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TITLE OF THE ARTICLE: E-Commerce by SMEs in Bangladesh: Barriers o O!


"ame and Address o# he a$ hors: %& Shah Md& Sa#i$l Ho'$e Associa e (ro#essor )e*ar men o# B$siness Adminis ra ion +reen ,ni!ersi y- )ha.a Con ac : /%0%1203%40- smsho'$e5yahoo&com 6& S M Sha#i$l Alam Assis an (ro#essor- School o# B$siness Ahsan$llah ,ni!ersi y o# Science and Technology- )ha.a


Abs rac E-commerce is the most recent manifestation of the dynamic nature of trade: a significant and logical evolutionary step in how international trade occurs. Today, ecommerce is transforming the national and international trade landscape. This article examines the Bangladeshi experience in e-commerce, focusing on the impacts of the national environment and policies to the successful operation of e-commerce. The paper also looks into the e- ommerce issues specifically relevant to !"Es and finds out ma#or $arriers to ecommerce from vendors and customers view points. 9ey:ords: Bangladesh, e- ommerce, %nternet.

In rod$c ion %n the electronic age the use of internet has revolutioni&ed the design and implementation of way of doing $usiness. 't the moment it has immense impact on commerce and the economy as well. %t provides with efficient and very powerful methods of designing, promoting and distri$uting products, conducting research and gathering marketing information. Benefits of e- ommerce such as: () hours and *days operation, glo$al reach, low cost of ac+uiring, serving, and retaining customers, improved customer service etc. have given it a thrust to $ecome the prime mode of trade and commerce in the future. ,ith the development of E-commerce, new types of relationships started to emerge in $usiness settings. This type of virtual commerce has presented some challenges and opportunities to $oth merchants and customers. E-commerce is u$i+uitous and thus anyone can transact at any time from any place. -n-line commerce has ena$led customers to overcome the handicaps of time and space. 'mong all forms, internet is the most popular medium of conducting eommerce. %t encompasses a range of processes namely: Electronic data interchange .E/%0, Electronic mail .email0, ,orld ,ide ,e$ .,,,0, %nternet 'pplications, 1etwork 'pplications etc. e- ommerce is generally conducted through the sale or purchase of goods or services over computer-aided networks. The goods or services are ordered through these networks $ut the ultimate delivery of goods or services are performed manually. The payment for the transactions are made most of the time online, however sometimes may $e made offline as well. (

/espite the rapid and demonstrated uptake of e-commerce techni+ues, there is still very limited detailed evidence a$out how individual corporations in developing countries are using e-commerce to improve their $usiness activities and what the effective costs and $enefits are of using those techni+ues. ."ichael Tetelman,(2230. /espite the fact that ecommerce has endless opportunities, it is evident that numerous $arriers inhi$it the successful uptake of e-commerce. The purpose if this paper is to contri$ute to revealing the existing and prospective $arriers to e-commerce and devising their solutions in the context of Bangladesh. %t is conceived that e-commerce is a phenomenon of developed country and new technology generally put challenges for developing countries that lack the re+uisite capa$ilities, as well as the economic and financial resources to cope with the developed countries. Especially internet presents $oth opportunities for economic and social development, and a threat to further increasing the gap $etween developed and developing countries .Tigre, 4aulo Bastos, (2250. The experience of most developed countries shows that price and availa$ility of the telecommunications infrastructure are clearly associated with competition and market access .!achs, (2220. /ue to the withdrawal of duties prices of computers and related products declined sharply and $ecome more afforda$le to general communities. This increased the use of computer for general purpose. 6ntil now the effective application of computers are underutili&ed due to particularly government policy. 7owever, it is revealed form recent survey that nearly 829 of the computers are /haka-$ased and there is little scope for decentrali&ation of these 4 s to different regions of Bangladesh which is considered as one of the ma#or $arriers to e- ommerce on the land .www.sdn$d.org0. :ery few standard %T institutions are providing high +uality %T Education in Bangladesh, $ut the costs are very high and conse+uently it remains $eyond the reach of general people. These institutions suffer from lack of coordination and +uality course materials, and inade+uate technical facilities. %n course of time, eventually situations have $een improved as the government withdrew duties on :!'T. 't present there are more than ;2 %!4s operating in the country including the government owned BTTB located only in /haka, !ylhet and hittagong .www.sdn$d.org0. /ifferent patterns have $een found in studies a$out the extent to which firms in developing countries em$race the internet. %n Bra&il, telecommunication infrastructure is not considered a $arrier for e-commerce, and financial services sectors have widely adopted the internet approach. .Tigre, (2250. %n 1igeria, e-mail was the prime aspect of the internet system and $usiness people used email mostly for the purpose of communication .-suagwu, 5

