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The "new economy" and the "global economy" are not yet one. Roughly three-quarters of all e-commerce still takes place in the United States, according to Forrester Research, and the vast majority of commercial Web sites are still based in the United States.
Will the rest of the world catch up and when? What gives the U.S. its edge? What are the barriers that European and other countries face in making e-commerce a worldwide phenomenon?
An IS2K panel moderated by HBS Professor Steven Bradley outlined some of the cultural, regulatory, technological and other differences that separate the U.S. from the rest of the world in the e-commerce arena. But at the same time, the panel offered the sense that the era of truly global e-commerce is not far off.
"If you look at all of the conditions that are responsible for this foundation that the United States has, its leadership position," said James T. Barrett, Co-Chair of the Internet/E-Commerce Practice Group at Palmer & Dodge LLP, "they're either being replicated elsewhere in the world or they're going to disappear in the U.S."
Barrett, who focused primarily on Europe, outlined five interrelated factors that underpin the current U.S. position. They include: robust capital markets that facilitate IPOs for startups; an extensive angel/venture capital and incubator industry; tax advantages for stock options and a moratorium on taxation on e-commerce; low telecommunications costs; and business process patents.
"I see the United States and the rest of the world converging in all but one of these aspects," said Barrett.
Change in the Air
Changes in the capital markets are already taking place, as shown by the growth of Internet-related IPOs in Europe in the first quarter of 2000. ($7.9 billion worth in Europe, as opposed to $5.2 billion in the U.S.) This is being accelerated, said Barrett, by the global consolidation of the investment banks and the commercial banks that underwrite these IPOs, by new European stock exchanges focused specifically on emerging technologies, and by the global consolidation of stock exchanges.
Startups in Europe have traditionally been funded by bank debt, rather than by venture capital, a process that doesn't foster innovation, Barrett said. But this, too, is changing, as more European venture funds emerge and American funds look increasingly beyond the borders of the U.S. On e-commerce taxation, Barrett said he expects the U.S. to follow the European model as bricks-and-mortar retailers join with states, which derive most of their income from sales tax, to lobby "for some kind of parity between traditional sales and e-commerce sales."
One of the U.S.'s biggest advantages—the low cost of telephone calls—should erode, said Barrett, as Europe's big lead in mobile telephony is translated into reduced telecommunications costs. And now that the European Commission has acknowledged the advantages that U.S. businesses derive from the patenting of business processes and methods, "we should see the same form of protection being available in Europe in the near future."
Tax laws which allow U.S. firms to use stock options to entice, motivate and hire the very best talent, are not likely to be matched in Europe. But the growing parity in all these other areas, said Barrett, means that "the Internet as a U.S.-led phenomenon...is unlikely to continue and that e-commerce should become much more global in the very near future."
Suzan Nolan, co-founder and president of BlueSky International Marketing, Inc., a privately held market research and analysis firm based in Paris, outlined four fundamental factors that either drive or provide barriers to the expansion of e-commerce globally.
The first, said Nolan, is access: whether or not you can get on a network. The second factor, trust, is "the fundamental bit of any commercial transaction," but it also has to do with things like security, privacy, truth in advertising, warranties, disclosures, and refund mechanisms.
"All these are things that, as Americans, we can kind of take for granted, because the commercial system here is pretty homogenous and we have a lot of things here that just work. But those things you can't necessarily take for granted in other countries. You have to understand within each country what the limits are in things like consumer trust."
A third factor that differentiates the U.S. from the rest of the world, said Nolan, is logistics. "Being able to get something from Philadelphia to Portland is not hard, but that's because Philadelphia and Portland happen to be in the same country and happen to benefit from the same commercial providers of transport, which is not the case in a place like Europe or most other places in the world."
Finally, said Nolan, there's the question of disparate regulatory environments and taxation policies. "It often comes down to questions of jurisdiction. If you've got a problem, whose problem is it? And how do I get it solved?"
Nolan also issued a warning about common myths. When working with clients, one of the first things she tries to do is to get rid of what they think they know. "That's probably the most important thing when dealing with other cultures, other worlds: going out of the confines of how America works.
"There are values that are ingrained in us, that are reflexive in us, but might not really work that well in other countries that don't share the same values."
The View from Asia
Panelists Toru Takahashi, Chairman of the Internet Association of Japan, and Mintoo Bhandari, Managing Director of the View Group, offered an Asian perspective on the globalization of e-commerce.
Takahashi noted the incredible growth of the Internet in Asia, where China, with 40% growth per year, will soon be the biggest user country in the world, and where South Korea and Japan each already have more than 20% of their population online. That growth, he said, is happening in a matter of months, instead of years, in part because "many people came back from U.S. with MBAs from Harvard, MIT, Stanford, and so on and they are beginning to run new businesses, the same as in the U.S." These entrepreneurs, he added, are bringing in new business models as fast as they are being developed in American firms.
Takahashi also noted some barriers. One, "a purely technical issue," is the need for a system of multicultural domain names that can use Chinese or Japanese or Indian characters, as well as the Western characters currently in use. Other barriers include a need for more and better incubation, coordination among the many groups working on Internet activities, and, especially, a coordinated policy to overcome a lack of the engineers needed to support Internet growth in the region.
Bhandari, whose firm invests in and builds Internet businesses, primarily in the B2B space, in India, focused on the influence of the Internet in India and of India on the Internet.
"India has one great strength; it has one great weakness; and it has one great hope," he said. "Its great strength is its people; its great weakness is its government; and its great hope is the Internet."
The well-documented contribution of Indian expatriates to the growth of the Internet, said Bhandari, makes it easy to forget that less than one percent of people of Indian heritage live outside the country. "There are super resources in the country," he said, but they have been inhibited from making a difference by a government that "has essentially been the greatest drag on the Indian economy."
The Internet, said Bhandari, can make the difference. "It collapses geography. It enables those human resources to interact with people around the world very cost effectively. It overcomes problems inherent in the traditional communications infrastructure in India. It mitigates many of the problems that exist with regard to the lack of physical infrastructure for industries.
"We believe the Internet is the avenue for entrepreneurship in India to be unleashed and to flourish. Our belief is that the Internet is going to allow Indian enterprises to both expand their domestic markets and play a meaningful role, perhaps a more meaningful role than historically, in certain segments of the global marketplace."
In the domestic market, he said, there are no incumbents that are lean and mean and are going to be able to withstand a very smart Internet-enabled, technology-enabled competitor. "These [older] companies have been isolated from competition from the rest of the world for so long, that they have not learned to externalize their business processes and make them capable of being highly efficient and utilizing what's available on the Internet. They simply have too much baggage. We're trying to create companies that utilize technology to leapfrog the Old World players.
"We believe that companies armed with this sort of technology can really be global leaders. We believe that some of the greatest entrepreneurs in the world are in India, and the Internet is going to enable them to accomplish their dreams.
"If it doesn't happen, we feel that India will have missed a wonderful opportunity—an opportunity that it is absolutely positioned to be a leader in—and that India will fall further behind industrialized countries on an economic basis. We're working hard to make sure that doesn't happen."