1. The Competitiveness Challenge: Adapt or die

Cost-based competition is dying and proximity is only relevant if transportation costs and time are an issue. Service, quality and design are becoming the main differentiating factors of competition. How can developing countries move their outputs up the value chain to compete on value and uniqueness of design rather than purely on price?

Developing countries and countries in transition (DCs is used here for both) can therefore no longer rely on low-cost production and competing on price. Like industrialised countries, they must use technology to automate and integrate their production, distribution and transaction processes, reduce the cost of production and transportation and deliver higher quality goods and services more quickly to a customer anywhere in the world.

Enterprises in industrialised Internet enabled markets now use technology to engage in cost-effective mass customisation of their products and services. They collect information from their customers and incorporate it into their designs for each market segment. When it comes to exporting their own products or services, DCs (developing countries and countries in transition) seldom have the capacity to adapt them according to the demands of each target market. They are lagging behind in knowledge and experience of using the new technologies, effectively. Even at the national level, multinationals can dominate the domestic market and put local enterprises out of business because of the impact of their slick television, Internet advertising and logistics operations. Local businesses cannot afford the same level of investment in publicity and technologically integrated logistics, nor do they have access to the same resources.

How can developing countries keep up with the technology race? How can they avoid multinational company domination of their national markets and understand industrialised country’s consumer preferences?

The response to the marketing challenge is found within the new technology. The potential for penetrating the markets of industrialised countries is now truly global and can be exploited by developing countries. With effective use of technology, a focused marketing strategy and a well-designed customer interface, DC’s can segment the markets and engage in niche marketing techniques to position their products and services in the most competitive way. However, information about competitors’ products and services is now also global and available instantaneously to potential customers. For example: any web site on the Internet can be found within 21 mouse clicks. Speed of reaction and flexibility to customer demands are the most frequently quoted order winning criteria. With improved direct customer to potential-supplier communications brought about by the Internet, the initial advantage of having personal contacts in industrialised country retail outlets has diminished. Many enterprises now prefer to improve their industrialised-country customer interface by outsourcing delivery and logistics.

DCs will also have to develop virtual clusters, where enterprises with similar needs or products come together to share overheads, resources and pool competitive intelligence. Several new DC "dot-coms" are already doing this, particularly for SMEs, with a product or geographical focus.

DC exporters still lack critical information relating to new markets, export/import regulations, freight and port procedures and costs, distribution channels and competing goods and services in industrialised countries. This hampers their ability to respond to market needs and fully exploit market opportunities. Smart enterprises from DC’s are now embracing the new technology to improve their pre-transaction knowledge and to monitor logistics partner’s performance and customer satisfaction. Improved direct communications between customers and suppliers can also help to avoid the loss of a customer when problems do occur.

The message from industrialised country customers is clear: DC enterprises must embrace new technologies, make alliances with those who have already done so, or lose out to those enterprises that do.

Although many DC’s have taken steps to improve the speed and dependability of their communications and supply chain operations, port and transport performance sometimes lags behind that of the industrialised countries. This problem is most significant for land-locked DC’s and places them at an extreme competitive disadvantage. Internet technology is now exposing these problems for what they are; breakdowns in the supply chain, compounded by a lack of integration and communications between supply chain partners.

This same technology can also be the source of the solution. Internet technology can provide affordable and effective integration globally between all partners in a supply pipeline. The benefits are clear and well proven, but the solutions often require inter-institutional and inter-functional consensus and action.

More than 50% of the issues and problems related to achieving benefits from the use of the Internet are nothing to do with technology. They are related to management weaknesses. The Internet is an exciting transportation and communications medium that can connect people and convey products and information almost instantaneously to anywhere in the world. As such, it can publicly expose flaws in human nature and bottlenecks in organisational structures. Supply-chain integration, accurate and reliable information flow, customer responsiveness, market presence and adaptability are unachievable if business decision-makers, entrepreneurs and managers do not adopt a culture of openness and empowerment. Traditional business hierarchies that do not delegate responsibility and accountability are inadequate for achieving profitability in Internet enabled business. They create knowledge traps, information bottlenecks and so greatly reduce the benefits achieved from the Internet and may be the cause of a negative response towards further investments.

The answer is that the digital economy demands new structures and changes in management styles. The principle is similar to that developed for key-account management and is illustrated in the two diagrams below.

Diagram A shows the organisational structure found in most DC’s with large numbers of family-run enterprises and traditional hierarchical management cultures. External relationships and competitive intelligence are strictly controlled and protected. All buyer-seller interactions are channelled through a few senior managers or the owner’s family who "authorise" all communications.

Diagram B shows the type of flat employee-empowered structure commonly found in successful Internet-integrated shareholder-owned enterprises in industrialised economies.

To move from A to B requires a cultural change in management thinking that may take a generation to achieve. Enterprises will also have to shoulder the cost of training employees in such unfamiliar areas as customer service, foreign languages and communications. How can trade support institutions both encourage and reduce the strain of this transition? Until it is accomplished no real advantage will be gained from investment in Internet technology.

A suggested framework for integration in the Digital Economy is provided by the following stages:

The basic asset of any organisation is its people, and today with increasing pressures for organisations to change quickly there is more focus on the individual being the source of the organisational learning. Training is the focus of this first step, in the effective use of the new technologies, both hard and software and in the processes of making effective use of the Internet technologies as they apply to the organisation.

Electronic mail, telephony and even fax are all available at increasingly lower costs using the Internet, but implementing this technology and benefiting from the initial investment and subsequent costs savings requires that the firms employees are effectively trained.

