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2007 by Information Science Reference (an imprint of IGI Global).
2025

Copyright © 2009, IGI Global, distributing in print or electronic forms without written permission of IGI Global is prohibited.
Chapter 7.5
E-Business in Developing
Countries:
A Comparison of China and India
Peter V. Raven
Seattle University, USA
Xiaoqing Huang
Seattle University, USA
Ben B. Kim
Seattle University, USA
ABSTRACT
The Internet has changed the way many companies
do business, but has also tended to increase the
GLVSDULW\EHWZHHQ¿UPVLQGHYHORSHGFRXQWULHV
and those in developing countries. As the digital
divide seems to grow, the question becomes how
will developing countries catch up? We examine
two large developing countries, China and India,
in an attempt to understand their approaches to
developing e-business. While both countries
had access to the technology at about the same
time, each has taken a different path to utilizing
it. These approaches are based on a number of
factors, including government initiatives and
focus, infrastructure building, experience and
understanding of business operations, and culture,
among others. China appears to be ahead of India
in the mechanics and infrastructure, but India is
ahead in e-readiness. Both countries are poised for

rapidly increasing e-business, however, they have
huge problems of poverty and inequality between
urban and rural connectivity must be resolved to
really take advantage of e-business.
INTRODUCTION
The personal computer and the Internet have
changed the nature of business worldwide—in
both developed and developing countries. People
geographically isolated from each other are now
2026
E-Business in Developing Countries
able to communicate in real time. However, how
has this ability to communicate affected global
businesses, especially among developing nations?
This is not a trivial question, as the notion of the
³GLJLWDOGLYLGH´DSSHDUVWREHH[SDQGLQJUDWKHU
t h a n c o n t r a c t i n g , a s b u s i n e s s e s i n d e ve l o p e d c o u n -
tries are increasingly connected, while those in
developing countries lag relatively farther behind.
7KHSURPLVHRIWKH,QWHUQHWDQGHI¿FLHQFLHVRI
e-business are not equally distributed.
In this study, we examine the adoption and use
of Internet strategies in furthering e-business in
two large developing nations—China and India.
We will see that each country has chosen a differ-
ent path to utilizing the Internet in business. This
may be instructive for other developing countries
as they increasingly adopt the Internet and utilize
LWVHI¿FLHQFLHVIRUEXVLQHVVDQGGHYHORSPHQW
Industrialized countries have adopted the In-

t e r n e t f o r b u s i n e s s p u r p o s e s a t d i f f e r e n t r a t e s . T h e
86ZKHUHWKH,QWHUQHW¿UVWGHYHORSHGDSSHDUV
to be farthest along in business usage and near
the top at a consumer level, although many other
FRX Q W U LH V K DYH VLJ Q L ¿F D QW O\L Q F U H DVHGW KHL U X VH RI 
the Internet (see Table 1). The Internet penetration
of China and India are shown in Table 2. Most
86¿UPVKDYHDQ,QWHUQHWSUHVHQFHEXWQRWDOO
use the Internet in the same way or to the same
H[WHQW,QFUHDVLQJO\86¿UPVIHHOWKHQHHGWR
have a Web presence to reach their customers and
WRVHUYHWKHP HI¿FLHQWO\6RPHWLPHV WKHUHVXOW
is a full-service, e-business exchange site, but
IRURWKHU¿UPVWKHUHVXOWLVPHUHO\DQLQIRUPD-
tional site.For marketers in developing countries,
though, the question may be to what extent can
the Internet be used in marketing products both
locally and globally? Firms from industrialized
countries have successfully done this, but there
is little information about developing countries
using the Internet to market their products in-
ternally or externally. This study examines the
commercial use of the Internet in China and India
in an attempt to understand their approaches to
e-business. We examine several key areas we
think may explain the adoption of e-business in
these developing countries: regulatory issues,
infrastructure, policy, and culture.
BACKGROUND AND LITERATURE
REVIEW

