E-commerce: barriers to its growth in Pakistan

TARIQ HUSSAIN TUNYO

ARTICLE (March 18 2008): Among the wonderful inventions of twentieth century, Internet has come to wield immense influence on our lives. From reading newspapers to monitoring the performance of companies on stock exchange, from learning the first aid techniques when in emergency to learning the recipe of making a cake when guests visit, and from listening to music to keeping abreast of the latest cricket scores, our lives have got increasing intertwined with internet.

Doing business online is yet another application of internet, which is changing the way business is done. The term electronic commerce or E-commerce may loosely be defined as doing business over the internet, selling goods and services which are delivered offline as well as products which can be “digitised” and delivered online such as computer software, videos, and music.

E-commerce in its wider sense encompasses all transactions involving business organisations, governments, or consumers that are done online through internet. However, the narrower view of E-commerce focuses only on transactions between Business and Consumers (Business to Consumer E-commerce or B-to-C E-commerce) and among two or more businesses (Business to Business E-commerce or B-to-B E-commerce).

Banking, entertainment, telecommunications, and manufacturing industries globally have already started using E-commerce business models, and have been reaping the benefits in terms of greater revenues and lesser costs.

Within these industries, Internet is used for four major tasks with respect to E-commerce: Firstly, attracting new customers through online marketing and advertising; secondly, serving existing customers via customer service and support function; thirdly, developing new markets and distribution channels for existing products; lastly, developing new information-based “digitised” products, which are then transmitted online.

Like every new technology, the potential uses of E-commerce were at first over-hyped, leading to the Dot Com Boom of 1996-2000, which was briefly followed by a crash that kicked many companies out of business; thereby, temporarily tarnishing the promising role of internet as an effective and state-of-the-art medium of business. However, with the survivors of the crash and the new comers doing well these days, the quantum of business online is expanding with rapid pace.

In Pakistan the size of E-commerce is small and uncertain at the moment. Yet as in most developed countries of the world, it is expected that with the realisation of full potential of this new mode of commerce in future, it is bound to gain a sizable chunk of business in Pakistan as well, due to the several potent advantages that E-commerce enjoys over the conventional mode of commerce like its open structure that surpasses all geographical barriers, low costs of transactions, low barriers to entry and improved access to information, besides more efficient management of supply and distribution.

However, currently the growth of E-commerce in Pakistan is hampered by a number of factors, which are discussed below. These barriers must first be removed for E-commerce to grow in the country.

1. MISCONCEPTIONS ABOUT E-COMMERCE IN PAKISTAN Most people in Pakistan have developed wrong conception of E-commerce. They take a very limited view of E-commerce, restricting it to only those products which may be “digitised” and transmitted online through internet and the payments for which is also made online through credit cards.

This narrow view excludes the other three main functions of E-commerce outlined above ie attracting new customers, serving existing customers, and developing new markets and distribution channels for existing products. This misconception is among the main reasons that have held most Pakistani entrepreneurs with existing conventional business back from entry into the ‘cyberspace’.

2. MISTRUST: Among the most important impediments to the growth of E-commerce in Pakistan is the issue of trust. Counterfeiting and distribution of below par products in the face-to-face transactions is a common problem in the country. How can people be expected to trust the sellers whom they do not know, and who would deliver goods online/offline after the payment is made.

The issue of trust is further aggravated by the lack of confidence people have with respect to the security and privacy of their personal information like credit cards, home addresses, phone numbers etc. The emergence of trustworthy web-based companies, with support/guarantees from Government or trustworthy multinational companies, in the county is required to dispel these fears of the consumers.

3. TRADITIONALIST NATURE OF PAKISTANI SOCIETY: A large number of people in Pakistan will take a long time to come round to the idea that they can order goods and make payments through internet from their homes without physically going out. This is due to the fact that on-site commerce has a socialising effect, which is altogether absent from E-commerce. In a strongly relationship-oriented society like Pakistan, people tend to form individual relationships and long term associations with the businessmen and vendors.

These relationships are maintained over the years and may not be easily replaced by the anonymity of the E-commerce transactions. Moreover, most of the retail business in Pakistan is conducted through small local enterprises rather than chains of departmental stores. These small local businesses are run by relatively less educated entrepreneurs who are least eager to embrace the new technology.

4. LOW LITERACY RATE The literacy rate of the country, according to official figures, is around 54 percent. Out of these 54 percent literate people at least 50 percent are computer illiterate. Thus, with around 75 percent of the population without computer literacy, the growth of E-commerce in the country cannot be expected to progress at any faster pace.

5. ACCESS TO TECHNOLOGY: In order to undertake E-commerce transactions, one must be connected to the World Wide Web, for which possession of a personal computer (PC) or a laptop is a basic requirement. Although the prices of computer hardware have declined in the past few years, yet a personal computer is still not affordable by vast majority of the people of the country. Besides a personal computer, a telephone line or cable line are also required for a user to get connected to the World Wide Web. Thus, high costs of computer hardware are proving to be a bottleneck to the growth of the E-commerce in the country.

6. ACCESS TO INTERNET SERVICES: It is true that in the past few years there has been a significant increase in the number of internet users in Pakistan, with some observers claiming that in Pakistan the internet access is now available to 800+ cities, towns and villages covering almost 97 per cent of the population.

Even if this, seemingly exaggerated, estimate is accepted, the per hour cost of internet use in Pakistan, along with the common problems of low speeds and getting disconnected frequently, render this wide accessibility of internet useless. For e-commerce to flourish we need high speed, cheap and reliable internet connections available to the vast majority of the population.

7. LACK OF E-TRANSACTION SUPPORT IN PAKISTAN: Online payment systems are an essential part of e-commerce, which require, inter alia, possession of personal credit cards by consumers. However, few people in Pakistan have personal credit cards. Among the various reasons people avoid getting credit cards from banks include possibility of unnecessarily getting into the debt trap.

The unpopularity of personal credit cards in Pakistan is responsible for the weak e-support infrastructure, forcing the use of old mechanism of money transfer like, cash payments, cheques, and postal orders which may work as viable substitutes to credit card for a short term to accommodate limited existing commerce of the country but cannot be relied upon for long.

8. POOR TRANSPORTATION/DISTRIBUTION CHANNELS An essential part of e-commerce is establishment of cheap, quick and reliable transportation channels for the physical distribution of those products which cannot be digitised and distributed online. In Pakistan, the Pakistan Postal Service, despite its extensive network and large number of employees is inefficient, to say the least; hence, unreliable. The private courier services, on the other hand, are expensive.

In the absence of any reliable and economical distribution channel, the web-based companies in Pakistan will be faced with the challenge of delivering their products at the doorsteps to their consumers without adding to price of the product.

(The writer is Assistant Commissioner (Income Tax) RTO, Karachi.)
Courtesy: Business Recorder

10 Comments

  1. The regional context, Education, Quality Control, Security Issues. Purchase Power and increased direct and indirect tax minimized the online business support in the Pakistan, I am not quit satisfied to progressive point about discussed topic.
    Here in Pakistan 82% people are interested to purchase of commodities on terms of leasing terms , But the Cash on Delivery method of Payments discourages the business rotation.
    Plastic Money (Debit Cards) ,interest rates and recovery methods, inflation in rates are major issues to application of online business maximization.

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