29th October 2000
Editorial/Opinion| Plus| Sports|
Sports Plus| Mirror Magazine
In this age of - accountants
INTERFACE NO. OF YEARS
E-commerce means conducting any form of business transactions electronically, using the Internet. Such transactions could occur between companies, between companies and their customers or between individuals.
With the rapid development of mobile devices and the growing competitiveness of global commerce, it has now become imperative to use the Internet whilst on the move, i.e. the concept of 'Freedom to work at any location' is building up. This is paving the way for mobile commerce.
In order to make mobile commerce successful and accepted by the end users and the administrators the whole cycle of the commercial transaction should be transparent and accountable. In this aspect the Accountants would play a pivotal role. To ease the burden on accountants, an e-enabled Enterprise Resource Planning (ERP) backbone will have to be used to trap all transactions of a single business cycle.
This is the concept that will be discussed with focus on practical use at the CIMA seminar to be conducted on the 2nd November. This seminar is targeted at senior executives in the corporate sector, especially key decision-makers in the finance. The theme of the seminar is "Mobile Commerce - Transactions on the move: Opportunities for Accountants".
The resource person for the seminar is Jayantha De Silva, Vice President, IFS South Asia and the seminar will be on 2nd November 2000 at the Galadari Hotel from 2.45 p.m. to 5.00 p.m.
By Jayantha de Silva, Vice President, IFS South Asia.The Chairman of Intel, Andy Grove says "In five years all companies will be Internet companies or they won't be companies at all". Though it's hard to accept, the reality is that e-business on the Internet has definitely taken off. The last two years have seen e-business move from the drawing board to a dramatic reshaping of the global economy.
No industry will remain unaffected by changes created by the explosive development of the Internet.
E-commerce is much more than the Internet. Electronic commerce as a general concept covers any form of business transaction that is conducted electronically, using telecommunications networks. Such transactions occur between companies, between companies and their customers or between companies and public administrations.
Electronic commerce encompasses a broad range of activities. The core component is addressing the commercial transaction cycle. Electronic commerce includes electronic trading of physical goods and services and of electronic material.
With the rapid development of mobile devices, which are capable of using Internet functions, the concept of 'Freedom to work at any location' is building up. This will pave the way to mobile commerce. In order to make e-commerce or mobile commerce successful and accepted by the end users and the administrators the whole cycle of the commercial transaction should be transparent and accountable. In this aspect the Accountants would play a pivotal role. To ease the burden on accountants, an e-enabled ERP backbone will have to be used to trap all transactions of a single business cycle.
Today's business environment is complex and very unpredictable and is unable to cater to the high expectations of the customers. In order to retain the competitive edge, companies are compelled to change their traditional way of doing business.
One of the most significant changes in the world of business is the use of Internet in their day to day activities. Internet has led to a huge level of participation of business and consumers to handle their commerce electronically. As a result of this new electronic environment referred to as electronic commerce, many global enterprises are beginning to develop strategies to use e-commerce technologies in their traditional business environment.
Electronic commerce is a technology for change. Companies that choose to regard it only as an "add on" to their existing ways of doing business will gain only limited benefit. The major benefits will accrue to those companies that are willing to change their organisations and business processes to fully exploit the opportunities offered by electronic commerce.
As any other technology some are skeptical about the success of e-commerce. The same was said regarding other technological innovations too.
For instance, in1943 Thomas J. Watson, Chairman, IBM said
* "I think there is a world market for about five computers".
And in 1977 Ken Olson, President of Digital Equipment Corp., said
* "There is no reason for any individual to have a computer in their home".
It is quite apparent what happened since then.
Electronic technology has been a major driver of change in the twentieth century. The table below depicts the increasing speed the new technologies have changed our lives.
Source: Info Tech, Pac Tel Cellular, Coopers & Lybrand.
It is very important to look at some of the success stories of few companies whom we are familiar with. Already there are number of companies who are beginning to emerge as the leaders in the e-commerce business.
DellOne company worth exploring is Dell computers. Dell started selling computers over the phone 12 years ago. Many industry specialists adviced that it is not possible to sell computers over the phone. The success of this venture made Dell to market and sell computers over the Internet. Dell is growing at an enormous rate taking the market share by dealing direct with the purchases.
Dell bypasses the traditional channels and is aggressively taking the advantage of the electronic media.
In 1997 Dell's turnover reached $7.8 billion which was a 47% increase from the previous year. By 1999 it has reached the amazing $18 billion mark!
Dell is selling $3 million-plus worth of computer products a day over the Internet.
