Online sales in Taiwan.
Twenty-five-year-old Karen Lin holds a day job as a sales executive at an insurance company. The job keeps her busy, but the flexible working hours permit her to run a small shop, Karen's Wardrobe, on an auction Web site where she sells clothes she has worn a few times. Once she sees bids for one of her items start, she wraps it up, ready for the final bid. As soon as the auction process concludes, she takes the package to the nearby post office and sends it after confirming that the payment has been wired to her account. "The business really doesn't take that much time or effort," she says.
On average, Karen says she now sells 200 items a year, and she has scored more than 300 positive ratings since she started the shop in April 2003. "The business just provides me with pocket money, but that score gives me a sense of accomplishment," she says. Running the business has sharpened her understanding of the market, expanded her social network and paid for overseas shopping trips to refill her e-wardrobe.
Lin is one of a great many Taiwanese trading online. In the marketplace where Lin is a member, Yahoo! Kimo Auction, visitors can find around 2 million items for sale, and there are another million on the local eBay Web site, which entered the Taiwan market in 2002. The online auction market continues to gain momentum as a result of competition between these two players. Newspapers and television repeatedly devote time and space to the phenomenon, reporting the success stories of e-auction traders: college students, the unemployed and housewives.
Statistics from the Institute for Information Industry (III) continue to highlight the promising outlook for Taiwan's online market; revenues soared from NT$360 million (US$8 million) in 1997 to NT$35 billion (US$1.11 billion) in 2004. Still, the market only represents 1.2 percent of all retail sales, relatively low compared with America's 2.2 percent. Moreover, online auctions accounted for nearly half of the 2004 trade volume. This rosy picture leads observers to venture that the phenomenal growth of Taiwan's e-commerce, particularly of the business-to-consumer (B2C) market, is only the beginning. A 2004 III survey indicates that 97 percent of e-shops are confident of a bright future.
Their optimism is well grounded. The same survey also shows that around 60 percent of local e-shops are small- and medium-sized enterprises, and that half of them have either broken even or made a profit. Taiwan's Internet community boasts a population of 13.8 million out of the country's total of 23 million and 77.6 percent of users shopped online last year an average of four times.
An Industry's Growth
Global e-commerce has grown rapidly over the past few years, although the pace differs from country to country due to disparate levels of Internet penetration. More than half of the world's online transactions occur in America where revenues exceeded US$3.5 trillion in 2004. ZenithOptimedia, a media services group, predicts that world television advertising expenditure, which has been rising since 1980, will fall slightly in 2007 as more funds are allocated to the Internet. Double-digit growth is expected to continue in online advertising between 2005 and 2007.
Studies indicate that the convenience and choice provided by the Web are outweighing consumer concerns about online security and privacy. The Guidelines for Consumer Protection in the Context of Electronic Commerce, released in December 1999 by the Organization for Economic Cooperation and Development, heralded the growing importance e-commerce is acquiring in modern life. Taiwan's Consumer Protection Commission also uses the guidelines to educate local Web users.
The travel business has the lion's share of online sales in Taiwan, accounting for 68 percent of total online spending in 2004 according to the III. Beauty products, electronics and women's apparel are the runners up. Cosmetics and clothing suggest that women are indeed big buyers on the Web, but they are still slightly less active than their male counterparts.
Wide availability and inexpensive Internet connections are driving the development of Taiwan's e-business environment. Broadband services charge monthly fees rather than by the duration of connection, and can be used by several members of a household on separate computers at the same or different times. Consequently, many housewives have become Internet regulars. "Female users are often household treasurers," says Charlene Hung, director of Yahoo! Kimo's e-commerce business service. "So this marks a big breakthrough for e-business."
In Taiwan, 4.32 million households had access to the Internet at the end of 2004, and 3.46 million have broadband connections. "The availability of broadband, particularly the markdown of its connection fees and monthly rates, has turned the Internet into part of our lives," says George Wei, manager of the III's Advanced e-Commerce Institute.
Moreover, Wei says deeper Internet penetration has fueled the development of peripheral services. Courier services provide ready logistical solutions for the flow of goods while the flurry of new communication tools such as mobile phone text messaging and instant messaging allow consumers prompt access to market information. Bulk-buying has also become a popular practice among Taiwanese Internet users who team up with other people on innovative Web sites to buy goods at significant discounts.
