Online Retailing Operates, What Kind of Problems

¶ … online retailing operates, what kind of problems they face and the kind of environment they operate in. The author has also focused on Asian online retailing and special focus on Hong Kong online retailing. It has 22 sources.

Access of basic necessities of life has followed the conventional method of buying and selling. This pattern changed in the last decade with the emergence of information technology age. When consumers have the ability to access information instantly, technologists thought why not access to products has as well. Thus emerged the concept of retailing online.

Online market had initiated with selling of information but today one can interact on the internet and buy physical products without any fear, atleast in some parts of the world. The main concern for consumers today is not whether their regions have access to the internet or not but rather focused on how fast and how online retailers can promptly provide them with products / services. As a result of this attitude a lot of internet companies started to have a separate division for marketing - online retails or more commonly known among IT professionals as retail. Online retailer is a diversified version of the e-commerce sister. Today online retailers sell anything that they find feasible to sell- right from a hair pin to a car, all can be online.

The competitive factor concerned here is how efficient is the etailing system, that is whether it is to survive external as well as internal environment. Despite being one of the most lucrative hub of online retailers America today still fear for its survival. With the Asian crisis, the Latin crisis as well as the recent September 11 crises, the economy had lurched on and off. The major concern is the local market is not strong enough to survive. In the face of competition from Asians as well as from Europeans, online retailers fear they need to gauge their competitors' strength and weaknesses before they can progress further. In discussing one of the competitive region, Hong Kong has been taken as an example.

STATEMENT OF PURPOSE

In the following section the author will provide the current environment, the scope and the pitfalls of online retailers in America and Asia. Special focus on Hong Kong has also been given to provide an in-depth view at a micro level.

DISCUSSION

Online retailing concept

The basic marketing concept of a business is easy to understand if one were to take into account of the customers. Customer retention is an important phoneme if a businessman considers their needs. It is important to note that the entire selling concept is dependent on the understanding of the importance of the model of customer valuation and base. Customer "acquisition" is therefore important if one need to develop a business. There are several factors responsible for the upkeep of a business where customers are concerned. These are as follows:

Good retention marketers have two objectives with any kind of customer retention marketing:

1. Hold on to the most valuable customers

2. Try to make less valuable customers more valuable

To retain and increase the value of customers, you have to create marketing promotions and execute them. To do this in the most efficient and effective way, you have to know the value of your customers and their likelihood to respond to a promotion, for these 2 reasons:

1. You don't want to waste money on promoting to low value customers because you can't make a profit

2. You don't want to waste money promoting to customers who won't respond because this is just throwing money away."

Customer Retention and Valuation Concepts

How one go about valuation and retaining customers is also important. Most of the retailers have utilized the package programs, catalogs and benefits of long-term relation strategies. But as time passes this tactic is having little or not effect. Consumers are looking for new tactics. Most retailers adopt the attitude of selecting customer identification at random and provide them added benefits. Others adopt the catalog to select a list of names to mail them offers in the hope to instigate their interest in buying products. While these tactics have proved effective in the past catalog sales no longer have the desired effect. The reason being that the internet has taken over this arena. As a result of this they need to analyze how the online retailing differs from the brick and mortar one.

Although consumers have looked forward to online retailers, online retailers have not been able to meet up with their expectations. Consumers look for product variety, timing, efficiency, quality and on time delivery. Where on time delivery is concerned most of the retailers lag behind brick and mortar retailers. What customers trend say:

1. Customers who purchased _Recently_ were more likely to buy again vs. customers who had not purchased in a while 2. Customers who purchased _Frequently_ were more likely to buy again vs. customers who had made just one or two purchases

3. Customers who had spent the most _Money_ in total were more likely to buy again. The most valuable customers tended to continue to become even more valuable.

As a result of this during the end of 1990s, many shoppers had to abandon the new media in favor of conventional retailers.

Consumer expectation

Online retailers, whose sole revenue is dependent on the small online consumer market, realize the importance of value chain development which would increase their efficiency in meeting consumer demands. As a result of this realization many adopted strategies that encompass CRM [customer relationship management] and Value Chain management. Due to these tactics, consumer confident had regained. According to Gold the Goldman Sachs/PC Data "online shopping survey reported that 40% of respondents said their year 2000 online shopping experience was better that the previous year, and 54% said it was the same. Five percent said that their online shopping experience was worse." [United Press International, 12-26-2000]. This survey only shows how the implication of customer service plays in determining consumer base for online businesses including retailers.

