Research & Analysis

Dynamics of e-commerce in economy

In the new economy, knowledge and information are considered to be the main production factors. In this state of affairs, innovation and technical progress have a major contribution to the durable economic development. The electronic commerce is significant for enterprises competitivity in this informational era, ensuring access to new market segments, increasing the speed of developing business, the increased flexibility of commercial policies, and at the same time, decreasing the provisioning, sale and advertising costs, and simplifying the procedures etc. The impact of the e-commerce upon the companies and  society will be of great importance both as extensively and as intensively. E-commerce intends to establish ways of making the Internet trade activities more effective and rule out the possibilities by which this kind of activity contributes to the economic development and becomes a growth factor for company’s competitiveness.

E-commerce is an activity that has generated new extents in economic growth and has a potential to add a higher value to businesses and consumers. In view of the fact that the emergence of e-commerce is the most important development since the industrial revolution, the role of e-commerce is to search for the most important factors that will revolutionize economic growth.

Internet is an instrument of communication and the source of information that experienced the most important growth in the entire history of civilization and it can be the instrument with the quickest spreading of all the times. Today’s digital revolution involving the Internet and worldwide use of websites has established the stage for e-commerce.

The convergence of the informational economy through ICT (Information and Communication Technology), Internet and electronic commerce is as important in transformations as the industrial revolution. Substantially, this “New Economy” is a digital economy, which valorizes information and knowledge in a better way, compared to the “Old Economy”. The New Economy changes the conditions in which many people live and work; it makes the leap over the current obstacles of the traditional economic development possible. In short, e-economy has at its basis the existence of the Internet and as its mean of representation and application – the Information and Communication Technology (ICT).

The e-commerce differentiates itself as the most dynamic and visible element of the New Economy, claiming a ruling position in future knowledge economy. The exceptional impact of the information technology, everything that is or becomes e, puts its mark on the whole economic, social, cultural life of the mankind and virtually governs the whole modern world. A world being dominated by the small e, that doesn’t stop talking about e-business (electronic business), e-commerce is a concept that underlines one of the most important facilities offered by the Internet network which is  the capacity to make transactions beyond the borders, time and space.

The aftermath of the electronic commerce upon the companies and upon society is and will be of great importance both as extent and as intensity. For the companies, the electronic commerce offers unique opportunities of reorganizing the businesses, of redefining the markets or of creation of new markets. The initiatives of electronic commerce can generate decrease of the costs, increase of the earnings and operational efficiency for those companies which aim at getting an advantage within the nowadays competitive economic environment. The electronic commerce is the key for enterprises competitiveness in the informational era, ensuring the access to new market segments, increasing the speed of developing business, the increased flexibility of commercial policies, decreasing the provisioning, sale and advertising costs, simplifying the procedures etc. The impact of e-commerce upon society is relieved mainly by reduction of transaction costs, improvement of access to market information, intensification of competition, better resource allocation, improvement of the company’s competitiveness and enhance, on this base, of their ability of creating value and of competing on more globalized markets. Although primarily an economic phenomenon, e-commerce forms part of a broader process of social change, characterized by the globalization of markets, the shift towards an economy based on knowledge and information, and the growing prominence of all forms of technology in everyday life. As both a product and manifestation of such transformations, e-commerce is being shaped by modern society as a whole. As a result, it is an opportunity to increase competitiveness both on a micro and macroeconomic level.

E-commerce has an incredible growth potential and is also successful in generating economic growth. In order to utilize its full potential to bring about the structural changes needed for economic development, it is important to recognize that e-commerce provides an environment in which new activities can fruitfully be developed. The interaction of e-commerce with various growth facets has to be self-reinforcing in order to yield the required rate of growth. It is important to recognize that e-commerce is and going to be the driving force of economic development in the coming times.

As witnessed in the past, e-commerce has existed for the last few decades in some form or the other but the outspread of Internet has become a new force responsible for popularizing it. There are six main instruments of e-commerce as recognized by WTO: telephone, fax, TV, electronic payment and money transfer system, electronic data interchange and Internet. The evolution of e-commerce in the past few years is a result of the transition from private or closed network system to an open, public network platform, such as the Internet. The Internet provides access 24 hours a day, seven days a week, anytime, anywhere. Thus, time and place are no longer the constraint. E-commerce has been built on the structures of traditional commerce by adding the flexibility offered by electronic networks, which facilitates improvement in operations leading to substantial cost savings as well as increasing competitiveness and efficiency through the redesigning of traditional business.

The reason why electronic commerce is growing so quickly is “its significant impact on costs associated with inventories, sale 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 that prove the worth of ICTs. However, what is unique about e-commerce over the Internet and the efficiency gains it promises is 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. Another source of efficiency associated with e-commerce is “the opportunity for “boundary crossing” as new entrants, business models, and changes in technology erode barriers that used to separate one industry from another.”  More generally, e-commerce illuminates’ differences that may exist between products, industries and countries, thereby highlighting the need to reform inconsistent regulations.

The gains related the productiveness and efficiency generated by the e-commerce on the economy ensemble are so promising so that practically any attempt to ignore this new channel of business life development would be against productiveness. The potential that e-commerce has in productivity and competitiveness terms is so significant that any delay in ensuring the technological and infrastructure premises necessary to its spreading on a larger scale attracts the risk of the deepening of the digital difference between countries.


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About the author

Ritika Karan

A frequent commentator on issues of contemporary importance, Ritika studies Economics at the Shri Mata Vaishno Devi University, Jammu

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