1 Europe and the challenge of electronic commerce Barcelona 2 December 2002 Reinhard Büscher European Commission

2 Agenda The facts –ICT infrastructure –General attitude –Activities –e-business integration The challenges The policy implications European Commission

3 The main message SMEs have taken the first step to go digital... –They feel it constitutes a part of their business –They are connected to the internet –They have their websites –They sell and procure online … and they seem to be satisfied with e-business …... but: They struggle with digitally integrating their business processes –The "e" part of their business processes tends to be a front-end / customer faced activity –More advanced e-business solutions are mainly used by large enterprises –This could have economic implications in the long run European Commission

4 Infrastructure: SMEs are connected to the net Nearly all SMEs use computers and are connected to the internet. Only for about 10% of the smallest firms, internet access seems to be irrelevant. They have closed the gap to large enterprises in terms of basic connectivity. European Commission Data enterprise weighted (% of enterprises). Computation base: all enterprises. Includes EU4 (D, F, I, UK). Source: e-Business Watch. Survey 2002

5 Infrastructure: Differences in diffusion of network applications – example intranet For small firms, an intranet is less useful than for larger companies. Adoption rates clearly reflect this difference. Data employment weighted (enterprises comprising …% of employees) Computation base: all enterprises. EU4 includes D, F, I, UK. Source: e-Business Watch. Survey 2002 European Commission

6 Infrastructure: Economies of scale Brutal economies of scale force the smallest enterprises to invest 6 times more human capital in their poorer IT infrastructure compared to the largest enter-prises. Computation base: all enterprises. Includes EU4 (D, F, I, UK). Source: e-Business Watch. Survey 2002 European Commission

7 Infrastructure: The IT skills gap – it still exists EITO (2001): demand for 14.5 million ICT and e-business professionals in Western Europe – supply of only 12.7 million Situation has changed after crash of new markets But: still shortage of specialists who combine entrepreneurial and engineering skills ("e-business professionals") European Commission

8 The attitude: How important is e-business already today for your enterprise? SMEs feel that e-business is just as important for them today as it is for large enterprises. Data employment weighted (enterprises comprising …% of employees) Computation base: all enterprises. EU4 includes D, F, I, UK. Source: e-Business Watch. Survey 2002 European Commission

9 Activities: e-commerce Adoption of e-commerce activities among SMEs have gained momentum. Even among small firms, more than a third say they procure online. Medium-sized companies have already closed the gap to the large enterprises. European Commission

10 Simple processing of online orders: information about order by However, the typical way of "handling" online orders in SMEs is not yet very advanced:The standard process is that the order generates an . In many cases, the e-chain of processing the order ends at that stage. Data employment weighted (enterprises comprising …% of employees) Computation base: enterprises selling online. EU4 includes D, F, I, UK. Source: e-Business Watch. Survey 2002 European Commission

11 Sophisticated processing of online orders: Integration with back-end system Only a minority of SMEs report that online orders are integrated with their back-end system. Larger enterprises are more advance in this respect. Data employment weighted (enterprises comprising …% of employees) Computation base: enterprises selling online. EU4 includes D, F, I, UK. Source: e-Business Watch. Survey 2002 European Commission

12 e-Integration: do online orders "trigger business processes"? A quarter of small firms, a third of medium-sized and about half of all large firms report that online orders trigger business processes. Data employment weighted (enterprises comprising …% of employees) Computation base: enterprises selling online. EU4 includes D, F, I, UK. Source: e-Business Watch. Survey 2002 European Commission

13 Summary: The four main challenges for SMEs on their way to go digital The managerial challenge: –to understand the mechanisms and impacts of e-business –to take the right e-business decisions at the right time The e-skills challenge: –to find IT and e-business professionals in the labour market –to ensure a high level of e-skills in their companies The technology challenge: –to have access to affordable e-business solutions –to ensure SME friendly technical standards The networking challenge: –to develop new forms of co-operation –to become a part of the networking economy European Commission

14 Possible policy objectives to support SMEs in taking.the next e-steps (I) To encourage managerial understanding: –To promote and show-case "good SME practices" –To provide financial incentives for working with (e- )business consultants –To further develop SME support networks To improve and increase the availability of e-skills in the market –To monitor demand and supply –To improve the diversity of education programmes –To facilitate life-long learning mechanisms European Commission

15 Possible policy objectives to support SMEs in taking the next e-steps (II) To improve the availability of e-business solutions for SMEs: –To foster the development of affordable modules for SME needs –To promote open standards and interoperability To promote networking and co-operation among SMEs –To support pilot projects of co-operative SME networks –To encourage the participation of SME networks in electronic marketplaces European Commission