Creation of value chain and CRM

Where value chain and CRM is concerned, online businesses depend more on it then brick and mortar businesses do. Take a look at amazon.com and ebay.com. Their businesses have become two of the most important markers for online transaction and retailing. This has been achieved through the CRM strategy and the value added formula.

Supply chain emphasize on maintaining an effective suppliers relationship. This relationship enables the company to concentrate on overall organization performance through the smooth flow of products. If the front window and back window both maintains a thorough and open communication link then the consumers at the front window does not need to face shortcomings of the organization. The Internet provides the lucrative open window for most retailers. Their job however is to manage the back end of the business, without which the company cannot function in a harmonious manner. For instance deliverance of goods on time is important for retailers of brick and mortar structure. But once a consumer moves his interest online then the risk of losing money is more. He demands trust and the only way that the organization can provide it is through efficient deliverance - as promised - implied through online service. According to a survey released by the Boston Consulting Group and Harris Interactive, "high consumer satisfaction with online shopping, but with remaining concerns about customer service and about delivery dates." [United Press International, 12-26-2000]. Indeed consumer satisfaction in today's day and age should be of the top priority because it is through them that any service is successful. Where online retailing is concerned the soul purpose of the company's existence is dependent on high number of consumers. If this target is not achieved then the overall organization stand to loose out against competitors. That is why the implication of Boston Consulting Group survey could be viewed as a marking point when "The survey reported that 79% of online holiday shoppers were either "satisfied" or "very satisfied" with their holiday shopping experience, with 90% indicating that the product selection online was as good as or better than it is off-line" [United Press International, 12-26-2000].

Affiliate programs

The ulterior motive of the online retailers in is not only fixated at the satisfaction of consumers. One of the reasons why most retailers are afraid to come online is because of the low margin of profits they gain through individual items. Unless the company sells in bulk, the required profitability is not achieved. For this reason they look for an alternative. This is through advertisement.

Most online retailers depend on their banner advertisement as well as alliances with other major websites to earn additional revenues. These are usually technology companies whose source of income is comparatively higher; therefore their advertisement quota is also high. They do not find it difficult to exact some additional money to serve this purpose that is to enhance the quality of their service. Online retailers, take advantage of such advertisements using click throughs, popup banners, visitor numbers and email newsletters for offers of prizes and bonuses. For instance Umax site's popup windows offers Cyberian Outpost logos and deals for its customers is an example of how online retailers utilize their relationship with other online companies to increase their sales. Cyberian Outpost also has revenue generated from other sharing agreements that online playing game service like Mplayers that it can take advantage of. Dialogue box prompts for example motivate consumers to visit their site. If the number of visitors exceeds certain percentage then it would earn a set quota of revenue.

Advertisement

Some online retailers are of different opinions. Online retailers are keen on maintaining such difficult programming and affiliate programs because they cannot afford to survive on banner ads alone according to Toby Lenk of eToys. A retailer must have added services so that consumers will be motivated to choose it as the site for buying all its products. Any site that is not optimized to serve this purpose will loose consumer interest. "Since content sites operate much like a media company does-with ad rates that are based on the number of viewers the site attracts-driving traffic is enough." [Ricadela, 1997]. Today's consumer has become so sophisticated, that they judge a website for content rather then the glitzy detailing of window presentation alone [that is to say window presentation counts but comparatively lesser]. Rating of such a window can only be attained through the ability of the website to provide ample services. If a website for instance does not serve the purpose of certain segment of consumers, for example working mothers, then it stand to loose out a high number of consumer buys. Hence, online retailing is not about merely earning through popup or decoration but rather it should be about content as well.

Similar to the brick and mortar retailers, online retailers also have to maintain certain cost level for marketing and advertisement. The bulk of this cost is dominant in the amount transferable to cost per sale of these ads. eToys for example allotted 1% click throughs to eToys at 80 cents. This way it attracts a high rate of buyers to its website if the affiliates use its banner more often. These affiliates are not necessary small time webmasters but are large organizations like AT&T as well. In the case of eToys its partner is AT&T WorldNet. According to "eToys' marketing vice president, Phil Polishook, said AT&T WorldNet features eToys in its mall, and he expects between 10 and 15 such deals by year-end. While Polishook declined to disclose how much eToys pays AT&T WorldNet for each sale driven to eToys' site, Lenk said the amount for toy and book retailing ranges from 5% to 12.5%." [Ricadela, 1997].