Another driving force behind the increase in Web-based commerce is the prominence of credit cards. Just a decade ago, Taiwanese consumers mainly used cash and were wary of credit. However, they have since embraced plastic more enthusiastically than their neighbors in the region. According to Visa International, the number of platinum Visa cards issued by June 2004 in the Pacific region reached 5.7 million, of which more than 4 million were to Taiwanese. The total number of credit cards in circulation came to 45 million in March this year, a tenfold growth from the 3.6 million in 1995 according to the Bureau of Monetary Affairs under the Financial Supervisory Commission. Payments made by credit card totalled NT$1.254 trillion (US$30 billion) in 2004, a steep rise from NT$272 billion (US$8.6 billion) in 1996. This extraordinary surge in the use of credit cards has provided a convenient online payment solution.
Wei says his colleagues at III often joke that their department bears a name doomed to be short-lived. "E-commerce these days is like TV," he says. "Does anyone today consider TV a field of research?" But his department has been an important element in the government's effort to promote e-commerce and make it secure. It is working on projects commissioned by the Ministry of Economic Affairs (MOEA) with a focus on three types of players: intermediary platforms such as Yahoo! Kimo Auction, independent e-shops and e-malls.
The prosperity of these three categories largely depends on three factors: the effective flow of money, information and goods. While the flow of goods has matured, money and information remain areas of concern. "We've been working on trust-building mechanisms for almost six years," Wei says. To promote information transparency, the III publicized a set of principles on the visibility of online company information from returned purchase policies to street addresses. The III advises such nonprofit organizations as the Secure Online Shopping Association, members of which come from the III and the industry, to issue trust ratings to companies which comply with the III guidelines.
Finding Solutions
Wei says there is still a long way to go before the trust ratings become widely recognized. While credit card companies pursue their own security measures for online payments, the III is also devising mechanisms to tighten payment security. For two years it has been promoting a trust payment and escrow system where the three-way payment flow--payer, payee and paying bank--is adjusted so that a third party, ideally the bank, is entrusted to authenticate information. At present, however, due to the size of the online market, banks have yet to be persuaded to play that role.
Some forward-looking local banks have introduced a new solution, Web ATM, a Web page that allows payers to transfer funds directly using a chip-stored identity card and their own card reader. Chip cards are much safer than the magnetic strip variety and as a consequence of this heightened security, Taiwan's banks are now required to replace magnetic strip ATM cards with them.
One local company has come up with a new payment system for consumer-to-consumer (C2C) transactions. The ezPay personal account offers intermediary services including payment, instant payment notification and transaction performance guarantees similar to the PayPal system in the United States. Service users make or receive payments by registering their e-mail account or cell-phone numbers with the service provider. A local bank has also devised a stored value system called Ecoin for C2C small payments.
In addition, the MOEA is reviewing the Electronic Signature Act, which took effect on April 1, 2002, to govern fair competition on the Web. The ministry seeks to either revise the law to cover more issues related to e-commerce or to draft a new bill to ensure a healthy e-business environment and has commissioned the III to gather public opinion to shape the draft.
For now, online consumers are still protected by existing laws and e-businesses must abide by those governing their number in the real world. Yahoo! Kimo's Hung says most companies are willing to play by the rules set by the government, as long as they help the formation of a sustainable business environment where a reasonable level of consumer protection is secured.
Hung believes that the government's attitude will decide whether Taiwan's e-commerce becomes an industry or a fad. She is concerned that the inevitable negative side of online shopping--business fraud and unsecure sales--may lead the government to smother the industry with unfeasible regulations.
For Security's Sake
In an effort to secure transactions on its Web site, Yahoo! Kimo implemented a mobile phone and credit-card authentication process. Hung says to manage a shopping Web site is to manage people and products. "We also score users behind the scenes," she says. Swindlers can be denied the right to trade again in the marketplace. The company also encourages users to report possible offenders and has hired another company to patrol the marketplace to keep out unlawful products.
Hung says all these measures are taken to protect Yahoo! Kimo users, and the effort has certainly paid off; it is now the most-visited portal in Taiwan with highly successful auction sites, independent e-shops and an e-mall. "You cannot stay ahead just by doing one thing right," she says. "We've spent a lot of time discovering needs and connecting with users."
Yahoo! Kimo Auction started by offering a free service, but then began to collect an NT$3 (US$0.09) fee per item in April 2004. The number of items in the marketplace immediately dropped by half to around 1.9 million, but the total trade volume remained roughly the same. Meanwhile, the media reported that plans were afoot to tax online transactions, but the Ministry of Finance says the government will follow the United States' 1997 Framework for Global Electronic Commerce, which states that businesses, online or not, should be taxed by existing systems.
Karen Lin is not worried, either by Yahoo! Kimo's service fee or by tax rumors. In fact, she says her sales surged as a result of half the vendors leaving the marketplace while the remainder enjoyed more of the same traffic flow. She believes her business is too small to attract the tax authorities. She has no intention of quitting the business anytime soon. "This is a place where your investment pays off in new opportunities," she says. She hopes to eventually launch her own brand on the Internet.