POLICY BRIEF ON ICT APPLICATIONS

IN THE KNOWLEDGE ECONOMY

United Nations
ESCAP
ISSUE NO.1 NOVEMBER 2006

Enhancing Asia-Pacific small and medium-sized

enterprises productivity through e-business
The United Nations Conference on Trade and
Development (UNCTAD) has recently published the
Information Economy Report 2006, which, among other
issues, confirms the positive impact of information
and communication technologies (ICT) on productivity
growth and highlights the importance of promoting
broadband adoption in developing countries to enhance
competitiveness and productivity at the level of private
firms. Since small and medium-sized enterprises
(SMEs) account for the majority of the enterprises and
employment in developing countries, their level of ICT
adoption deserves special consideration. How do SMEs
in Asia and the Pacific use ICT in their business? What
are the challenges that they face in adopting ICT? This
policy brief examines the factors that contribute to the
adoption of e-business, defined as the use of ICT in
business, by SMEs in the developing and the least
developed countries of Asia and the Pacific. ESCAP
recommends five areas for policy intervention to
enhance e-business adoption among SMEs.
E-business benefits
The engines of growth for the economies of Asia and
the Pacific are the SMEs, which account for more
than 95 per cent of the enterprises in some countries
of the region. The important contributions of SMEs to
GDP and employment are well recognized. However,
the competitiveness and productivity of SMEs are
often constrained by limited access to information and
technological know-how to support the development
and marketing of value-added products. The use of ICT,
particularly e-business applications, can address some
of these limiting factors in the development of SMEs.
E-business refers broadly to the use of ICT to conduct,
support or improve business activities and processes,
including research and development, procurement,

Figure 1
Proportion of enterprises using the Internet for providing customer
services and banking or financial services

Source: UNCTAD – Information Economy Report 2006

United Nations Economic and Social Commission for Asia and the Pacific
design and develop- Figure 2.
ment, operation, manu- Expected ICT impact on SMEs
facturing, marketing and
sales, logistics, human
resources management,
finance, and value chain
integration. A subset of
e-business is e-com-
merce, which describes
the buying and selling of
products, services, and
information via computer
networks, including the
Internet.

E-business is indisput-
ably transforming the
way business is con-
ducted across the world.
More and more enter-
prises in developed and Source: ESCAP survey among SMEs in GMS (2005)
developing countries are
integrating ICT in their business processes, including Broadband access is neither easily available nor
through providing customer services and using financial affordable in developing countries.
services via the Internet (see figure 1). Among other
benefits, ICT increases efficiency, promotes innovation, In the developing and least developed countries of
reduces transaction costs, facilitates networking among Asia and the Pacific, the use of ICT in business is still
stakeholders and allows SMEs to participate in broader low, particularly among SMEs. E-business adoption by
markets and compete with larger firms in what can be SMEs is limited to word processing, email and searches
called a “leveled playing field”. for information on the Internet.

An ESCAP survey conducted in 2005 among 109
enterprise support agencies (ESAs) (e.g. government
agencies, business associations, chambers of
commerce) in Cambodia, the Lao People’s Democratic
Republic, Myanmar, Thailand, Viet Nam and Yunnan
Province of China, showed that ICT was considered to
have a positive impact on SMEs in terms of creating or
enabling competitive advantage, improving customer
satisfaction and enabling growth (see figure 2).
How do SMEs use ICT?
Since the Asia-Pacific region consists of a mix of
least-, medium- and most-connected economies in
terms of ICT connectivity, there is a wide division,
between countries regarding the level of use of ICT
in business. Additionally, there is a divide within these
same countries. Internet access is available mainly in
the major cities; rural areas lag behind and have little
access to the Internet.
In terms of connectivity, whenever SMEs access the
Internet they usually do it through dial-up connections.
Regarding ICT applications, an ESCAP survey
conducted in 2004 among SMEs in Cambodia,
the Philippines and Viet Nam showed that SMEs
considered the ease of interacting with customers to
be the most important aspect of ICT applications, and
therefore email was their most commonly used Internet
application. Business-related research through the
Internet was the second most prevalent use of ICT. The
development of websites for business purposes was
far less prevalent than email use and websites were
typically used to display products rather than to facilitate
online transactions.
Consistent with the customer orientation of e-business,
the survey found that businesses targeting overseas
customers indicated higher levels of email use and
website presence than those oriented towards domestic
markets. This includes exporters and the tourism and
hotel industry, which are reliant on foreign clientele.
Except for the use of accounting software, specialized
business management software, such as management
information systems, were not commonly used by
the SMEs surveyed. This pattern seems to be true in
developed countries as well and it is mainly related to
the lack of software adapted to SMEs’ needs.

