Panel “Finding an e-market for Micoenterprise Products”

Input: Martina Vahlhaus, GTZ, Program Director SME-Development for Sustainable Employment Program in the Philippines

Hypothesis 1:

There are e-markets for Micro-Enterprise products in selected sectors such as online travel sales[1], financial services, ticket-sales agencies, dating, gambling, online pharmacy purchases.

Business to Consumer (B2C)

Sales from online business are rising, and will continue to rise. In the US, the world’s biggest market, online retail sales rose by 26% last year to $55 billion. Yet this figure excludes sales from other fast-growing sectors such the a.m.

E-commerce will grow even bigger, thanks to the way the Internet influences consumer behavior, such as how:

Many buyers in developed countries first research products they wish to purchase over the Internet before walking into a traditional “bricks-and-mortar” store. In short, this means that consumers are unbundling product information from the transaction itself. Customers want to become better informed about products and prices.
Consumers first engage in online shopping with simple, predictable products like DVDs before moving on to purchasing complex items.
Lower transaction costs from online shopping often translates directly into lower prices for the consumer; pricing is one of the fundamental aspects that make a consumer buy in one website versus others.
Rising number of high-speed broadband links, including in Asia (e.g. in South Korea, 2/3 of households have broadband), make online shopping faster and more convenient.

Business to Business (B2B)

For business-to-business transactions, the online bidding for goods and services is becoming a popular process, since online bidding is faster and more transparent than the offline process.
In developed countries retailers demand their suppliers to provide ITC based information and data relevant to their products. SMEs which are not up to it will not be considered in the future as potential suppliers for big retailers.

Hypothesis 2:

MSMEs (Micro Small and Medium Enterprises) face barriers which hinder them of tapping the potential e-markets for their products.

In a survey of SMEs in the Philippines, nearly all respondents consider the Internet and e-Commerce as important to business. Websites are seen as critical for advertising and promotion of the company and its products and service, whereas the drivers of doing business through the Internet are: convenience and efficiency; drive to be competitive; its necessity to business operations; customer satisfaction outreach, low costs of information and market entry. However, SMEs use ICT mainly for communication and research, and hardly for e-commerce. There are several factors that prevent SMEs from tapping e-markets for their products.

External barriers:

High cost of ICT technology (since many firms are willing to spend less on Internet expenditures) as well as respective training of staff and restricted access to necessary financial resources for such an investment.

Infrastructure – In countries like the Philippines, network infrastructure is fully concentrated in major cities and in areas near economic zones; SMEs located outside these major cities may be subject to higher costs of the Internet, or else no access at all.
Security - although the appropriate policies are in place to facilitate e-commerce, trust is still a barrier to using the Internet to making online transactions. Also, credit card usage in the Philippines is still relatively low – roughly 90% of Filipinos still conduct cash transactions. Fraud is the biggest threat to online trade; better locks and security systems are urgently needed.
Low visibility in the (e-)markets due to lack of trade marks and/or quality standards
Low availability of competitively priced and competent service providers to help MSMEs to engage in e-markets

Internal barriers:

Poor internal communications infrastructure and information management capacity within SME firms
Lack of ICT awareness and knowledge as well as perceived lack of relevance or value-added to their business.
Inadequacy of ICT-capable and literate managers and workers
Insufficiency of financial resources: Initial investment for adopting new technology is proportionately heavier for small than for large firms.
The preference to close business deals with face-to-face interaction
Some businesses prefer to “see and touch” products before buying them.
- E.g. Exporters like to have a preview of raw materials; they fear that actual products bought are not really of the same quality. The same may be true for other products like paintings.
- For traditional users like a furniture exporter, where craft and design is considered a value-added commodity wherein it can claim intellectual property, it wants to limit access to the viewing of products online (which thus limits making online purchase).
Concerns about the non-delivery of purchased orders.

HYPOTHESIS 3:

If GTZ wants to promote MSMEs using the potential of e-markets for their products GTZ has to support government agencies, business service providers as well as banks in minimizing the barriers for MSMEs to venture into e-markets.

