International Trade on the Internet

The evolution of technology has opened the Internet for cross-border collaboration and has enabled a whole new range of economic activity that includes online trades, big data, and online advertising. According to the McKinsey Global Institute, from 2004-2009, the Internet contributed up to 21 percent in GDP growth in the developed world and 11 percent in the BRIC countries (Brazil, Russia, India, China). This blog will discuss the international trade benefits created by the Internet and the risks associated with online cross-border trade.

The Internet is creating new opportunities for small and medium-sized enterprises (SMEs) and for businesses in developing countries to participate in the global economy. SMEs and developing country firms are able to compete globally as the Internet has granted them access to cheaper telecommunications, strategic information on overseas markets, legal and consulting services, and cloud computing. With a simple website, these firms could reach their customers and suppliers all across the world much easier. The Internet builds the platform for SMEs to seek low-cost suppliers and find new sources of demand. This largely decreases the cost of doing businesses overseas and opens the door for SMEs to operate globally.

At the same time, restrictions hindering the Internet’s ability are challenging international trade. First, the imbalance of internet access in developed countries and developing countries is the biggest barrier in online trade. For example, less than 20% of the population has internet access in Africa, which is a large exporting country that sells a considerable amount of agricultural products worldwide each year. The absence of adequate connections between networks creates bottlenecks that raise costs and form inconveniences for international traders.

Additionally, different regulatory and legal systems increase the risk of international trading. In fact, even in a developed market such as the European Union (EU), differences in contract law are a key barrier to technology-enabled commerce between EU member countries. For customers, the lack of protection laws is the biggest concern when they shop online for goods and services. Online international trading makes it difficult for customers to trace the suppliers and the absence of mechanisms for resolving online transaction disputes makes the e-commerce environment insecure.

Although challenges are embedded in online trading, we cannot deny that the Internet helps economies grow and provides opportunities for developing countries and SMEs to engage in global business. What we have to do nowadays is to build a secure trade environment on the Internet and make sure both suppliers and customers have full and secure access to online trading platforms.