SPECIAL SECTION: GLOBALIZATION AND ELECTRONIC COMMERCE
AbstractDiffusion and Impacts of the Internet and E-commerce diffusion has apparently taken different paths in different nations partially E-commerce in China because of the implications of national technology and the political and economic environments. This paper examines both the ZIXIANG (ALEX) TAN AND WU OUYANG diffusion and the impacts of e-commerce in China, based on results of a large-scale survey conducted in 10 countries including China. Findings lead to the conclusion that Chinese firms have started to build up e-commerce technology infrastructure and to create a Web presence. However, they fall behind in conducting actual e-commerce transactions, mostly because barriers in business, legal and cultural perspectives fail to accommodate the technology progress. In addition, three surveyed sectors, manufac- turing, wholesale/retail and banking/ insurance, have appeared to follow quite INTRODUCTION Many Chinese firms have followed different paths in adopting e-commerce. the leap-frogging approach to sig- There are also differences between large China has been rapidly building up nificantly upgrade their technology firms and SMEs regarding e-commerce dif- its IT and telecommunications infra- infrastructure for e-commerce dif- fusion strategies and impacts. Finally, our structure for e-commerce applica- fusion and to establish their web findings support the argument that a healthy tions since the late 1980s (Mueller presence while bypassing traditional e-commerce infrastructure should be sup- and Tan 1997; Tan and Ouyang technologies such as EDI. However, ported both by advanced technologies and 2003; Wang 2001; Zheng et al the lack of the solid historic founda- by a friendly business, legal and cultural 1999). In general, China’s infrastruc- tion of deploying and utilizing inter- environment. ture for e-commerce diffusion is nal information systems and the poor Keywords: e-commerce diffusion, Internet, characterized by ‘disparities’ among integration of business process with China geographic areas, demographics, information systems may slow down industrial fields, and firm size. Large technology progress. There are many
10.1080/1019678042000175270 cities and economically advanced other non-technical barriers to e- coastal provinces enjoy much better commerce diffusion in China. The infrastructure and many more most significant barriers include the Internet users than remote and lack of security, lack of a system to Downloaded By: [Schmelich, Volker] At: 19:56 23 March 2010 Authorseconomically poorer provinces. monitor and guarantee buyer and Internet users are dominated by the seller credibility, and an inefficient Zixiang (Alex) Tan educated young generation. Certain delivery system. In addition, there is ([email protected]) is an Associate Professor industries including banking and not a sophisticated legal framework in the School of Information Studies insurance are information intensive to facilitate e-commerce activities at Syracuse University. His research and better positioned to adopt any and to protect the interests of both and teaching interests include information-related activities. Large vendors and consumers.
www.electronicmarkets.org DOI: telecommunications policy and regulation, new technology enterprises have bigger IT budgets The above-mentioned factors, to development and applications, industry and better-trained staffs than small- a large extent, have determined a restructure and competition. and medium-sized enterprises. Inter- unique feature to characterize
2004 Electronic Markets Wu Ouyang net and e-commerce are better China’s Internet applications in © ([email protected]) is the Director of the adopted among younger generations general and e-commerce activities in Center for Information Infrastructure with higher education. The particular. Many firms have recog- and Economic Development at the infrastructure disparity leads to nized the potential of the Internet Copyright Volume 14 (1): 25–35. Chinese Academy of Social Science and e-commerce diffusion disparity in and e-commerce. They have started an Associate Professor of the Graduate China. Current e-commerce activities the first step by connecting to the School at the Chinese Academy of Social Sciences. His study focuses on in China are concentrated in large Internet and setting up websites to the area related to informatization cities, coastal provinces, certain introduce and advertise their pro- including networks economics, industries, large enterprises, and ducts and services. However, only telecommunications and e-commerce. among well-educated young people. a very small number of firms have 26 Zixiang (Alex) Tan and Wu Ouyang { Diffusion and Impacts of the Internet and E-commerce in China
