is being charged for.

Electronic commerce is technology for change. Companies that view it as an "addition" to their normal way of working will only reap limited benefits from it, the major benefits going to those companies that are capable of changing their operation and their commercial processes in order to fully exploit the opportunities offered by electronic commerce.

Categories of E-Commerce

Depending upon the agents involved, Electronic Commerce can be sub-divided into four different categories:

a) company-company (B2B)
b) company-consumer (B2C)
c) company-administration
d) consumer-administration

An example of the company-company category is a company, which uses a network to place orders with suppliers, being charged and paying for them.

The company-consumer category tends to equate to electronic sales. These have grown with the arrival of the World Wide Web. There are now commercial galleries on Internet which offer all sorts of consumer goods, from sweets and wine to computers and motor vehicles.

The company-administration category covers all those transactions that take place between companies and government organisations. For example, in the U.S.A. government regulations are published on the Internet and companies can respond electronically.

Generally speaking, this category is just beginning, but it could grow quickly if governments use it for their operations in order to promote quality and the growth of electronic commerce. In addition, administrations can also offer the option of electronic interchange for transactions such as certain general and corporate taxes.

The consumer-administration category has not yet emerged. However, as the company-consumer and company-administration categories grow, governments may extend electronic interaction to areas such as the payment of pensions or consultations regarding tax returns.

Electronic commerce is not a futuristic dream, but something that is occurring now with some successful and well implanted actions. It is taking place throughout the World and, although the U.S.A., Japan and Europe are showing the way, electronic commerce is essentially global, both in terms of concept and in fact. It goes far beyond.

Impact

The impact of electronic commerce will be felt in companies and in society in general. For those companies that fully exploit its potential, electronic commerce offers the possibility of ground breaking change, change that will radically modify the expectations of clients and will redefine markets or create completely new markets.

All companies, including those that ignore new technologies, will feel the impact of these changes in the market and the expectations of clients. Likewise, individual members of society will be faced with completely new methods of acquiring goods and services, accessing information or interacting with government entities.

Possibilities will be really extended and geographical and time constraints will be eliminated. The general impact on the way of life can be compared, it is said, with the introduction, at the time, of the telephone or motor car.

Opportunities

Electronic commerce offers various opportunities to suppliers and multiple benefits to clients/consumers:

OPPORTUNITIES .............................. BENEFITS FOR CLIENTS
Global presence ................................. Global choice
Increased competition ........................ Quality of service
Massive personalization and adption .... Fast response to needs
Shoreter delivery chains .................... Substantial reduction of prices
New business opportunities ................. New products and services

Opportinities: Global presence / Global choice

The limits of electronic commerce are not defined by national or geographical frontiers, but by the coverage of computer networks. As the most important networks are global, electronic commerce allows even the smaller suppliers to have a global presence and do business around the world.

The benefit to the client is a global choice, being able to select among all of the potential suppliers of a particular product or service without having to take into account geographical location.

Opportunities: Incresed competition / Quality of service

Electronic commerce allows suppliers to increase their competitiveness, bringing them closer to their clients. As an example, many companies use electronic commerce technology to offer better pre-and post-sales support, increasing the level of information that they provide about their products, user guides, and a rapid response to the needs of their clients. The corresponding benefit to the client is an improvement in the quality of service.

Opportunities: Generalized apadtion / Personalized services

With electronic interaction, suppliers can have detailed information (24 hours a day) on the requirements of each of their individual clients and automatically adjust their products or services. The result is tailor made products comparable to those being produced by specialists, but at mass market prices. A simple example is an on-line store designed for individual readers that emphasises articles of interest with each access and excludes those that have already been read.

Opportunities: Shorter or non-existent delivery chains / Rapid response to needs

Electronic commerce often allows for delivery chains to be reduced drastically. There are many common examples of products being sold directly by the manufacturer to the consumer., avoiding postal delays, and intermediary storage and distribution delays. The contribution of electronic commerce is not to make such direct distribution possible, as this can be done by catalogues in paper form or by taking orders over the telephone or by letter, but electronic commerce makes this chain less expensive and time consuming.

An extreme example is the case of products and services that can be distributed electronically, where the distribution chain can be completely eliminated. This has massive implications in the leisure industry (movies, video, music, magazines, and newspapers), for the information or education industries (including all forms of publicity) and for computer software development and distribution companies.

The benefit to the client is the possibility of quickly obtaining the precise product that is required, without the current stock limitations of the local distributor.

