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Role Of E-Commerce In Economic Growth

By Dr. Mohammad Talha and Mr. Ramaiyer Subramaniam, Multimedia University, Melaka, Malaysia

Web: www.mmu.edu.my
Email: mohammad.talha@mmu.edu.my, ramaiyer.subramaniam@mmu.edu.my

Dr. Mohammad Talha presently working as an Accounting Lecturer in the Faculty of Business and Law, Multimedia University, Melaka, Malaysia. Prior to join here he was a senior lecturer in the Department of Commerce Aligarh Muslim University Aligarh, India since 1990. Dr. Talha have about 14 year of teaching experience and about 20 year of research experience. He has published about 36 research papers, articles and 2 monographs at national and international level. He has also written 4 books in accounting and international trade. Dr. Talha has undertaken many project and presently he is guiding many M. Phil. and Ph.D. students.


E-Commerce is a business issue rather than a technology issue. It involves a number of forms, varying level of cost and complexity, depending on business need. It can also improve the operations through greater use of electronic book-keeping and records management. Supplies received through internet placement reduces the storage cost, space and serves its customers faster and more effectively. On line banking services such as electronic bill payment, funds transfer and payroll management improves the efficiency of the business. These services are offered by most of the financial institutions. E-Commerce is not confined to business alone but also includes media sector also such as telephone, television and electronic payments. The greatest feature of the internet is the absence of intermediaries, the manufacturers are able to sell their products relatively easily to buyers via the internet. With this background, the present paper discusses the ways in which e-commerce give information to the consumers. The paper further highlights some suggestions and future strategies for e-commerce in years to come


Internet marketing, E-Purchase, E-Sales and E-banking.


E-Commerce is the most important application of the new communication technology. Producers, traders and consumers can now reach the market more quickly and get more information than they could ever before. The electronic commerce has penetrated the businesses in many ways. The importance of electronic commerce depends on the evaluation. To evaluate related data on e-commerce is necessary, because it is not readily available. The available data are collected by different agencies using various definitions and methodologies used by the collecting entity. Without reliable data, policy makers, decision makers and business people are unable to take decisions that reflect the changes brought about by the e-commerce. The use of web site enlarges the potential global market and sales revenue, products, potential new customers, services and geographical area. E-commerce has also reduced the transaction costs, allied with purchase, sales, operating, holding inventory and financial costs. The non-financial benefits such as performances of non financial assets like human resource and timeliness, quality of service, customers satisfaction are some of the indirect effects. By using the relevant and accurate data on e-commerce the policy makers and researchers to analyze the impact of e-commerce on labor market, market structures and functioning, changes in distribution of goods and services and changes in global competition. It enables them to take well framed decisions about the policies and investments in e-commerce related sectors.

The main difficulty now faced by the policy makers and others is lack of comprehensive indicators about the electronic commerce and clear guidelines and consensus on what is meant by electronic commerce. Therefore there has been considerable effort at the international level like Asia-Pacific Economic Cooperation and European Union members, to work towards an international agreement on the definitions to be adopted. There is a growing need towards internationally accepted guidelines and methodologies for measuring the electronic commerce. Now the developing countries have started to become actively involved in electronic commerce. They have realized the potential social and economic benefits that could result from e-commerce as well as the importance of having readily available data which would highlight the role of e-commerce in their economies. With this background the present paper discusses the ways in e-commerce by which information about consumers can be assessed and understood. The paper further highlights some suggestions and future strategies of e-commerce in years to come.

What is E-Commerce

National Office for the Information Economy uses the following word to define e-commerce, it classifies e-commerce as every type of business transaction or interaction in which the participants prepare or conduct business electronically. This covers a wide range of activities, ranging from use of electronic mail, through to Internet based sales and transactions and web based marketing. Dr. Roger Clarke, Principal, Xamas Consultancy Pt Ltd., Canberra said that Electronic business is a useful general term for" the conduct of business with the assistance of telecommunications and telecommunications-based tools" and defines Electronic commerce as "the conduct of commerce in goods and services, with the assistance of telecommunications and telecommunications-based tools" . Different people use different terminology such as 'electronic trading' 'electronic procurement' electronic purchasing', ' electronic marketing'. >From the above definition we can say that electronic commerce is often used in a much broader sense, to mean essentially the same as 'electronic business'. In other words e-commerce includes purchases of goods, services and other financial transactions in which the interactive process is mediated by information or digital technology at both, locationally separate, ends of the interchange. Here 'transactions' includes both specification of goods or service required and commitment to buy.

