Mar 2 - Mar 5, 1998

Hello, dear Colleagues,
I am Tatsuo TANAKA, a coordinator of Japanese online conference on Electronic Commerce. Followings are questions and summary from the Japanese online conference for the participants of the real conference on March 10th. I hear Mr. Jim Johnson (coordinator of the real conference) will arrange them and use part of them. I hope that this summary will also be of help to English conference. Comments are welcomed! Thank you.

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Question to the participants of real conference from the on-line conference: Electronic Commerce (EC)

Summary of Questions

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[ I ] Business-to-Consumer EC
        (1) How will the EC change the marketing and consumer behavior?
        (2) Why is the US more successful in the EC compared to Japan?
        (3) How will electronic money be adopted by consumers?

[II ] Business-to-Business EC
        (1) What is the expected course of the development of the
            B-to-B electronic commerce?
        (2) What are problems against the development of B-to-B
            electronic commerce?

[III] EC in the finance service
        (1) Will the electronic security trade like E-trade be 
            introduced into Japan?
        (2) What is the merit of the on-line banking?

[IV ] Consumer Protection in the EC
           What kind of protection measure should be introduced 
           on electronic commerce?

Content of the Questions

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Paragraph starting with # summarizes the discussion of the on-line conference.

[I] Business-to-Consumer EC

(1) How will the EC change the marketing and consumer behavior?

 # Discussants of the on-line conference points out two effects.  What
   do the participants of the real conference think of them?  Is there
   any other effects?
     i) More efficiency
       - 'One-to-one marketing' becomes possible. Suppliers will
          provide every consumers with customized goods ('mass
          customization').
       -  Huge menu is available (e.g. Amazon.com)
       -  'Real time marketing' will be introduced.
    ii) Communication itself will matter.
       -  Frequent communication between customers and supplier will
          create quasi community-like customer-supplier relation.
       -  Voluntary interaction among customers will be new source for
          customer satisfaction and also be new marketing tool.

(2) Why is the US's EC business more successful than Japan's?

On-line shopping in Japan has not yet taken off. Most on-line shopping projects in Japan are losing money. Why are they unsuccessful? Why do the US has many successful cases such as Amazon.com or Autobytel?

# Discussants of the on-line conference find three possible causes.
Do participants of the real conference agree to them?

   i) Consumers are different.
        In the US, there are many smart shoppers who are used
        to mail order, so they smoothly shifted to the on-line
        shopping.  But Japan does not have such consumers.  Users
        of mail order in Japan is very limited part of the population.
  ii) Suppliers are different.
        In the US, web shopping business is pioneered by venture
        companies like Amazon.com.  In Japan, most web shopping
        stores are managed by large companies which lack in marketing
        skills owing to their bureaucratic behavior.
 iii) Regulation or market structure is different.
        In some cases of Japanese industry, the regulation is more
        tight and market structure is more integrated than the US.
        This can discourage new business like on-line shopping.

# Discussants of the on-line conference agree that electronic money is not a bottle neck for diffusion of on-line shopping in current stage of development, because consumers pay the charge using any kind of payment system like regular credit card or wired transfer if they find really attractive goods on the web shop site.

How about the situation in the US?

(3) How will electronic money diffuse to consumers ? There are various types of electronic money such as credit card based type, on-line check type, on-line cash type, and IC card type. Which electronic payment will be used for what kind of usage?

# A discussant of the on-line conference suggests that the physical goods will be purchased using credit card based electronic payment system such as SET, because it can efficiently handle the refund process caused by returned goods or shortage of stocks. On the other hand, on-line cash type electronic money such as E-Cash is suitable for the digital goods such as computer software, video, articles etc., since we don't need refund them.

Is this expectation right?

[II] Business-to-Business EC

(1) What is the expected course of the development of the B-to-B Electronic commerce?

# Discussion of the on-line conference led us to the following classification.

                          Closed network    Open network

        Only buy-and-sell        A               B
        is wired.

        Sharing more
        information than         C               D
        just buy-and-sell

-Most of currently used electronic transaction are classified into type A: interbank transaction network and EDI of limited members. Type C means that a company shares some internal information with other companies; i.e. showing manual of its products to customers, sharing information on development of new products with allied company, etc.

-Electronic commerce seems to expand from A to B, C, and D.

-A discussant argues that a shift from A to C is likely to happen firstly, but the other suggests that every type would appear simultaneously. It is reported that preliminary attempts of type C and D already emerged in the US. (CISCO's online (CCO) and IBM's San Francisco project)

- Since type B and D allow strangers to access to the network to some

extent, we need security measure. Security is not limited to physical security guaranteed by the encryption technology, but also including security based on human trust network.

Does this classification and argument make sense?

(2) What are problems against the development of B-to-B electronic commerce?

# Discussion of the on-line conference indicates following problems. Large companies already have their closed network with each other and are not so eager to introduce open network. Unless large companies introduce open network, small and medium companies can not see any merit to introduce it.

How is a situation in the US?

[III] EC in the finance service

(1) Will the electronic security trade like E-trade be introduced into Japan?

# Some discussants claims that E-trade will not be easily introduced into Japan, because, in Japan, there is not sufficient unbundled transaction services, i.e. intermidiate security transaction, office operation of handling the physical securities etc. Without such unbundled service, it is not easy for venture business to start new business because outsourcing is not available. But other discussants insist that E-trade will be introduced to Japan, because consumers always want inexpensive and convenient service and Japan is not an exception, also Japan's big bang of finance industry will accelerate the unbundling (outsourcing) of financing services.