actually moved further to the next step to conduct sectors — manufacturing, wholesale/retail distribution e-commerce activities via their websites. The Network and banking/insurance. Half of the sample firms are Economy Research Center in Beijing University (2001), small—medium establishments (SMEs) with 25 to 250 supported by State Economic and Trade Commission, employees and the other half are large firms with over surveyed 638 large and medium-sized enterprises in 250 employees. All the global means in this paper refer to 2001. Of them, 87% were reported to have connected to the average results from these ten surveyed nations. the Internet and 69% of them had created their websites. The Chinese sample comprises 204 establishments However, only 4% of them reportedly had conducted with 69 in manufacturing, 68 in wholesale/retail distri- online purchases and 4% of them had offered online sales bution, and 67 in banking/insurance. Among the 204 for their products (see Table 1). establishments, 102 are SMEs and the other 102 are This paper intends to expand research on e-commerce large ones. However, these establishments are drawn diffusion in China by examining empirical data result from four major cities: Beijing, Shanghai, Guangzhou from the ‘Globalization and E-commerce’ project and Chengdu, which are among the most economically funded by the National Science Foundation (NSF) and advanced regions. The survey result is not a typical repre- organized by the Center for Research on Information sentation of China’s firms as a whole, which could create Technology and Organization (CRITO) at the Univer- some limitations on any conclusion drawn from the sity of California at Irvine. It addresses issues including survey data. After obtaining the raw data, weights are technology readiness for e-commerce diffusion, key applied based on the actual distribution of establishments drivers and barriers, and the impacts of e-commerce in each sample sector. Both the global results and the diffusion. Findings of this study serve the purpose of Chinese results in this paper are based on the weighted understanding how e-commerce has been diffused in the calculation. particular Chinese environment. In addition, these Chinese characteristics are compared with those in other studied nations in order to provide a cross-nation E-COMMERCE TECHNOLOGY READINESS understanding of e-commerce diffusion. Use of e-commerce related technologies
METHODOLOGY AND SAMPLE DESCRIPTION China is close to the average of sample nations in using e-commerce technologies. There is not a significant gap Data for this paper is primarily based on the results of the for newly deployed e-commerce technologies including CRITO/IDC Global E-Commerce Survey conducted email, websites, intranets, and extranets. However, in 10 countries including China. Secondary data from China falls far behind in using ‘traditional’ e-commerce government statistics, survey results by other organiza- technologies such as EDI, EFT, and call centres. This tions and research institutions, and some websites have result further confirms our expectation that the IT been cited in the paper. In addition, intensive interviews infrastructure has only been largely deployed recently in have been conducted. Chinese firms, which tends to bypass the ‘traditional’ The CRITO/IDC Global E-Commerce Survey technologies. Downloaded By: [Schmelich, Volker] At: 19:56 23 March 2010 sampled 2,139 establishments in the following 10 coun- More large Chinese enterprises use newly developed tries — Brazil, China, Denmark, France, Germany, e-commerce than small and medium-sized (SME) ones. Japan, Mexico, Singapore, Taiwan and the United States. However, more small and medium-sized firms have This is a well-balanced mixture of developed, newly adopted EDI and EFT. It could be explained by the industrialized and developing countries. All sample more intensive involvement of SME firms in interna- establishments are evenly split among three industry tional trade than large firms. China’s banking and insurance sector is clearly leading the use of the ‘traditional’ and newly developed e- Table 1. E-commerce activity among 638 large and medium firms commerce technologies, compare with manufacturing in 2001 and wholesale/retail sectors. This is consitent with the argument that information intensive sectors including Yes (%) No (%) banking/insurance tend to deploy a more advanced IT infrastructure (see Table 2). Has the firm connected to the Internet? 87 13 Has the firm created its own website? 69 31 Has the firm conducted on-line purchase? 4.1 95.9 Enterprise integration strategy Has the firm offered on-line sales of its products? 3.4 96.6 China falls behind the surveyed nations regarding the Source: Survey results by Network Economy Research Center in enterprise’s upstream and downstream integration to Beijing University (2001). their internal database and information systems. This is Electronic Markets Vol. 14 No 1 27
Table 2. Use of e-commerce technologies
Establishment Size Sector Total
SME Large Manufacturing Wholesale Banking / China Global /Retail Insurance
Percent using ... Email 95.3 99.1 91.7 99.7 99.3 95.9 98.5 Website 67.9 77.4 77.9 61.3 72.0 69.5 74.1 Intranet 57.6 76.6 67.2 53.6 72.0 60.8 63.6 Extranet 35.5 40.1 27.5 43.4 49.5 36.3 32.7 Extranet accessible 28.2 31.5 16.5 40.0 32.5 28.7 20.9 by suppliers/ business partners Extranet accessible by customers 21.1 25.6 15.5 26.4 40.2 21.9 17.8 EDI 26.1 19.6 22.6 26.0 38.9 25.0 44.3 Over private networks only 9.5 10.7 10.4 8.0 27.7 9.7 19.4 Internet-based only 4.2 2.5 3.3 4.3 6.3 3.9 8.4 Both 11.2 6.3 6.8 13.8 4.5 10.4 15.9 EFT 26.1 23.9 27.4 22.7 45.9 25.7 43.4 Call centre 20.5 22.3 28.9 12.3 29.2 20.8 32.3
Source: CRITO Global E-Commerce Survey, 2002.
