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W T O R E G I O N A L S E M I N A R O N E L E C T R O N I C C O M M E R C E
Geneva, Switzerland 22 April 2002
Revenue Implications Of E-Commerce
Government and Private Sector Experiences
MALAYSIA
Presentation by:
Suhaimi NordinSenior Manager - Borderless Marketing / E-Business
Multimedia Development [email protected]
2
Background – Overview of Malaysia’s Broad Vision and Strategy
E-Commerce – The Scenario
Implications / Challenges of E-Commerce (The Malaysia Experience)
Closing Remarks
Agenda
3
VISION 2020
Vision 2020 – a national vision of creating a developed nation in our own mould• Characteristics of a Vision 2020 society:
– Strong moral and ethical values self-regulating and self-managing empowered through information and knowledge based on the concept of the dignity of human-kind
• Characteristics of a Vision 2020 economy:– Robust and resilient competitive and dynamic, but
with fair and equitable distribution of wealth
4
Vision of Knowledge-Malaysia by year 2020
InformationSociety
KnowledgeSociety
Values-basedKnowledge
Society
2020
Eco
nom
ic
Social
- - P
eople are In
tegral -
-
Inform
ation and C
ommunication
Technology as an Enabler
•Access to information
• ICT as a sector and information as a commodity
•Culture of a life long learning and innovation
•United, moral and ethical society
•Sustainable quality of life
•Value creating knowledge products and services
•Competitive Knowledge Economy
5
Multimedia Super Corridor’s Vision – Conceived As the Next Engine of Growth for Malaysia
The MSC was set up based on:
• The recognition that Malaysia was losing its comparative advantage in its traditional economic sectors;
• Need to drive the economy towards higher productivity through technology and high value-added economic activities;
• Knowledge Economy and converging technologies presented the best opportunities for socio-economic transformation.
• The need for the adoption & application of ICT to enhance national competitiveness and to help bridge the Digital Divide.
6
The MSC Strategy
Create the ideal multimedia environment to attract world-class companies to use MSC as a hub
Catalyze a highly competitive cluster of Malaysian multimedia/IT
companies that become world-class over time
MSC STRATEGY
Go Global
Lead Regional
Create value from Information Age
businesses
Enhance domestic
productivity
7
PELABUHANKLANG
KLANG
PETALING JAYA
KLCC
PULAU CAREY
BANTING
TELOKPANGLIMA
GARANG
TELOKDATOK
BANDAR BARUNILAI
KLIA
SEPANG
PORT DICKSON
SEREMBAN
BERANANG
SEMENYIH
COUNTRYHEIGHTS
KAJANG
SHAH ALAM
25 km
BANDAR BARU
BANGI
20 km
SH AH A L AM E XPRE SSWAY
SO UTH
K L A NG VAL LEY EXP R ESSW AY
NO
RT
H- S
OU
TH
EX
P
RE
SSWA Y
ED ER AL HI
K L - K LA N G F G H WAY
NO
RT
H-S O
U
TH
EX
PR E
S SWA
YC EN T
RA
LL
I NKPULAU INDAH
DE
DICA
TE
D H
IGH
WA
Y
AIRPORT CITY
BANDAR SALAKTINGGI
P U T R AJ AYA L IN K
ER
L
RA
AY
ILW
Y
WE
SC
OT
A
HS
IGT
H WA
• 15 x 50 km Corridor South of Kuala Lumpur
• Special Cyberlaws, policies and practices tailored to enable smart partners to achieve maximum benefits of multimedia
• World class infra-structure and next generation 2.5 - 10 Gb multimedia network
• MDC - a premier one-stop shop to facilitate and promote the development and investment in the MSC
The MSC – More Than Just a Technology Park
8
Telehealth
Smart Schools Multipurpose Card
R&D Cluster
Electronic Government
Worldwide Manufacturing Web
Borderless Marketing Centre
E-BusinessE-Business
MSC Flagship Applications
OBJECTIVES To Improve:• Access - any time, any
where, any means• Convenience – inline
to online • Efficiency
9
Progress To-date
• 670 MSC Status companies, 50 world class• Government Multi-Purpose Card (GMPC) Flagship
