A Lee Gilbert, Information Management Research Centre (IMARC) [HREF1], Nanyang Business School, Nanyang Technological University, Singapore algilbert@ntu.edu.sg
Jon Kendall, Nanyang Business School, Nanyang Technological University, Singapore ajdkendall@ntu.edu.sg
Christina Soh, Nanyang Business School, Singapore acsoh@ntu.edu.sg
Lai Lai Tung, Nanyang Business School, Singapore alltung@ntu.edu.sg
This paper describes the perceptions of leading executives regarding significant near to medium-term obstacles to the regional diffusion of Web-based commercial activity, in the context of the ongoing global evolution of the e-commerce trend. It describes the methodology used to gather and interpret data during the survey, as conducted in Singapore during late 1998 and early 1999. It concludes by offering a scenario analysis that illustrates the implications of these findings for various stakeholders in emerging online markets in the ASEAN region.
This paper describes recent research carried out in the Singapore and ASEAN context on the barriers to development of Electronic Commerce and a Web economy. Electronic Commerce, broadly defined as network-enabled exchanges of goods and services, isn’t really a new idea. Over 100 years ago the telegraph, soon followed by the telephone, altered the structure of business-to-business commerce by connecting producers, shippers, and markets (Chandler 1995). Radio, then television, shaped consumer opinions and enabled the development of global brands. More than 30 years ago, firms began to use telephone networks to transmit computer data, paving the way for electronic data interchange (EDI), which lowered uncertainty and thus reduced inventory requirements. These innovations are the foundations of today’s commercial use of the World Wide Web.
The popular image of electronic commerce focuses on how the Internet brings more than 100 million buyers and sellers together, mainly in retail markets mediated by Web technology. More sophisticated observers point to the recent transition from proprietary EDI via private networks to open solutions in business-to-business markets. In both cases, the terms Internet and Web are really just abstractions. The Internet is mythologised as an undifferentiated IP-based "network of networks," in which browser technology provides both simple user interfaces and low-cost tools to support Web servers.
The reality is of course very different. A major retail website is fast becoming a seven digit investment. US office supplier Staples will invest ten million dollars in 1999 to upgrade its online operation (CNET News 12/98 [HREF2]). The technology needed to respond to thousands of hits each hour cannot be described either as simple or inexpensive. And network servers are highly differentiated by the speed of their link to the Internet, the (usually expensive) customer management and billing systems, and the quality of their services to website customers they host, and through them, to users accessing those sites.
Online commerce is more than simply listing products on a website and waiting for orders. It takes several forms, each with a distinct cost and quality profile. In the typical B-to-C catalogue sales model, sellers use Web media to advertise and take orders, and perhaps to enable payment and to track delivery of the goods. In the auction model (e.g, eBay.com), sellers use the Web not only as a display window, but also as a forum that mediates among buyers and sellers interactively. From a buyer’s perspective, such uses of the Web only complement the desired product or service. The service quality management model (Parasuraman 1991) captures value added through use of the Web. Sellers would desire that their marginal Web costs are less than the net benefits, which may include intangibles such as an improved public image in a specific market segment.
In this fluid environment, research is necessary on regional dynamics away from the more traditional marketplaces of North America, North-East Asia and Europe. In this respect, Australia and ASEAN provide important testbeds for the development of global electronic commerce. The research reported in this paper attempts to understand these dynamics.
Quality and cost structure shifts when the goods are content delivered by the network (e.g, music delivered in MP3 format, or share prices). Here the Web provides the logistics channel. Even though commodities, service quality differentiates the value of songs or price data. The relevant dimensions of service quality expand beyond the good that is delivered to include the technical quality of service (QoS) provided by the enabling infrastructure. In addition to managing service quality, sellers must now consider trade-offs between the added cost of a higher QoS level (speed, reliability) and the potential value that this QoS may have to different segments of their target market.
Cost: quality structure shifts again when the good is essentially the connection (versus specific content), as with an online community or Internet telephony. As the value of such content is determined entirely by participants, the model is "prosumption" rather than consumption. Service quality management targets buyer perceptions regarding the extent to which interactions with the service provider throughout the relationship life cycle meet their various needs, which depend on both QoS and the customer interface. However, as neither model captures the perceived value of the experience itself, the service provider faces far more difficult investment and pricing decisions.
Such a structural typology of is only beginning for understanding e-commerce activity. The next step is to explore behaviour in each domain, which is not static. For example, current studies report that less than two percent of shopping site visits result in purchases. This pattern may change dramatically as new payment mechanisms enable simple transactions, as convergence between wireless and IP technologies makes Web access truly ubiquitous, and with the rising incomes of a Nintendo-trained N-generation. Patterns in the business-to-business domain are also in flux. For example, sellers traditionally established prices for most consumables, and buyers balanced search costs against price minimisation. Now, buyers using a reverse auction model can post their specifications and requirements to the Web, then await the most favourable response.