TescoTesco is Britain's largest food retailer. Its web site is one of the most frequently visited by the consumers. In 1998 it started home shopping service in London and extended across England in 1999. It allows the users to purchase any of the 20,000 product lines typically available in the stores. Tesco has already increased its sales and is giving its customers a better service.
Amazon.comAmazon.com is an ideal example of the success story in the Internet environment. It has demonstrated how a company could develop in such a short time from $500,000 in 1995 to almost $ 1 billion in 1999
Forecasting the future:Forecasters vary widely in the prediction of numbers in respect of e-commerce. More definite predictions could be done when electronic commerce moves out of the present experimental phase into an era of maturity. Yet it is very important to see what some of the leading industry specialists say and forecast.
*"Electronic retailing will grow inexorably over the next decade. By 2010 it may account for as many as 25% of US retail sales."
(Professors Louis W. Stern and Barton A. Weitz)
*"Products which traditionally need to be touched, tasted or smelled are prima facie less likely to sell well on line. But products and services without those characteristics or where they are of low importance will have electronic appeal."
(CSC Kalchas research)
* "$8 billion worth of entertainment and travel tickets will be bought on line in the US in 2001."
(Jupiter Communications research)
* The Internet has become a convenient and easy-to-use tool for the hearing impaired to do some shopping. The Internet can accommodate many different customers than might venture into a store. E-mail has been a helpful way for buyers to communicate with sellers.
(USA Today, April 27, 1999)
* Analysts and executives have agreed that a vast majority of e-commerce sites are secure, but many speculate that a trend may be heading in the opposite direction. It is obvious that some companies lack the technical knowledge to use security safeguards, while others claim they can not afford security products and advice. Experts claim that those most vulnerable to security flaws are small and medium-sized sites.
(The New York Times, May 3, 1999)
Open issues on E-commerceDespite some major open issues yet to be resolved, electronic commerce is a reality today. In order to derive the full potential of e-commerce, it is very necessary to resolve these open issues at global level. Therefore it is essential that multinational bodies who are engaged in commerce activities take the responsibility in resolving these issues.
It is worth to note what William M. Daley, Secretary of Commerce said on this.
* "The federal government has rules. Every state has rules. Every country does, too. So, the question is, how do we adapt the rules to the new medium? In the Internet world, we need the private sector to take the lead in developing effective consumer protection practices."
Many countries have already identified the importance of e-commerce. The governments worldwide also spend heavily on goods and services. Therefore they too would be a potential user of e-commerce. It was estimated that in year 2000, the governments worldwide spent $50 billion on services like maintenance, repairs etc. It is obvious countries and organisations like United Nations, World Bank would use e-commerce heavily in their h%ture day to day activities.
Mobile commerceToday, the point of entry to the Internet is the computer. Therefore, the major device used in the e-business world is the common computer. Man's desire to do business transactions anytime and anywhere and the advent of e-enabled mobile devices would see mobile commerce become a practical reality. Today there are over 400 million mobile phones used in the world. This makes the mobile phone an automatic choice for e-business transaction entry device.
Many large mobile telephone companies have already teamed up to build new strategies in mobile commerce. Ericsson, Motorolla and Nokia have joined to develop a common framework for electronic commerce. They aim to create a 'personal trusted device' by integrating security and transaction application into mobile terminal platform. In the future there will be many other e-enabled mobile devices, which would support the cause of mobile commerce.
Success stories - mobile commerce.Japan Airlines
Japan Airlines is providing increasing connectivity to a host of services via mobile phones and hand held devices. This has already proved a success and JAL passengers are able to access services such as domestic travel reservations, confirmation of reservations, cancellations, seat availability, mileage status etc.
Value-Direct (electrical retailer)
Value-Direct is offering its full range of web site products through Internet-enabled WAP mobile phones. The company claims to be the pioneer in this sector to offer such services.
Abbey National is already providing on-line banking facility. With the launch of On-line banking in May 2000, within the first month 120,000 customers have already signed for on-line banking. The bank expects a million customers within the next 12 months. The bank expects $61 million in saving, in terms of Bank's Annual Procument Bill.
Challenges, threats and concerns
As already discussed there are many open issues to be resolved to realise, the full potential of electronic commerce.
A Few of the important ones are addressed below:
Reliable and high-speed communication links.
This specially applies to our South Asian region. Users would be discouraged to do business electronically in the absence of good communication facilities. Today the goverments in the region understanding the great potential of e-commerce are pumping huge doesof money to build the necessary infra-structure.
