1

Electronic commerce Business Impacts Project (EBIP)

Chennai, 12 November 2002Graham Vickery & Vladimir López-Bassols

OECD/STI, Information Economy Unit

2

Overview

Part I: Introduction/ Background, Methodology

Part II: Cross-country study: background and some results

Conclusions

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Introduction

Improve understanding of impacts of electronic commerce on business.

Previous case study information anecdotal, fragmented, not comparable across sectors or countries.

EBIP used common methodology for firm-level case studies to improve cross-country and cross-sector comparability.

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Approach

Broad definition of electronic commerce: electronic electronic transactions over computer-mediated networkstransactions over computer-mediated networks.

E-commerce not defined exclusively in terms of the Internet, but this is key technology in evolution of e-commerce.

Assess migration from legacy e-commerce systems such as Electronic Data Interchange (EDI) to Internet-based systems.

Map business functions to innovations

5

Market systems

Val

ue C

hain

Marketplace

Marketplace

Industry

Consumer

Industry

Use value

Exchange value

Use value

Exchange value

6

Business functions

Transactions widely defined:– Transaction preparation (advertising,

catalogues and stock lists, information services, negotiation)

– Transaction completion (ordering, billing and payment, finance, delivery)

– Transaction support (information capture, information management, market analysis, market development)

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Framework

Transaction Preparation•Advertising•Catalogues and Stock Lists•Information Services•Negotiation

Production Support•Information Capture•Information Management•Market Analysis•Market Development

Transaction Completion•Ordering•Billing and payment•Finance•Delivery

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Innovations Electronic commerce / Internet strategies are

innovations in how transactions are organised:– Product innovation (diversification, differentiation,

customisation, product / service bundling)– Process innovation (design integration, logistics,

production, administration / production co-ordination)

– Relational and organisational innovation (geographical expansion, market segmentation, establishing trust, increasing loyalty).

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Method: mapping business processes to innovations

Market Development - 3 main categories of innovations– Product Innovation

• e.g. diversification, product-service bundling, differentiation

– Process Innovation • e.g. internal co-ordination, external co-ordination, value

chain integration

– Relational Innovation • e.g. expansion, segmentation, trust & loyalty

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Analytical grid (“footprints”)

Transaction

Preparation

Transaction

Completion

Production

Support

C1 C2 C3 C4 C5 C6 C7 C8 C9

E1

E2

Process

Innovation

E3

E4

E5

Product

Innovation

E6

Relational

Innovation

E9

E7

E8

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Documentation

Methodology (conceptual framework) Study Plan (for sector reports):

– Value-chain mapping– Field research

• sample selection• background firm information• interviews

– Analysis– Data reporting sheets

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Value-chain mapping: an example (tourism in CAN)

RETAIL TRAVEL INDUSTRY

CONSUMER(Order/purchase/delivery airline or air charter ticket)

CRS/GDS (Reservations/Ticketing Provider)Hard Copy and Electronic Ticketing

ASP (Travel Accounting andData Processing Systems)

Bank Settlement Plan(Clearing House for ticketing transactions of

participating IATA Carriers)AIR CARRIERS

Domestic and International(Participating IATA Carriers)

NON/SCHEDULED AIRCARRIERS

WHOLESALE TRAVEL INDUSTRY

Call-inTravelOffice(Agent)

Walk-inTravelOffice(Agent)

VirtualTravelOffice(No Agent)

NewDomesticCompetitors

Consolidators(Agent/Online)

TourOperatorsAir Charters(Agent/Online)

$$ $$ $$ $$ $$ $$ $$

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Value-chains and sampling

Chose sector Select product or product

group Identify and select proactive

firms– most significant– structuring effect

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Cross-country study: background

Case studies, systematic and standardised Partnership between OECD, TNO (NLD), IPTS (EC) Studies started in late 2000, interviews/analysis

during 2001 Database: 217 firms, 30 sector reports covering 14

sectors in 11 countries Workshops: Seville (June 2001), Rome (October

2001) Synthesis Report

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Firm sample

Size: 60% large (250+), 40% small 14 sectors: 2/3 of firms in intangibles, 1/3 tangibles

– Intangibles: travel and tourism, transport and logistics, banking and financial services, business services, and music

– Tangibles: textiles and garments, book-selling, chemicals and plastics, glass, steel, non-ferrous metals, ICT-goods, automobiles, and construction

11 countries: Canada, France, Italy, Korea, Mexico, Netherlands, Norway, Portugal, Spain, Sweden, United Kingdom

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What is more important the ‘commerce’ factor or the ‘e’ factor?

