UNITED NATIONS

E C O N O M IC CO M M ISSIO N FOR L A T IN A M E R IC A A N D THE C A R IB B E A N

E C LA C - WASHINGTON OFFICE
LC/WAS/R. 22

ELECTRONIC COMMERCE, INTERNATIONAL TRADE AND EMPLOYMENT:

REVIEW OF THE ISSUES

April 8, 2002

900032530

900032530 - BIBLIOTECA CEPAL

This paper was prepared by the Washington O ffice o f the E conom ic Com m ission for Latin Am erica
and the Caribbean (E C L A C ) pursuant Recommendation # 8 o f the Presidential Declaration o f the X V
Summit o f the R io Group entitled Latin America towards the Information Society: the Challenges on
Social Equity, Competitiveness andEmployment.
 Table of Contents

Introduction.......................................................................................................................................................3

I. Electronic Com m erce: A n overview .........................................................................................4

1.1 What is electronic com m erce?.................................................................................................. 4

1.2 The effects o f e-com m erce on the e con om y ...........................................................................7

1.2.1 Electronic com m erce and the firm ............................................................................. 7

1.2.2 E-com m erce and productivity..................................................................................... 8

II. E-Com m erce Indicators: What do they reveal?................................................................................ 10

2.1 Internet Penetration....................................................................................................................11

2.2 E -C om m erce............................................................................................................................... 13

2.3 Digital D ivide..............................................................................................................................16

III. Electronic Com m erce, International Trade and Em ploym ent....................................................... 19

3.1 International T rade ............................................................................................................... 19

3.2 Employment and E qu ity .......................................................................................................... 21

IV. Concluding Remarks..............................................................................................................................25

B ibliograph y .................................................................................................................................................. 27

2
Introduction

Electronic com m erce is a relatively new phenomenon. Its rapid expansion since the mid-

1990s has drawn attention to the impact it w ill have on promoting trade, econom ic growth and

development. In addition to the many benefits associated with e-com m erce, concern has been

rising in regards to the widening technological gap, ‘ the digital divide’ among countries and

sectors within countries.

Electronic com m erce and the Internet are posed to stimulate trade by lowering the cost o f

gathering and processing information from distant markets, by creating global access to specific

goods and services and by making it possible to send over the Internet goods and services that

traditionally required physical delivery.

Electronic com m erce is expected to directly and indirectly create and destroy job s. N ew

jo b s w ill be generated in the information and communication technologies sector, while the

indirect creation o f jo b s w ill occur via increased demand and productivity. A t the same time,

some reallocation and destruction o f jobs are expected as a consequence o f changes in the w ay o f

doing business. The net effect on employment w ill be the resultant o f a com plex set o f

interactions and w ill by no means be uniform across countries, geographic areas, industries or

skill groups.

This paper w ill review the issues relevant to the impact o f e-com m erce on international

trade and employment. A ny discussion on these issues is necessarily tentative since evidence o f

the impact o f electronic com m erce on econom ic and social processes is only beginning to

accumulate. The paper is organized as follow s:

Section I, provides an overview o f electronic com m erce and its econom y-w ide effects.

Section II, includes some indicators that shed light on the growth e-com m erce and the overall

state o f e-readiness in the region. Section III, highlights the relevant issues dealing with the

impact o f e-com m erce on trade and employment. Section IV, presents concluding remarks.

3
I. Electronic Commerce: An overview

A s electronic-com m erce (e-com m erce) grows and further exploits the attributes o f the

Internet, it w ill likely have significant effects on national econom ies and industry structure. E-

com m erce has com e to take on two important roles; first as a more effective and efficient conduit

and aggregator o f information, and second, as a potential mechanism for the replacement o f

many econom ic activities once performed within a business enterprise by those that can be done

by outside suppliers that compete with each other to execute these activities. In response to this

increased level o f outsourcing opportunities, businesses w ill exploit the benefits o f e-com m erce

b y decoupling as many links o f their production chain as possible in order to seek the most

efficient and low cost supplier within the e-marketplace. Given as the Internet has a global

reach, these new e-marketplaces have fast becom e a product o f globalization, leading the Internet

and e-com m erce to further the process o f global integration.

