ICT has become an integral part of business operations in contemporary society. Many aspects of ICT such as the use of smart cards, use of mobile phones, and the internet have become integrated into business operations today, becoming indispensable aspects of the same. Ecommerce is one aspect. Recent developments have seen the introduction of e-marketplaces which are virtual spaces where businesses and consumers can interact and exchange goods and services. The utilization of e-marketplaces in Saudi Arabia has been very slow. This paper aimed to prove the current lack of utilization of e-marketplaces in Saudi Arabia. A comparison was made between the utilization of e-marketplaces in Saudi Arabia and other developed nations in the world. The literature proved that it is a fact the utilization of e-marketplaces in Saudi Arabia is low. Possible explanations for this were identified as weak ICT infrastructure in the country, weak technological culture, undeveloped complementary services, and lack of investment by the government. Several strategies that can be used to address this problem were identified. These included increased investment by the government in the ICT sector and incorporation of other stakeholders such as the private sector. This paper concluded that e-marketplaces have a big potential in this country. This is given that this country has one of the biggest economies in the Arab world.
The growth of information and communication technology (herein referred to as ICT) in recent years has affected many aspects of human life. This technology has changed the way people communicate, the way business is conducted and in extension, the way people live in contemporary society. It is a fact beyond that ICT has become an indispensable part of human existence.
Businesses have adopted information and communication technology through various strategies. These range from the use of email to communicating with suppliers, consumers, other businesses, and other stakeholders such as shareholders and financiers. Most businesses are connected to the internet today, and they find it hard to operate without this erstwhile elite business model.
Several factors encourage the adoption of ICT in business operations in contemporary society. One of them is the efficiency that comes with this technology. Using the internet, businesses can keep in touch with their clients, suppliers, and other stakeholders any time of the day, any day of the week. The cost of conducting business is also limited given the fact that communication through ICT is cheaper than conventional communication models such as telephony and postage. Businesses can also access and relay information on a real-time basis. This means that the business can access current information and can make strategic decisions using this information.
As earlier indicated, there are several ways that a business can integrate ICT in its operations. One such means of ICT integration is the use of e-commerce or what Ariba (2000) refers to as e-business. This is whereby the organization conducts business online by taking orders and supplying customers via this channel. This calls for investment in computers, human resources, and access to the internet among other things.
E-market place is an emerging phenomenon in the sphere of e-commerce. It is a relatively recent but significant development in the field of information and communication technology and business. Cyberindigo (2010) provides a working definition of this phenomenon. The definition of e-marketplace given by this author is the one that will be used for this paper.
E-market, according to Cyberindigo (2010), can be conceptualized as a “virtual space” (1) used by consumers and sellers to exchange goods and services and carry out other business transactions. The activities that take place in an e-market are not any different from those in the conventional physical market. There is an exchange of information, money changes hands, and goods and services are exchanged. The major difference between e-market and conventional market, and perhaps the only difference, is the fact that e-market is carried out in virtual space, over the internet. This is as opposed to the conventional market where the buyer and the seller have to establish physical contact.
Having looked at e-market as a concept, it is now appropriate to expand it further and look at an e-marketplace. Cyberindigo (2010) defines it as a “virtual online exchange” (1), a place where businesses register as either buyers or sellers. After registering as such, the businesses can now communicate with their suppliers, clients, and other stakeholders over the internet (Cyberindigo 2010). Business operations such as negotiations, buying, and selling are also conducted through this e-marketplace.
Several services are offered by e-marketplace sites. These include the creation of an electronic catalog detailing the services and goods offered by the business and their prices, structuring of diverse business proposals, business negotiations, and such other services. The provision of these services depends on the demands of the consumers and the sellers (Al-Hawari, Al-Yamani, and Izwawa 2008).
Adoption of e-marketplaces and utilization of services therein is not a uniform phenomenon. It varies from one society to the other and from one time to the other. For example, the number of people who use e-marketplaces today is higher than that in earlier years. The rate of adoption in developed nations such as the United States of America and Australia is also higher than that in developing nations such as Africa and southern America (Al-Hawari et al 2008).
This study will be carried out against this backdrop. This study aims to analyze the utilization of e-marketplaces in Saudi Arabia. The author will look at various aspects of this phenomenon, including the factors influencing the adoption, challenges faced by e-marketplaces in this country among other things.
The researcher will be working using the following hypothesis statement:
The utilization of e-marketplaces in Saudi Arabia is low as compared to other developed nations such as the United States of America, Asia, and Australia.
