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Global Electronic Commerce: Embracing the Challenge Tom Ehrgood International Trade Counsel, Compaq Computer Corporation 1998 Mid-Term Meeting Los Angeles, California Sunday, October 18, 1998 We live in a time of promise. As the 21st century approaches, the global economy has moved from concept to reality. In our hemisphere, we are working to achieve the vision of hemispheric free trade, extending from the tip of Canada to the tip of Argentina, which was promised by President George Bush in his Enterprise for the Americas initiative. NAFTA, of course, represented a historic step toward realization of that vision. Although the expansion of NAFTA has been slower than hoped, the vision of free trade in the Americas is still alive. Unfortunately, the blossoming global economy has shown unanticipated and unwelcome fragility. Last summer, a financial crisis born in Thailand quickly spread to Korea and Indonesia, causing at the very least a reevaluation of the Asian economic miracle. Although the problem seemed for a time to have been contained, financial distress spread this summer to Russia, causing the ruble to collapse. And now Brazil's currency is under pressure. What will happen next? Will financial weakness deepen and spread? This time of promise is getting complicated. And then there is this thing called "global electronic commerce." Whatever it is, in just the last couple of years it has sprung to life and captured the imagination and agendas of governments and businesses around the world. But what is it? Often it is described as a "revolutionary new enabling technology." A technology that is transforming business both within and across borders. We hear that this technology will bring about the "death of distance " ( making it possible as President Clinton told the World Trade Organization last year, "for people to work together across oceans as if they were working down the hall." Who needs such a revolution? We have enough excitement in the real world that we think we know and understand! Now a technology is springing into existence to turn everything upside down. We wonder whether we want to be turned upside down. No, that is not what electronic commerce is. It is not a technology wand that works only in the hands of magicians. Electronic commerce is businesses using information and communications technology as strategic tools to reach their business goals. This morning, I want to de-revolutionize this phenomenon. I want to demystify it. When the Pacific Basin Economic Council in the U.S. asked me last year to lead its work in support of APEC and FTAA electronic commerce initiatives, I accepted on condition that we would not act as technical or legal experts, joining in so many choruses already in full song. I said we must simplify electronic commerce. We must speak about it in terms that business people in the region can understand. But first let me tell you that de-revolutionizing and de-mystifying electronic commerce will not relieve us from our obligation to accept the challenge that electronic commerce poses. Information and communications technologies have evolved to the point where the technology is a strategic, competitive tool. You don't need to be a technology expert, but you do need to understand how to use technology for your competitive advantage. If you don't, your domestic and global competitors will. Speed of Adoption Before 1995, the Internet was largely a communications infrastructure for scientists, engineers, and academics. Once it became public through the development of the worldwide web and user-friendly web "browsers," it has taken only 4 years for the Internet to reach 50 million users, who have effectively agreed to communicate and interact using a common infrastructure and common tools. Contrast this speed of adoption with the much longer periods needed for radio, television, and the personal computer to reach the same number of users. Internet users International Data Corporation projects that use will continue to grow explosively - from 100 million today, to 170 million by the year 2000, and to more than 300 million by the year 2002. Global Electronic Commerce - CAGR The growth of Internet users is driving growth in electronic commerce. IDC estimates that the 36% CAGR in Internet users it foresees will translate into a 103% CAGR in money spent on goods and services between now and 2002. Electronic Commerce: Linking Buyers, Sellers, and Suppliers Here we look at what electronic commerce is, and we see it is not a technology. Instead, it is the electronic linking of enterprises with suppliers, transportation and logistics arms, financial and telecom infrastructures, and finally buyers. Within this electronically linked flow are well-known activities: financing, procurement, logistic, and delivery. Elements of Electronic Commerce There is very complicated technology supporting all the tangible, human activities that survive into the Information Age. The technological complexity of these technology solutions is mind-boggling, but you do not need to be a technology expert to run your business. Plenty of IT experts are available to help you make your business more efficient (e.g., reduced paper flows); or transform it (e.g., replace paper systems); or create new businesses (e.g., delivery of services through electronic means). Cemex All over Latin America and Asia, it is easy to find people who say, electronic commerce is not for us because it does not fit with our culture. Electronic Commerce is a virtual world; but we need to touch things, they say. Relationships in electronic commerce are anonymous; but we need to know the people we do business with, they say. I love the Cemex example. Cemex operates in a very real world - the cement world. It is the largest cement company in the Americas and the number one cement trader worldwide. Cemex operates a complex network of plants in twelve countries and suppliers in many countries. But Cemex knows who they are, even if Cemex has implemented electronic commerce solutions to tie all the plants together and all its suppliers together to achieve extraordinary efficiency. This was not a technology accomplishment. It was a management accomplishment. Not everyone can match Cemex's receipt of the Industry World Best-Managed Company award, but all of us can look at our businesses and identify efficiencies and opportunities to be achieved through the strategic adoption of information technology. Amazon.com Example Amazon.com is the classic example of the total electronic commerce company. But not really. Jim Bidzos, Amazon.com's founder, mobilized information technology to coordinate real-world activities. Books are written; published; stored; delivered, and read. Where the physical relationship became an electronic one is at the ordering point, but it is not really anonymous. Amazon.com gives a lot of customer service. Order a book. Ask for help. It's there. Challenges So