1.1 What is electronic commerce?

In its most basic form, e-com m erce is any transaction made over the Internet. M ost often

this involves the transfer o f goods, services, or information. Com m on e-com m erce m odels

include:

• Business-to-business e-com m erce, companies interacting with other

companies, seeking supplier bids, fulfilling orders, receiving invoices and

making payments using the Internet as a backbone;

• Business-to-consumer e-com m erce, retail services between companies and

customers;

• Consumer-to-consumer e-com m erce, trade in goods, services and even

information between tw o or more consumers. Beyond the sale o f goods,

4
 through auction sites like eBay or Y ahoo!, this m odel includes such “ human

intelligence” services sites like K [Link] and [Link]; and

• Information retrieval, from public sites such as government agencies, libraries

or museums or proprietary sites such as those operated b y online banking

services or brokerages.

The Internet is only the latest stage in advances in information and c o mmunication

technologies (ICTs) that have progressively made information more accessible, faster to gather,

less expensive to consume, and easier to analyze effectively. Due to the generally low cost o f

the technology that makes access to the Internet possible, it is more universally affordable than

other previous electronic means o f communication or information technology.

W hile using electronic means to communicate and exchange goods and services (i.e.

bulletin board systems, e-mail) is not new, today’ s e-com m erce m odel is more effective because

it is exploits the best qualities o f the Internet. The Internet’ s ubiquity, interactivity, ability to

integrate data platforms and distribute intelligence allows e-com m erce to discover new markets

and consumers, foster econom ic specialization and increase productivity. In this regard then, e-

com m erce only accelerates the trend toward globalization, integration and specialization, that has

been underway for many years.

The Internet is a powerful enabler o f e-com m erce. Its most salient

characteristics are:

Reach. The Internet is becom ing nearly ubiquitous. Its ease o f access and low

cost has aided its rapid diffusion. A ny end user (with the appropriate

equipment and software) with access to a communications network can gain

access to the Internet, regardless o f geographical location and time o f day.

The ubiquity o f the Internet defines the potential size o f the e-com m erce

market. The greater the reach o f the Internet, the larger the potential market

for e-com m erce.

5
Speed. The Internet provides a rapid form o f communications. Large

quantities o f data can be transmitted, retrieved and processed very fast, and

getting faster with each new technological advance. The speed o f transactions

allows for efficiencies (low er search cost) on the demand side o f the market

and even greater ones (efficient management) on the supply side.

Interaction. Standard Internet protocols facilitate considerable interactivity

between users. The ability o f the Internet to allow individuals anywhere in the

w orld to share information, ideas, data through a medium allows them to

interact as much as possible and in as many ways as possible. From a

business m odel perspective, exploiting this interactivity is key. N ow goods

and services can be tailored-made to the individual customer’ s preferences,

including advertising, special offers, and recommendations.

Media Integration. Internet protocols allow for the integration o f several data
platforms, such as voice, video and text, onto one network. B y allowing more

efficient and effective utilization o f all types o f data from various platforms,

the integration qualities o f the Internet allow firms to better manage com plex

production processes, and can even achieve great savings with lower fixed and

marginal costs. For consumers, the Internet’ s integration capabilities expand

the way they can retrieve and provide data.

Intelligence at the edges. Finally, the Internet’ s most important feature is that
its intelligence lies at the edges o f the network, where the end users are.

Intelligence at the edges means that the Internet has the ability, distributed

throughout the Internet, to retrieve, store, analyze and process information.

Intelligence at the edges o f these networks, allows for innovation, creativity

and ingenuity that could potentially com e from any end user connected to the

Internet. E-com m erce w ill continue to evolve as quickly as innovators at the

6
 edges o f the Internet can design a business idea and code it into software

compatible to Internet Protocols.

1.2 The effects of e-commerce on the economy

Information and communications networks are playing a significant role in the

reorganization o f production and the conduct o f business. In particular, the Internet and e-

com m erce are transforming the way firms operate by redefining how back-end operations -

product design and development, procurement, production, inventory, distribution, after-sales

service support, and even marketing - are conducted. In this process, the Internet and e-

com m erce alter the roles and relationships o f various parties, fostering new supply networks,

services and business models. The end results are efficiency improvements, better asset

utilization, faster time to market, reduction in total order fulfillment times, and enhanced

customer service. Consequently, information and communication technologies are associated

with econom y-w ide productivity improvements and gains in welfare.

1.2.1 Electronic commerce and the firm

Over the past two decades, a combination o f technological and market forces have

com pelled companies to examine and reinvent their supply chain strategies. T o stay competitive,

firms have searched for greater coordination and collaboration among supply chain partners

(supply chain management or supply chain integration) to wring out the inefficiencies that might

exist within firm transactions. M any o f the transactions that were done internally can now be

done externally, via electronic markets. The Internet and its applications have thus served to

enhance the process to increase efficiencies in supply chain management.

