The Internet and Exporting: A Focus on Developing Countries

A business that would like to succeed in export markets needs information about market prospects and must continually fine-tune its marketing skills, which in­cludes the use of the Internet and Web-based resources to sell and promote products as well as generate new clients. For example, an export company that plans to participate in an international trade fair in an overseas market should do some Internet research on the prospective market to evaluate demand.

Analysts predict that about 10 percent of total business to consumer sales of U.S. retailers will be online in the next 5 to 10 years. Business-to-business sales volume is also expected to outpace business-to-consumer sales by a factor of 20 within the next few years. The Internet enables exporters to interact directly with overseas customers. Furthermore, it facilitates product customization and the provision of extended services. Even though these new possibilities pose a seri­ous threat to export intermediaries, a virtual-market presence is not likely to be a substitute for existing networks, since physical distribution channels still have several positional advantages compared with virtually organized ones. A number of value-added services, for example, can be provided only via traditional distri­bution outlets. The Internet will not entirely replace the need for interpersonal re­lations and trust building. The Internet also poses organizational and managerial challenges (Peterson, Welch, and Liesch, 2002). It is plausible to contend that the Internet provides an infrastructure for carrying information and digital services, which is complementary to the existing marketing channel structure, improving performance (Anderson, 2005). In industries characterized by a high degree of in­formation content such as publishing, travel, and financial services, export inter­mediation is undergoing a radical change. It has also given rise to new channels of export intermediation (e.g., e-Bay, Amazon) that were not previously available.

A study by Freund and Weinhold (2000) on the effect of the Internet on interna­tional trade shows its increasing and significant impact between 1997 and 1999. The study shows that a 10 percent increase in the relative number of Web hosts in one country would lead to about 1 percent greater trade. It also finds the effect of the Internet to be stronger for poor countries than for rich ones. However, the Internet does not seem to have reduced the impact of distance on trade. Clarke and Wallsten (2004) also find a positive correlation between Internet penetration in de­veloping countries and those countries’ increasing exports to developed countries.

In many countries, global business-to-business websites have already been set up in a number of industries. Daimler-Chrysler, GM, and Ford have started an Internet- based market (COVISINT) for car parts worldwide; e-steel is established to link buyers and sellers of steel products around the world. In Egypt, some seventy-five products are marketed on the Internet. Adelphi, a leather products maker in Kenya, started a website with the intention of expanding into the global market. Global orders are executed through international courier firms such as DHL.

In spite of the increase in the number of users, Internet penetration rates in most developing countries remain low. Online trade is limited. Other factors con­tributing to lower than average e-commerce activity include low per capita in­comes, low credit card usage, lack of relevant products or services, and poor logistics and fulfillment services.

In more advanced developing nations such as Taiwan, for example, the Internet is widely used in most sectors of the economy. Taiwanese firms are more con­cerned with improving forward linkages to their customers than improving back­ward linkages to their suppliers. In spite of the diffusion of the Internet, concerns over security and privacy in online trading represent the most significant barrier to its use in international business transactions.

Source: Seyoum Belay (2014), Export-import theory, practices, and procedures, Routledge; 3rd edition.