# If the transaction service is unbundled, there will appear common platform for business (example, CRS system of air ticket). A discussant stressed that platform is necessary for a venture business of all electronic commerce.

(2) What is the merit of the on-line banking?

# A discussant: Direct merit of the on-line banking is limited, because Japanese people go to their bank only once or twice a month owing to the widely used automatic (pre-assigned) wired transfer. Thus, we need new service such as electronic money or on-line shopping to make the on-line banking more attractive for customers.

[IV] Consumer Protection in the EC

What kind of protection measure should be introduced on electronic commerce? Since most of the consumers are beginner of the electronic transaction, fraud can happen easily. What kind of regulation should be done by who?

# In the on-line conference, it seems to be consensus that the fraud should be attacked and arrested to promote the electronic commerce. The question is what kind of measure should be introduced by who. Some discussants argue that government should take role to guarantee the security to consumers. Other discussants insistes that private institutions of EC companies or consumers can do better without hurting the efficiency of market competition.

Having just helped run last week's Financial Cryptography 1998 Conference and Exhibition (complete with a high-speed catamaran ride down to see a total solar eclipse looming over the smoldering Montserrat volcano :-)), I'm sufficiently recovered today to talk about the more focused, financial settlement rant I want to do here on the gis-ec list, before your own conference starts.

First of all, I'd like to thank Tatsuo Tanaka for the privilege of getting to correspond with you all about something he and I both think will be a very important, if not the most important component in the emerging digital economy: The impact of instantaneous, (and I think bearer), digital settlement on transaction cost, and, more important in my opinion, its impact on the whole idea of non-repudiation as practiced in current book-entry settlement methods.

Put into plain language, I like to claim that, soon enough, the era of book-entry settlement -- that is, our way of representing money as offsetting debits and credits exchanged between the two parties of a trade through a hierarchy of trusted intermediaries -- will be over.

I think that the social and economic impact of the new alternative to book-entry settlement, digital bearer settlement, will be quite large, because, at the root of the status quo's book-entry transaction protocols is the need to involve government and regulation at the most intimate levels. Essentially, '...and then you go to jail' is the penultimate error-handling step in a book entry transaction. This eventually leads, I claim, to more, shall we say, friction, in the transaction process than currently available with advanced techniques in financial cryptography.

I claim, that, historically, bearer settlement, particularly at the time of a trade's execution, barely required legal enforcement of non-repudiation (the inability of someone to renege on a transaction) at all. Finally, I claim that secure digital bearer settlement cryptographic protocols, operating on insecure public networks like the internet, will reduce transaction costs enormously over insecure book-entry settlement debit/credit swaps, operating on strongly secure private transaction networks like ACH, or SWIFT, or the old NIDS, or whatever.

'Three orders of magnitude cheaper than book-entry' (dividing the cost by a thousand) is my favorite, and quite plausible, design mantra for such new systems based on modern cryptographic transaction protocols. We'll see why in a bit.

In the old days, before telegraphy (but after barter :-)), most financial transactions were done by trading bearer certificates, or tokens, of one form or another. Exchanging cash for a bearer bond would be a good 19th century example. Even trading bearer forms of equity was trivial -- and instantanous: the offer, the acceptance of the offer, and the settlement of the transaction occured almost all in one operation.

With the advent of telegraphy and eventually telephony, it was possible to make the offer and accept the offer at a distance, but settlement had to wait until bearer certificates were physically relocated, sometimes over long distances and then exchanged. After all, you couldn't very well send them over a wire.

The solution was to move all the certificates to a central trusted location, called a clearinghouse, and for the trading parties to swap debits and credits between themselves and the clearinghouse. It's pretty apparent that having the certificates physically locked down in the clearinghouse's vault becomes superfluous in such a scheme, because what really matters is the impartial arbitration of the clearinghouse in the case of a transaction dispute. All except for one thing. If someone lies or reneges on a book entry transaction, there isn't much that the other two parties can do except bar them from trading, which, of course, works in bearer certificates, but not nearly as well in book-entry settlement.

So, we need several things to cope with non-repudiation in book-entry settlement. First, we need the ability to determine who physically made what book-entry so we can find them and send them to jail for fraud if necessary. That's because book entries are inherently unstable, insecure, digits sitting in a database somewhere. Many people in Asia are familiar with commodities and derivatives traders who were capable of hiding fraudulent book-entries for long enough periods of time to bring down their respective firms, for instance. In cryptography we call this an authentication problem. :-).

So, besides authentication of the book-entries themselves, we need to secure the links between various charts of database accounts, first by authenticating the users of those electronic links, originally with passwords, then with cryptographic keys and signatures, and now with some combination of biometrics (finger or retinal prints, say) and digital signatures. And, second, by actually encrypting the links themselves so that no one can see what they are even if they can't change the authenticated data without someone noticing.

Sorry for the long-winded explanation, but it's long-winded stuff, as most people who clear trades on the net for a living will tell you. Anyway, for all intents and purposes, you now know everything there is to know about the guts of electronic commerce on the internet. When you punch your credit card number into a secure web page, pretty much all of the above happens, plus or minus the retinal scan. :-). (You can even do other book-entry transactions like checks in the above fashion, and a bunch of us are working on a simple but very effective public-domain protocol to do exactly that, which we're calling Internet Deposit Box, or IDBX for short. Coming soon to an internet bank near you...)