Opportunities: Cost reduction / Prize reductions

One of the major contributions of electronic commerce is the reduction of the cost of transactions. Whilst the cost of a commercial transaction that involves human interaction can be measured in Dollar terms, the cost of carrying out a similar transaction electronically con be measured in terms of a few cents. Thus, some commercial processes that involve routine interaction can benefit from substantial cost reductions, which can be translated into substantial price reductions to the client.

Opportunities: New business opportunities / New products and services

In addition to the redefinition of markets for existing products and services, electronic commerce also provides completely new products and services. Examples include network services, directory services, contact services, ie: setting up the initial contact between potential clients and suppliers and, many types of on-line information services.

Although the opportunities and benefits are different, there is a strong inter-relation between them. For example, massive personalisation can result in increased competitiveness and quality of service, whereas the shortening of the delivery chain can contribute to the reduction of costs and prices.

Scope

Electronic commerce is not a unique or uniform technology, but is characterised by its diversity. It can involve a wide range of commercial operations and transactions, including:

- Establishing the initial contact, for example, between a potential client and a potential supplier.;
- Interchange of information;
- Pre and post-sale support (details of available products and services, technical product user guides, replies to user inquiries, etc...);
- Sales;
- Electronic payment (using electronic transfer of funds, credit cards, electronic cheques, electronic cash);
- Distribution, including distribution and handling of physical products and the distribution of products that can be distributed electronically);
- Virtual Associations, groups of separate companies that join forces in such a way as to offer products and services that extend beyond the capacity that each can offer individually;
- Shared business processes carried out and owned by a company and its partners;

Likewise, electronic commerce involves a wide range of communications technologies including electronic mail, electronic data interchange (EDI) and electronic fund transfer (EFT), all of which are incorporated in the Interactive Commercial System (see annex).

Furthermore, a legal and well-defined regulatory support is needed to guide electronic commerce, helping electronic commercial transactions rather than imposing barriers. Just as the possibility of global interaction is one of the fundamental pillars of electronic commerce, this legal and regulatory support should also have a global scope.

Levels of E-Commerce

There are various levels of electronic commerce, which range from a simple presence in the network to the electronic support of processes carried out jointly by various companies.

In the majority of cases the distinction is made between those operations that require national transactions and those that require international transactions. Such a distinction is legal, not technical, as we have said that electronic commerce is conceptually global. Electronic commerce is more complicated on an international level than on a national level due to factors such as taxation, contractual laws, methods of payment and differing financial practices.

The basic levels of electronic commerce are those that concern the basic presence in information networks, the promotion of companies and pre-and post-sale support. Using available technologies, these levels can be cheaply and easily istalled, as can be witnessed by thousands of companies of all sizes that use them.

On the other hand, the more advanced forms of electronic commerce involve more complex problems of a legal or cultural nature, rather than technological. At this level there are no standard solutions, so companies are forced to develop their own tailor-made systems, which means that, at present, large and wealthy companies are the pioneers at these levels. However, common solutions will gradually come from these experiences which will mean that these processes will also form part of the more common technologies, as has been happening with what are today considered to be basic levels.

Considerations

Although electronic commerce is growing rapidly, there are still questions open which need to be resolved in order to develop its full potential. Amongst others:

Globalisation: Potentially, global networks mean that it should be as easy to do business with a company on the other side of the World as it is with a company in the next street; however, the means of communication, although necessary, is not enough on its own. How can two companies in different continents know of their mutual existence or of the range of products or services that they each need or offer? How can a company know and understand the traditions and rules of business of far away countries, particularly if said rules tend not to be written? And how can linguistic and cultural diversity be respected or tolerated in a community of global users? These and similar questions form part of the open nature of globalisation, which will make global electronic commerce a practical reality.

Contractual and financial transparency: Let us suppose that a company in Thailand is browsing through the electronic catalogue of a Russian company and places an electronic order for products distributed electronically, for which they will also pay electronically. This simple scenario gives rise to a series of fundamental questions that have yet to be resolved. Precisely when is a hidden contract established between companies? What is the legal status of that contract? What legal system does it come under? How is the payment made and confirmed, given the different financial practices and regulations? What taxes or duties would be applied to the products? How will said taxes be applied, controlled and collected? Can the question of payments and taxes be resolved by the simple procedure of having electronic "manufacturing" in a third country?

Property: Particularly in the case of products which can be distributed electronically, and which can be easily copied, the protection of intellectual property and copyrights represent a question that is still not resolved.