now we see what electronic commerce is. The Cemex example illustrates that leading Mexican enterprises are using it. The Amazon.com example illustrates that any upstart can take on established players. Obviously electronic commerce is fast-growing, and clearly it leaps borders. It is not surprising, therefore, that electronic commerce presents important challenges. The first challenge is to achieve the broadest possible distribution of its benefits. As in the case of any efficiency-driving change, adjustments are inevitable as business models and behavioral patterns change. Although these changes are not quite as dramatic as the most extreme rhetoric suggests, the challenges in the social and economic dimension are very real. Another important adaptation must be made in the realm of laws. The legal system that supports domestic and international commerce as we have known it needs to be carefully examined to determine what adaptations are necessary to support electronic commerce. Embracing The Challenge: The Wisdom Of Sun Tsu Faced with these challenges, we need some simple advice. Sun Tsu, the ancient Chinese strategist, wrote a couple of thoughts on two bamboo sticks. He said the key to success is self-knowledge and knowledge of the "other." And second, he said that a whole lot of calculation is key to winning a challenge. As we will see, a frenzy of self-examination and mutual exploration has been launched by governments around the world. Everywhere, governments, businesses, and lawyers are engaged in careful examination of economic, legal, and social issues raised by electronic commerce. And although many calculations are being made, no important solutions have been found and implemented. U.S. Framework Paper 1997 was the year for the big, early adopters to declare themselves on electronic commerce and begin in earnest the global dialogue to design a global legal framework to support its continued growth. In July, the U.S. government issued the famous "Magaziner" framework, telling a simple story. The U.S. is in the lead, the story says. We got there in a largely unregulated environment. Everyone should be encouraged to follow the U.S. example, adopting a regulatory posture of restraint. EU Paper The EU told a different story in April. They said the EU is somewhat behind, but the EU has strong assets - a strong telecom sector and leading content providers. Most important, the EU observed that the legal methodology it has developed to establish its Single Market is well-suited to developing a single, global legal framework to support global electronic commerce. Japan Paper Japan's story was a striking one. In April, MITI said that Japan's economy had been doing poorly throughout the 1990s, and this was due, in important part, to under-investment in information technology. Electronic commerce, in this story, is a good catalyst for more IT investment, and therefore many government-sponsored electronic commerce projects were established. APEC Leaders Declaration In November 1997, APEC leaders meeting in Vancouver, Canada, resisted U.S. efforts to have APEC join in the comprehensive initiatives signaled by the U.S., EU, and Japan papers. Instead, APEC leaders noted that electronic commerce is one of the most important technological breakthroughs of the decade, and directed that an electronic commerce work program be initiated, with a report on progress due to the leaders at their upcoming meeting in Kuala Lumpur, Malaysia. Ministerial Declaration Of San Jose In March of this year, this hemisphere joined in, modestly. Trade Ministers meeting in San Jose established a Joint Public-Private Sector Committee of Experts on Electronic Commerce, and directed it to make unspecified recommendations at the next FTAA Ministerial in October 1999. Global Policy Work On Electronic Commerce The result is that the earth is now circled, covered in initiatives studying and examining the economic, social, and legal implications of global electronic commerce. Strikingly, very little has been decided. But an agreed way of talking about electronic commerce is emerging. Most important, governments everywhere seem to agree that caution and restraint are critical. They are not rushing to make rules that could harm the development of electronic commerce in ways that would benefit no one. Enterprise-Level Response To The Challenge While governments deliberate and properly hesitate, governments and private enterprises are rapidly implementing electronic commerce techniques to speed the delivery of services, expand markets within borders and leap borders into new geographic markets. Large enterprises are becoming more efficient. Small and medium-size enterprises are seizing upon the opportunity of electronic commerce to take on larger competitors. While governments hesitate, enterprises are being transformed. Whole Enterprise Response Business enterprises cannot afford to hesitate to respond to these developments. Yes, the enterprise leader needs to engage in the analysis and calculations that Sun Tsu prescribes, but the private sector timeframe is shorter than the public sector timeframe. Because electronic commerce is a strategic tool of transformation, it is essential to examine the question of electronic commerce within the context of the entire enterprise. The enterprise leader, the CEO, must be involved, because it is his or her responsibility to lead the evolution of the enterprise as it moves into the Information Age. The CEO does not need to be a technology expert to run the business, but the CEO does need to understand technology well enough to make the critical decisions about its strategic use in the enterprise. One of those key decisions is to hire a good chief technology officer. Online Help Embracing the challenge of electronic commerce is not easy - but it is not so terribly difficult either. Businesses everywhere are doing it. Surely your competitors are. So the right way to embrace the challenge is to jump into it. If you want help, there are some good companies -- many you have heard of -- who stand ready to assist. But if you want help tonight, go your computer, launch your web browser, type in www.altavista.com, and then ask AltaVista the question, "Who can help me with electronic commerce?" When I typed in that question the other day, AltaVista answered that it had found 4,652,160 Web pages for me. There's a lot of help there - even if the number slightly overstates its availability. Conclusion The magic of global electronic commerce is that it is a leveler. It allows you to compete with bigger and distant companies. But you must engage. You must take up electronic commerce as a strategic, competitive tool for your commercial advantage. How do you match your competitors' strength? You need to join in. Analysis and calculations must lead to adoption. Everywhere around you, enterprises are taking up electronic commerce. It won't be thwarted and it won't be rolled back. So take up the challenge and win.