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Challenging Digital Inequalities
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Hills, J., & Stewart, K. (2005) A more equal society? Bristol: Policy.
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This work was previously published in Social Implications and Challenges of E-Business, edited by F. Li, pp. 187-197, copyright 2007 by Information Science Reference (an imprint of IGI Global).
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Chapter 7.5
E-Business in Developing Countries:
A Comparison of China and India
Peter V. Raven Seattle University, USA
Xiaoqing Huang Seattle University, USA
Ben B. Kim Seattle University, USA
ABSTRACT
The Internet has changed the way many companies do business, but has also tended to increase the GLVSDULW\EHWZHHQ¿UPVLQGHYHORSHGFRXQWULHV and those in developing countries. As the digital divide seems to grow, the question becomes how will developing countries catch up? We examine two large developing countries, China and India, in an attempt to understand their approaches to developing e-business. While both countries had access to the technology at about the same time, each has taken a different path to utilizing it. These approaches are based on a number of factors, including government initiatives and focus, infrastructure building, experience and
understanding of business operations, and culture, among others. China appears to be ahead of India in the mechanics and infrastructure, but India is ahead in e-readiness. Both countries are poised for rapidly increasing e-business, however, they have huge problems of poverty and inequality between urban and rural connectivity must be resolved to really take advantage of e-business.
INTRODUCTION
The personal computer and the Internet have changed the nature of business worldwide—in both developed and developing countries. People geographically isolated from each other are now
Copyright © 2009, IGI Global, distributing in print or electronic forms without written permission of IGI Global is prohibited.
E-Business in Developing Countries
able to communicate in real time. However, how has this ability to communicate affected global businesses, especially among developing nations? This is not a trivial question, as the notion of the ³GLJLWDOGLYLGH´DSSHDUVWREHH[SDQGLQJUDWKHU than contracting, as businesses in developed coun-tries are increasingly connected, while those in developing countries lag relatively farther behind. 7KHSURPLVHRIWKH,QWHUQHWDQGHI¿FLHQFLHVRI e-business are not equally distributed.
In this study, we examine the adoption and use of Internet strategies in furthering e-business in two large developing nations—China and India. We will see that each country has chosen a differ-ent path to utilizing the Internet in business. This may be instructive for other developing countries as they increasingly adopt the Internet and utilize LWVHI¿FLHQFLHVIRUEXVLQHVVDQGGHYHORSPHQW
Industrialized countries have adopted the In-ternet for business purposes at different rates. The 86ZKHUHWKH,QWHUQHW¿UVWGHYHORSHGDSSHDUV to be farthest along in business usage and near the top at a consumer level, although many other FRXQWULHVKDYHVLJQL¿FDQWO\LQFUHDVHGWKHLUXVHRI the Internet (see Table 1). The Internet penetration of China and India are shown in Table 2. Most 86¿UPVKDYHDQ,QWHUQHWSUHVHQFHEXWQRWDOO use the Internet in the same way or to the same
H[WHQW,QFUHDVLQJO\86¿UPVIHHOWKHQHHGWR have a Web presence to reach their customers and WRVHUYHWKHPHI¿FLHQWO\6RPHWLPHVWKHUHVXOW is a full-service, e-business exchange site, but IRURWKHU¿UPVWKHUHVXOWLVPHUHO\DQLQIRUPD-tional site.For marketers in developing countries, though, the question may be to what extent can the Internet be used in marketing products both locally and globally? Firms from industrialized countries have successfully done this, but there is little information about developing countries using the Internet to market their products in-ternally or externally. This study examines the commercial use of the Internet in China and India in an attempt to understand their approaches to e-business. We examine several key areas we think may explain the adoption of e-business in these developing countries: regulatory issues, infrastructure, policy, and culture.