Investments

Online CRM is different from those of brick and mortar. It is complex in a sense that the online retailer has to maintain a highly efficient system of technology that would ensure that all its advertisements are resulting into click throughs. On top of that click throughs does not necessary mean that the consumer will buy its products. For this reason IT plays an important role in determining "unique visitors," visitors who actually wanted to browse through their website. This is important because a random click through could earn the affiliate cents but it does not result in sales for the online retailers. For this reason any kind of affiliate program must maintain a system that would guarantee unique click throughs. This could only be done by acquiring high end technology. "Online retailers advertising on other sites, though, aren't just looking for eyeballs, according to a report from Forrester Research, Cambridge, Mass. They also want to attract better demographics and have flexibility in banner placement. One online retailer said it canceled its business with a publisher out of "frustration" with a host site that had "no creativity or imagination" when it came to placement and use of its banner ads." [Ricadela, 1997].

This is perhaps another reason why retailers are reluctant to come online. They are keen on the selling aspect of online retailing but they are apprehensive of the heavy investment they need to do before they could reap the profits. Of course the demand for online retailing is increasing day by day but it does not necessary mean that the rate of investment will decrease. If anything technologist companies are earning more and more due to the high demand in this category. The retailers, whose sole business arena is totally different from those of the high end technology depend on their partners [the technologist] wholly to strategize their websites efficiently before they can be accepted by the consumers or even appeal to their buying motivation. Hence, technologists in this sense play god with retailing companies.

The argument here, between technologists and retailers is that "Online retailers also can't expect the hefty fees demanded of vendors by print catalogs. Neil Farnsworth, general manager of business development for Microsoft's end-user customer unit, said he will only compensate retail sites for the cost of posting pages" [Ricadela, 1997]. While this argument is valid but they [retailers] must admit that the online retailing is not simply about catalogs. It is about providing convenience, ease of accessibility and saving time. If consumers are turned away from the retailing stores of their favorite brands, imagine the disappointment they have against the brand. If the retailers provide alternatives to the busy season or period of the year where the physical stores cannot accommodate for high traffic then they are liable to earn double the sales.

For example Shop.org is a division of online retailing of National Retail Federation. The basic motto of the organization to create a stronger consumer demand and improved profit margin. This according to shop.org could only be done through strategizing effective growth margin of upto 45% during 2001, which amounts to $65 billion. Despite these targets, it is expected that online retailers should adopt individual strategy before they could gain the desired profit margins. For example "Based on data on 550 retailers, 156 of which participated in a detailed survey, the report explores the opportunities and challenges facing online retailers of all stripes -- catalog-based, Web-based and store- based -- and the pronounced divide that has emerged in their performance and competitive positions" [United Press International, 05-02-2001].

Yet another issue that is of major concern for online retailers is the fact that the demands for consumers continue to grow but online retailers still struggle for profitability. One of the reasons being that online retailers cannot cope up with operational issues. Where performance of employees, flow of consumer acquisition and buyer conversion is concerned, the online retailers lack the sophistication of brick and mortar retailers. That is why they lack in profitability says Elaine Rubin chairman of Shop.org. According to him "There is a steep learning curve in becoming an online retailer -- those players that were unable to excel in all facets of this complex business just didn't make it to the end of 2000" [United Press International, 05-02-2001]. His comment to the United Press International briefing is coupled with a study result that shows "dot-com shakeout, online retailers were able to reduce losses as a percentage of revenues. Operating losses decreased as a percentage of revenue, from 19% in 1999 to 13%, or $5.6 billion, in 2000" [United Press International, 05-02-2001].

Competitive advantage

One of the major advantage of buying online is that consumers do not have to pay tax. For example a book from a bookstore will most likely have a 8.25% tax. But the same book could be bought from amazon.com without the tax. Many online retailers can afford to slash their prices below the market price of stores. This is a competitive advantage that online retailers use to compete against brick and mortar retailers. Since the potential loss of customers online is high government have reduced the level of taxation to encourage online marketing and buying.

This advantage is doing wonders for e-retailers in their battle against traditional high-street stores. If e-commerce grows as big as some predict, this could blow a large hole in tax revenues. In America, sales tax is levied at the state and local rather than the national level, and many state governors are getting nervous about the potential loss of yield from a tax that currently supplies around half of state and local-government revenues. Most other countries have different arrangements, but face many of the same issues." [The Economist, 01-29-2000]. In Hong Kong for instance the taxation pattern is applicable for all organizations. If the state cannot reach the online retailers then they will eventually have to pay through income tax and utility tax. For instance an online company will have to go through the bureaucratic layers before it is able to gain tax free status. This is a long procedure and requires heavy investments.

