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…we cannot get on without making models, and models must be simplified. A map at the scale of 1:1 is of no use to a traveller. The art of setting up models is to cut out all complications inessential to the point at issue, without eliminating the features necessary for some guidance. Joan Robinson and John Eatwell, 1973 1.3 Limitations of a pilot study Economic models are a simplification of reality. They are useful because they make it easier to understand the key drivers in the big picture without being distracted by the confusion of everyday life. Ultimately, not everything can be modelled. When modelling the impact of e-commerce it was important to trim and distil much of the detail to discern the main trends. Naturally, there will still be a lot left out. A structural change of the sort that is generally expected is likely to permeate the economy and everyday life in many different ways. Many impacts will be unexpected. It is hoped that the techniques learnt in this study will be of use to others examining the issues. It may also be adapted and expanded for use in any subsequent major study that concentrates on an even broader range of probable impacts. The economy-wide analysis of e-commerce is the first of its kind. Despite an extensive search, the consultants were not able to learn of similar research results or work in progress elsewhere. As a groundbreaking exercise, it is hoped this study will stimulate constructive debate on the impact of e-commerce and how this should be analysed. Future studies will be the richer for this debate. A note of caution is required about the way in which the results of this study should be analysed and interpreted. This study is very much an initial attempt to analyse the nature and direction of the impacts of e-commerce. The results are therefore more indicative than definitive and should be interpreted accordingly. 1.4 What is e-commerce? At its broadest, e-commerce is any type of business transaction or interaction in which the participants operate or transact business or conduct their trade electronically. Potentially this could include activities that include use of the telephone or the fax as well as the Internet. 1 A broad definition would encompass activities long recognised under the label Electronic Data Interchange (EDI) as well as more recent developments in electronic transactions. The general consensus is that at present, most e-commerce activity is at the business-to-business level. Table 1.1 E-commerce estimated to be business-to-business Firm (year) Percentage IDC (1997) 61 Negroponte (1998) 70 Forrester Research (1998) 84 Forrester Research (2001) 88 ActivMedia (1996) 72 Lorentz (1997) 80 Price Waterhouse (2002) 78 Piper Jaffray (2001) 90 Average 78 Source: OECD, The Economic and Social Impacts of E-commerce: Preliminary Findings and Research Agenda, 1999, p. 36. 1 See Department of Communications, Information Technology and the Arts (DOCITA), Australia’s e-commerce Report Card, Canberra, 1999, for a broad definition of electronic commerce. 2
Within the business-to-business category, revenues are already very substantial. Table 1.2 Selected individual firm e-commerce revenues by activity US$ million Activity 1995–97 E-commerce: business-to-business CSX 3 000 GE 1 000 NEC 16 528 Cisco (e-commerce sales) 2 496 Computers: Dell 730 Computers: Gateway 150 Computers: NECX 35 Total business to business 23 943 Source: OECD, based on data from the US Securities and Exchange Commission. There is massive growth in the small-scale, under-$100 category of product rather than people wanting to buy, say, $2 000 stuff regularly. Lower-end purchases are almost necessary in this (early stage) because people are going to put their toe in the water to try it. Graham Penn, IDC The real power of technology (such as e-commerce, telecommunications technology services or multimedia) is not that it can make the old processes work better, but that it enables organisations to break old rules and create new ways of thinking—that is, to reengineer. Hammer, M. and J. Champey, Reengineering the Corporation: A Manifesto for Business Revolution Business-to-consumer e-commerce is still in its formative stages of development. Consumers are still experimenting with the capacity of online purchases. It is also apparent that business-to-consumer sales face challenges. Survey data consistently reveals that there are some lingering barriers to greater use of online shopping. This includes concerns some consumers have about the security of personal information involved in transactions, uncertainty about vendor integrity, logistical bottlenecks, consumer protection, as well as general issues about access to the Internet (i.e. having the right technology and access to affordable bandwidth). It is likely that these issues will be managed over time largely through increased experience on the part of buyers, sellers and regulators. Addressing these and other issues has been a key thrust of government policy. 2 Activity that is widely considered to be e-commerce does not always end in a transaction. E-commerce has significant implications for the whole of business process. Adoption of e-commerce has led many organisations, for example, to reengineer the way that they do business. Others are transforming their approach to business, or their business model, entirely. 1.5 E-commerce trends Industry data indicate that the speed of adoption of e-commerce is rapid. Many analysts see the fast rate as ‘unprecedented’. While portraying a buoyant outlook, industry forecasts have consistently underestimated e-commerce growth. Starting from practically nothing a few years ago, current estimates are for e-commerce to reach around US$300 billion in the next year or so and, according to the reckoning of Forrester Research, eclipse the trillion dollar mark by 2003. If the forecasts of Forrester Research are achieved, OECD-wide e-commerce will be the equivalent of 15 per cent of the total retail sales of seven OECD countries. 3 2 See DOCITA, op cit, 1999. 3 OECD, 1999, p. 27. 3
Page 2 and 3: © Commonwealth of Australia 2000 I
Page 5 and 6: Table of contents Foreword ........
