Recent advances in information society and e-commerce development: comparison between EU and Serbia

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1 Recent advances in information society and e-commerce development: comparison between EU and Serbia Zoran Kalinić 1, Simona Sternad Zabukovišek 2 1 Faculty of Economics, University of Kragujevac, Serbia; 2 Faculty of Economics and Business, University of Maribor, Slovenia Abstract The development of information society and e-commerce, as one of its most important segments, is recognized as one of the key factors affecting economic growth. European Union also recognize it as one of its priorities, and set a number of actions and targets in its development strategy. In this paper, the analysis of current stage of development and implementation of information society and e-commerce in the European Union, especially in Slovenia, and in Serbia, as a candidate country, is presented. The development is measured through a number of indicators, and their values are compared with targeted values. The results show that by most of the indicators, Slovenia still slightly lags behind EU average, while Serbia is far behind, except in the segment of the implementation of ICT in enterprises, where it is even above EU average and the most of European countries. Also, most of the targeted values of the indicators will be achieved on schedule. Keywords: information society, e-business, e-commerce, digital agenda, e-government Introduction The rapid development and application of information and communication technologies (ICT) in the last decades led to major changes in many spheres of our lives and these new technologies are often considered as one of the key factors of progress of modern society (EC, 2010a). Recognizing ICT as one of the major factors that affect the economic growth of the economy, European Union (EU), in its development strategy Europe 2020 (EC, 2010b), set the development of information society i.e. Digital Agenda for Europe as one of its seven flagship initiatives. The main goal of the Digital Agenda is to deliver sustainable economic and social benefits from a digital single market based on fast and ultra-fast internet and interoperable applications (EC, 2010a, p. 3). It stressed the concerns of EU, as it was lagging behind its industrial partners. For example, at that time every third European had never used the internet and Europe had only 1% penetration of fiber-based

2 high-speed networks, compared to Japan (12%) and South Korea (15%). Also EU spending on ICT research and development were only about 40% of US levels (EC, 2010a). It was estimated that the full implementation of the Digital Agenda for Europe would increase GDP in Europe by 5 per cent over the next eight years by increasing investment in ICT, improving labor force ICT skills, enabling public sector innovation and by reforming the framework conditions for the internet economy (UN, 2014). Digital Agenda also presented necessary actions to be performed in order to fulfill key performance targets. By signing of the Stabilization and Association Agreement with the European Union, which entered into force on 1 September 2013, Serbia has made a commitment to the process of accession to the EU to perform structural reforms and fulfill a number of objectives, some of which relate to the development of the information society. In order to harmonize its development with EU guidelines given in Digital Agenda and other related documents, Serbian government in 2010 adopted Strategy for Information Society development in the Republic of Serbia by 2020 (GRS, 2010), which defined the key objectives, principles and priorities of the development of the information society and as the primary objective set out actions that should be taken to its effective implementation and convergence to the EU average level of development by It also sets as the priorities of development: telecommunication infrastructure (especially access to high speed internet, to everyone); e-government; e-health; e-justice; ICT in education, science and culture; e- commerce; ICT in the business sector and information security. The objective of this paper is to analyze and compare the current status of development of information society, and one of its main segments - e-commerce, in the EU and Serbia. The paper is organized as follows: in the next Section the key indicators of information society development in EU and Serbia are presented and compared. The current stage of development of e-commerce, as one of the most important applications of ICT and potential growth engine, is presented in third Section. Finally, some concluding remarks are given. Indicators of Information society development in EU and Serbia There are several indicators that are usually used to measure the development stage of information society, but one of the most important and most popular is ICT Development Index (IDI), developed by International Telecommunication Union (ITU) in 2008 (ITU, 2014). It is a composite

