What is E-commerce?*
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E-commerce is short for electronic commerce, which refers to any business activity in which the parties transact through computers or other electronic devices linked via telephone or cellphone. While fax transmissions, ATM transactions, retail POS (point-of-sale) systems and bar coding, business e-mail and text messaging, EDI (electronic data interchange) and electronic fund transfer all qualify as e-commerce, most e-commerce today is done on the Internet due to the Internet's low cost, ease of use and unlimited reach.

Why should I be interested in E-commerce?

You can look at e-commerce in two ways: as a most productive and timely business tool, or as good business.

As a business tool, e-commerce tremendously speeds up and simplifies transactions while lowering transaction costs by dispensing with paper, ink, transport, a large manpower complement and other overhead costs. It gives customers anytime, anywhere access to critical company and product/service information that may clinch a sale, and enables cost-effective one-on-one selling to individual customers leading to product/service customization and thus, greater customer satisfaction.

It opens communication lines with business partners and customers and can be used to find out what competitors are doing and offering as well as what market trends and product/business developments are emerging. It also expands one's market to a virtually unlimited degree.

E-commerce is also good business. The e-commerce market is booming, with more and more Filipinos going on the Internet and millions of people the world over projected to have access to it in the next few years. Back in 1997, goods and services bought by Filipinos from the Internet were already valued at $1.6 million; by 2002, local Internet sales is expected to rise to $383.66 million.

Isn't e-commerce viable only for large companies?

No. One of the best things about e-commerce is that it can be undertaken by any company--big, medium or small. All the hardware it takes are the computers, modems, phone lines and Internet access which most companies today already have anyway.

How many of these are needed depends on the volume of the transactions involved?

As for content, websites can be put up and maintained by countless firms or even individuals for nominal fees. Business software applications need not even be bought anymore but just rented on the Internet at a minimal cost per transaction through application services providers (ASPs).

E-commerce business ventures, on the other hand, considering their terrific earnings potential, require very little capital; the most important thing to have is a good idea, which no individual or company has a monopoly on. That is why many of them companies no one has ever heard of before, offering practically anything that will make life or business easier and better.

Are there many small-and-medium-scale enterprises (SMEs) now doing e-commerce?

Not as many as there should be. Many SMEs do not yet fully understand e-commerce, much less realize how it can help them compete more effectively with large companies both in the local market and overseas. Many who do know these think e-commerce is too complex and costly for SMEs to undertake. The combined efforts of the government and the private sector to promote e-commerce among SMEs should lead to the right information being made easily available to them and singly viable e-commerce solutions for this to the introduction of increasingly viable e-commerce solutions for this sector.

How can I use e-commerce in my business?

Based on our definition of e-commerce, chances are you're already using it. (If you use the fax machine, e-mail and text messaging to do business, you already are.) There are, however, more sophisticated e-commerce applications that can greatly benefit your business. These are what we shall refer to hereafter.

There are two types of e-commerce applications, classified according to who the transacting parties are: business-to-business (B2B) e-commerce, and business-to-consumer (B2C).

Business-to-business (B2B) e-commerce. Some examples of B2B e-commerce are inventory management, e-procurement, distribution management, channel management, payment management, financial management and job placement.

Business-to-consumer (B2C) e-commerce. Common B2C e-commerce applications are busing and selling, information services, personal finance management, and bills presentment and payment.

Several options are available to companies on how to implement these applications:

Private Networks. One option is through private networks, which are rather costly and complex and therefore now recommended for SMEs.

Internet. Another option is through the Internet, which is much more affordable, easy to use and effective both for companies transacting with global or mass markets and those addressing selected audiences (such as business partners) and market niches.

Again, there are several ways of doing e-commerce on the Internet.

Internet-based applications

Several e-commerce applications in the market are now Internet-based, and more and more software developers are offering simplified and thus lower-cost versions of these applications for SMEs. You may contact any of the local information technology associations listed in this primer for information on these applications.

Your company's own website. Internet e-commerce may also be done through a company's own website. Many companies, SMEs included, embark on e-commerce this way. This is a good way to start, and you can get ideas by checking out other websites (especially your competitors') and studying your own company, product/service offerings and customer needs.

Next, you should answer these questions:

• What do you want to accomplish with your website? (Examples are to disseminate information on your company, products/services and marketing/other projects; to sell; to solicit feedback on your company/products/services/projects to sell; to solicit feedback on your company/products/services/projects; to resolve customer complaints; to research on customer lifestyles, needs and preferences and other useful data for business development; to recruit personnel; and to provide any interested party with round-the-clock access to your company.)

• How can your website accomplish these? (This will help you determine content.)

