Nepal – Can E-commerce Stimulate International Exports?

William Wresch

University of Wisconsin Oshkosh

In 2001 the United Nations Development Program released its Human Development Report with a country-by-country analysis of progress on such benchmarks as life expectancy, literacy rates, and gross domestic product. A special focus for 2001 was what the UNDP calls “the network age.” Asserting that “technology can be a tool for – not only a reward of – development, (27)” the report goes on to describe examples of national efforts to successfully develop and use technology. Ultimately, it put all nations into one of four categories of technological progress: leaders, potential leaders, dynamic adopters, and marginalized.

The UNDP report found significant progress around the world with many nations – not just the richest – taking advantage of information technology to boost their standard of living. But there are exceptions, hence UNDP’s list of marginalized countries. The table below presents the figures for UNDP’s nine marginalized countries as compared to the UNDP’s top five technological leaders.

Country	Patents per one million people	Royalties per one thousand people	Internet Hosts per one thousand people	% high and medium tech exports	Phones per one thousand people	Electricity consump-tion per capita	Mean years of school-ing	% tertiary science enroll- ment
Finland	187	$125.6	200.2	50.7%	1203	14,129	10.0	27.4%
US	289	130.0	179.1	66.2	993	11832	12.0	13.9
Sweden	271	156.6	125.8	59.7	1247	13955	11.4	15.3
Japan	994	64.8	49.0	80.8	1007	7322	9.5	10.0
Korea	779	9.8	4.8	66.7	938	4497	10.8	23.2
Nicaragua	0	0	0.4	3.6%	39	281	4.6	3.8%
Pakistan	0	0	0.1	7.9%	24	337	3.9	1.4%
Senegal	0	0	0.2	28.5%	27	111	2.6	0.5%
Ghana	0	0	0	4.1%	12	289	3.9	0.4%
Kenya	0	0	0.2	7.2%	11	129	4.2	0.3%
Nepal	0	0	0.1	1.9%	12	47	2.4	0.7%
Tanzania	0	0	0	6.7%	6	54	2.7	0.2%
Sudan	0	0	0	0.4%	9	47	2.1	0.7%
Mozambique	0	0	0	12.2%	5	54	1.1	0.2%

(Human Development Report, 48-9).

The eight measures of technological innovation created by UNDP show stark contrasts between the world’s leaders and these marginalized countries. Where Finland files many patents and receives licensing income from unique products and processes, the nine marginalized countries patent nothing and receive no royalty income. While Finland has 200 Internet hosts per one thousand people, the marginalized countries may have just one or two hosts for the entire country. Where more than half of Finland’s exports are high and medium technology exports, marginalized countries continue to struggle with low-tech (and low profit) commodity exports. Because so many people in Finland have both traditional telephones and cell phones, Finland has more phones than people. Marginalized countries struggle with five to thirty-nine phones per one thousand people. And then there are huge differences in electricity consumption (availability), educational attainment, and number of college students who select math and science as a major. In every category, the differences between world leaders and world followers are daunting.

Yet the fact that the bottom nine countries are “marginalized” does not mean they are excluded from world e-commerce. Many of them have a significant number of businesses that use the web to boost their business prospects. A survey of three such countries shows that web sites have become an important avenue to business.

Business web sites in Nepal, Tanzania, and Nicaragua were identified by using search engines and business directories. Each site was checked to ensure that the business being presented on the web had a significant export-orientation. Businesses that were mainly local (e.g. restaurants, health services, banks, automotive) were excluded. Given the shortcomings of search engines, and given the costs of business directory listings, clearly many more export-oriented business web sites exist than were found in this survey. But the sites located do represent a substantial portion of the web sites extant in each country in January 2002. 229 sites were identified in Nepal, 44 in Nicaragua, and 86 in Tanzania. The table below lists the number of sites found and the industry-types most frequently identified.

	Nepal	Tanzania	Nicaragua
Hotels/resorts	45	32	21
Tour operators	122	53	14
Exporters of local specialty products	62	1	9
Total	229	86	44

While the United Nations may be identifying these three countries as “marginalized” technologically, some businesses in all three countries were able to establish e-commerce web sites. While the numbers are small by international standards, they at least demonstrate that even in the most marginalized countries businesses are finding ways to take advantage of technological opportunities.