Both China and India have large, growing popula-
tions and are frequently compared to each other
because of this fact. However, they also have very
different cultures and political traditions, which
World Regions I n t e r n e t
Users, 2000
Internet
Users, 2005
Growth % Po p u l a t i o n
2005
Northern America 108,096,800 223,392,807 106.7 % 68.0 %
Oceania 7,619,500 16,448,966 115.9 % 49.2 %
Europe 103,096,093 269,036,096 161.0 % 36.8 %
Latin America & Caribbean 18,068,919 68,130,804 277.0 % 12.5 %
Asia 114,303,000 323,756,956 183.2 % 8.9 %
Middle East 5,284,800 21,770,700 311.9 % 8.3 %
Africa 4,514,400 16,174,600 258.3 % 1.8 %
Total World
360,983,512 938,710,929 160.0 % 14.6 %
Table 1. Growth of the Internet—World Wide (Note 1: % Pop. is the Penetration Rate, expressed as
population percentage; Note 2: Internet Growth Percent is between December, 2000 and June, 2005;
source: The Internet World Stats News, No. 008, July 2005, />htm, accessed August 6, 2005)
2027
E-Business in Developing Countries
affect the dynamics of a direct comparison. While
Internet usage is growing rapidly in both India
and China, each country suffers from poverty,
illiteracy, poor information, and communica-
tion technology (ICT) infrastructure. As these
countries approach Internet business strategies

differently, can we learn from their experiences?
Are the strategies and metrics used in describing
China and India of use for other developing coun-
tries—or to developed countries? We anticipate
that an understanding of the ways in which the
Internet is used in China and India, especially in
business-to-business (B2B) transactions, will help
¿UPVLQERWKGHYHORSLQJDQGGHYHORSHGFRXQWULHV
utilize better Internet strategies to compete glob-
ally. Although our focus is on B2B e-business,
we will also discuss business-to-consumer (B2C)
e-business where it is appropriate. While there are
differences between the two in target customer,
there are also many similarities and the lines
between them are often blurred. Previous work
has shown that B2B is primarily driven by global
IRUFHVLQPRUHRID³SXVK´PRGHZKLOH%&LV
PRUHLQWHUQDOO\GULYHQ²³SXOOHG´E\FRQVXPHU
markets (Gibbs, Kraemer, & Dedrick, 2003).
Why compare China and India in this study?
Both are developing rapidly in certain sectors and
represent the largest of the emerging markets.
China is the largest communist country with a
population of 1.3 billion and India is the largest
democracy with a population of 1.08 billion (CIA,
2006). Besides their respective sizes, each coun-
try has similar problems of disparate ethnicities,
languages, and skewed distributions of wealth.
Both China and India are developing economies,
encountering many of the same problems of

t r a n s it io n f r om t r a d i t io n al t o de ve lo pi ng t o g lo ba l
economy. Both are now members of the global
trading community, the World Trade Organization
( W T O) . T h e y h a v e a p p r o a c h e d t h e i r e n t r y i n t o t h e
WTO, though, in different ways. India, probably
because of its British-colonization heritage, has
approached the world markets in a more market-
driven fashion. China having no such market
tradition, is still feeling its way into the world
marketplace and seems to perceive a greater need
to control the process. These approaches result in
different paths to development and to e-business
(Kshetri, 2005; Levinson, 2004).
Economic Development
The level of development of a country impacts
its ability to trade with other countries, improve
its standard of living, and prosper (Economist,
2006; Harrison, 1996). It should be no surprise
Economic or social factor Unit of measurement China India
Electrical Generation Capacity Megawatts 258,000 89,000
Electricity Generated Billions of kilowatts 1,166 417
Telephone lines connected Millions 240 43
Mobile/cellular phones Millions 400 75
Internet connections Millions 45 9
GDP USD – billions 1121 460
Population Millions 1260 1060
Population Increase per year Millions 10 19
Birth Rate Numbers per 1000 8.8 27
Per Capita Income USD/year/person 1060 480
Internet Users (2004) Millions 95.8 39.2

