Export Incubators: Lessons From the Cyber Trader Sri Lanka Model

Export Incubators: Lessons From the Cyber Trader Sri Lanka Model Lalith D.K.B. Gamage, Managing Director/CEO, Sri Lanka Institute of Information Technology, Executive Director, TradenetSL, Sri Lanka Export Development Board Background In all parts of the world today businesses are examining ways in which they can benefit from the new economy and in particular from electronic commerce. The fundamental difference between the old economy and the new economy is how the business models are built. The business models in the new economy are built on Information Technology (IT) infrastructure (Figure 1) so that they can interact electronically with other businesses world-wide seamlessly. In order to benefit from the new economy, we must examine how our business models are built today and if they are not built on ICT infrastructure, their foundation will have to be changed or the businesses have to be transformed. This in today's terminology is a paradigm shift. This is applicable to any business or industry. However, when the businesses are transformed and transactions are carried out on the Internet in an integrated global interactive environment, a host of other issues must be addressed. In developing countries issues such as availability, accessibility, and affordability of ICT infrastructure, education, training and skills development issues and legal and business environment issues must be addressed. Measures need to be taken to provide total solutions to businesses to overcome the problems related to these issues. This paper examines how Sri Lanka has addressed these issues through the establishment of business incubators one of the more recent concepts increasingly becoming popular in Trade Support Systems. Particular focus is on the Cyber Trader and the ConceptNursery.com, two business incubators that have made a remarkable contribution towards the trade support system of Sri Lanka. Agricultural / commodities Industrial goods Services Transport Insurance Software Banking ICT Infrastructure Figure 1: The New Business Paradigm e Business Incubators in the trade support system The digital economy has compelled the trade support systems to reinvent themselves. It has now to change the way its support is delivered and it has to change the content of its support. It has to be proactive in meeting the demands of a growing clientele, and be fully e-competent. The establishment of e-business incubators have in recent times responded to this need by offering total business support to start up and fledgling companies who eventually migrate from the status of e-enabled to e-expanded. A co-ordinated strategy adopted by trade-related agencies both in the public and private sector will lead to a successful incubator programme in contrast to the traditional incoherent support that has been hither to evident in trade support systems. Main Issues to be addressed The goals of an incubator programme are in the long term to support and develop enterprises, which are self-sustaining, to reduce unemployment, build capacity, and to contribute to the national economy. Incubators have also expanded and upgraded the facilities and services provided to their clients from providing office and factory space, to business counselling, strategy development, skills development, help find financial support and marketing. In today's