The industry that appears to have taken the lead in these countries is tourism. Included in this category are hotels, travel agents, guide services, and outfitters. Nepal has the Himalayas and Tanzania the Serengeti and Kilimanjaro so it should not be too surprising that they have many tourism businesses connected to these world-renowned sites. But Nicaragua also had a substantial majority of its web sites connected to the tourism industry so this trend appears to extend beyond countries with unique destinations.

The second-most popular industry may be most intriguing by its absence. A significant number of Nepalese websites advertise local products for export, especially pashmina sweaters and other unique clothing items. Nicaragua has far fewer export sites but has nine selling cigars and rum. No business in Tanzania has yet to create web site selling local products or craft items. The one export site we found was a site for a mine, but it did not appear to be directly seeking business. Nepal clearly stands apart from other developing countries in its use of e-commerce to promote exports.

Businesses in these three countries were also surveyed to learn more about the costs of doing business on-line, and the amount of customer traffic they were getting over the net.

	Nepal	Tanzania	Nicaragua
Location of Web host	US – 7 Nepal – 8	US – 5 Tanzania – 3 UK – 3	US – 4 Nicaragua – 2 Elsewhere - 1
Years on the web	Range 1-7 mean = 2.8	Range 1-5 Mean = 2.9	Range 1-8 Mean = 3
Monthly cost	<$20/month – 13 $20-$30/month – 2	<$20/month – 6 $20-$50/month – 3 over $50/month - 2	<$20/month – 4 $20-$50/month – 2 over $50/month - 1
Business Inquiries per month	< 20 – 7 20-50 – 5 over 100 - 1	< 20 – 3 20-50 – 3 50-100 - 4 over 100 - 1	< 20 – 5 20-50 – 1 over 100 - 1
% total business	< 5% -- 7 5-15% -- 4 15-30% -- 0 30-50% -- 1 >50% -- 2	< 5% -- 4 5-15% -- 3 15-30% -- 4 30-50% -- 0 >50% -- 0	< 5% -- 7 5-15% -- 0 15-30% -- 0 30-50% -- 0 >50% -- 0
Major foreign customer	US – 9 Europe – 6 Asia - 2	US – 8 Europe - 8	US – 5 Latin America - 2

The responses of these thirty-three companies tell us many things about their current e-commerce efforts. First, while many businesses in these countries choose to host their web site in the US, at least a few sites are hosted in the home country. This demonstrates that even in marginalized countries the capacity is available for basic web sites. The other good news for these countries is that since sites are being created and hosted locally, the talent that created and maintains those sites is also available locally and can be used by other businesses that wish to begin e-commerce efforts (Nepal’s business directory lists nine Internet service providers or web development companies).

Second, the fact that so many companies have been on the web for two or more years indicates that the efforts are paying enough to be worth the ongoing costs.

Third, companies have found ways to keep costs down. They seem to have worked their way around the information age irony that brings the highest fees for technology to the people who can least afford it. The vast majority of companies are getting their site hosted for less than $20, a sum available even to small companies in poor countries.

Fourth, as for the number of inquiries and the amount of business being generated by these web sites, while the majority have fewer than 20 inquiries per month and find the site generates less than fifteen percent of their business, each country has at least one business that has a substantial number of inquiries or sales as a result of the web site. There are leading companies in each country that are finding success on the web.

Analyzing Industry Choices

All three countries have one industry in common – tourism. All three are using communications technology to inform visitors of vacation services. But that similarity seems minor compared to the huge differences in their comparative efforts to export products via the web. Nepal vigorously promotes carpets, shawls, blankets and artwork over the web. Nicaragua looks for additional markets for its cigars and rum. Tanzania sells no product online. Ironically, it would appear that Nepal would be the least likely of the three to be successful with such exports. A landlocked nation half a world away from its biggest market, it faces far more export problems than Nicaragua and Tanzania. Yet scores of companies there have developed web sites and attempt to use e-commerce.

While electronic commerce is still a young business strategy, the limited amount of business theory expounded on this subject would support the level of activity we find in all three countries’ tourism industries. Kiang and Chi (2001) point out that one of the unique features of Internet marketing can be its use as both a transaction medium and a distribution medium for digital products and services. Online ticketing and reservations are a classic example of this feature in that customers can both learn about products, make a purchase, and receive a digital plane ticket or hotel/resort reservation. The internet seems ideal for this kind of business and the fact that the majority of business being performed in these developing countries was of this type confirms that real business experience seems to be matching business theory.

