ASSIGNMENT # 1

E-COMMERCE

MANAGERIAL ECONOMICS

SUBMITTED TO:

PROFESSOR MAZHAR MANZOOR

SUBMITTED BY:

KAMRAN REHMAN

MBA II SEC: A
 E-COMMERCE

HISTORICAL BACKGROUND

Early development
The meaning of electronic commerce has changed over the last 30 years. Originally, electronic
commerce meant the facilitation of commercial transactions electronically, using technology such as
Electronic Data Interchange (EDI) and Electronic Funds Transfer (EFT). These were both
introduced in the late 1970s, allowing businesses to send commercial documents like purchase
orders or invoices electronically. The growth and acceptance of credit cards, automated teller
machines (ATM) and telephone banking in the 1980s were also forms of electronic commerce.
Another form of e-commerce was the airline reservation system typified by Sabre in the USA
and Travicom in the UK.

Online shopping, a form of electronic commerce pre-dates the IBM PC, Microsoft, Apple and the
Internet /www. In 1979 Michael Aldrich, an English inventor, connected a modified 26" color
domestic television to a real-time transaction processing computer via a domestic telephone line
and invented online shopping.

Here are some major invention developed by different organizations and personality.

• The first recorded B2B was Thomson Holidays 1981

• The first recorded B2C was Gateshead SIS/Tesco in 1984.

• The world's first recorded online home shopper was Mrs. Jane Snowball,72, of Gateshead,
England in May 1984

• During the 1980s Aldrich sold many systems mainly in the UK

including Ford, Peugeot [then trading as Talbot Motors], General Motors and Nissan

• The Nissan system of 1984/5 was revolutionary. It enabled a car buyer on a dealer's lot to
both buy and finance the car, including credit check, online

From the 1990s onwards, electronic commerce would additionally include enterprise resource
planning systems (ERP), data mining and data warehousing.

An early example of electronic commerce in physical goods was the Boston Computer Exchange, a
marketplace for used computers launched in 1982. An early online information marketplace,
including online consulting, was the American Information Exchange, another pre Internet
[clarification needed] online system introduced in 1991.

In 1990 Tim Berners-Lee invented the Worldwide Web web browser and transformed an academic
telecommunication network into a worldwide everyman everyday communication system called
internet/www. Commercial enterprise on the Internet was strictly prohibited until 1991.[7] Although
the Internet became popular worldwide around 1994 when the first internet online shopping started,
it took about five years to introduce security protocols and DSL allowing continual connection to the
Internet. By the end of 2000, many European and American business companies offered their
services through the World Wide Web. Since then people began to associate a word "ecommerce"
with the ability of purchasing various goods through the Internet using secure protocols and
electronic payment services.

DEFINITION AND MEANING OF E-COMMERCE

Electronic commerce, commonly known as (e-shopping) e-commerce or eCommerce, consists of

the buying and selling of products or services over electronic systems such as the Internet and

other computer networks. The amount of trade conducted electronically has grown extraordinarily

with widespread Internet usage. The use of commerce is conducted in this way, spurring and

drawing on innovations in electronic funds transfer, supply chain management, Internet

marketing, online transaction processing, electronic data interchange (EDI), inventory

management systems, and automated data collection systems. Modern electronic commerce

typically uses the World Wide Web at least at some point in the transaction's lifecycle, although it

can encompass a wider range of technologies such as e-mail as well.

A large percentage of electronic commerce is conducted entirely electronically for virtual items such

as access to premium content on a website, but most electronic commerce involves the

transportation of physical items in some way. Online retailers are sometimes known as e-tail.

Almost all big retailers have electronic commerce presence on the World Wide Web.