context the business incubator services must also necessarily facilitate the use of e-trade tools. Shared costs on infrastructure, utilities and amenities reduce the cost of overheads. In order to grow or transform any business or industry in the new economy, particularly, in a developing country one must address issues such as availability, accessibility, and affordability of ICT infrastructure, education, training and skills development issues, legal and business environment issues and marketing issues. People Skills Know how One of the biggest challenges today is the training of entrepreneurs so that they are able to use e- trade tools available. In order to develop a business culture that can benefit from the developments of the IT and the Internet, people must be trained/educated and equipped with IT skills. Some of the critical areas where skill development and training is required include entrepreneurship and e-commerce; Web marketing strategies, customer relationship management, and supply chain management. The business skills of those involved at every level of the company and at every level of the enterprise needs to be improved in terms of new technology and new ways of doing business. Connectivity Access Infrastructure The underlying assumption of the modern business model is that doing business on the Net is much more economical than doing it the traditional way. In order for this to be true the telecommunications services, on which the models are run, must be cost effective. In Sri Lanka the use of Internet is also becoming very popular among the business community and the individual users. The number of Internet connections given at present stands at 75, with an estimated user population of 2, giving density of about 1/1. The number of PCs on the other hand per 1 inhabitants is estimated at 1.5. This is a direct result of removal of import taxes from all IT equipment. Currently there are about 5, PCs brought into the country every year. Five years ago Sri Lanka government took a very bold step in privatizing the main telecom operator, Sri Lanka Telecom, by selling 35% of its shares to NTT of Japan. Also, deregulation of the telecom sector resulted in two other landline operators and four mobile operators entering the market. Since the privatization of the main operator, the number of fixed telephone lines in the country has quadrupled and about 5, new mobile connections have been provided. Although this sector is growing rapidly the teledensity still remains relatively low. The average teledensity of the country excluding mobile connections is 5/1 (lines/population). This ratio is 1/1 in the cities and 1/1 in rural areas. Business and Legal Environment Trust Confidence In establishing an environment conducive to the growth and development of trade and e- commerce in Sri Lanka, the legal infrastructure and an enabling business environment must be created. While paving the way for the business sector to lead in adopting ethical and selfregulatory means to conduct businesses through e-commerce, both the business and government sector must work together in creating a conducive business environment in which e- commerce/e-trade can develop unhindered. Therefore, business-related infrastructures such as the financial infrastructure and the legal framework must be shaped accordingly. Creating a complete legal environment is extremely difficult for many reasons. E-commerce transactions can be carried out at anytime, anywhere, by anyone. No single government or authority can develop a framework that will suit everyone. Since these businesses cross many borders, bypassing gatekeepers, taxation has become a difficult task. Therefore it is necessary for governments to work together in creating an evolving environment, which will provide sufficient confidence for businesses to use and profit from the Internet economy. Sri Lanka has taken several initiatives to create a business-friendly legal environment to support the growth of electronic trade. In this regard, the Code of Intellectual Property Act of 1979 has been amended to protect intellectual creations on information technology. This amendment came into effect in July 2 and this is currently being tested in Courts of Sri Lanka with the first case involving an Indian national who has allegedly stolen source code belonging to an Indian company and attempted to license and implement it in various companies in Sri Lanka. The courts have already issued a restraining order against the individual.

In order to fast-track the legislation required for the development of electronic commerce several projects and commissions have been established and entrusted. These include the Computer and Information Technology Council (CINTEC) Law Committee under the Ministry of Higher Education and Information Technology Development, Legal and Judicial Reforms Project, a World Bank-funded project under the Ministry of Justice, and the Law Commission (a statutory body). Business environment To create the necessary business environment for the development of e- commerce and IT industry, the Sri Lankan Government and private sector have taken several measures. One major initiative that the government undertook about two years ago is the establishment of the Cyber Trader, an e-business incubator at the Sri Lanka Export Development Board. The private sector in collaboration with the public sector and financial sector also started another incubator known as ConceptNursery.com to incubate technology and e-business companies. Cyber Trader The e-business Incubator at the Export Development Board Cyber Trader the e-business arm of the Sri Lanka Export Development Board was established in May 1999 to empower Sri Lankan business community with e-business tools so that companies will be competitive in the global market place. It has professionally developed a range of services including provision of business intelligence, Web-based marketing/promotion/image building, e-infrastructure provision, awareness building/competence creation, business advisory/incubator services, and trade information services. These services are offered to the 8+ member clientele of small, medium, and large-scale companies, government and foreign buyers and investors. Needs of Sri Lankan companies Exporters need different types of assistance at different stages of the life of the company. Having identified the following three stages, the Cyber Trader has designed its services to cater to the needs at various levels of entrepreneurship. For the past two years of operation the services of the Cyber Trader have revolved around awareness-building, providing access to information using Web tools, Web marketing, e- communication services and infrastructure. Through these services Sri Lankan businesses can identify potential products and markets obtain technical information at start up level and for expansion and diversification conduct market research on potential markets identify potential buyers advertise and promote products and services through Web advertising and multimedia services negotiate through e-mail for product sampling and counter sampling negotiate prices place orders and confirm contracts Foreign buyers & investors can have access to Sri Lankan companies and product information investment information information on incentives statistical data etc. The Cyber Trader has now taken on the more commercial dimension in servicing the needs of the start up and fledgling companies by providing value-added services other than to access information and improve communication. These companies also need assistance to improve pre-