E-commerce is a business issue rather than a technology issue. It further says that e-commerce improves the way business is undertaken with customers, other businesses and government. It involves number of forms, varying level of cost and complexity, depending on business need. Businesses can use e-mail as a rapid and reliable way to communicate with suppliers or to receive and respond to customer queries like quotations, product information, accept orders, execute deliveries, and collect dues from the customers. E-commerce can also improve the operations through greater use of electronic bookkeeping and records management. Supplies received through internet placement reduces the storage cost, space and serves its customers faster and more effectively. On line banking services such as electronic bill payment, funds transfer and payroll management improves the efficiency of the business. These services are offered by most of the financial institutions. E-commerce need not confine to business alone but also includes media sector such as telephone, television and electronic payments. The greatest feature of the internet is the absence of intermediaries. The manufacturers are able to sell their products relatively easily to buyers via the internet. In addition, software and digital content such as music not only can be sold but ca be "shipped" via the internet, such transactions bypass all intermediaries in conventional distribution channels. But in the place of intermediaries a new type of intermediary business that is distinctive of the internet is emerging.

What Is Internet Marketing

A recent report by the Department of Commerce (USA) acknowledged the increased use of the internet for commercial activity. By September 2001 21 percent of the U.S. population was using the internet to make purchases and eight percent was using it for online banking as against 13 percent of either activity in the previous year. The Commerce Department found that 36 percent of the population used the internet to search for product or service information in September 2001 an increase of 10 percent the year before. But the consumers concerns are about the potential abuse of the personal information they provide in the course of conducting transactions online. Most of the user of such facilities never read privacy notices. Indeed a recent Harrisinteractive Poll found that only three percent of consumers read policies most of the time, and two thirds spent little or any time looking at privacy policies. Efforts are made through advertisement and radio campaign to educate them and protect their information. Industry is also supporting efforts to improve the effectiveness of privacy notices.

When consumer knows what exactly his needs and what to buy it is very easy for him to go about- for example if the consumer needs steel he can visit vertical buying hub such as e-steel. On the specific web site the suppliers are listed and the offer to sell in future. The specified various qualitative supplies can be had by the buyer. Buyers can approach by search suppliers, product offers and bid on products that match their requirements or create an inquiry for suppliers to bid on, which involves outlining the type of product they are looking for defining their specifications and contract sales terms, selecting the audience for the inquiry and tracking responses to the inquiry through a self service console. This buying process is sophisticated and highly specific to steel buying; e-steel literally serves as an outsource steel buyer.

Buyers need differ from business to business. Some need specific commodity, others look for a more general product, or make one time purchase or online bartering or e-auction. One time purchasers buy at a time the entire requirements. The company places order with supplier for a bulk order by which they get better price bargain, in turn they offer online the maximum price per piece to the customers. They collect individually huge order by which better price fall is obtained from supplier. This type of hub provides a true win-win situation. The buyer receives a lower price for the product and the supplier receives a larger order, with minimal effort on both sides. The service company provides e-mail order and encourages the buyer to join a buying cycle and drive down the price of the product Another type wherein companies find liquidity short, find a way to age old system of bartering. The first hubs designed to facilitate business-to-business swapping of goods and services are just coming online. One such site, for example, Ubarter.com, lets sellers advertise items for a certain number of Ubarter Dollars - a virtual currency that can be used to buy other goods and services on Ubarter.com. Buyers must have enough Ubarter Dollars on account, or else have an established line of credit, to participate in a sale. However, other than the fee that Ubarter.com charges, bitween the buyer and seller of a completed transaction, cash never changes hands. It is an advantage for small and growing businesses. The other option for bulk procurement is the e-auction. The organizations bid online for goods and services. Business-to-Business e-auction sites are fast becoming a significant sector of the overall buying-hub universe. Let us examine the e-purchase, e-sales, e-inventory and e-banking the main activities of any organization.