Electronic commerce that is conducted between businesses is referred to as business-to-

business or B2B. B2B can be open to all interested parties (e.g. commodity exchange) or limited to
specific, pre-qualified participants (private electronic market). Electronic commerce that is

conducted between businesses and consumers, on the other hand, is referred to as business-to-

consumer or B2C. This is the type of electronic commerce conducted by companies such

as Amazon.com. Online shopping is a form of electronic commerce where the buyer is directly

online to the seller's computer usually via the internet. There is no intermediary service. The sale

and purchase transaction is completed electronically and interactively in real-time such as

Amazon.com for new books. If an intermediary is present, then the sale and purchase transaction is

called electronic commerce such as eBay.com.

Electronic commerce is generally considered to be the sales aspect of e-business. It also consists

of the exchange of data to facilitate the financing and payment aspects of the business transactions.

BUSINESS APPLICATIONS

Some common applications related to electronic commerce are the following:

• Email

• Enterprise content management

• Instant messaging

• Newsgroups

• Online shopping and order tracking

• Online banking

• Online office suites

• Domestic and international payment systems

• Shopping cart software

• Teleconferencing

• Electronic tickets
GOVERNMENT REGULATIONS

In the United States, some electronic commerce activities are regulated by the Federal Trade

Commission (FTC). These activities include the use of commercial e-mails, online advertising

and consumer privacy. The CAN-SPAM Act of 2003 establishes national standards for direct

marketing over e-mail. The Federal Trade Commission Act regulates all forms of advertising,

including online advertising, and states that advertising must be truthful and non-deceptive.

FORMS

Contemporary electronic commerce involves everything from ordering "digital" content for

immediate online consumption, to ordering conventional goods and services, to "meta" services to

facilitate other types of electronic commerce.

On the consumer level, electronic commerce is mostly conducted on the World Wide Web. An

individual can go online to purchase anything from books or groceries, to expensive items like real

estate. Another example would be online banking, i.e. online bill payments, buying stocks,

transferring funds from one account to another, and initiating wire payment to another country. All of

these activities can be done with a few strokes of the keyboard.

On the institutional level, big corporations and financial institutions use the internet to exchange

financial data to facilitate domestic and international business. Data integrity and security are very

hot and pressing issues for electronic commerce today.

OVERVIEW OF E-COMMERCE IN PAKISTAN

When the government started an information-technology (IT) and e-commerce initiative in early

2000, the banks were expected to lead the way into e-commerce. However, although the banking
sector is the leading spender on information communications technology, the most progress in e-

commerce has been in “e-government”. Some business-to-business (B2B) portals are available, but

they are designed more for information than transactions.

Half of the country’s 7,000 commercial-bank branches, including 90% of the branches in urban

areas, had been computerized by August 2006. Many banks and exchange companies offer online

funds transfers from overseas, such as for workers remittances. A few of banks offer mobile-phone

banking, where customers can pay utility bills using their mobile phones. The National Institutional

Facilitation Technologies (NIFT), an automated check-clearing house, was operating in 14 cities in

August 2006, and it processed 60m checks per year in 2005/06. NIFT is a public-private company

owned 51% by banks.

Internet merchant accounts (used for processing financial transactions of Internet vendors) were

permitted by the State Bank of Pakistan (the central bank) in February 2001. However, inadequate

infrastructure and security concerns remain, and in mid-2006 only Citibank (US) offered these

accounts, which were used by airlines, mobile companies, Internet service providers and

merchants. The transactions that do occur use international credit cards, which are processed

outside Pakistan. Users of Internet merchant accounts undertaking transactions outside Pakistan

need to submit electronic forms for transactions valued at US$500 or more to their banks, which

must then submit the same in consolidated form on a monthly basis to the central bank.

In December 2005 the Central Board of Revenue, the tax authority, started allowing electronic filing

of sales tax and federal excise returns by registered private and public companies. At that time, it

said that it expected about 1,500 large taxpayers out of 22,000 to use the facility. Government

efforts to promote the IT sector include the establishment of the Information Technology and

Telecommunications Division in July 2000, various incentives, and the commitment of resources for

education and infrastructure building. The Ministry of Science and Technology launched the

National Information Technology Policy in August 2000. It was developed by a team that included

working groups on the following: human-resource development; IT in government and databases;

IT market development and support; IT fiscal issues; telecoms, convergence and deregulation;

cyber law, legislation and intellectual-property rights; IT research and development; Internet

development; software export; e-commerce; and incentives for IT investment.

