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Assignment On

E-Commerce in Bangladesh---Status, Constraints & Potentials

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Assignment

On

E-Commerce

Course: 425

Topic: E-Commerce in Bangladesh---Status, Constraints & Potentials

Prepared for:

Md. Moktar Ali

Associate Professor

Department of Marketing

Faculty of Business of Studies

University of Dhaka

Prepared by:

Md. Abdur Rakib

Roll No: 041

Section: A

Department of Marketing (14th)

Faculty of Business Studies

University of Dhaka

Date of Submission: 17th November, 2011 eng.

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E-Commerce in Bangladesh---Status, Constraints & Potentials

Status of E-Commerce in Bangladesh:

E-commerce refers to the buying and selling of products or services over electronic systems

through Internet and other computer networks. In other words, e-commerce involves digitally

enabled commercial transactions between and among organizations and individuals. Digitally

enabled transactions include all transactions mediated by digital technology. Commercial

transactions involve the exchange of value across organizational or individual boundaries in

return for products or services. The most popular medium in which e-Commerce is conducted is

the internet. It combines a range of process such as:

Electronic Data Interchange (EDI)

Electronic mail (E-mail)

World Wide Web (WWW)

Internet Applications

Network Applications

It does not include transactions over telephone, fax or any payments made online for transactions

whose terms were negotiated offline or by physical means. Some common applications related to

electronic commerce are the following:

Email

Enterprise content management

Instant messaging

Newsgroups

Online shopping and order tracking

Online banking

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Online office suites

Domestic and international payment systems

Shopping cart software

Teleconferencing

Electronic tickets

Why E-Commerce for Bangladesh?

With the increasing diffusion of ICTs, more specifically the Internet, the global business

community is rapidly moving towards Business-to-Business (B2B) e-Commerce. The buyers/

importers gain a clear advantage when the Internet gives them access to the global market, by

which they can compare prices across regions, find out whether prices vary by order

fragmentation, get awareness about substitute/ alternative products. Consequently, the sellers/

exporters make sure that they are well portrayed in the cyber world through websites and portals.

Like buyers, sellers also benefit from increased and more efficient access to the global market

through the Internet. Bangladesh is pursuing an economic policy of export-led growth. With the

rising forces of globalization, it is becoming increasingly important that the private sector,

particularly the export sectors are well prepared to meet the requirements and expectations of the

importers and also stand out in the competition against exporters in other countries. In such a

scenario, two issues are becoming particularly important for Bangladeshi export sectors – one,

whether businesses are automating their internal processes with the use of ICTs to become

increasingly efficient and competitive in a global context, and two, whether businesses have

effective presence and participation in the cyber world. International organizations such as

UNCTAD (United Nations Center for Trade and Development) and WTO (World Trade

Organization) have, over the last several years, put much emphasis on the importance of e-

Commerce for developing countries. UNCTAD has special programs to facilitate developing

countries to transition into e-Commerce. The WTO has also developed rules and guidelines for

global e-Commerce transactions.

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A huge digital divide exists among the city of Dhaka, Chittagong and other parts of the country.

Private-public partnership is a crucial issue for information and communication technology

(ICT) development and application. Private enterprise and capital can lead ICT revolution in

Bangladesh. This, however, would require the government to provide the basic business

environment. Rapid growth in ICT is not possible without massive investments for ICT

infrastructure and human resource development in the computer and electronics l and

telecommunication engineering courses through ensuring quality education. Still now call charge

of cell phone is not competitive in Bangladesh.

Under the private initiative, Internet was started in 1996 by ISN in Bangladesh. ISN is the first

ISP operator in this country. Still now all the Internet service providers have the server in abroad,

for which they are facing competitive disadvantage, as cost remains high. Security problem is

still high in this country. In this connection it may be stated that Bangladesh bank is trying to

implement automated clearinghouse through utilizing (Magnetic Ink Character Recognizer)

MICR procedure. But in developed nations MICR procedure is now replaced by more

sophisticated procedure such as cheque truncation process. Total numbers of Banks in

Bangladesh are forty seven. Banking sector in Bangladesh on the basis of utilization of electronic

devices can be subdivided into three groups: i)Foreign Commercial Banks and Private

Commercial banks especially 2nd

(except few banks) and 3rd

generation Private Banks :Fully

Online banking; ii)1st generation private banks and some 2

nd generation Private Commercial

Banks: Medium range Online banking system ;iii)Nationalized Commercial Banks , Specialized

Banks and Few foreign Bank branches of this subcontinent :Low grade online banking system.