The business organization place orders with suppliers on the Web site whereby obtain the goods. E-marketplace where multiple number of vendors and buyers meet at one site for dealing in goods and materials. Earlier these market places attracted the attention of the world. A number of Web sites have been set up in various industries, but they are under going a process akin to that of natural selection in the world of biology, with some businesses withdrawing from e-marketplace operation or merging with other business. Virtually all types of products, including books, music CDs, toys, household appliances, clothing, foods and other groceries, jewelry are available for sale on the internet. The internet sales of books, which had been regarded as being well-suited to cyberspace business, perhaps account for only 7 percent to 8 percent of the total sales volume of books. Founder and CEO of Amazon.com estimated that the books sold on the internet account for around 15 percent of the total book market. The president of Borders, Americas number two book seller chain, believes that the share is not more than 10 percent. Therefore the level of sales of most other products are faring less well on the internet. The best suited products for sale in internet are travel tickets and program and entertainment tickets, which can be marketed by internet easily than other goods. The reasons for such success may be due to easily marketable than merchandise wherein products, photos and other information are to be required. Secondly the merchandise need the personal inspection to satisfy before buying rather than the tickets. The buyer of the tickets does not want to see the ticket before he buys it. Thirdly he even does not like to have possession of the ticket before they are purchased. Fourthly it can be easily dispatched, delivered by registered post or otherwise or directly booked and delivered at the venue itself.

Majority feel that e-purchase is the sort of process that can only benefit very large organizations and multinational companies with very huge investments that can afford to meet such expenses. That is not true. It can be applied any size of businesses or industries. According to technology research firm AMR Research among businesses with more than 10,000 employees, 40 percent already participate in some form of public business-to-business exchange; among companies with 1000 to 2500 employees more than 80 percent expect to be doing so within a year or more. From consumer packed goods, it is a worthwhile effort taking place in the medical supply and pharmaceutical industries. But it is not free from usual difficulties which a business can encounter when trying to implement an e-purchase system. The money saved by e-purchase should not be spent elsewhere which defeats the very purpose of the entire efforts. The saving some time results in hard decisions to take some people out of it, brings dissatisfaction in labor force. According to Aqua Porter, Commodity team manager of Xerox, the entire organization is now changing to a huge purchase migration. She says that Xerox expects to realize 15 percent to 20 percent in process savings on its $ 20 million in annual spending on domestic offset printing. She further says that it gives them a lot more comparative data and a better way to track the decisions that they are making, getting better value for money. The cost of employees responsible for purchasing supplies can be reduced by 20 percent, by using discounted prices from electronic catalogues, purchasing cost, streamline its service staff , and by eliminating maverick purchases or decentralized purchases. The Canadian National Railway Co once having more than 75,000 items in catalogs saved or cut 10 million dollars in procurement costs. The modus operandi is as follows. The railroads former purchasing system was labor intensive and requests for proposals for large purchases to four or five suppliers were either faxed in and voted on by a multidisciplinary committees. This process was time consuming. For smaller purchases staff used to search catalog which did not have the required information and the other processes were done through phone, fax and mail services. The initial teething problems such as issuing multiple requisition orders were to be resolved by the time the system went live for all suppliers. E-procurement encourages getting better prices from suppliers. After a trial of six months the railroad company has reduced the cost of processing from an average of $ 50 per order to $ 4 electronically, nearly about ninety two percent, and some companies have reduced their workforce by 10%, getting larger discount for bulk buying and other purchases. The usage of online catalog can help the employees to check the items which are purchased often.

