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Electronic Commerce (E-Commerce)

1. INTRODUCTION

One of the most profound changes currently transpiring in the world of business is the introduction of Electronic Commerce (E-Commerce). The impact of E-Commerce on procurement, shopping, business collaboration, and customer services as well as on delivery of various services is so dramatic that almost every organization is affected. Besides, as E-Commerce is changing all business’ functional areas and their important tasks, ranging from advertising to paying bills, the nature of competition has also changed due to new online companies, new business models and the diversity of E-Commerce related products and services.

This objective of this research is to find out the current situation of E-Commerce in Saudi Arabia and to analyze the E-Payment system in Saudi Arabia, global barriers in effecting E-Payment system for E-Commerce.

Before analyzing the current situation of E-Commerce in Saudi Arabia, I would like to give a brief summary about the political, economic, social and technological environment of Saudi Arabia.

2. HISTORY OF SAUDI ARABIA

Saudi Arabia which is the birth place of Islam and home to Islam’s two holiest shrines in Mecca and Medina is located in the Middle East bordering the Persian Gulf and the Red Sea. The king’s official title is the Custodian of the Two Holy Mosques. The modern Saudi State was founded in 1932 by ABD AL-AZIZ bin Abd al-Rahman AL SAUD (Ibn Saud) after 30 year campaign to unify most of the Arabian Peninsula. It is a large Middle Eastern nation that ranks as one of the world’s leading producers of petroleum, and exports more oil than any other nation.

3. POLITICAL & LEGAL ENVIRONMENT OF SAUDI ARABIA

As far as the political environment of Saudi Arabia is concerned, the country is ruled today by ABDALLAH bin Abd al Aziz Al Saud as per the country’s 1992 Basic Law. Following Iraq’s invasion of Kuwait in 1990, Saudi Arabia accepted the Kuwaiti royal family and 400,000 refugees while allowing Western and Arab troops to deploy on its soil for the liberation of Kuwait the following year. The continuing presence of foreign troops in the country even after the liberation of soil was a matter of concern between the royal family and the public until all operational US troops left the country in 2003. To promote increased political participation the government held elections nationwide from February through April 2005 for half the members of 179 municipal councils. The government is monarchy type and the monarch is both the chief of state and head of government and administratively it is divided into 13 provinces and the constitution is governed according to Islamic Law.

The country’s legal system is based on Sharia law and several secular codes have been introduced. Commercial disputes are handled by special committee.

4. ECONOMIC ENVIRONMENT OF SAUDI ARABIA

Saudi Arabia has an oil based economy with strong government controls over major economic activities. It possesses more than 20% of the world’s proven petroleum reserves. It not only ranks as the largest exporter of petroleum, but also plays a leading role in OPEC. The petroleum sector accounts for roughly 75% of budget revenues, 45% of GDP, and 90% of export earnings. It is believed that about 40% of GDP comes from the private sector and roughly 5.5 million foreign workers play an important role in the Saudi economy, particularly in the oil and service sectors.

The country’s unemployment is high, and the large youth population generally lacks the education and technical skills the private sector needs. As part of its effort to attract foreign investment and diversify the economy, Saudi Arabia acceded to the WTO in December 2005 after many years of negotiations. The government has announced plans to establish six “economic cities” in different regions of the country to promote development and diversification. (Source: CIA Fact Book, wikipedia.)

5. SOCIAL ENVIRONMENT OF SAUDI ARABIA

As far as the social environment of Saudi Arabia is concerned, the Saudis who were enjoying a free education and a high paid job in the private sector during the oil boom days were reluctant to seek work in the private sector.

However, currently, it is believed that the government has been spurred on by its WTO obligation, and on its own is planning to effect meaningful structural economic and administrative changes and has started to place more emphasis on skill-upgrading and technical training to provide a pool of local skills for the planned economic cities and mega projects.

The project expenditures in these mega cities are estimated to be over $800 billion over the next two decades, with major spin-off effects for local industry such as labour-intensive industries coming up in Jubai II. (Source: Gulf News Quarterly Financial Review 4 –November 2007 Issue).

6. TECHNOLOGICAL ENVIRONMENT OF SAUDI ARABIA

As far as the technological environment of Saudi Arabia is concerned it is quite favorable for the usage of E-Commerce. The general assessment of the telecommunication system can be said to be of modern. As per 2006 estimate, the internet users is said to be in the range of 4.7 million and telephone main lines in use were 4.5 million and the mobile cellular telephones is said to be in the range of 19.663 million. (Source: CIA Facts Book Saudi Arabia).