BACKGROUND AND LITERATURE REVIEW
Both China and India have large, growing popula-tions and are frequently compared to each other because of this fact. However, they also have very different cultures and political traditions, which
Table 1. Growth of the Internet—World Wide (Note 1: % Pop. is the Penetration Rate, expressed as population percentage; Note 2: Internet Growth Percent is between December, 2000 and June, 2005; source: The Internet World Stats News, No. 008, July 2005, http://www.internetworldstats.com/pr/edi008. htm, accessed August 6, 2005)
World Regions I n t e r n e t I n t e r n e t Growth % Population
Northern America Oceania
Europe
Latin America & Caribbean Asia
Middle East
Africa Total World
Users, 2000 108,096,800
7,619,500 103,096,093 18,068,919 114,303,000 5,284,800
4,514,400 360,983,512
Users, 2005 2005 223,392,807 106.7 % 68.0 %
16,448,966 115.9 % 49.2 % 269,036,096 161.0 % 36.8 % 68,130,804 277.0 % 12.5 % 323,756,956 183.2 % 8.9 % 21,770,700 311.9 % 8.3 %
16,174,600 258.3 % 1.8 % 938,710,929 160.0 % 14.6 %
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E-Business in Developing Countries
Table 2. Comparisons of China and India (Sources: iWatch: Wake up call for India, http://www.wake-upcall.org/china_india_comparision/china_india_chart.php, accessed 8/6/2005; Strauss, El-Ansary,
and Frost [2006])
Economic or social factor Electrical Generation Capacity Electricity Generated Telephone lines connected Mobile/cellular phones Internet connections
GDP Population
Population Increase per year Birth Rate
Per Capita Income Internet Users (2004)
Internet Penetration (2004)
Unit of measurement Megawatts
Billions of kilowatts Millions
Millions Millions
USD – billions Millions Millions
Numbers per 1000 USD/year/person Millions
Percent
China India 258,000 89,000 1,166 417 240 43 400 75
45 9 1121 460 1260 1060 10 19 8.8 27 1060 480 95.8 39.2 7.48 3.77
affect the dynamics of a direct comparison. While Internet usage is growing rapidly in both India and China, each country suffers from poverty, illiteracy, poor information, and communica-tion technology (ICT) infrastructure. As these countries approach Internet business strategies differently, can we learn from their experiences? Are the strategies and metrics used in describing China and India of use for other developing coun-tries—or to developed countries? We anticipate that an understanding of the ways in which the Internet is used in China and India, especially in business-to-business (B2B) transactions, will help ¿UPVLQERWKGHYHORSLQJDQGGHYHORSHGFRXQWULHV utilize better Internet strategies to compete glob-ally. Although our focus is on B2B e-business, we will also discuss business-to-consumer (B2C) e-business where it is appropriate. While there are differences between the two in target customer, there are also many similarities and the lines between them are often blurred. Previous work has shown that B2B is primarily driven by global IRUFHVLQPRUHRID³SXVK´PRGHZKLOH%&LV PRUHLQWHUQDOO\GULYHQ²³SXOOHG´E\FRQVXPHU markets (Gibbs, Kraemer, & Dedrick, 2003).
Why compare China and India in this study? Both are developing rapidly in certain sectors and represent the largest of the emerging markets.
China is the largest communist country with a population of 1.3 billion and India is the largest democracy with a population of 1.08 billion (CIA, 2006). Besides their respective sizes, each coun-try has similar problems of disparate ethnicities, languages, and skewed distributions of wealth. Both China and India are developing economies, encountering many of the same problems of transition from traditional to developing to global economy. Both are now members of the global trading community, the World Trade Organization (WTO). They have approached their entry into the WTO, though, in different ways. India, probably because of its British-colonization heritage, has approached the world markets in a more market-driven fashion. China having no such market tradition, is still feeling its way into the world marketplace and seems to perceive a greater need to control the process. These approaches result in different paths to development and to e-business (Kshetri, 2005; Levinson, 2004).
