The challenges of a borderless world

Florence Chong's picture

INDIVIDUAL Governments are beginning to face up to the challenge of maintaining control as more business activities go online . . . 

THE WORLD is witnessing the most dramatic changes in how people work, shop, and manage their daily chores as the digital age consolidates.

Indeed, one has also to ponder whether the advent of the digital world will supplant the authority of national governments on such divergent issues as consumer protection and cross-border tax revenue on what has became known as “stateless income”.

Such is the borderless nature of the digital world that, at the end of the day, it is reason- able to ask: who is — and will be — responsible for what?

From e-commerce to e-government, e-learning, e-diagnosis and indeed, anything with an “e” in front of it, life for most of the world’s population is increasingly revolving around technology.

And people are willingly — perhaps unwittingly — entrusting their personal de- tails to a small clutch of technology giants. Every skerrick of information tapped into a search engine adds yet another pixel for a clearer picture of an individual captured and stored into a huge database.

As an example, the Chinese e-commerce company, (now owned by Walmart) puts 300-400 tags on each of its customers, giving the company the fullest possible profile on each of them. The upshot is that the company knows when to prompt users to make the next purchase, when their toothpaste runs out, when the toothbrush needs replacing . . .

Already, a handful of technology companies control huge swathes of information on their users. The world has allowed them to create technology oligarchies.

Take just one company, Google and its search engine. According to the US compa- ny, nearly 1.2 billion people used Google in 2013, and another 600 million — split almost equally — opted for China’s Baidu or Yahoo. 

These companies know no border. Nor do their users. Technology has taken globalisation to the next level.

The likes of Alibaba and Amazon are increasingly becoming the gatekeepers of trade flows as they manage and facilitate ecommerce for their extensive user base.

The Universal Postal Union, a United Nations agency, is working on a portal which will link all national postal services to offer an international e-commerce platform — providing an alternative to the commercial e-commerce giants. UPU member are offering an Escrow service for payments and other functions to facilitate businesses in the digital age.

Technology has brought the world to the feet of billions of consumers, especially those from developing countries, the purchase of goods or services a keystroke or two away.

More than any other nation, it seems, the Chinese middle-class has enthusiastically embraced e-commerce — China’s economic slowdown notwithstanding.

Last November, when China’s Alibaba group hosted its annual sales event — known as Double 11 and billed as the world’s biggest online sales day — it reported sales totalling US$9.3 billion – up from US$5.75 billion in 2013. Double 11 is tipped to be even bigger this year. In China today, says Hillary Wang, Director Overseas Business of VIP. com, a leading Chinese site focussing on fashion and accessories, 46 pairs of every 100 pairs of shoes sold are bought online.

The research firm, eMarketers, has tipped China e-commerce to reach US$1 trillion by 2018, accounting for more than 40 per cent of the total worldwide. It says the US will maintain its position as the second-largest retail e-commerce market.

The evolution of Chinese e-commerce has taken a different route to that of other countries. Its platform operators are far more proactive, in that they directly help source products as well as introduce new products, such as avocado, to their users, together with educational commentary,

The next phase for Chinese e-commerce companies is to directly source new products from countries like Australia, and to list them on their virtual shopping malls.

The impact will soon be felt in higher prices — good for manufacturers and producers, but not so good for their domestic consumers — for products sought after by the huge Chinese market. Australia is firmly in their sights.

Anecdotally, prices of certain Australian products, such as nuts, are already rising — and according to merchants, it is because of demand from China.

UNCTAD says China’s Alibaba group was the top e-commerce site in the world in 2013 in terms of gross merchandise value. It surged ahead of Amazon and eBay.

In its comprehensive Information Economy Report 2015, UNCTAD says some of the largest companies by online revenue are Amazon. Com (United States), (China), Dell (United States) and (China). India has two companies, Flipkart and Snapdeal, on the list and Japan’s Rakuten is also there. Six of the world’s top 10 e-commerce sites are now located in Asia.

The share of the Asia and Oceania region in global B2C e-commerce is expected to jump from 28 to 37 per cent between 2013 and 2018, according to UNCTAD.

As yet, nearly all developing countries do not have all of the infrastructure — limited use of credit cards, lack of purchasing power and underdeveloped financial systems — needed to participate in e-commerce, implying that there is huge potential yet to be unlocked in these countries and regions. 

In UNCTAD’s newly-developed 2014 e-commerce index on e-commerce readiness, only South Korea is included in the top 10 countries globally, while Singapore, Hong Kong and Malaysia are on the ‘developing’ countries list.

For more than a decade, e-commerce companies from the developed countries, led by the US, the UK and some European countries, had the world beating a path to their platforms. No longer.

A recent rating by ecommerce-platform. com ranks three Chinese e-commerce sites among the world’s top five e-commerce companies. The largest platform in the world today, in terms of visitors, is not Amazon or Ebay, but China’s Taobao, with more than 600 million monthly visitors.

The world of e-commerce has given rise to the birth of the micro multinational — the one-person enterprise selling to the world. It is transforming millions upon millions of small businesses, and has given SMEs a new meaning in life.

But in the broader economy, the disruptions wrought by technological change runs far and deep.

On top of the list is a continuing shedding of jobs as technology takes over from human beings. Witness the explosion in the use of robotics, especially in a country like China.

Experts says it could take one or even two decades before new technologies can generate enough jobs to replace those lost to of technological change. Governments are having to manage the shift to the digital economy and to smooth the way for their people, especially older workers.

As the OECD says, a cross-Government approach is needed because technological change touches every aspect of Government. But it is not a given that the technological revolution will continue unimpeded. 

The hiccups revolve around the issue of trust and confidence in the providers of web services, and lack of physical infrastructure — such as a shortage of so-called IP (internet protocol) addresses. 

And exponential growth in e-commerce and other parts of the digital economy is contributing to a worsening headache for cashstrapped Governments. How do they stem the leakage of tax revenue into the black hole of cyberspace?

The borderless nature of the digital economy has given rise to the phenomenon known as “stateless income”, and e-commerce is exacerbating this problem. There is as yet no estimate of the size of this pool of funds, but it is believed to be “substantial”, meaning many billions, if not trillions, of dollars.

In a small start led by the European Union, companies selling to EU citizens are required to register their businesses in the EU for the purpose of collecting value added tax on online transactions.

The system was implemented in January this year, and the EU has already collected some €3 billion in VAT which it would otherwise have lost. Other countries, including Australia and Japan, are considering similar approaches to recover goods and services tax on goods purchased on the Internet.

But large multinationals, especially technology companies, continue to arrange their affairs in such a way as to shift their tax burden away from high-taxing countries.

Other emerging issues include the protection of online buyers and sellers. In this respect, UNCTAD believes the sector has developed faster than Governments are able to cope with in implementing policies.

The task ahead is to develop consumer protection laws that cover cross-border transactions. It is a tricky issue, but Governments will have to sit down and agree on laws that project their citizens.

Slowly but steadily, it seems, the reality is that individual Governments are beginning to face up to the challenge of maintaining control as more business activities go online in a borderless world. 

* Florence Chong is Editor of ATI Magazine.