2034
E-Business in Developing Countries
foreign direct investment (FDI) in the oil and
private banking industries (Walsh, 2004).
India provides an example of how fundamen-
tal, focused changes in policy and legislation can
set free forces that accelerate Internet diffusion.
While private sector initiatives expanded the Inter-
net infrastructure and Internet services markets,
government initiatives promoted the expansion
of the Internet into parts of the country not well
served by private ISPs (Wolcott et al., 2003).
Prakash (2005) considers the importance of
ICT (Information and Communications Technol-
RJ\LQ³OHDSIURJJLQJ´,QGLDLQWRWKHNQRZOHGJH
era. Not everyone agrees, however, with the Indian
Government’s focus on ICT. Rather than acting
to leapfrog India into the forefront of the global
knowledge community, Mir and Mir (2005) sug-
JHVWLWVUROHVKRXOGEHPRUHRI³FDWDO\VLV´$VVXFK
ICT works better when integrated into existing
institutional programs of growth and welfare.
Catalysts have more of an accelerating or facili-
tating role, rather than a transforming one, and
work upon activities already taking place.
Culture
As with China, the societal culture, as well as the
RUJDQL]DWLRQDO FXOWXUH LQÀXHQFHV WKH DGRSWLRQ
rate of IT in India (Dasgupta et al., 1999). Poverty
levels are high in India, but some of the best run
VRIWZDUH¿UPVDOVRH[LVW&KHXQJD2QO\

a fraction of the population can be considered a
target for Internet use, but that part is well edu-
cated, media-savvy, and an early adopter of new
technology. Indian users tend to be young, male,
and members of the middle class and above. Indian
XVHUVSUHIHUHPDLODQG:HEVXU¿QJUDWKHUWKDQ
online shopping. Their reluctance to use credit
cards also reduces the rate of growth of B2C
activities (Cheung, 2001b).
India has a relatively high capacity for entre-
preneurship, especially necessity-based, rather
than opportunity-based entrepreneurship (Rao,
2002b). Young, moderately educated and well-
off men are more likely to be entrepreneurs,
as social rigidities still reduce the chances for
women. However, changes are occurring. Poverty
stricken rural areas are being targeted in India
for IT development (Rao, 2002c). Some of these
initiatives encourage women entrepreneurs to
develop Web based businesses. For example, an
Indian Institute of Technology project put women
in charge of running 80% of the fast-growing
number of Internet cafes and kiosks in Madras
(News, 2004).
Most IT commercial initiatives are focused
on products for global markets, but there are also
³ S U R  S R R U ´ L Q LW L D W L Y H V W K D W K D Y H E H H Q J H Q H U D W H G E \ 
Indian IT institutions in an attempt to narrow the
digital divide (James, 2003). Some of these have
included small-scale rural telephone exchanges

and ultra-low cost computers to provide the rural
poor with access to the Internet. For example, less
than 1% of the Indian population has access to a
computer and more than 40% are illiterate, but
a government initiative has developed the SIM-
PUTER, an inexpensive, portable, battery-oper-
ated, hand held computer. The SIMPUTER has
text to speech capabilities and voice mail, but no
keyboard. It can break written words into sounds
in English, Tamil, Hindi, and Kannada (Meall,
2002). One interesting application has been in the
%D\RI%HQJDOZKHUH¿VKLQJYLOODJHVQRZKDYH
access to U.S. Navy weather forecasts, helping to
NHHS¿VKHUPDQVDIHDVZHOODVVKRZLQJORFDWLRQV
RI¿VKDQGFXUUHQWPDUNHWSULFHV
Other direct impacts of ICT on development
in India include providing market and other in-
formation, acting as electronic marketplaces in
poor communities, farm cooperative information,
farm management tasks, and other applications in
education, healthcare, and governance (Quibria
et al., 2002).
Traditional farmers in remote Indian villages
are now conducting e-business through ITC, one of
India’s largest agribusiness companies, which has
created the e-choupal concept (Sawhney, 2002).
Using ITC computers charged by solar panels
2035
E-Business in Developing Countries
and backed by batteries, e-choupals are like an

integration of Internet kiosk, village gathering
place, and e-business hub. Since their launch
in June 2000, e-choupal services have reached
600,000 farmers in 6000 villages. Farmers gain
by lower transaction costs and better prices and
,7&EHQH¿WVIURPEHWWHUTXDOLW\SURGXFHKLJKHU
prices in the international marketplace, and sav-
ings on procurement.
E-Business
Such data as exists indicates that e-business is
limited in India, although it appears ready for
rapid growth in the near future. Online consumer
purchases were about USD 130 million in 2004/5
and are expected to increase to USD 550 million
by 2006/7 (E-Commerce, 2005b). Low PC and
Internet penetration, security issues, among oth-
ers, are holding back e-business in India. E-mail
is used by 98% of Internet users in India, while
banking is used by 32%, online bill payment by
18%, and stock trading by 15% (eMarketer, 2006).
This data suggests a slow, but steady increase in
e-business.
DISCUSSION
While Internet usage is growing rapidly in both
India and China, both countries suffer from
poverty, illiteracy, and poor ICT infrastructure.
Technology transfer is affected by cultural and
political differences. Thus, we should see a differ-
ence in rate of technology adoption and direction
of economic growth between China and India.

