ECA

E-Commerce From Remote Locations

22.06.2017 Deborah Elms
E-Commerce From Remote Locations

FIJI—The promise of e-commerce and digital trade is that can empower individuals and firms from anywhere to find customers, suppliers, and engage in trade globally. It has enabled the tiniest companies to become “micro-multinationals.” A first customer can literally be found across the world. But this promise is sometimes harder to implement than it first appears.

In Fiji and other Pacific island states, the potential seems to remain largely just that—a promise rather than a reality.

Why this might be so is a bit puzzling.

A first guess at why Pacific Islanders are not heavily engaged in digital trade and e-commerce is that internet penetration is low. After all, if citizens and companies do not have access to the internet, they cannot be involved in e-commerce.

While access is certainly not universal, and speed and cost remains an issue, intensive efforts by governments and the donor community in the region appears to be rapidly resolving many of these challenges.

A second issue limiting e-commerce is that the cost structure overall is a problem. This is certainly true. Especially for trade in goods, transportation costs are simply going to be higher than elsewhere.

The Pacific Islands are both relatively small and remote. Getting goods in and out is going to result in higher costs than non-island locations.

Local costs are also high. Labor productivity is quite low and inputs to production of goods are also high, including electricity, raw materials and so forth.

This means that Pacific Island goods producers will likely struggle to be competitive in any low value production. But higher value goods could still be desirable on e-commerce platforms.

What sort of goods might realistically be sold online to overseas buyers?

The islands could certainly specialize in high value tropical products—special agricultural products like pepper or cocoa, tropical beauty items like soaps or lotions, and clothing or other textile and handicraft products that take advantage of unique patterns, designs and colors of the region.

For many of these items, consumers should be willing to pay a premium for well-designed products. Fiji has clearly shown the potential with the success of its bottled water sales globally.

Services can also be sold online. Fiji, for example, uses English and many of their university graduates could be competitive in offering all sorts of services.

The time zone for many places like Samoa means that the Pacific Islands are well positioned for call centers that can be open throughout the night to serve multiple markets.

But one of the biggest challenges for e-commerce and digital trade seems to be issues with payments. Local banks have not yet moved online, making it difficult or impossible for companies and consumers to use online financial services. Many local banks do not offer personal credit cards. More than 300 islands in Fiji are served by just 99 ATM machines. Banking is expensive, time consuming and difficult.

Foreign payments operators also seem to have put many of the Pacific Islands into the high fraud category, making it impossible to use foreign credit cards to pay for items to be shipped into the region.

Until and unless payments and financial services are sorted out, it will never be possible to have a robust e-commerce or digital service market in the Pacific Islands.

There is, however, one avenue that could still work that seems to be relatively untapped. Companies could offer services to inbound tourists. For example, firms could offer private tours, scuba or surfing experiences, cooking lessons, homestays, motorbike tours, and so forth. These could be offered online and paid for once the tourists arrive on the islands. This would get around the payments issue.

So far, for reasons that are not clear, these services do not seem to be offered online. Some of these are available, but tourists have to arrive in town to find them.

Solutions offered up by participants at a conference here sponsored by the Asian Development Bank (ADB), the Australian National University (ANU) and the University of the South Pacific (USP), seems to be to ask the governments to do more or to ask for more capacity building to help companies.

Certainly governments should cooperate to deal with the issues related to online payments. This is a critical bottleneck that must be sorted out immediately.

But more government or foreign aid intervention is surely not only route to getting businesses to go online. Firms can get plenty of low cost, or free off-the-shelf website design sites (like our own Squarespace) and free internet tools like advertising on Facebook that are easy to use and do not need complicated skills to master.

The benefits to companies of driving in new customers should be sufficiently large, in any case, to offset whatever costs they incur in moving online.

What may be needed by governments in the region are policies that support smaller firms and, potentially, regional efforts to coordinate such efforts. Given the overall challenges to operating in the e-commerce and digital space, firms can ill-afford any additional barriers to trade.

Governments have to avoid all “own goals” as companies already have enough hurdles to overcome.

As an example, firms need to have the lowest possible duties and tariffs on their small size, smaller value shipments. They need to have the fastest movement of goods through ports and airports. Paperwork barriers should be minimal and all should be done online.

Firms need to have minimal obstacles to setting up companies and be allowed to operate online and from remote locations.

If the Pacific Islands get the e-commerce and digital trade picture right, it should dramatically improve the business opportunities for firms. Given the limited commercial options for most locations, this is a critically important avenue to get moving.

The rising, young populations across most of the region need to have job prospects at home. E-commerce and digital services offer these benefits. The Pacific Islands ought to be a showcase of the micro-multinational and move from a mere promise to a reality as soon as possible.

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