Table 3. Enterprise integration strategy
Establishment Size Sector Total
SME Large Manufacturing Wholesale Banking / China Global /Retail Insurance
Extent to which Internet applications are electronically integrated with ... Internal databases and information systems % little to none 47.0 47.7 61.1 34.5 26.7 47.2 52.5 % some 37.4 31.6 33.2 39.8 31.9 36.3 23.6
Downloaded By: [Schmelich, Volker] At: 19:56 23 March 2010 % a great deal 15.6 20.8 5.7 25.7 41.4 16.5 23.9 Those of suppliers and business customers % little to none 64.6 55.4 68.6 58.2 44.7 62.9 72.1 % some 26.8 39.7 24.9 33.7 29.0 29.2 18.3 % a great deal 8.6 4.9 6.4 8.1 26.2 7.9 9.6
Source: CRITO Global E-Commerce Survey, 2002.
mostly because the IT infrastructure was not deployed section. This trend toward a significant mobile user and adopted in most Chinese firms until the late 1990s. increase has caught industries’ attention. Of China’s Across sectors, the banking and insurance industry shows banking and insurance firms, 35.6% have already had the high downstream and upstream integration. The manu- mobile contents or services available, which is much facturing industry and the wholesale and retail sector higher than the average of 21.2% among global banking have an extremely low integration (see Table 3). and insurance firms. China’s manufacturing sector also reports a high mobile content availability of 21.9%. How- ever, mobile content or service availability among China’s Mobiles and the Internet wholesale and retail firms is relatively lower (7.1%) than the global average (12.5%). This again confirms our Mobile subscribers have nearly doubled each year in argument that China is not behind other countries in China in recent years, as discussed in the infrastructure many newly deployed technologies (see Table 4). 28 Zixiang (Alex) Tan and Wu Ouyang { Diffusion and Impacts of the Internet and E-commerce in China
Table 4. Content/services to mobile customers
Manufacturing Retail/wholesale Banking Total
China China China China Global
Already available 21.9 7.1 35.6 15.1 13.7 Plan to add within the next year 17.9 14.5 14.7 16.1 18.2
Source: CRITO Global E-Commerce Survey, 2002.
Mobile e-commerce stands as a great potential in business. SMS services have emerged to help portal sites China. It is still too early to have concrete data to evalu- become profitable. It makes a contribution of between ate its diffusion across the three sectors — manufactur- 24% and 40% of total revenues for the top three portals in ing, wholesale/retail and banking/insurance. However, China — sina.com, sohu.com and neteasy.com in the it is obvious that consumers have adopted it well given first half of 2003. the recent growth of SMS (Short Message Service). SMS services have been well integrated into local SMS is a messaging service that allows 140 bytes to demand and local culture. There are six most popular be sent to a cellular phone via the non-traffic (control) SMS services now in Chinese market (Wu 2002). The channel shared by phones on the system. Every message service of handset individualization allows users to pick could accommodate up to 160 English or 70 Chinese up, design and download their own rings and pictures characters. For any user, SMS is an always-on service once into their cellular phones from an ISP/ICP. News service his phone is turned on because the control channel that updates cellular phone users with the last minute break- facilitates SMS service is connected to all the users all the ing political, economic, and sports news around the time. world. Real-time chatting service accommodates com- In 1992 Vodafone first realized SMS over its GSM munications among different devices including cellular cellular network by sending a message from a PC to a phones, PDAs, laptops and desktops. Gaming and enter- GSM phone. It was not until 1999 that the number of tainment services provide values for cellular phone users, SMS messages started to grow dramatically. In China, especially when they are on the move and want to kill the two licensed Chinese wireless carriers, China Mobile time while taking a bus or train. Advertisement service, and China Unicom, launched SMS services in late 2000. which is still regulated in China, could expand into a There were 18.9 billion messages sent in 2001, which significant business. Transaction service with small mon- generated revenue of over US$ 220 million. In 2002, etary amounts such as purchasing via vending machines total SMS messages increased to 90–100 billion, which and ordering for phone cards, songs, and flower delivery brought the market size to over US$ 1.1–1.2 billion. via websites is becoming feasible and popular. All of these SMS services have been grown into a significant e- Downloaded By: [Schmelich, Volker] At: 19:56 23 March 2010 services have reflected the value of SMS services, the user commerce business in less than three years. Its success is demand, the mobility and Chinese environment and often attributed to the following reasons. SMS is a well-coordinated value-chain and an afford- culture. able service. There are some direct communications be- In addition, there are only minimal business barriers in tween two cellular users. However, a significant amount terms of payment, delivery and the credibility/monitor- of SMS messages are sent via an Internet Service/Con- ing of buyers and sellers for SMS services. Every payment tent Provider (ISP/ICP). Only 1.2 cents is charged per for SMS is included in user’s phone bill, which would message by cellular carriers, which makes the service very ensure the charges are paid. Products/services are deliv- affordable, while a 2–12 cents surcharge could be applied ered to cellular phones, which guarantees the on-time when messages are sent via a website. Cellular carriers delivery and the quality of contents. The sellers are the retain 15% of the total avenue and the remaining 85% is two licensed carriers, together with ISP/ICPs certified given to ISP/ICPs. Cellular carriers certify ISP/ICPs to and regulated by the two carriers. The buyers are make sure that their content and operation are legal and registered phone users. Both of them have full access to do not violate rights of consumers. Certified ISP/ICPs each other’s vital information and credit history. This are free to develop their own content and operation. This setting eases the general concern on credibility of both well-defined value chain allows carriers to increase net- sellers and buyers in China. work traffic, motivates ISP/ICPs to create new services SMS as a case has demonstrated that e-commerce and content, and promotes consumers to use this afford- could be diffused and leap-frogging strategy could work able service. The impressive total number of messages in China when significant business, legal and cultural make the 1.2 cents per message into a US$ billion barriers are resolved. Electronic Markets Vol. 14 No 1 29