A number of observers see technology as
HQDEOLQJ GHYHORSLQJ FRXQWULHV WR ³OHDSIURJ´
the development process (Miller, 2001). While
technology can be an enabler, the development
process is much more complex than technology
alone can rectify (Quibria et al., 2002). Govern-
ment policies and regulations must not restrict
businesses excessively. Infrastructure develop-
ment and educational levels need to increase to
allow e-business to occur. Economic growth will
rely on complex interactions between private
¿UPVWKHSXEOLFDQGSULYDWHVHFWRUVDQGZLWKLQ
and between governments. Foreign Direct In-
vestments (FDI) and exports are seen as key to
continued growth of the China economy (Yao,
2006). However, IT is also expected to have an
important role in the continued development of
China (Lemon, 2005).
China appears to have several advantages
over India in the race to economic development
through ITC (Thiagarajan, 2002).
• The general infrastructure is superior to
WKDWRI,QGLDERWKLQ¿[HGOLQHVXEVFULEHUV
and Internet penetration. China has invested
about ten times as much in telecommunica-
tions as India and is spending about three
times more than India on telecommunica-
tions, as a percentage of GDP.
• China attracts more foreign direct invest-
m e n t ( F D I ) – m a n y t i m e s t h a t o f I n d i a . M u c h

of this investment is going into the China IT
LQGXVWU\FUHDWLQJVLJQL¿FDQWRSSRUWXQLWLHV
for employment.
• China policies allow for rapid clearances
and approvals for technology businesses,
HVSHFLDOO\ WKRVH ORFDWHG LQ ¿YHHFRQRPLF
zones and technology parks.
• China has a stronger domestic sector than
does India, allowing it to absorb production
that may not be exported.
In addition, the centrally planned policies of
China have focused on developing infrastructure
nation-wide and especially in rural markets, and
are quite dispersed. On the other hand, India’s
market–oriented policies are not focused on the
broad access to broadband, but rather on serving
relatively few outsourcing companies serving the
global community (Economist, 2005).
Yet, a number of obstacles stand in the way
of adopting e-business. Wang (2002) lists ten
2036
E-Business in Developing Countries
obstacles he thinks most important. Among
them are three critical issues for China that differ
from obstacles in India: computer and English
illiteracy among elderly business decision-mak-
HUVLQVXI¿FLHQWWHFKQLFDODQGOHJDOSURWHFWLRQ
and incomplete understanding of the real sense
of e-business.
Computer and English literacy are lower in

China than in India. Colonization by the British
in India required English as the lingua franca
used for business and government communica-
tions. There has been no such systematic use of
English in China. Computer literacy is probably
also higher in India because of the huge software
outsourcing business. Technical and legal protec-
tion in China is lacking. The legal system in India
tries to protect intellectual property rights. Finally,
an understanding of e-business has come late to
China (Wang, 2002). E-business is not merely
the use of e-mail and Web sites – it includes all
the business processes that can be made more ef-
¿FLHQWWKURXJKWKH,QWHUQHW,QGLDKDVVXEVWDQWLDO
experience with software outsourcing to aid in
their use of supply chain management, including
the ordering, producing, marketing, paying, and
delivering processes.
E-payment has been an obstacle to e-business
in China, although Alibaba and its subsidiary
auction site, Taobao, plan to use Taobao’s online
payment tool, AliPay, for Alibaba’s B2B e-busi-
ness site (Agency, 2005).
Also, China still has control issues, which
it attempts to address by prohibition of certain
activities. China is thought to have the most
VRSKLVWLFDWHG ,QWHUQHW ¿OWHULQJ UHJLPH LQ WKH
world and uses it in various ways to prevent
citizen access to political, religious, and other
sensitive information (Bambauer et al., 2005). A