In addition, these technologies will allow companies to further push customization to

new dimensions. Competition on the basis o f customized orders requires the management o f

com plicated processes and specialized information and communications capabilities. For

example som e firms, w ould com pile information on the characteristics o f the g ood a customer

7
requires, gather the appropriate components from a variety o f producers and finally integrate all

the components to meet customer specifications. These “ integrators o f components” will be

heavily dependent on the capabilities o f the Internet to process and execute the specific market

demands that arise.

M oreover, ICTs allows firms to identify the market for the inputs they need in production

and substantially reduces the cost o f gathering and processing information about the prices and

input characteristics o f different goods and services. N ew econom ic agents, such as, specialized

suppliers, will begin to participate in e-markets for business. E-com m erce, and specifically e-

markets, are expected to increase competition among these and other potential suppliers bidding

to provide outsource goods and services.

In addition, information and communication technologies (better, cheaper and faster

voice, data and video communications) make it easier to integrate and control remote operations

without incurring prohibitive costs. Better ICTs enable optimized operations to be established in

low cost domestic locations and/or countries where comparative advantage is present for the

outsourced task. E-com m erce thus facilitates the efforts o f companies to separate and spin out

every conceivable activity in the production process to entities outside the firm (i.e., encourages

outsourcing to happen at a global scale.) Costs o f transport o f intermediate products and/or the

need to maintain cost-effective managerial control over remote operations both within and across

national boundaries are more manageable in the world o f e-com m erce.

1.2.2 E-commerce and productivity

Evidence from countries were the use o f information and communication technologies is

widespread suggests substantial improvements in productivity. In an analysis o f the contribution

o f information and communications technology to econom ic growth in nine OECD countries,

C olecchia and Schreyer (2001) found that over the past two decades, ICTs contributed between

0.2 and 0.5% per year to econom ic growth. During the second half o f the 1990s, this
contribution rose to 0.3 to 0.9% per year. Effects were the largest in the United States, follow ed

by Australia, Finland and Canada.

M oreover, several studies conclude that information and communication technologies

were an important factor in improving the overall efficiency o f labor and capital, (multifactor

productivity) in the United States (Oliner and Sichel (2000), and Jorgenson and Stiroh (2000)).

M ost importantly, productivity increased not only in the information and communication

producing sectors but in sectors o f the econom y that do not produce information and

communications technology (Council o f Econom ic Advisors 2001; and Stiroh 2001). In other

words, users o f these technologies also benefited from increased productivity. In addition, the

data seems to reveal that workers in the US may have also benefited from increased productivity

induced by e-com m erce and ICTs (Baily, 2001).

M ore importantly, there is no indication that the existence o f a large ICT producing

industry is either a necessary or a sufficient condition to successfully experience the growth

effects o f ICT. Rather, ICT diffusion, not the existence o f an ICT producing sector, appears as

the relevant element (C olecchia and Schreyer, 2001).

9
II. E-Commerce Indicators: What do they reveal?

The Internet, which has expanded explosively in the past few years, is now fuelling the

growth o f e-com m erce. M ore and more users around the world are using the Internet to enter

into com m ercial transactions. Although entry costs have decreased significantly, growth,

however, has not been uniform. The geographic distribution o f connections to the Internet is

heavily concentrated in developed countries, and, among those, especially the United States.

D eveloping countries, on the other hand, have been less intensive users o f the Internet and e-

com m erce.

The worldwide trend into cyberspace was initiated in the late 1980’ s, with the evolution

o f the W orld W ide W eb (W W W ), allowing for the online transmissions o f webpages, making the

once research-oriented systerji more accessible for commercial and private use. B y 1991, the

number o f users had reached about 4.5 million; by 1996, 60 m illion and by 2000 it had reached

367 million. Internet users are estimated to be near 600 m illion today, around 5% o f the

population and growth is expected to continue though at a slower rate.

Internet U s e r P opulation, b y R e gio n , 1997-2000

(M illion s)

World

Africa

United States

Cmnda

Europe

Asia/Oceania

Latin America & Caribbean

0 50 100 150 200 250 300 350 400

Source: ITU, A m eric a s Telecom m unication Indicators, 2000.

10
 2.1 Internet Penetration

Internet hosts, which serve as the central nervous system o f the Internet, routing traffic,

exchanging e-mails and providing information for users, are largely concentrated in the United

States. For the year 2000, the United States had 80.5 million Internet hosts, about 3 thousand

per 10 thousand inhabitants and accounted for over 75% o f total hosts worldwide. Furthermore,

almost almost 100 m illion users were located in the United States in 2001.

