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OFFSHORE E-COMMERCE FACILITIES

 


INTRODUCTION
An offshore e-commerce or e-business application can only succeed if it operates in an effective and well-organised environment. This section analyses the key elements of offshore infrastructure, both IT and otherwise, giving practical information on the services that are needed, and advice on how to choose providers.

While some types of support have to be provided locally, there is often a choice as to whether a particular aspect of support is sourced in the chosen offshore jurisdiction, or whether it is provided from a more sophisticated onshore environment. The section of the site called E-commerce Jurisdictions deals with the level of facilities available in particular jurisdictions, and with the process of choosing one jurisdiction above others.

Some characteristics are shared by all offshore e-commerce operations, but others are specific to a particular application. This section deals with the tools, solutions and facilities needed by many or most offshore e-commerce operations; in Offshore E-commerce Applications you will find descriptions of particular applications, and any specialised systems they need.

In considering software or systems tools, it is important to be aware of the need to integrate new e-commerce operations with existing systems. Current software development is normally based on open standards, especially where the Internet is concerned. So-called 'legacy' systems, which are proprietary more often than not, can be incorporated into e-commerce systems, but it is an issue to be addressed when planning new software acquisition. If you are bold, it may be an idea to replace the old proprietary system altogether.

The tools described are sometimes available only from resellers, who may have rebranded them; or they may be available from both originators and resellers. Better support may be forthcoming from one or the other type of supplier, depending on circumstances.

 

ISP & HOSTING SERVICES
If your company is thinking of offshore e-commerce then it is highly likely that your internet site and/or payment processing will be hosted in an IOFC (International Offshore Financial Centre). By and large, the most developed hosting facilities in offshore jurisdictions are offered by the incumbent telecommunications supplier(s). Often this is still a monopoly (Cable and Wireless in many Caribbean jurisdictions) although there are competing suppliers in some cases. With competition absent or limited, telecoms costs can be high.

Internet service provision is not usually subject to monopoly restrictions, and in many jurisdictions a number of small, local ISPs have sprung up. They can provide usually only limited (or expensive) international connectivity, because they are dependent on the local telecoms operator for long-distance connections.

Choice of ISP or host is evidently a vitally important part of setting up offshore, since the ISP will be the sole link between your company and your clients. A number of important points need to be checked:

Good connectivity – this means that the ISP or host should have stable connections with a telecoms provider, using high quality equipment with spare bandwidth available. Ideally, back-up connections via a secondary telecom provider offer the best guarantee of 100% availability for your site. As noted above, this will be unachievable where there is a monopoly telecommunications provider.

Secure facilities –- your business data will be stored at some stage on equipment at an ISP's facilities; if you are using co-location with a hosting service your own equipment, whether real or virtual, will be vulnerable along with the data itself. The host or ISP's premises, equipment and systems must therefore be secure.

Qualified personnel –- the equipment and systems needed to provide ISP and hosting services are complex and require maintenance, not to mention ongoing development to stay abreast of Internet techniques; the ISP's staff must have the necessary skills, which may be in short supply in an IOFC.

Scalability –- the expanding nature of e-commerce means that your site will probably grow; at least, you hope so. Your ISP or hosting partner should have room for growth in terms of physical space, equipment capacity and funding.

Jurisdictions vary in their suitability as locations for e-commerce operations; for further assistance with choosing a suitable jurisdiction please contact us.

CUSTOMER/PARTNER COMMUNICATION AND MANAGEMENT SYSTEMS
Offshore e-commerce and e-business inevitably imply transactions with other parties, whether these be customers, clients, partners, suppliers, employees or prospects. There is nothing about an offshore location as such which makes for differences in the array of systems and software tools needed to communicate with them, other than the fact that an offshore operation is obviously in a different place; but if the functions involved in communicating are going to be performed offshore, then questions of capacity, security, maintenance and management arise (see last item).

The systems elements needed may include:

· Customisable front-end 'offer' pages
· On-line catalogues
· Sales process components including shopping basket, order form,
registration form, multi-currency converter, tax calculator
· 'Exchange' or 'auction' management software
· Links to remote payment processing facilities
· Communication with a customer or contact database
· Reporting of customer behaviour
· Links to accounting and credit management systems

In most jurisdictions, offshore e-commerce is not yet established on a substantial scale, and it will not be possible to source such system components locally. In some of the leading jurisdictions there are firms, or combinations of firms, offering off-the-shelf turnkey solutions for some of the more basic commercial activities, but these are likely to be re-branded solutions bought in from major systems suppliers.

PAYMENT PROCESSING SERVICES
With an offshore location, the actual sale should itself take place on the local server to avoid any possibility that the transaction could occur in the buyer's tax jurisdiction. The predominant payment method will be credit/debit cards, whether plastic or virtual (electronic wallets, cybercash). The software should:

· Establish contract terms and make a contract
· Perform the transaction in a secure environment such as SSL or SET
· Handle the credit card payment transaction including authorisation
procedures
· Integrate the sales/payment process into order management
· Communicate with a customer database

In order to avoid the need to run complex payment processing systems on its own web-site, a company normally outsources this function to a third party organisation, of which there are a number. The customer is transferred to the third party processor at the moment when sensitive details need to be entered (credit card numbers; other personal data). Offshore vendors should be aware that there could be tax risks in allowing payment to take place in a 'third party' jurisdiction, or possibly in an unknown jurisdiction. Perhaps partly for this reason, payment processing is one of the activities which offshore jurisdictions have begun to offer directly to users, and a number of the leading jurisdictions have one or more such suppliers. Sometimes (Bermuda, for example) these are banks or joint-ventures including banks; in other cases multi-disciplinary consortia offer packages of e-commerce services including payment-processing systems, which are themselves sourced externally (there are several examples of this on the Isle of Man).


CERTIFICATION AND SECURITY SERVICES
Security remains an important issue for any company intending to conduct e-commerce or e-business over the Internet. Fraud is rife, and while encryption offers a reasonable degree of protection against the theft of credit card details or sensitive data, it does not offer much protection against criminal counter-parties, eg people pretending to be someone they aren't or people offering worthless stock (pump and dump schemes).

For this reason, the Internet is seeing rapid growth in 'certification' schemes, whereby the parties to transactions, or the components of transactions, are 'certified' by a third-party authority or service to be what they say they are. Evidently, certification of identity travels hand-in-hand with certification of value or creditworthiness, and with the insurance of transactions, and has close links to the payments process itself. In almost all cases, e-signature legislation requires certification of signatures as a safeguard, and usually provides a framework within which certification authorities can work.

Offshore e-commerce and e-business are at least as vulnerable to fraud as their onshore equivalents, perhaps more so if there are more locations are involved in the commercial process. Encryption is built in to payment-processing services, which may be enough for a straightforward offshore retail distribution operation, but for anything more complex (eg a procurement network) it will probably be necessary to source certification procedures independently.

There is no especial offshore dimension to certification as an activity; offshore jurisdictions with established certification services include Bermuda, Cayman, the Isle of Man and Hong Kong.

 

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