Privacy and security: Electronic commerce needs efficient mechanisms to guarantee the privacy and security of open networks. These mechanisms should provide confidentiality, authentication, ie: they should allow each party that intervenes in a transaction to ensure the identity of the other party(ies), and fidelity or non repudiation, that is, to ensure that the parties that intervene in a transaction cannot subsequently deny their participation. As the recognition of security and privacy mechanisms depends upon certification by a qualified third party, (such as a government body), electronic commerce requires the establishment of a global certification system.

Interconnectivity and interoperability: To get the full potential out of electronic commerce, universal access is required, so that each company and each consumer is able to access all of the organisations that offer products and services, irrespective of geographical location or of the specific network to which each is connected. This, in turn, requires universal standardisation of the interconnection and interoperability of networks.

Risk: One factor that could limit the growth of electronic commerce is the lack or resources or initiatives. There is the danger that many companies, above all the smaller ones, could be at a disadvantage simply because they are unable to afford these types of possibilities and opportunities. There is therefore an urgent need to promote initiatives, publicise some prime examples and promote training.

The players and their role in the Virtual Community

Many of the subjects being studied with regard to electronic commerce need to be resolved in a global fashion. This means that multinational entities should be amongst those with responsibility for resolving these matters and promoting electronic commerce. Likewise, there is a role for national governments, which is to eliminate national barriers and ensure open competition, and for representative sectors to promote better low-cost practices. Finally, there is an obvious role for the suppliers of technology, users' companies and individual consumers in setting up and exploiting electronic commerce. In many cases each player has a part in various activities and various players can undertake each activity.

The G-7 iniciative

At the beginning of 1995 the countries that make up the Group of 7 adopted eleven initiatives which collectively were intended to demonstrate the potential of the Information Society and stimulate its development. One of these initiatives, "A Global Market for SME's", has the general objective of helping to increase competitiveness and the participation of SME's in the global market, exploiting the possibilities offered by the development of the global information society. Its specific objectives are to contribute to the development of a global information environment for the open and non-discriminatory interchange of information of benefit to SME's (on technology, products, human resources) over and above obstacles such as distance, time or national frontiers.To extend global electronic commerce in order to establish platforms which will support their commercial operations and manage them in a more efficient and advantageous manner.

The initiative, which should be completed by the end of 1998 has three themes, each with its own coordinator:

THEME 1: global information networks for SME's. This theme will contribute towards the development of an open and non-discriminatory environment that will allow SME's to access the information that they need and to spread information about their products, technologies, etc. using international information networks.

THEME 2: needs of the SME's. (legal, institutional and technical). This theme aims to ensure that the systematic opening associated with a global market for SME's is directed and provides a platform based upon open systems that will ensure that the project as a whole addresses the specific requirements of SME's.

THEME 3: international support for electronic commerce. This theme aims to: (i) promote compensation for initiatives that aim to set up "A Global Market for SME's" by means of global electronic commerce; (ii) promote the development of studies, pilot schemes and other cooperative actions that evaluate and propose solutions to the as yet unresolved problems; (iii) publicise successful examples of global electronic commerce that involve SME's.

The initiative is open to countries that are not part of the Group of 7 and to international organisations.

Conclusion

This document aims to give a general view of the Virtual Community, of virtual electronic commerce as a vehicle for the commercial revolution. Special emphasis has been placed upon the importance of a global perspective and, it is suggested that the impact of electronic commerce will be overwhelming, both for companies and for society as a whole.

Despite the fact that there are still matters to be resolved, electronic commerce is now underway and, at a fast pace.

A "grass roots" revolution is fundamental.Companies across the World are establishing a basic electronic presence on an open global network and, they are learning from the experience, gradually becoming more sophisticated in their use of technology.

Whilst the more advanced levels of electronic commerce still present substantial challenges, the more basic levels are already well established and are supported by standard solutions. The best way in which to master electronic commerce, which will be vital in tomorrow's marketplace, is to get involved today.

ANNEX (Joint declaration of the European Union and the U.S.A. regarding electronic commerce, dated 5th December 1997)

5th of December 1997

1. Global electronic commerce, prompted by the development of the Internet, will be an important force behind the growth of the world economy in the 21st Century. Electronic commerce offers new possibilities to businesses and individuals throughout the World. In particular, small companies will be able to gain unprecedented access to world markets at a low cost and consumers will be able to choose from a wide range of products and services. Electronic commerce will increase productivity in all sectors of our economies, apart from promoting the interchange of products and services and investment, create new activity sectors, new marketing and sales techniques, new systems for generating income and, most importantly, new jobs. The liberalisation of services, particularly basic telecommunications services, is a key element in the growth of electronic commerce.