Growth of Internet Hosts, by Region, 1995-1999

(Percentage average annual growth)

"'[ r ~jll6
Latin America

-llllllll
Asia
61

Africa 18

North America

E urop e ........ ..... 3*

120 140

Source: ITU, Americas Telecommunication Indicators, 2000.

11
 Latin America and the Caribbean: Selected Indicators
Hosts per 10,000 Users per 10,000 PC’s per 100
people people people
Uruguay 162.02 1,108.78 10.49
Argentina 72.98 675.09 5.13
Mexico 56.55 274.31 5.06
Panama 53.13 317.01 3.70
Brazil 51.53 293.92 4.41
Trinidad & Tobago 50.96 772.58 6.18
Chile 48.81 1,657.65 8.23
Antigua & Barbuda 40.95 652.03
Aruba 28.09 407.03
Dominica 24.24 261.44 7.13
Costa Rica 18.29 621.43 14.91
Guadeloupe 12.46 175.44 19.74
Belize 12.20 624.47 12.49
Colombia 11.06 207.46 3.54
Dominican Republic 9.24 64.30
Martinique 8.91 127.46 12.66
Venezuela 6.68 393.05 4.55
Jamaica 5.71 310.55 4.66
Neth. Antilles 5.11 93.14
Guatemala 4.92 70.27 1.14
Peru 4.17 974.20 4.09
Barbados 3.74 373.83 8.22
Nicaragua 2.76 98.54 .89
Paraguay 2.36 72.78 1.27
St. Lucia 2.18 195.18 14.10
Bolivia 1.59 144.07 1.68
St. Kitts & Nevis 1.04 516.10 18.17
El Salvador .92 79.67 1.91
Bahamas .79 431.58
Guyana .69 46.46 2.56
Cuba .59 53.58 1.07
Grenada .32 435.56 12.71
Suriname .23 269.79
Honduras .20 61.68 1.08
Ecuador .18 142.34 2.17
St. Vincent .18 308.57 10.58
Haiti 7.42
Source: ITU, 2002.

Internet use in Latin Am erica has been growing faster than in any other region o f the

world. In 2000, Internet hosts in L A C reached nearly 2 m illion after surpassing the 1 m illion

mark in 1999. The number o f users is estimated to be nearly 19 m illion in 2000, an impressive

increase from just half a m illion in 1995. Brazil is the dominant Internet market in Latin

Am erica with over 5 m illion users in 2000 and nearly 900 thousand Internet hosts. However, on

12
a per capita basis, Uruguay is the leader with 162 internet hosts per 10,000 people, follow ed by

Argentina, M exico, Panama and Brazil, with 73, 57, 53 and 51 per 10,000 people respectively

(ITU, Telecommunications Indicators, 2002).

2.2 E-Commerce

Continued growth o f Internet-based e-com m erce worldwide is projected for 2002,

reaching $1 trillion in sales. This represents an increase o f 68% from 2001 and an even more

pronounced increase from the 1996 Internet sales o f $2-3 billion, (ID C, 2002). The regional

distribution o f e -co m m erce is largely concentrated in the United States. About 70% o f Internet

w eb sites are located in the United States, another 8% is reported for Canada, 14% for Europe,

4 % for Asia/Pacific and 2 % for

.r , t :■ » , . Growing Networks for Electronic Commerce Worldwide
A frica and Latin Am erica and the

Caribbean. Only a small Category 1991 1996 2000 2002

Telephone main lines 545.0 741.1 970 1115
percentage o f the population in the
Cellular subscribers 16.3 135.0 650 1000
region used the Internet in 2000, Personal Computers 123.0 245.0 500 670
Internet host computers 0.7 16.1 107 NA
about 2.7% , total spending only
Personal computers with Internet access 4.5 60.0 385 600
reached one fifth o f e-com m erce Source: ITU, "Telecommunication Indicators Update", (2000).

expenditures in the U.S.

B2B , the main e-com m erce activity in the region, accounts for 82% o f all online

transactions in 2001, and is expected to grow to 88%, with transactions totaling $58.4 billion in

2004 (InfoAm ericas). The B 2B average order in Latin Am erica and the Caribbean is about

$1,500. Costs o f delivery are more than offset by lower product prices since the buyer deals

directly with the manufacturer, rather than a com plex multi-level distribution chain. However,

international shipping costs in the region are about 20 to 60% higher than the prevailing rates in

the U.S. and Europe.