Table 5. Drivers for Internet use
Establishment Size Sector Total
SME Large Manufacturing Wholesale Banking / China Global /Retail Insurance
% indicating a significant driver Customers demanded it 47.0 36.1 34.2 56.1 39.9 45.1 36.9 Major competitors were online 33.0 31.0 37.4 27.7 36.2 32.7 31.3 Suppliers required it 27.5 30.7 31.5 25.6 12.8 28.0 22.3 To reduce costs 38.4 45.1 41.8 37.7 31.9 39.5 35.7 To expand market for existing product or services 56.2 51.0 59.3 52.0 47.7 55.3 47.9 To enter new businesses/markets 42.4 45.8 44.2 41.5 45.6 42.9 42.0 To improve coordination with customers and suppliers 36.2 49.0 45.9 31.2 35.0 38.3 43.7 Required for government procurement 22.3 22.7 24.6 19.9 26.0 22.3 15.2 Government provided incentives 11.5 16.6 14.1 10.3 6.0 12.3 8.3
Source: CRITO Global E-Commerce Survey, 2002.
KEY INCENTIVES AND BARRIERS All of the three industry sectors perceive the same top three obstacles. Small and large firms share similar Drivers for Internet use perception on these obstacles except for staff recruitment and credit card use. Large firms report the easiness to Drivers for Internet use in China are clearly similar to recruit staff with e-commerce expertise, while small firms those for global surveyed firms. The top four drivers are have some difficulty (9.2% versus 21.9%). Large firms ‘market expansion for existing products’, ‘customers also consider the prevalence of credit card use less of demanded it’, ‘entering new market’, and ‘cost reduc- a concern than small firms (20.5% versus 32.1%) (see tion’. Manufacturing establishments clearly recognize Table 6). the significance of ‘government provided incentives’ (14.1%) and ‘cost reduction’ (41.8%). Wholesale and retail firms consider the ‘customers demanded it’ as the E-COMMERCE DIFFUSION number one driver. Small firms report a stronger pressure E-commerce industry from customer demand than large firms (47% versus 36.1%). Large establishments indicate a stronger govern- China continues to see the expansion of its e-commerce ment incentive than small firms (16.6% versus 11.5%)
Downloaded By: [Schmelich, Volker] At: 19:56 23 March 2010 industry in both B2C and B2B sectors. Many early B2C (See Table 5). websites were started by various players, including entre- preneurs with domestic and foreign venture capitals, small firms and large enterprises, for the sake of rushing Barriers to Internet use and e-commerce diffusion into the ‘gold mine’. There were about 2,056 B2C websites on presence in 2001, based on CCID’s statistics Chinese firms share the same opinion with the surveyed (CCID 2002). The B2C sector has seen a low transaction global companies in considering the ‘concern about volume in spite of its large number of websites. But, its privacy of data and security issues’ and the ‘inadequate annual growth rate is impressive as shown in Table 7. legal protection for Internet purchases’ as the top two Entrepreneurs with the support of domestic and obstacles to e-commerce diffusion. However, there are foreign venture capitals start most of China’s B2B some China-specific difficulties. ‘Business laws do not websites. The burst of the global Internet bubble and the support e-commerce’ was reported as a serious obstacle uncertainty of the return-of-investment have gradually in China, while the global firms consider it as a moderate drained out the domestic and foreign venture capitals. obstacle (40.8% versus 24.2%). In addition, the ‘preva- Many start-ups have disappeared from the playing lence of credit card use’ is perceived by Chinese firms as ground. Meanwhile, large enterprises and government- a more serious concern than in other countries (30.2% affiliated organizations start to dominate the B2B sector versus 20.3%). This matches our expectation that China via buying out the existing websites or creating their own is insufficiently established in general legal framework, websites. This is mostly because large enterprises and security protection and credit card use for e-commerce government-affiliated organizations have a deep pocket, diffusion. a large pool of IT experts, and a close tie to the industry 30 Zixiang (Alex) Tan and Wu Ouyang { Diffusion and Impacts of the Internet and E-commerce in China
Table 6. Barriers/difficulties to e-commerce diffusion
Establishment Size Sector Total
SME Large Manufacturing Wholesale Banking / China Global /Retail Insurance
% indicating a significant obstacle Need for face-to-face customer interaction 31.0 28.3 27.2 34.0 28.7 30.6 33.8 Concern about privacy of data or security issues 45.4 44.7 51.5 36.9 72.6 45.3 44.2 Customers do not use the technology 33.6 27.8 35.2 29.8 34.2 32.6 31.4 Finding staff with e-commerce expertise 21.9 9.2 21.6 18.2 14.4 19.7 26.5 Prevalence of credit card use in the country 32.1 20.5 29.1 31.5 27.2 30.2 20.3 Costs of implementing an e-commerce site 27.3 35.4 34.3 23.1 28.2 28.6 33.6 Making needed organizational changes 22.2 23.1 21.2 22.7 33.6 22.4 23.9 Level of ability to use the Internet as 31.8 27.9 35.4 27.7 21.0 31.1 24.8 part of business strategy Cost of Internet access 22.6 18.7 17.4 26.8 15.5 21.9 15.1 Business laws do not support e-commerce 40.8 40.4 36.6 43.5 57.0 40.8 24.2 Taxation of Internet sales 19.9 15.6 18.9 19.2 21.8 19.1 16.5 Inadequate legal protection for Internet purchases 55.7 49.1 52.4 56.7 54.5 54.5 34.1
Source: CRITO Global E-Commerce Survey, 2002.