On top of that most of the online retailers in America do not need a physical location to operate. Many retailers can operate within one room but have a window full of products and variety comparable to brick and mortar retailers. Their utility bills are tax free and hence they are not required to maintain high level of expenditure. "Some American states decided on pre-emptive strikes, such as slamming taxes on Internet access, which upset the don't-tax-the-net lobby. Now the two sides have been brought together in the Advisory Commission on Electronic Commerce, set up by Congress under the 1998 Internet Tax Freedom Act." [The Economist, 01-29-2000]. This factor is high detrimental to the aspiration of the online retailers. The Ac suggest that tax collectors should have the free reign to implement similar taxation policies on online retailers as on brick and mortar retailers. This logic came about with the fact that both online and off line retailers operates in the same capacity regardless of their retailing operation outreach. Since their retailing revenue rivals those of retailers, they must be taxed before they prove to have detrimental effects on the economy as a whole.

The political implication of this new taxation policy has deflected most of the retailing companies from going online. Hence, on the one hand the companies are motivated to come online by high profit margins through ad income but on the other hand the threat of taxation is not encouraging the companies anymore.

The argument that online retailers do not pay tax is not only false but it is far from the truth. Most of the online companies do not pay tax, that is true but this condition have come about by the law itself. It is not the creation of the online companies. Indeed the Supreme court ruling during the 1960s that mail order catalog businesses are exempted from taxation is applicable to the online retailers as well. That is the reason why they have grown to such magnitude. Elsewhere in the world, like in Japan and China, the concept of online retailing is just catching on. But they have outlined the taxation structure of the companies' right from the beginning. There is little that retailers in these countries can do but to follow the proper channel. To them online businesses are no longer feasible [The Economist, 01-29-2000].

ONLINE RETAILING IN ASIA

As soon as the Asian countries receive the patronship of the west, IT became widespread. Countries like Japan, Singapore and now Malaysia and Hong Kong have battled with western investors. In Asia the concept of online transaction is still relatively new. People are still skeptic of the internet ability and how it could serve as an alternative to their consumption need. Internet in China especially still faces the gap between high income family and low income family. Only those who are both internet savvy and have credit cards can benefit from the online retailers. Online retailers offer them slashed prices and similar quality products. Yet despite this they prefer to shop from the local supermarket because it offers cheaper alternatives.

Major findings of the by Boston consulting report include:

Total online retail revenue in Asia-Pacific was U.S.$2.8 billion in 1999, compared with U.S.$3.5 billion in Europe and U.S.$36.6 billion in the U.S.

Growth potential is high, with online retail penetration of the total retail sector only 0.1% compared with 1.2% in the U.S.

Online retail revenue in 1999 grew almost 200% to U.S.$2.8 billion, and is expected to rise to more than U.S.$7 billion in 2000.

Three countries account for 94% of the total Asia-Pacific market: Japan at U.S.$1.5 billion, Korea at U.S.$720 million and Australia at U.S.$380 million. Most other countries in the region have revenue of less than U.S.$30 million.

Computer hardware and software, and financial brokerage lead the categories, with revenue of U.S.$770 million and U.S.$700 million, respectively.

Emerging categories include travel, consumer electronics and books, with revenues between U.S.$120 million and U.S.$320 million per category. However, category breakdowns vary widely by country, with best-performing categories usually dominated by a few key players in any given market.

Multichannel retailers, with both online and offline operations, have been able to leverage existing assets and brand equity to capture 74% of online retail revenue in the region.

Online brokerage is the fastest-growing e-commerce market in Asia-Pacific, driven primarily by phenomenal growth in South Korea where the category's revenue reached U.S.$520 million in 1999.

Financial services is the center of e-commerce growth in the region," says Michael. "E-commerce delivers an immediate convenience and price benefit for consumers and there are few of the fulfillment problems that often plague online retailers selling physical products."

Yet despite these statistics it has been seen that the Hong Kong and other Asian consumers of online retails are facing a lot of problems. These are discussed as follows:

Regulations

The revolution in Chinese online consumption market came about when Chinadotcom managed to prevail in the market with the help of a huge investment of $84 million. This offering came about when it had managed to secure the offerings at Nasdaq. The western capitalists saw this an opportunity for a whole new market started to focus their attention on China.

An attack of this nature, that is concentration of investment pool in one region and neglecting other region often imbalance and creates competitive jealousies among retailers. For instance Chinese government have become too overwhelmed by western venture capitalists that they tightened their domestic FDI regulations. In the hope to promote their own dot coms and to limit the scope of venture capitalists from western countries like America and Europe, these Chinese governmental officials thought it would benefit its own industries if it limit the scope of online retailing. "China's leaders, however, have other ideas. Rather than allow entrepreneurial upstarts free rein, the government over the past year has been working hard to ensure that the Internet remains under state control." [Einhorn, 2000]. However, in turn they have only been curbing the potential of its growth. For instance in Beijing corporate elites from western countries can only have 45% share of ownership, whereas Indian allows 100% ownership.