• How do you want to talk to your viewers in a corporate, friendly or conversational tone?

•How will you handle orders, inquiries, feedback and complaints? How fast will you respond?

• How often will the site be updated? Will this be done in-house or outsourced?

• What domain name will you use for your website address--your company name or your product's/service's brand name?

• Where will you host the site--in the US or with a local ISP?

Once you've answer these questions, it's time to decide on who will do the site. This will range from preparing the storyboard or navigation flow, to designing the pages, to writing the copy, to constructing the site, to inputting the links. If your company doesn't have expertise in developing a website, it's best to outsource it to a competent website developer. Ask for samples of their work, present your ideas (answers to the previous questions) clearly, ask for work programs and quotations, and compare their prices keeping in mind that the cost will greatly depend on how sophisticated you want your website to be--that is, how many pages it will have and how many functions you want it to perform.

When you've chosen a developer, draw up a contract. Make sure it clearly defines the deadline, warranties, limitation of liabilities, and copyright claims.

Proceed to ask your chosen developers for a storyboard or navigation flow, a design concept, and a copy outline on to the actual text that will go into your website to ensure that no major revisions will be made once the website has been constructed.

Once the website is completed, audit it as to:

• Download time and navigation speed (a website that takes too long to download or navigate will, more often that not, be abandoned);
• Approved navigation flow;
• Approved page design;
• Design elements, execution and page layout;
• Typographical errors; and
• Operability of functionalities and links.

As soon as the website is approved, its programming and HTML codes must be documented to allow for easy reviewing in case another company will be commissioned to maintain the site. This is best done by a person or group not connected to the website developer.

Once your website is up, you should make every effort to encourage visits to your site by putting your website address prominently on all your company and marketing materials (e.g. calling cards, letterheads/envelopes, brochures, press releases, streamers, signages, billboards, giveaways). You may also do cooperative advertising with related websites (you advertise these sites on your website and they advertise yours on theirs). Update your website weekly so information remains fresh. Monitor orders, inquiries and feedback as often as possible; Internet habitues usually don't want to wait long and a quick response is a great way to impress them and sell to them your company and product.

One last note on websites--the Internet being an open and interactive network, there may be instance when you won't have control over comments and materials placed by your viewers on your website. Make sure to protect yourself from libelous and other offensive statements as well as materials that infringe on other people's intellectual property rights through a disclaimer on the site clearly stating your non-liability of such unsolicited statements and materials.

Shopping sites. If you don't want to put up your own website, you can always ask existing shopping sites to sell your products for you in exchange for a commission. Many of these sites offer complete services all the way to delivery.

ASPs. One way and exciting development in e-commerce is the emergence of application services providers or ASP-companies that put cutting-edge e-commerce applications on the Internet for use by companies big or small, for which they're charged nominal monthly subscription fees and very minimal transaction fees. A list of associations you may contact for help on these can be found towards the end of this primer.

How can I make sure that business will really be consummated in the internet?

E-commerce Act of 2000 (ECA) now gives electronic documents and signatures the same legal status in the Philippines as paper based documents and manually-signed signatures. Thus, wherever the law requires a document to be in writing or that it be signed, an electronic document or an electronic signature already complies with such requirement provided they conform to standards stipulated under the ECA.

Electronic documents and signatures are now also admissible in court. In fact to simplify the admission of such evidence, the ECA allows parties to present affidavits in lieu of direct testimony subject, of course, to the right of cross-examination by the opposing party.

The ECA also expressly allows information contained in electronic documents to be incorporated by reference. For instance, an electronic contract could include a hyperlink to a page containing the said information. This provision is important because it is expected that much of e-commerce will be conducted through electronic data messages, which may at times, be composed entirely of numbers, and which may contain references to some other electronic or even paper document. Allowing incorporation be reference also serves to facilitate the inclusion of standard terms and conditions or common definitions in electronic contracts.

Having said all that, there are other conditions that should be met for e-commerce transactions to be consummated.

A B2B e-commerce transaction is considered consummated if the trading parties have earlier agreed that they will use electronic documents in conducting transactions; that the electronic documents used for said transactions conform to those that the two parties have agreed upon; and that the conditions they agreed upon as to when messages will be considered dispatched and received as well as how transmission errors, duplicate messages and other concerns will be handled, are met. All these agreements should be properly documented and standardized before any B2B transaction is conducted.

B2C e-commerce transactions, on the other hand, have to be covered by terms and conditions published on the website that buyers must agree to (by clicking on the “I agree” of “I accept” button on the site) for the transactions to be considered consummated.