H owever, most o f the B2B e-com m erce sites in the region, about 88% , are concentrated

in Brazil. This is due in part to Brazil’ s leading online banking services, market size and a

sophisticated bank wire system.

13
 M ost online purchases are conducted via sites outside o f the region. For example, about

70% o f B 2B online purchases initiated in M exico, are conducted through foreign websites,

mainly in the U.S. (InfoAm ericas).

The B 2C e-com m erce in Latin America and the Caribbean still remains in its early stages

with most customers com ing from the upper income and higher education levels. Consumers

favor sites in the U.S. and other developed countries since product selection seems more

important than local language and support. In the region almost 60% o f online purchases are

done at foreign sites, and the average purchase price is $70, but logistics costs such as brokerage

and customs fees and small

package handling can double the

Latin American B2B Market 1999-2004
customer’ s costs. The leading

courier firms have been targeting

the B 2B market rather that the

B 2C market, one o f the main

reasons is that delivery is far

simpler to businesses than to

private consumers (Couriers take

2 visits on average to households

to com plete a B 2C delivery

order, while B 2B deliveries

average about 1.2 visits).

Source: eMarketer; InfoAmericas Jan 2002.

14
 O n l i n e P u r c h a s e s in L a tin A m e r i c a

Latin America
Argentina

Brazil Mexico
Domestic
40%

Foreign
60%

Source: InfoAmericas, 2000.

In Brazil, import tariffs and customs fees have maintained foreign sites to a 39% market

share. Brazil represents more than two thirds o f the B 2C market in Latin America, with $906

m illion in revenues for 2001. M exico and Argentina follow with $134 and $119 m illion

respectively and Chile accounted for $45 m illion o f online revenues in 2001. The rest o f the

region had revenues o f $77 million.

A ny number o f factors has influenced the slow growth o f B 2C e-com m erce in the region.

Sites seem to have difficulty building customer loyalty; only about 6.7% o f those that purchase

on-line becom e regular customers, as compared to about one third o f U.S. online shoppers.

Often customers abandon w eb purchases prior to completing the sale, most often complaining

about, slow dial up connections. Furthermore, 35% o f transactions are completed inaccurately

and orders are sent to wrong addresses, double billed or never delivered.

15
 Latin American B2C Market 2001

Brazil Mexico Argentina Chile Other Total

Source: BCG, Nov. 2001. Countries

Online merchants in the region generally lack some of the core capabilities needed for
safe and efficient purchases, such as, automated purchase software, secure web environments
and integrated inventory and shipping solutions (InfoAmericas, 2000). One of the key factors
restricting the growth of B2C e-commerce in the region is the limited protection offered to
consumers in regard to the use of credit cards and on-line payment systems to reduce the risk of
purchasing via the Internet. Two-thirds of credit card holders are hesitant to use them for online
purchases from Latin American sites.

2.3 Digital Divide

The Digital Divide refers to the gap in access to information and communication
technology. The gap between countries and/or populations that are information rich or those that
are information poor can be measured by various indicators, including the access to telephone
lines, personal computers, mobile phones and Internet connections.

16
 The availability of fixed
Telecom Access in Latin American and the Caribbean
telephone lines is one of the most
important measures of ICT Countries Telephone Celular mobile
lines per 100 lines per 100
access, since it allows voice people people
communications and connectivity Antigua & Barbuda 46.80 2.06
Guadeloupe 44.69 19.59
to the Internet. However, in some Martinique 43.82 26.00
countries mobile phones are St. Kitts & Nevis 43.82 1.13
Barbados 42.18 4.48
substituting for fixed lines, due to Bahamas 36.90 5.28
lower start-up costs. As this trend Aruba 36.69 5.72
Neth. Antilles 36.59 7.52
for mobile phones continues, the Grenada 29.78 1.53
Uruguay 27.07 9.54
number of countries with more
St. Lucia 26.57 1.25
mobile than fixed telephone Dominica 25.23 .86
Trinidad & Tobago 20.58 2.05
subscribers is increasing. By Costa Rica 20.41 3.64
2001, there were seven countries Argentina 20.11 7.0
St. Vincent 18.79 .67
in the region where this transition Jamaica 18.68 3.11
had taken place. Furthermore, it Chile 18.57 6.5
Suriname 17.05 4.21
is estimated that by 2003, there Panama 16.45 8.61
will be more mobile than fixed Colombia 16.04 7.54
Brazil 14.87 8.95
telephone subscribers in the Belize 13.75 1.49
region. Mexico 11.22 7.83
Venezuela 10.91 14.34
Dominican Republic 9.28 3.11
Ecuador 9.10 3.09
Personal computer
El Salvador 7.61 6.22
penetration has grown in the last Guyana 7.49 .17
Peru 6.69 3.92
few years to reach 4.44 per 100 Bolivia 5.80 4.93
people. The Internet penetration Paraguay 5.54 8.13
Guatemala 5.46 3.17
rate in the region is about 3.4 Honduras 4.42 1.24
users per 100 people on average. Cuba 3.89 .05
Nicaragua 2.98 1.40
In North America it’ s about 10 Haiti .8
Source: ITU, 2000
times higher.