Saudi Telecommunications Company (STC) the largest Arab telecom firm by market value, has unveiled plans to go ahead aggressively with its drive to mark foreign acquisitions. It plans to make investments worth 56.3 billion riyals ($ 15 billion) to acquire stakes in foreign companies. (Source: Article titled `Saudi Telecom unveils aggressive expansion plan’ appeared in gulf News dated March 16, 2008).

It is predicted by market intelligence firm Gartner, that the world wide IT spends will grow 5.5% in 2008 to total $3.3 trillion. Growth is driven by two factors such as adoption of IT infrastructure at the hardware level in some of the more developing markets within the Middle East and Africa and transition trends that is taking place from building infrastructure to utilizing infrastructure. Investment is increasing in areas such as software and services. (Source: Article titled “IT spends set to surpass $3 trillion in 07” appeared in November 2007 issue of can magazine).

Before analyzing the current situation of E-Commerce in Saudi Arabia, I would like to mention in brief as to what is E-Commerce, its history and scope, how it works, its basic advantages and disadvantages etc.

7. WHAT IS E-Commerce?

“E-Commerce is lying on the beach, having a cocktail and making boatloads of money” (Korper and Ellis,2001)

E-Commerce can be defined as Rowley state ‘’it is about doing business electronically. It’s more than just buying and selling using the internet, though the Internet and World Wide Web play a fundamental role, but includes any form of business or administration transaction or information exchange executed using information and communication technology ‘’. (Rowley, 2002).

E-Commerce is the transfer of data across electronic networks and describes the buying, selling, and exchanging of products, services, and information via computer networks, primarily the Internet. However, as some people view the term `commerce’ as describing transactions conducted business partners, to them E-Commerce seems narrow. Therefore, many use the term Electronic Business (e-business) instead of E-Commerce, because it refers to a broad definition of E-Commerce. This includes not only buying and selling but also servicing customer, collaborating with business partners and conducting electronic transactions within an organization.

8. HISTORY OF E-Commerce

E-Commerce applications have said to have begun in the early 1970s with such innovations as electronic transfer of funds (ETF). However, it is believed that the applications were limited to large corporations and a few daring small businesses. Then came the electronic data interchange (EDI), which added other kinds of transaction processing and extended participation to all industries. In the mid- 1980s a deferent type of electronic commerce technology spread among consumers in on line services that provide a new way of social interaction

In early 1990s the World Wide Web came with a new method of E-Commerce by providing an easy-to-use technology solution to the information publishing and dissemination. The applications rapidly expanded in the 1990s since the commercialization of the Internet and the introduction of the web.

9. TYPES AND SCOPE OF E-Commerce

E-commerce can be divided into tow categories, which are business to business b2b and business to customer b2c. While b2b E-Commerce focuses on component-based integration of existing services into business processes of virtual enterprises and data exchange, b2c E–Commerce mostly addresses correctness issues with respect to the interactions of the various participants (Schuldt, Popovici et al., 2000).

There are four main areas in which companies conduct E-commerce (Loshin and

Vacca, 2004) these areas are :

• Direct marketing, selling, and service.

• Online banking and billing.

• Secure distribution of information.

• Value chain trading and corporate purchasing

The field of E-Commerce is very broad. There are many applications of E-Commerce such as home banking, shopping in electronic malls, buying stocks, finding a job, conducting an auction, collaborating electronically with business partners around the globe, and providing customer service. The implementation of various E-Commerce applications depends on four major support categories such as people, public policy, and marketing/advertising and supply chain logistics. In addition there has to be an Infrastructure support. The E-Commerce management within each organization co-ordinates the applications and infrastructure. In order to explain the relationships I have explained below the applications in the case of B2C E-Commerce.

10. BUSINESS TO-CONSUMER APPLICATIONS

There are many categories of business-to-consumer applications such as:

• Electronic Retailing, store fronts and Malls – E-Commerce enables a person to buy from home, 24 hours a day, 7 days a week and also offers a wide variety of products and services, including the most unique items. Not only this, it enables a person to get a detailed information on products, which enables a person to search and select the products of their choice and even enables a person to compare it with competitor’s products and prices. Electronic retailing (e-tailing) is the direct sale of products through electronic store fronts or electronic malls, usually designed around an electronic catalog format and/or auctions.
• Electronic storefronts – Hundreds of thousands of solo storefronts can be found on the Internet, each with its own Internet name and Website. There are 2 types of storefronts, general and specialized. Specialized sells one or few products, but the general storefronts sell many products. Goods that are generally bought are computers, and computer related products, books magazines, CDs, movies and videos, clothing and shoes, toys and food. Services that are bought online are travel services, stocks and bonds trading, electronic banking, insurance and job mathing. Directories and hyperlinks from other websites and intelligent search agents help buyers to find the best stores and products as per their choice and needs.
• electronic malls – An electronic mall also known as a cybermall or e-mall is a collection of individual shops under one Internet address. A vendor that is located in an e-mall gives up a certain amount of independence and each cybermall consists of thousands of vendors as that of a regular shopping mall. Example is shopping.yahoo.com and eshop.msn.com., and consists of thousands of products from thousands of vendors.