2. We propose open dialogue between governments and the private sector on a world-wide scale in order to create an ideal legal and commercial environment for carrying out business through Internet. We acknowledge that the approach to electronic commerce must be coherent and coordinated at an international level. When the government agreements are appropriate, we will commit ourselves to working constructively with our partners within the appropriate multinational institutions and other forums in order to achieve coherent and efficient solutions, preferably on a global scale. In this respect, we are in agreement with the need to involve all countries, including those that are developing.

3. In accordance with the following recommendations, we agree to work towards the development of a global market in which competition and the consumers' right to choose drive economic activity:

- The expansion of global electronic commerce will essentially be aimed at the market and will be managed by private initiative. The interests of all of the players, in particular the consumers, libraries, schools and other public institutions, should be taken into account, as should the need to ensure the widest possible use of new technologies.

- The role of governments is to provide a clear and consistent legal framework, promote a competitive environment in which electronic commerce can flourish and ensure the adequate protection of objectives which are of interest to the general public, such as intimacy, intellectual property rights, the prevention of fraud, consumer rights and national security.

- Self-regulation of the industry is important. Within the legal framework provided by governments, public interest objectives can be included in international or reciprocally compatible codes of conduct, standard contracts, recommendations, etc. which will be the result of an agreement between the industry and other elements of the private sector.

- The legal and regulatory barriers that are deemed to be unnecessary should be eliminated and the appearance of new ones should be avoided. When legislative action is deemed to be necessary, the advantages and disadvantages of electronic commerce cannot be compared with other forms of commerce.

- Taxes in matters of electronic commerce should be clear, consistent, neutral and non-discriminatory.

- It is important to increase awareness and confidence in electronic commerce amongst the general public and SME's and support the development of network training activities.

- Interoperability, innovation and competition are important to the development of a global market and, in this context, voluntary standards, based upon an agreement and preferably at international level, have an important part to play.

4. Specifically, we have agreed to work towards:

- Global recognition, as soon as possible, that when products are ordered electronically and delivered physically, there should not be any additional tariffs that penalise the use of electronic means. In the remainder of cases relating to electronic commerce, the absence of tariffs on imports should continue.

- The effective application as from 1st of January 1998 of the commitments adopted with regard to basic telecommunications services and included in the GATS programmes and addenda and, the finalising of the second phase of the Agreement on Information Technology Products in the summer of 1998.

- The ratification and application, as soon as possible, of the OMPI treaties on Copyrights and Performing and Recording Rights.

- Ensure the efficient protection of the right to intimacy with respect to the automated handling of personal data in global information networks.

- The creation of a system for the registering, assigning and handling of Internet domains based upon the global market and which fully reflects the geographical and functional diversity of Internet.

5. In addition, we agreed:

- To actively support the development, preferably at a global level, of the codes of conduct based upon self-regulation and of technologies which will boost consumer confidence in electronic commerce, involving all of the players in the market, including those that represent consumer interests.

- Mutual cooperation and assistance to ensure the efficient administration of taxes and to prevent or fight illegal activities on the Internet.

- The positive role that electronic commerce can play in the development of a strategy that will help to improve the international job market and commerce.

- Cooperation in the area of R&D and in electronic commerce technologies, within the framework of the Agreement on Science and Technology signed between the European Union and the U.S.A. , as well as in business pilot schemes where appropriate.

- Continue bilateral discussions at an expert level, including participants from governments and the private sector, with respect to the above mentioned subjects and others such as public purchases, the laws on contracts and regulated professions, civil liability, commercial communications, electronic payments, information encrypting techniques, electronic authentication and the digital signature, and the contents filtering and classification technologies.

- Cooperation aimed at promoting the interchange of statistical data relating to electronic commerce.

6. As it becomes necessary in order to achieve these objectives, we will continue our discussions with the aim of reaching a general agreement in the appropriate multilateral forums which may include, for example, the OIC, the OECD, the OMPI and UNCITRAL. We propose continued work within the EU-US Information Society Dialogue, the Trans-Atlantic Business Dialogue and the EU-U.S. Joint Study.

7. We will analyse the progress obtained in achieving these objectives and future targets.