At present the banks in Bangladesh are using the limited electronic banking services. It is

expected that bank can attain more profit and offer better services to its customers by,

introducing on line banking facilities. The foreign commercial banks operating in Bangladesh

like Standard Chartered Bank, City Corp. N.A. and the HSBC are the pioneers to introduce the

electronic banking facilities. They provide ATM, Debit Card, Credit Card, Home Banking,

Internet Banking, Phone Banking, on line banking etc. services.

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E-Commerce in Different Sectors in Bangladesh:

Despite being a under developed country, selected segments of the Bangladeshi business

community has embraced technology with reasonable success. The Facsimile in the 1980‟s and

mobile telephones in the 1990‟s popularized modern technology in the mass market. Personal

computers and the Internet are also emerging as day-to-day business tools. These positive

indicators are favoring the prospects of e-commerce in Bangladesh.

RMG Sector

Banking on the Web (Online Banking)

Online Shopping

Web Hosting, Domain

Online cards, gifts

Pay Bill

Education

Overview of Implementation Stage of E-Commerce in Bangladesh:

Ministry of Commerce, Ministry of Information and Communication and Planning

Commission jointly implementing the e-commerce in Bangladesh

There is e-Commerce committee headed by commerce secretary

Ministry of Information and Communication is working for enacting a law regarding

“Electronic Transaction act”

Online order from foreign buyer has started

www.registrarofcompniesbangladesh.com here registration of joint stock company

started as online

Online non-financial transaction has started by all bank from 31-7-2002

Intra-bank transaction started from 31-7-2003

About 2 months Bangladesh Bank give permission of Ecommerce in local currency

through banks within the country.

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The Existing Situation and Potential of E-Commerce in Bangladesh:

Internet services are presently available in Bangladesh. Its usage for e-commerce by the

Bangladeshi producers to export as well as to access inputs will be dependent on their

willingness and ability to use this medium as well as that of the buyers of final products and the

sellers of intermediate goods and services.

The Three Dimensions of E-Commerce:

Figure: 1 depicts the three dimensions of e-commerce.

(Source: International Telecommunications Union, Millennium, October 1999, Geneva)

Business

B2B

Partner Enterprises

GovernmentConsumers

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Business-to-Consumers (B2C) ecommerce is practically non-existent within Bangladesh, while a

very limited level of Business-to-Business (B2B) and Business-to-Government (B2G)

transactions exists. The potential for use of e-commerce by Bangladeshi consumers and

businesses with foreign firms is much brighter, and can play an important role in boosting the

country‟s exports. A significant volume of B2G is also possible, as the government remains the

biggest spender.

Business-to-Consumer (B2C) Scenarios:

Business-to-Consumer (B2C) e-commerce is unlikely to be of much use in the foreseeable future

in Bangladesh. At the domestic level, low per capita income, limited infrastructural facilities

(e.g. low teledensity), weak legal environment (inadequate contract laws, poor implementation

and enforcement), and lack of trust and confidence between business and consumers are going to

hinder B2C. In the backdrop of such limitations, the low wage economy, with high levels of

unemployment and underemployment, will continue to rely on the physical presence of buyers

and sellers during a transaction in most cases. B2C for cross border trade is inhibited by the

factors suggested for the domestic front.

Business-to-Business (B2B) Scenarios:

As mentioned before, the Business to Business (B2B) scenario prevails in Bangladesh to a very

limited extent. The B2B scenario exists mostly in the export sector, especially in the Ready

Made Garments (RMG) industry. RMG has the lion‟s share of the export earnings in

Bangladesh, accounting for 75 percent of total exports. The current value of annual exports of

the RMG sector is close to $4.35 billion. The RMG sector has begun to use the Internet, and its

dependence on e-commerce is likely to grow significantly in the coming years. E-commerce

through the Internet is poised to be an effective business tool for the RMG exporters. The

Internet would enable them to seek information about potential buyers as well as raw material

suppliers.

RMG Sector: The RMG sector emerged during the early 1980s in Bangladesh and

information has been the strategic partner in its phenomenal growth. Telex was the only

tool of cross border data communication in those days. International courier services

were the means of receiving the approved designs from the buyers. The Facsimile

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machine, in the mid 80s, radically replaced both of these orthodox communicating media

(i.e. telex and courier). This “Office Automation Equipment” contributed towards

accelerating RMG exports. Faster and cheaper data communications coupled with real-

time design-pattern development enabled the buyer and manufacturer expediting business

negotiations. A specific use of internet technology would be to access The Bangladesh

Garment Manufacturer Exporter Association‟s (BGMEA) website, which provides a list

of member companies and key information regarding those firms.

Oil and Gas Sector: International Oil Companies (IOCs) are the dominant players in the

exploration and production of the oil and gas industry. IOCs use the vendors' web pages

extensively in order to obtain product information. This exercise is also limited to the

international vendors as the Bangladeshi business community has yet to become

sufficiently cyber-centric. The IOCs make all the payments to the international vendors

through Telegraphic Transfer. This is one good example of making cross border

payments without following the complex mechanism of the Letter of Credit (L/C). The

local vendors, however, receive their payments by check.

