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Electronic Commerce in Nepal
By Larry Press lpress@isi.edu, Seymour Goodman goodman@cc.gatech.edu,
Tim Kelly tim.kelly@itu.int, and Michael Minges michael.minges@itu.int

In 1975 two professors and a graduate student, Ramesh Vaidya, at Massachusetts Institute of Technology (MIT) conducted a study of radio broadcasting and telecommunications in Nepal (Rathjens et al., 1975). Their modernization recommendations went largely unheeded at the time. Twenty-five years later, Vaidya is a member of the Nepalese Planning Commissio n, and when we were there for a study of the state of the Internet and telecommunication in Nepal last January (ITU, 2000), he asked us to focus part of our effort on electronic commerce.

Nepalese Background

Creating a healthy Internet presence in Nepal has been an uphill struggle. In order to thrive, the Internet requires a complementary telecommunications infrastructure, trained technicians, demanding users, and networking and end-user equipment, but these are not abundant in Nepal.

Situated between China and India, Nepal has a population of 22 million. Nepalese life expectancy is 55.6 years, adult literacy is 38.7 percent, and per-capita annual income is $1,186 (UNDP, 1998). The United Nations Development Program computes a national human development index as a function of economic productivity, health care, and education in a nation, and Nepal ranked 144th out of 174 countries in 1999 (UNDP, 1999). The situation is exacerbated by heterogeneity within the nation. For instance, in 1996, while the average life expectancy was 55.8 years, that number went as low as 36 years in the Mugu District and as high as 67 in Kathmandu, the capital. (The standard deviation in life expectancy among the 75 districts was 6.2 years.) Literacy varies from nearly 90 percent among the Marwari ethnic group to less than 15 percent among the Dusadh and Chamar. Brahmins have a life expectancy of 61 years versus 49 years for Muslims, and Brahmin adult literacy is 58 percent as opposed to 22 percent among Muslims. Only 15 percent of homes have electricity in spite of Nepal being an exporter of electric power.

Telephone infrastructure is poor and concentrated in and around Kathmandu. Nepal has a teledensity of just over one line per 100 inhabitants, with more than 260,000 on the waiting list. About two-thirds of the telephones are in the Kathmandu valley, which accounts for less than 3 percent of the population.1 Twelve of the 75 districts have no direct service, and only 1,535 of the 3,996 Village Development Councils have telephone access.

Though there are privatization plans, the Nepalese phone company is currently state owned. A tender is planned for domestic fixed wireless connectivity and very-small-aperture-terminal licenses are available to Internet service providers (ISPs) and others; however, as in many developing nations, there is ambivalence about privatization and open competition.2 Tender schedules have slipped, and the government and the telephone company are concerned about the possible loss of revenue.

The Nepalese Internet got off to a later start than in most of the developing nations, with initial UUCP connectivity in 1994, the licensing of ISPs in 1997, and VSAT licenses in 1999. Today there are nine operating ISPs with about 9,000 accounts. Roughly 30 percent of those are commercial, but there are fewer than 100 leased lines and fixed wireless connections, and many accounts are UUCP e-mail only. Activity is concentrated in Kathmandu. Nepal's late start with the Internet has left little business activity. A survey of tourism and export-related companies showed only 49 percent of the companies had e-mail addresses and many fewer Web pages (ITU, 2000). Looking at the Web sites that do exist, one sees further evidence of Nepal's late start on the Internet. They are first-generation Web sites: small, static electronic brochures.

Our Charge

There had not been significant telecommunication progress in Nepal since the 1975 MIT study. The government has been slow to act, but Vaidya indicated it was now willing to make some investment. He asked us to make recommendations for projects and programs that might facilitate electronic commerce. While the government of a developing nation should investigate and invest in e-commerce, it must do so within the context of its own goals and taking into consideration its unique situation. In a developed nation, e-commerce might be viewed as a means to increased industrial productivity. A developing nation might be more concerned with stemming population flight from rural to urban areas by increasing village productivity to the point where it affords two meals rather than one meal per day and providing access to news, entertainment, and education. We considered the Nepalese goals of increased social and geographic equity and rural employment along with the desire to generate hard-currency profits.