Internet Penetration (2004) Percent 7.48 3.77
Table 2. Comparisons of China and India (Sources: iWatch: Wake up call for India, e-
upcall.org/china_india_comparision/china_india_chart.php, accessed 8/6/2005; Strauss, El-Ansary,
and Frost [2006])
2028
E-Business in Developing Countries
that countries develop at different rates and in
different ways. Each country has a different set
of inherent resources—from natural resources to
KXPDQUHVRXUFHV²ZKLFKKDYHLQÀXHQFHGWKHLU
history, culture, and personality. Until recently,
these phenomena, including wars, have had the
greatest impacts on rates of development and de-
velopment typically proceeded at a relatively slow
and predictable pace. The industrialized countries
of Europe and North America, for example, took
about 200 years to become developed. Today,
however, technology, especially the Internet, is
VHHQDVKHOSLQJGHYHORSLQJFRXQWULHV³OHDSIURJ´
the traditional stages of development (Levinson,
2004). In fact, developing countries are often too
impatient to wait for the slow pace of traditional
development processes, as they fall further and
further behind developed countries.
There are many barriers to Internet and e-
business adoption in developing countries. For
example, incentives for the integration of the
Internet in businesses may be low due to pov-
erty and perceived low demand for goods and
services. The infrastructure may be inadequate

to sustain growing adoption of Internet business
strategies and government policies may not sup-
port technology development. There may also be
deep cultural problems acting as barriers, such as
illiteracy and language issues, credit problems,
and a limited tradition of entrepreneurship and
innovation (Levinson, 2004).
Development is a complex process. Many
developing countries do not have a tradition of
a market economy and wrestle with the notion
of privatization of public enterprises (Yoder,
Borkholder, & Friesen, 1991). While developing
FRXQWULHVRSHQWRLQWHUQDWLRQDOFDSLWDOÀRZVDUH
likely to receive advanced technology through
foreign investments, policy measures are more
l i k e l y t o b e s u c c e s s f u l i f d i r e c t e d t o w a r d s s t i m u l a t -
LQJWKHDFFXPXODWLRQRIORFDWLRQVSHFL¿FDVVHWV
including ICT, rather than investment incentives
to foreign investors (Nordas, 2002). Technology
transfer is also affected by cultural and political
differences (Al-Ghailani & Moor, 1995). Other
LQGLFDWRUVRID ³FKLFNHQHJJ´GLOHPPDVXJJHVW
that economic development precedes Internet
GHYHORSPHQW WKXV FRQWULEXWLQJ WR WKH ³GLJLWDO
divide” (Norris, 2000).
Outward-oriented countries are those that
look elsewhere for growth. They seem to grow
at a more rapid pace than more inward-oriented
countries (CIA, 2006; Panagariya, 2004; Santos-
Paulino, 2005; Young, Huang, & McDermott,

1996). Dollar (1992) cites the recent rapid growth
of Asian developing economies compared to those
of Africa and Latin America as support for an out-
ward-orientation. An outward-orientation implies
that trade liberalization, devaluation of the real
exchange rate, and stabilized real exchange rates
improve growth in developing countries.
With that, what is the role of technology, and
VSHFL¿FDOO\ WKH ,QWHUQHW LQ GHYHORSPHQW SODQ-
ning? Akel (2001) suggests a four-step process
VKH FDOOV WKH ³,QWHUQHW $GYDQWDJH´ FRQVLVWLQJ
of creating a technology intensive environment,
offering services to create a unique community,
encouraging a climate of entrepreneurship, and
providing appropriate assistance. These steps
were applied to development within the U.S.,
but can they also apply to developing countries?
We explore on the applicability of this process in
subsequent sections.
Because of its relative newness and the rapid
rate of development of the industry, the theoretical
literature on e-business in developing countries is
relatively sparse. However, the literature provides
a basis for modeling the diffusion of e-business,
including some of the barriers facing early adopt-
ers (Travica, 2002). Limitations and/or barriers to
e-business in developing countries include limited
Internet accessibility, lack of competition in inter-
Q D W L R Q DO W HO H SK R Q HW U DI ¿FZK LF K L Q F U H DV H VW KH FR V W 
of a network), lack of intra-regional infrastructure,