Sait (2002) argues that information and communication technology in Saudi Arabia and the United Arab Emirates in extension is still in its infant stage. This author is of the view that the government of the kingdom of Saudi Arabia and other stakeholders are working on moderates to ameliorate the current status of information and communication technology in this nation (Al-Hawari 2008). These initiatives by these parties are aimed at making technology a major contributor to the country’s economy. The aim is also to transform this country from its current status as a net consumer of information and communication technology consumer to a net producer and exporter of the same within the region (Solbi and Mayhew 2009).
E-market place is one aspect of information and communication technology that the government is currently focusing on or should be focusing on. Aleid, Rogerson, Fairweather, and Ben (2009) are of the view that one major aspect of improving information and communication technology in this country is the development of a riding feasible infrastructure that can be used to support it. This is given the fact that infrastructure has been identified as one of the major factors that affect the adoption and development of information and communication technology in any country (Steinbrook 2009).
Saudi Telecom Co. (herein referred to as STC) is one of the major players in the ICT sector in Saudi Arabia. This company thinks that the infrastructure in this country has the potential of accommodating 1.3 million internet users by the start of the year 2010 (Sait 2002 p.5). This number includes private, individual users and businesses.
The number of internet users is a precise indicator of the rate of utilization of information and communication technology services in any country. It is an indication of the level of intake and consumption of this technology. In early 2001, Saudi Telecom Co. estimated that the number of internet users in Saudi Arabia was a mere 275,000 (Sait 2002 p. 5). The ratio of the user to subscriber was approximated by this company to stand at 2.5 at this time (Sait 2002). This, by all means, is an indication of low usage of the internet and the other services that come with it in Saudi Arabia. It is a pointer to the fact that e-marketplaces are lowly utilized in this country. Only about 275,000 people were potential users of e-marketplaces in this country by the year 2001. Given that not all of these people were accessing e-marketplaces, the low rate of access to e-market becomes significant as compared to other nations around the world such as the United States of America (Vandana 2010).
Another indicator of information and communication technology consumption in a country is the internet coverage rate (Amit and Zott 2001). A high rate of internet coverage in a country points to a correspondingly high rate of ICT consumption. According to Amit and Zott (2001), internet coverage is an indication of the segment of the population that can easily access the internet and the services therein. In Saudi Arabia, this internet coverage rate is very low, and this translates into low utilization of e-marketplaces. According to Saudi Telecom Co., the portion of Saudi residents who can access the internet (or internet coverage in the country) is approximately 3-4 percent (Sait 2002).
About 75 percent of these internet users in the country are of the male gender (Sait 2002). This is perhaps one of the few positive indicators of e-market access in the kingdom of Saudi Arabia (Al-Hawari 2008). This is given the fact that the majority of businesses in this country are owned and operated by men. The majority of those who access the internet in this country are aged 35 years and below, an indication of the fact that the young in this country are embracing technology more than the older generation (Holz 2008).
Access to the internet is not the only barrier to the utilization of the e-market in Saudi Arabia. Bates (2005) is of the view that the cost of the internet, meaning the tariffs charged for the service, also affects the rate of internet utilization in a country. For example, if the tariffs charged are way above what the people in that country earn, the rate of access to the internet and the riding services will be below.
According to Saudi Telecoms Co., the cost of accessing the internet for thirty hours stands at between $45 and $75 (Sait 2002). This has been an increase in prices way above what residents can afford. This is because, according to the World Bank statistics, the mean wage in this country stood at $14.74 per man-hour by the year 2009 (Sait 2009).
The low level of e-marketplace utilization in the kingdom of Saudi Arabia can be appreciated when several aspects such as accessibility to the internet are compared with those of other developed nations. For example, according to United Nations Conference on Trade and Development (herein referred to as UNCTAD), is of the view that most internet hosts are to be found in the united states of America and Europe, some of the most developed nations in the world. 89 percent of all internet hosts in the world are to be found in these two regions (UNCTAD 2003). Subsequently, the rate of e-market access in these countries is also high.
A large proportion of the population in these developed nations has access to the internet than in Saudi Arabia. For example, according to Aleid et al (2009), more than 50 percent of residents in the United States of America have access to the internet. Compare this to only 4 percent reported in Saudi Arabia. This means that many businesses in the United States of America utilize e-marketplace and other internet services are given that they can easily access the internet.
Having established that the level of e-market consumption in the kingdom of Saudi Arabia is low than in most developed nations, it is now important to try and discern the factors that have led to this development. The rest of the paper will be dedicated to an analysis of the factors that have led to the low utilization of e-marketplaces in the kingdom of Saudi Arabia and possible solutions to address this. However, before doing this, it is important to review relevant literature in this field. The review of literature will in effect contextualize the current study within the wider field of e-market and e-commerce in Saudi Arabia and extension, in the world.