Page 7 and 8: Part 2 - Case studies Section One I
Page 9 and 10: Executive summary E-commerce is sti
Page 11 and 12: Part 1— economic analysis
Page 13: Chapter One Study context, aims and
Page 17 and 18: Table 1.4 Projected growth in econo
Page 19 and 20: Chapter Two Economic issues What di
Page 21 and 22: Exhibit 2.1 Disintermediation effec
Page 23 and 24: Table 2.1 E-commerce impact on vari
Page 25 and 26: Chapter Three Changes ahead—indus
Page 27 and 28: Health Significant efficiencies sta
Page 29 and 30: Chapter Four Economy-wide assessmen
Page 31 and 32: Direct changes and flow on impacts
Page 33 and 34: consumption relative to economic ac
Page 35 and 36: External competitiveness Greater us
Page 37 and 38: Industry outcomes Greater use of e-
Page 39 and 40: Food products The food products sec
Page 41 and 42: people with differing occupational
Page 43 and 44: Tasmania and the Northern Territory
Page 45 and 46: Table 4.2 Regional growth and emplo
Page 47: The data for country regions (Exhib
Page 50 and 51: impacts are a reasonable representa
Page 53 and 54: Chapter Six Policy implications and
Page 55 and 56: Appendix A Study methodology, shock
Page 57 and 58: confidence. This is at the expense
Page 59 and 60: All of the GDP gain generated by ch
Page 61 and 62: (s11) Saving of particular inputs I
Page 63 and 64: Table A.1 continued Commodity Per c
Page 65 and 66:
Table A.2 continued Engine & Boiler
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Table A.2 continued Safety Inspecto
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Table A.3 continued Industries 2007
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B.2 The structure of MONASH The cor
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simulations it is assumed that the
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Table B.1 (Continued) MONASH-RR Reg
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C.2 Forecasts for macroeconomic var
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other grains, iron and non-iron ore
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The numbers in column (II) of Table
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Productivity growth over the histor
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forecast of a 0.1 per cent decline
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Productivity growth in the construc
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Employment prospects in the sector
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Table D.1 continued Textiles, cloth
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Table D.1 continued Health, educati
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Table D.2 continued 45 Bags and Con
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Part 2 — case studies
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Industry sectors’ use of e-commer
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e-commerce were chosen. Key questio
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Banking For some time now most of t
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2.3 Cost savings Banks are keen to
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2.5 Changing business modes Branch
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Banks are also looking to take adva
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NAB, as a multinational, is already
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activities such as consumer electro
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Box 3.2 Building a business on e-co
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One of the issues for all industrie
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108
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Box 4.2 Australia Post and e-commer
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Opportunities are being created for
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Value can be transferred into Austr
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Continued use of email and the deve
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E-commerce allows some flexibility
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120
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are introduced to market at a start
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educe the duplication of assessment
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6.3 Cost savings as a result of ele
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The primary e-commerce tools for im
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New service modes and channels to t
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132
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This Section will review the implic
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of greater depth. (It should be not
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consumers watch five per cent less
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artist is the promotion which airpl
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New costs The fragmentation and reg
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gambled. The development of Interne
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146
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Making a purchase over the Internet
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Customers who access troubleshootin
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they does not actually sell those i
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Key points There are few other sect
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e-commerce allows quicker order pro
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9.3 New costs The demand for busine
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How a ticket is sold, through an ag
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Box 10.1 Case study: E-commerce and
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The education and training sector h
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166
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11.2 Production Manufacturing busin
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Opportunities for re-intermediation
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Value could transfer within the sec
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174
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years’ time. 30 This reflects an
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seeks to provide a point of referen
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To a small extent, direct selling t
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182
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Box 13.1 Austmine—a window for th
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Box 13.2 Leaving mining sites for w
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188
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