This Week in Europe, 21 January 2000
Executive Director of the Caribbean Council for Europe
Electronic business is changing the nature of international relations and the role of companies and governments. Regions in which markets are fragmented, where nations do not have corresponding borders and where the domestic economy is relatively small, are likely to be among the first to experience economic marginalsation as a result of e.commerce. Given that the region falls into all of the above categories, but is situated at the heart of the Americas, has high education standards and is for the most part in the western commercial mainstream, few places are likely to be quite as dramatically or quickly effected both positively and negatively as the Caribbean.
This is not a prediction. It is already happening and the way in which Government and the private sector respond may well determine the extent to which the Caribbean retains the ownership of its industries and economies.
Take tourism for example. On line booking, on line discounting of travel and holidays, à la carte holidays you can package yourself from a menu of options and virtual tours of hotel properties via the Internet are all now a reality. They are already affecting negatively travel agents and those supplying services to the industry throughout the Caribbean. But this is just the beginning.
At the recent Caribbean Hotels Association (CHA) meetings in Nassau an interesting debate took place. There, CHA board members considered the impact of a possible electronic commerce arrangement. This would involve a major US shipping line providing by electronic means its services as a wholesaler and marketing and sales agent for US and possibly European companies selling the vast array of products consumed daily by the regions hotel. The idea was and is that the shipping line might provide Caribbean hoteliers with a discounted online purchasing service guaranteeing delivery using the shipping company’s warehousing and transport facilities thereby reducing costs, tracking and shipping time to the hotelier.
Concern was expressed at the CHA meeting that this radical change would affect negatively Caribbean companies and in particular the many commission agents and suppliers presently using methods of sale and distribution little changed since the seventeenth century. Others felt that this was inevitable.
It is only a short leap from here to recognising that when most national and regional impediments to trade disappear within the Americas or with Europe, any company that relies on commission sales is likely to go to the wall or be forced to rationalise across the region.
This suggests that companies and governments must adapt quickly to a new reality. Borderless commerce, assuming products are competitively priced, is probably unstoppable. Already, in Europe and the US, books, insurance, music, clothes, real estate, financial services, groceries, automobiles, hardware and a ever-growing array of products can be purchased direct from either the manufacturer or from a large warehousing operation with few of the overheads associated with traditional retailing business.
But the issues are much wider than this. There are legal and fiscal implications. Which jurisdiction will regulate or police such trade? Where will taxes be paid, if any? E.business challenges traditional concepts of sovereignty in areas where government believes it can or must control or regulate commercial activity. The electronic revolution will impact on foreign relations. Monitoring the expansion or contraction of trade provides an important basis for measuring the strength of state-to-state relations. Exports provide the cement for international relationships. When exporting is conducted electronically via third nations it is hard to understand how the measurement of trade relations will any longer be possible. E.commerce also raises questions about the central role of the telecommunications carriers, the infrastructure they provide, the regulation of telecommunications competition and the carrier's impact on the competitiveness of nations. The electronic revolution also suggests that companies wherever they might be are unlikely much longer to just engage in their core business. Thus any service provider such as an airline or publication because of its direct link with consumers can see itself as an electronic retailer of products and services.
According to the Chairman of Oracle, the second largest computer software business in the world, the Internet is "about having a unified global business". But is Caribbean business prepared for what this means?
The world of the mega-merger is understandably unattractive in countries where individuals or families have traditionally owned business or, more recently, if publicly quoted, are controlled by interconnected groups of Directors. Can this continue in the face of electronic competition? The moment is fast approaching when, in the face of borderless commerce, amalgamation and rationalisation of business is likely to occur by force majeure. In Trinidad and Jamaica there are signs that some large Caribbean companies are recognising this and are moving quickly through acquisition and strategic alliances to increase their size and capital to respond to the challenge, but most Caribbean enterprises are pitifully prepared for what might happen next.
Traditionally the response would have been to encourage government to introduce tariff or non-tariff barriers to ensure that national business is protected within either the region or more usually the state. This is, however, no longer sustainable under either World Trade Organisation rules or the gradual shift to full reciprocity in trade. Relatively little notice has been taken of the World Trade Organisation's General Agreement of Trade in Services (GATS) or the proposed new round of discussions which will liberalise most aspects of cross-border trade not involving goods.
The electronic revolution is already advanced. Islands in the stream can not alter or impede the flow of innovation and change. This is an abiding message of Caribbean history. A better response, therefore, might be to focus on the creation of regional critical economic mass. This applies equally to companies, private sector associations and in a somewhat different way to Governments if they are to retain sovereignty. Island based nationalism and many in politics will not like this. But in the face of global competition it would appear to be the only way in which small economic units in the Caribbean can sustain their regional identity.
Paradoxically e.commerce might just bring about a new regional cohesion. If the threat it poses to regional enterprise leads to practical steps to trade freely and amalgamate companies across borders and linguistic divisions, then the electronic revolution may achieve more than the thirty-plus years of post-independence debate on regional integration.