transaction knowledge, monitor logistics, manage customer and supplier relationships, and financial and start up support. These services will eventually lead to the migration business from start up e-enabled e-expanded. Currently the distribution of these companies has been found to be 25:6:15, and it is the goal of the Cyber Trader to take every step to reverse this pattern in the very near future. Needs of Enterprises Export Expansion Stage Start-up Stage Product & Mkt. identification Advice and information on technology, markets, pricing, standards, packaging etc. Training on export procedures, Business skills etc. Entrepreneurship Mentoring Help find Financial Assistance Export Enabling Stage Introduction of e- business tools such as Web advertising, e- mail, Internet, video conferencing Rating of export companies Help find Financial Assistance Standards Marketing/Overseas Promotion Training on export procedures, Business skills etc. Entrepreneurship Mentoring Market and Product diversification and expansion Economic/Business Intelligence Marketing/Overseas Promotion Competitive Promotion Programmes for Business Excellence B2B Exchange and Online payment facilities Start up Stage Having identified the requirements of start up level exporters, Cyber Trader liaises with Commercial Banks, Development Banks and Venture Capitalists to establish a means of providing financial support to start-up companies. Cyber Trader provides guidance to exporters on export procedures and also provides trade information. Also, Cyber Trader develops strategic alliances with foreign-trade-related organizations to enhance trade opportunities, obtain price information, etc. The Export Development Board also guides potential exporters on product and market identification. The assistance given to a company at the first stage enables it to develop a product and bring it to the export market. Cyber Trader assists start up companies grow up to the 3 rd stage identified above by providing the relevant assistance at each stage including assistance in preparation of Business Plans, development of business skills and entrepreneurship mentoring programmes.

Export Enabling Stage Cyber Trader s main focus group is the small and medium-size exporters and it offers the widest range of services to this group. The most popular service among these is the finding of importers for their products or buyer-seller matchmaking. The main aim of Cyber Trader in working with this group at this stage is to promote and popularise e-trade tools among them. We provide an electronic communication infrastructure such as email, Internet connections, access to computers, video conferencing, e-fax services and value-added services such as Web promotion/advertising, search engine positioning, intelligent Web searches, and multimedia productions. Cyber Trader is in the process of introducing a rating system for these companies in order to help them establish themselves in the global market. For companies already in the export market, the Sri Lanka Export Development Board provides guidance on product and market diversification and expansion. Any financial assistance required by these companies is being addressed through the tie-up with banks as mentioned above. Product specific/customized entrepreneur mentoring programmes will be available for this sector as well, targeted at improving business practices and processes. Export Expansion Stage While most large companies have their own programmes including business strategy/expansion, marketing/promotion, and fund raising, most of them still lack research and development programmes, e-business skills and business transformation and integration skills. Cyber Trader services for these companies include provision of economic/business intelligence, e-business strategy development including supply chain management and customer relationship management and e-trade facilities provision. The e-trade facilities provision is mainly through a B2B Trading Portal with a Web-based payment system in place. The Web stores established in the electronic market place will be rated and certified by different agencies including Cyber Trader. The certification will depend on their supply position, credit worthiness, business strengths and business practices. Financial requirements of companies entering into this system will also be looked into. Value added services such as multimedia services, overseas promotion programmes, achieving standards for business excellence are provided for this sector as well. Growth of Cyber Trader services Business Intelligence Services Provision of business intelligence and advice by experienced business information professionals on markets, products, pricing and tariffs, and networking with business infomediaries. Information Services Provision of electronic trade information including product profiles, company profiles, market and country profiles, trade statistics, trade policies, standards and regulations, investment opportunities and internal and international trade events through Web sites and buyer-seller matchmaking. e-promotion Services Web advertising, Web linking, banners, multimedia services such as CD-ROM preparation and pre-planning of business visits for Sri Lankan entrepreneurs to overseas markets. e-communication Services Internet and email, video conferencing and e-fax at an affordable price with the objective of popularizing use among small and medium enterprises. Incubator Services Awareness programmes, advisory services, business analysis, entrepreneurship development and mentoring. In order to provide these services TradenetSL, the parent of Cyber Trader, maintains and supports the computing and network infrastructure for the Cyber Trader. The network that TradenetSL has established is very extensive spanning all corners of the country and has