In this dynamic and complex situation, the future is not at all easy to predict. Unfortunately, forecasting is inappropriate when the future is likely to be affected by trends that are not simply extrapolations of the present, and events for which there is no historical precedent . Therefore, acquiring knowledge demands an alternate approach.
The research reported here was conducted in Singapore in late 1998 and early 1999. It is based on a combination of focus group and Delphi techniques. The research panel consisted of 100 upper-level executives from four segments of the e-commerce industry: the business-to-business sector, online retailers, technology suppliers, e-commerce solution providers, plus public agencies concerned with the governance of Web-based economic activity. Data from preliminary surveys of more than fifty participants framed the issues for discussions by multiple focus groups. These sessions generated data for a Delphi analysis of panel divergence on specific issues. These were resolved in a group decision support setting at the final rounds. This round revealed the structural foundation for the subsequent multiple scenario analysis of the diffusion of e-commerce to the region
Derived from the confluence of game theory and computer simulation , scenario planning is a useful technique for exploring interactions between current choices and the future environments in which those choices will have consequences. The technique generates a set of likely contexts in which plans can be developed and evaluated. The modern use of scenarios dates to the Manhattan project, which used simulation techniques to estimate the chance that the first nuclear explosion might extinguish all life on our planet . The Rand Corporation later developed scenario planning for use by the Pentagon. SRI International then adapted the technique to corporate planning in the 1970s . Current users include Royal Dutch Shell and other transnational firms operating in turbulent contexts.
In dynamic contexts, the scenario technique is a useful tool for longitudinal analysis. A scenario is "A hypothetical sequence of events constructed for the purpose of focusing attention on causal processes and decision points ." A scenario normally consists of a logically coherent description of fundamentally different futures, which ideally explains the dynamic interactions between key elements from the present to the end point of the scenario. By forcing consideration of alternative futures, scenario planning allows policy makers to make explicit their assumptions about the future. Used to identify major opportunities, threats, and uncertainties, the technique facilitates learning at low real and opportunity costs.
The first step was to identify actors whose interests may be affected either by the plan or by its consequences. Direct stakeholders include top management, key functional managers, customers, and owners, stockholders, or other sponsors. In certain segments, labour leaders, suppliers, and competitors may also be stakeholders.
The next step is to involve the stakeholders in the planning process. Ideally, such involvement adds more value to the planning process than it does cost. It also can pave the path toward adoption of the resulting plan. One way of achieving this is to ask stakeholders to forecast the future environment. Delphi and cross-impact techniques are used to structure and formalise judgmental forecasting. Used for cross-sectional analysis, they help sort those key variables for which forecasts vary around a central tendency from those for which forecasts diverge. Because persistent divergence reveals different assumptions regarding structure in the future, it is the ideal base for scenario building.
Drafting a scenario requires special knowledge and skills, plus co-operation between functional specialists and external experts. The central and most important step is to identify the key decisions that are sensitive to environmental factors. Participants then postulate future values (and states) for these factors. As noted above, Delphi techniques are an efficient way to identify these critical scenario dimensions, and to differentiate structural and parametric variables.
From the decisions, the analysis path leads outward to task-related decision factors (e.g., internal economic forces, constraints to technology trade, demography, political developments, etc.) that may affect the outcome of each decision. The next ring contains remote forces (e.g., world economy, changes in values and lifestyles, etc.) that may determine the future values and states of these forces and key decision factors. Participants reduce the many permutations of interactions between these values to a few contrasting, yet plausible sets . Such "scenario logics" allow planners to test alternative strategies under different assumptions about the future. They focus on the interplay between environmental forces and factors that are critical to decisions actually at hand.
The next step is to select from two to four scenario logics. For example, a portal operator considering a major new investment in Vietnam would first identify critical variables in its task environment. These might include national standards for telecommunications technology, regulations governing investments, and relationships with potential joint venture partners to provide local content or other critical assets. Factors in its remote environment include growth in personal incomes, national and regional policy governing market access, nation-wide frequency allocations, factors influencing user perceptions of service value, and performance, cost, and access to national and regional telecommunications infrastructure.
These simulated environments provide a context for evaluating alternative plans. The final set of scenarios (presented in the final section of this paper) are:
It may take five to ten years for large organisations to put in place major new backbone telecommunications network or wireless architecture. The payback period for such an investment will be a minimum of five (and quite possibly many more) years.
