A critique to UNCTAD B2C E-commerce Index

Cover of UNCTAD Information Economy Report 2015
UNCTAD’s Information Economy Report

UNCTAD has released the new edition for 2015 of its Information Economy Report, especially devoted to disclose the potential of e-commerce for developing countries. To contribute to the reflection, the report introduces the new UNCTAD B2C E-commerce Index. The purpose of this index is:

[to allow] countries to compare their readiness with others and also indicates their relative strengths and weaknesses in different elements of the e-commerce process, such as the quality of Internet infrastructure and the availability of payment and delivery solutions.

In my opinion this is only partly true.

Let us take the main areas of e-readiness that I developed in Measuring digital development for policy-making: Models, stages, characteristics and causes, that is:

  • Infrastructures.
  • ICT sector.
  • Digital literacy.
  • Policy and regulatory framework.
  • Content and services.
  • Socio-economic context.

These are the five (six, counting the socio-economic context, or non-digital factors) areas that I found relevant to define the state of e-readiness of a given economy, geographic area or community. If we take out Content and services, which will here act as the “dependent variable”, we still need to cover the other five areas. How does the index do it? Well, let us take the four indicators that the index is using and let us compare them to our e-readiness areas:

  • Secure Internet servers (per 1 million people). This indicator clearly falls in the area of Infrastructures and it can also be used as a proxy of the maturity of the ICT sector. There is no (secure) e-Commerce without secure servers, which at their turn have to be operated by competent companies.
  • Percentage of individuals using Internet. This indicator can be used as a proxy to two very different things. The first one is digital literacy. It is a bad indicator for digital literacy, but it is better than nothing, and yes, it somewhat correlates with the ability of people to use the Internet. On the other hand, it is quite a good indicator to approximate Infrastructures. Infrastructures? Right: the demand side of infrastructures or, if you prefer it, a proxy of the usage (even saturation) of these infrastructures. These two indicators together — secure servers and individuals using Internet — do tell us almost half of the whole picture with just two indicators. A very good choice.
  • Percentage of the population having mail delivered at home. A non-digital indicator, it can though be useful to proxy both digital literacy and a certain propensity to use information intensive goods and services. Again, an interesting choice.
  • Credit card (% of age 15+). Last, this is the indicator to capture the socio-economic context. The number of people having a credit card tells us lots of things about the state of things where e-commerce will develop.

So far the collection seems very good — and it actually is, in my very sincere opinion — as it provides enough information on how ripe the market is for e-commerce to settle and grow: we can tell if the infrastructures at hand are enough, whether people have access to connectivity and do use the internet, and if these potential customers are already customers in an offline world. It could be argued that the policy and regulatory framework are missing — and this is despite the fact that UNCATD does take it into account and presents the data in the report — but it is very likely that the usage of the Internet and the existence of secure servers somewhat reflect the healthiness of the policy and regulatory framework. In other words: on a monopoly of infrastructures, it is very likely that there would be less secure servers (which correlate with a free market) and much less users (which are affected by affordability, the first victim of monopolies).

That said, is then everything right?

Yes?

No.

What is missing?

The whole supply side is missing. Firms are missing.

We have the main actors: customers, the infrastructures where transactions will take place, (indirectly) the regulatory framework, and the economic context. But we do not have the sellers.

And, in my opinion, the e-readiness level of the sellers (mostly retailers in the B2C index) cannot be inferred from any other indicator among the ones chosen by UNCTAD.

It may well be that even with a rampant B2C e-Commerce index, e-commerce would just not take off: firms may simply be not online (e.g. do not have a website, or a website prepared to perform online transactions), and it may happen that employees from firms may not have the skills to sell online (quite different from the ones needed to buy online: customer (online) relationships management, e-marketing, content management, SEO and SEM, etc.). These are very relevant factors. Indeed, data show again and again that for most countries there is a deep digital divide between big firms and small and medium enterprises: the former steadily advance with the pace of times while the latter usually do what they can in terms of online presence and, even worst, in terms of online transactions.

Conclusions? At least two.

  1. If you are a firm that want to enter e-commerce, UNCTAD B2C E-commerce Index will be useful as it does tell how mature is your market in relationship to developing an e-commerce initiative.
  2. But, if you are a government, the index may be telling you only half of the story (to be true, more than that) and forgetting the whole part of firms or, in other terms, of de supply side of e-commerce. If you are a policy maker and you want to foster e-commerce in your region, well, the index may simply not be enough or, even worse, may be sending wrong signals.

Thus, in my very personal opinion, the UNCTAD B2C E-commerce Index is a very good tool that needs being completed with information from firms. Maybe by means of an indicator calculated with a composite index made up from whether firms have a website, the degree or intensity of B2B and G2B interactions and some indicator on the digital skills of the employees or the board of directors.

If you need to cite this article in a formal way (i.e. for bibliographical purposes) I dare suggest:

Peña-López, I. (2015) “A critique to UNCTAD B2C E-commerce Index” In ICTlogy, #139, April 2015. Barcelona: ICTlogy.
Retrieved month dd, yyyy from http://ictlogy.net/review/?p=4299

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6 Comments to “A critique to UNCTAD B2C E-commerce Index” »

  1. To make the index more useful, the socio-economic indicator should extended to the existing kind of payments in emerging markets where it is difficult to have a bank account or a credit card.

    In environments (and countries) where the population at the “Base of the Pyramid” is being empowered through mobile payments, it seems appropriate to consider the penetration of mobile money as a substitute or complementary of the socio-economic indicator.

  2. Thanks a lot for your comments on the UNCTAD index. We welcome the feedback.

    When we developed it, we considered many of the issues you raise. We found that there was little statistical significance between websites and e-commerce take-up; that’s why we chose “secure servers” as a supply side indicator. We also found that there was little statistical significance with laws/regulations and take-up. This may be because having a law in place is insufficient to create trust – it needs to be effectively implemented and enforced. Despite our mapping of cyberlaws, there is a needs for better data to assess the legal environment.

    We did look at the extent to which businesses are using the Internet for e-commerce. However,such data are only available in business surveys and relatively few countries have so far carried out such surveys. This means that data access is limited.

    But we found that the index value is still a pretty good predictor of the share of individuals making online purchases.

    • Dear Torbjorn,

      Thank you very much for taking the time to (read and) comment on my reflections.

      It is a pity there is not enough data to design more comprehensive measuring devices.

      And yes, as I said before, I fully agree with you that the index seems to be a good predictor of the people that do make online purchases.

      But, like UNPAN’s e-Government readiness index, decision makers would surely like to know what happens also with organizations (firms, in this case; governments, in the case of UNPAN’s index).

      I haven’t had the time to thoroughly look at the makings of the index. And I am totally with you that simple regressions are very limited tools here.

      I wonder whether other kind of tools (e.g. structural equation modelling) would work better.

      Just wondering :)

      In any case, thank you very much for your work!

      i.

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