Electronic Commerce in Serbia

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The Internet backbone in Serbia is Serbian Multiservice InternetNetwork SMINThe past time focus might moderate adoption of new ways of shopping in

    E-Commerce in Serbia:

    Where Roads Cross Electrons Will Flow


    Bob Travica, Ejub Kajan, Borislav Jošanov, Marijana-Vidas Bubanja

    and Emilija Vuksanović

    A version of the article published in

    Journal of Global Information Technology Management, 10(2)


    A qualitative exploration into conditions for diffusing e-commerce in Serbia was conducted by using a multidimensional model. Serbia is a country located at an important geographical location in southeast Europe, which descended on a path of political and economic changes after a decade of stagnation. Our main finding is that the process of diffusing e-commerce in Serbia resembles a car hesitating at a traffic light because all lights are flashing at the same time. Dynamics within the areas of software industry, e-payment/e-banking, and legislation support e-commerce. In contrast, the telecommunications infrastructure and ownership as well as customer beliefs and behaviors halt it. The ambivalent yellow light is triggered by the state of traffic/delivery and education. Research contributions of the study refer to advancing the understanding of trust as a major enabler of e-commerce and to filling the void in the literature on a potentially important country. Practical contributions refer to creating a country profile along with development prospects that can be useful to other developing countries and global e-commerce players.

KEYWORDS: E-commerce, diffusion model, Serbia, developing countries, trust



    This study investigates the conditions for diffusion of e-commerce in Serbia, a developing country in South East Europe (SEE). (See Table 1 and Figure 1). The country is touted as the European crossroads because of important international roads and railways running through it (USAID, 2005). Flows of raw materials from the east and south would naturally cross Serbian territory on their way to the industrialized west and north Europe, and the finished goods would follow in the opposite direction. While having the location of a chain link in Europe, no academic research on e-commerce in Serbia has been published beyond conference papers. In contrast, other SEE countries have been investigated (Papazafeiropoulou, 2004; Pucihar & Podlogar, 2006). The academic goal of our study is to fill this void in the literature by learning about important issues of diffusion of e-commerce in Serbia. Serbia is also interesting because, after a period of stagnation in the 1990s, it became an economy in transition and was pronounced the ―leading reformer in 2005‖ (World Bank, 2005). Thus, by developing the

    country’s profile inclusive of its development prospects we intend to contribute to a learning that concerns other developing countries and players in global e-commerce.

    Table 1. Characteristics of Serbia

    88,361 square kilometers Area

    7.5 million (2002) Population

    Belgrade (the capital, 1.6 million), Novi Sad, Niš,

    Kragujevac, and Subotica (all over 100,000) Larger cities

    $21.7 billion; $2,620 per capita GDP

    56.8% services, 27.6% manufacturing, 15.5% agriculture GDP Composition

    27% (2005) Unemployment Rate

    200,000 with undergraduate and higher education Brain Drain

    2,611,700 (2003) Telephones

    20,000 Web Sites

    800,000 Personal Computers

    20,207 Internet hosts

    1,500,000 (2006) Internet Users

    Note: Data refer to 2004, unless otherwise indicated. Kosovo is not included. Sources: The World Factbook (2005), Statistical Yearbook of Serbia-Montenegro (2004), Internet World Stats (2005), CePIT (2006), and data obtained via email from Statistical Bureau of Serbia


    The study of e-commerce in developing countries has accelerated in recent years (Palvia et al., 2002; Kamel, 2006; Wolcott et al., 2001). A number of topics are


    investigated, including e-commerce strategies, diffusion models, industry analysis, outsourcing, supply chains, electronic marketplaces, organizational designs, business process change, adoption and success factors, digital divide, and security. The theme of trust is frequent and complex in itself, containing cultural and some other aspects (Kamel, 2006; Cronin, 2000). For example, a study of e-commerce in China found that the importance of personal relationships for business, and the dominance of small, local businesses compel the rethinking of the Western model of Web storefront (Efendioglu & Yip, 2005). South Korea and Latin America share the problem of customers’ trust in online merchants (Lee, 1999; Plant, 2000; Travica, 2002). A culture of remote shopping that implies multi-facetted trust of consumers in merchants lacks in China and Latin America (Plant, 2000). In Russia and Ukraine, which boasted the strongest economies in the former Soviet Union, trust is nurtured through personal networking within the business community.