Planners should focus scenario-planning exercises on choices with strong interaction effects. In telecommunications, for example, the task environments for systems supporting marketing activities are dissimilar to those supporting network maintenance. As they have little interaction, the key dimensions of the relevant scenarios are likely to be different. Unless integration of these two activities is a strategic option, they are best treated separately.
A scenario should focus on external forces, and on the interactions between those forces, as they influence the operations of the organisation over time. One key objective in designing scenarios is to identify those interactions that may lead to highly novel or uncertain outcomes. In the 1980s, interactions between Tokyo's high traffic density and the character-based Japanese written language drove investment in the development of the modern facsimile machine, its rapid adoption in that country, and the subsequent domination of the world market by Japanese firms. Similarly, improved data compression capabilities may combine with increased miniaturisation to replace the home telephone number with a radio-linked personal access number for every individual. If this occurs, emerging demand for related new products and services would influence the operations of some organisations far more than others.
Some events (e.g, a coup d'etat or corporate merger) are essentially multivalent. Other outcomes vary around a central tendency like the tide. These are candidates for sensitivity analysis. A plan which must succeed must be considered in the full range of future environments, and not only those which seem most likely. Planners must draft scenarios to illuminate the consequences of current choices in alternative futures.
Draft scenarios provide the context for more elaborate treatment and analysis. The tasks are to find the critical issues, threats, and opportunities emerging from each scenario, then to identify policies that will be the most robust in more likely outcomes. Once this understanding is reached, the focus of our analysis shifts to the present context.
After completing the scenarios, the focus shifted to task-level decision factors that may affect the outcome of key decisions. At each step, multiple scenarios serve to highlight specific needs for domain knowledge, define the boundaries for analysis, and differentiate the critical variables.
The panel identified major barriers to widespread commercial use of the Web in three main areas:
These ranged from the need for multilateral arrangements to reduce the costs of monitoring and enforcing agreements associated with online transactions, to investments in the soft infrastructure (laws, procedures, protocols) necessary to conduct e-commerce efficiently via the Web. However, panellists from B-to-C sectors generally felt these gaps would pose more serious barriers than did those from B-to-B or infrastructure sectors. They identified eight areas where policies would play an important role in e-commerce:
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ELECTRONIC COMMERCE POLICY DOMAINS |
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Laws Governing Domestic and Cross-border Commercial Transactions |
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Regulating Data: Privacy, Accuracy, Property and Universal Access |
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Ensuring Security and Authentication of Parties |
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Regulating Content |
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Collecting Taxes |
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Financing Infrastructure |
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Building Institutional Capacity |
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Promulgating Technical and Commercial Standards |
Generally, the strategic issue is whether the nominally laissez-faire policy model advanced by the Gore Doctrine will dominate, or whether the rather more interventionist and control-oriented regimes currently favoured by the leading Asian players will eventually prevail. These represent the structural alternatives in the scenarios.
Our focus group members identified the current lack of managerial and technical manpower, and the shortage of hard and soft infrastructure, both within and among countries, as critical barriers to the continuing growth of online commerce. Panellists also perceived significant gaps in service quality management tools and techniques that are needed to deliver high-value commercial and professional services reliably on Web-based technology platforms, compared to those now available in the mainframe environment. Again, perceptions on the severity of these shortfalls varied widely across industries, with smaller firms expressing more concern about skills, while larger firms were more concerned about the lack of tools for managing service quality. While panellists generally agree that bandwidth resources will eventually become a commodity in the Asia-Pacific region, there was little consensus regarding the timing of the expected surplus in supply.
Participants noted a poor grasp of the dimensions and structures of emergent business models, an issue that was also viewed as important in current European surveys, and in earlier research focusing on North American markets. Stakeholders in the trend toward e-commerce have yet to build the consensus needed to adopt and refine a set of business models that are both efficient and fair to participants. This is because: [1] While consensus is based on common experience, the Web-based e-commerce phenomenon is very recent; [2] We do not have a firm grasp of the behaviour of various types of online buyers, [3] Telecommunications services are both an enabling infrastructure and a major cost element, for which the service level and pricing models are currently in a state of flux, [4] The dominant technology platform for e-commerce is not yet mature (and its features do not reflect requirements that will emerge from learning by industry, buyers, and regulators); and [5] The relevant governance mechanisms (which normally follow innovation at a respectful distance) are understandably in a state of flux around the globe.