E-purchase cut labor cost and improves the efficiency by reducing human errors involved. But the person who uses the purchasing authority has enormous power may be one of obstacle to be considered and should overcome with control means. Purchasing from single person every time may be a challenge. The benefits obtained by this system should not be vanished with maverick purchasing. Since in e-purchase the visibility is transparent both within organization and with suppliers, and some of the supplier are not very well equipped for it, the question of displaying the catalog and other information such as inventory and suppliers mark up, are shared with others and suppliers are reluctant to do so. The benefits should not be only to buyer. It should be balanced with the buyer and the supplier. The purchasing strategy cant be changed from old to new supplier. Reliability and the level of service are involved .The relationship and trust that has been developed over a period of time cant be ignored. Mr. Bobby Clay, Vice President of Marketing for Clarus rightly said Just because we have new technology doesnt mean that tried-and true business practices go out the window, Technology can make faster the process, but still requires human touch.


One of the ways to measure the companies performance is by comparing the total revenue with that of previous periods, with same industry, with competitors and with other economic resources which produces the cash flows. Sale is important component of any trading. Performance is always measured with what you put in and what you get back. According to a survey of executives, conducted in USA, 46 percent of retailers cite sales as the primary metric they use to measure a Web sites performance and about one in four said they focus on profit. To e-business, the entity should always monitor the customer demand and changes in the market, and global developments. Internet as an avenue for tracking customer demand and customers inventories as well as for sourcing materials. Knowing the customers demand for inventory on a real time basis is very difficult. Integrating online and offline systems will become increasingly important for retailers who are focused on driving consumers into their stores with purchase intent. The above survey revealed that while only 31 percent of retailers already provide visibility of store inventory on their Web sites, another 23 percent expect to offer this capability within the next two years. A well developed and integrated Web sites connected to their back offices is a requirement to improve the revenue. A lot of companies still dont have their web sites connected to their back offices says Hollis Bischoff, senior program director for electronic business strategies for Meta Group Inc., an IT advisory firm. Because the web site has not been properly linked, an order placed by customer could not be attended to and after a considerable delay sold out information was passed on to the customer. Certainly this affects the customer relations. But this system involves some cost, but the benefit is more than the cost spent. An order management and fulfillment software suited for business to business as well as business to customer transactions. The software can do allocation of inventory as an order is being taken online, or inform a customer about an item much be back-ordered and give the customer an estimated shipping date for the back-order. It also confirms the order placed and shipping details to the customer. The web customers are increasing year after year in spite of economy slow down. Recent trend reports say that internet sales were up in USA by 18 percent for the quarter ending in July. Some stores improved its internet sales but stores sale however down by 14 percent. Even 1-800 flowers.com reported an increase of 33 percent in revenues compared to the immediate previous period. The results say even though there is an increase in internet business, it is certainly to some extent at the cost of orders placed through other sources such as telephone, stores and by mail.


When border less business is developed, increase in cross border transactions are inevitable. Various countries currencies are involved. Foreign currency which is the back bone of any countrys economy is moving from one place to another within a fraction of seconds. Millions of dollars of transaction in shares are traded every minute on the internet with matching money transfers. This raises important issues, for traders how secure are their transactions and security thereof. Already credit card, with so many benefits, have some negative impact such as hassle of foreign exchange conversion and control etc. This is going to be big challenge to the central bank of any country, since serious implications of nation wealth, flight of capital, export earnings and balance of payment are involved. The future is challenged by digital money which is making a headway in commercial transactions and ultimately one day replace currency money. Tracking the route, how it is generated, wherefrom it is coming and where it finally reaches is a challenge to all governments which may land in money laundering, frauds, financing terrorism and illegal activities both across the border and locally.


While it is still early in the development of electronic commerce indicators, the experience to date has been very positive. In many countries, the collected indicators have highlighted a number of barriers to the wide implementation of electronic commerce, providing Governments with key to future policy development. Some indicators have demonstrated digital divide issues, highlighted areas of the population and business community that have been disadvantaged. They have also pointed to areas of commerce such as age and training and to security, a key aspect when related to the actual conduct of commercial transactions, especially for small and medium sized enterprises and private householders. The third general area of use measuring the impacts of electronic commerce has not yet been subject to statistical measurement to any substantial degree.