    7 AND 10 Corridor 7 - Danube

    Corridor 10 o Smederevo with Branches -

    S E R B I A Road and Railway




    Figure 1. Serbia and European Corridors

    Interesting details are also that payments are mostly in cash, receipts are usually not issued and accounting practices are limited (Jennex & Amoroso, 2006). Positing that trust


    is crucial for the functioning of e-marketplaces, Humphrey and colleagues (2003) found that e-marketplaces in Bangladesh, Kenya and South Africa did very little to enhance trust building between buyers and sellers. This fact explains a limited use of e-marketplaces in these countries.

    Research on the diffusion of e-commerce in SEE that has a direct relevance for our study is underdeveloped. An early study taking a 1997 snapshot of Bulgaria, Hungary, Romania, and Slovenia, among other European countries in transition, found that commercial Web sites were mostly informational, without the e-payment capability (Travica & Olson, 1998). Papazafeiropoulou (2004) studied conditions for e-commerce diffusion in some SEE countries and found that government intervention was a factor for a successful diffusion. She also found that contra-balancing forces worked in each country. For example, Romania had strong IT and telecommunications industries, contrasted by a low penetration of the telephone network and delays in rural development; and Albania had high Internet growth rates that were countered by very limited access to the Internet.

    Vidas-Bubanja and colleagues (2002) provided a rare study of e-commerce in Serbia. They found that about 2,000 firms used the Web for informational purposes, and noted the government’s efforts in supporting e-commerce, such as establishing strategic

    partnerships with foreign IT vendors. Maruzzelli (2004) investigated IT and Internet-related issues in Serbia in a study motivated by investment prospects. He found that, in 2003, Serbia was in an early phase of Internet adoption, with high growth rates resembling West Europe of the mid-1990s. The infrastructure for distributing Internet access and methods for e-payment were under development. Dialup access was growing fast as a profitable operation of the government-owned ISP, while this type of access was already free in ―various European countries.‖ Maruzzelli noted that the government

    monopoly in telecommunications had an impeding effect.


    Our study intended to answer the research question, what are the conditions for diffusion of e-commerce in Serbia? This question was broken down to more specific ones that were based on a research model depicted in Figure 2. The model approaches e-


    commerce diffusion from a perspective of infrastructural conditions (layers) and their specific dimensions. This model was for the most part defined in Travica’s (2002)

    studyboth in its layers and specific dimensions. The model captures the conditions present in the countries that were early entrants in e-commerce, and it corresponds to the generic trade cycle with activities of product search, negotiations of transaction terms, ordering, payment, delivery, and after-sales activity (Whiteley, 1999). There are several distinguishing characteristics in Travica’s (2002) model: (A) it elaborates on

    technological conditions for completing electronic trading (telecommunications infrastructure and the software industry), (B) it adds the assumption of cumulative economic development (e-commerce emerges when certain infrastructure layers are in place), (C) it elaborates on economic culture (shared beliefs and practices of buying, selling, paying, and dealing with other players, etc.), and (D) it differentiates between delivery and transportation.

    Infrastructural Dimensions


    Customer Remote ordering, payment and customer support. Quality assurance.

    E-Commerce Adoption of email communication. Culture of cashless payment. Trust.


    Education Technical education. Business/management education.

    Legislation Laws regulating e-commerce, including conditions specified in the up- and

    downstream layers.

    E-Payment/ Capabilities for and adoption of non- cash payment.


    Software Support to diverse foreign and own software products for e-commerce (e-

    Industry payment/banking, Web development, security, database systems, etc.).

    Tele- Broad availability of telephone and Internet access. Faster and secure

    communications Internet lines. Higher, spread Internet access. Deregulation and privatization.

    Delivery Dependable post service. Alternative delivery services. Broader reach,

    Services increased volumes, and irregular patterns.

    Traffic Infrastructure Diverse and safe traffic routes. Functionality catering to delivery needs.

    Figure 2. Research Model of E-commerce Diffusion

    In order to respond to new developments, we added two more layers to the original model. The new legislation layer corresponds to the fact that the European e-commerce context is increasingly regulated. The education layer accounts for the growing importance of education for e-commerce and management. Also, we broadened


    the original e-payment layer to include e-banking. Finally, the original transportation layer is renamed into ―traffic infrastructure‖ in order to pinpoint the physical

    infrastructure it refers to. It should be noted that this expanded model has similarities with some other models for investigating e-commerce in developing countries. For example, Sridhar and Sridhar (2006) proposed a model that included telecommunications aspects (the Internet penetration, governemnt deregulation, competition in service provisioning), legal framework, road conditions, payment methods, and cultural orientations. In addition, the issues captured in our model have been identified as relevant in the literature on e-commerce in developing countries (Kamel, 2006; Palvia et al., 2002a).