Total spending (by the government and private sector) on information, communications and

technology in Pakistan was US$10bn during 2005/06. Various e-commerce projects and initiatives

were underway in the public and private sectors in August 2006. The government said in May 2004

that it has planned new IT and e-commerce projects worth well over PRs4.5bn up to 2007, and by

then it aims to produce 100,000 graduates a year in IT studies from the seven new IT universities it

has already set up.

Pakistan is part of the 15-member Asia Pacific Council for the Facilitation of Procedures and

Practices for Administration, Commerce and Transport. The council aims to support the United

Nations Centre for the Facilitation of Procedures and Practices for Administration, Commerce and

Transport. Pakistan is a member of the Asia Pacific Council for Trade Facilitation and Electronic

Business, a non-governmental organization that promotes trade facilitation, electronic business

policies and activities in the Asia–Pacific region.

E-COMMERCE: GROWTH OF E-COMMERCE

Pakistan has a number of barriers to electronic commerce, including inadequate infrastructure

(insufficient telephone lines and frequent power failures); relatively few Internet users; and lack of

security for online transactions. The government is working to overcome these problems and has

made some progress.

The number of Internet users in Pakistan is growing fast. According to the government’s economic

survey for 2005/06, there were an estimated 2.1m Internet subscribers and about 10m Internet

users in June 2005 (latest figures available), and Internet access had expanded from 29 cities in

August 2000 to 2,339 cities and towns by June 2006. Optical-fibre networks were available in 500
cities in June 2006, compared with 53 cities in August 2000. Pakistan had 170 Internet service

providers in June 2006.

The Sustainable Development Networking Programmed (SDNP), funded by the UNDP, started

providing e-mail services and then Internet connectivity beginning in 1993. This remained the

country’s largest network until 1996. The government began allowing private Internet service

providers (ISPs) in 1995. Paknet, a fully owned subsidiary of Pakistan Telecommunication

Company, the formerly government-owned telecoms firm, began offering ISP services in 1999.

Paknet is Pakistan’s largest ISP, followed by cyber.net, part of the local Lakson Group. Other

leading ISPs include Comsats, Brainnet, Fascom, Supernet, Worldtel (an affiliate of Worldtel

Canada) and Net Sol Connect (owned by Net Sol Technologies of the US and the Akhter group of

the UK).

Telecoms deregulation has resulted in an increase in the country’s teledensity, especially in mobile

telephony. Landline teledensity (the number of landline phone connections per 100 persons) was

3.9% in June 2006, compared with 3.6% the previous year; whereas cellular density (the number of

cellular connections per 100 persons) was a substantial 21%, up from just 7%, over the same

period. These improvements should help spur the use of the Internet and e-commerce.

During August 2006 various e-commerce projects and initiatives were underway in the public and

private sectors, including electronic-government projects worth US$300m at the federal and

provincial level. For example, a five-year, US$30m project funded by World Bank at the State Bank

of Pakistan (the central bank) to interlink the countrywide regional office network of the central bank

was almost complete. A real-time gross settlements (RTGS) project with backward linkages to

commercial banks and the clearing house is scheduled to be completed by end-2006.

The Pakistan Software Export Board (PSEB) has a number of programmes to activate the local

information-technology (IT) sector. For example, the Bridge 2002 programme seeks to computerize

small and medium-sized enterprises and to provide projects to local software companies, with

technical and financial assistance from the board. Another programme, the GEMS-2002, was
launched in August 2002 to incubate small software companies, providing logistics support,

infrastructure, and marketing and financial guidance. The PSEB also provides financial subsidies

and technical support for various training programmes and for securing internationally-recognised

quality certifications.