However, if you'll excuse me, I think all this stuff about moving book-entries down encrypted pipes on the internet, including the much-heralded SET protocol for credit cards, is so much financial 'shovelware'. It's the equivalent of a major corporation's promotion department scanning in one of their brochures into a giant .GIF picture and putting it on a web page without any interactive features at all. Much less taking orders :-).

Fortunately, there is *so* much more that can be done with financial cryptography. There's a whole string of cryptographic protocols out there, beginning with David Chaum's blind digital signature patent in the middle 1980's (and ending, say, last Saturday night :-)). You can actually create unique digital objects which can't be forged if you handle them right (if you only exchange them on-line, for instance). You can attach any arbitrary financial value you want to these cryptographically secure objects as long as everyone else agrees with you, and, most important, you honor your agreements concerning their exchangibility into some other financial instrument. So, I call these objects 'digital bearer certificates', after the paper bearer certificates of yore, which I claim these crypto-blobs behave like, more or less.

The fun part comes when you actually start to trade these things. The first thing you notice is that they settle instantly. I give you digital cash certificates, you give me digital bearer bond certificates. Trade over. Elapsed time, thousandths of a second. I can turn right around and take that bearer bond and sell it again, if I want. More to the point, I don't have to wait for my broker work out how to move my money to your broker through the clearinghouse, for their banks to arrange to pay each other, all of which takes days and costs lots of money. Remember that 'three orders of magnitude' I was talking about. If what I claim is true, then the cost of even your on-line Schwabb or E-trade transaction could move from being measured in dollars to somewhere in the sub-penny range, and probably less over time. Actually, these aren't account based protocols at all. So there ain't no Schwab, or Merrill Lynch, or Morgan Stanley, required. Well, not completely true. You still need financial financial intermediaries, no matter how small, to 'rent' repuatation to a given transaction. Anyway, you don't keep digital bearer certificates in an account, you just keep them on your hard drive. Or, in some more interesting cryptographic protocols, on pieces in many hard drives all over the net, in such a fashion that you only need, say, 7 of 12 to reconstruct any given bearer certificate.

What may be the most efficient protocol I've seen is a digital cash protocol invented by Ian Goldberg just this past Saturday, after the FC98 conference here in Anguilla. Ian's calling it HINDE (for HINDE Is Not DigiCash's Ecash). From our back-of-the envelope calculations, this particular bearer settlement mechanism got us into the hundredth of a penny range of transaction cost, even after throwing in a few cursory orders of magnitude in imagined administrative fudge factors.

As far as non-repudiation goes, I know that what you gave me is real because I can test it with the issuer. You can do the same thing. It's so trivial that I equate the act with the physical inspection each of us does, unconciously or not, when we're handed a piece of cash. If I don't like what I 'see' (determined by the calculation of the cyptographic protocol, of course), I don't trade with you. I'd say it's much better than detecting fraud after the fact, finding who made the offending book-entry, and apprehending, trying, and jailing the miscreant. Frankly, I'd go one further and say book-entry settlement is so complicated an unwieldy that the *only* reason we have book-entry settlement now is because we couldn't shove paper down a wire back when telegraphy was invented.

Finally, there's no real recordkeeping of transaction logs with digital bearer settlement. Like a pile of cash, you count it up, and that's what you have. There is no need for seven years of audit trails at up to six different transacting parties because you don't have to hunt someone down and send them to jail for reneging on a trade before it settles, and more frequently, to prove you're innocent should you be suspected of something untoward. You don't need a lawyer or an accountant to keep you out of jail at tax time for making the wrong book entry somewhere.

In fact, you don't *care* who gave you what money as long as they're happy with what you gave them in exchange for it. Reputation becomes the most important thing there is, because damaging someone's reputation is your only recourse in a world where your digital signature is your *only* identity. The threat of blackballing is in fact a very effective fraud deterrent, and once a digital reputation is trashed, it takes time -- and higher transaction risk premia -- to build a new one. To quote J. Pierpont Morgan on the subject, 'I wouldn't buy anything from a man with no character if he offered me all the bonds in Christendom.' With apologies for Mr. Morgan's 19th century Episcopalian sexism, of course. ;-).

But, you might say, what about taxation? Indeed, what about it at all? Most of our taxes are collected on book-entries (income, sales, value-added, capital gains), but I claim that the reason we have book-entry taxation is because we have book-entries, and not the other way around. For instance, in the early 1980's the government of the United States apparently legislated paper bearer bonds out of existence by declaring interest paid on them to be non-tax-deductible. Of course, if a concerted effort to make paper bearer instruments obsolete because of their high handling cost hadn't occured prior to that, such a legislation of economic reality by the US government would have been laughed out of any room in which it was proposed. I like to say that physics creates economics, which creates politics and law, and not the reverse. Or, as Thomas Sowell likes to say, 'Reality is not Optional'. I expect that since aristocrats figured out how to extort economic rents from farmers, and nation-states figured out how to extort economic rents from industry, that something close enough to a government for government work will figure out how to extort economic rents from whatever the producing unit of a geodesic society is, probably pieces of code. As the crypto professor says, 'I leave that to the student as an exercise for further study.' :-).

