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March/April 2001
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How Real Is the Internet Market in Developing Nations?


By Madanmohan Rao madanr@planetasia.com

Much discourse about the Internet economy in developing nations seems to be heading toward increasing polarization. One camp--the "e-uphoric" enthusiasts--believe that e-commerce is the answer and will soon lift the sagging fortunes of all developing nations. The other camp remains quite skeptical, believing that the Internet is merely going to leave the bulk of the developing world's population on the other side of the digital divide.

The reality, of course, lies somewhere in between, but unfortunately, these two camps do not creatively engage in joint brainstorming often enough. Under the right conditions, entrepreneurs in developing nations can launch locally viable Internet ventures with real value, but many developing nations also face very real constraints in harnessing the Internet economy.

Some dialogue between the various entities on this spectrum is beginning, fortunately; a glimpse of some of these dynamics in action was available at a recent conference: Internet World Thailand, in Bangkok. It featured speakers from academia, government, policy think tanks, and the private sector and raised about eight hard-hitting questions that are very relevant to Internet economy in other developing nations as well.

When will our domestic Internet user base reach critical mass?

Many developing countries do not yet have a critical mass of Internet users to justify significant investment by new Internet service providers (ISPs), advertisers, or vendors. Internet usage in many developing nations is still dominated by academics and techies (phase 1 of diffusion). Phase 2 involves more adoption by teens and youth, followed by young workers (phase 3). E-commerce initiatives tend to emerge in a country between phases 2 and 3 of Internet diffusion. For instance, the Internet in Thailand, with just about a million users, is currently between phases 2 and 3.

Phase 4--full universal access--is still a distant dream for many emerging economies. But being stuck in phase 1 or just entering phase 2 often leads to some amount of frustration and disappointment in emerging economies, especially when those involved are looking at the greener grass on the other side of the fence.

When can e-commerce initiatives become self-sustaining?

Unless there are sufficiently high online usage and online spending, domestic e-commerce may not be a viable proposition for many developing nations. For instance, the current Internet user base in Thailand does not yet have much buying power, says Somkiat Tangkitvanich, research fellow at the Thailand Development Research Institute. Most Thai users are in the age group of 20-29 years, so there is potential for increased buying power only further down the road.

Flat-rate ISP pricing and affordable leased lines still do not exist in most developing nations, thus keeping Internet usage times much lower than corresponding figures for mature Internet economies; this also affects advertising/e-commerce potential. For instance, in Thailand, leased lines are relatively much more expensive than in Hong Kong, Malaysia, and Japan.

When will non-PC channels be viable for Internet traffic?

PCs and modems are still quite expensive for most citizens of developing nations, so a lot of attention is focusing on Internet access via cable TV modems and mobile phone channels. These are yet to take off in developing nations, and even the much-hyped WAP does not seem to have delivered in many parts of the world, though Japan's i-Mode is often touted as a good example of breaking the PC stranglehold on the Net market.

Much attention is focused on the next generation of broadband wireless Internet in the hope that newer applications on more user-friendly devices at lower costs will open up new gateways to the Internet. In Thailand wireless penetration is set to overtake the land-line user base by 2003 and has already overtaken the PC user base. In Japan there are already more mobile handsets in operation than land lines. Many Asian users are expected to gravitate readily to Internet access via mobiles, since they are not conditioned to richer interfaces like PC screens, which has been a dampening factor for mobile Internet surfing in the United States.

How can rural regions be tapped via the Internet?

In rural areas, both accessibility and affordability of Internet facilities are critical issues. Ensuring Internet accessibility for all citizens needs to be written into the constitution of a country, but it remains to be seen how nations like Thailand can meet that challenge, according to Pichet Durongkaveroj, director of Thailand's National Electronic Commerce Resource Center.

Thailand is only 30 percent urbanized, yet 90 percent of its Internet users are in cities. Urban players must also extend their reach to cooperatives in villages. Though individual villagers do not have the resources to tap into the Net, local cooperatives may be better suited to handle infrastructure and training issues for handicrafts, traders, and agribusinesses, Durongkaveroj says.

What local niches can we develop in the Internet economy?

Though the domestic Internet market may be relatively small in many emerging economies, there may be certain niches that can be developed for local e-commerce. And since the Internet is a global medium, the real niches could actually be leveraged from within but for an outside audience--tourism being a prime example in this regard, especially for popular-destination countries like Thailand.

Exports--of raw materials, handicrafts and gems--also lend themselves to promotion for an external audience, as evinced by sites like Thai-Gems.com. In the case of developing countries with a large diaspora population, services like gifting, investing, and financial remittance to the home country are well suited for aggregation and exploitation via the Internet.

Expat remittances bringing foreign exchange into the country are part of the business model for sites like Thailand.com, according to its chief information office Ram Piyaket. So while 90 percent of e-commerce in countries like the United States may be domestic, the figure may be reversed for many developing nations.

Another positioning strategy for emerging economies is via developing regional hubs for Internet software and services development, as evinced by Ireland, Singapore, and Indian cities like Bangalore.

When can sufficient trust for progressive alliancing be generated?

Much of e-commerce infrastructure involves progressive moves on the legislative and regulatory fronts by government agencies and industry organizations, but the Internet seems to have become a political football in many developing nations, with various government agencies vying with one another for control of Internet traffic and revenues. In many countries, the two sectors, public and private, do not seem to have mutual trust, thereby slowing down the creation of a progressive Internet environment.

Alliancing is also needed with the banking and financial services system to facilitate services ranging from local bill payment and online banking to credit card payment gateways and remittance services for expats. Thai retailers, content providers, and fulfillment players have recently formed such alliances, according to Matthias Goertz, senior manager at the Boston Consulting Group in Bangkok. Other alliances involving mobile Internet access--such as MWeb, Loxinfo, and Siam2You.com--have begun to take off as well.

How can we educate our children for the digital future?

Internet literacy of children today is key for growth of the domestic e-conomy tomorrow. But most colleges and schools in developing countries are not yet online; access via kiosks in libraries coupled with education for students and teachers will be key to increasing awareness about the Net for the next generation.

Virtual universities and distance education offer a lot of promise and potential, especially in advanced Internet economies like Australia and Canada, but it will still be a while before educators and students in developing nations can find audiences and educational resources online. Initiatives like SchoolNet in Thailand are geared toward providing a modest dose of Internet access in government schools.

How can governments be brought fully on board the Internet agenda?

Today, with the exception perhaps of North Korea, every country in the world has some form of Internet access, at least in its major cities. But while all governments of developing countries have taken a tentative first step in opening up Internet access via local points of presence, they have not gone much beyond that in terms of promoting government usage of the Internet or increasing diffusion and lowering access costs in remote parts of the country.

In Thailand, for instance, there does not seem to be much political will on the part of the government for international circuit liberalization, according to Somkiat Tangkitvanich, research fellow at the Thailand Development Research Institute. Thus, gateways to the international Internet will continue to be monopolized by the government's Communications Authority.

Governments are also big buyers of products and services and can be big drivers of G2B (government-to-business) and G2C (government-to-citizen) services. But this has yet to take off in a significant way in Thailand, says Chet Chetsandtikhun, vice president of portal MWeb (Thailand).

In conclusion, then, the real opportunities of the Internet economy can be tapped to a large extent in many developing nations, provided the real obstacles get identified and acknowledged. With sufficient dialogue and cooperation between the various public-, private-, and civil-sector players, the Internet market can indeed become quite real for many emerging economies.


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