17
 While investment in telecommunications during the last decade has been significant, so
has the gap between industrialized and developing countries in terms of accessibility to services.
Average fixed line teledensity (the number of fixed telephone lines per 100 inhabitants) was
estimated by the ITU, to
A c c e s s C o s t s per M onth 2000
be about 15%, reaching
80

70
about 80 million telephone
□ Computer amortization □

60
lines in Latin America.
£ 50 ......... 45
c
o I
E 40 In addition, computers and
0)
a
13
w 30 22 Internet access costs are
20 ------------
falling, as well as the
26
10 - ■ ie .
introduction of flexible
0-
Argentina Brazil Mexico pricing plans and the
C! T*7r~vTTXI\
reduction of local
telephone call charges for Internet usage in some countries. Internet Service Provider (ISP)
rates, computer costs plus telephone charges have fallen 23%, 20% and 8% in Argentina, Brazil
and Mexico respectively from 1999 to 2000 (BCG, Oct. 2000). Many countries have also
initiated Internet terminals in public locations, as well as cybercafés.

Finally, as indicated by the chart below, penetration rate differentials between the upper
and middle class and the overall population is significant.

Internet Penetration in Latin Am erica 2000

Brazil

Mexico

Argentina

Chile

0 5 10 15 20 25 30 35
Source: ITU,AmeicasTelecommunicationIndicators2000

18
III. Electronic Commerce, International Trade and Employment

E-commerce, through the Internet, will increasingly permeate human activity altering
relations and transactions in the economy, stimulating trade and bringing about fundamental yet
uncertain changes in the labor market.

3.1 International Trade

Advancements in information and communication technologies have the potential to
reduce considerably the costs associated with gathering and processing information. By making
information more readily available to all economic agents, information and communications
technologies reduce the costs associated with trade and will likely stimulate it, both locally and
internationally.

Collecting information is a costly activity, particularly so when it involves acquiring

information across national borders. In fact, these costs can be so high that they can be
considered a substantial barrier to trade. Finding the right supplier, specifying the product’s
requirements and quality, negotiating the price, arranging deliveries and marketing products is
also very costly. With the Internet and e-commerce applications, a whole range of these
activities can occur without having buyer and seller in close physical proximity. The use of
electronic means and the Internet can make the process of initiating and doing trade a lot easier,
faster, and less expensive. In this respect, the Internet will likely promote trade much in the
same way as lifting other trade barriers would. Thus, it is expected that, the volume of
international trade will likely increase.

The Internet, especially when organized via electronic markets through e-commerce
applications, reduces information costs and allows consumers and sellers to be matched and
interact electronically, reducing the significance of geographic proximity and traditional business
networks. Freund and Weinhold (1999) found ample evidence that, development of global
markets via the Internet makes historical linkages less important and suggest that countries with
the fewest past trade links - most likely developing countries - have the most to gain from the
Internet.

19
 However, whether e-commerce promote international trade will depend on the nature of
the good. On the one hand, a number of products that traditionally have required physical
delivery, can be delivered to a customer via a network in digital form. Examples of these include
media products, such as text, film and computer software. On the other hand, most of the goods
traded internationally are not deliverable in digital form and therefore transportation costs will
continue to play a significant role.

In this regard, world trade in digitizable media products amounted to about US$44 billion
in 1996, less than 1 per cent of total world trade. For most countries, trade in digitizable media
products was less than 2% of total trade. The rate of growth of trade in digitizable media
products is high and above the average rate growth of total trade: the growth in trade for
digitizable media products on average was about 10% between 1990-96, 1.5 times faster than
total world merchandise trade. (Mattoo and Schuknecht, 2000).

E-commerce will have a significant impact on trade in services. In fact, it has been
estimated that electronic services could be worth over half a trillion US dollars globally by 2008,
making this sector the fastest growing portion of international trade.

