III.a. B2C E-Commerce: E-COMMERCE AND SMALL ENTREPRENEURS

To date, much discussion has focused on B2C applications for OECD entrepreneurs, but there is growing evidence of a significant potential for developing countries, notably artisans in traditionally low technology sectors13. Many if not most such artisans are women living in remote villages. Indeed, their very isolation may be one reason that their crafts have managed to survive if not flourish. Wealthy consumers in OECD countries have long prized their work, and as more OECD citizens have joined the ranks of the well-to-do, the market for traditional crafts has grown apace. Expatriates from developing countries constitute another target market, at the same time that they can provide entry points into the wider OECD markets. By virtue of the inaccessibility of many craft producers, transport and distribution has accounted for a large share of the costs of bringing their wares to international markets. With the advent of the Web, artisans have the possibility to advertise and even to sell their products directly to customers in OECD markets, posting images of the products on sale, providing descriptions of the history of the craft and of the production process, taking custom orders14, and negotiating prices. While they must still arrange for transport and delivery to customers, the Web allows them to exert greater control over the supply chain and, in principle, retain a larger share of the revenues from final sale. At the very least, the producers should be able to bargain away any price advantage enjoyed by middlemen by virtue of asymmetric information; they may also be able to eliminate one or more layers of middlemen (a process known as disintermediation).

A Guyanan weavers’ co-operative offers one example of the potential for global marketing offered by the Web15. Using 19th century accounts and illustrations of the hammocks made by European travellers, an organisation formed by 300 women from the Wapishana and Macushi tribes revived the ancient art of hammock weaving, reintroducing the process from cultivating the cotton on small family plots to hand-weaving the large brown-and-white hammocks. They then took their wares online, hiring a young member to create a Web site. By the mid-1990s, the weavers, known as the Rupununi Weavers Society, had sold hammocks to Queen Elizabeth, Prince Phillip, the Smithsonian Institute, and the British Museum, which called it “one of the most perfect forms of indigenous art purchased this century”. Since mid-1998, the society has sold 20 hammocks over the Internet to people around the world for as much as $1 000 apiece. There are many other such cases, including collective efforts such as the International Federation for Alternative Trade (IFAT), which is comprised of more than 100 organisations in 42 countries (including more than 70 organisations in developing countries). IFAT members collectively market from $200-400 million a year in handicrafts and agricultural goods from low income countries and provide support to craft producers in the area of logistics, quality control, packing and export16.

Manufacturing production for the world market may take different forms, depending on relative bargaining power within the supply chain and where rents can be captured.

Many chains are characterised by a dominant party (or sometimes parties) who becomes responsible for upgrading activities within individual links and co-ordinating interaction between the links. In order to contribute to value added in each of the full range of activities that are required to bring a product from conception to consumption, a firm would have to develop capabilities in design, distribution, marketing, and post-sale support. Whether SMEs that are bulk producing items like clothing, footwear and leather goods, furniture, etc., stand to reap the same price dividend as artisans from direct Internet selling is not clear. In the first place, they are likely to be less geographically isolated and therefore less handicapped by either limited price information or logistical problems moving their products to market. In this sense, for them the marginal benefits from accessing the world market via the Web may be lower. Second, they are unlikely to benefit to the same degree, if at all, from the “feel-good” factor that makes some OECD consumers willing to pay a premium to help a worthy cause like preserving traditional cultures or the environment. Third, they may not be able to command a significant price premium unless they can offer innovative designs, although the Internet can be a useful tool to tap remotely international design expertise. Indeed, this is already being done on behalf of artisans, partly on a pro bono basis and partly on a fee-for-service basis, helping them adapt designs to changing market fashions17. Similarly, clothing and footwear manufacturers in developing countries may be (and in some cases are) supplied electronically the patterns and specifications of the major designer labels that buy and market their “wears”. In this case, though, the design premium is captured by the fashion houses and not the developing country producers. It remains to be seen whether Web presence offers them greater opportunity to establish their own global brand recognition.

While establishing an Internet storefront can be relatively low cost, marketing can still be quite costly. Because of the anonymity involved in e-commerce and the wide range of potential e-suppliers of certain products, reputation effects and brand recognition may matter even more in the virtual world than in the real one. If so, this could raise new barriers to entry that may partially negate the benefits of being able to afford a customised Web storefront. Moreover, establishing a website is not the same as having a known, oftvisited site. Besides ensuring that the website is informative and user-friendly, the webmaster must ensure that content is frequently updated, that search engines direct browsers with specific sorts of requests to that site on a priority basis, and that news of the site gets widely disseminated via the electronic grapevine. Only then can a website expect to generate significant advertising revenue. Also, the experience of OECD countries, where many new economy companies rank among the largest print and broadcast media advertisers, shows that even the best e-marketing strategy does not substitute for traditional media. Indeed, such advertising is normally viewed as an unavoidable sunk cost to establish brand name recognition, in the expectation that this will pay for itself in a large flow of future web advertising and other online revenue.

OECD DEVELOPMENT CENTRE Working Paper No. 164 E-COMMERCE FOR DEVELOPMENT: PROSPECTS AND POLICY ISSUES by Andrea Goldstein and David O’Connor To learn more about this author, visit OECD Development Centre's Website.

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