Application Roll-Out• Growing investments in technology and high
value-added economic activities• Rapid growth in sales and exports• New knowledge-based employment opportunities
created• Growth in institutions of higher learning and
supply of knowledge workers• Growth in SME participation• Spin-offs to economy including productivity
increases
10
World Class Companies With Regional Initiatives in the MSC
11
Other World Class Companies in the MSC
12
• 1 Corridor
• 50 world-class companies
• Launch 7 flagship applications
• World-leading framework of cyberlaws
• Cyberjaya as world-leading intelligent city
• Web of corridors
• 250 world-class companies
• Set global standards in flagship applications
• Harmonized global framework of cyberlaws
• 4-5 intelligent cities linked to other global cybercities
• All of Malaysia
• 500 world-class companies
• Global test-bed for new multimedia applications
• International CyberCourt of Justice in MSC
• 12 intelligent cities linked to global information highway
Transform Malaysia into a knowledge society
Phase 3Phase 2
Link the MSC to other cybercities in Malaysia and worldwide
Phase 1
Successfully create the Multimedia Super Corridor
The MSC Vision: From Here To 2020
Leapfrog into
leadership in the
Knowledge Economy
1996 20202003 2010
13
Background – Overview of Malaysia’s Broad Vision and Strategy
E-Commerce – The Scenario
Implications / Challenges of E-Commerce (The Malaysia Experience)
Closing Remarks
Agenda
14
Companies with own transaction capabilities
Developing solutions to enable E-Commerce
E-Business Within MSC Status Companies
1997 1998 1999 2000 2001 2002Forecast*
MSC Status Co. directly involved in E-Commerce Businesses / No of MSC Status Companies
138
621
86
429
Percentage of E-Commerce related businesses
22%20%
30019794 700*
34
11%
20
10% 35%*
245*
33
105
15
71
3
32
50*
195*
Indicator
6
6%
0
6 19
1
15
33 (15 in Yr 2000) companies directly undertakes E-Commerce / E-Business with transaction capabilities
E-Business Within MSC Status Companies
There are 138 / 621 (22%) MSC Status Companies which are directly involved in E-Business / E-Commerce businesses. (As of 31 Dec 2001)
24%24%
76%76%
105 (71 in Yr 2000) companies develop and implement e-solutions to enable their customers to undertake E-Commerce
Source: MDC
• EC Technology Providers and/or System Integrators
• EC Consultancy Services
• Content Development
• EC Training
• E-Business software / applications development
No. of Companies With Industry FocusSolutions Provider 23
Financial 19
Fulfillment 18
Software Apps Dev 16
Portal Dev 12
R&D Apps 10
CRM 6
Travel/Hotels 6
Manufacturing/ERP 5
Web Hosting 5
Insurance 3
Healthcare 3
Others 12
16
asiatravelmart.com
Highlight:•AsiaTravelMart is a one-stop travel shop for hotels, air tickets, tour packages and other travel products
•Offers more than 60,000 products from over 3,000 travel suppliers in more than 100 countries
•Also, offers mobile-commerce transactions to WAP users (world’s first).
•Awards, including PATA Gold 2000, Internet World Asia Industry Award, PIKOM Award and APMITTA Award
17
SMEs - (smarttransact.com)
Highlight:•One Stop powerhouse for E-Commerce solutions: providing a complete set of software, infrastructure and services.
•Established in 1999 with 3 staff and has grown to 130 staff (March 2001)
•Recorded revenue of US$3 million (US$ 1 million profit) – March 2001
•95% of revenue came from overseas
•Clientele spread worldwide including Ireland, U.S and Hong Kong
• “Internet Company of the Year” – Malaysia Internet Awards 2000
18
SMEs - (watchesplanet.com)
Highlight:•Malaysian watch e-tailer (B2C)Watches are Duty-Free items
•Started in 1998 with a capital of US$65,800, Year 2000 sales was US$1.1million.