and disproportionate penetration of the telephone
in urban areas. E-business depends on several
layers: an infrastructure layer—transportation
(roads, air, railroads, etc.); a telecommunications
2029
E-Business in Developing Countries
layer (pervasive, modern, secure, and afford-
able channels); a software industry to support
e-business; the opportunity for e-payments; and
a cultural layer—including a tradition of remote
shopping, such as catalogs and mail-order, and
standardized goods and services assuring consum-
ers consistent quality leading to trust.
Development of Technology
Technology predictably enhances existing in-
equalities between economies. Scientists rely on
information to be current, but much is available
electronically today, so even if it is free, scientists
in developing countries may not have access to it.
1LQHW\¿YHSHUFHQWRIDOOFRPSXWHUVDUHLQGHYHO-
oped nations. Ten nations, accounting for just 20%
of world population, have three-quarters of the
world’s telephone lines (Arunachalam, 1999). The
unequal availability of information in developing
economies may also inhibit business knowledge
and decision-making. Developing countries with
better access to current information of their own
and other markets, such as economic trends, con-
sumer preferences, demand, currency exchange
rates, and other business information, should be

able to be more successful in business.
A number of factors affect the rates of adoption
of technologies, including industrial organization,
reliance on IT (Information Technology), local
UHVRXUFHVPDQDJHPHQWVW\OHVSROLWLFDOLQÀXHQFH
regulatory requirements, etc. (Lanjouw & Mody,
1996). For example, stringent environmental re-
quirements have encouraged adoption of pollution
control and recycling technologies in Germany
and Japan. Policies and economic incentives
can retard or accelerate the rates of technology
adoption by businesses (Chien & Salem, 2001;
Colaco, 2003). In addition, cultural issues such
DVHQWUHSUHQHXUVKLSDQGOHYHUDJLQJ¿UVWPRYHU
DGYDQWDJHLQÀXHQFHDGRSWLRQRIe-business (Gre-
gorio, Kassicieh, & de Gouvea Neto, 2005).
Managers have control over organizational fac-
tors, but little control over broader environmental
factors, such as increased competition, liberal
government policies, and market stability—all
of which have a positive impact on IT adoption
(Dasgupta, Agarwal, Ionnidis, & Gopalakrishnan,
1999). There is also a strong correlation across
countries between GDP/capita and Internet
connectivity. While information technology is
believed to be a new source for global economic
growth (Friedman, 2005), there is also concern
that the Internet may be a factor in widening
the income differentials between countries. The
UHJXODWRU\HQYLURQPHQW¶VLQÀXHQFHRQFRPSHWL-

tion also has an impact on Internet connectivity
(Kiiski & Pohjola, 2002). These issues suggest
the extremely complex phenomena of technol-
ogy adoption and development in developing
F R X Q W U LH V  :L W KR X W HI ¿F L H QW DF F H V V WR W KH , QW H U Q H W 
e-business is likely to be retarded.
With the possible exception of China, India
has been affected more by changes in IT than any
other developing country, yet it remains very poor.
India has lagged far behind many other Asian
countries in the adoption of the Internet. In a
population of one billion people, there are fewer
WKDQ WZRPLOOLRQ ,QWHUQHWVXEVFULEHUVD¿JXUH
that contrasts with India’s closest comparator
in size, China, which has more than three times
as many telephone lines and four times as many
Internet users. However, Internet users in India
are estimated to be four times that of subscribers
(Miller, 2001).
8 16HFUHW DU \*HQHUDO.R¿$ QDQKDVZDUQHG
of the dangers of excluding the world’s poor from
the Internet suggesting that being cut off from
telecommunications services is a hardship almost
as acute as other deprivations such as jobs, shel-
ter, food, health care, and drinkable water. The
fact there are absolute inequalities between rich
and poor nations in the virtual world is hardly
surprising given the substantial disparities in
every other dimension of life from health care and
nutrition to education and longevity. The more