This sort of regulation pilfers to other areas as well. For instance Chinese regulation also affect Hong Kong base organizations. This is the reason why the companies that contemplate to go online have to think twice before even venturing its investment in this arena. Perhaps the only successful leader among the pack of online retailer is Chinadotcom, headed by Chen. He had been able to open doors to other dotcoms but the fact remains the same- dotcom operation in China is much different from those of America. Most of these operations are either state owned or dynastic in nature. The ordinary citizens outside these sphere have little scope to enter into the competition because the private sectors are curbed from becoming exposed to the million of consumers. Competitiveness in enterprise is hence curbed due to this reason. "In short, after decades during which leaders struggled to reform socialist-era industries and financial institutions, the Net would provide a fresh chance to create a new Chinese economy. Some outsiders went so far as to predict that these new dot-coms would eventually force political liberalization on the world's last communist power." [Einhorn, 2000].

The bureaucratic attitude of the government officials have resulted in negative response. First of all they did not expect the high demand for the new dotcoms. Secondly they did not anticipate these retailers would have the potential to generate such high revenues that would eventually affect the economy "They have issued a blizzard of rules restricting what dot-coms can do and censoring what they can say. Officials also imposed stifling restrictions on new listings, greatly slowing the inflow of foreign capital. That kept the Nasdaq door closed for most Chinese dot-coms" [Einhorn, 2000]. Since the government's belligerent attitude towards the new technologies, the Nasdaq investors cooled their pursuits. They realized it was not worth investing in the region when most of the private sector are suppressed in favor of state owned enterprise. That resulted in the down turn of the online retailing prospects.

The sole purpose of mentioning the above condition is to introduce to the reader why China's attitude towards IT have resulted in a slow down of internet and online retailing development prospects for its neighboring IT hub- Hong Kong. First of all, ever since Hong Kong was returned to China, the officials took it upon themselves to turn the structure of the Hong Kong economy around. This they did through elimination of policies, erecting new ones and curbing some of the old privileges. "Such lost opportunities mean that the shakeout taking its toll on dot-coms worldwide is likely to be even more brutal in China. According to the state press, even MII Minister Wu Jichuan predicts the demise of 70% to 80% of the country's 16,000 dot-coms" [Einhorn 2000]. With these prospects any company considering to come online can only do with the help of foreign affiliation. For instance the auction site ClubCiti, "which had formed a partnership with eBay, was acquired by a rival, Beijing Guardian Online E-Commerce Co. Among the most likely survivors will be the connected -- and those who were lucky enough to build a war chest early." [Einhorn 2000].

In India on the other hand, the government back up private sectors for their dot coms. Retailing is still a new concept but both retailers and consumers do not shy from buying online. Officials provide the basis for the infrastructure so that even the smallest companies like a PC distributor feels safe in associating its business with online distributors. For instance the auction website baazi.com can easily replace eBay.com for the Indian consumers. With so many potential IT consumers within the Indian population itself, the Indian government feels safe to provide subsidies for the IT industries. That is the reason why it is one of the highest exporters of IT services. China on the other hand likes to have access to foreign funds but are reluctant to diverse their own business sectors for FDIs. "As the only China play on Nasdaq at the peak of the bull run, Chinadotcom's stock soared. It also raised over $450 million in subsequent offerings for expansion across the region. Thanks to this head start, its China portal has grown from 1 million daily page views a year ago to 16 million today." Despite this statistics, the Chinese officials are still not willing to play the provider for its IT industry less provide an infrastructure for online retailers. According to one official "We spent the time and money," crows CEO Peter Yip. "Others don' t have the time and money" [Einhorn 2000]. This stringy attitude of the Chinese government has also affected its "brain child" Hong Kong.