On the other hand, current theory would predict problems for the many businesses in Nepal and Nicaragua that are trying to use the Internet as a means of selling products. Already mentioned is the problem Nepal faces when trying to ship products – it is a very long distance from any substantial market and so faces huge delivery obstacles and costs. But electronic commerce adds additional problems. Lack of trust in internet security is frequently named as a problem in the literature (Farhoomand, 2000; Bingi, 2000). Small companies operating in distant countries would seem to be even more a risk to consumers – can they trust companies they have never heard of in countries they can barely find on a map?

This question of trust is compounded by the nature of the products being presented for sale. Rangan and Adler (2001) place products into four categories – undifferentiated commodities (steel bars or a barrel of oil are the same anywhere you buy them), quasi-commodities (branded books of toys available from many sources), “look and feel” goods (houses, clothing, furniture), and “look and feel” goods of varying quality (artwork, wine). In the first two categories price is paramount and foreign companies with significant price advantages could see success. The two “look and feel” categories are much more difficult to sell over the Internet since buyers want to sit in the chair, try on the sweater, or taste a sample of the wine. None of these are possible on-line, so e-tailers attempting to sell such products have real problems finding customers. A count of failed e-tailers by Kiang and Chi (2001) confirms the difficulties such companies have.

Unfortunately for Nepal and Nicaragua, they are both attempting to sell the classic “look and feel” products online. Growing experience with online sales is beginning to suggest strategies companies can take to successfully sell “look and feel” products, but these strategies take significant business sophistication (for example, “relationship marketing” (Shin, 2001)) and still leave the companies of Nepal facing the basic tasks of shipping a Pashmina sweater to Oregon and accepting a return if the size or color are wrong, and doing so at an attractive price while earning a profit. Such a task is daunting in any country and with any level of technological infrastructure.

Boosting the Exports of Nepal

When contacted directly, exporters of Nepal acknowledged the problems they faced, but like most business people, were looking for ways of overcoming the obvious hurdles so their companies could grow. These are the main problems they mentioned as hurting their businesses:

1. Language Translation: One business owner stated, “Our site is listed in most of English the search engine [sic] but not other European Search Engine. I couldn’t able to list my sites there because I don’t know European language so I am not able to promote my business.”

2. Government taxes: Businesses are taxed .75% on the cost of their web site, and they are taxes 200% on any goods that are returned by customers.

3. Banks: While some business owners stated that they were able to take payments such as credit cards, others said that electronic funds transfer was still a problem for their bank.

4. Shipping: Both UPS and DHL are available to handle shipments, but businesses complain that costs for shipping raise their product prices considerably and make them less attractive.

5. Getting attention for their web sites: One exporter stated that he has never gotten any business over the web. Others have had some success by using it as an adjunct in a sales effort, putting the URL on business cards and mentioning it when they do sales presentations. All companies would like to see more traffic through their web sites.

What would you suggest to help Nepalese companies use e-commerce to grow their businesses? One CEO asked, “Could you help me by providing the advice to move ahead?” What would you tell him?

Sources

Bartlett, C and Ghoshal, S. Going Global: Lessons from late movers. Harvard Business Review, Mar/Apr 2000, Vol 78, No 2, 132-141.

Bingi, P, Mir, A. and Khamalah, J. The Challenges Facing Global E-Commerce. Information Systems Management, Fall 2000, Vol 17, No 4, 26-39

Farhoomand, A and Tuunainen, V. Barriers to Global Electronic Commerce: A Cross-country survey of Hong Kong and Finland. Journal of Organizational Computing and Electronic Commerce, 2000, Vol 10 No 1, 23-49.

Human Development Report 2001: Making Technology Work for Human Development. (2001) New York, NY: United Nations Development Programme.

Kiang, M. and Chi, R. A Framework for Analyzing the Potential Benefits of Internet Marketing, Journal of Electronic Commerce Research, 2001, Vol 2, No 4, 27- 33.

Shin, N. Strategies for Competitive Advantage in Electronic Commerce, Journal of Electronic Commerce Research, 2001, Vol 2, No 4, 34- 41.

Rangan, S. and Adler, R. Profit and the Internet: Seven misconceptions, MIT Sloan Management Review, vol 42, #4, 44-53, Summer 2001