interesting question concerns relative inequality
of opportunities. Relative opportunities may lay
2030
E-Business in Developing Countries
in equalizing technological resources, such as
through distribution of computer hardware, skills
training, and network connections (Norris, 2000).
Thus, many developing countries see a way out
of their never-ending cycle of poverty through
technology, especially the Internet.
CHINA’S APPROACH TO
E-BUSINESS
In this section, we examine the ways in which China
has approached e-business. Chinese universities
joined the Internet six years after those in India,
but policy makers and politicians soon realized
its potential (Press, Foster, Wolcott, & McHenry,
2002). China’s leaders saw the impact of the
Internet on Western and other Asian economies
and understood its importance for China in the
future (Hachigian, 2001). Chinese businesses are
encouraged to embrace new technologies to be
competitive in world markets and to be connected
to the information needed through regulation and
other initiatives.
China has taken to the Internet rapidly and has
become the second largest Internet market in the
world with around 8.5% of its population of 1.3
billion now connected. This translates to about
120 million users by the end of 2005 (Communica-

tions, 20 06). More than half of Ch ina’s Web users
DFFHVVLWWKURXJKEURDGEDQGDWWUDFWLQJ¿UPVVXFK
as Amazon.com, eBay, and Google.
Regulatory Environment
The Chinese government has made a concerted
effort to develop the infrastructure necessary to
fully utilize the Internet. However, because of
the vastness of this country, most infrastructure
development has occurred in urban areas. Rural
areas are largely untouched by the promise of
the Internet and e-business (Chen, 2003). This
disparity does not seem to be a big issue to central
planners, as their focus is more on consumers
than on business (CII, 2000).
Government regulations play a much more
important role in China than in the U.S. (Xu, Zhu,
& Gibbs, 2004). Other facilitators of e-business in
China include technology competence, enterprise
integration, and competition intensity. In China,
¿ U P V O DJ L QX VL Q J e-business related technologies,
especially inter-organizational technologies.
Infrastructure
China’s development of the Internet was in two
phases—1) First Phase (1987-1993)—when a
IHZVFLHQWL¿FUHVHDUFKLQVWLWXWLRQVZHUHDOORZHG
access, 2) Second Phase (1994 to the present)—
implementation of full services (Lu, Du, Zhang,
Feicheng, & Le, 2002). By 1999, most government
departments were connected and had their own
sites. The Chinese government had hoped to have

one million enterprises connected by 1999 and
double that in the following few years. Five main
Internet applications were approved: 1) electronic
government; 2) electronic business, including
the Golden Bridge, Golden Card, and Golden
Gate projects; 3) distance education; 4) distance
medical treatment; and 5) digital library. However,
problems of slow speeds, high usage costs, poor
information quality, ineffective management,
incomplete policies, and unbalanced information
ÀRZUHPDLQ
China has improved its infrastructure and
readiness for e-business considerably, but there
is much room for further improvement. In order
to take full advantage of the Internet in managing
the supply chain, fast and accurate information is
needed, along with the ability to adjust inventory,
production, and transportation systems and react
quickly to market changes (Daly & Cui, 2003).
Between 1999 and 2002, China added 106
million landlines, 163 million cell phone subscrib-
ers, and 36 million new cable television subscrib-
ers—considerably more than other countries
(WEF, 2004). Currently, China is adding four
million mobile subscribers a month and has the
world’s largest broadband Internet market with
2031
E-Business in Developing Countries
almost 25 million users, growing at more than a
million per month (Economist, 2005). Clearly,

