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Box 2.1 Can information technology improve productivity? The productivity gains from investment in information oriented infrastructure has been a controversial issue amongst economists for some time. It has been pointed out, for example, that the rapid adoption of information and communications technology from the mid-1970s onwards was accompanied by a slowdown in labour and capital productivity growth in most developed countries. This led the Nobelprize winning economist, Robert Solow, to observe in 1987 that ‘you can see the computer age everywhere but in the productivity statistics’. The reasons for this may include the substitution of investment in information and communications technology for other types of capital and learning effects. These may mean that it takes time for business to realise the full benefit of new technologies. While academic economists are still pondering the issues, practitioners are taking a more pragmatic approach. Alan Greenspan, the Chairman of the Federal Reserve Bank in the US, for example, finds arguments that IT related productivity gains are ephemeral hard to believe. He gives every indication that he is taking the productivity enhancing e-commerce factor into account when forecasting economic outcomes and setting monetary policy. This was clear when he recently said that ‘The Internet offers an admixture of potential new goods and services and potential lower costs of production. A major part of our current GDP reflects distribution cost, and it is evident that much of that is subject to potential competitive reduction through Internet marketing. I do not perceive the end of the shopping mall, if for no other reason than I have been strongly advised that shopping is not solely an economic phenomenon. But the relationship between businesses and consumers already is being changed by the expanding opportunities for e-commerce. The forces unleashed by the Internet may be even more potent within and among businesses, where uncertainties are being reduced by improving the quantity, the reliability, and the timeliness of information.’ Sources: UK Cabinet Office, e-commerce@its.best.uk, September 1999, p. 105. Remarks by Chairman Alan Greenspan, Information, productivity, and capital investment, Before the Business Council , Florida, October 28, 1999. The value-added chain Following on from the potential for e-commerce to reduce the cost structure of firms, it will also change firms’ relationships with their suppliers, or with their customers. This can change the structure of the complex interrelationships represented in value-added chains which make up the economy. Disintermediation A concept that underpins much of the economics of this study is the process of disintermediation. In the chain of activity between the producer and the final consumer, intermediaries perform many services including transportation, wholesaling and retailing—these activities are known as margins because their costs form a margin between buyers and sellers. In most OECD countries, margins typically add about 33 per cent to the final price of goods. 10 The exhibit below illustrates some disintermediation opportunities in a very simple value-added chain. 10 OECD 1999, p. 64. 8
Exhibit 2.1 Disintermediation effects of e-commerce Producers Wholesalers Retailers Consumers Source: The Allen Consulting Group Reintermediation The use of e-commerce may also involve reintermediation. Making electronic purchases may involve inputs from new sources. This could include services provided by network services providers that both the buyer and the seller use to find each other. Other new intermediaries may include electronic payment systems and services for authentication and certification of transactions. E-commerce may also involve some additional traditional inputs. Someone, for example, still has to deliver many of the physical products that are purchased. Generally, such services are far less labour intensive than the previous intermediaries, but nevertheless there is a cost. Frictionless trade or trade with less friction? Initially it was supposed that e-commerce could lead to a ‘frictionless’ economy. This would be close to economists’ text book world in which transaction costs essentially disappear, barriers to entry fall, geography becomes irrelevant and markets clear instantly. Much of this earlier enthusiasm is likely to prove unfounded. Nevertheless, evidence is emerging that e-commerce does reduce costs and prices. 11 11 This evidence is discussed in greater detail in the main report and includes studies conducted by MIT, Ernst & Young and Forrester Research. 9
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 and 14: Chapter One Study context, aims and
Page 15 and 16: Within the business-to-business cat
Page 17 and 18: Table 1.4 Projected growth in econo
Page 19: Chapter Two Economic issues What di
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
Page 67 and 68: Table A.2 continued Safety Inspecto
Page 69 and 70: Table A.3 continued Industries 2007
Page 71 and 72:
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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