Finally, what about laws? Aren't there laws applicable to this kind of stuff? Laws about money laundering for instance? While there are lots of cypherpunks out there who say, like I even do on occasion, 'Write Software, not Laws', there is nothing wrong with doing digital bearer settlement, as long as it stays on the net. In the earliest stages, there will be bearer cash, which can be traced when it goes on and off the net through a bank account, no matter how many hops it goes through before it comes out. So, it's pretty simple in that scenario to 'Render unto FinCEN' (FinCEN: the Financial Crimes Enforcement Network). Everything's traceable, which should keep them happy. At least until people start *keeping* money on the net and never taking it off. Then, of course, the world will have more interesting things to think about than whether or not FinCEN can do it's job anymore, and they've said as much.

Once we get to digital bearer bonds, stocks, and derivatives thereof, the world starts to change considerably. However, I still claim that reality is not optional. If you reduce the cost of settling a transaction to effectively zero (okay, past the last basis point but not zero), then the financial markets are going to figure out how to use the technology. Not only is it cheaper, but by being cheaper, it allows for smaller and smaller publically held entities. And automated financial intermediaries. Those little personal bearer bond 'bots' I was talking about in my Geodesic Society rant before I went to Anguilla, for instance. The asset sizes of verious trades could get much smaller, but, in addition, I claim, that because trading of financial instruments can happen so quickly, efficiently, and by so many self-interested actors, it'll probably be the way money is raied very large security issues and for very large projects. Maybe Intel's inevitable $10billion chip fab, for instance, will be floated into a market 'swarm' of financial intermediaries. Microintermediation, instead of disintermediation, in other words...

Okay. I've now walked you up the edge of the abyss, and pushed you over the cliff, and, you'll notice, you didn't get hurt at all. That's important to think about, because sometimes being quantitatively cheaper has qualative effects, but, for modern society at least, the future is no different from the past, except that we've figured out how to live better. I expect if we can blow the doors of the cost of financial with digital bearer settlement, the world will be a much better place to live in, indeed.

Robert,
Your points are fascinating and very provocative....However in order for any of these suggestions to be 'formed' into practical reality will require both a legislative framework (as you point out) and perhaps more importantly a change in 'habits' which is often more than 'Custom and Practice'.

You may be aware that Citibank in 1985/6 attempted to construct an electronic service for the registration of electronic documents of title for crude oil and other high value cargo. It was called I believe 'SeaDocs'. The basic premise being that cargos such as those changed title several times in transit and would have, in those days, revolutionised the process whereby couriers would physically move the Bills of Lading between the owning parties at great expense and often many days after the fact. The plan was to register the BOL once with SeaDocs and via some electronic mechanism (email was just emerging as a commercial communications medium) enable title to be transferred at reduced cost and with no time delay...........It failed!

At the time, and even more so now with hindsight, the market and the traders would not risk the new medium where no precedent had been set and the habit for working the traditional way with all its foibles was 'good enough'.

It is just one illustration as to how very compelling arguments are still defeated by a reluctance to change unless a catalyst can be introduced that gets things moving. For example, businesses that are in low or nonexistent profit margin markets rely on managing cash balances to extremes.

Money collected fast, pay slow!

How will they react to instant digital settlements?????

If a single entity (commercial community, government) were bold enough to try and break the mold of existing practice to promote some of these ideas then it may generate sufficient momentum to move the markets forward globally and introduce a new 'practice' Perhaps the people and government of Japan are prepared to meet this challenge. Perhaps a consensus biased culture would be an advantage in this endeavor.

I also think that as E-Commerce develops then the existing governmental vehicles for dealing with international trade (Customs etc.) will be overwhelmed by the increase in shipment volumes from private individuals. Have governments collectively thought how they will deal with this potential logjam to existing procedures?

In summary, whilst the development of the appropriate technical infrastructure is desirable more emphasis on the commercial behavior of markets and cultures will also be needed. I don't think one can flourish without the other.

Following is a summary of points discussed in the parallel Japanese Online Conference.

February 23rd to 25th
An official of the Telecommunications Bureau of the Ministry of Posts and Telecommunications commented that the provision of networks capable of meeting the demand for electronic commerce is a topic of major importance. Development is under way of the technologies that form the foundation of the overall reliability of the Internet, such as super high speed router technology, technological development related to the security and reliability of communications used for the transmission of electronic money, development of technology to avoid system failures and congestion, etc.

In response, the comment was made 'They're letting the private sector do the spade work, and then they'll step in at the end and take the credit with policies that reflect the work done by others.'

The requisites of Internet shopping:
1) Product spec can be verified, even without seeing the actual product.
2) The time required to make purchasing decisions can be reduced.
3) Prices are cheaper than usual.
4) Mall sponsors can be trusted (?)
5) Conditions can be negotiated via e-mail, until the customer is satisfied.

Made on behalf of Eric Blot-Lefevre, Chairman of Electronic Commerce Europe

Dear colleagues,
By developing an efficient market, Electronic Commerce is obliging companies to develop new conquest strategies. This requires that they enhance their control on risks related to invested capital and that they learn to react even faster to competitive challenges.
The approach of Electronic Commerce is decidedly innovative for businesses. This new approach combines corporate success with permanent and autonomous value analysis. Businesses are permanently obliged to question themselves, and to adjust their policy by constantly upgrading quality and competitiveness. Since Electronic Commerce offers the possibility of monitoring product price and quality in real-time through databases which are open and accessible to all, this creates traceability and transparency which enable each of us, Client or Supplier, to play the game. Increasingly, consumers will head towards the products which rank high on the excellence chart.