Table 7. B2C sector in China in 2001
Total Transaction US$ 150 million; triple-digits annual growth rate is forecasted for the next 5 years although the rate will slow down. B2C Multiple-product websites 270; only 63 out of the 270 websites actually conducted and maintained their B2C operation. B2C Special-product websites 1,786; Only 596 out of the 1,786 websites actually conducted and maintained their B2C operation. Total B2C websites 2,056; Only 659 out of the 2,056 websites actually conducted and maintained their B2B operation.
Source: CCID’s 2001—2002 Annual report of E-commerce in China.
Table 8. B2B Sector in China in 2001 Downloaded By: [Schmelich, Volker] At: 19:56 23 March 2010
Total Transaction US$ 13 billion; 40—60% annual growth rate is forecasted for the next 5 years. B2B Cross-sector websites 149; only 72 out of the 149 websites actually conducted and maintained their B2B operation. B2B Sector-specific websites 1,196; Only 595 out of the 1,196 websites actually conducted and maintained their B2B operation. Total B2B websites 1,345; Only 667 out of the 1,345 websites actually conducted and maintained their B2B operation.
Source: CCID’s 2001—2002 Annual Report of E-commerce in China.
sectors where B2B e-commerce flourishes (CCID 2002). participating firms is moderate as shown in Table 9. What Table 8 details China’s B2B sector in 2001. B2B sector is significantly different is the large gap of the actual is forecasted by the CCID Consulting (CCID 2002) to volume of online sales. When sales for consumers and expect a steady 40–60% annual growth rate in the next businesses are combined, only 3.4% of Chinese firms’ five years. total sales are conducted online, compared to the 7.8% for the global firms. In addition, only 8.8% of Chinese firms’ websites support online payment, while 33.6% of Online sales global firms’ websites have the online payment function. All of these data match our expectations that Chinese Chinese firms are far behind their global counterparts in firms have started the first step to participating in terms of real online sales. The gap for the percentage of e-commerce. However, they are not fully capable to carry Electronic Markets Vol. 14 No 1 31
Table 9. Online sales
Establishment Size Sector Total
SME Large Manufacturing Wholesale Banking / China Global /Retail Insurance
Type of online sales % B2B 24.5 15.8 26.4 19.7 23.6 23.1 27.9 % B2C 16.4 19.0 20.2 13.0 23.1 16.9 22.1 Mean percent of total consumer sales 1.0 2.7 1.8 0.7 2.6 1.3 3.8 conducted online (all establishments) Mean percent of total business sales 1.8 3.9 1.6 2.6 2.3 2.1 4.0 conducted online (all establishments) Mean percent of total consumer sales conducted 7.3 16.9 9.1 8.1 14.2 9.1 18.6 online (only those doing B2C sales online) Mean percent of total business sales conducted 8.1 34.1 6.3 16.9 14.3 10.4 15.1 online (only those doing B2B sales on-line) Percent of websites that support online payment 8.4 11.5 13.1 1.7 30.8 8.8 33.6 (only those doing online sales)
Source: CRITO Global E-Commerce Survey, 2002.