recent example is the registering of bloggers and
enlisting ISPs to help prohibit content that refers
to democracy or political change (Chan, 2005).
Even more recently, a controversy about Google,
Yahoo!, and Microsoft’s presence in China brings
to light the issues of censorship, free markets, and
Internet control (Elgin, 2006).
On the other hand, India has some advantages
over China (Thiagarajan, 2002).
•,QGLDKDVDJUHDWHUÀXHQF\LQ(QJOLVKWKH
language of the Web. This, and the train-
ing of a large number of skilled technology
workers, has enabled India to capitalize on
its offshore outsourcing initiatives. China
ZLOOKDYHDGLI¿FXOWWLPHLQFDWFKLQJXSRQ
outsourcing.
•The Indian government has also favored the
s o f t w a r e i n d u s t r y a n d e n c o u r a g e d i t t h r o u g h
tax incentives.
•CIndia probably has the highest number of
SEI-CMM (Software Engineering Institute
– Capability Maturity Model) Level 5 engi-
neers in the world. The combination of this
FHUWL¿FDWLRQRITXDOLW\DQGJRRGPDQDJH-
ment systems and processes has allowed
Indian software suppliers to perform projects
ZLWKJUHDWHI¿FLHQF\
The rapid growth of Indian software and
outsourced IT services has been a catalyst for
continuing technology-based change and integra-

tion into the global economy (Sarkar & El Sawy,
2003). It has not hurt, either, that this growth is
primarily outward focused on providing the large
economies of North America and Western Europe
ZLWKVRIWZDUHDQGEDFNRI¿FHVHUYLFHV&KLQDRQ
the other hand, has focused more on internal e-
business and the production of electronic products
(Xu et al., 2004).
The Indian experience of integration of Internet
into business is an example of how fundamental,
focused changes in governmental policy and
regulations can accelerate Internet diffusion.
While private sector initiatives expanded the
infrastructure for the Internet, governmental
initiatives promoted Internet expansion to parts
of the country poorly served by ISPs (Wolcott et
2037
E-Business in Developing Countries
2005 2004
Rank Score (of 10) Rank Score (of 10)
Denmark 1 8.74 1 8.28
India 49 4.17 46 4.45
China 54 3.85 52 3.96
Source: (Unit, 2005)
Table 3. E-business readiness rankings and scores—2004-2005
Table 4. Summary of e-business differences between China and India (Data from various sources indi-
cated in text + or _ indicates the degree of difference)
Factor China India Advantage
Regulatory Environ-
ment

+ focus on consumers + focus on business, but primarily offshor-
ing
China
Infrastructure +++ broadband high penetration
+++ mobile
+ broadband
- mobile
China
Policy ++ central policy is very focused
on growth throughout China
+ less planning for growth – mostly focused
on key offshoring centers
China
Culture + literacy >90%
- English & computer (low literacy
levels)
- entrepreneurship
- Poverty
- literacy < 60%
+ English and computer (higher literacy
levels)
++ entrepreneurship
- Poverty
India
Internet Users
(2004)
95.8 million (2005 est. 100 mil-
lion)
18.481 million China
Internet Penetration

(2004)
7.48% 3.77% China
E-Readiness 54 49 India
Current e-business *
(2004/5)
$41.99 billion (Chinese source) $150 million China
Expected e-business
* (2006/7)
$16 billion (non-Chinese source) $550 million China
* As indicated in the text, estimates vary depending on source. These are reported values for both B2B and B2C. B2B is the largest portion
in both China and India.
al., 2003). Like China, India still has problems of
poverty and unequal distribution of wealth, as well
as infrastructure problems to overcome.
China has promoted a strategy of competition
among government-owned organizations, while
India has set policy through publicly visible task
forces. India’s approach is relatively more trans-
parent and market driven than China’s (Press
et al., 2002). It is unclear at this stage which
approach will yield faster economic growth in
2038
E-Business in Developing Countries
e-business, although China seems to have the
advantage currently.
By many measures, China is ahead of India
in the ITC race and is likely to remain so at least
in the near future (see Table 3). However, we see
India as progressing rapidly in adoption of ITC
especially in business applications. In fact, the

Economist Intelligence Unit (Unit, 2005), in its
2005 e-readiness rankings, lists India at 49 out of
60 countries measured and China at 54 (Table 3).
The e-readiness rankings are based on a number
of items comprising six weighted categories: con-
nectivity and technology infrastructure—25%;
business environment—20%; consumer and
business adoption—20%; legal and policy en-
vironment—15%; social and cultural environ-
ment—15%; and supporting e-services—5%.
Both countries dropped in ranking somewhat
from the previous year. China’s consumer and
business adoption, legal and policy, social and
cultural environments, and supporting e-services
indices are lower than India’s. China’s lower level
RIHQWUHSUHQHXULDOLQLWLDWLYHVLVDOVRUHÀHFWHGLQ
the rankings. China does do slightly better in
connectivity and technology infrastructure and
business environment. The drop from the previ-
ous year, and growth in the top ranked countries,
s h o u l d b e o f c o n c e r n t o b o t h c o u n t r i e s , t h o u g h . T h e
e-business rankings are interesting because they
suggest that to succeed in e-business, a number
of business and cultural factors must be in place,
not just technological factors. Also, the rankings
suggest that although e-business is growing rap-
idly in both countries, it is not yet large enough to
transform large parts of their economies. However,
both countries continue to attract foreign direct
investment in technology.