•Offers over 5,000 watches from 60 brands. Price average US$100 – US$2,000
•75% customers from North America
19
Growth of Internet Subscribers in Malaysia(1995-2005)
Source : MECRA (TMnet, Jaring, MaxisNet, TimeNet), PIKOM, MDC, MECM
25 90 210442
892
1,852
3,111
4,225
4,837
5,525
6,005
0
1,000
2,000
3,000
4,000
5,000
6,000
7,000
'95 '96 '97 '98 '99 '00 '01 '02 '03 '04 '05
Year (1995 – 2000)
(‘000 million)Projected growth
An Internet penetration of 20% of population will spur the growth of E-Commerce in Malaysia
20
Total E-Commerce Revenue Growth for Malaysia (1997 – 2005)
Source: IDC Internet Commerce Market Model, IDC 2001
0
1,000
2,000
3,000
4,000
5,000
6,000
7,000
8,000
9,000
10,000
1997 1998 1999 2000 2001 2002 2003 2004 2005
US
$mil
lio
n
eCommerce Revenue continue to grow US$384 million in 2000 to US$9.4 billion in 2005
US$383.5m
US$9,336.2b
US$675.6m
21
Agenda
Background – Overview of Malaysia’s Broad Vision and Strategy
E-Commerce – The Scenario
Implications / Challenges of E-Commerce (The Malaysia Experience)
Closing Remarks
22
E-Commerce – Lessons Learnt
There are many definitions for E-commerce.Examples:
“The electronic exchange of information goods,services and payments”
but underneath the surface E-commerce is also:
…the digitization of information...Internetworking of human ingenuity creating a new socio-economic transformation…propelled by BRAINS instead of BRAWN…driven off by both technology push and business pull…the foundation of a new economic order
Nations need to identify clusters for industrial development and reposition themselves to be at the centre of the virtual marketspace…
23
E-Commerce Reduces Transaction Costs
“Transaction costs represent more than 50% of the activities within the US economy. Transaction activities are defined as defining, protecting, and enforcing property rights to goods (the right to use, the right to derive income from the use of, the right to exclude, and the right to exchange.”- Douglass North, US-economist and Nobel laureate
Source: OECD
8.0
1.0
AirlineTickets
1.08
0.54
0.13
2.22 to 3.32
0.54
0.13
400-700
200-350
15.00
5.00
0.20-0.50
Banking BillPayment
Term LifeInsurance
SoftwareDistribution
US$ per transaction
E-commerce reduces transaction costs !
Traditional System
Telephone based
Internet based
24
The Destruction Of The Vertically Integrated Value Chain
Integrated monolithicVertical value chain
Multiple product specialists collaborating within an e-business community, creation of alliances
Domain:Closed ProprietaryNetwork
Domain:The Internet
CHANGE
These Companies can deliver products and services at a much lower cost and utilising fewer assets !