    Our investigation was designed as an interpretivist case study (Baskerville & Myers, 2004; Klein & Myers, 1999). We used Web site surveying, a survey of software firms, observation, and various publications for collecting data. In our survey of Web sites, we included the flagship sites representing different business models (e.g., B2C portal, content provider, B2B vertical portal, and Web storefront). Therefore, the sample was intended. A survey of randomly sampled software firms was just partially successful, as many companies declined participation. A lack of tradition of surveying in Serbia was responsible for this outcome. Participant observation yielded the data on cultural aspects and in part on the education and software industry (four of the authors live in the country of study and are professionally engaged in respective areas the diffusion model addresses). Lastly, we used extensively various publications for studying all the layers in our model. We divided responsibilities for particular layers in the research model according to professional interests. This division reflected on data analysis that relied on the single coder method.


    Our survey of Web sites unveiled a variety of business models in both the B2C and B2B domains of e-commerce. Table 2 displays several B2C examples that can be considered leaders in their industries. Web portals are among the oldest and most popular types of sites. Interestingly, business action outside of Serbian territory initiated some key portals. An example is that has operated from the United States, evolving


    though different business models (content provider, air tickets reseller, etc.). The prominent Serbia-based popular portal is (the cruiser, in English) that receives almost 18,000,000 visits monthly (Cruiser, 2006). Indeed, this is a hybrid business model since it provides other commercial services as well (e.g., selling merchandise and ISP services). Established by a group of students of electrical engineering in the late 1990s, symbolizes the beginning of a new era whose staples are private initiative and e-commerce.

    The content provider is also a popular model. Table 2 features B92, a very popular news medium whose Web site has 80,000 visitors a day (, 2005). This organization also owns a TV and a radio station, and has added a Web storefront to its business (books, music CDs, computers, and digital accessories). B92 is a survivor from the chaotic 1990s during which it played an important role in fighting the oppressive government of the time. Moreover, there are numerous Web Storefronts. These have no full transactional capability that would include e-payment and typically present data on products and services. An example is, the online bookstore emulating According to a statement of the company’s representatives, about 2000

    visitors daily can browse a catalog featuring offerings of 800 publishers. Web storefronts can take orders on their Web sites, but they still do not support e-payment. So, the customer can only pay by cash-on-delivery or some classical method of pre-payment. Storefronts outside of Serbia somewhat compensate for the gap. For example, Balkanmedia, a Web-based music store, features the shopping cart capability along with credit card payment. The company has operated out of Germany since 1995. Another example of the impact from abroad is Serbian Café that has operated out of Canada since 1995.

    The B2B e-commerce is carried by a limited number of electronic marketplaces and vertical portals. The wholesaler IDEA launched a private electronic marketplace to support its sales operations. Pre-authorized partners amount to 2,500 retailers that can place electronic orders with IDEA. IDEA’s site is accessible through the Internet, and it processes more than 3,000,000 transactions per year. Vertical portals serve particular industries and their revenue accrues from various sources. Some portals provide free information and rely on advertising money. An example is the portal called 24x7 that


    serves the financial industry. Others sell industry-related information. An example is the Key-to-Steel portal serving the steel industry (Pocajt, 2005). This portal is also interesting as a case of both success and the challenges of e-branding of Serbian businesses. Founded in Serbia, the firm was unable to attract customers until it moved to Switzerland. Then, business mushroomed measured by tens of thousands of subscribers in 140 countries, including GE, Ford, Hyundai, Honda, Black & Decker, Thyssen-Krupp, Siemens, and Chevron.

    Table 2. Business Models in B2C E-commerce in Serbia

    B2C Business Models Example Note / URL

    Portal Serbian Café; Both based in Canada, operating since mid-1990s.

    Content Provider B92 Web storefront addition.

    Web Storefront Based in Germany.

    Web Storefront/


    Jobs Agency

    Classified Ads Net oglasi

    Directory Service YuLinks

    Real Estate Berza nekretnina

    Bank Nacionalna


    Hybrid Portal, Web storefront, ISP, content provider, chat.


