E-commerce is the new buzz word. With the advent of the Internet, the development of e-commerce in both the developed and developing economies has developed at a rapid pace. Developing countries such as Malaysia are catching up fast as there are already 1. 2 million Internet users. The private sector and the Government have taken initiatives to implement e-commerce. Physical and legal infrastructure for e-commerce in Malaysia have been put in place.
The rapid adoption of e-commerce in the developing economies in general and Malaysia in particular has been made possible by the rapid development and high investment in communication technology and infrastructure, cheaper cost of computers and software as well as the availability of IT manpower. In Malaysia, the establishment of the Multimedia Super Corridor and the provision of IT training at local institutions of higher learning will accelerate the application of e-commerce.
Furthermore, the development of e-commerce in Malaysia is in line with the country’s long-term strategy to develop a competitive economy based on the K-economy concept. The recent Bank Negara Malaysia’s approval for domestic banking institutions to offer Internet banking services with effect from June 2000 will boost the development of e-commerce in Malaysia. Developed economies have shown that e-commerce will eventually have a far-reaching effect on the world economy because it will revolutionize the way businesses and consumers conduct their business transactions.
The wide-spread impact of e-commerce is due to lower transaction costs. Using the transaction costs theory, studies have shown that e-commerce will reduce transaction costs of firms and hence final product prices. According to the transaction costs theory, price of a product has three elements: production costs, coordination costs, and profit margin. As firms find better ways to coordinate their activities through electronic channels, their transaction costs will fall.
As the industry better manages real time information based on e-commerce, firms can also improve their inventory management and thus reduce inventory costs. Reduced transaction costs benefit both consumer and producer. While consumers will gain access to a broad-based selection of lower priced goods, producers are likely to see higher demand for their products. Furthermore, in the Internet age, people and firms will be connected with highly capable interactive capacity.
Through the information highway, consumers will have free market choices, and firms will have almost unrestricted market access. This offers opportunities as well as poses threats to businesses. The impact of e-commerce can be traced at the industry and consumer levels. It can also be traced at the macroeconomy level. It is however important to note that the full impact of e-commerce on an economy depends on several factors such as the rate at which the economy adopts e-commerce. At the industry level, e-commerce will result in some rationalization of activities.
Firms will need to undertake investment in an appropriate computer system to implement e-commerce. They will undertake new activities which are knowledge-intensive. Through the adoption of e-commerce, firms will demand for a new kind of workforce, particularly those with a higher level of computer literacy. This new demand will have an immediate and far-reaching implication on the provision of training in the country. Firms will be pre-occupied with technology selection and investment.
This task is quite demanding, particularly when the telecommunications and computer technologies are changing at a rapid pace. To keep up with modern technologies, firms cannot ignore continuous investment in human resource. E-commerce will further shorten product cycles of the industry. Through e-commerce, firms will have fast knowledge of what customers want. Firms can use this knowledge to guide the development of their product lines and to identify new growth areas at their earlier stages. With customer information in hand, firms can promote both up-selling and cross-selling.
For the economy as a whole, e-commerce will result in higher investment by the Government, firms and consumers. Coupled with higher investment in IT, e-commerce will result in higher efficiency and productivity of the economy. In this light, e-commerce will contribute to higher total factor productivity of the Malaysian economy which is needed to sustain economic growth in the long term. E-commerce will create new activities and a variety of new industries which utilize IT. This will lead to the creation of new job opportunities.
The increased investment mentioned above and the emergence of new IT-based industries will lead to a higher level of economic activity to support economic expansion and growth. E-commerce will experience a high growth in the developed and developing countries, given the rapid diffusion of the Internet technology. The benefit of e-commerce will be experienced by firms and consumers due to lower transaction costs. E-commerce will not only create a new set of economic activities and employment structure, but will also transfer market power of consumers and enhance the level of competition in the economy.