This training should not only include the basic skill set of using the new applications, but should be widened to include Internet based research, collection of customer data and subsequent analysis. An in-depth analysis of both direct competitor and how other companies in the rest of the world use the Internet to leverage their business model should also be used.

During stage one, stage two can be started. This is where the company itself is changed to take advantage of the new medium. This change starts with the development of an enterprise web site, and its promotion to clients and suppliers. The promotion to clients should be done on every traditional form of advertising and promotion that the company currently uses, including business cards, media advertising, letter heads and other printed official stationary.

Content and information are the driving forces of the new economy and this is one of the most important factors to consider when setting up a web site. The other crucial factor is design, both graphic and information design. The site has to be pleasing to look at and the information has to be simple to find. No information should be more than approximately three mouse clicks away from the user and sophisticated imagery or technology should not be used if they do not enhance the use of the site.

Make sure that as with any real company, the virtual company follows up on its promises. The biggest complaints users have are that information is out of date or hard to find and that enquiries or suggestions, complaints or messages are not followed up immediately and fully. Remember that the companies web site will have more exposure than the bricks and mortar one and must receive the same level of professional attention.

Electronic delivery of goods and services is at the core of the Internet based digital economy. Business processes now need to be modified to the on-line models of "buy" and "sell" cycles that involve customers, partners, suppliers and employees. Trade Support institutions, which can become the repositories of information and dissemination points also have to adapt their internal systems and integrate them with their stakeholders. The re-development of business processes making them more Internet ready, together with the development of an Internet site starts to establish an organisation’s info-structure. The building of the organisation’s info-structure allows the organisation to move beyond its physical boundaries and start to take advantage of a more global playing field.

For firms and organisations to become more digitally integrated not only do they have to look at their ability to electronically deliver their goods and services, but they have to integrate their other basic business systems to provide the needed support to this process. This can be a costly and time consuming exercise but the benefits justify the outlay. Providing access to all the needed information from a single point of entry makes the operation more efficient.

Access to the internal network can be provided to selected partners/suppliers and in the case of TSIs, to associates, members and related organisations. By providing this limited access to these third parties, managed through a firewall, the Internet can be used to create a business network, often beginning with some type of information exchange on contracts or projects.

This is a continuation of the previous stage, deepening the level of shared information, and consolidating these links. At this level the systems that are being developed can expose the internal processes to external scrutiny and therefore much care must be taken in development and deployment.

The organisations that are being allowed access should be trusted partners of standing, and legally binding contracts should be put in place that detail each parties rights and obligations.

Building out the network to include the ideas of communities is an essential part of this stage. Further tailoring of the web site to the visitor is an integral part of the essential business transformation. The inclusion of "smarter" web sites, the tracking of the user and collection of information are used to enhance the customer’s experience.

There is also the possibility at this stage to redesign the business processes behind the web site. As the internal processes, originally designed to meet only internal needs are now being used by the customers as well, some redevelopment will most probably be needed. A 1990’s internet site hooked up to a 1980’s business process may cause problems in the 2000s.

At this stage organisations are able and willing to use the opportunities provided by the digital economy to rethink the structure of their business.

This stage will typically only be reached after having gone though and learned lessons from the proceeding stages. Here, the Internet is an integral part of the organisations systems, its processes and above all, its thinking. It has become a board-level consideration.

By now, the company or organisation will be in the process of, or will have re-examined, every aspect of its relationship with its customers and business partners. It will have re-thought and re-defined what products and services it offers, how it offers the products and services and who the customers and trusted business partners are.

Exporters in developing countries are responding slowly to the challenges of the digital economy. The main reasons for this have been identified as:

Lack of awareness;

Lack of trust in the new system – fearing loss of confidentiality, they prefer to use traditional communications media;

Cost of computer equipment and software;

High maintenance costs – Internet charges and IT staff wages.

Some additional problems relate to the environment in which the businesses are operating. In many countries there does not yet exist the legal and financial infrastructure to facilitate e-business, reliable telecommunications and energy services and a supportive Government policy.

Export enterprises have made progress in becoming computerised to improve their financial and administrative management. They go online to provide e-mail and improve their access to information and prepare web-sites to increase their visibility. Even in the most developed of developing countries, like Singapore, only a relatively small percentage of exporters are engaged in full-fledged e-commerce and these are mainly the subsidiaries of multinational corporations.

Trade Promotion Organisations (TPOs) and other traditional TSIs (e.g. exporters associations, chambers of commerce etc.) are facing a major task in trying to bring their client enterprises into the digital economy. Many TSIs are promoting the importance of e-business by holding seminars and workshops; they are themselves offering more online services and upgrading their existing services through the use of the Internet e.g. trade information, overseas representation, virtual trade fairs etc.

Recognising the many-functional nature of the task many governments have created national committees or entirely new agencies to spearhead this effort, e.g. the Multimedia Development Corporation (MDC) in Malaysia and the Infocomm Development Authority (IDA) in Singapore. In addition, new marketing "dot.coms" are being started by entrepreneurs, who sense an opportunity, or by TSIs which recognise the need to help SMEs prepare and promote an e-business website E.g. Mybiz, Mtex etcetera.

3. International Development Agencies

International Development agencies, like the ITC, are all now aware of the importance of the new information-communications era and its implications for DCs. There is a concerted effort to try and mitigate the real danger of yet another disadvantage for emerging economies. However, the role of such agencies is not yet very clear. Dissemination of information about the new technological developments and the provision of guidance on how to proceed by the transfer of best practice are two of many possible forms of assistance. But the question remains: "What can be done with limited resources in a field which is stretching the resources of even wealthy countries and major MNCs?" ITC’s planned Executive Forum is just one of many such activities being undertaken by development agencies to ensure that the issues are well articulated and understood by developing country planners.