China is building an infrastructure to sustain
future growth.
Policy
For reasons of national pride and prestige in the
world community, China seems to focus on in-
creasing the number of people using the Internet.
This strategy has long-term implications for de-
velopment. In what might be called a pull strategy
by emphasizing the consumer use of the Internet,
China may be hoping that demand will eventually
EH¿OOHGE\ORFDOEXVLQHVVHVPHHWLQJWKHQHHGVRI
local Internet consumers. Indeed, PC penetration
has had rapid growth—from only 1600 in 1994,
80,000 in 1996, to 22.5 million in 2000. However,
still only a small portion of the total population
(<2%) has a PC (Harwit & Clark, 2001).
Culture
&XOWXUH SOD\V D VLJQL¿FDQW UROH LQ DGRSWLRQ RI
technology and use of the Internet (Bagchi, Hart,
& Peterson, 2004; Levinson, 2004). For example,
the Technology Adoption Model (TAM) helps
explain IT adoption by suggesting that perceived
ease of use and perceived usefulness of technology
LQÀXHQFHDWWLWXGHVWRZDUGWHFKQRORJ\$WWLWXGH
WRZDUGWHFKQRORJ\LQWXUQLQÀXHQFHVLQWHQWLRQV
and then behaviors, including adoption. The
TAM has demonstrated its usefulness in several
cultures, but notably not in Japan. An explanation
for the differences in technology adoption is in
cultural values (Bagchi et al., 2004). TheJapanese

tend to rank lower than many other cultures on
Individualism and higher on Collectivism and
Power Distance, the opposite of cultural values
necessary for positive attitudes toward technol-
ogy adoption. Culture, of course, does not act
alone in technology adoption, as suggested by
the technology transfer literature, which also
indicates a role for income per capita, human
capital, openness, type of government, and others
(Bagchi et al., 2004).
The technology adoption model (extended
version) has been tested in several industries in
China, where it was supported (Di Benedetto,
Calantone, & Zhang, 2003). In addition, the
authors suggest that cultural factors such as cos-
mopolitanism and mobility may lead to diffusion
patterns across countries.
Other Chinese cultural characteristics that in-
ÀXHQFHWHFKQRORJ\DGRSWLRQLQFOXGHDSUHIHUHQFH
not to be in debt, a desire to touch and feel articles
before buying them, a fear of a disappointing
shopping experience, security issues with provid-
ing credit or debit card numbers to strangers, and
the perils of an ineffective distribution system
where purchased items may be lost or delayed in
transit. Chesse (2001) also depicts the reliability
DQGHI¿FLHQF\RIGLVWULEXWLRQV\VWHPVLQ&KLQD
to be an issue in e-business acceptance. In addi-
tion, transparency is not universal among Chinese
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RSHUDWLRQDO DQG ¿QDQFLDO GHWDLOV ZKLFK FRXOG
reduce the effectiveness of B2B e-business.
Interpersonal relationships in doing business
are important to the Chinese. The Chinese tend
to prefer face to face business negotiations and
rely on long-term trust and family relationships
in doing business (University, 2004). These cul-
WXUDO EXVLQHVV FKDUDFWHULVWLFV PD\ EH GLI¿FXOW
to facilitate through the Internet and may make
Chinese business leaders more reluctant to accept
e-business.
There is also a language barrier for Chinese
Internet users (University, 2004). Although
Chinese language Web sites are increasing, most
business sites are still in English or other Western
languages. To compensate, Chinese students are
learning English and other Western languages
in schools. In comparison to India, this may be
facilitated by the considerably higher literacy
rates in China—90.9% compared to 59.5% in
India (CIA, 2006).
2032
E-Business in Developing Countries
The literature suggests that technology
could be at odds with traditional cultures—that
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2 0 03) . W h i l e t h i s m a y h a v e s o m e m e r i t , t h e r e v e r s e
FRXOGDOVREHWUXH²WKDW³QRQZHVWHUQ´FXOWXUHV
PD\XVH³:HVWHUQ´WHFKQRORJ\LQGLIIHUHQWZD\V