Business-to-Government (B2G) Scenarios:

The government is a major buyer of goods and services from the private sector. Typically, the

government procures goods and services by inviting tenders. This has been the traditional

method of any government procurement for goods and services. Tender notices are published in

the major national dailies followed by selling the Request for Proposal (RFP) documents to the

interested bidders. If any bidder seeks clarification on any aspect of the RFP, the customer is

mandated to notify that clarification to all bidders by mail. In addition to costing money and

taking time, such notification sometimes forces the customer extending the bid-closing deadline.

Bidders also obtain the RFP document “unofficially” for a comprehensive understanding of the

„scope of work‟ as well as for assessing their own capability. The availability of the RFP and

other relevant documents on-line provides an alternate choice, thereby reducing the monopoly

rent that can be extracted. In order to prevent such unfair practice, the Bangladesh Telegraph and

Telephone Board (BTTB) initiated publishing the RFP documents of selected projects in its

website. This immediately stopped the illicit practice of unofficially selling the RFP document,

and only competent bidders were able to procure the RFP documents. In addition to reducing the

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extra administrative burden of BTTB, it also enabled BTTB to close those bids within a

reasonable timeframe.

In addition, transactions involving information collection, obtaining various governmental forms,

registering activities can be conducted on-line. This will reduce time costs, corruption and the

necessity of going through lengthy bureaucratic procedures as well as increasing transparency.

Some E-Commerce Shop in Bangladesh:

www.webbangladesh.com

www.haatbazar.com

www.number1shop.com

www.bdbazar.com

www.bengalcommerce.com

www.sonarmarketplace.com

www.upoharbd.com

www.bdgift.com

www.cellbazaar.com

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Constraints to E-Commerce in Bangladesh:

Out of 64 districts, Internet services are available only in 6 major district headquarters. BTTB is

planning to gradually roll out an IP network up to the 64 district headquarters. In January 2002,

the Internet facilities were extended to 12 districts. The project is running on very fast and today

almost 40 plus districts are getting Internet facilities. Followings are the barriers of e-commerce

in Bangladesh:

Very minimum number of users of web sites

Poor telecommunication infrastructure with limited fixed-line access, unreliable connectivity

and low bandwidth (9K)

High price of computer and hardware: The per capita income of our people is less than

US$520. But in order to buy a computer it is needed US$500 and for this reason, it is beyond

the capacity for a villager‟s to buy it.

Lack of technically efficient personnel

Lack of investment in hardware and software

The banking infrastructure in terms of electronic payments and inter-bank connectivity is

poor. As such, the customers of 5770 branches of the local banks are unable to operate their

account with the other branches of the same bank. Inter-bank transaction is more

cumbersome as the clearing-house of the central bank is not online. An inter-bank transaction

may take even 2 weeks if the branches are different cities. Only branches of the private banks

are interconnected with their respective head offices. They are also satisfactorily

computerized. This represents only 25% of the entire banking sector.

Small number of Credit Card users

Limitations of supportive legal system such as, exchange controls, protection of

telecommunication monopolies, restrictive trade practice and prohibitions

Absence of cyber law

People's mindset and very slow and expensive Internet services

Enterprise managers' lack of initiative and leadership in taking advantage of ecommerce

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Potentials of E-commerce for Bangladesh:

Network Infrastructure

Intra-bank and Inter-bank Connectivity

Local and Global

Bank-Client Connectivity

Security of transaction

Banking mechanism

Automation

Convertibility of the Bangladesh currency

Retention quota

International credit cards

Capacity Building: Human, Technical and Regulatory

Quick Settlement, Online credit Information, Skilled e-Manpower,

Regulatory Framework

Investment

Legal Infrastructure

Currency Convertibility: Access to Global Finance

E- Culture

TO succeed over the competitors‟ organizations needs to be changed their strategy and they are

gradually become bound to adopt e-business. At these stages successful implementations

depends on all the stages of the Hierarchy of the Management i.e. starting from the Top

Management level to the lower level management. On line banking system works as a

complementary factor of electronic business. Though electronic business has a greater set of field

but on line banking can work as a subset of the e-business .Benefits derived from the e-business

largely depends on successful implementation of the business process. Managing external

pressure as well as internal pressure should be coordinated by the management so that e-business

can supersede traditional business processes of organizations .Moreover, transformation process

requires huge cost especially organizations of Bangladesh. Greater and cautious resource

management especially financial capability should be handled by the management of the

organizations. Changing processes should consider socio-economic and cultural environment as

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well as labor surplus country. Business process reengineering may be designed with the aim that

personnel of the organizations will use the technological functionalities which will lead to further

enhancement of the organizations. Managers‟ functionality to implement e-business is a stressful

task for which their mindset should be strong and they should consider not only global

considerations but also consider domestic situations. Successful e-business depends on sharing of

strategic knowledge for which dissemination of the information and free flow of knowledge

around the globe is required. On line banking can provide twenty four hours banking facilities.