(2250. <ow level of %T education was recogni&ed as the underutili&ation of internet system in many developing countries. %n 7ongkong low e-shopping compati$ility, e-shopping inconvenience, e-transaction insecurity, and low internet privacy, together with orientation toward social interaction and poor awareness on the part of the consumers, translate into supply-side hurdles for e- ommerce . heung and <iao, (2250 :arious studies identified a num$er of factors that facilitate or limit internet-$ased $usinesses. The ena$lers are availa$ility of information, access to price information, accessi$ility, and convenience. These are the factors that would $enefit the online $usiness. -n the other hand, the limiters which inhi$it the escalation of internet $usiness include lack of trial, lack of interpersonal trust, lack of instant gratification, high shipping and handling costs, customer service issues, loss of privacy and security, lack of a sta$le customer $ase, and poor logistics ./hruv et al., (22(0. 'mong other $arriers many traditional middlemen are trying to preserve existing $arriers and create new ones as a way to prevent online competition. %n the developed countries these $arriers have already $een prevented $y many firms practicing e-commerce from selling directly to consumers and severely limit the a$ility of consumers to $uy things.
!hopping 7a$its 4reference for face-to-face transaction

Transportation 6nderdeveloped transaction infrastructure

-nline Business %nhi$ited sales growth %nhi$ited profita$ility

-nline 4ayment <ack of credit payment system

=ig 1: Barriers to -nline Business .>u ?un , (223) /espite the e-commerce has endless opportunities, it is evident that numerous $arriers inhi$it the successful uptake or e-commerce. %t is conceived that e-commerce is a phenomenon of developed country and new technology generally put challenges for developing countries that lack the re+uisite capa$ilities, as well as economic and financial resources to cope with the developed countries. The overall purpose of this paper is to reveal the existing and prospective $arriers to e-commerce and devising their solutions in the context !"Es of Bangladesh. %t can $e specific in the following ways: 1. To examine the existing e- ommerce practices of different user groups. (. To understand the critical issues involved in !"Es relating to e- ommerce practice. )

5. To identify the pro$lems associated with the e- ommerce practice@ and ). =inally, to make guidelines to improve the e- ommerce practices in Bangladesh.

Me hodology o# he s $dy Sample The samples of the study consist of 1;2 respondents of different categories namely, vendors, financial institutions or facilitators and customers or $eneficiaries on random $asis $ased on structured +uestionnaire. 6nder the constraints of time and money samples were selected from /haka city only. Data collection and procedure The data were collected from two sources: .a0 4rimary sources A it includes well-structured +uestionnaire, personal interview and o$servation, and .$0 !econdary sources A it includes annual reports, pu$lished and unpu$lished articles, $ooks, we$sites, newspaper etc. Data analysis and presentation 'fter collection of data from the different areas, those were summari&ed and presented in a ta$ular form to make the study more analytical, informative and representative to the reader using statistical tools such as percentage, average etc. Technical elemen s; de#ini ion ,e$-$rowser A well known software on the consumersB computer that allows them to connect to the ,,, and use the standard encryption software to shop securely. !ecure we$ server A $asic server software that allows a we$ site to serve information to and collect information from users without risk of the information $eing stolen. !torefront software A the visual elements to a store and the software that allows the user to choose what products to look at and $uy. !hopping cart A a piece of software that keeps track of the items that customers are interested in $uying. Cenerally includes functionality for adding, removing, reviewing, taxing and paying for products.

redit card validation software A a set of software and connections to the financial institutions that provide the store with the a$ility to verify and charge items to credit cards. These solutions can $e either real time or $atch processing.

-rder tracking and fulfillment system A a method of tracking the orders in the data$ase and processing them through a standard procedure to ensure that they are filled.