dedicated connectivity to the Internet including a strategic mirror site hosted in Silicon Valley, USA, with a high speed link to the Internet for speedy access by overseas businessmen. The other infrastructure includes an e-business Centre located at the Sri Lanka Export Development Board and five regional e-commerce centres. The e-business centre in Colombo has multimedia stations with printing, scanning and CD-ROM writing facilities to serve local businessmen and overseas visitors. Regional e-commerce Centres have been established in collaboration with provincial authorities and the private sector. Three centres are operating in Galle, Matara and Hambantota. EDB regional offices in Kandy and Kurunegala also provide these services. Regional e-commerce centres are also equipped with multimedia computers with printing and scanning facilities and are operated by e-commerce managers. The e-business officers of Cyber Trader and the regional centres have the core expertise well developed to operate the service and facilities installed to provide a spectrum of electronic business services. Currently, the e-business officers in Colombo handle about 1-15 requests for business advice/queries each day and an estimated 5 B2B e-commerce transactions a week. The e- information service has conducted 537 information searches for clients on trade opportunities, statistics, standards, prices etc. over a period of two years. The Website hosts 12 advertisements, links and banners. Cyber Trader has a staff of 15, with an additional 2 located in each of the Centres. The following graphs show the growth statistics of Cyber Trader. 9 8 7 6 5 4 3 2 1 Mar. June. Sep. Dec. Mar.1 Figure 2: Membership Growth Membership

6 12 5 1 4 8 3 6 2 4 1 2 Mar. June. Sep. Dec. Mar.1 Mar. June. Sep. Web promotion Dec. Mar.1 Searches Figure 3: Business Advisory and Information Figure 4: Web Promotion 14 45 12 4 1 35 3 8 25 6 2 15 4 1 2 5 Mar. June. E-mail Sep. Dec. Mar.1 Mar. June. Internet Sep. Dec. Mar.1 Figure 5: Email Connections Figure 6: Internet Connections Sri Lanka s First Technology Incubator ConceptNursery.com In a day and age where seemingly everything ends in dotcom, what really matters to those looking to build successful information technology empires is funding, strategy, design, marketing and technology. No one doubts the value of these services. Many companies can deliver any one of them. ConceptNursery.com is a technology incubator that delivers all of them. The incubator closely works with each of its partners so that their success is ensured. The incubator selects entrepreneurs and start-up companies that have innovation, good business plan and people with skills and provide them with (a) access to infrastructure and basic services including dedicated Internet services, quality regulated power, communication facilities, office furniture and equipment, secretarial Services and financial services, (b) access to human resources including technical experts, researchers, developers, business analysts, strategists, and international promoters, (c) access to funds including venture capital and business plan development to seek funds from other sources, (d) access to the right environment including entrepreneurship training, seminars, workshops, technical training, business skills development, monitoring and mentoring, market analysis and marketing of resident companies, market plan

formulation, networking with other incubators worldwide, networking with global companies and linking up with universities and industry. Conclusion In building a competitive trade supporting environment, both the government and the private sector will have to make a significant commitment for technology, human capital, legal framework and other supporting components of this revolution. While the private sector will have to make individual development plans for each respective commercial unit, the government will have to formulate an integrated national plan. The government must play the role of the facilitator and the private sector must take the lead, exercising self-regulation, in taking the industry forward successfully. The job at hand is certainly not an easy task. But two factors make it essential that we approach it quickly and with serious conviction. Firstly, we cannot ignore global forces that are clearly signalling a future built on the new IT revolution. Secondly, the ageold problems that we as a developing nation are striving to solve demand that we adopt a concept that offers much promise for a vibrant future for Sri Lanka. References 1. International Bandwidth Constraints in Sri Lanka, BOI, 21 2. A Road Map for the Information Technology Industry of Sri Lanka, BOl, July 2 3. Intemet- www.infotechtrends.com, Forrester Research, IDC 4. Information Technology Services Industry, JICA, 2 5. Information Technology -The Way Forward,, Lalith B. Gamage, 23rd National Conference of Charted Institute of Management Accountants, pp56-71, May 21, Colombo, Sri Lanka