E-Commerce goes global

Connecting to the world, it seems, isn't as easy as you'd think given that the Internet reaches most countries and cities around the world, you'd think that e-commerce would have been global from the beginning. Not so, at least generally. The combination of language issues, currency conversions, shipping hassles and general unfamiliarity with foreign websites has made business on the Internet largely a domestic phenomenon.

Americans surf U.S. websites and Germans buy from German sites. There are exceptions, but our e-commerce electrons have mostly stayed within borders. And if you're an American and think all the action is here, you should know that a U.S.-oriented website will reach only 5 percent of the world's population and only 25 percent of global purchasing power. If you're not interested in the other 95 percent and 75 percent, by all means turn the page now.

I recently participated in a conference on "E-Commerce and Global Business" in the domestic, but still raffishly lovely, town of Santa Cruz, Calif. I'm no expert on the subject--I chaired a panel, which sounds impressive but requires no knowledge--but there were plenty of academics there who have begun to do research on the subject and a few experienced CIOs. Part of my interest derived from just hearing how much--or more appropriately, how little--global e-commerce there is today, and hence, what a great opportunity for growth it presents. Several University of Washington researchers reported that there are only 26 consumer websites that have any international revenue at all, and for them, the nondomestic revenues average only 2 percent to 3 percent of the total.


The first session of the conference was devoted to global regulation on the Internet. I don't generally find regulation that fascinating a topic, but some interesting issues were raised. My former University of Texas colleagues Sirkka Jarvenpaa and Emerson Tiller argued that old-economy regulations are very different from those we'll see in the new economy. In the old world, politicians and businesses often colluded to foster regulation that protected businesses within a particular country. In the new economy, however, country representatives may be worried as much about national competitiveness as protectionism. New-economy online companies can move from one location to another relatively easily, which limits the power of any government to regulate them. In the old economy, governments regulated industries, but in the new economy, they may find it harder to regulate the business models that are the core of many e-businesses. What industry is Priceline.com in, for example--airlines, groceries, hotels, brokerage or retailing?

Another speaker, Steve Kobrin from the Wharton School of Business at the University of Pennsylvania, argued, la Gertrude Stein, that there is "no there there" on the Internet. He argued for the creation of empowered international institutions to create and enforce global e-commerce regulations, including a global taxation authority and a Cyberpol to be the Interpol of international cybercrime (such a body might well have been useful in tracking down the creators of the I Love You virus).

But Daniel Brenner, a cable television lobbyist and former U.S. Federal Communications Commission official, said that the need for new regulatory bodies is overrated. To the jurisdictional irrelevance of cyberspace, he pointed out that for hundreds of years we have dealt with a similar situation in which legal events are difficult to associate with particular countries: maritime law, or the law of the sea. This raises some interesting possibilities; maritime law is heavily based on registrations, the flag under which a ship sails and flags of convenience. Is it possible, or likely, that we will ultimately end up with many Internet companies officially registered as doing business in Liberia (the flag of convenience for many ocean-going ships because of its lax regulations)? This wouldn't be so different from corporate law in the United States, which gravitates to Delaware for its business-friendly laws.

According to my Andersen colleague John Beck and University of Western Ontario professor Alan Morrison, companies with international sales have lower returns on invested capital than those that don't. They conclude that the cost of international brick and mortar--and the expatriates and local hires to manage them--is often more expensive in money and management attention than the resulting sales and profit. Their proposed solution is "netchising"--the combination of an Internet presence for customer-facing processes and franchising arrangements when a local presence is necessary. Of course, not all product and service types work with this model, and netchising examples are currently pretty sparse. But I am convinced that it's a powerful concept with potentially broad applications.

Linus Torvalds, the creator of Linux, as role model for the future of e-commerce? That's one of the arguments of Bruce Kogut and Anca Turcanu, a professor and a doctoral student, respectively, at the Wharton School. They investigated the role of common location in e-commerce innovation, particularly with regard to software development. I found one of their arguments quite compelling: The "follow the sun" approach to programming is very difficult to implement. The notion that one location's coders can send code on to another distant location for continued work while the first group of programmers sleep has always sounded suspicious to me. Kogut and Turcanu found, in examining several companies attempting this feat, that it requires a tremendous amount of discipline and many activities to build a shared context across geography.

Their other primary contention I find less compelling: The loose global network approach to software development used on Linux is a model for many other efforts in the future. How many Linus Torvalds are there in the world, anyway--people who are willing to exercise strong control over the architecture of a system but don't care about profiting from it? Despite all its recent problems, I'd bet on the well-orchestrated, profit-seeking, geographically concentrated in Redmond, Wash., approach of Microsoft Corp. most of the time.

One other interesting feature of global e-commerce organizations was revealed by Kevin Vasconi, who was formerly the CTO of the Ford Motor Co. - Oracle Corp.

Auto Exchange. Unfortunately there was no research presented on Net markets, e-commerce networks, e-exchanges or whatever you want to call them. And here is perhaps the reason why. In the past month or so, Vasconi got a new job, a new employer (the Ford-Oracle exchange was combined with the GM and DaimlerChrysler AG efforts), a new company name (Covisint), new partners (Renault SA and Nissan Motor Corp.) and undoubtedly a few other new things. Events are simply moving too quickly in this space for any rigorous-minded academic to get a handle on them. Fortunately, your correspondent isn't rigorous-minded.

Given such rapid change, one attendee suggested that researchers who want to study global e-commerce should simply wait a few years until things all settle out a bit. I suppose that is a good strategy if you don't mind transferring to the history department.

Tom Davenport cogitates at both Andersen Consulting Inc.'s Institute for Strategic Change and Babson college. He welcomes reader comments at davenport@cio.com.

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