3 index that serves to monitor and compare developments in information and communication technologies across countries. IDI is composed of 11 indicators, grouped into one of three IDI components (sub-indices): ICT access (indicators like percentage of households with a computer or with internet access), ICT use (e.g. percentage of individuals using the internet or fixedbroadband subscriptions) and ICT skills (e.g. adult literacy). Values of IDI index in 2013 for EU Member States and Serbia, as well as EU and world averages, are presented in Figure 1 (ITU, 2014). Figure 1. IDI index in EU countries and Serbia Figure 2. Percentage of households with a computer in EU and Serbia The country with the highest IDI index is Denmark, which in 2013 overtook South Korea, the most developed in 2010, 2011 and 2012 (ITU, 2014). Serbia is above the world average, but below EU average, although it is better estimated than some EU countries, such as Cyprus and Romania, while Slovenia is very close to EU average. All European countries except Albania, have higher IDI index than the global average of While Europe as a region in general has attained high

4 levels of ICT development, there is a noticeable divide between the lower ranking Eastern and Southern European countries, on the one hand, and Western and Northern European countries that rank at the top of the regional and global IDI, on the other. Another important indicator is availability of computers, as one of the most popular and useful devices. The percentage of households with a computer in EU and Serbia, in 2013, is presented in Figure 2 (Eurostat, 2015; SORS, 2015). Again, Serbia is at the bottom of the list, and far from the average of EU countries, while Slovenia is quite close to EU average. One the other hand, data show that 100% of Serbian and 98% of Slovenian enterprises are owning and using computers, which is both above many EU members and its average of 97% (Eurostat, 2015; SORS, 2015). Another important device in the field of ICT today is mobile phone. Besides for voice communication, contemporary smart phones are used for internet access and a number of services. Mobile penetration, or the number of mobile subscriptions per 100 inhabitants, globally is 96.4% (ITU, 2014), and it is much higher in developed countries (125.8%), where it already comes to saturation. Average mobile penetration in the EU is 132%, in Slovenia 109% (Eurostat, 2015), whereas in Serbia it is 128% (RATEL, 2014), which is close to EU average, and ahead of many of its Member States. Internet is one of the basic communication channels today, and modern information society is based on the access to the internet and its services. Especially important is household access to the internet, by which all people, irrespective of age, gender, employment status, etc. or possible level of disability, can access the internet within the privacy and proximity of their own home (ITU, 2014). ITU estimates that today almost 3 billion people or 40% of world population is using internet, while this percentage in developed countries is about 80%. As part of its strategic plan for , International Telecommunication Union also set a number of global ICT goals and a set of measurable targets, like that by 2020, worldwide, 55% of households should have access to the internet and 60% of individuals should be using it (ITU, 2014). Both Slovenia and Serbia has already achieved both targets. EU development strategy Europe 2020 (EC, 2010b) insists on development and accessibility to fast and ultra-fast internet with broadband access for all EU citizens by 2013, but also on access for all to much higher internet speeds (30 Mbps or above), and 50% or more of European households subscribing to internet connections above 100 Mbps, both by Digital Agenda for

5 Europe (EC, 2010a) also set several ICT targets, including that regular use should be increased to 75% by 2015 (compared to 60% in 2009), and to halve the proportion of population that has never used the internet by 2015 (from 30% in 2009, to 15%). The percentage of households with internet access (any sort) and broadband access in EU and Serbia, in 2014, is shown in Figure 3. As presented, Serbia has higher internet penetration only than Romania and Bulgaria, but it s the last on the list by broadband access, which is the basis of modern internet services. Slovenia again has much better results, but still below EU averages. One of the most important indicators of information society development is the percentage of individuals who are using computers and internet on daily basis, presented in Figure 4 (Eurostat, 2015; SORS, 2015). Figure 3. Households with internet access and broadband access Figure 4. Individuals using computers and the internet, on daily basis Again, Serbia is almost at the bottom of the list, significantly below the EU average, but still in front of some EU members, while Slovenia is very close to the averages of the European Union. As it can be seen, the European Union has already met the target of 75% of population using the