25
New Infomediaries – “Hollowing-Out”
Physical Economy‘Marketplace’
Digital Economy‘Marketspace’
Product
e.g. MalaysianConsumers
$$$
Foreign/MalaysianConsumers
e.g. Malaysianintermediaries
Multi Products
INFOmediaries:Portals, Search Engines, Communities
Gateways, Call/Service Centers
Information
Customisation
Fulfillment
Multiple Sources
26
A Service Centric Model
Infomediary leverages information by “BUYING at the point of LEAST COST and SELLING to the point of HIGHEST PRICE”
INFOMEDIARY operating under theVIRTUAL VALUE CHAIN
PHYSICAL INFRASTRUCTURE(i) Telecommunications
(ii) Integrated Global Logistics
Supplier ACountry 1
Manufacturer BCountry 2
Designer CCountry 3
Distributor DCountry 2
Customer ECountry 4
Utilize :1.Infrastructure to arbitrage cost, skills, productivity, taxes, etc. across multiple jurisdictions2. Network and information3. Channels of distribution
27
E-Commerce Implications In Context Of Globalisation
1. First-mover enjoys entrenched position as ‘lock-in’ increases switching costs
2. There will winners and losers in Knowledge Age
3. Government interventionist policies are needed to correct for market imperfections
4. Capital will gravitate towards a few ‘hubs’ which have developed a critical mass of users and producers
United Statesof America
United Statesof America
CanadaCanada
AustraliaAustralia
New ZealandNew Zealand
JapanJapan
United KingdomUnited Kingdom
GermanyGermany
SingaporeSingapore
IrelandIreland
IndiaIndiaMalaysiaMalaysia
E-Business may be used to circumvent non-tariff barriers and gain access to the protected service sectors of emerging economies.
28
Major Concern – Impact of EC on Tax
• Growth of virtual organisations as opposed to “standing agency”
• Trading conducted electronically without physical presence of people or agencies
• No clear definition of “transaction” for determining tax collection
• Loss of revenue due to growth of tax evasion and black economy
29
“We need the government to raise awareness and promote Malaysian’s IT capabilities and
competencies in the international market”
“We need government endorsement for our services to
better promote our company in the global marketplace”
“E-commerce in Malaysia is uncertain, there are no clear
guidelines for implementation”
“We are looking for financial incentives from the government
for further development”
Feedback from EC vendors and users
Standard guidelines for e-commerce, i.e. regulations
Endorsement of credible merchants
International promotion of local e-commerce products/services
Consumer protection
IP Protection and Enforcement
Grants and subsidies
Taxation
Policy and Regulatory Framework
30
• Proper legal and regulatory framework vital in ensuring consumer confidence
• Existing legal framework insufficient:– new Consumer Protection Act excludes electronic transactions– No vendor authentication– Lack of effective statutory remedies available to online consumer
• Proper legal and regulatory framework vital in ensuring consumer confidence
• Existing legal framework insufficient:– new Consumer Protection Act excludes electronic transactions– No vendor authentication– Lack of effective statutory remedies available to online consumer
CONSUMER PROTECTION
ACT
Traditional transactions
Electronic Transactions
Consumer Protection
31
POLICY AND REGULATORY FRAMEWORK –Increasing Consumer Confidence
• Expanding existing laws and enacting new Act to apply to electronic transactions
– Laws should apply equally to online and offline transactions
• Review role of Existing Regulator:– New or existing regulator with expanded scope – Minimal and light handed intervention – Register of E-Commerce vendors
• Promotion of Self Regulation:– Accreditation agencies to encourage reputable
vendors – Consumer Code for vendors
• Consumer Guidelines for consumers
CHALLENGES
32
Intellectual Property Management & Commercial Code
Intellectual Property Management– Conflict between trademark rights and registration of domain
names– Inequality of bargaining power in registration of domain
names
Commercial Code– Application of general contractual principles to E-Commerce,
particularly cross border transactions
Intellectual Property Management– Conflict between trademark rights and registration of domain
names– Inequality of bargaining power in registration of domain
names
Commercial Code– Application of general contractual principles to E-Commerce,
particularly cross border transactions
33
Intellectual Property Management & Commercial Code
Commercial Code• Enacting new laws based on UNCITRAL Model Law to apply
contractual principles to E-Commerce
Intellectual Property Management• Accord Domain Name protection and management under the
Communication and Multimedia Commission Develop an IP management systems for the distribution and
management of the intellectual property especially content services.