Privacy and Security
E-commerce, which transacts over open networks, demands effective and reliable mechanisms for privacy and security. Security, which is a very complex topic, cannot be addressed in detail in this paper.
This issue is being addressed by many concerned organisations and more reliable and accepted security systems are being incorporated to the e-commerce environment.
Contractual and financial issues
Transactions over the internet run across geographical boundaries. Countries with different cultural and political backgrounds obviously will have their own regulations. It will be quite interesting to know at which point the contract was established and which rules applies to the transaction. How would be the taxes and other charges monitored and collected?
Today, these transactions are done using the traditional payment methods, regulations and practices. In order to derive the true potential of e-commerce it is very essential that these issues should be discussed openly and proper formal methodology adopted.
DeploymentOne major factor that hinders the growth of e-commerce is the lack of awareness and skills. Many providers of e-commerce facilities are heavily engaged in marketing concepts of e-commerce. The biggest challenge would be the non-availability of skills in managing the e-commerce environment.
Traditionally it has been the role of accountants to handle most of the above aspects. The challenges for the accountants in the new e-commerce environment are going to be even more demanding. New methodologies and new accounting indicators have to be developed to make e-commerce related information and transactions to be more meaningful. CEOs and managers would demand new costing indicators for products and services commerce through the Internet. There will be a major challenge to accountants to translate basic e-commerce transaction data to meaningful accounting indicators. Some of these indicators have already been identified.
* Cost per thousand:a standard measure to compare advertising costs of reaching target consumers.
* Cost per click: a new way of evaluating advertising based on the Internet surfer clicking on response to a displayed ad.
* Cost per head:
measures only those people who respond to an ad with personalised information such as an e-mail address or other details about themselves enabling the company to follow-up.
What Bob Wehling, Vice President of Procter & & Gamble said to the advertising industry is very relevant to today's forward looking accountants.
He said "we need to establish clear, broadly-accepted standards for measuring cost effectiveness. We have no doubt the Web can be a highly cost effective marketing medium but to become truly valuable it must demonstrate it is highly efficient. We need accurate and reliable measure to guage that efficiency. The measurement systems today are nowhere near accurate and reliable enough".
ConclusionE-commerce is not a dream. It is a reality. It is obvious that e-commerce would change the way in which business and consumers do their businesses.
The impact of electronic commerce will be pervasive both on companies and on society as a whole.
But yet it is important to say that e-commerce or mobile commerce is another way of doing business, where you use the Internet to deliver products or services. One thing that will not change is that you still need to support the logical processes and satisfy the needs of customer service departments, marketing departments etc.
The success of e-commerce depends heavily on the confidence factor of its users. In order to build this confidence, it is necessary that all transaction points are captured and the information be transparent to the users and the necessary authorities.
A traditional ERP backbone system would not be capable of trapping this
information. This necessity has given birth to a new generation of ERP
which analysts call eERP or e-enabled ERP.
The inter-bank call money market and the Overnight repo marketDuring the shortened week ended 26th October, on the back of the enhanced government expenditure and the increased cash in circulation, the liquidity shortfall expanded further, to reach highest levels in the recent history. Given the prevailing liquidity shortfall and the unchanged Central Bank's open market rates, the inter-bank call money rates persisted in the range of 16.25% to 16.75%, throughout the week. The pressure on the term money rates remained unchanged and the three months money was quoted at 17%~17.5%. The weekly call money average shot up to 16.6%, marginally higher than the previous week. The market repo rate continued to hug the Central Bank's repo rate and was in the region of 15.75%~16%.
Central Bank open market operationsFor yet another week, the Central Bank's overnight repo and reverse repo rates persisted unchanged at 13% and 16% respectively. During the four days of the week, the market players borrowed Rs. 55.36Bn from the Central Bank's reverse repo window averaging Rs. 13.84Bn a day. As the market liquidity shortfall is likely to remain the same in the near future, we expect the Central Bank's reverse repo window to continue to play an immense role in bridging the liquidity gap in the market.
Treasury bill auction.During the week Rs. 2823Mn worth of treasury bills matured and the full amount was offered in the auction. The auction was oversubscribed by 179%. As most of the bids for 364 days were in a favorable range, the Central Bank accepted more in that category and accepted less in the other categories. The Central Bank intervention in the bill auction was kept at a modest level. Therefore, we estimate the market liquidity to fall by approximately Rs. 660Mn. The treasury bill yields continued to strengthen further. The highest gain was witnessed in the 91 days category. The gap between one year and two year yields stretched almost to 100 basis points, which is unprecedented. Therefore, we expect the yields to adjust accordingly in the future auctions.