6 internet, scheduled by Digital Agenda for In Serbia, still every third person has never used the internet (SORS, 2014), in Slovenia every forth, while in the European Union on average it s 18%, which is close to targeted 15% by 2015 (Eurostat, 2015; EC, 2014a). Surprisingly, all 100% of enterprises in Serbia used computers in its operations and had the access to the internet (98% of them even had broadband access) (SORS, 2014), while in Slovenia 98% of companies were using computers and the internet, which is all above EU averages (Eurostat, 2015). Advances in electronic commerce development in EU and Serbia Electronic commerce (e-commerce) is often defined as the use of the internet and World Wide Web to perform digitally enabled commercial transactions between and among organizations and individuals (Laudon and Traver, 2015) and it includes any transaction for the sale or purchase of goods and services conducted over computer networks by methods specifically designed for the purpose of receiving or placing of orders (OECD, 2013). E-commerce is one of the fastest growing forms of commerce today, and is often considered as a significant potential for economic growth in each country. It offers a number of benefits: no time and space constrains i.e. 24/7 availability; access to the global market; wider product offer, not limited by the storage capacity of individual shops; lower operating costs, etc. E-commerce represents particularly significant potential for small and medium-sized enterprises (SMEs), because of its global reach and lower initial costs (Kalinic, 2014a). Mohapatra (2013) found that some of the main advantages of e- commerce for SMEs in developing countries are reduced information search costs and transactions costs (i.e., improving efficiency of operations-reducing time for payment, credit processing, and the like) and the possibility of automated distribution of information to specific target groups. As one of the first official documents in the area of e-commerce, European Commission in 1997 adopted A European Initiative in Electronic Commerce (EC, 1997), whose aim was to encourage the vigorous growth of e-commerce in Europe, which would further increase the competitiveness of European companies in the world. The Initiative defined the initial rules and recommendations that EU countries used in defining its own legislation in the field of e-commerce. It was also stressed that the introduction of the single market and single currency creates exceptional opportunities for accelerated development of electronic commerce in the EU.

7 In its Directive on electronic commerce (EP, 2000) the European Parliament and the Council of the European Union stressed that further development of e-commerce within the information society offers significant employment opportunities in the EU, particularly in SMEs, and that it will stimulate economic growth and investments in innovation by European industry, enhancing its competitiveness. One of the main objectives of the Directive was to create a legal framework and to ensure legal certainty and consumer confidence in e-commerce, as consumer trust is often found as one of the main obstacles to faster e-commerce adoption (Kalinic, 2014b). Although it is formally organized as a single market, the European Union in reality is still a patchwork of national online markets, which prevents its citizens to enjoy all the benefits of a digital single market (Diacon and Donici, 2011; EC, 2010a). It is necessary to eliminate all legal and administrative barriers and facilitate the use of electronic payment systems and efficient delivery systems in cross-border trade (FEB, 2013; Kalinic, 2014b). E-commerce was also recognized as one of the priorities in the Strategy for Information Society development in the Republic of Serbia by 2020 (GRS, 2010) and Trade development strategy in Serbia, and as a legal basis for the development and operation of e-commerce, laws on Electronic Commerce; Electronic Signature; and Electronic Document were adopted. Electronic commerce had a remarkable growth over the last decade. According to some estimates, its growth rate for several years was around 20% worldwide, with the expectations that it will remain in the double digits in the next few years, primarily due to rapidly increased number of online and mobile users in emerging markets, increases in m-commerce sales, and advancing shipping and payment options (emarketer, 2014; Kalinic, 2014a). Despite the fact that estimated share of online goods in total retail of goods is only 4.2% globally (5.7% in Europe) (ECE, 2014), the total number of internet consumers in the world is already over one billion, or over 40% of internet users (ECE, 2014; emarketer, 2013). Estimated share of the European internet economy in the GDP at 2.2%, a percentage that is set to double by 2016 and to triple by 2020 (ECE, 2014). As one of the main indicators of e-commerce development, the percentage of citizens who traded via the internet over the past year, in the EU and Serbia, in 2014, is shown in Figure 5 (Eurostat, 2015; SORS, 2015).

