The COVID-19 pandemic has completely obliterated any apprehension that consumers may have towards e-commerce. Before the phenomenon, the anxiety brought on by online shopping then was primarily attributable to a fear of online payment failure or security issue and their inability to gauge the actual product quality or specification.

However, e-commerce has taken a quantum leap over the past few months; its rising momentum is thus reflected in the way the national economy is restoring the market mechanism severely distorted prior to the virus spread.

Market mechanism suggests that in the free-market mantra, the interaction between consumers and suppliers will eventually balance the number of goods and services offered, thus positioning a single price otherwise called the equilibrium price.

Increased communication

With e-commerce’s capacity for providing access to a wider spectrum of goods and services, both buyers and sellers will have an almost perfect knowledge of the market. Furthermore, the increased communication occurring between the two parties during pre- and post-purchase phases facilitated by e-commerce has led to a narrowed buyer-seller gap while promoting healthy competition among the sellers.

Such seemingly new dynamic interaction perceived between the buyers and sellers leads to the equilibrium price, wherein the quantity sold by sellers in the market matches the quantity purchased by buyers exactly. Moreover, this market-clearing price further results in economic efficiency as there is no excess supply or shortage of product in the market.

With e-commerce, such surpluses and shortages can be observed with a high degree of precision, allowing suppliers to know exactly when stock replenishment is required and thus yielding a reduction in logistics and storage costs. Hence, this is arguably the main reason behind cheaper prices and frequent discounts offered by online shopping platforms, whereby the market clears efficiently regardless of these perks.

Profound effect on supply chain

Accordingly, future restoration of the market mechanism will translate into a profound effect on the entire supply chain. Following the wider and easier access to purchase and sales data and coupled with advanced data analytics, the market will quickly adjust and restore the market equilibrium, contributing towards resource allocation efficiency and effective cost control. Conceptually, this are the core properties of the price mechanism advocated by the founding father of Capitalism, Adam Smith, in his book entitled ‘Wealth of Nations’ first published in 1776.

Despite COVID-19 having amplified the appeal and accelerated the value proposition of e-commerce, some prerequisites must be fulfilled regardless. In particular, data traffic congestion is a big no-no if e-commerce is to be the next big thing. Therefore, investment in the telecommunication infrastructure is a must-have ingredient, among others.

In this regard, the National Fiberisation and Connectivity Plan (NFCP) launched on Sept 19, 2019, has been perceived as a step in the right direction in order to facilitate digital connectivity. Through NFCP, the broadband coverage is expected to be robust, pervasive, high-quality, and affordable to all. For instance, the NFCP 1 project has resulted in the identification of 152 sites in total encompassing eight states, namely Johor, Kedah, Kelantan, Negeri Sembilan, Pahang, Perak, Terengganu, and Sabah. Upon the project completion, the broadband quality will be enhanced and offers an average speed of 30 Mbps.

Wiping out hoarding, price manipulation

Moreover, ensuring the presence of fairness in market practices is yet another crucial component in restoring market economics. To this end, the proliferation of unhealthy business practices such as hoarding, the existence of the cartel, and price manipulation will need to be entirely wiped out.

More importantly, the consumers must be sufficiently empowered, which may be attainable with the initial step of conducting awareness campaigns by relevant authorities. An example of such bodies is the Tribunal for Consumer Claims, which is an independent entity established under the Consumer Protection Act 1999. This step will benefit e-commerce businesses that may not want to create friction with their customers since this can potentially cause them to be punished and worst, put out of business.

In essence, the spread of COVID-19 has spurred businesses and consumers alike to reassess the manner in which things should be done. Status quo is never an option as these businesses may risk themselves to be rendered obsolete and priced out along the way. Therefore, the authorities will need to facilitate the transition to the new normal seamlessly, such as by minimising the communication gap and providing the right infrastructure to the community at large.

-- BERNAMA

Dr JS Keshminder is a Senior Lecturer in the Department of Economics & Financial Studies, Faculty of Business & Management, Universiti Teknologi MARA Malaysia.

Dr Mohd Afzanizam Abdul Rashid is the Chief Economist at Bank Islam Malaysia Berhad.