2

To find SMEs on the Internet
just visit an e-business portal
E-business portals and e-marketplaces are the
preferable online locations for SMEs to conduct e-
commerce, defined as selling and buying goods and
services through the Internet. The use of such portals
has many advantages for SMEs compared with
developing and hosting their own website, particularly
the affordability of the solution and the visibility of well-
known e-business portals.
Results from the ESCAP project on the development of
e-business services for SMEs in the Greater Mekong
Subregion1 countries show that SMEs and enterprise
support agencies consider e-business portals as
adequate e-business development services for SMEs.
Portals and e-marketplaces considered as simple
and affordable ways to start e-business and an initial
step prior to more advanced ICT use, such as the
development of dedicated websites.
E-commerce conducted by SMEs, including business
utilizing e-business portals, is usually limited to
promoting products through the website followed by an
exchange of e-mails to set the terms of the purchase
(e.g. price, quantity, return policy etc.). Since online
payment systems are absent in most countries of
the region, the payment is usually conducted off-line
through traditional means (e.g. bank transfer, courier
etc.).
Different needs means
different strategies
Companies that see profitability in conducting e-
business are clearly willing to invest in the hardware
and obtain connectivity that allows them adequate
access to the Internet. This suggests that businesses
that are in a position to benefit from e-business will plan
for ICT investment as they would for any other business
expansion plan.
Some sectors of the economy are practically required to
adopt e-business to remain competitive, and ultimately,
in business. The software, manufacturing, tourism and
hospitality industries are such examples.
1
Information regarding the ESCAP project entitled “The Development
of e-Business Development Services for SMEs in Selected ASEAN
Countries and Southern China” is available at: www.unescap.org/
icstd/applications/projects/e-business-GMS/index.asp
3
They adopt e-business to enhance communication
with both customers (B2C: business-to-customer)
and partners in the supply chain (B2B: business-
to-business). Usually, the adoption of e-business
throughout the supply chain imposes e-business
adoption on all businesses that want to keep operating
in that industry. In developed countries, the adoption
of e-business per se may not necessarily bring any
competitive advantage for the enterprises operating in
the specific sectors of economy mentioned above. It
is only part of the cost of their business. On the other
hand, in developing countries, enterprises in these
sectors are in a position to benefit from e-business and
gain a competitive advantage.
Other sectors of the economy are not yet obligated to
adopt e-business systems but may see them as an
opportunity to reach a broader market (e.g. handicrafts/
artisans, agribusiness). SMEs that adopt e-business in
these sectors usually are export-oriented and use B2B
web portals to sell their products.
What you don’t know you
don’t miss
While poor ICT infrastructure and a lack of ICT technical
and managerial capacity are limiting factors for e-
business adoption among SMEs, the lack of awareness
and understanding of e-business is considered as one
of the key obstacles preventing SMEs from employing
ICT to enhance their business.
Stakeholder consultations conducted by ESCAP in
2005 among SMEs and enterprise support agencies
in six GMS countries identified five top barriers to the
development of e-business services for SMEs:
1. Lack of awareness and understanding of e-
business
2. Poor infrastructure
3. Lack of human resources
4. The lack of a comprehensive legal framework
5. Language barriers
A lack of awareness regarding the benefits of e-
business is usually the case of SMEs in non-export-
oriented economic sectors. Since their clients and
partners in the supply chain are also deprived of
affordable and adequate ICT access, they do not see
any benefit in adopting ICT in their business. They
lack the managerial and technical capacity to use ICT
to improve internal processes and to visualize hidden
opportunities.
Poor infrastructure includes that related to ICT
infrastructure (e.g. poor Internet connection, software,
hardware etc.) and also the infrastructure in the
supply chain, including transportation, warehousing,
documentation, freight forwarding and cross-border
shipment of the products. Usually, the purchasing and