Educate consumer on the importance of the protection as well as its rules and regulation
Implement cyber laws that have already been implemented as well as keeping track of new technology to make a more proactive legislation
CHALLENGES
34
Dispute Resolution
MALAYSIALEGAL SYSTEM
New System
Jurisdiction of dispute Malaysian Court
Choice of law Malaysian Law
Evidence Act
REFJA (Reciprocal Enforcements of foreign
Judgement Act)
REFJA is not enforceable in some major trading
partners
Evidence electronic document
Choice of law foreign or local?
Jurisdiction of disputeLocal or foreign court?
Existing System
The nature of E-Commerce causes existing laws not able to cover the resolution process especially in cross border issues
35
• Amendments to the rule of procedure and
evidence to allow for the evaluation of digital
information
• Establishing independent dispute resolution body
to deal with E-Commerce effectively and
expeditiously
• Advance the enforcement of awards of such body
transnationally
Dispute Resolution (Cont’d)
CHALLENGES
36
Taxing E-Commerce Transactions
Income Tax• Difficulty in applying “source based” concept to E-Commerce. How far would a
Web page/Server constitute a physical existence• Provisions do not capture multi jurisdictional transactions• Difficulties of enforcement, e.g. Encryption technology and Audit trails• International cooperation is needed
Stamp Duty• Application of stamp duties apply to electronic documents - Stamp Act 1949
based on paper instruments• Difficulty of enforcement and compliance
Sales and Service Tax and Customs and Excise Duties• Record keeping requirements still based on paper medium• Enforcement provisions should provide for electronic records• Delivery of intangible goods increases the avoidance of duty • Provisions for compliance insufficient to capture E-Commerce transactions
Income Tax• Difficulty in applying “source based” concept to E-Commerce. How far would a
Web page/Server constitute a physical existence• Provisions do not capture multi jurisdictional transactions• Difficulties of enforcement, e.g. Encryption technology and Audit trails• International cooperation is needed
Stamp Duty• Application of stamp duties apply to electronic documents - Stamp Act 1949
based on paper instruments• Difficulty of enforcement and compliance
Sales and Service Tax and Customs and Excise Duties• Record keeping requirements still based on paper medium• Enforcement provisions should provide for electronic records• Delivery of intangible goods increases the avoidance of duty • Provisions for compliance insufficient to capture E-Commerce transactions
37
Taxing E-Commerce Transactions
• Deeming provisions – The current Income Tax Act have to extend the source based tax regime to include income produced via ISP located in Malaysia
• Stringent regulations as to identity – The authorities may want to consider the possibility of drafting legislation that would impose duty on the service provider to obtain the information of businesses registering with them
• Wider powers of review – Wider audit power by IRB to investigate private documents that may include decoding any encrypted data or placing log file with the ISPs to monitor taxpayers activities on the Internet
CHALLENGES
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• Re-negotiate Double Tax Agreement (DTA) – The current DTAs are unclear as of whether websites or host server are permanent establishment that are subjected to tax
• Electronic stamping – Extending the existing stamp duty to electronic documents
• Monitor the flow of intangible goods – With the influx of intellectual property into the country, Royal Customs and Excise Department should monitor the size and growth of IP to ascertain whether to tax or not to tax
• Technologically advanced IRB – The taxing authorities should upgrade their technical capabilities to deal with encryption technology and the paperless trail to further enhance their audit and investigative powers.
Taxing E-Commerce Transactions (Cont’d)
39
Background – Overview of Malaysia’s Broad Vision and Strategy
E-Commerce – The Scenario
Implications / Challenges of E-Commerce (The Malaysia Experience)
Closing Remarks
Agenda
40
1. Recognise that E-Commerce will transform the national/global economic landscape and the emergence of new breed of companies providing services in the e-space.
2. The borderless nature of E-Commerce will expose to the impacts of liberalisation and globalisation and it is imperative for nations to be e-ready.
3. The need to focus and develop skills in knowledge intensive areas required by global markets e.g. EC Tax advisors, Lawyers etc.
4. Clear policy framework required to create climate for growth of ICT sector.
In Conclusion
41
Thank-You