The problems outlined above vary in severity, some are easier to resolve than others, some are specific to e-markets, some are the general problems faced by MSMEs. Potential contributions of GTZ to overcome these barriers in the frame of SME-promotion programs such as SMEDSEP in the Philippines having selected IT as a priority sector in one selected pilot province focus mainly on the intermediaries and service providers:

Barrier	Contributions of GTZ
High costs of ICT technology	Assist Suppliers in developing payment options Promote embedded services Promote services financed by large firms Help MSMEs to form clusters to purchase in groups
Infrastructure	Promote Policy Advocacy for respective topics ( Government, Chambers, Associations)
Security	Promote the development and marketing of competitively priced and competent services
Internal communication and information management capacity	Promote the development and marketing of competitively priced and competent services
Lack of ICT awareness and knowledge	Assist providers in improving advertising Assist providers in developing customer referral programs Conduct general advertising for services Help providers to test and demonstrate quality of services Support the establishment of a consumer bureau or information centre ( may be virtual)
Inadequacy of ICT-capable and literate managers and workers	Support respective training providers in developing and market competitively priced and competent training programs
Access to financial services	Promote selected banks in MSME lending

References:

www.gtz.de/ICT-PrivateSector

www.gtz.de/e-business/english

www.promal.org

www.gts.de/sme-portals

Article from Philippine IT update, February 29 – Marcy 14, 2004 “Study says…Phil SMEs’ current IT usage pose opportunities for IT vendors”

Chua, Ronald T., Models of Internet-Based Information Services for Micro and Small Enterprises in the Philippines, Development Alternatives, Inc., October 1999.

Digital Philippines, SMEs and e-Commerce in Three Philippine Cities, The Asia Foundation, April 2002.

Jonas Manja, GTZ/German Institute of Development Policy, Study on “Promotional measures for SMEs for the introduction of e-commerce in North America, Western Europe and Germany”, 2001

The Economist, A Survey of E-commerce, May 15-21, 2004.

ANNEX 1 . Initiatives that have helped SMEs in the uptake of e-commerce (Philippines)

For SMEs, e-commerce presents many opportunities for growth, although they are not as developed as their larger counterparts, particularly in developing countries. In a survey of SMEs in the Philippines, it was shown that exporters were more likely to develop websites and take up e-commerce than non-exporters. And yet the study also shows that Philippine exporters’ use of e-commerce for their business is still at its very basic; they simply use their websites as a product catalogue and information distribution channel. The usage of Internet-banking is also predominantly for checking balances and transferring funds.

However, there are examples of SMEs that have successfully engaged in e-commerce, as well as initiatives that have helped SMEs in the uptake of e-commerce:

PDB SME Solutions, Inc. (www.sme.com.ph) - their chief goal is to be the preferred IT company dedicated delivering technological and human resources to help Philippine SMEs’ business needs. SME.COM.PH is a community of SME businesses that can do e-commerce, share information, resources and benefits under one site. The annual membership fee of PHP8,000 (US$157) allows an SME to benefit from an e-commerce solution package that will promote the firm globally. Membership gives the SME a website reliable web hosting services; domain name registration; personalized email; virtual marketplace (also a virtual shopping mall and business portal); discounts to other web and non-web products and services offered by SME.COM.PH such as software/hardware, business solutions and small business information; free advertisement. To increase its membership, SME.COM.PH is developing partnerships with chambers of commerce, associations, and organizations.
Philippine Chamber of Commerce and Industry (PCCI) has begun working on its electronic business link system, which enables its members in remote areas to have access to computers and the Internet through common service facilities in the provincial centers/PCCI offices. Services include trade inquires and referrals, library/technical assistance, e-commerce. PCCI’s National Membership Database Management System, which will store data on the chamer’s 10,000 members, could eventually provide business matching services that would be useful for micro-small enterprises (e.g. finding buyers and suppliers within the same geographic area).

[1] Sales from InterActiveCorp (IAC) alone, owner of expedia.com and hotels.com, sold $10billion worth of travel in 2003.

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