Ris. involved is one of the main hindrances to successful operation of E- ommerce. 4rime risks associated with electronic documents are authentication and data relia$ility. Trading on the internet raises a num$er of serious legal issues, in particular: whether and how a valid contract can $e concluded on the we$ what law applies to the contract the application of consumer protection laws to transactions concluded electronically across national $oundaries. issues of copyright and intellectual property

Res$l s and )isc$ssion 'ccording to %nternational Telecommunication 6nion .%T60 report, Bangladesh had );2,222 internet users in (22*. There are around 122 software houses, 5; data entry centers, thousands of formal and informal %T training centers and numerous computer shops. 'lthough % T had $een announced as a thrust sector in 188* no su$stantial and clear-cut %T policy has $een followed since then. !till legislation towards electronic signatures, practical laws to protect intellectual property rights and relevant financial structure to facilitate electronic transaction are yet to $e formali&ed. The entry into the glo$al economy is effectively $locked $ecause of inade+uate % T infrastructure and human resources, and nonexisting compati$le electronic environment to the rest of the world, lack of coordination among different stakeholders. 7owever, the mem$ers of %T users in Bangladesh are increasing rapidly. 1 Bangladesh has come out with a /raft %nformation Technology .Electronic Transaction0 'ct, which incorporated provisions from the D61 %TE'< "odel <awF on E-commerce, the !ingapore Electronic Transactions 'ct and the %ndian %nformation Technology 'ct, (222.

't the Covernment level "inistry of ommunication, and 4lanning

ommerce, "inistry of %nformation and

ommission are #ointly taking initiative to implement the e-

commerce in Bangladesh. The followings are mentiona$le in this regard: There is e- ommerce committee headed $y commerce secretary has $een esta$lished "inistry of %nformation and DElectronic Transaction actF registration of #oint stock company can $e done on the site www.registrarofcompnies$ from 51 ?uly (22( %ntra-$ank online transactions started from 51 ?uly (225 ommunication is trying to enact a law regarding

Technical Limi a ions o e-Commerce <ack of sufficient system security, relia$ility, standards and communication protocols. %nsufficient telecommunication $andwidth. The software development tools are still evolving and changing rapidly. The need for special we$ servers and other infrastructures, in addition to the network servers. "on-Technical Limi a ions o e-Commerce ost and #ustification !ecurity and privacy <ack of trust and user resistance hannel conflict -ther limitations factors are: lack of touch and feel online etc.

'ccording to the study conducted $y /ilru$a et al, .(22;0 e- ommerce in Bangladesh is not advancing $ecause of: 4oor physical and network infrastructures %nade+uate human resources '$sence of re+uired rules and regulations <ow level of computer literacy ,idespread poverty etc.

-ne of the main $ottlenecks of e-commerce in Bangladesh is e-payment system operation, which suffers from lack of converti$ility of e-currency. The $alance in any e-cash account is not converti$le like cash without the help of any intermediating third party. *

E-Commerce and SMEs !tudy conducted $y %nternational onsultancy Croup of the 6G, in colla$oration with the "icro %ndustries of /evelopment 'ssistance and !ervices ."%/'!0 found that in Bangladesh approximately 3 million !"Es which included enterprises with up to 122 workers employing a total to 51 million people, e+uivalent to ); percent of the population of the country of age 1; years and a$ove. %ts contri$ution to national C/4 is more than 829. Therefore, the impact of e-commerce on !"Es re+uires special consideration. %n the sector of !"Es there is significant lack of expertise or personnel conse+uetly the associated target customersHsuppliers are not connected. %ssues impeding the uptake of ecommerce in !"Es in Bangladesh could $e the cost of investment, concerns a$out security and payment system, cultural $arriers, %T infrustructure issues and lack of understanding on how the technology could affect their $usiness. -ther factors revolving around are awareness and education, legal system, government isssues, social and psychological impediments, lack of suita$ility of e-commerce .not suited to productsHservices0. !ome !"Es are even uncertain of which hardware or software to chose. !ometimes, organi&ational resistance to change $ecomes important $ecause of fear of new technology among employees, concern a$out return on investment. !tudy conducted $y /e$rick and Graemer .(2210 found that $arriers to e- ommerce in !"Es in developing countries include inade+uate transportation and delivery, limited diffusion of computers, lack of online payment process, limited availa$lility of $anking services and uncertain taxation rules. Bolongkikit et al .(2230 found among other issues that !"Es market need a high degree of human interaction, while !cupola .(2250 contended that e-commerce is perceived a constant interruption and distraction, too many technological change and evolution inhi$it e-commerce adoption in !"Es. -ther studies showed that in developing countries !"Es occupy small and clearly defined niche market which do not need glo$al connectivity for their operation. The arrangement of financial transactions in Bangladesh is not efficient enough to meet the demand of conventional $usiness let alone contemporary electronic commerce. 6ntil now it is difficult to transfer funds from one account to another even $ased in the country. Crameen Bank has taken an initiative to enhance the e-=inance for self employment. The program intends to esta$lish a network of 'T" and 4-! country wide, !mart card to create access to credit. B'!% $ank also endeavored to facilitate e- redit for !"Es. They exerted efforts to esta$lish infrastructure and shared 'T"s, higher limit credit cards addressing working capital pro$lem.