    The bottom layer in our pyramidal model of e-commerce (Figure 2) refers to traffic infrastructureroads, air traffic facilities, railroads, and waterways. These provide support for delivery services required both in B2C and B2B e-commerce. The land traffic

    infrastructure in Serbia rests on a well-developed intercity road network. The Morava river valley has always played the central role in making Serbia the crossroads between the North and South, and East and West. It houses the major road in the countrythe

    cross-Europe highway E-75 that starts in Norway and ends in Greece (known as Corridor 10; see Figure 1). Another important road is the international highway E-70 that starts in Spain and ends in Turkey. These facts make Serbia a natural transportation hub.


    Serbian railroads are 40% included in Corridor 10 and they connect Serbia with the neighbors and with three seas. A 500 kilometer-long segment of a high-speed railway is underway and it should be completed by 2010. Serbia’s waterways also have an

    international character—four of its five longest rivers flow over the country’s borders. The Danube River presents a significant economic potential (World Bank, 2005). It runs through 10 European countries, making a transportation corridor in itself. This Corridor 7 connects west and east Europe, and the North Sea with the Black Sea.

    A realization of a traffic hub scenario, however, is challenged by a poorer condition of the road network and losses in the road and railroad traffic due to mismanagement and destruction in the 1990s. Another challenge refers to the state of the

    air traffic infrastructure. For example, the Belgrade Airport lost its international

    prominence it enjoyed before the 1990s, and the ensuing drop in income downgraded the maintenance and asset renewal capabilities of this and other airports. It is clear that the entire traffic infrastructure necessitates capital investments that can come mainly from international lenders.

    Delivery refers to moving the goods from the seller to the buyer, which includes the services of transportation, warehousing, freight forwarding, logistics (planning the shipment routes and timing, shipment tracking), and other steps in the order fulfillment process. Delivery draws on the traffic infrastructure for physical movement of the goods as well as on telecommunications for order placing and shipment management. In Serbia, the main provider of land delivery services is Serbian Post. This is a government-owned

    monopoly with major stakes in a number of subsidiary companies, covering landline and mobile telephony, banking, and Internet services. Serbian Post provides door-to-door delivery of semi-finished goods between manufacturers and from manufactures to retailers, warehousing, handling of returned shipments, and international delivery in cooperation with German DHL. The national railroad company plays part in cargo delivery that is at a modest level. Our observations suggest that Serbian Post managed to maintain a quality service even during the chaotic 1990s when other institutions were failing. It should be noted that other players in the delivery industry have more limited capabilities. For example, some wholesalers and retailers offer transportation and


    warehousing services, and smaller private firms and independent truckers offer transportation. FedEx and UPS are present, expanding the global delivery offerings.

    Delivery via waterways has a potential that has only recently begun to materialize. For example, the Danube port Smederevo is handling the traffic needed for a gigantic complex of metallurgy factories recently acquired by US Steel. Steel products are shipped down the Danube to Black Sea ports in Romania and Bulgaria. However, the international traffic via the Danube was halted in Novi Sad from 1999-2005 because funds were lacking to replace a makeshift construction that substituted for a bridge destroyed in NATO’s air strikes in 1999. The calamities of the 1990s have had a prolonged effect on the delivery industry. Serbia is behind the neighboring countries in terms of the number of trucks, and nearly 40% of these vehicles have recently been unable to meet the technical standards of European Union (USAID, 2005).

    Even more affected is airborne delivery. Cargo transport is handled by the state-

    run carrier Aviogenex that owns a handful of planes. The national airline Jat Airways

    the successor of once powerful JAT (Yugoslav Air Transport)struggles with an aging

    fleet and an outdated strategy focused on passengers service. The need for asset renewal is coupled with urgency of transforming social and business institutions (e.g., privatization and participation in international alliances).


    Since 1996, the number of Internet hosts in Serbia multiplied 25 times. Although this figure appears impressive, today the number of Internet users is 1.5 million (CePIT, 2006), which is just 20% of the population. This penetration rate is significantly smaller than in Slovenia (54%) and Croatia (45%). In the distribution of penetration rates in all SEE countries, Serbia is placed fourth from bottom up (ibid.).

    The Internet backbone in Serbia is Serbian Multiservice Internet Network (SMIN). It is owned by Telecom Serbia, the telephone business of Serbian Post. Primarily intended for Internet services, SMIN is also used for the transfer of voice and data as well as for building Virtual Private Networks (VPNs). SMIN has four Points of Presence (Belgrade, Novi Sad, Niš, and Kragujevac), which are mutually connected by 155 Mbps

    lines. Two 155 Mbps lines connect SMIN to the global Internet. The basic Internet


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