The most relevant change in trade in services is e-commerce’s and information

technology’s ability to make non-tradable services into tradables. Activities that were previously
non-tradable (i.e. research and development (R&D), computing, inventory management, quality
control, accounting, personnel management, secretarial support, marketing, advertising,
distribution, and legal services) will now be traded through the use of e-commerce. All that is
required is that the quality, speed and cost of communication between buyer and seller be
adequate. International cross-border trade in a wide range of services, financial, legal,
telecommunications, customized software, etc, will increasingly be carried out by electronic
means.

As communications costs continue to fall, and as information and communication

networks expand to reach greater numbers of peoples and places, the potential for international

20
outsourcing grows. As a result, outsourcing management and production activities will become
more important.

Obviously, some sectors and activities throughout the world are more prone than others
to be affected by developments in e-commerce. In this respect, there have been attempts to
identify industries or sectors that may be more predisposed to the effects of developments in e-
commerce and technology. For example, Mann (2001), based on criteria that weighed the effect
of cost savings, increases in productivity, industry readiness and product fitness to e-commerce,
has elaborated an index of Internet intensiveness. Preliminary findings based on data from the
United States and Europe suggests that the most Internet intensive sectors are electronic
components, food, pharmaceuticals and forest/paper products. It is likely to expect that in other
regions, these same sectors and industries will be affected by e-commerce via outsourcing. At
the same time, recent evidence suggests that transnational corporations (TNCs) are likely to be
the most intensive users of electronic commerce (Kuwayama, 2001).

3.2 Employment and Equity

Since e-commerce is still a new phenomenon and quantitatively not large, its overall
effect on employment is yet very small and the statistical evidence thus scant (OECD, 1999a).
Thus, presently, any discussion of its effects is necessarily tentative.

As mentioned earlier, e- India Benefits from E-Commerce:

commerce is changing the way of
Telemarketing, helpdesk support, medical
doing business and fostering changes transcription, back-office accounting, payroll
management, maintaining legal databases, insurance
in the organization of work, claim and credit card processing, animation and
including the facilitation of higher-end engineering design — are among the new
services delivered via telephones, computers and the
outsourcing. The state of Internet. The National Association of Software and
Services Companies (NASSCOM) forecasts India's
technology, now allows companies
revenues from information technology-enabled
to obtain work independently of services to multiply by 20 by 2008, to $16.94 billion.
NASSCOM estimates that the Indian IT-enabled
location. With greater ease, firms can services industry employs about 68,000 people, but
forecasts this could rise to 1.1 million by 2008.
take advantage of external labor

21
markets for inputs of short-term duration. Therefore locations, both domestically and
internationally, that have the adequate mix of infrastructure and skills in their labor markets can
benefit by participation in new global value chains, and in product markets such as software
development or data processing.

As e-commerce continues expanding, its impact on employment and wages will be the
result of a complex set of interactive forces. Electronic commerce is expected to directly and
indirectly create new jobs as well as cause job losses. New jobs will be gained in information-
related goods and services, entertainment, software and digital products, for instance. Indirect
creation of jobs will occur via increased demand and productivity. Jobs will be lost when e-
commerce substitutes for the traditional way of doing business. The jobs most likely affected, as
preliminary evidence suggests, are those in the retail sector, postal offices and travel agencies.
However, the effects will not be uniform across countries, geographic areas, industries or skill
groups.

Evidence for the United States and the European Union reveals that employment in ICT-
related industries and in the finance, business and commerce-related sectors account for almost
one- third and one-fourth of total employment, respectively. More importantly, they accounted
for 28% and 35% of job creation in 1993-96 (OECD, 1999). The data also reveals that jobs in
travel agencies, retail and post offices were lost, however.

In addition to the net employment gains and losses, e-commerce will have an impact on
the demand for certain skills. The evidence suggests that ICTs and e-commerce demand a whole
set of new skills where responsibilities and decision-making becomes more information based.
This “skilled-bias technical change” generates demand for individuals with skills and talents to
manage not only the information technology but also to exploit the large quantities of
information about customer demands and production processes. In fact, preliminary findings in
Brenashan et al (1999) note that new technologies will increase the demand for high-skilled
workers to run them, but also of new managers that have to make decision in more information­
intensive organizations.

