UK firms are well positioned to capitalise on global e-commerce

A recent government report shows that take-up of e-commerce around the globe is thriving, which is good news for UK firms looking...

A recent government report shows that take-up of e-commerce around the globe is thriving, which is good news for UK firms looking abroad for expansion and development opportunities. Daniel Thomas reports

The UK is already the second-best place in the world to do e-commerce, according to recent, government-commissioned research, but the growth in Internet use across the developing world could represent a further opportunity for UK firms.

The good news for businesses aiming to expand their online operations is that e-commerce is thriving around the globe, according to the annual United Nations E-commerce and Development Report, which was published last week.

The number of Web users is expected to reach 655 million worldwide by the end of the year, the report said. Internet use is soaring in developing countries, accounting for almost one third of new users in 2001.

But it warned that, as long as the business-to-business (B2B) end of the market does not take off, e-commerce volumes in developing countries will remain negligible.

"The route to a prosperous B2B sector - and its attendant benefits for the economy at large - lies in companies in developing countries joining regional and global supply chains," the report said. "Prospects for that happening are good, especially given that the rapid growth in both e-commerce and Internet use are expected to continue."

The report looks at infrastructure and logistics issues as well as connectivity levels and could provide UK firms with a useful snapshot of which regions are best-placed to make the most of online investment.

E-commerce is spreading most quickly among developing countries in Asia and the Pacific, pointing the way for other areas to follow, the report said. "It leads the deployment of crucial broadband technologies, and its governments play a key role in attracting investment in the sector and supplying a skilled, educated workforce to meet the growing needs for outsourcing by foreign companies.

"Its enterprises are also more integrated into intra-regional and global trade flows than those of other developing regions," it added.

The latest figures suggest that Asia and the Pacific now accounts for 46% of digital subscriber lines (high speed Internet connections) worldwide with the addition of 50 million new Internet users each year. "Given the sheer demographic weight of the region, the potential for further growth is clear," the report said.

However, it warned, the transformation of this potential into an actual e-commerce market may not happen at the same pace. Firms considering whether make online investments in Asia and the Pacific need to bear in mind the infrastructure issues.

"Logistical difficulties such as insufficient transport networks represent a serious hurdle to B2B development, as they make it difficult for companies to realise the potential gains of increased efficiency in their supply chains," the report said.

Latin America is also making progress, according to the report, although activity is highly concentrated in Argentina, Brazil, Chile and Mexico.

About 50%-70% of Latin American businesses in the "formal" sector have access to the Internet and B2B is expected to continue its rapid expansion, primarily because of the large volume of intra-industry trade in the region.

Certain sectors are leading the way in the region. "Large transactional corporations, especially in the automotive sector, play a key role in both B2B and B2C [business-to-consumer] e-commerce," it said. "Online car sales are the largest e-retail item in Latin America, and online banking is also increasingly popular among businesses and consumers."

Africa is lagging behind the other regions, but Internet connectivity is slowly improving across the continent. "Local Internet connection is now available in all African capitals, and legal monopolies in Internet service provision have almost disappeared, resulting in a 30% rise in data traffic from the continent last year," the report said. "But the e-commerce infrastructure gap between developed and developing countries is largest in Africa, where only one in 118 people use the Internet."

The most advanced e-commerce markets - North America and western Europe - seem to have been little affected by the prevailing poor economic conditions. "The share of online transactions in total B2B sales is growing quickly on both sides of the Atlantic," the report said.

"It is estimated that in the next two to four years it will approach 20%, representing a massive shift of business operations towards the online environment."

In Europe the arrival of the euro has probably encouraged more intra-European commerce, although, the report said in some sectors the market remains fragmented because of cultural and linguistic barriers and differing consumer preferences.

Meanwhile, the large gap between European and North American B2B purchasing should fall by 30% by 2006, the report estimated, as European firms are spending more of their IT budgets on e-business software than their counterparts across the Atlantic.

Two main trends in the IT industry are helping the development of e-commerce in developing countries. Open source software, such as the Linux operating system, is an "ideal match" for developing countries' hardware requirements, such as ordinary, low-cost PCs, the report said. In addition e-commerce development is boosted by the customisation of software products and Web sites for local and regional markets.

The e-commerce market has been focused on the US and Europe, and, to a lesser extent, Asia and the Pacific, but the beauty of the Internet is that it knows no boundaries. UK firms would do well to keep abreast of e-commerce in developing countries in their search for competitive advantage.

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