Literature Review: An Overview
This section will analyze relevant literature that exists in the field of information and communication technology as far as e-commerce and e-marketplace are concerned. The major aim of the analysis is to identify knowledge lacuna that exists in the field and how the gaps can be filled. The literature review will also contextualize the current study within the larger field of information and communication technology and e-business.
Categories of E-market Places
Barratt and Rosdahl (2002) are of the view that businesses, especially the emerging and established small and medium scale enterprises, stand to benefit from the adoption of e-marketplaces in their operations. The benefits range from reduced operation costs, efficiency, and an increase in the volume of sales among others.
However, Barratt and Rosdahl (2002) caution that the benefits accrued by the business enterprise will depend on the suitability of the type of e-marketplace that the business selects and the compatibility of this e-marketplace with the business model and structure used by the organization. This is given the fact that there are several types of e-marketplaces to be found in the contemporary eCommerce field.
Before embarking on an analysis of the various e-marketplaces available in today’s web market, it is important to note that a particular e-marketplace or site can be operated in various ways. Some are operated by third parties who have invested in the marketplace and wish to make a return on their investment (Alemayehu 2007). These investors make returns by providing value-adding services to the sellers or the buyers accessing the market. These services may include the creation of electronic catalogs and others. The fees charged by the owners of these markets are used to make returns on the investment made. Other markets are maintained on a cost-recovery basis by associations and other bodies found within a particular field. For example, the pharmaceuticals’ body in the kingdom of Saudi Arabia may create an e-marketplace aimed at elevating the visibility of their members. The returns made from the operations of the site are not used to make profits; rather, the e-market is operated on a non-profit basis, and the returns are only used to recover the costs of maintaining the e-marketplace.
Regardless of the type of operator maintaining the e-market, it is notable that the main aim is to bring together interested parties for the sake of conducting business. For example, the e-market created and managed by the pharmaceuticals’ body in Saudi Arabia as indicated above may aim at bringing together the sellers and buyers of the products in the market.
As earlier stated, many types of e-marketplaces exist in today’s virtual space. The distinction between these markets is made based on the business model that is adopted. The various categories emanate from the kind of operations that maintain the market as well as the motivation or aim of maintaining that particular e-market.
The following are some of the categories of e-marketplaces identified by many scholars in this field:
Independent E-market Place
According to Pucihar and Podlogar (2005), this type of e-marketplace is usually operated by a third party who is running it just like any other business venture aimed at making economic returns to the investor. This kind of e-marketplace can be conceptualized as a business-to-business online pedestal aimed at making transactions between sellers and buyers easy. The e-marketplace is accessible both to the buyers and the sellers in a given industry, given that these e-marketplaces are usually industry-specific (Pucihar and Podlogar 2005).
This kind of e-marketplace requires the buyers and sellers interested in the services to register with it. After the registration, they can access advertisements and business quotations in that particular industry (Pucihar and Podlogar 2005).
As earlier stated in this paper, the operator of such a platform aims to make profits. As such, some payments are to be made by those accessing the market. This is no different from the revenues paid to the authorities by a business operating within a given physical market. The only difference is that the changes made to the e-marketplace operators may be cheaper than those made to the authorities in the case of a physical marketplace.
Buyer Oriented E-market Place
As the name implies, this kind of e-marketplace is usually formed and maintained by a conglomeration of buyers or consumers in a particular industry (Kamel 2009). The major aim of such a platform is to develop an efficient and conducive buying environment for the consumers (Kamel 2009). For example, the consumers and potential buyers can achieve the best deals from the sellers, and as a result, participation in such a platform reduces the operation costs for the buyers. For example, a consortium of construction industry operators may create an e-marketplace to access the best equipment to buy or hire for their work.
However, it is important to note that it is not only the buyers that can access and use a buyer-oriented e-marketplace. Zhuo and Xinhe (2004) think that a buyer-oriented e-marketplace can also be used by sellers in a particular industry for their benefit. For example, the buyers can access these e-marketplaces and place adverts on them. This is advantageous given that the sellers will be able to reach out to a set of specific and target audiences at a go. One way that the buyers on such a marketplace aim at making a bargain is by perusing the catalogs advertised and selecting the best deals. As such, the sellers also benefit from these e-marketplaces.
Supplier Oriented E-marketplace
This is a forum that is created and operated by a consortium of sellers or suppliers in a given industry. Mutlaq and Rasheed (2009) also refer to this type of e-marketplace as a “supplier directory” (p. 34). The aim of the e-marketplace, and that of the sellers participating in it, is to create an efficient sales conduit that can reach a large number of consumers on the internet (Mutlaq and Rasheed 2009).