The study collected and analy&ed primary data a$out existing and prospective inhi$itors from three distinct groups, namely: vendors, financial institutions, and customers.

Fig 2: Type of business practicing e-commerce (% )
Retail and electronics 11% Others 2%

Computing 40%

Computing Tourism anu!acturing Consultancy Education Retail and electronics Others

Education 34% Consultancy 8%

Tourism 2% anu!acturing 3%

%t is revealed from the study .=ig 10 that $usinesses related to computing have the highest participation in e- ommerce. This means that people who are well versed in computing are actually the users of e- ommerce. Education sector is the second largest participator in e- ommerce since, now a day more and more computers are $eing used in the educational process.
Fig 3: Number of years practicing e-commerce (% )
$0 #0 "0 40 Percentage 30 20 10 0

&racticing e%commerce '&ercentage)

1%2 years

3%4 years Year range

"%# years

The =ig ( shows that 3I9 of the e- ommerce users are new users that is they have $een using e-commerce for 1-( years, therefore it may $e inferred that e- ommerce is still a new phenomenon in Bangladesh. -nly few firms are versed with e- ommerce for long such as more than ; years. Table %: Main Barriers o e-Commerce according o he !endors


Barriers a0 <ack of !ecurity $0 <ack of 4rivacy c0 %nade+uate E-4ayment facilities d0 <ack of omputer literacy e0 <ack of %T infrastructure f0 <ack of %T-skilled personnel g0 <ack of appropriate laws related to e-commerce h0 4reference for face-to-face transaction i0 %nade+uate transportation facilities

(ercen age (1 11 12 I 1) ).; 11 1) 3.;

:endors in e- ommerce identified the lack of security is the main $arrier to eommerce. They also recogni&e preference for face-to-face transaction, lack of appropriate laws related to e-commerce, and inade+uate e-payment facilities are $arriers to e-commerce amongst others. C$s omers The survey conducted on customers depicts that main users of e- ommerce are younger generation. "iddle aged people are experienced in e- ommerce as well. Table 6: Age o# he c$s omers and e-commerce $sage Age (1-52 51-)2 )1-;2 ;1-32 (ercen age 3) (1 I.5 3.*

'ged people do not use e- ommerce much. !o, the focus group in e- ommerce is supposed to $e the age group ranging from (1 to )2 years. %t is revealed that occupation-wise e- ommerce users are mostly private organi&ation officers and the $usinessmen. 11

1ext ma#or user group is university teachers and students. -ther groups such as govt. officers and college teachers do not use e-commerce significantly. Table <: Occ$*a ion and $sage o# e-commerce Occ$*a ion !tudent Covt. officers 4rivate organi&ation officer ollege teachers 6niversity teachers Businessmen (ercen age I.1 (.) ().( 3.5 (5 53

Even though, the previous ta$les showed that people mostly from trade and commerce are involved in e- ommerce, it is interesting to note that the users are not really aware of the $enefits of using e- ommerce .=ig )0. Fig 4: A are of t!e benefits of e-commerce


