Electronic Commerce: Reshaping Business in the Global Economy
Ms. Kathleen K. Hishinuma
Vice President - International Business Services and Support
GTE Corporation
I am excited about being here to share my thought on how Electronic Commerce can reshape business in a global economy.
I was born here in Hawaii and I have seen first-hand how technology can shape an economy. Before my eyes, I saw Honolulu blossom from a small, plantation community to the 11th largest metropolitan city in the nation. I remember my dad telling me about my grandfather getting paid $1 a month to work on a sugar plantation; today Hawaii's per capita income is among the highest in the United States at approximately $26,000 per year.
There are a lot of ingredients in Hawaii's long-term success, but I believe a major one is that technology now allows "ease of communication" between Hawaii, the U.S. mainland and the world. Through the links of satellite and undersea cable, Hawaii, in the middle of the Pacific, became closely connected to the global economy. New technology enabled easy and affordable communication. Astronomical rates of $10 a minute for a phone call to California dropped steeply to today's average rate of around 7 cents a minute. "Ease of communications" is a key economic factor providing a competitive advantage by bringing products/services to market cheaper, faster and better than your competition.
I believe a similar metamorphosis is happening with the Internet and electronic commerce. The Internet provides a quantum leap improvement in the "ease of communication." It dramatically affects the way all of us live, how we do business and how we enjoy our personal time.
In my job as VP-International for GTE, I work with countries such as Canada, Japan, Taiwan, China, Argentina, Venezuela and Puerto Rico. And I use the Internet extensively to discuss and make decisions quickly. GTE and many of our International affiliates have launched e-commerce applications for customers to order products/services, request repair or check on their billing - no more waiting for a service representative. These result in win-win situations since the customer obtains information when he wants it, and the company reduces costs associated with large call centers.
We are just starting to see the impact of e-commerce on our economy. For instance, on-line sales in the U.S. were $24 billion in 1999, and 95% increase over 1998. Americans' end-of-the-year, on-line holiday spending in 1999 more than tripled the holiday dollars spent on-line in 1998, rising from about 2% to about 6% of total holiday spending.
Today over 100 million computers in more than 100 nations are linked to the Internet. By 2002, there will be 300M, and by 2005 we expect to see a world of 1 billion interconnected computers. And computers will be only one of many hardware devices connected to the global network. For instance, Sony's new Playstation2, just introduced in Japan, will soon be able to do a lot more than play games. Equipped with the high-speed modem and PC-style hard drive promised next year, Playstation2 will link with the Internet and become a conduit for movies, video games, music and e-commerce.
We are already seeing wireless telephones, televisions and appliances hooked up to the Internet...all this in an effort to have the "ease of communication" that enhances our lives at home and at work. The world of a connected family is fast becoming a reality. Enterprises such as Sandstream communication have applications that allow you to start your appliances at home from your office computer. Wouldn't it be nice to come home to a freshly brewed pot of coffee or tea or be able to record your favorite TV new show if you have an unexpected late night at the office?
Principles to Guide the Growth of E-Commerce
How does one capitalize on this e-commerce explosion? I would like to share a few enablers that need to be in place for a country to realize the potential benefits of e-commerce.
Gross Domestic Product, Teledensity & Internet Access Device Penetration: There are direct correlations among purchasing power, teledensity and the number of Internet access devices in the economy. For e-commerce to take off in a country, there must be sufficient discretionary income to allow shopping on-line, and there must be a significant number of Internet-enable devices where, buyers can access sellers. In the U.S., the GDP per capita is about $25,000/year, approximately 95% of the households have a telephone and computer penetration is approximately 35% and projected to grow to 60%. In contrast, China has a GDP per capita of approximately $800/year, and less than 10% of the population have telephones, let alone computers. Tremendous technical expertise and market-receptivity are important factors in the positive economic momentum possible in China in the years ahead. For any country however, computer availability remains the first vital step to Internet access and e-commerce opportunities.
Another key e-commerce ingredient is a stable, financial infrastructure with a culture accustomed to making credit purchases. It is difficult for customers to buy things "on-line" in a cash-based society, where there is no mechanism for validation of credit purchases. For example, in China and India, cash is king and credit purchases are very limited. Another element of this infrastructure is the sense of security needed for customers to trust their financial information to an on-line transaction.
Once the customer makes a purchase with valid credit authorization, there needs to be a cost-effective and reliable postal-type system to deliver the goods.
To assure ease of communication, fast access to the Internet is required for e-commerce to take off. Current modem wireline speeds are 56kbps. ADSL and cable modem technology enables broadband access at speeds up to 1.5 mbps. GTE and Bell Atlantic are both accelerating their deployment of ADSL and wireless data technology. With regard to wireless, the future technology of 3G will enable speeds projected to be 2 mbps.
To truly have global e-commerce, one needs to have interoperability among all countries' networks. Uniform standards and protocols must be set or it will be like trying to run a train between Europe and Asia with different gauge tracks in each country...you will wait a long time and the train will never arrive. GTE's solution to this is our Net.Alliance partnership, where ISPs around the world agree to GTE certification standards to assure interoperability and reliability. Leading this effort is GTE Internetworking, the business unit established in 1996 with our purchase of BBD, the company which did invent the Arpanet, the forerunner to the Internet as we know it today. BBN, in fact, came up with the @ sign in your Internet address.
Government plays a key role in assuring e-commerce will flourish with commensurate benefit to the economy. Rather than restricting competition, government must allow the free flow of information and encourage business to extend on-line access to the mass market.
On the soft side, we must assure that our countries focus on grooming our children to be technologically literate to keep up with the global competition. GTE believes that support of education, specifically, literacy improvement, is our number one responsibility to the communities we serve. A great example is "GTE Reads," a new public charity which is helping tie existing literacy efforts into a public/private partnership focused on improving literacy for adults, children and entire families nationwide.
There must be a collaboration between private and public sectors to prioritize and focus on the above mentioned items and lock arms to make things happen. There are many success stories of Silicon Valley, Austin, Seattle and Boston high-tech developments, which involved the collaboration of private and public sectors.
For instance in Hawaii, there have been recent initiatives, such as a foundation of the High Tech Trade Association, and programs developed by the State Department of Economic Development and Tourism to enhance Hawaii's position as a high-tech hub of the Pacific.
A couple of years ago, I was president of GTE Wireless here in Hawaii and participated in the governor's task force on science and technology. Everyone must make a personal commitment to make things happen.
Once the above enablers are in place, a nation will see a significant reshaping of business similar to what we are seeing in the United States where market valuation of many dot.com companies far overshadow those of traditional established companies. For example, relatively new companies have huge market-caps: Yahoo is estimated to be $85 billion and AOL is about $130 billion. This has huge implications to a country's economy.
Channels of distribution will change because companies will not have to make significant financial outlays to build and staff direct store channels. With e-commerce, barriers to market entry are lowered and competition flourishes. In the very near future, e-commerce will no longer be a U.S.-centric phenomenon. By 2003, economists predict that non-U.S. e-commerce will represent more than half of the worldwide market.
In closing, I believe e-commerce will definitely re-shape business and the global economy just as I have seen Hawaii change as a result of telecommunications technology. It is our collective responsibility to make sure that this extraordinary business potential is used to benefit society as a whole and bring the real prospect for peace and prosperity to future generations.