Buyers can also access these e-marketplaces, just like sellers can access buyer-oriented marketplaces. The buyer can search these e-marketplaces on the internet by the service of product that is being sold (Zhuo and Xinhe 2004). The buyers can benefit from these platforms by accessing the information on sellers in the industry and regions that they are interested in and maybe lack knowledge or experience. as far as the sellers are concerned, they can increase their volume of sales by enhancing their visibility to the buyers who access such e-marketplaces (Aleid et al 2009).
Vertical and Horizontal E-market Places
This kind of e-marketplace can be conceptualized in terms of the vertical up and down businesses in a given market (Aleid et al 2009). The businesses in such a market benefit by cutting back on their supply chain costs and other distribution expenses for the suppliers.
A horizontal e-marketplace is that one that takes place when both the seller and the buyer are at the same level. This is for example when two business organizations with equal financial power or operating within the same industry exchange goods on the virtual market. A case in point is for example when one vehicle manufacturer sells some spare parts to another vehicle manufacturer in the country or outside the country.
On the other hand, vertical e-marketplace takes place when two parties occupying different levels in the market exchange goods and services on the virtual space. One party in the exchange is above the other in the market. This is for example when a motor vehicle supplier sells their products to a fast-food company online. Another example is when a motor vehicle manufacturer sells its product directly to the consumer in the virtual market. The manufacturer and the consumer are at different levels in the supply chain, and their interaction can be viewed as a vertical one.
Unlike other e-marketplaces discussed earlier, suppliers and consumers from different markets and localities are brought together (Aleid et al 2009). An e-marketplace of this kind can be used by consumers to buy an assortment of products that may not be related, such as office stationery and furniture.
E-Market Places in Saudi Arabia
Even though the rate of e-marketplace utilization in this country is low, evidence supports that the adoption of this technology and eCommerce are emerging trends in trade in Saudi Arabia (Aleid et al 2009). This field is very challenging to the business operators in Saudi Arabia given the various aspects that must be taken into consideration.
Zhuo and Xinhe (2004) opine that those businesses and individuals in Saudi Arabia who access and utilize e-marketplaces do so as a response to various economic factors. In the case of a business enterprise using e-marketplace to market their products, the major aim and motivation behind this may be the need to sustain their competitive advantage in the market by expanding their market and increasing their sales volume. The consumers, just like those from any other country in the world, maybe looking for the best deals in the market.
E-market places have many benefits both to the businesses and consumers in Saudi Arabia. According to Alemayehu (2007), the telecommunications expenses for the businesses are significantly reduced. This cuts back on the inventory overheads for these businesses. For example, by making use of e-marketplaces, businesses do not need to print marketing brochures and post the same to the clients. The businesses do not necessarily have to engage in other modes of marketing campaigns such as advertising on print media.
The customers who use e-marketplaces in Saudi Arabia stand to benefit by having the ability to shop at any time of the day and any day of the week (Sait 2002). E-market places are not closed down for the evening, for the holiday, or the weekend, unlike the conventional physical market places that are governed by business operating houses. The customers also have the benefit of accessing a large assortment of goods and services from which they can select what they want. This is especially so given the fact that businesses find it more convenient and cheaper to advertise on e-marketplaces, and as such, the customers are exposed to a huge variety of goods and services. Thee customers can also operate from home or the office, without the need to travel. What they need is just a computer and access to the internet. At the same time, there will less pollution due to the reduction of vehicles on the roads as well as other threat-related issues.
It has been stated earlier that factors that lead to lack of utilization of e-marketplaces will be analyzed in this paper. However, it is important to note that there is the utilization of e-marketplaces nevertheless, albeit at a smaller scale than in other countries. A survey carried out in the year 2008 by the Arabs Advisors Group vividly displays this. According to this report, buyers in this country spent about 3.28 billion dollars doing online transactions in the year 2007 (Al-Hawari 2008). The government of this country has also invested significantly in the utilization of e-marketplaces in this country. The graph below depicts this spending for the past ten years:
Adapted from: Anonymous 2010
Additionally, the rise in internet consumption as compared to previous years has been attributed to the rise in the population size in this country. For example, by the year 2005, population size has increased to about 23.4 million (Solbi and Mayhew 2009). The chart below depicts the growth of internet usage in the country in line with population growth within the past ten years:
Figure 2: Internet Usage and Population Growth in Saudi Arabia
|Year||No. of Users||Population||% Pop|
Adapted from: Solbi and Mayhew 2009
A study conducted by Mutlaq and Rasheed (2009) found that there are several threats that are facing the adoption of technology in businesses in Saudi Arabia. For example, they found that infrastructure issues such as low and slow connectivity, lack of or inadequate investment in the sector and lack of appropriate human resource are some of the hindrances to information and communication technology in businesses here. It should be noted that any hurdle facing adoption of information and communication technology in businesses means that e-market places is also affected, given that the latter rely on ICT infrastructure and accessibility.