Developments of these ideas are in the attached document: 'ELECTRONIC COMMERCE: REVERSE ENGINEERING AND JUST-IN-TIME PROCESS', on which we would be pleased to get your comments

ELECTRONIC COMMERCE:

REVERSE ENGINEERING AND JUST-IN-TIME PROCESS

By developing an efficient market, Electronic Commerce is obliging companies to develop new conquest strategies. This requires that they enhance their control on risks related to invested capital and that they learn to react even faster to competitive challenges.

Through Electronic Commerce, a business provides the consumer with permanent access (round the clock). This reduces the need for the traditional sales approach, which relies on marketing techniques based on persuasion and demonstration. However, Electronic Commerce requires more hard facts, practical and technical data designed to facilitate comparative study or critical analysis by each potential buyer. The real qualities of Electronic Commerce regarding transparency, benchmarks, traceability, and ranking will enable the consumer to make a precise assessment of the value of the offer. Information is carefully organised in an order which facilitates the acquisition of knowledge by the consumer so that the consumer may plan his/her expenditures in the most rational manner.

In this environment where accurate data are available and may be compared on a almost real-time basis, on a market organised on a regional or international scale, judgment criteria are bound to evolve and consumer behaviour is bound to change. Businesses have a lesser need to look for customers, and customers research increasingly the businesses which are present on the Web and adopt new attitudes. Businesses must work more on the quality of the products, prices and 'on-line' assistance in connection with the product.

This behaviour, which is a feature of the electronic market for consumer goods, but also of a large number of intermediary goods, also applies to Business-to-Business exchanges. Purchasing managers of businesses which are potential buyers carry out a global search for possible suppliers on Internet, including service providers. Each time, the fact sheet of the product or service, describing all options offered for free or at a cost, guides the research conducted by the decision-makers. This systematic search on a wider, multilingual, multicultural, multitechnological or polytechnic market requires a wealth of details necessary to know the product, assess its price and compare it to those of competitors, while carrying out all necessary currency conversions. Let us not forget for instance that an electric plug still has a different shape in each country, and that after-sales services are negotiated in a very different manner from country to country. Let us bear in mind that the selection of services and/or products and the organisation of the market will finally be based on efficiency criteria, and later on, proximity criteria which may be validated by independent rating agencies.

The 'reversal' of commercial strategy, at the prompting of clients connected to the Web, implies that the supplier complies with the new constraints of electronic commerce and adapts much faster to competitors' qualitative standards and prices.

The problem of each business is likely to be how to reach the admissibility level defined by the market. This will create a threshold which will have to be crossed in terms of quality, transparency and competitiveness, in order to sell commoditised products, whose quality/price ratio is no longer different from that of competing products present on the Web, except for on-line assistance tailored to the requirements of each citizen.

The commercial and economic challenge is sizeable: this means that electronic commerce threatens to disqualify all businesses which do not offer such efficiency on classical distribution channels. The only question we have to ask is whether a large mass of consumers will retain the same habits, with the same approach, regarding the purchase of commoditised products. It is likely that companies involved in the Business-to-Business segment will derive such advantages from electronic commerce that they will be less involved in traditional exchanges.

For the most commoditised products, a virtual commercial site should have the following advantages when compared to a traditional point of sale:

- the product Fact Sheet with the ranking and certification on a quality scale

- 'on-line assistance' corresponding to the provision of new services which have no equivalent in a traditional shopping centre

- the price of the product

- the delivery logistics with a guarantee regarding the date or hour.

Electronic Commerce will no doubt enhance the value analysis which enables the consumer to make an objective and scientific distinction between seemingly similar products, thanks to the work to be carried out by assessment agencies.

Electronic Commerce is creating a virtuous cycle which makes it possible to gain the loyalty of the consumer, while at the same time ensuring an extremely high inventory turnover, thus enabling businesses to operate at a relatively reduced risk level, although with slimmer margins.

The approach of Electronic Commerce is decidedly innovative for businesses. This new approach combines corporate success with permanent and autonomous value analysis. Businesses are permanently obliged to question themselves, and to adjust their policy by constantly upgrading quality and competitiveness. Since Electronic Commerce offers the possibility of monitoring product price and quality in real-time through databases which are open and accessible to all, this creates traceability and transparency which enable each of us, Client or Supplier, to play the game. Increasingly, consumers will head towards the products which rank high on the excellence chart.

In line with this innovative commercial management, businesses must also learn to manage themselves differently. This means that they must reengineer their financial and information functions. The regulation system which is necessary for adjusting internal and external transactions on a 'just-in-time' basis requires that businesses organise electronic exchanges between protected workstations and a more centralised transaction database.

In fact, electronics document management on a paperless basis completely changes legal provisions, in particular for all legal rules regarding evidence and for electronic signature. Contractual relations are organised by a code of conduct whose rules are integrated into the management software which is accessible from each workstation. The protection of corporate interests is organised in each workstation, in order to restrict the powers granted to individuals in terms of outside commitments and electronic signature. Each workstation has authorisations for shared access to the database where transactions are stored with their management data.