Potential of online retailing

Had Hong Kong belonged to some other country, its potential would have been realized a long time ago. China's for all its big economy still has to learn the Internet and its utility could be the ultimate solution for its high population consumption dilemma. The more the functional the Internet become in their daily lives, the more revenue it will earn. Even if the government decide to tax these online retailers they would still be able to earn more then the average retailing revenue. This is because their income is not only from the local. It will be from different states and provinces. The technology pool in Hong Kong is lying stagnant. China needs to make its resource 100% efficient. Multinational companies in Asia and consumer economy of the Asian internet economy are depending on the officials to give the entrepreneurs the charge. Without this they would not be able to engineer their companies to the maximum advantage. For instance "in Hong Kong, crowds of Net wannabes descend on weekly networking get-togethers sponsored by a group called Internet & Information. Altogether, estimates Boston Consulting Group, online consumer spending amounts to $1.3 billion annually in non-Japan Asia, but could hit $10 billion by 2003." [Einhorn 1999]. These figures demonstrate that although consumers are willing to spend, there are not enough "shops" to buy. "Since Korea changed foreign investment rules and lifted zoning restrictions, Seattle retailer Costco Cos. has committed $190 million for five stores by the end of 2000, selling items such as Calvin Klein jeans and Sony TVs for 15% less than local stores. In Thailand, Ford Motor Co. is introducing new services after its takeover of B-Quik, a chain of six body shops that the carmaker plans to expand to 100 next year. France's Casino Guichard Perrachon, which in April took control of Thailand's Big C. chain of 20 mass-market retailers, is using its information systems to speed up the delivery of fresh food to its stores. Casino plans to add 15 stores -- and 4,500 jobs -- in three years." [Einhorn, 1999]. Hence, online retailing in Asia has major potential only if the government allows it to blossom.

HONG KONG ONLINE RETAILING

Up until now the author have only addressed Asian and Chinese internet environment. The reason for the discussion is to formulate the base for Hong Kong's own online retailing enterprise. Given the anti-internet environment among Chinese officials, it is now understandable to see why Hong Kong enterprise are reluctant to enter the field in the first place. Retailing in Hong Kong is not only lucrative but it is also a business belonging to certain genre of the society. For instance, among the first and most successful entrepreneurs Jimmy Lai and his adMart have been recognized as the rebellious businessman among the cartels. The entrepreneur started off with garment manufacturing of top brands like GAP, Giordano etc. Lai had managed to secure a high ranking among Hong Kong business lords. When he first decided to launch adMart he faced issues like bureaucracies, adverse attitudes of the industrial leaders as well as skepticism from the industry. Yet despite that fact, Lai continued to pursue direct marketing and his online retail. The business sells from Coke to computers by all mediums like internet, telephone and fax. He became the Hong Kong retail powerhouse with the help of "billionaire Li Ka-shing's Hutchison Whampoa and the colonial British conglomerate Jardine Matheson Holdings." [CLIFFORD, 2000].

Cartel in retailing

According to Lai, the retailing industry is controlled by constructing industry. Since brick and mortar enterprise are expensive due to setup costs, employees, inventory, set up of shops etc., most of the retailing industry is dominated by the construction companies who has the means to construct the shop at a cheaper cost and funds to buy from wholesalers. These are giant corporations, against which smaller companies cannot compete. The reason being that most of the virtual world is dominated by the profit margin derived from consumers and ads. But if the larger corporations dominate the ad industries then there is unlikelihood that smaller companies could out vote the larger ones. Most of these accounts are in the hands of organized agencies who favor their clients against smaller unknown companies. Online retailers therefore cannot compete with the cartel of brick and mortar retailers. The process proves too costly to compete. According to Lai to solve this problem, online retailers will have to "smash the status quo and bring price relief to local consumers" [Clifford, 2000] which is an unlikely prospect to follow by all online enterprise.

According to one business report "Hong Kong online retailer adMart, which for more than a year had been selling everything from groceries and diapers to wine and office supplies at cut-rate prices, announced that it was going out of business. With dot-coms worldwide collapsing daily, I know it's hard to get worked up about another failed online retailer, especially one with a small following. adMart's death is certainly bad news for consumers who actually bought goods from it -- and for the 330 or so employees who are now out of work just weeks before the Christmas and Chinese New Year holidays." [Einhorn, 2000b].

The piece of news only implicate of having online retailers as suppliers has potential but it will need restructuring. In this case one can see that the value chain of the retailing business depends on the online business for smooth flow of operation. Its closure have resulted in closure of many other associates. For this reason the seemingly related news here makes adMart the culprit for industrial imbalance. But the real reason for its bottleneck is not the demise of the company itself but rather the market that had long been dependent on one online retailer. If there were many retailers online today in Hong Kong then the retailing business would not have faced such drastic chaos. Due to this closure the industry decided to boycott foreign products and service. For instance the retailers decided to boycott United Airlines in an attempt to voice their contempt for foreigners. The reason being that according to them, the closure of a Hong Kong base company is because foreign companies have come to dominate their local ones too much. With 1000 travel agents at the brink of losing their jobs, it is a wonder that the industry still survived.