Treasury bond auctionDuring the week a bond auction was held offering Rs. 2500Mn of 2-year bonds and Rs. 2500Mn of 3-year bonds. The subscription for bonds were better than the previous week.
The uncertainty prevailing in the economy sustained the rising momentum of the treasury bond yields.
The spread between 2-year's and 3-year's yields remains very close, we expect it to be corrected in the forthcoming auctions. The secondary market activities remained at a lethargic note.
Foreign exchange - dollar spot movementThe Central Bank continued further with the unchanged dollar/rupee trading band, buying at Rs. 75.60 and selling at Rs. 79.47. During the week the dollar/rupee spot rate bounced back on the back of the renewed buying interest for dollars.
The spot trading that started at Rs. 79.15~Rs.79.23 closed at Rs. 79.42~Rs. 79.46. However, the weekly spot average lowered to Rs. 79.39 from the Rs. 79.52 of the previous week, as the week started much lower.
Three months forward was quoted at Rs.81.60 to Rs.81.75, while six months
was at Rs.83.20 to Rs. 83.40.
This launch evening meeting is titled: "Traditional marketing, will it survive. Introducing MTI's model to Sri Lanka". International marketing expert and CEO of MTI's global operations Hilmy Cader is expected in Sri Lanka to address this program, a media release said.
The presentation will question the validity of traditional marketing
tools, given the rapidly changing business environment. Participants will
then have the opportunity of appreciating MTI's 8s strategic marketing
process model, which is now used by clients in USA, Mexico, South America,
Philippines, Bahrain, Spain, Italy and Poland.The presentation will merge
theory and practice, using a blend of local and international examples.
The All Share Price Index fell 12.2 points to 499 while the Milanka Price Index dipped 26.5 points to register 808.6. Average turnover during the week was Rs. 16.1 mn. Net foreign outflows during the week was Rs.800.000.
The interest rate structure has changed from the beginning of the year and people investing in fixed income securities and very short term maturities will be definite winners, Fund Manager, Namal, Prabodha Samarasekera said. "Don't be too disheartened its not only the Sri Lankan market which is crashing, Korea crashed 46 per cent from the beginning of the year, Bangkok 42 per cent and Manila 40 per cent, " he said.
Jakarta fell 38 per cent, Taipei 29 per cent, Bombay 27 per cent while Colombo came down 11 per cent. The only markets performing better are Sidney, China and Karachi, Samarasekera said.
"Sri Lanka's isolation from the rest of Asia as a result of its tiny
size has served the market well in recent months as it has been unaffected
by sharp falls seen in other Asian markets," Head of research, Jardine
Fleming HNB Securities, Amal Sanderatne said. "This safe haven status reflected
in Sri Lanka's data compared with the Financial Times world index of negative
1.1," he said.
During the financial year the company participated in two real estate projects with a return of 35 per cent per annum. Plans are afoot to develop this line of business into a constant and consistent source of profits.
As a part of its diversification efforts the company has formed a collaboration with Uni Walkers Ltd for the import and sale of Daihatsu vehicles in Sri Lanka. The company is in the process of building the image and establishing the re-emergence of Daihatsu in the market.
Meanwhile Alliance Tech Trading has shown considerable profit potential. The addition of a new line, office furniture is envisaged by the company. "The combination of furniture for office and living has distinct advantages as it caters to corporate clients and retail domestic consumers," de Silva told shareholders. The products will be launched at an outlet in Havelock Road shortly.
The company has drawn up a strategic plan and intends concentrating
more on corporate clients in order to reduce risk in its core business.
The Finance Company has a 60 year history, and is a part of the country's largest conglomerate, Ceylinco Consolidated, which has a combined turnover of Rs. 40 billion (3% of GDP).
According to Mrs. Padmini Karunanayake, Deputy Managing Director/Chief Executive Officer, TFC continued to innovate by launching the first ever credit card for fixed deposit holders. "The TFC Trust Card" can be used by deposit holders for medium term credit. It also prepares customers to make use of technological changes taking place in the environment". "Taking advantage of Ceylinco Consolidated's leadership and expertise in this area, we are continuing to invest in improvements, in management information and communications system," said Mrs. Karunanayake.
Other financial highlights are the growth of total reserves from Rs. 591 to Rs. 624 mn. Increase of earnings per share from Rs. 4.50 to Rs. 4.81 increase in return on average shareholder's funds from 7.29% to 7.39% increase in dividend cover from 2.27 times to 2.4 times, dividend yield increase from 13.33% to 14.81 % and increase in earnings yield from 30.20 % to 35.63%.
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