Through electronic data interchange customers are able to draw money from one branch to

another. Letter of credits can be sent through SWIFT or electronic fund transfer from one

country to another can be feasible. Actually on line banking provides faster, reliable services.

Encryption and decryption can be used to send money from one place to another. As such on line

bank management handles customers in a far better way. In Bangladesh decision makers are

generally reluctant about advancement of technology. It is difficult for people who do not have

much technical knowledge to understand the necessity of adoption of new technology. So the

pace of computerization in various offices, business enterprises and sectors are low.

Another problem of initiating E- business is that in our country policy makers, managements are

generally reluctant to accept something new. To avail the advantage of E- business,

organizations including banks have to invest for software, hardware, infrastructure development

etc. The owners are uncertain about the positive return on investment as transformation from

manual system to electronic transaction involves huge cost. This is a great drawback to

implement E-business at a full swing. But the organizations are not interested to invest because

they consider huge expenses.

In Bangladesh most of the business organizations are running centralized manner. As such

visions, missions, goals of the top management of various organizations are very important. Top

management should change their mindset and like Bangladesh Bank, they should encourage e-

business process. Top management views are reflected to the mid level management and lower

level management. Unfortunately most e-business efforts fail for non-performing visions,

missions, goals and tactics at the business processes of the organization.

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Recommendations:

The assessment of the e-commerce environmental forces of Bangladesh leave us some room to

recommend some steps and measures, that should be undertaken by the policy makers and

business stake holders for the full fledged implementation and development of e-commerce in

Bangladesh. The recommendations are:

There should be an EFT (Electronic Fund Transfer) Gateway, which will connect all finance

and banking institutions, ATMs, POS and related websites. Such Gateway will speed up the

transactions among banks, commercial institutions. This sort of infrastructure needs to be

implemented on priority basis.

A CCG (Credit Card Gateway) should be established. A credit card gateway is a server that

makes online credit card transactions safe (Skinner, 2005). The software protocols in the

CCG use the information provided to check for availability of funds and to make sure the

credit card is not expired, lost or stolen. This takes only seconds.

Conclusion:

A key reason why e-commerce, especially the business-to-business segment, is growing so

quickly is its significant impact on costs associated with inventories, sales execution,

procurement, intangibles like banking, and distribution costs. If these reductions become

pervasive, e-commerce has the potential to be the application that ushers in the large productivity

gains. Achieving these gains is therefore contingent on a number of factors, including access to

e-commerce systems and the needed skills. However, what is unique about ecommerce over the

Internet and the efficiency gains is that it promises the premium placed on openness. To reap the

potential cost savings fully, firms must be willing to open up their internal systems to suppliers

and customers. This raises policy issues concerning security and potential anti competitive

effects as firms integrate their operations more closely.

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References:

The Asia Foundation, 2000. Bangladesh Export-Apparel Industry: Into the 21st Century the

Next Challenges, October, Dhaka.

Azad Dr. A. K., Dr. M. M. H. Joarder and Md. Iqbal, 1996, Summary of Reports on Uruguay

Round Agreements and Related Issues, Ministry of Commerce, Government of the People‟s

Republic of Bangladesh.

Bakht, Zaid, 1999. Policy Induced Constraints to SME Development in Bangladesh, a report

prepared for the USAID funded JOBS Project.

Bangladesh Bank, 1999. Annual Report 1997-98, Dhaka.

Bangladesh Bank, 1993. Circular No. 48, Foreign Exchange Control Division,

Bangladesh Bank, Foreign Exchange Guidelines, Chapter 20, Bangladesh Bank, Dhaka.

Bangladesh Bureau of Statistics, 1998. Report on The Household Expenditure Survey 1995-

96, Dhaka.

Bangladesh Computer Samity, 2000. Brochure of the BCS Software Expo, 2000, BCS,

August 2000, Dhaka.

http://www.businessweek.com/the_thread/economicsunbound/archives/2008/

06/the_importance.html

http://www.cid.harvard.edu/cidtrade/issues/ecommerce.html

http://en.wikipedia.org/wiki/Ecommerce

E-commerce: Business, Technology, Society-C. Laudon Kenneth, Guercio Traver Carol, 4th

Edition, Page:46-47

www.cid.harvard.edu/cidtrade/issues/e-commerce.html

The Financial Express, January 12, 2009