(es '%) )o '%) 83%

%n line with the vendors, similar attitude $y customer has $een found a$out the perception on main $arriers of e- ommerce. <ack of security and privacy are considered as the main hindrances against the operation of e- ommerce. %nade+uate transportation facilities and inade+uate e-payment facilities are others those o$struct the way of e- ommerce implementation. Table =: Main Barriers o e-Commerce according o he C$s omers


Barriers a0 <ack of !ecurity $0 <ack of 4rivacy c0 %nade+uate E-4ayment facilities d0 4reference for face-to-face transaction e0 %nade+uate transportation facilities f0 poor awareness a$out the $enefits of e- ommerce

(ercen age 5) (8 1* ) 11 ;

Ser!ice *ro!iders %n contrast with customers and vendors, instead of lack of security and privacy, service providersHfacilitators identified lack of computer literacy and %T infrastructure as the main $arriers to e- ommerce .Ta$le ;0. -ther issues of preference for face-to-face transaction, lack of appropriate laws related to e-commerce are also to $e taken in consideration. Table 2: Main Barriers o e-Commerce according o he ser!ice *ro!iders Barriers a0 <ack of !ecurity $0 <ack of 4rivacy c0 %nade+uate E-4ayment facilities d0 <ack of omputer literacy e0 <ack of %T infrastructure f0 <ack of appropriate laws related to e-commerce g0 4reference for face-to-face transaction h0 <ack of after sales service Recommenda ion !ince Bangladesh is a developing country and private organi&ations are not organi&ed enough to provide with %T infrastructure Covernment should initiate programs to reduce the $arriers. Esta$lishing a task force at the government level to coordinate the activities related to % T of different stakeholders. 's a long-term investment government should invest in $asic and higher education to reap the real $enefits of % T. ./ilru$a et al., (22;0 15 (ercen age 11 8 ) 5) (1 3 12 ;

Covernment should su$sidi&e utility expenses for %T companies and declare tax holiday for %T and %T education enterprises. <evel of English education is to $e upgraded to the communication skills of the human resources. Bangladeshi skilled professionals who are working a$road can $e encouraged to return to the country andHor colla$orate with Bangladeshi entrepreneurs. ./r. ?amilur Ee&a howdhury, (2210 E-4ayment system is one of the main hindrances to e-commerce. "ost of the %T activities particularly transactions with other countries re+uire e-payment system $adly. =or example a single 4aypal would $e a great aid to solve the pro$lem. But, we are not in the 4aypal list where, even Bhutan is on the 4aypalBs list. The following measures may $e taken into consideration for removing the hindrances of e- ommerce implementation: Eeducing onsumer Eeluctance for -nline !hopping. areful selection of products to offer in the virtual stores in terms of nature and price of the products. 4roduct standardi&ation. Educating consumers a$out the ease and $enefits of online shopping. !u$stantially enhancing transaction security and product +uality, showing the customers that the company cares and shares a$out $uyersB well-$eing is instrumental to enhancing customer loyalty .!rinivasan et al., (22(0 and to help them understand that virtual shops are safe and legitimate. Building effective distri$ution channels namely postal service, direct delivery, third party delivery, and alliances with other esta$lished companies. Eemoving any o$stacles that hinder the effective methods of $oth online and offline payment systems. 'dopting and implementing the ,T- information, technology agreement on financial services, and the ,T- agreement on $asic telecommunications are essential for international $usiness relating to e-commerce .,orldwide alls for ,T- 4olicy 'genda o Enhance +ro: h o# E-Commerce0. oalition

Concl$sion 1)

%t is evident that in the near future there will $e huge online $usiness market in Bangladesh. This enormous opportunity is to $e taken $y those take advantages of the fact that e-commerce is still in its infant stage in Bangladesh. The study found that vendors should not wait until the removal of the current o$stacles in the online $usiness environment. The effort is to $e exerted towards the development of appropriate e-commerce model that is suita$le for the products $eing marketed. The $usiness model has to encompass the three ma#or factors: attracting potential customers, timely delivery, and comforta$le payment methods. The study calls on the government to dismantle the restrictions and re-examine rules that prevent successful e-commerce. There are many things to do on the part of the consumers as well. They can $and together to let companies and government know that they wonBt tolerate the artificial $arriers that limit choice and raise prices. =inally, industry and professional associations should work together to apply the promise of e-commerce, not to $lock it.


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