However there are some issues that the e-retailing faces which are summarized below:

• In cases where the seller is a click-and-mortar company, it sometimes faces a conflict with its regular distributors when it tries to sell directly on line.
• e-tailers face a difficult problem of shipping very small quantities to a large number of buyers. It becomes expensive, especially when returned items need to be handled.
• Most purely online e-tailers are unable to survive because of problems such as customer acquisitions, order fulfillment, and forecasting demand. Online competition, especially in commodity type products becomes very fierce due to the ease of entry to the market place.
• The dot.com companies in the earlier stages were enjoying umlimited funding. But as they were unable to generate profit quickly, dried up the source funds, and became bankrupt. Besides many were selling at or even below cost price with the objective of attracting many customers as well as advertisers to their sites.

11. SERVICE INDUSTRIES ONLINE

The major online services are banking, trading of securities (stocks, bonds), job marketing, travel and real estate.

Electronic banking also known as cyber banking, virtual banking, home banking, and online banking, includes various banking activities conducted from home, a business or on the road, instead of at a physical bank location. Electronic banking has capabilities ranging from paying bills to securing a loan. It offers several benefits such as expanding the customer base and saving the cost of paper transactions. Transfer of electronic funds and letters of credit are other important services in international banking. It facilitates international and multiple currency banking. Even though some international retail purchasing is done by giving a credit card number other transactions may require cross-border banking support.

The Online job market – The Internet offers a perfect environment for job seekers and for companies searching for hard-to-find employees. The online market is used by job seekers job offerers, recruiting firms and news groups.

Travel & Real Estate – The Internet enables a person to plan, explore and economically arrange almost any trip. Real estate transactions are also done in a large volume. Besides, the Internet provides an infrastructure for executing auctions at lower cost, and with many more involved sellers and buyers. Individual consumers and corporations participate in this rapidly growing form of E-Commerce.

12. E-COMMERCE INFRASTRUCTURE & SUPPORT SERVICES

For E-Commerce applications to succeed it is necessary to provide them with all the needed support and for this an infrastructure must be in place. E-Commerce infrastructure requires a variety of hardware, software, and networks. The major components are networks, Web servers, Web server support and software, electronic catalogs. Web page design, construction software, transactional software, and Int5ernet access components. In addition, special software and sometimes hardware is needed for conduction auctions, e-procurement, and m-commerce. The key infrastructures that are needed to support electronic transactions, communication, and collaboration include networks: Web servers and supporting software; electronic catalogs; Web page design software; transactional software; and Internet access components.

Then E-Commerce transactions must be executable worldwide, without any delay or mistake and some transactions also involve several trading partners, requiring a more complex infrastructure. Payments are an integral part of doing business, whether in the traditional way or online and unfortunately, traditional payments systems are not effective in E-Commerce because there is no face to face contact. Even if a credit card number is provided by phone or fax, it takes time to process it. Besides, everyone does not accept credit cards or cheques, and some buyers do not have any credit cards or even accounts to pay by cheque. Not only this, many EC transactions are valued at only a few dollars or cents and the cost of making micro-payments offline is too high. Hence, for these, reasons a better payment system is needed to pay in cyberspace and that better way is the electronic payment systems.

13. ELECTRONIC PAYMENT SYSTEMS

Traditional, non-electronic payment systems are insufficient or inferior for doing business on the Internet. Therefore, electronic payment systems are used and in cyberspace also there are various methods by which a customer can pay for their purchases. In other words, electronic checks, electronic credit cards, electronic cash, smart cards, person-to-person payments, electronic funds transfer (EFT), e-wallets, and purchasing cards are the different instruments that are available and acceptable means of payment in cyberspace and each one has their payment mechanism which is summarized below:

• Electronic checks –Kalakota and Whinston (1997) define them as’’ E-Commerce are modeled on paper checks. except that they are initiated electronically, use digital signatures for signing and endorsing, and require the use of digital certificates to authenticate the payer, the payer’s bank, and bank account”.

These are similar to regular checks, and are used mostly in B2B. In this, the cust

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