The rapid growth in electronic commerce around world has prompted many to look for better ways of measuring the phenomenon. As more and more countries and international agencies become involved, it is important to develop plans to ensure that there is no unnecessary duplication of effort and that users have the data necessary for informed decision making at the earliest possible opportunity. From the above discussion, it appears that there are a number of actions that could be taken by national statistical agencies in both developed and developing countries: - Assuming leadership for the development of international standards, concepts, definitions and model surveys by associating with the relevant international agencies. - Collaborating with other national statistical agencies (particularly national statistical agencies in developed countries collaborating with those in developing countries), to improve the quality of statistical indicators that can be made available; - Participating in seminars and workshop organized by international agencies aimed at improving statistical standards in the measurement of electronic commerce.


Technology and software applications play a central role in supporting e-logistics services in handling the complex and demanding business models that are emerging. Logistics and transport service providers, supported by technology companies, are making concerted efforts to automate logistics functions in order to cope with the ever-increasing demands of e-commerce. The development of differing applications meet the requirements of specific users and functions is a source of incompatibility between applications, even within the same company. There is critical demand for the integration of systems to ensure that instructions can be efficiently exchanged between different types of logistics applications.

To achieve more efficient e-logistics and e-fulfillment, it is desirable to have a trading environment in which there is perfect information about goods as regards their description, origins and destinations, and costs for different origins and destinations. Sellers and buyers should be able to monitor and track goods at every point along the way from the supplier to the consumer. All stakeholders should be able to check on the Internet the availability and status of orders. All this can be achieved if trade information is simplified, automated and fully harmonized in all countries, and all restrictive government export/import regulations and practices are eliminated. It is also requires sophisticated supply chain management systems for compelling and enabling global end-to-end monitoring of trade information.

To achieve these broad objectives and also to take into account the special problems of developing countries, it is recommended that Governments, the international community and the private sector cooperate in promoting the following specific measures:

  1. Taking advantage of the great potential provided by Internet technology in order to capture, transfer and monitor trade information over network of supply chains in an open fashion;

  2. Automating customs declaration systems in order to develop customs-to customs information exchange and thereby provide a basis for the elimination of unnecessary export / import requirements, which can instead be replaced by fully integrated international transactions;

  3. Harmonizing and improving the classification of commodity tariffs, and facilitating the identification of individual consignment;

  4. Providing investment resources especially for customers administrations in order to upgrade their efficiency;

  5. Harmonizing and simplifying trade facilitation regulations and procedures, and in particular encouraging greater harmonization of customs procedures through the wide adoption and implementation of the revised Kyoto Convention on the Simplification and Harmonization of Customs Procedures;

  6. Promoting cooperation between authorities of exporting and importing countries in order to provide verification and compatibility in trade information. In this context, the International Trade Prototype (ITP) project developed by the United Kingdom and the United States customs administrations could provide a model to be developed at the international level. The international community should give support to further development of the project;

  7. Encouraging greater transparency in trade processing activities and taking measures to reduce corruption and other forms of malpractice in customs administration;

  8. Promoting partnership between developing country logistics service providers and developed country logistics service providers that are applying e-logistics systems;

  9. Providing technical cooperation program to developing countries that support e-logistics, for example in customs, transportation services, cargo terminals and related services.


  1. Bayles, D.(2001), E-commerce Logistics and Fulfilment; Delivering the Goods, Upper Saddle River, NJ, U.S.A., Printice Hall PRT.

  2. Kapsinow, S.(1999). Using Fulfillment services for e-commerce, E-commerce Guide, 15 April, http://www.internet.com

  3. Sid L., Huff, Scott Schneberger, Michael Wade, Peter Newson and Michael Parent (2000), McGraw-Hill Book Co. Singapore.

  4. UNCTAD (2002) Building Confidence: Electronic Commerce and Development, Unite Nation Publication, Sales No.E, 001.D.16.