Within each business, safety and the management of authorisations become extremely important elements in order to organise the relations of the individual with a counterpart or the internal exchanges within one same business. The organisation of the IT system and of the access to databases will become one increasingly significant part of the job description of each function within a company. The electronic organisation of management functions, through a scheme of authorisations and ceilings, will be justified on each dedicated workstation, in an environment in which risks incurred by businesses are becoming ever more significant. The fact that clients from all over the world will have access to the company though INTERNET will create a mass demand for companies with excellent efficiency or quality criteria. Rating agencies and market transparency will allow for 'quick browsing' towards the most effective offer in terms of quality/price ratio. Businesses which are contacted by electronic shoppers must be able to react very quickly by entrusting the necessary decisions to employees on certain dedicated workstations equipped with the necessary functions.

This accelerated improvement in quality and value-added for a product or service, in a general environment of falling prices and wider international competition, will oblige businesses to cope with serious problems regarding methods of real-time management and ways to enhance customer loyalty. At any rate, operating risks are increasing constantly. Such fast changes may lead a business to a financial disaster if those changes are not controlled through real-time checks of the operating data, in particular for the management of work-in-progress, inventories, and terms of payment.

One of the ways to lower prices and to adjust quality to market demand consists in constantly adapting the content of the manufacturing or service programme as well as the financial terms and conditions. This requires having the tightest just-in-time management for each manufacturing or service programme and using the best distribution channels. The use of distributors partly externalises the just-in-time management chain. The chain becomes an intercompany chain. Since we are in the realm of Electronic Commerce this requires sharing communication networks with identical protocols in order to avoid any malfunction between operators involved in the same transaction. Electronic Commerce is obviously a providential technique which enables us to use at the same time all competitive parameters, and which calls for a joint effort by financial and industrial partners who all observe the same code of conduct. Real-time management abolishes disputes or anomalies of all kinds which may result from a lack of integrity, non-repudiation, or from insufficient protection.

In conclusion, we see that the Open Marketplace opens the doors of a new world for businesses, faster, more instantaneously, where means of electronic exchanges are indispensable for performance, but also for balanced management. This will lead to profound changes in the way individuals organise relations among themselves or their relations with computers. It is now indispensable to make businesses aware of this change in Electronic Commerce which is transforming our work methods profoundly.

Made on behalf of Eric Blot-Lefevre, Chairman of Electronic Commerce Europe

Dear colleagues,
We would like to participate in the discussions of the Forum organised around the NIKKEI Global Information Summit on 10 March in TOKYO, since this event provides an excellent opportunity to foster a dialogue between nations and also to observe that this dialogue is advancing much faster thanks to the Internet. I am much interested on a daily basis in multilateral exchanges between interested parties and would like to take this opportunity to share a few observations with you. I would first like to answer the questions which were asked by our Co-ordinator, Mr. Jim JOHNSON.

THE ORGANISATION OF WORLD TRADE

THROUGH ELECTRONIC COMMERCE

1 - The organisation of Electronic Commerce

We would like to participate in the discussions of the Forum organised around the NIKKEI Global Information Summit on 10 March in TOKYO, since this event provides an excellent opportunity to foster a dialogue between nations and also to observe that this dialogue is advancing much faster thanks to the Internet. I am much interested on a daily basis in multilateral exchanges between interested parties and would like to take this opportunity to share a few observations with you. I would first like to answer the questions which were asked by our Co-ordinator, Mr. Jim JOHNSON.

First question: Why must Electronic Commerce be considered as a new type of organised market? As you all know, the concept of the organised market has been in existence for about twenty years and was created at the initiative of the banking community. By relying on the technologies of that time, banks created protected communication networks which enabled them to process their financial transactions with zero default, zero paper and almost in real time. Since these transactions involved money in all of its possible forms, it is obvious that protection techniques were first used in this sector in order to guarantee the three parameters of a transaction: 1. Information 2. Guarantee 3. Value.

Today, these protected communication processes apply to all economic agents outside the financial sphere:

e.Consumers

e.Administrations

e.Businesses

e.Banks

e.Payments

e.Marketplace (Trusted Third parties)

Everybody is impacted by these techniques: consumers, administrations and trusted third parties as well as businesses. Within businesses, a distinction is made between users, vendors of technical and industrial solutions as well as providers of all types of services.

Therefore the banking experience which created the first organised markets is spreading and is generating new experiments with transactions and electronic data exchanges in all economic areas. As the European Commission expressed it very aptly, we are entering the era of the digital economy, into a world which is fully binary and digitalised. Later on, as in financial markets which have become highly efficient, transactions will almost cease to be made outside the organised market, since this market will be the only one able to secure at the same time for each transaction the protected communication of the message, the legal guarantee (or guarantee of proper performance for the operators involved in the transaction) and the exchange of value (settlement).

It is necessary to know that, by becoming efficient, an organised market becomes universal and offers safety (confidence). As a result, the rest of the market becomes less transparent, more expensive and more uncertain regarding the processing of transactions and for their final settlement. Counterparts might finally refuse to work outside of the organised market.