Alternative Directions

Like the proverbial blind men and the elephant, there are many ways to define and categorize e-commerce. Rather than attempt a single, orthogonal taxonomy, we will look at the e-commerce elephant in several overlapping ways, discussing information products, electronic markets, vertical industry portals, extranets, business-consumer enterprises, and e-commerce involving government.

Information products are unique, in that selection, transaction, payment, and fulfillment may be completed electronically, without involving physical infrastructure for warehousing and delivery. Information products would seem attractive in a developing nation like Nepal, where roads, transport, mail, and delivery facilities are poor. On the other hand, the banking and legal system must provide for electronic payment, and, of course, electrical and telecommunication infrastructure must be available and reliable.

In considering information products for export, one should ask, What is uniquely Nepalese? What news, literature, music, images, and video content would have a market? Who would be the audience? Nepalese expatriates? English- and Hindi-speaking Indians? Buddhists? An e-commerce presence could perhaps evolve out of a government-sponsored Nepalese culture site on the Internet.

Software and data entry are another form of information product. This can take several forms (Press, 1991; Press, 1993), including transcription and data entry, call center operation, animation and drawing, Web hosting and design, contract programming (on site or remote), and software packages. Of course, the Internet merely enables or facilitates such activity; management, marketing, and human capital are at its core. The markets for this sort of service are competitive and crowded, making differentiation difficult. One strategy is to focus effort on areas of current competence. For example, Chilean banking and forestry software was successfully exported because Chile had developed excellent local systems. Nepal may have expertise in systems for electrical power generation and distribution because Nepal has extensive hydroelectric capacity and is a power exporter.

There would also be a domestic market for information products if there were infrastructure in place to deliver them. Information products involving credit, education, news, health, entertainment, and personal communication can be sold in both rural and urban areas if people have access to the Internet at home, at work, at school, or in a telecenter.

Funds transfer is another information service. The Internet is increasingly used by expatriates in developed nations to maintain contact with each other and with their families. Expatriates often send funds home, and a trustworthy mechanism for electronic funds transfer should be provided. The same service is needed to support export business. This should not be seen as a profit opportunity for the government, but as a method of getting hard currency and enhancing quality of life.3

Electronic markets are well suited to homogeneous, fungible commodities, several of which come to mind in the Nepalese context: electric power, agricultural inputs, products, transportation, and handicraft raw materials. Nepal has knowledge of energy markets because of its hydroelectric power industry. We are seeing the emergence of electronic markets for energy--for example, Altranet, (www.altranet.com)--in developed nations today, and Forrester Research predicts that 17 percent of U.S. electricity will be traded online by 2004 (Kafka et al., 2000). Is there a place for an international electronic market for energy in the region? Or, more generically, how can the Internet be used in service of the region's energy suppliers?

Perhaps electronic markets could play a role in rural agriculture by lowering the cost of seed and fertilizer, by helping farmers find the best prices for their goods, and by finding cheap, reliable transportation to market. An early study along those lines in Pondicherry, India, found that information about something as mundane as bus schedules and the availability of space on a bus can be quite valuable in the rural economy (Press, 1999a). One can imagine a bus-based Nepalese Federal Express that aggregates goods for transportation, thereby eliminating the need of farmers to travel with their produce to market.

Handicrafts are also significant in Nepal's rural economy, employing an estimated 300,000 people throughout the country (Shahi and Kachhipati, 1999). In urban areas, people usually work full-time in handicrafts, whereas handicraft is typically a subsidiary occupation in rural areas. While the contribution of handicraft exports to gross domestic product is only 0.89 percent (1996-97), it has grown steadily from 0.08 percent in 1986-97, and handicrafts accounted for 4.17 percent of exports in 1996-97. Might electronic markets for handicraft raw materials and products increase efficiency? As with electric power, these markets could serve the entire region, not only Nepal.

The Himalayas and their foothills are popular tourist destinations, making the tourism and trekking industry a candidate for a vertical portal. The Web site should be comprehensive, providing for selection of transportation to and within Nepal, accommodations, and guides. The site would provide descriptions, search and selection tools, and links to competing companies in each of these areas, thereby necessitating participation by representatives of several industries. As with most e-commerce, the Web site would be only the tip of the iceberg. Payment and fulfillment must also be provided. Credit cards are the most common payment mechanism for consumer goods on the Internet today, and a means of accepting credit card payment would be necessary. Similarly, systems for international travel, visa and immigration matters, local transportation, and housing would all have to be integrated.