Lack of Utilisation of E-market Places in Saudi Arabia: Possible Explanations
The following are some of the possible explanations to the low utilisation of e-market places in the kingdom of Saudi Arabia:
According to the study conducted by Mutlaq and Rasheed (2009), 70 percent of consumers in the kingdom of Saudi Arabia are of the view that security is their major concern when it comes to buying or selling online. This is especially so given the fact that to buy from the e-market place, personal details such as names and account details are needed. Of major concern is the disclosing of credit card details to the e-market place sellers.
The level of concern that the people in this country has as far as the security of the internet is concerned is clearly indicated by a comparison between the utilisation of e-market places in this country and in other developed countries such as the united stated of America. The figure below depicts this comparison:
Adapted from: Alemayehu 2007
Alemayehu (2007) puts this concern down to the conservative nature of people from this region. They are of the view that the consumers are naturally averse to anything new that may destabilise their existence. While this may not exactly be true, it is a major concern to many that the rate of e-market place utilisation in this country is very low.
However, Alemayehu (2007) believes that the security concern can be addressed by ensuring that safety measures such as secure sockets layer are implemented. This way, the consumers can exchange data between their system and that of the supplier in a secure manner. Data such as the details of their credit cards and their names is not endangered. This makes the customers confident, and they can use the services without fear of their details been accessed by unauthorised parties.
Strong encryption servers which can not be easily hacked can also be used to ensure the information and data on e-market places in Saudi Arabia is secure (Aleid et al 2009). The importance for this was especially illuminated by a study by Netcraft, which placed this country at position 87 out of 166 countries around the world for server security (Barratt and Rosdahl 2002). The diagram below depicts a sample of rankings of the most secure countries as far as server security is concerned:
Figure 4: Server Security Rankings
Undeveloped Complementary Services
For e-marketplace to flourish there is need for supporting services and technologies to be developed. This is for example training of businesses’ members of staff and the population in general and equipping them with IT skills, which is an important prerequisite for e-market places. This has not taken place in Saudi Arabia. Kamel (2009) is of the view that only 35 percent of the population in Saudi Arabia have the skills needed to utilise the internet. Low utilisation of the internet means that emarketing is also under utilised (Ariba 2000).
The figure below compares the internet coverage between Saudi Arabia and other developed nations such as Hong Kong:
Adapted from: Aleid et al 2009
It is important to note that the rate of internet coverage in the country is an indication of the rate of development of other complementary services such as the availability of computers.
The challenge of underdeveloped complementary services can be addressed by having the government and other stakeholders invest more in information and communication technology. This is, for example, buying more computers for schools and other initiatives like making the teaching of IT skills mandatory for all school-going children.
An effective and strong e-marketplace needs an equally efficient and strong infrastructure. However, in Saudi Arabia, ICT infrastructure is not as effective as it should be. This can be put down to the low rate of investment in this sector by the government and other stakeholders in the private sector. This is as compared to the kind of spending that other countries make on this sector. The figure below represents a comparison of the portion of GDP that was spent on ICT in Saudi Arabia and other selected countries in the year 2003:
Adapted from: Kamel 2009
The infrastructure such as secure servers and internet coverage are lacking. This makes it hard for the people to access the internet and in extension the e-marketplaces.
The kingdom of Saudi Arabia has a large potential for utilization of e-marketplaces. This is given the fact that the economy of this country is one of the largest in the Arab world. The economy has also experience significant growth in the past few years. The chart below depicts the growth of this economy in the past ten years:
This means that if the government and other stakeholders in this country invest more in this sector, then the e-marketplaces in this country can contribute significantly to the growth of the economy.
This study looked at the current lack of utilization of e-marketplaces in Saudi Arabia. Several challenges were identified to the utilization of this technology in this country. This includes weak infrastructure and a shortage of resources such as human resources. The internet coverage in Saudi Arabia was found to be lower than that in other developed countries such as the United States of America and Australia.
These challenges affect the adoption of e-marketplaces in this country. This is even though the kingdom of Saudi Arabia is the economic nerve center of the Islamic world. This is considering that it has the largest economy in the region, standing at approximately 160 billion dollars as of 2009. This means that there is a large potential for marketing in this region, a potential that can be exploited to further the economy of the country.
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