that are innovative and mesh better with their
non-Western culture. For example, collaborative
I n t e r n e t p r o g r a m s h a ve b e e n u s e d b y N a v a jo t r i b a l
elders in traditional consensus decision-making
(Keating, et al., 2001).
The Internet has facilitated innovativeness
and entrepreneurship in the developed countries,
which adopted it early on. While China is not
well known for producing entrepreneurs, adop-
tion of the Internet in China is helping to develop
a number of entrepreneurs who do not rely on
RI¿FLDO FRQQHFWLRQV RU JRYHUQPHQW VLQHFXUHV
These new Net entrepreneurs are becoming
role models for a future generation of Chinese
business owners (McCarthy, 2000). However,
competition among Chinese B2B enterprises is
still in its early stages, limited by a lack of trust
in partners and a reluctance to share information
(University, 2004).
Taken together, these factors of e-business
adoption suggest that China is progressing rapidly
toward integrated e-business, but still has a long
way to go to reach the level of many developed
countries.
E-Business
,WLVGLI¿FXOWWRGHWHUPLQHWKHH[DFWQDWXUHDQG
e x t e n t o f e - b u s i n e s s i n C h i n a , a s d a t a v a r ie s w i d e l y
b y s o u r c e , i f it i s e ve n a v a i l a b l e . It d o e s a p p e a r t h a t
B2B online transactions far surpass B2C, with one
estimate suggesting 75% are B2B (E-Commerce,

2005a). It is estimated that about 18% of surfers in
China buy online. Internet use has been especially
UDSLGLQRQOLQH¿QDQFLDOVHUYLFHV
China’s potential for e-business is huge. With
100 million currently online and that number
expected to pass that of the U.S. in a few years,
e-business can only grow (Panlogic, 2006). In
DGGLWLRQWKHXVHUSUR¿OHOHQGVLWVHOIWRRQOLQHEX\-
ing—90% of users are under 40 and 2/3 of users
are expected to buy online. However, e-business
will be held back by low credit card usage and
intellectual property issues. Most Web sites in
China still do not support transactions.
The value of HEXVLQHVVLQ&KLQDLVGLI¿FXOWWR
discern, as estimates vary greatly. One Chinese
language report (CCID, 2005) indicates that the
B2B market grew from 107.5 billion Yuan ($12.97
billion) in 2001 to 178.4 billion Yuan ($21.528 bil-
lion) in 2002 and to 346.4 billion Yuan ($41.803
billion) in 2003. The B2C market grew from 790
million Yuan ($95.33 million) in 2003 to 1.6 bil-
l i o n Yu a n ($19 3. 0 8 m i l l i o n) i n 2 0 0 4 (C C I D, 2 0 05 ) .
Another estimate for general e-commerce revenue
suggests it is expected to reach USD 16 billion
in 2006 (E-Commerce, 2005a). In any case, the
various state and local governments continue to
LQÀXHQFHe-business, with Beijing, for example,
wanting 80% of department stores in the capital
to offer online shopping in 2005.
INDIA’S APPROACH TO