Economic Development
The level of development of a country impacts its ability to trade with other countries, improve its standard of living, and prosper (Economist, 2006; Harrison, 1996). It should be no surprise
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E-Business in Developing Countries
that countries develop at different rates and in different ways. Each country has a different set of inherent resources—from natural resources to KXPDQUHVRXUFHV²ZKLFKKDYHLQÀXHQFHGWKHLU history, culture, and personality. Until recently, these phenomena, including wars, have had the greatest impacts on rates of development and de-velopment typically proceeded at a relatively slow and predictable pace. The industrialized countries of Europe and North America, for example, took about 200 years to become developed. Today, however, technology, especially the Internet, is VHHQDVKHOSLQJGHYHORSLQJFRXQWULHV³OHDSIURJ´ the traditional stages of development (Levinson, 2004). In fact, developing countries are often too impatient to wait for the slow pace of traditional development processes, as they fall further and further behind developed countries.
There are many barriers to Internet and e-business adoption in developing countries. For example, incentives for the integration of the Internet in businesses may be low due to pov-erty and perceived low demand for goods and services. The infrastructure may be inadequate to sustain growing adoption of Internet business strategies and government policies may not sup-port technology development. There may also be deep cultural problems acting as barriers, such as illiteracy and language issues, credit problems, and a limited tradition of entrepreneurship and innovation (Levinson, 2004).
Development is a complex process. Many developing countries do not have a tradition of a market economy and wrestle with the notion of privatization of public enterprises (Yoder, Borkholder, & Friesen, 1991). While developing FRXQWULHVRSHQWRLQWHUQDWLRQDOFDSLWDOÀRZVDUH likely to receive advanced technology through foreign investments, policy measures are more likely to be successful if directed towards stimulat-LQJWKHDFFXPXODWLRQRIORFDWLRQVSHFL¿FDVVHWV including ICT, rather than investment incentives to foreign investors (Nordas, 2002). Technology transfer is also affected by cultural and political
differences (Al-Ghailani & Moor, 1995). Other LQGLFDWRUVRID³FKLFNHQHJJ´GLOHPPDVXJJHVW that economic development precedes Internet GHYHORSPHQWWKXVFRQWULEXWLQJWRWKH³GLJLWDO divide” (Norris, 2000).
Outward-oriented countries are those that look elsewhere for growth. They seem to grow at a more rapid pace than more inward-oriented countries (CIA, 2006; Panagariya, 2004; Santos-Paulino, 2005; Young, Huang, & McDermott, 1996). Dollar (1992) cites the recent rapid growth of Asian developing economies compared to those of Africa and Latin America as support for an out-ward-orientation. An outward-orientation implies that trade liberalization, devaluation of the real exchange rate, and stabilized real exchange rates improve growth in developing countries.
With that, what is the role of technology, and VSHFL¿FDOO\WKH,QWHUQHWLQGHYHORSPHQWSODQ-ning? Akel (2001) suggests a four-step process VKHFDOOVWKH³,QWHUQHW$GYDQWDJH´FRQVLVWLQJ of creating a technology intensive environment, offering services to create a unique community, encouraging a climate of entrepreneurship, and providing appropriate assistance. These steps were applied to development within the U.S., but can they also apply to developing countries? We explore on the applicability of this process in subsequent sections.
Because of its relative newness and the rapid rate of development of the industry, the theoretical literature on e-business in developing countries is relatively sparse. However, the literature provides a basis for modeling the diffusion of e-business, including some of the barriers facing early adopt-ers (Travica, 2002). Limitations and/or barriers to e-business in developing countries include limited Internet accessibility, lack of competition in inter-QDWLRQDOWHOHSKRQHWUDI¿FZKLFKLQFUHDVHVWKHFRVW of a network), lack of intra-regional infrastructure, and disproportionate penetration of the telephone in urban areas. E-business depends on several layers: an infrastructure layer—transportation (roads, air, railroads, etc.); a telecommunications
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