Electronic commerce Business Impacts Project (EBIP)

Chennai, 12 November 2002 Graham Vickery & Vladimir Lpez-Bassols OECD/STI, Information Economy Unit

Overview

Part I: Introduction/ Background, Methodology Part II: Cross-country study: background and some results Conclusions

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.

Approach

Broad definition of electronic commerce: electronic transactions over computer-mediated networks. E-commerce not defined exclusively in terms of the Internet, but this is key technology in evolution of ecommerce. Assess migration from legacy e-commerce systems such as Electronic Data Interchange (EDI) to Internet-based systems. Map business functions to innovations

Market systems
Industry

Use value

Value Chain

Marketplace

Exchange value

Industry

Use value

Marketplace

Exchange value

Consumer
5

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)
6

Framework
Transaction Preparation Advertising Catalogues and Stock Lists Information Services Negotiation Transaction Completion Ordering Billing and payment Finance Delivery

Production Support Information Capture Information Management Market Analysis Market Development
7

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 coordination) Relational and organisational innovation (geographical expansion, market segmentation, establishing trust, increasing loyalty).
8

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
9

Analytical grid (footprints)

Transaction Preparation C1 Process Innovation E1 E2 E3 Product Innovation E4 E5 E6 Relational Innovation E7 E8 E9 C2 C3 C4 Transaction Completion C5 C6 C7 Production Support C8 C9

10

Documentation

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

Value-chain mapping Field research
sample selection background firm information interviews

Analysis Data reporting sheets

11

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

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

Walk-in Travel Office (Agent)

Call-in Travel Office (Agent)

Virtual Travel Office (No Agent)

New Domestic Competitors

RETAIL TRAVEL INDUSTRY

NON/SCHEDULED AIR CARRIERS

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

Consolidators (Agent /Online)

Tour Operators Air Charters (Agent/Online)

ASP (Travel Accounting and Data Processing Systems)

WHOLESALE TRAVEL INDUSTRY

Bank Settlement Plan

(Clearing House for ticketing transactions of participating IATA Carriers) AIR CARRIERS Domestic and International (Participating IATA Carriers)

12

Value-chains and sampling

Chose sector Select product or product group Identify and select proactive firms
most significant structuring effect

13

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
14

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
15

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

Successful e-commerce strategies led by commercial considerations.

E-commerce part of larger business and economic transformations. Successful application and use are embedded in broader business strategies with major emphasis on both e-commerce and ICT skills. But e-commerce a major business innovation that most firms will have to adopt.

16

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
17

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

40% 35% 30% 25% 20% 15% 10% 5% 0% WWW E-mail EDI Extranets Internet EDI
18
with customers with suppliers

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

20% 18% 16% 14% 12% 10% 8% 6% 4% 2% 0% with customers with suppliers

er y

ng

in g

m en t

ice s

gu es

ve rt i si

tia t io

rv

el iv

er

O rd

at al o

eg o

at io n

Ad

In fo r

Bi

llin g

&

pa y

se

Fi n

an c

19

Transaction preparation over Internet, completion over EDI, Internet EDI, extranets
0 Advertising Catalogues Information services Negotiation Ordering Billing & payment Finance Delivery
WWW Extranet EDI E-mail Internet EDI

50

100

150

200

250

20

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

21

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

22

Overall the Internet is having large impacts on how firms conduct business ..
Expected/actual e-commerce impacts by business function
Expected Effects 70% 60% 50% 40% 30% 20% 10% 0% Actual Impacts

Ca ta lo gu es

TRANSACTION PREPARATION

O rd er & Pa ing ym en t Fi na nc De e liv In er fo In y rm fo rm at io at n io Ca n M an p tu M ag re a em r M ar ket ke A en t D na t ev lys is el op m en t llin g

TRANSACTION COMPLETION PRODUCTION SUPPORT

Ad ve a rti In nd fo st sing o rm at ck l io ist n se s r Ne vic go es t ia tio n

Bi

23

.. reshaping many business processes ..

Expected/actual e-com process impacts by business process

Expected Effects
50% 45% 40% 35% 30% 25% 20% 15% 10% 5% 0%

Actual Impacts

D iv er si fic D a iff e r tion en C us tiat io to n m is at i Bu o n nd li n g

PRODUCT INNOVATION

PROCESS INNOVATION

Ex p Se an g m s io en n ta ti o n Tr us Lo t ya lty
RELATIONAL INNOVATION

es Lo ign gi s Pr ti cs od uc C ot or io n di na tio n

24

.. with generally positive benefits one-third of firms had positive impacts on turnover or profitability
Profitability
Increase Decrease

Turnover
No Change NA

Employment

0%

20%

40%

60%

80%

100%

25

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.
26

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.

27

What policy issues are important?

Competence factors: general education, specific IT/ebusiness skills are crucial to involvement in ecommerce activities
Other factors:
Costs (including technology costs) Confidence and trust, e.g. clarification, enforcement and cross-border inter-operability of existing legal frameworks.

28

What policy issues have priority?

Greatest scope for policy action:

Skills and competences Infrastructure (pricing, broadband) Market structure/competition areas Continuing small firm issues.

29