E-BUSINESS
The Indian economy has been growing between
6.0 and 6.5% annually (James, 2002).
In a country well known for its role in out-
sourcing of IT and offshore call centers for
industrialized countries; it is perhaps surprising
that India has not progressed further in Internet
penetration and e-business. Despite a large num-
ber of high-tech employees, only about 0.4% of
the population was connected to the Internet in
2000 (Kiggen, 2001). However, current informa-
tion suggests a combination of low broadband
costs and inexpensive computers has increased
Internet connectivity in India to about 38.5 mil-
lion in 2005—and that is expected to increase to
100 million in 2007 (eMarketer, 2006). It is also
2033
E-Business in Developing Countries
interesting to note that the proportion of women
Internet users will increase to about 40% of the
user population.
Like China, India is a large and heterogeneous
country with many dialects and cultures. It is still
expensive to get online and the quality of the in-
frastructure needs improving, but India is moving
rapidly towards greater Internet penetration.
One advantage India may have over China is
Z LGHV S U H D G À X H QF\L Q ( QJ O L VK  D UJ XDEO\W KHEXVL-
ness language of the Internet. This is especially
t r u e i n u r b a n a r e a s , w h e r e I n t e r n e t c o n n e c t i v i t y i s

OLNHO\WREHKLJKHVW6HYHUDOLVVXHVWKDWLQÀXHQFH
Internet use in India follow.
Regulatory Environment
The Indian government has strongly encouraged
the development of the Internet and information
technology through various incentives, including
exempting the industry from burdensome regula-
tions and controls (Miller, 2001). The government
has followed up its encouragement by allocating 2-
3% of its budget for IT and encouraging innovative
uses of the Internet, such as using solar power and
locating cyber-cafes near railway stations (Rao,
2002a). Unfortunately, while Internet backbone
costs have been reduced, last mile costs are still
h ig h i n I nd ia . I n a ddit ion to mo re t ra d it ional uses,
India anticipates that the Internet will empower
poor, rural villagers to improve their lives (Quib-
ria, Tschang, & Reyes-Macasaquit, 2002).
Infrastructure
The IDC expects India’s ISP (Internet Service
Provider) sector to grow by 27% in coming years
and to reach 8.2 million subscribers by 2005
(Corp, 2003). As personal computer (PC) prices
fall, increasing PC penetration will lead to greater
Internet penetration. The IT sector, in fact, seems
to be propelling the Indian economy forward.
The Indian Government, through the Ministry of
Information and Communication Technology, is
developing infrastructure to support IT (Colaco,
2003), but there is considerable variation between

s t at e s ( P r e ss e t al ., 2 0 02). Ho we ve r, b et we e n 19 9 9
and 2002, India added only 15 million landlines,
while China added 106 million (WEF, 2004). In
the race between India and China in infrastruc-
ture development, India is coming in at a distant
second. India is adding mobile subscribers at one
quarter the rate of China (one million/month) and
has only 3 million broadband accounts to China’s
25 million (Economist, 2005).
Indeed, the outsourcing of IT from western
countries has stretched the infrastructure in
many cities to its breaking point; resulting in
power outages, increasing costs, and a shortage
RITXDOL¿HGJUDGXDWHVLQZKDWVRPHUHIHUWRDV
the Bangalore Effect (Aspden, 2006).
Policy
Like China, India has a large rural population,
much of which is not connected to the Internet.
However, India has developed several initiatives
to help connect rural villages (Rao, 2002c).
The Indian model uses unique combinations of
low-cost indigenous technology with low-cost
delivery that utilizes the ability of the informal
sector to respond and adapt to local needs (James,
([DPSOHVRI³SURSRRULQQRYDWLRQV´LQ-
clude small-scale rural telephone exchanges and
very low cost computers that are accessible to
poor, often illiterate users. The results suggest
that sustainable Internet models for developing
economies may look quite different from those

in industrial countries.
As early as 1998, Prime Minister Vajpayee
SURFODLPHGWKDW³,7LV,QGLD¶VWRPRUURZ´LPSO\-
ing that the Internet is a key to this vision as an
enabler of technology-based change (Wolcott &
Goodman, 2003). Although the Indian government
is still overly bureaucratic, its attitude toward
regulation is beginning to change. Foreign invest-
ment in India has increased dramatically and the
government has raised the levels of permitted