out the second step to conduct substantial amounts of Table 10. Among the three sectors, the banking/insur- actual e-commerce transactions. ance sector demonstrates clear leadership in providing The banking/insurance sector is involved both in B2C online services. The wholesale/retail sector is less likely (23.1%) and B2B (23.6%) online sale. Their online sales to provide B2C online services. Manufacturing firms are to consumers (2.6%) are close to the online sales to most likely to provide product specification services over business (2.3%). This strongly suggests that B2B and the Internet. The most frequently provided online ser- B2C are equally significant for the banking/insurance vices by wholesale/retail firms are product catalogue and firms. Manufacturing and wholesale/retail sectors share product review. SME firms are less likely to offer online some commonalities that are different from the banking/ B2C services (35%), compared to large firms (51.5%). insurance sector. There are more firms engaging in B2B than in B2C both for the manufacturing sector (26.4% versus 20.2%) and for the banking/insurance sector Online procurement (19.7% versus 13.0%). There is a very large gap for Downloaded By: [Schmelich, Volker] At: 19:56 23 March 2010 wholesale/retail firms’ online sales to consumers (0.7%) In general, Chinese firms conduct less online procure- and to businesses (2.6%) while there is no gap for the ment than their global counterparts. Of Chinese firms, manufacturing sector between their consumer online 40.2% have done online procurement, compared to sales and business online sales (2.6% and 2.3%). In addi- 50.8% of global firms. More significantly, Chinese firms tion, only 1.7% of wholesale/retail firms and 13.1% of spent less money for online procurement. The mean manufacturing firms have an online payment function dollar amount spent via the Internet on direct goods for through their websites, compared to 30.8% of banking/ production is 3.9% for Chinese firms versus 8.3% for insurance establishments supporting online payments global sample firms. The mean amount of money spent through their websites. This leads to the conclusion that via the Internet on goods for resale is 4.8% in China the wholesale/retail sector is experiencing major con- versus 6.8% in global firms. The mean dollar amount cerns/problems with B2C e-commerce, which is quite spent via the Internet on supplies and equipment is 3.2% different from the trends in other countries, where B2C in China versus 8.3% in global firms. is often one of the significant e-commerce activities for China’s wholesale/retail sector is the most active wholesale/retail firms. online purchasing participant and spends a higher mean percentage of money on online procurement. The banking/insurance sector is a less active participant and Online services spends a lower mean percentage of money for online procurement. SME firms have a higher participating per- Online services through websites are popular both in centage and spend more money for online purchasing, China and in other sampled countries as shown in compared to large firms (see Table 11). 32 Zixiang (Alex) Tan and Wu Ouyang { Diffusion and Impacts of the Internet and E-commerce in China
Table 10. Online services
Establishment Size Sector Total
SME Large Manufacturing Wholesale Banking / China Global /Retail Insurance
Type of online services % B2B 62.6 61.6 71.8 53.4 47.4 62.1 56.4 % B2C 35.0 51.5 41.9 32.5 53.6 37.8 46.2 Mean percent of total consumer 6.5 12.0 6.7 7.4 12.0 7.2 7.6 services conducted online Mean percent of total business 4.1 17.0 2.3 9.8 26.7 5.7 11.0 services conducted online % of manufacturing websites which support Product configuration 69.7 66.7 69.3 69.3 54.7 Order tracking 39.3 66.7 42.2 42.2 21.5 Service and technical support 69.7 100.0 72.9 72.9 54.4 Product specification 100 100.0 100 100 79.9 Account information 69.7 66.7 30.7 30.7 17.0 % of wholesale/retail distribution websites which support Gift certificates and/or registry 3.8 41.4 7.1 7.1 20.6 Product catalogue 96.2 100.0 96.5 96.5 69.8 Product reviews 96.2 100.0 96.5 96.5 48.6 Ind. customization 0.0 62.0 5.3 5.3 21.3 Account information 24.0 41.4 25.5 25.5 21.7 % of banking and insurance websites supporting Online services such as filing applications, claims, 83.6 62.0 78.4 78.4 53.9 paying bills, transferring funds 85.6 55.8 79.8 79.8 57.3 Access to account information
Source: CRITO Global E-Commerce Survey, 2002.