We are not making these comments to give an anthropology class on market techniques, but because specialists in the processing of information, in particular in businesses, must observe a paradigm shift in corporate organisation. So far, whether we like it or not, initiatives aimed at a standardisation of exchanges have been mostly sectoral and have left little room for freedom. Indeed, since there was no comprehensive solution, the most modern companies and the pioneers of electronic communication filled the gap left open by unprotected communication and designed rather proprietary standardisation methods, which were rather oriented towards a unilateral or bilateral relationship. Most often, these methods used professional jargon which restricted the scope of the exchanges and the potential richness of their multidisciplinary content. Tomorrow, with the evolution of the techniques and the organised market, with the performance and effectiveness of major operators of universal exchanges, such as CEDEL, EUROCLEAR, VISA, AMERICAN EXPRESS, SICOVAM, CME and LIFE, and many other operators world-wide, we are rushing towards a multilateral system based on an interdisciplinary approach to management specialities, towards management with share time and shared methods. This leads inexorably to the emergence of Codes of Conduct, market rules and also legal issues. Because of this we see that the challenges of Electronic Commerce are increasingly revolving around 'Content'.

Please ask yourself for a moment: What is the essence of Electronic Commerce? You will then agree than Electronic Commerce is much different from what one might have expected, i.e. that its first requirement is not bones and muscles, but first a consensus about substance. We must agree to work together on practical methods for electronic exchange which bring in return real-time flow, interactivity, transparency, complete safety, confidence and the assurance or guarantee that our transactions will be properly completed. To such effect, it is necessary that the originator of the exchanges, which may be a business, or an individual within a business, becomes more involved in the evolution of the methods which govern the exchanges. The Code of Conduct is the most adapted mechanism. The Code of Conduct creates a general framework for our exchanges, based on confidence, efficient procedures, and the universality of information resources.

Under these conditions, it is already necessary to make businesses aware of this challenge. Here again, an approach based on consensus is necessary to foster the required exchange of views, discussion, and decision-making regarding the choice of the practical methods which will make it possible to generate Electronic Commerce, in close co-ordination with specialists of the various disciplines related to business management. All of these specialities are involved, and this is even truer, since one of the goals of Electronic Commerce is to systematise the management process, for all aspects of a transaction, from the order to the payment. Under these conditions, it is essential to consult Buyers, Sellers, accountants, finance executives, treasurers, credit managers, and trusted third parties such as banks and public administrations. Of course this list must also include the Consumer who receives an invoice and uses a protected means of payment. When you observe the statements made by national and international associations representing the various disciplines of corporate management, you see that they all are analysing the questions revolving around Electronic Commerce, since these professional specialities, together with the consumers and administrations, belong to the value added chain. Our purpose is to enhance the richness and quality of this value chain.

On the other hand, when you take a look at the Forum and at the speakers, you see that businesses are not sufficiently represented. They tend even not to participate enough in the debates. However, their experience and their future requirements are the fertile soil in which the seeds of Electronic Commerce have to be sown. Without the active involvement of the Businesses which are the Users, the content of Electronic Commerce is bound to be very poor. We need to have these Businesses share our faith. It is also necessary that Banks, which have an extraordinary knowledge of electronic exchanges, invest more in projects or co-operative endeavours related to electronic management of commercial documents and flows. Tremendous productivity gains may be achieved and shared between Banks and Businesses. As you will readily admit, currently everybody seems to be concerned about his/her own focus, and there is not yet any joint resolve to exploit together this immense and fertile area of protected intercompany communication, with its spectacular impact for Trusted Third Parties (certifying third parties, depositories, payers and providers of financial services). In the management of large businesses, and among the management teams of the said businesses and banks, there is not yet a clear vision of the situation, a strategic ambition to co-operate in order to broaden the chain of protected functions beyond the purely monetary segment. In all cases, these initiatives, when they exist, are not expressed strongly enough to give to the move towards Electronic Commerce the impetus necessary to achieve the substantive work which is necessary to bring about a true revolution. This work requires information, training, and actual co-operation within task forces where all managers are invited to attend and participate.

2 - The major efforts necessary to bring about Electronic Commerce

Let us not underestimate the organisational efforts which are required to create electronic commerce.

Governments are issuing warning signals to make all individuals, regardless of their future role, aware of the tremendous importance of Electronic Commerce. It is true that we are all impacted by this phenomenon, especially the new generations.

But beyond this first awareness campaign, governments will have to work in a more selective manner and assume major responsibilities regarding the success or failure of their endeavours. A few years ago, governments contributed powerfully to the development of microprocessors, and the performance of electronic components amazes us constantly, due to their power and their small or even microscopic size. These solutions which are extraordinarily useful for the processing and storage of information create an extraordinary potential for the electronic management of documents, for a paperless, real-time management, which propels the individual forever in a world which will be astonishingly efficient, if we are able to organise it properly. This will be a virtual world which no one had foreseen, not even the most perceptive visionaries. You need to realise that with electronic components we are able to create a unity of place, a unity of time, and a unity of value. In other words: we have the key to the universal language. But you are already aware of this. Furthermore, this virtual world will cost much less than the physical one, where barriers of all kinds have been erected. Governments which have contributed to the marvellous adventure of electronic components must now be responsible for the rest of the story which they have initiated with industrialists. In particular, as was the case with electronic components, they must help us become accustomed to integrate, in a more disciplined and practical manner, our messages which now have an extraordinary richness and diversity. This may be the role of information highways, but how must Governments tackle this task?