Since Internet transactions cut across national barriers, there is difficulty in ascertaining which country’s laws will apply for international e-commerce transactions. To protect your company from legal complications that may arise from this difficulty, insert a standard “choice of law” provision in your contracts specifying the set of laws that will apply to your electronic transactions and the proper court that will resolve any dispute arising from the same.

For your protection and guidance, it is best to consult an e-commerce lawyer.

Are business transactions secure on the Internet?

While anyone can access the Internet, there are ways by which companies can ensure that only authorized users can access information they put on the Internet.

They can use passwords, encryption, fingerprinting, firewalls or any combination of these.

Information on these security systems are available from any software provider while application services providers (ASPs) should already have these systems in place.

To further protect e-commerce users from unauthorized access to electronically available information, the E-Commerce Act of 2000 penalizes hacking and cracking (unauthorized access into stand alone computers or networked computer systems in order to corrupt, destroy, alter or steal electronic documents; also the introduction of viruses to same) with a minimum fine of P100,000.00 and mandatory imprisonment from six months to three years.

How can I protect my company’s products/services and other intellectual property from being copied from the Internet?

Just as with business outside the Internet, the only way you can protect yourself from theft of your products/service concept is by patenting it wherever in the world you’re doing business. Make sure you declare on your e-commerce site that your work is patented and include a strong condemnation of any form of intellectual property theft. You can also make the situation work for you by selling licenses to, of franchises for, your products and/or services.

Can I keep files of electronic documents?

Yes. Under the E-Commerce Act of 2000, all documents, records or information required by law to be retained may be stored in electronic form. This provision is expected to spark the growth of digital imaging and encoding companies in the country as businesses reclaim expensive office space used for filing cabinets and records in favor or digital files stored in hard drives or CD-ROMs.

In this regard, it is expected that each agency of the government will pass its own rules regarding the storage and maintenance of electronic records. For example, the bureau of Internal Revenue (BIR) will be formulating its own regulations on electronic invoices and other financial records. Such regulations may cover the desired format and other technical details necessary to satisfy the BIR’s mandate to ensure an orderly and efficient collection of taxes. You should therefore confer with the appropriate government agencies to determine if the “digitizing” of your official records will conform to their planned or proposed regulations.

Will I be able to engage in e-commerce with the government?

Yes. The E-Commerce Act of 2000 requires all departments and agencies of the Philippine government to be able to conduct their official business and perform their governmental functions electronically within two years from the effectivity of the Act (June 14, 2000). Apart from the acceptance, processing and release of permit applications, all government agencies are also required to facilitate electronic payments for all transactions. The two-year deadline, however, should not be interpreted to mean that private individuals can force the government to transact business electronically after the expiration on its conduct of electronic transactions before individuals can transact with such agencies electronically.

To speed up the government’s effort to connect to the Internet, and electronic online network called the RPWEB is mandated for all government offices. RPWEB is envisioned to become the government’s platform for conducting its business and delivering basic services to the Filipino people. In this regard, the National Telecommunications Commission, the National Computer Center and the Department of Transportation and Communications are mandated to create a policy environment that would lead to a reduction of telecommunications costs and the growth of e-commerce in the country.

How do I put up an e-commerce venture?

As with any other business venture, the first thing to do is you want to put up an e-commerce venture is to come up with a viable e-commerce business idea. You may either develop your own, introduce a new twist to an already successful e-commerce business model, or attend a bootcamp--a seminar organized by venture capitalists such as HatchAsia (www.hatchasia.com) on how to come up with or refine a good e-commerce business idea, venture capitalists can provide you with the seed money for your business and other form of support that you’ll need.

The Philippine government has so far abstained from issuing special rules and regulations on the setup of e-commerce ventures. As such, the same rules and regulations that guide traditional “bricks-and-mortar” companies apply to them. An exception to this concerns is e-banking, for which the Bangko Sentral ng Pilipinas has issued Circular No. 240 (dated May 5, 2000) requiring all banks to secure prior approval from the BSP before offering electronic banking services. Those already offering such services must secure approval for the same within three months. Such approval is required to ensure that the banks are capable of maintaining a risk management process adequate to assess, control and monitor any risks arising from e-banking.

In light of this development, it is best to check with the appropriate government agencies on whether or not special rules and regulations exist for the setup of specific e-commerce ventures. If there are indeed none, try to secure from these agencies a written confirmation of the absence of such special rules for your protection.

Is the government giving incentives to e-commerce startups?

Certainly. The Philippine government as declared information technology (IT) one of its preferred areas of investment. As such, the Board of Investments is modifying its current incentives package and guidelines under its Investment Priorities Plan for the year 2000 (IPP200) to attract more investments in IT and IT-related businesses in the country.