Table 11. Online procurement Downloaded By: [Schmelich, Volker] At: 19:56 23 March 2010 Establishment Size Sector Total
SME Large Manufacturing Wholesale Banking / China Global /Retail Insurance
Percent of establishments doing on-line purchasing 44.1 21.0 36.2 45.2 27.2 40.2 50.8 Mean percent of money spent for direct goods for 5.1 0.1 3.9 3.9 8.3 production is ordered online (all establishments) Mean percent money spent on goods for resale 4.8 4.7 4.8 4.8 6.8 is ordered online (all establishments) Mean percent of the money spent on 3.9 0.2 1.4 5.4 0.8 3.2 8.3 supplies and equipment for doing business is ordered online (all establishments)
Source: CRITO Global E-Commerce Survey, 2002. Electronic Markets Vol. 14 No 1 33
IMPACTS infrastructure for e-commerce diffusion to take off. China’s effort in technology infrastructure is reflected by Impacts of doing business online Chinese firms’ rush in establishing their web presence and deploying the latest technologies. It is true that this The most significant impacts reported by Chinese firms large scale upgrading only happened in recent years. On are widened sale area (48.5%), improved competitive the other hand, China falls far behind in using ‘tradi- position (41.2%), and improved customer service tional’ e-commerce technologies such as EDI, EFT, and (36.9%), while the impacts on internal process efficiency call centres. Chinese firms are also behind in facilitating (31%) and decreased procurement costs (29.7%) fall the upstream and downstream integration to the internal behind. The global sample firms report impacts on database and information systems in enterprises. All of improved customer services (34.8%) and improved effi- these could be viewed as the outcomes of an aggressive ciency of internal processes (33.9%) as the most signifi- leap-frogging strategy in upgrading technology infra- cant impacts. This suggests that online business has structure. Significant progress should be made over a affected sales more than efficiency in China. reasonably short time to achieve technology readiness for e-commerce diffusion. However, the lack of a solid historic foundation of Impacts of doing business online on distributional internal information systems, the poor integration of channels, suppliers, and competitors business processes with information systems, the exist- ence of environmental barriers, including security Chinese firms report a higher degree of increase in the concerns, poor legal protection and laws, low credibility number of distribution channels, suppliers and competi- both of vendors and consumers, backward delivery and tors than that reported by surveyed global firms as a supporting systems have, to a large extent, discounted result of doing business online. Of Chinese firms, 34.3% China’s technology readiness for e-commerce diffusion. indicate an increased number of suppliers, compared to This is further evident in China’s low online sales and 29.9% of sample global firms. There is a large difference purchases. This scenario could be best termed as a mis- between Chinese firms and global firms regarding the match between China’s aggressive technology upgrade indication of the increased number of competitors and its existing serious barriers in business, legal and (43.2% versus 27.9%) and the increased intensity of cultural perspectives. This has suggested that a healthy competition (48.7% versus 41.5%). e-commerce infrastructure should be supported both by advanced technologies and by a friendly business, legal and cultural environment. The success of SMS services in DISCUSSION China supports this conclusion. Based on our survey data, drivers for E-commerce Our survey data have supported the argument that adoption in China are clearly similar to those for global China has been aggressively upgrading its technology surveyed firms, with the top four drivers being ‘market
Downloaded By: [Schmelich, Volker] At: 19:56 23 March 2010 Table 12. Impacts of doing business online on sale and efficiency
Establishment Size Sector Total
SME Large Manufacturing Wholesale Banking / China Global /Retail Insurance
Percent indicating impact is a great deal Internal processes more efficient 28.0 46.1 38.3 23.5 43.7 31.0 33.9 Staff productivity increased 22.7 29.9 24.5 23.0 29.6 23.9 27.2 Sales increased 24.2 32.4 23.1 27.5 30.9 25.6 20.5 Sales area widened 47.8 52.3 50.5 47.2 39.8 48.5 31.4 Customer service improved 35.8 42.1 41.7 31.7 44.7 36.9 34.8 International sales increased 31.1 41.4 31.9 34.4 23.6 32.8 19.5 Procurement costs decreased 29.5 30.8 28.9 31.4 16.0 29.7 17.7 Inventory costs decreased 20.1 26.3 17.8 24.4 19.1 21.1 14.0 Coordination with suppliers improved 27.2 40.8 27.3 32.2 17.9 29.4 29.8 Competitive position improved 40.0 47.1 43.7 38.2 48.9 41.2 29.8
Source: CRITO Global E-Commerce Survey, 2002. 34 Zixiang (Alex) Tan and Wu Ouyang { Diffusion and Impacts of the Internet and E-commerce in China
Table 13. Impacts of doing business online on distribution channels and players
Establishment Size Sector Total
SME Large Manufacturing Wholesale Banking / China Global /Retail Insurance
% indicating... Number of distribution channels increased 39.4 49.9 37.1 46.0 22.4 41.1 40.2 Number of suppliers increased 31.6 48.8 41.7 28.4 22.2 34.3 29.9 Number of competitors increased 44.1 38.4 41.1 46.1 32.0 43.2 27.9 Intensity of competition increased 49.8 42.7 48.1 49.8 41.0 48.7 41.5
Source: CRITO Global E-Commerce Survey, 2002.