Although the travel agents and the foreigners do not have any link but there is the imperative implication that online retailers are having a negative impact on the local industry. For instance according to the same article "There's a connection between the demise of adMart and the travel-agent boycott of United. At the risk of sounding conspiratorial, the same forces of bigness that helped do in adMart are now at work against the travel agents. And they point to a major problem not just for online retailers in Hong Kong -- home of countless entrepreneurs -- but also for the city's ambition to become a leading Asian player in the Internet economy." [Einhorn, 2000b]. This is the reason why the locals are afraid to approach online businesses. They fear that they too would become one of the venture capitalists lobbyist who vie for profitability only and no corporate ethics.

In the case of adMart, this implication can very well fit the bill. "Jimmy Lai, the founder of adMart created a sensation when he started the company in 1999. By selling groceries at cut-rate prices, Lai was challenging one of Hong Kong's most powerful cartels: the retail duopoly of Li Ka-shing's Hutchison Whampoa and the Jardine Group's Dairy Farm International. The two companies operate supermarket chains that control about 70% of the city's market." [Einhorn, 2000b]. These companies having had monopoly over property market they have "long had access to prime retail space, which has helped them to keep out competitors and maintain Hong Kong as a two-supermarket town." They were enraged by the upstart company. As a result the competition pattern changed. For adMart the competition became too tough to handle as it does not have the resources to sustain for such a long time. On the other hand the other duo with their lucrative and established businesses can afford to maintain high level of profits. Hence, when adMart entered the market and created chaos with slashed pricing it raised many questions regarding the validity of online retailing business.

Competition

Instead of investigating the nature of the business, that is online retailing, the industry resorted to unethical competition practices. The monopolists took advantage of their positions as retailers of the brick and mortar market attacked back. "The retailers owned by Hutchison and Dairy Farm quickly slashed their prices. That was great news for consumers (and that's hard to argue with), but trouble for adMart. Moreover, Lai complained that his rivals put pressure on Hong Kong's distributors to avoid adMart. That, he says, forced Lai to look overseas for products and exposed him to embarrassment when it turned out that some of the goods sold by adMart were fakes." [Einhorn, 2000b]. These tactics, which is common among small Hong Kong businesses hence is also dominant among larger corporations. The absence of anti-trust laws, and no clear demarcation of online retailing vs. brick and mortar retailing the merged structure of the retailing industry in Hong Kong does not leave room for new comers to explore the market. Instead it discourages local retailers to even consider going online.

Dynastic corporate environment

Hong Kong's online retailing environment according to Einhorn resembles those of U.S. When Wal-Marts and Home Depots were making their debut online it was almost impossible for the retailers to sustain their position against the online retailers. However, once established they over succeeded these smaller operations wiping them out in instance. In Hong Kong the larger retailers did not realize the potential of online retailing until adMart entered the picture. When they realized the colossal effect internet can have on their business, the cartel tightened their reigns. "Hong Kong policymakers should start to ponder whether a city that allows newcomers to be crushed could thrive in the Internet economy" writes Einhorn [2000]. The question now posses how the authority can stop the anti-operation and anti-competitive attitude of these cartels and to promote a driving machine of the future economy.

In the face of the hierarchical and conventional family method of doing business in Asia, it seems difficult for not only one government but others as well, to improve the condition prevalent in the region. For instance the cyberspace retailing method does not appeal to Thailand's Lamson family business. Nor does it appeal to the Chatikavanij. The Lamsam family controlled the Thai Farmers Bank and the Loxley industrial group while Chatikavanij controlled Loxley internet service groups. Although both the leaders have considered the utility of internet in furthering their own business but they do not take kindly into consideration of anyone who would supercede their own prestige. This kind of negative and dominance is common in Asia. In Hong Kong, a city that is used to British regulations still have traces of the Eastern culture of doing business where the head of a renown family dominate the whole industry. Of course they would not take it as a privilege to do business with someone who is inferior in stature, younger in age and experience of doing business.

Despite the antagonistic attitudes of the cartel groups readers should not be confused as to the acceptance of the cartel families. They too admit that they need to change to accommodate for new consumer behavior. But this should not be at the cost of the organization itself. For instance Chief Executive Dhongchai Lamsam and his cousin, Executive Vice-President Vasant Chatikavanij believed in "deference, caution, and stifling control are out. The new philosophy? "Try 10 ideas and fail at 7 -- that's no problem," says Vasant, 43, who has helped spearhead the change after studying and working for 14 years in the U.S. "We have to make sure we are not dead." [Einhorn, 2000]. They also realize that their generation are coming to an end. They must embrace the new structure of business contacts and make the best of it. They should not depend on their own monopolistic position to direct the consumers. This is especially common philosophy among the Hong Kong industrialists. But the fact remains the same - since they do not have a leverage in the industry, they will not allow others to have it too.