While some of the issues noted in the points above are tractable candidates for forecasting, others are not. For example, the current Internet service delivery model roughly parallels a "standby" model used by airlines to mediate spot supply and demand. This model penalises those applications that require consistently high service level (QoS), while overcharging those that do not. Over the next decade, industry observers expect QoS and pricing behaviour to stabilise around one of three alternatives: [1] Separate physical networks designed to deliver service levels appropriate to different types of traffic; [2] A single GII that provides uniformly high QoS to all traffic; or [3] A single physical GII that provides differential QoS on demand. One economic model of the dynamics of these alternatives reveals that it would not be the least expensive solution over the short term, but suggests that the "provision of uniformly high QoS to all traffic may well be best in the long run," due to the significant scale economies, the simplicity of a single network that treats all packets equally, and the potential for a simple charging mechanism (Fishburn and Odlyzko 1998).
This finding suggests the emergence of competing global IP
networks focused on high value applications, followed by a period of
industry consolidation and eventual integration leading toward a
uniform QoS regime. However, it is also possible that the performance
of the present Internet service model will improve rapidly enough to
outflank these special purpose competitors. These two alternative
outcomes are structures that shape our scenarios.
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Theme:
Scope: |
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Technical & Managerial |
Online Buyers |
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Our participants identified barriers in three broad types of reach or scope.
Regional- Barriers in this row are set in contexts where cultural or legal variance comes into play. For example, what one society views as appropriate consumer protection another may not accept, while Western and East Asian educational systems vary in content and structure.
Local- Such barriers are unique to a specific (Singapore, other ASEAN country) setting, and even though other contexts are similar, they do not apply directly.
For some players, the rapid diffusion of e-commerce generates fundamental changes in the economics of their industry, the power of their leading brands, entry and exit barriers to their home markets, and the skills base and structure of their organisation. Viewed from this perspective, the dynamic perspective embraces issues defined earlier, especially Business Models and Online Buyer Behaviour. Nevertheless, our focus group interactions reveal this barrier as a change of mindset, or a fundamental paradigm shift.
Questions raised in our focus groups reveal this theme, "How can a firm make the transition to its e-commerce business model without confusing its brand image, alienating its traditional customer base, dissipating its scarce resources, or losing management control over those few key elements of the business necessary to our success?" "How can we know when to establish a Web channel that cuts out traditional middlemen, versus using the Web to bundle our product with complementary goods?" and "Should we focus first on our current markets, or attempt to succeed in the world market before bringing our success home?"
Failing in its initial attempt to become a computer maker, Creative salvaged the architecture for a sound card that became the industry leader. Its success is due to its strategy of establishing a de facto global standard, using the Web to generate worldwide demand for its products by supporting content developers, and co-operating with computer makers to ensure compatibility. Whenever it strayed from its sharp focus (for example, making CD drives), Creative suffered losses. In sharp contrast, Xpress print became the world leader in printing high-quality annual reports by taking end-to-end responsibility for the design and production process, and using the network to integrate critical support processes to guarantee that it could meet client needs for quality control and data security. Retaining its lead required two major redesigns of its business process and information technology platforms over a six-year period. While both Singapore firms captured a leading share of a global market, each took a different path to its success, as illustrated below.
Three dimensions, each with two states, economically represent the critical scenario dimensions. As some factors overlap, the final set is reduced to four scenarios:
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SCENARIO: |
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1. ASEAN, Inc: |
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2. OPEN MARKETS: |
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3. ZERO-SUM: |
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4. TROUBLED WATERS: |
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LEGEND: |
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Munificence: resource (Capital, Infrastructure, and Content) availability. |
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Knowledge: both understanding and the ability to apply it to the real world. |
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Harmony: regional political and economic support for cross border e-commerce. |
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In this paper we have described the results of a multistage research project to understand the dynamics in the construction of a Web economy within the local, regional and global environment in which Singapore private sector and public sector enterprises operate. Singapore has traditionally played the role of an entrepot. Whether it can fulfill this role in a Web economy is not yet clear. Whether Singapore entities can provide regional value added to the existing ECommerce global knowledge base and, indeed, add in some significant way to the value added is also not yet clear. The scenarios discussed above provide a framework for understanding where development is likely to be productive.
Further, no particular one of the four scenarios discussed above is intended to portray the likely outcome. Instead, each serves to illuminate for decisionmakers the future implications of those decisions and actions that can (or must) be taken today. Even in the least attractive scenario, there are many opportunities for success, while even the most supportive scenario contains threats. The best decision may well be the most robust, one which is likely to succeed in more than one scenario, or which can be adapted to any likely context.
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A Lee Gilbert, Jon Kendall, Christina Soh and Lai Lai TUNG, © 1999. The authors assign to Southern Cross University and other educational and non-profit institutions a non-exclusive licence to use this document for personal use and in courses of instruction provided that the article is used in full and this copyright statement is reproduced. The authors also grant a non-exclusive licence to Southern Cross University to publish this document in full on the World Wide Web and on CD-ROM and in printed form with the conference papers and for the document to be published on mirrors on the World Wide Web.