The e-readiness rankings and other sources
suggest that adoption of Internet and e-busi-
ness technologies does not automatically result
in increased e-business. Like other businesses,
HEXVLQHVVUHTXLUHVJRRGPDQDJHPHQW¿QDQFH
marketing, and other business processes (Oyc-
laran-Oyeyinka & Lal, 2004). In order for any
business, but especially e-business to succeed in
international markets, understanding these mar-
kets and their consumers, whether other businesses
RU¿QDOFRQVXPHUVLVFULWLFDO([SRUWSURPRWLRQ
councils set up by industry and government can
help entrepreneurial e-businesses in both India
and China market to appropriate markets. Gov-
ernments and industry should not neglect this
critical element.
CONCLUSION AND
RECOMMENDATIONS
$QXPEHURIVWXGLHVKDYHFRQ¿UPHGWKDW&KLQD
is generally ahead of India in Internet infrastruc-
ture development and e-business (Press et al.,
1999, 2002), but others see it differently. Kshetri
(2005), for example, argues that because India
has a higher e-readiness rank (Table 3), it is actu-
ally better prepared for e-business than is China.
The e-readiness rankings consider a number of
IDFWRUV DQG ,QGLD KDV EHWWHU ³OHJDOVXSSRUW IRU
virtual transactions and digital signatures, well-
developed private sector and entrepreneurship,
the regulatory environment including taxation,

and openness to trade and investment” (p. 11),
among others. Improving IP protection and more
consistent application of the rule of law will help
China achieve greater development through the
Internet and e-business.
While the adoption of technology to enable e-
business in China is occurring rapidly, conducting
e -bu si ne ss t r an sa c tio ns is la gg i ng , d ue to b ar r ie rs
in business, legal, and cultural perspectives that
fail to adapt to the potential of the technology
(Tan & Ouyang, 2004). The major differences
between e-business in China and India are sum-
marized in Table 4. While India will probably not
overtake China in the ITC race anytime soon, we
do see India attempting to uplift its poor rural
areas through technology and also penetrate
large foreign markets. Of course, there is a long
way to go and as urban areas in both countries
2039
E-Business in Developing Countries
advance, the distances between urban and rural,
as far as technology and development go, con-
tinue to widen. This disparity between urban and
rural connectivity may have long range internal
implications for both countries.
What should other countries, developing and
developed, learn from the technology experi-
ences of China and India? Can their experiences
be a guide for development and utilization of the
Internet and e-business? The answer is yes, with

the caveat that what has worked for both countries
ZLOO OLNHO\ QHHG ORFDOL]DWLRQ DQG PRGL¿FDWLRQ
to work well in individual countries. With that
caveat, we offer the following observations and
suggestions:
• The Internet is a compelling communica-
tions system that, properly used, can inform
and educate people in ways that have not been
SRVVLEOHEHIRUH:KLOHXUEDQDUHDVEHQH¿W
LQLWLDOO\UXUDODUHDVFDQDOVREHQH¿WLIWKH
proper infrastructure is built.
• The Internet can change business models
through e-business. E-business has the
potential of unleashing innovative and en-
trepreneurial ways of thinking and doing
business that will aid in economic develop-
ment.
• Landline based Internet models are rapidly
being overtaken by mobile Internet con-
nections in developing countries. Mobile
technology has the potential of allowing
even more users access to the potential of
the Internet and e-business.
• Developing countries can take advantage of
the experiences of both developed countries
and other developing countries as models
for their own growth.
• *RYHUQPHQWDOSROLF\LVDQLQÀXHQWLDOGULYHU
of Internet usage and e-business. Countries
with a focused policy of infrastructure de-

velopment (e.g., China) will likely outpace
those with confused and unfocused policies
(e.g., India).
• Intellectual property protection and the
rule of law must be enforced for sustained
development, but has apparently not been
critical in development during the initial
stages (e.g., China).
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This work was previously published in International Journal of E-Business Research, Vol. 3, Issue 1, edited by I. Lee, pp. 91-
108, copyright 2007 by IGI Publishing (an imprint of IGI Global).