Successful e-commerce strategies led by commercial commercial considerationsconsiderations.

E-commerce part of larger business and economic transformations. Successful application and use are embeddedembedded in broader business strategies with major emphasis on both e-commerce and ICT skills.

But e-commerce a major business innovationmajor business innovation that most firms will have to adopt.

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Why adopt?

Motivations high where ICT investment is already large and risk low. Most firms want to: Reduce costs Increase transaction speed and reliability Improve management capabilities Develop and/or improve collaboration capabilities Create interdependencies Better management of customer relations Create more added value

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E-commerce technologies: WWW with customers, EDI with suppliers

0%

5%

10%

15%

20%

25%

30%

35%

40%

WWW E-mail EDI Extranets Internet EDI

with customers with suppliers

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Transaction preparation on-line,completion slower to go on-line

0%2%

4%6%

8%10%12%

14%16%

18%20%

Infor

mation

servi

ces

Orderin

g

Advertis

ing

Catalogu

es

Negoti

ation

Delive

ry

Billing &

paym

ent

Finan

ce

with customers with suppliers

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Transaction preparation over Internet,completion over EDI, Internet EDI, extranets

0 50 100 150 200 250

Advertising

Catalogues

Information services

Negotiation

Ordering

Billing & payment

Finance

Delivery

WWW E-mail

Extranet Internet EDI

EDI

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What are the impacts on firms? E-commerce facilitates business relationship

management and tools lower costs to reach new customers and suppliers

Differences by sector

Product innovations more common for firms with intangible/services products

Market expansion and segmentation more common for firms with intangible/services products

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What are the impacts on firms?

Differences by firm size:

Process innovations more frequent for large firms

Small firms use Internet-based expansion strategies to make themselves known and explore new markets

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Overall the Internet is having large impacts on how firms conduct business ..

Expected/actual e-commerce impacts by business function

0%10%20%30%40%50%60%70%

Expected Effects Actual Impacts

TRANSACTIONPREPARATION

TRANSACTIONCOMPLETION

PRODUCTIONSUPPORT

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.. reshaping many business processes ..Expected/actual e-com process impacts by business process

0%

5%

10%

15%

20%

25%

30%

35%

40%

45%

50%

Divers

ificati

on

Differe

ntiati

on

Custom

isatio

n

Bundli

ng

Design

Logis

tics

Produ

ction

Co-or

dinati

on

Expan

sion

Segmen

tation

Trus

t

Loya

lty

Expected Effects Actual Impacts

PRODUCTINNOVATION

PROCESSINNOVATION

RELATIONALINNOVATION

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.. with generally positive benefits one-third of firms had positive impacts on

turnover or profitability

0% 20% 40% 60% 80% 100%

Employment

Turnover

Profitability

Increase

Decrease

No Change

NA

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Measuring impacts is not easy

Impacts of e-commerce hard to quantify

Over one-half of pro-active firms not able to report measurable impacts

Too soon or firms not able to separately identify effects solely from e-commerce

Although employment impacts difficult to measure, many firms reported up-skilling and changes in the composition of the workforce.

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Markets

Greater mix of direct and intermediated sales: bypassing traditional intermediaries, facilitating new intermediaries.

Incumbent firms and established business models benefiting, e-commerce not significantly altering established market power. Small firms may not be advantaged.

Very few firms saw e-commerce destabilising existing commercial relations.

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What policy issues are important?

Competence factors: general education, specific IT/e-business skills are crucial to involvement in e-commerce activities

Other factors:

– Costs (including technology costs)

– Confidence and trust, e.g. clarification, enforcement and cross-border inter-operability of existing legal frameworks.

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What policy issues have priority?

Greatest scope for policy action:

Skills and competences

Infrastructure (pricing, broadband)

Market structure/competition areas

Continuing small firm issues.