Software-technology parks have been established to develop the IT industry in Lahore, Karachi and

Islamabad. But a software-technology park set up in Peshawar in June 2004 was abandoned

because of lack of funds and poor infrastructure. Other IT incentives include the following:

IT companies qualify for an income tax exemption on software-export revenues until June 30th

2016.

Software exporters may retain 35% of their earnings in foreign-exchange accounts.

Computers and related hardware are exempt from customs duties, though the 2006/07 budget

subjected them to a 15% sales tax.

Depreciation on computer equipment was raised to 30% (from 10%) in the 2001/02 budget.

Financing options provided by banks and development finance institutions for IT-sector contracts

are acceptable as collateral for the export-finance facility.

Accreditation and Quality Testing Councils are being set up to ensure a high standard of IT

education in the public and private sector.

E-COMMERCE: FOREIGN INVESTMENT

Foreign investment of 100% is permitted in the telecommunications sector. About 100 IT and

telecoms companies from the United States, Europe and Japan have offices in Pakistan, including

Oracle, Cisco Systems, International Business Machines, Microsoft and Intel. Two leading ISPs

have foreign connections: Worldtel is an affiliate of Worldtel Canada and NetSolConnect is owned

by Net Sol Technologies of the US and the Akhter group of the UK.
Foreign investors are allowed to invest up to 100% in software companies, and foreign interest in

Pakistan’s technology sector has been increasing. Local entrepreneurs have set up around 100 call

centres in recent years in Pakistan; one of the first was a call-centre that Align Technologies (US)

set up in 2000.

The United Nations Industrial Development Organization and the World Bank also support projects

for information-technology development.

E-COMMERCE: INTELLECTUAL PROPERTY

There was a flurry of legislative activity concerning protection of intellectual property in 2000/01. The

Pakistan Patent Ordinance 2000 was issued in December 2000 and the Trademarks Ordinance

2001 was issued in April 2001, and they can be applied to Internet activity.

According to an August 2006 report from the government, the Electronic Data Protection Act 2005,

the revised Electronic Crimes Act 2004 and a law relating to electronic payments had been drafted

and were ready for legislation, although there is no schedule to present them. The Electronic Data

Protection Act would provide protection and safety to foreign data regarding the processing of such

data in Pakistan; details for the other two acts were not yet available by August 2006.

E-COMMERCE: CONSUMER PROTECTION

The president passed the Electronic Transactions and Governance Ordinance 2002 in September

2002. It extends the coverage of laws concerned with physical contracts or documents to their

electronic forms.

E-COMMERCE: CONTRACT LAW AND DISPUTE RESOLUTION

The Electronic Transactions and Governance Ordinance 2002 extends the coverage of laws

concerned with a physical contract or document to its electronic form. It also specifies actions

recognised as offences, and it gives guidance on resolving disputes related to electronic contractual

obligations and communications. No method of determining the jurisdiction of e-commerce

transactions has yet been discussed.

E-COMMERCE: BASIS OF TAXATION

No rules have been established on how to tax e-commerce or determine “electronic residence” in

Pakistan.

E-COMMERCE: CLASSIFICATION OF E-COMMERCE TRANSACTIONS

No classification of e-commerce transactions has been given to assign different tax rates or for any

other purpose.

E-COMMERCE: COMPLIANCE AND ENFORCEMENT ISSUES

The president passed the Electronic Transactions and Governance Ordinance in September 2002.

It provides for the legal recognition of electronic documents and specifies offences. The ordinance

makes it an offence for a person to gain or attempt to gain unauthorized access to any information

system with or without intent to acquire the information contained therein, whether or not he/she is

aware of the nature or contents of such information. It also makes it an offence for any person to do

or attempt to do any act with intent to alter, modify, delete, remove, generate, transmit or store any

information through or in any information system, knowing that he/she is not authorised to do any of

the foregoing. Both offences are punishable with either a prison term of up to seven years, or a fine

up to PRs1m or both.