The Internet has become the answer for oligarchs who are questioning their business models as never before. The region's meltdown set back their dreams of building global corporate giants based on property, heavy industry, and retail" [Balfour and Clifford, 2001]. In the meanwhile, the conglomerates believe they could insulate the local industries with their multimillion empire. They are indeed in no hurry to embrace even if they admit they need the IT expertise to improve their lucrative business. Conglomerates such as Loxley for instance are adamant to transform their management instead of their business structure. They would conduct business online, merge with other companies and form alliances or subsidiaries on the net but they would not take their own business online. Their only concept of an online business is to establish a portal from which they could reap profits through advertisement and affiliate programs. Where their own company's involvement is concerned these monopolists are not interested in taking their business to cyber space.

New generation

Younger generations on the other hand are keen on establishing new online presence with their own portals. The older generation not so keen on online servicing are trying to revise according to this new generation attitude. The clash according to Canning Fok managing director of Hong Kong infrastructure, telecom, and retail giant Hutchison Whampoa, is that they "Before, they were talking about how I have this piece of land. Now, they are talking about how I have this portal." [Balfour and Clifford, 2001]. The reason for this is that the older generation are not keen on accepting the new technologies. Instead they are keen on how they can retain their monopolistic position in this day and age. They realize that unless they participate in the race for information technology they are most likely to loose in the long run. Despite their confidence, this change of attitude indicate they are not as unaffected as the pretend to be. As a result of their indecisive stance towards the utility of the internet, the young Hong Kong generation are seeing a new wave among investors. [Balfour and Clifford, 2001].

Here one should note that the previous discussion outlines how the older cartels did not like the attitude of the new retailers or online business. Their antagonistic attitude have not diminished. In fact they remain the same. The reason why online retailers or potential retailers are seeing this change of attitude is because of the new generation from these very same monopolists. For example the idea of changing the business and combining an online presence was originally from Hong Kong, Hutchison Whampoa Deputy Chairman Richard Li, son of billionaire Li Ka-shing. Educated in the west, the young Li is not only Internet pro-but believes a business cannot survive without heavy investment in this genre. [Balfour and Clifford, 2001].

Another example is of Henderson Investment's Peter Lee, son of Hong Kong property magnate Lee Shau-kee. He has been responsible for developing and planning a broadband net access portal through his family gas company. At 35, Jeffrey J.L. Koo, Jr. is another example following the footsteps of Li. These westerners have changed the structure of the Asian e-commerce. They are responsible for veering their older generation venture capitalists to participate in the new millennium business method. [Balfour and Clifford, 2001].

Hong Kong-based Lehman Brothers analyst Philip Tulk regards "many of these companies' Net plans as "all noise" intended to boost stock prices. As Asia's e-commerce field gets more crowded and as giants such as Yahoo! Inc. And America Online Inc. gear up, many such entrants are likely to be pushed aside." [Balfour and Clifford, 2001]. According to analysts the future of online retailing is threatened by these "changed" overlords. There is a great threat of them becoming the overlords over the internet as well. Cyberspace in Asia will not likely to result in the same structure as those in America or Europe. There will be no small start ups, window shops or entrepreneurs growing rich over night. In fact the future of the Hong Kong and other Asian countries in the field of e-commerce is as bleak as it was before. Whereas the brick and mortar retailing business were dominated by the cartels, the online version will prove to have the same environment but with the added feature longer domination. This is because the net is a new business arena. Its life cycle is longer as compared to the older diminishing ones. Any company that venture into this field will have a longer life and the more fortune they will reap. Although expert predict that the shelf life of internet product is shorter then those in brick mortar businesses but the fact remains the same - these cartels are here to stay. As the author of Business Week predicts "There's also a risk that some Asian conglomerates will treat Net service as they did franchises in other sectors -- as cash-spinning utilities to be milked rather than as engines of growth." The result of the franchise was not so good. They were subjected to high level of competition from local chains and cuisines. "But one could also argue that the big families are helping online business grow more quickly in Asia. Savvy, new-generation tech mavens such as Li and Koo have become key patrons to dozens of young entrepreneurs. Many are helping finance startups in Asia as well as Silicon Valley, often working with Net-investment pioneers such as CMGI Inc. Or Japan's Softbank" [Balfour and Clifford, 2001].