Two aspects come to mind whenever we discuss information highways. The first is their accessibility and the prerequisite which is access at an affordable price. The second is the harmonisation of these communication logistics which enable each person to use the same highways, but also to exit them by links adapted to the users' specific needs and environments.

Regarding the first aspect, the paper of Dr. SHIMASAKI Nobuhiko, from TOKAI University, seems highly relevant: 'Internet access needs to be universal in order to fully use each person's contribution. As long as access is limited, Internet and all those who are using it are not fully exploiting the advantages which it may offer.' Governments which want to enhance the efficiency of their market should make sure that all of their nation's intellectual resources are connected to the Internet. The more minds are constantly bombarded by interactive messages, the more this induces a flow of ideas and consensual methods which influence ideas and specialities, in order to produce common solutions with an identical language which develops human abilities and cognitive potential.

Major multinational companies which have admirably succeeded in terms of economic expansion, and which rejuvenate their products and innovate on an on-going basis have integrated perfectly their domestic production, communication and distribution networks throughout the world, and have relied on high-quality information networks, and on individuals from very diverse cultural backgrounds. In this field, in-bred relationships have never led to success. It is therefore essential to rely on the ability to be connected to computer networks in order to overcome the limitations inherent in the non-computerised social networks' but furthermore, governments must adopt a clear policy regarding the organisation of the major information highways in order to prepare major Operators, Users and Businesses for thorough changes in their means of communication which are essential for the enrichment of tasks, for innovation and for the school system. Electronic Commerce is an endeavour aimed at the development of exchanges. If it is properly monitored, Electronic Commerce may bring about the broadening of universal networks and their safety, as well as an enhancement of our intellectual potential, and better sharing of collective experience and world-wide expertise between individuals. It is essential to improve all aspects of the networks by designing a universal content which may be adapted to each partner's requirements in order to ensure the economic expansion of services and full employment. Prosperity must be ensured by market monitoring, in order to avoid the various types of 'cancers' which threaten periodically the equilibrium of the world economy.

The second aspect is related to the problem of harmonisation of the messages in Electronic Commerce which simplifies exchanges, reduces risks linked to the interpretation of the messages, and foremost cancels the lead times associated with management. In the realm of communications, we have all witnessed the spectacular success of portable telephones. We must in this respect commend the industrialists and governments which have decided to engineer this big bang in our modes of communication, since the technology and the cost of its industrialisation have given them the opportunity to target the market globally. As compared to Telephonic Commerce, Electronic Commerce must overcome a major obstacle, i.e. the dematerialisation of management operations though digitalisation, which combines at the same time the three attributes of commerce: information or content, guarantee of performance and the value of the exchange, and which must be perfectly interpreted and recorded without any manual input on both sides of the transaction, i.e. the issuer and the receiver. This small transaction is more difficult to digitalise than sound or the vocal cords on a telephone set, since it is indispensable that in management applications an agreement be reached on the acceptance of a communication language, including the content of identical standards, while on the networks, converters are necessary to ensure the interoperability between the applications which 'digest' the information. At this level, we therefore must make tremendous efforts to raise the awareness of corporate management experts, so that they stage gradually the organisational reforms which are required and aim towards the objectives of harmonisation which are in agreement with the best dematerialisation methods. Let us not be mistaken, this work can only be made by professionals and must be made by the private sector. However, it is urgent that associations organise themselves in order to stimulate this sea change.

The organisation must take care to make a distinction between two types of associations: those working on changes in methodology and harmonisation (EDI, legal issues, financial issues, etc.) and other associations which are working on industrial solutions by combining technologies and assembling methods into a software content, which is in agreement with Electronic Commerce. The association of both genres has always led to a waste of paper for the first associations, and to a rapid obsolescence of the product for the second type of associations. In other words, Electronic Commerce, with all its associated technological offer is obliging management professionals to work more in teams in an organised and international manner. For Europeans, the real content of the single market will only find its real substance and actual effectiveness through this exercise of harmonisation of the messages to guarantee to all parties the confidence and safety which become more necessary when correspondents are more remote. We must also accept in the Code of Conduct the constraints of transparency and value analysis which will make us more visible and more exposed to criticism regarding the quality, solvency or integrity of our operations. This may be the only price to pay to benefit from the major advances which will without any doubt further moral responsibility and international co-operation.

Dear colleagues:

You have received a copy of the questions organized by Tanaka-san on the subject of electronic commerce. I would appreciate your responding from your wisdom and insights. These responses will help a great deal in the discussion at the March 10 summit meeting.

Dear Colleagues:

We have enjoyed this round of vigorous discussion and exchange of views. It is time now, alas, to call a recess so that we can gather these great thoughts together in a format to be presented to the Summit on March 10.

I want to thank you for your generous participation. Our sponsors, NIKKEI, have benefitted tremendously from your expression of ideas.

We are still open to final ideas or insights from all of you, but the time is limited.

Is there interest among any of you to keep this dialogue going? NIKKEI has expressed a willingness to consider this, and will be contacting you about your thoughts.

It has been a privilege for me monitor this discussion and gain from the great ideas and information which you have shared. I hope that we can all stay in touch. As you have expressed there is much work to do to get the world ready for the information revolution, and it is great to be linked with you in that effort.

Let's have one more round of ideas. And then you will be hearing more from Nikkei.

Thank you all. Keep on keeping on.