8 Figure 5. Individuals who purchased something over the internet in last 12 months, in 2014 It is obvious that Serbia and Slovenia are still below the EU average, but ahead of many EU countries. As of the European Union, first e-commerce target of the Digital Agenda for Europe (EC, 2010a), that 50% of citizens are buying online by 2015, was already accomplished in On the other hand, the second target, that 20% of them are buying cross-border online by 2015, is unlikely to be achieved. Cross-border trade in EU is growing at slower pace than expected, and in 2014 it reached only 15% (WSJ, 2015), and in Poland, for example, only 9% of internet consumers were buying outside of their country (EC, 2014). In March 2015, the European Commission launched a broad investigation into whether some well-known companies, like Amazon, are restricting cross-border trade in the EU (WSJ, 2015). By the way, three biggest online markets in EU: United Kingdom, Germany and France account for 61% of e-commerce sales in Europe (ECE, 2014). There are several factors that hinder faster development of e-commerce, including underdeveloped internet infrastructure, legal framework, low income, low level of IT literacy, etc. (Kalinic, 2014a, Kalinic, 2014b). Strong linear correlation between internet penetration and GDP, on one side, and, e-commerce development (on consumer side) on other side, can be found (Kalinic, 2014a). The same stands for the relation between percentage of internet users, and e-commerce i.e. percentage of online shoppers, as it can be seen in Figure 6 (Eurostat, 2015; SORS, 2015).

9 Figure 6. Relation between individuals who use the internet on daily basis (in %) and individuals who bought something online in last 12 months (in %) It s interesting to stress that global financial crisis, started 2008, didn t have negative influence on e-commerce development. On the contrary, in the EU the e-commerce was developing at high rates, even during crisis years, while in Serbia it was stagnating (Figure 7) (Eurostat, 2015; SORS, 2015). Figure 7. Individuals who purchased something over the internet in the last year (in %)

10 On the other side, the application of e-commerce in enterprises in the European Union is developing at very slow pace, with only 18% of companies using the internet as their sales channel, while 38% of them are purchasing online (but only 18% of enterprises are buying online for 1% or more of total purchases) (EC, 2014; Eurostat, 2015). If it continues at the same pace, not a single EU member will even come close to the third e-commerce target, defined by Digital Agenda for Europe, that 33% of SMEs are buying and selling online for at least 1% of turnover/total purchases, by Surprisingly, the situation in Serbia is much better, as, according to national statistics, 40% of companies are buying online, while 21% of them is receiving orders i.e. is selling via the internet (SORS, 2014). Finally, the comparison of selected scaled key indicators of Information society development for the EU, Slovenia and Serbia is presented in Figure 8 (Eurostat, 2015; SORS, 2015). Figure 8. Comparison of key indicators of development As it may be seen, Slovenia has the values of indicators related to households and individuals lower but close to EU averages, while Serbia is far behind. On the other hand, Serbian indicators related to enterprises are higher that Slovenian s and EU averages, while Slovenian s are close to EU averages.

11 Conclusions The implementation of new technologies, especially ICT, in many segments of our lives is one of the priorities of both, EU and Serbian development strategies. Analysis of the current state of development of the information society in the EU and Serbia, presented in the paper, shows that, by most of the indicators, Slovenia still slightly lags behind EU average, while Serbia is far behind. The only segment where Serbia shows good results, at least according to national survey statistics, is the implementation of ICT in enterprises, where it is even above EU average and the most of European countries. As a part of development strategies, the EU and Serbia set a number of targets to be reached in the following years. As presented in the paper, is seems that the most of the targets are already achieved or they will be achieved on schedule, except targets related to cross-border trade and the implementation of e-commerce in SMEs. In order to foster further development of information society and e-commerce, several measures might be suggested: first, further investments in telecommunication infrastructure, especially ultra-high speed internet access, as a foundation for future development. Next, development and implementation of legal framework, compliant with the EU legislative, which would solve all issues related to e-commerce, especially problems related to cross-border trade and customer protection. Also, very important is permanent education of citizens i.e. improvement of their ITC skills, but also to inform them about all aspects of ICT implementation, including security issues, as the lack of trust was found as one of the most important obstacles to e-business acceptance. Acknowledgement The research presented in this paper was supported by the Ministry of Education, Science and Technological Development of the Republic of Serbia, Grant III-44010, Title: Intelligent Systems for Software Product Development and Business Support based on Models.

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