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The Many Challenges Of Cross-Border E-Trade

The Internet is opening up the world to cross-border eCommerce, especially for smaller companies. Yet fragmented regulations and payment systems among various countries where trade tends to be conducted is hampering the full potential for e-trading, a new report suggests. But which countries are doing the best job reducing such barriers? PYMNTS.com takes a look.

The Internet is redefining the way goods, services and information are produced, consumed and traded, and it is making it easier for small and midsize enterprises (SMEs) to participate in international trade, an area where many traditionally have been excluded.

Significant challenges, however, remain regarding cross-border trade supported by Internet communications and technology (ICT), including the movement of products across borders under customs regimes that are more aligned with the needs of big business than those of SMEs, according to the G20 e-Trade Readiness Index, a recent Economist Intelligence report commissioned by eBay.

“It’s clear that technology alone is not enough to allow e-trade to reach its full potential,” Laurel West, the report’s editor, noted in a statement announcing the document’s release. “Customs regimes across the globe are still aligned with the needs of big businesses and hampering SMEs. E-trade is a ripe opportunity for SMEs to compete with multinationals. They can be a key driver in its growth, but bureaucracy could be their biggest barrier.”

The report is based on a quantitative index ranking of countries on the degree to which they encourage cross-border trade using the Internet through policy, regulation and infrastructure.

Besides cross-border movement of products, a highly fragmented and haphazardly regulated online payments market—whether ePayments or mobile payments—also is creating challenges. Whereas emerging markets are developing new platforms, often using mobile networks, mature international systems figure prominently in developed countries, the report notes.

Some recent efforts are designed to overcome some of these challenges. As PYMNTS.com reported Monday (Aug. 4), the European Parliament has approved use of eSignatures and related online trust services for cross-border procurement within the European Union, thus bringing the full potential of eProcurement to the region. Under the new regulations, businesses and consumer may can use their own national electronic identification schemes (eIDs) to access public services in other EU countries where such IDs are available.

Although the efficiencies created by mobile-based systems potentially could level the playing field for SMEs by decreasing transaction costs, they pose fundamental new challenges with regard to their regulation and adoption by small and midsize companies, the G20 e-Trade report notes.

“Among the emerging challenges Is protectionism, which has stepped into the limelight because of fears about data privacy and cyber-security,” the report notes. “Though governments have yet to pass legislation introducing protectionist policies such as requirements to store data locally, there is talk of doing so. Such policies could stem the free flow of information, goods and services, in particular for SMEs, which may find it harder than large multinationals to spend the time and money to adapt to new rules.”

Indeed, technology alone won’t allow ICT-enabled trade to reach its full potential. Instead, trade flourishes in countries where the overall investment climate is positive, where there is widespread and high-quality Internet access and people with the skills to take advantage of this, and where the regulatory and legal frameworks and environment for e-payments are well developed and up to date, according to the report.

The G20 e-Trade report found that the G20 countries are at vastly different stages in the development of environments conducive to greater cross-border e-trade. Among the key findings:

<li>Australia is best prepared to grow global ICT-enabled commerce</li>

The report ranks Australia atop the e-Trade Readiness Index based on strengths across all five categories measured, particularly in the Internet environment and ePayments environment. The other factors measured were the overall investment climate, international trading environment and regulatory and legal framework.

Australia has affordable Internet access, a well-developed regulatory framework for commerce, high usage of electronic payment methods and high smartphone penetration. The U.S. ranked second, followed by South Korea, the UK and Japan, “suggesting that richer countries, on average, have an atmosphere conducive to e-trade,” the report notes.

Geography and history also seem to encourage the development of electronic trade, as three out of the top five countries (Australia, the UK, Japan) are both developed and island nations whose economies have long relied on international trade, according to the report.

China’s e-trade potential looms large, but regulatory challenges restrict its global role.

Ranked 9th overall, China is held back by the Internet environment (ranked 13th) and the regulatory and legal frameworks (12th) for international e-trade, according to the report. “However, the potential for global ICT-enabled commerce seems enormous if China can improve the operating environment,” it states.

Emerging markets a potential source of innovation in ICT-enabled commerce.

Developing economies are finding innovative ways to enable domestic eCommerce, and these may lead to changes in how e-trade occurs, according to the report. “In Africa, local entrepreneurs have created mobile-payment systems, opening up new opportunities for many entrepreneurs,” it notes. “Some of this technology is now spreading around the world, although openness and interoperability issues remain.”

Moreover, as the Internet population is set to rise from 2.7 billion today to about 5 billion in 2020,the potential global market for many companies should expand. “This benefits all companies (other than) particularly small ones that were previously limited by size or geographic location,” the report notes. “However, with new opportunities come new challenges (and some old ones, too).”

Indeed, governments that understand the factors that facilitate ICT-enabled trade and are working to improve them are set to gain the most, according to the report. Emerging markets, where the lack of legacy regulation could make it easier to develop and implement new approaches, have perhaps the most to gain.

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