Considered IT and IT-related businesses in the IPP2000 are:

• Software development projects including the programming of system software, middleware and applications software;
• IT enabled services encompassing data encoding, digital directories, legal records, computer-aided engineering design and digital cataloguing;
• Business processes outsourcing such as technical support services.

Whereas earlier IPPs granted incentives (i.e., an income tax holiday for a maximum of six years, tax credits on domestic capital equipment, and employment of foreign nationals) only to export-oriented IT-related firms, the IPP2000 now extends such incentives to IT-related service catering to the local market.

The Philippine Congress is currently considering amendments to the Omnibus Investment Code which will expand the current menu of incentives under the IPP2000. In the case of IT-related projects, a maximum 12-year income tax holiday is being considered along with tax-and-duty-free importation of capital equipment, spare parts and production consumables; and a double deduction for expenses related to training and research and development for enterprise which will qualify. Please visit http://www.i-philippines.ph

What are the rules governing initial public offerings (IPOs) for e-commerce ventures?

The Philippines Stock Exchange recently relaxed its listings in order to attract, among others, IT-related initial public offerings.

Companies with an operating history of at least one year and a market capitalization of P250 million may now qualify for listing on the Second Board. They are no longer required to have a track record of profitability for at least three years with a minimum return on equity of 15% for each year.

Also, secondary offers are now allowed for Second Board listing. The previous prohibition against Second Board listing of secondary offers had the effect of veering such investment towards companies vying for the First Board. The relaxation of the rule should encourage investments from venture capital firms and other investors who usually prefer to exit from the company at the time of listing.

Another rule which has been realized is the lock-up period required of controlling shareholders, which has been reduced from three years to six months from the date of listing.

What will make my e-commerce project successful?

There are several factors that can contribute to the success of an e-commerce project. Here are some:

Before starting any e-commerce project, make sure you fully understand what e-commerce is, how it can benefit your business, now it is done and what are the laws that apply to it.

Define what you want to achieve from the project. Try to strike a balance between ambitiousness and realism. If this is your first e-commerce project, keep it simple.

Draw a roadmap and plot a work program for the project complete with a timeline and required resources. Do your best to stick to them but be flexible enough to make adjustments when needed and if adjustments are best.

Costs must be carefully determined and committed to. Adequate funding and resources to complete and maintain the project should be ensured.

A capable project team that truly understands the system from an organizational and technical perspective should be put together. Bringing trading partners on board is a complex project with many phases: education, equipping, software usage training, product installation, internal systems development, alignment/integration, parallel testing, and live implementation. A capable implementation partner is critical to ensure competent execution of the project.

Be willing to streamline business processes if needed. A good e-commerce project may uncover inefficiencies in your current systems that have to be addressed to ensure the project’s success.

What will make an e-commerce project fail?

A project can fail if the following happens:

Lack of participation in front-end system development. Some companies rely and entrust on the implementation to do everything for them then realize later on that the system developed by the partner is lacking and does not fit the requirements of the company. The implementation partner, on the other hand, does need inputs from the client; else the project will answer their needs, not the clients’.

Lack of push for trading partner participation. Some companies and government agencies do e-commerce related projects but do not have the determination to implement it in full extent, therefore realizing slow or no growth in terms of trading partner participation.

Lack of post-implementation agreement. When you plan for your project, create a provision on post-implementation. Else, you might end up encountering the mistakes of those who never made any provision for leaving the projects to die a natural death or stagnate in failing to upgrade the capabilities of the system.

Failure to add to initial e-commerce benefits. Never be contented with what your system is offering. Always look for ways to increase the benefits of the system. This will not only strengthen trading relationships but also encourage those who are still hesitant in doing e-commerce into realizing its value. Trading partners, especially the SMEs that are not mandated or to subsidized to do e-commerce, should see very clearly the obvious benefit of it.

Constant changes in top-level project leadership. Changes in management always require rebuilding sponsorship, commitment, and participation, time that takes away from the momentum for the project.

Changes in project team membership. A loss of a team member more often than not affects the progress of the project, so make sure to document all phases of project execution and store the documentation properly.

Unwillingness of trading partners to innovate, streamline processes, and adopt e-commerce best practices. The mindset of trading partners need to change. Investment in enabling technologies is not to be treated as an operating expense, but an asset investment that will drive new levels of service, competitiveness, and untapped business opportunities.

Lack of direction, plan commitment, and funding for implementation.

Absence of service provider contract. A service provider contract demonstrated commitment on both parties on the extent of project implementation. It is mutually beneficial to have a contract between the company and its service provider.

*Most part of the following topic are excerpts from Everything You Must Know of E-Commerce by J. Toral et al.