Electronic marketplaces and vertical portals are open, hoping to attract all buyers and sellers, but the Internet is also used to create closed extranets that facilitate communication and cooperation between relatively stable business partners. For example, the handicraft industry involves raw-material producers, individual artisans, producer and craft-based organizations, marketing and fair-trade organizations, commercial buyers and importers, government customs and export regulators, retail outlets, and warehousing and transportation at every step in the process. Simply connecting the appropriate people in each of these organizations with e-mail would no doubt increase production and logistic efficiency. Providing them with Web sites for querying inventory status, ordering, scheduling, tracking shipments, and the like would provide still greater returns.

Direct Internet sales to export customers are difficult because of logistical problems with rapid, reliable delivery; however, the inefficiencies and markups in the current distribution channels make direct marketing an attractive goal. For example, a Dhaka full-pattern shawl begins with 175 rupees ($3.80) for yarn and Rs275 for the producer's labor and ultimately sells for Rs5,250 in the U.S. or Europe (Shahi and Kachhipati, 1999). An allo placemat, which sells for Rs300, begins with Rs15 for material and Rs7 for labor. Note that the bulk of the export markup is in freight, duty, and retail. The Rs5,250 shawl sells for only Rs750 domestically, and the placemat Rs48.50.

Direct marketing to consumers would entail a Web site, which should be complete and professional, enabling the consumer to select or design, order, pay for, and track delivery of an item. Timely delivery to customers would entail warehousing and fulfillment centers in target market areas such as North America, Europe, and Australia.4 Government cooperation in streamlining export procedures and lowering duties would also be necessary.

Local and national governments are also involved in commercial transactions, and the government has an opportunity to lead by example in this area. The Internet can be used in the tender and fulfillment process, in project management and reporting, in collections and procedures, and so on. These can be both government-business and government-consumer transactions, and there are many examples to follow--for example, in local government in India (Press et al., 1998) or at the national level in the U.S. or Singapore.

Conclusion

In conducting this exercise for Nepal, we were struck by the degree to which e-commerce considerations in developed nations were valid in a developing nation. In all cases, the Web site is just the tip of the iceberg; systems for site maintenance and fulfillment are critical, as is providing comprehensive, one-stop information and the ability to place and pay for orders. Channel conflicts due to disintermediation are as likely for handicrafts as for automobiles. The opportunity for comprehensive customer relationship management is available in Nepal as well as California.

We recommended three projects: a business-consumer site for marketing some handicraft item or items such as Buddhist thangka paintings via the Internet, a series of vertically focused workshops bringing together members of the Nepalese information technology community and members in industries that may be likely e-commerce candidates, and the establishment of a village-connectivity pilot project along the lines of those in Pondicherry (Dugger, 2000; Press, 1999a; Press, 1999b) and Madhya Pradesh (Loyd, 2000) to explore technology and applications. These recommendations were made in the context of other, more-general suggestions, such as encouraging voice over IP, more aggressive liberalization of telecommunication deregulation, and provision of unmetered Internet access from all regions. A combination of lack of will and circumstances kept the government from carrying out the recommendations of Vaidya and his colleagues in 1975; time will tell whether they will be more successful today.

Footnotes

1 Kathmandu has a teledensity of 18.2 lines per 100 inhabitants compared with 1.07 in the country as a whole and 0.06 in rural areas (ITU Database, 1999).

2 See Braga, 1999, for a discussion of this problem in developing nations.

3 The value of increased connectivity with the Nepalese expatriate community should also be considered in assessing the decision to regulate Internet telephony.

4 The numbers of Internet users in India and China are growing rapidly, and more direct shipment may be feasible for reaching those markets.

References

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Dugger, C. W. "Connecting Rural India to the World," New York Times, May 28, 2000.

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Loyd, M. "Magic Box" a Lifeline to India's Poor Farmers. South China Morning Post, May 24, 2000, www.scmp.com/News/Comment/Article/FullText_asp_ArticleID-20000524052040288.asp.

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