ordering system is not linked to any logistics service.
Most companies rely either upon the post service or
local transportation and shipping companies.
The lack of a legal framework to support e-business
(e.g. regulations for online transactions, digital
signatures, arbitration, intellectual property rights,
exports and imports etc.) creates a barrier to e-
commerce practice. Some SMEs are not confident
handling exports through electronic means and prefer to
operate through agents or take their goods to the border
and hand them over to a buyer. One reason for this is
the perceived need to pay bribes, in some countries, to
clear a smooth path through customs.
Another related issue is the exposure of product prices
on the Internet. SMEs prefer to keep their prices
confidential in order to avoid competition on a price
basis. SMEs also are reluctant to expose original
designs and different versions of products since there
is usually no guarantee of the intellectual property
rights. Another related issue is that some overseas
buyers want to see and handle the goods, and most
developing and least developed countries do not have
any standards and certification bodies that can act as
guarantors of quality.
Language is a huge barrier for the development of
export-oriented e-commerce among SMEs in Asia and
the Pacific. An ESCAP evaluation in 2006 of e-business
portals pilot projects shows that SMEs reported
difficulties in preparing product descriptions and
having them translated into English for an international
audience. Knowledge of foreign languages is also
necessary during the follow up exchange of e-mails that
is characteristic of e-commerce by SMEs.
Five areas for action
Countries in the Asian and Pacific region are at various
stages of implementing ICT policies and regulations.
These efforts are seen to be supportive of e-business
among SMEs. The challenge is how to translate these
This Policy Brief on ICT Applications in the Knowledge Economy has been prepared by the Information,
Communication and Space Technology Division of ESCAP to provide a brief introduction on selected
ICT applications, identify issues for implementation, and provide policy direction for the promotion of
the applications. For further information on this Policy Brief, please contact: Mr. Siva Thampi, Chief,
Information, Communication and Space Technology Division (e-mail: thampi@un.org).
policies into concrete national programmes on e-
business development.
ESCAP recommends five areas for policy intervention:
1. Further develop/implement ICT policies and
regulations related to online transactions. This
regulatory framework can potentially provide a
supportive secure legal and regulatory environment
to establish trust security, enforce authentication
mechanisms and combat cybercrimes as well. This
will encourage the use of ICT in business, including
SMEs.
2. Introduce specific programmes to develop the
capacity of enterprise support agency and promote
e-business development services such as content
creation, SME databases, product catalogues,
online payment and translation. In general, SMEs
have neither the in-house capability nor the financial
resources to experiment with innovative approaches
such as e-business, especially when they do not
perceive immediate returns. It is often more cost-
efficient for SMEs to use business development
services offered by enterprise support agencies.
However, e-business development services
(planning, implementing, technical and consultancy
services of e-business) are currently non-existent or
very limited in terms of the range of services offered
by enterprise support agency.
3. Integrate initiatives on ICT for trade and transport
facilitation with e-business development
programmes. Since e-business is considered a tool
for expanding marketing opportunities, the promotion
of e-business for SMEs would provide better results
if developed together with initiatives that facilitate
trade and transport, including those using ICT.
4. Adopt e-procurement techniques as part of e-
government strategies. In most countries, the
Government is one of the largest buyers of goods
and services. Since many Governments buy a share
of their goods and services from domestic SMEs, the
adoption of e-procurement may provide an important
incentive for SMEs to begin using e-commerce as
well.
5. Develop enabling policies and regulations to
promote the development of domestic ICT markets
and ICT services and products, including broadband
connectivity, relevant content in the local language
and development of ICT skills.