Boon or bane? Impact of the digital age on small business exporting.

Author:Elango, B.
 
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ABSTRACT

The Internet can be used by small firms to enhance their operations internationally. This paper reviews the opportunities presented by the Internet in cross-border trade by small business and the challenge of using the Internet properly. While it is evident that ample opportunities exist for small business firms in the international arena, small firms can benefit from pitfalls experienced by earlier users of the Web. Suggestions are given for entrepreneurs to help them in their development of international e-Commerce strategies.

INTRODUCTION

Much has been said and written about the phenomenal growth of the Internet and the spread of e-Commerce. Both the Internet and e-Commerce have become an important part of society and an integral part of the international business world. Forrester Research predicts that e-Commerce transactions worth $6.8 trillion are likely to take place worldwide in 2004. According to IDC, e-Commerce activity outside the U.S., currently 26% of the worldwide total, will increase to 46% by 2004 ("Cross-border regulations," 2000).

It is important to recognize that currently a greater part of Internet-registered households and of international e-Commerce is located in a few areas of the world. The main areas of Internet commerce are North America, the European Community, and Japan. Hence, large segments of the international trade world do not use the Internet. This is certain to change. For example, the emerging markets (e.g., India, China, and Brazil) though relatively small today, are expected to grow substantially over the next decade. According to Access Media International estimates, there will be 200 million Internet users in Asia by 2004 ("The tiger," 2000). This will be as large as the total number of users in the U.S. in 2004. Even using a conservative estimate that 15% of total market in e-Commerce will be cross-border, there will be a $1 trillion opportunity for businesses involved in international trade. Small businesses have much to gain by using the Internet, including the possibility of participating internationally even with meager resources.

The significance of the trend is illustrated by two facts: the volume of international trade currently conducted through the Internet (US$80 billion); and the amount of time senior managers are devoting to needs of their firms to compete successfully in international e-Commerce. For instance, Amazon.comTM gains 25% of its revenue overseas and Mr. Jeffrey Bezos, Amazon's CEO, hopes to gain more than half its sales from overseas markets in the near future ("Amazon.com sets," 2000). A top executive of YahooTM (whose site is ranked No.1 in terms of visitors traffic in Europe) reports that managers devote 50% of their time to planning for the future needs of the international aspects of their business (Auerbach, Wysocki, and Boudette, 2000).

Unfortunately, little has been written about the impact of Internet on international trade and how the Internet can benefit small businesses. According to a survey by Forrester Research, 85% of the online business firms (including large firms) are incapable of shipping overseas ("Cross-border regulations," 2000). This paper looks at the benefits and barriers facing a small business conducting international trade through the Internet. We believe this paper will be useful for small firms, which make products that can be sold globally and are planning to enter overseas markets. The paper addresses the benefits and pitfalls a business may face in international operations. In particular, we will examine the effect of consumer-directed (Business-to-Consumer) and business-directed (Business-to-Business) Internet enterprises on international trade and offer suggestions for small businesses to benefit from these trends. These Internet business segments will be addressed separately in the following sections, as will the benefits of e-Commerce and the impediments to e-Commerce inherent to the segment of e-Commerce being discussed.

IMPACT OF THE INTERNET ON INTERNATIONAL TRADE

Companies planning international operations have two options. One option is to set up operations in various countries. This is an expensive option that is not available to many small firms. The second option is to set up a web site to enable export. This option is affordable to many small firms; hence, this paper concentrates on this second option.

The worldwide character of the Internet makes it an ideal vehicle for exporting by small business. Any Internet user can conduct business with any other user in the world via the Internet. The convenience provided by the Internet is rapidly making it the communications vehicle of choice for conducting business. In calendar year 1999, the total of international trade was $56 trillion ("World development," 2000). Of this amount, $80 billion was directly traceable to the use of the Internet.

In general, Internet sites can be classified into two types of e-Commerce: B2C and B2B. B2C e-Commerce refers to businesses selling products directly to consumers for their own use. B2B e-Commerce refers to Internet transactions, which involve businesses selling products directly to other businesses, usually as inputs to the purchaser's value chain. The following sections will expand on the potential benefits and pitfalls involved with B2C and B2B cross-border operations.

B2C AND ITS IMPACT ON INTERNATIONAL TRADE

B2C is the electronic equivalent of the neighborhood store. A business offers goods or services through a web site that is open for business all the time. Visitors to that web site can browse through the store offerings and, finding an item desired, purchase that item at the offering price. This means that individuals can shop for desired goods or services at their convenience, carefully evaluate the various web sites offerings, and purchase those best fitting their needs. The Internet, thus, expands the available places at which consumers can shop (encompassing all businesses in the world that have web sites) and enables consumers to buy from any seller in the world.

There is a special case of B2C business--B2C e-Markets. Perhaps the best-known B2C e-Market is eBay.com, although a number of similar sites have been created. eBayTM lists items which individuals wish to sell. eBay then conducts an auction for the items on offer, and matches the successful bidder with the seller so they can complete the transaction.

BENEFITS OF B2C E-COMMERCE

The benefits of Internet e-Commerce have been widely trumpeted. Among the most significant of these benefits is the extended reach that it gives to B2C businesses. Many products are marketable across a wide range of nations and cultures around the world. The businesses selling these products are limited in the number of customers they could reach without some additional means of access to customers. The Internet provides the vehicle for global reach by businesses even with a modest website.

Illycaffe is an excellent example of the opportunity offered by the Internet to small businesses (Barrett, 2000). Illycaffe (www.illy.com) is an Italy-based company specializing in coffee and expresso machines. This family-owned business has long had an outstanding reputation for sales and service to restaurants. Using the Internet as a marketing tool, Illycaffe is looking to increase its revenues through direct sales to individuals. In addition...

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