expansion for existing products’, ‘customers demanded in China. These barriers include the poor credibility- it’, ‘entering new market’, and ‘cost reduction’. Clearly, monitoring systems both for vendors and consumers, firms are driven by business competition and opportuni- backward delivery systems, and lagging behind payment ties to adopt e-commerce. However, barriers are different solutions and other supporting systems. While the e- in different countries. ‘Business laws do not support commerce diffusion level tends to be high in other e-commerce’, ‘inadequate legal protection for Internet countries’ wholesale/retail sector, this sector in China purchases’ and the lack of ‘prevalence of credit card use’ has the lowest e-commerce diffusion level among the are reported as more serious obstacles in China than in three surveyed sectors. other sample nations. Other researches have suggested The banking/insurance sector in China has a long that China has a relatively poor delivery supporting history of building up its information infrastructure and system and credibility-monitoring systems. All of these integrating its business operation with information point to a set of serious legal, business, and culture system applications as a traditional information intensive barriers to e-commerce diffusion in China. sector. Their infrastructure readiness level is higher than Chinese firms report sales-related issues as the most the other two sectors. Adopting e-commerce seems to be significant impacts of e-commerce diffusion, including a natural continuation of their long-term strategy. The widened sale area, improved competitive position, and fact that the banking/insurance sector has a tradition of improved customer service. The global sample firms paying close attention to security, privacy and credibility consider efficiency-related issues as the most significant has alleviated customers concerns. These factors have impacts, including improved efficiency of internal pro- contributed to the successful e-commerce diffusion in cesses. This again confirms the disconnection between e- the banking/insurance sector, particularly for B2C
Downloaded By: [Schmelich, Volker] At: 19:56 23 March 2010 commerce and the internal business processes in Chinese businesses. So far, this sector has achieved the highest firms. level of e-commerce diffusion in terms of the online func- Across the three industry sectors we investigated — tions offered, total online sales, and the integration of manufacturing, wholesale/retail and banking/insurance internal business processes with the online activities. — e-commerce diffusion is taking different paths. However, financial information are among the most criti- China’s manufacturing sector has a large disparity in cal one for individual and organization consumers in terms of IT infrastructure readiness and e-commerce China and the concern on data privacy and security will diffusion. Enterprises with bigger IT budgets and better- never go away if applications have been adopted. That is trained staffs have rushed into the e-commerce era by why 73% of firms in banking/insurance sector have creating websites and conducting online sales and pur- ranked privacy/security as one of the top three concerns chases. Many other enterprises with limited IT budgets for e-commerce diffusion. and less qualified staffs are slow to adopt e-commerce. In general, substantial B2B e-commerce activities are occur- ring in several well-organized industry fields, including CONCLUSION the automobile and petroleum industries. Very little B2C activities have taken place in the manufacturing sector. Finally, this study concludes that China has been China’s wholesale/retail sector is traditionally back- aggressively upgrading its technology infrastructure for ward in IT infrastructure building-up and upgrading. In e-commerce diffusion in recent years. However, barriers addition, some crucial factors for e-commerce diffusion in business, legal and cultural perspectives fail to in the wholesale/retail sector have stood as barriers accommodate the technology progress. These factors in Electronic Markets Vol. 14 No 1 35
combination lead to a very limited amount of actual B2B through its state-owned enterprises, to build up financial, and B2C online transactions, i.e. limited e-commerce certificating, security, and even delivery systems to serve diffusion, in China, compared with other sample coun- e-commerce transactions. tries. This is why most Chinese websites do not offer or support online business although there is a large percent- age of web presence among Chinese firms. In some spe- References cial cases such as SMS services in wireless, where business, CCID Consulting (2002) 2001–2002 Annual Report of legal and cultural barriers are resolved, technology up- E-commerce in China. grade allows Chine to experience e-commerce diffusion Mueller, M. and Tan, Z. (1997) China in the Information on a par with or even beyond other countries. This has Age: Telecommunications and the Dilemmas of Reform, further confirmed that a healthy e-commerce infrastruc- Washington, DC/Westport, CT: The Center of Strategic ture should be supported both by advanced technologies and International Studies (CSIS)/Praeger Publishers. and by a friendly business, legal and cultural environ- Network Economy Research Center in Beijing University ment. On the other hand, the impressive annual growth (2001) White Book of the Internet and E-commerce Within rates of B2B and B2C transactions in recent years, as well China’s Enterprises, December. as the positive forecasts, are pointing to the fact that State Information Center (2002) China Information China is making progress and gradually working on its Almanac. business, legal and cultural barriers while keep upgrading Tan, Z. and Ouyang, W. (2003) ‘Factors Affecting its technology infrastructure. It remains to be seen how E-commerce Diffusion in China’, Communications of AIS fast these barriers could be alleviated or even removed. In 10 (Special issue on globalization and e-commerce). addition, three surveyed sectors, manufacturing, whole- Wang, T. (2001) The 2001 Blue Book of E-Commerce in China, sale/retail and banking/insurance, have appeared to fol- Beijing: China Finance Press. low quite different paths in adopting e-commerce. There Wang, Y. (2002) ‘2001–2002 Review of IT Infrastructure are also some differences between large firms and SMEs Building-up in Wholesale/retail Sector’, 2002 China regarding e-commerce diffusion strategies and impacts. Information Almanac. Conclusions of this paper suggest that government Wu, B. (2002) ‘SMS Services in China’, online at: policies regarding e-commerce diffusion should be www.blogchina.com, accessed 20 September 2002. geared toward passing various laws and regulations to Zheng, Y., Pipe, R., Wu, G. and Fan X. (eds) (1999) China create a legal and safe environment for businesses and E-commerce Development and Policy Decision, Beijing: consumers. The government could also help, possibly Chinese Finance and Economy Publish House. Downloaded By: [Schmelich, Volker] At: 19:56 23 March 2010