22
 This increased demand for high-skill workers, with augmented managerial and executive
responsibilities and a greater need for specialized expertise, who will command higher wages is
viewed by some researchers as a cause of worsening of income distribution. Evidence for the
U.S. seems to suggest that demand has shifted from low and middle-wage occupations and skills
toward highly rewarded jobs and tasks requiring specific talent, training or management ability.
Much of the labor demand shift is being explained by skill-biased technical change (Brenashan,
1999). Overall, low wage, low-skill production, did not enjoy the wage increases that IT-
intensive, high productivity growth industries experienced. Thus, real wages grew in IT-
intensive industries, were wages were already relatively high and did not change in IT-poor
industries that faced workforce reductions and were already employing low-wage workers.

The overall relationship between

Costa Rica: Job creation in the ICT sector
income distribution and the widespread
Recognizing the value of its well educated
adoption of e-commerce and information
labor force, its solid institutions and
technologies is under scrutiny. On the one infrastructure, Costa Rica sought to bring in
foreign direct investment that would
hand, in the United States and United encourage highly competitive multinational
Kingdom, countries with widespread use of firms in the ICT sector. In attracting the INTEL
Corporation, some 4500 new jobs were
these technologies, the period in which created in the ICT sector and another 9000 in
the ICT using sector. Overall, the ICT sector
information technologies were taking off now employs about 1.4% of all the occupied
seems to have coincided with the time population in Costa Rica.

income distribution became more skewed. In addition to the impact of the shift in labor demand
on income distribution, consumption baskets of upper income households contained relatively
more of the goods and services that benefit the most of increased productivity from information
technology industries. In comparison, lower income household baskets are represented by higher
proportions of non-tradables such as housing and transportation and therefore do not benefit
from the real income increases that come from falling prices in goods and services produced and
distributed with heavy IT processes.

However, income distribution effects described above are likely to be temporary as

information and communication technologies become more diffuse in sectors where lower
income workers are employed and in firms and industries that service these workers as well.

23
 It is premature to speculate on the employment effects of e-commerce on developing
countries in general and the region in particular. As in the case of countries where e-commerce
is more pervasive, it is expected that new jobs will be created, especially in the service sectors.
Demand would be expected to increase for workers in labor-intensive high-skilled services and
information-intensive sectors. Essential ICT skills, software development, etc., will be in ever-
increasing demand.

24
IV. Concluding Remarks

Electronic commerce, though growing at very fast rates, is still a small fraction o f the
world trade in goods and services. However, as electronic commerce continues spreading and
more goods and services become suitable for electronic delivery, its impact on trade and
employment will become more dominant.

In the region, electronic commerce has been spreading rapidly, though wide differences
exist across and within countries. Though the development o f e-commerce may be in its early
stages, the risk o f being left out o f the electronic global market demands consideration. While
much has been accomplished throughout the region, the realization o f the full potential o f e-
commerce will require addressing further challenges. Among them:

Information Infrastructure. Building and expanding the information

infrastructure on which the e-commerce economy depends is the first step in
realizing the e-commerce opportunity. This infrastructure necessitates the
availability o f high-speed interactive communication infrastructures that facilitate
access, low network delay and reasonable access and usage prices to both
customers and service providers.

Regulatory Frameworks. Proper regulatory frameworks need to be devised with

the capability o f fostering competition, ensuring an efficient allocation o f
resources, and protecting the interests o f consumers.

Legal Security. Security and privacy are fundamental to support the expansion
o f electronic commerce and promote user and consumer trust in information
systems and electronic transactions. The protection o f availability, confidentiality
and integrity o f information systems and the data that is stored and transmitted is
the most pressing security concern. Protecting the integrity o f transaction related
information is paramount for the development o f e-commerce. In an electronic
environment, logos, brand names and trademarks are easy to replicate, and it can

25
be easy for buyers and sellers to misrepresent their financial and legal status, or
even their physical locations.

Payment and delivery. The lack o f online payment facilities and scattered use o f
credit cards among the general population, determines that consumers use the
Internet at present for information collection purposes but conduct their business
offline. If e-commerce is to be widespread in the region, reliable and secure
payment systems need to be developed. Improvements in the postal service
infrastructure for distributing goods and services are also needed.

Skills. Expansion o f Internet use and electronic commerce will depend upon the
development o f human resources. The transition to a knowledge-based economy
requires significant investments in human capital so that the knowledge that
transmitted via computer and communications networks can be adapted to fit the
new production needs.

Digital Divide. Special measures must be taken to ensure that the potential
benefits o f e-commerce are distributed efficiently and equitable among the
population. In this regard, ECLAC (2000) has suggested various elements that
might be included in a Latin American and Caribbean public policy agenda to
ensure a more equitable transition to an information-based society.

26
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