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SPEECH/00/55
Erkki LIIKANEN
Member of the European Commission
responsible for Enterprise and the Information Society
“A strong e-economy for all in Europe”
E-Agenda for Business Seminar
Dibb, Lupton, Alsop 23 February 2000
Electronic commerce is a revolution that is going to impact all of Europe’s economy
profoundly. I want to present my understanding of the main trends, and outline a
vision about how Europe can most benefit from this revolution. I will finish by
presenting some ideas about how to realise this vision and the contribution of the
European Commission to make the vision become a reality.
1. Facts and figures
Electronic commerce is booming. Predictions of market researchers, which often
tend to be optimistic, have even been surpassed. E-commerce was growing by
130% from ‘98 to ‘99. In ’99 there were an estimated 2.3 million Internet-related jobs
in the USA. 400,000 of these were created by electronic commerce. The Internet
and e-commerce are also leading to a surge in new company creation.
Electronic commerce can be between businesses, with consumers, and with public
administrations. Business-to-business electronic commerce is by far most
important, representing about 80% of all e-commerce. The potential of B-to-B
electronic commerce is huge, since the total value of trading between businesses is
about 5 times the total GDP. That is so because products are traded multiple times
in intermediate form between business, whereas GDP measures only the total final
output of the economy. As a reference, the estimated real GDP of the EU in 2003 is
€ 8 trillion. More recent and less modest forecasts from the Boston Consulting
Group even predict B-to-B to become as large as $ 7 trillion in 2003 in the USA.
Europe is lagging behind the USA in the use of the Internet and e-commerce. But
there was a surge of interest from ’98 to ’99. Electronic commerce starts to be on
the management agenda of large enterprises. Over 80% of top-managers in Europe
are now expecting to use e-commerce intensively by 2004, that is, not only for
marketing and sales but also for purchasing and procurement, according to
Andersen Consulting. Nearly two-thirds of top-managers now consider e-commerce
as important for their competitive advantage.
Despite the emerging positive attitude towards e-commerce, even large companies
are still too much pre-occupied by worries about internal acceptance, non-receptive
management culture and difficult integration with existing systems. These concerns
keep them from moving more quickly. They urgently need to start thinking about
adopting electronic commerce now rather than by 2004 !
Small companies, and especially the enterprises with less than 10 employees are
even more hesitant about electronic commerce. They are concerned about costs
and do not see the appropriate business model. Small companies in Europe worry
more than their counterparts in the USA about the validity of the concept of doing
business electronically. According to ECATT in 1999 only one-third of all very small
companies in Europe were on the Internet while virtually all of the large enterprises
are online.
Equally worrying is that business-to-administrations electronic commerce, such as
electronic procurement by governments hardly show up in the statistics. Where in
many of our economies the government is the single largest buyer, it should be the
leading e-commerce user. But it is not.
2
All figures show that e-commerce in Europe continues to lag behind the USA,
despite the recent increase in interest and current rapid growth. The European
economy is as large as the American is and it has even many more consumers. It is
worrying that Europe is not taking up e-commerce even faster since the Internet
and electronic commerce will radically impact nearly all sectors of the economy and
dramatically alter the patterns of competition.
Consumer access to the Internet may change in our favour, though. Today in
Europe there are some 50 million Internet users. But when internet goes mobile,
this may jump to some 170 to 220 million by 2003, mainly because by that time 65%
of all Europeans will have a mobile phone, of which 85% will be Internet-enabled.
This is a very significant change.
Electronic commerce is said to be born global. It is a phenomenon without borders.
It gives immediate access to markets internationally. But competitors also get
immediate access to the market that used to be your backyard. In fact, small
companies make little use of the global nature of the Internet until now, with 90% of
electronic commerce done by them still not crossing national borders.
But of course e-commerce can also be a tool to do better business locally.
Examples are now emerging which demonstrate that electronic business can
excellently be combined with local physical presence. Local and vernacular content
is the fastest growing segment of Websites, which is encouraging for a multicultural continent.
The Internet and electronic commerce are not a guarantee that old geographical
differences disappear. Europe remains a collection of diverse markets, as the
Boston Consulting Group recently observed in a report about online retailing.
Certain highly advanced smaller countries and regions in Europe can be
characterised as early adopters. Some are even ahead of the USA.
Some large countries can be called ‘awakening giants’. They have a lot of potential
in terms of market size and current growth rate. Also, recent reports from both
Forrester and ECATT indicate for PC-based Internet access a North-South gap in
Europe. This gap does not seem to be shrinking. However, the tremendous interest
for mobile phones in Southern Europe, which will soon be Internet-enabled, is an
encouraging indicator. There is potential to bridge the gap. In mobile phones we
have a North-South lead.
2. Trends
The explosion of the Internet and of electronic commerce is by many seen as a sign
that society as a whole is now going through an unparalleled transformation process
towards the information or knowledge society.
As Toffler and Castells describe it, the western world went through the transition
from the agrarian to the handicraft society in the Middle Ages. It then made the
transition from the handicraft to the industrial society in the 19th century, a society
dominated by multinationals focused on production capacity, skills specialisation
and mass markets.
Today at the beginning of the 21st century we are in the midst of the transition from
the industrial to the information or knowledge society.
3
Electronic commerce, or better, e-business, or e-services are manifestations of the
revolution. These new ways of doing business, of working and of living are
inherently global and mobile with many activities happening in parallel in space and
time. They put the individual at the centre, and are more win-win rather than a zerosum game as information as a resource is abundant and unbounded.
The Internet makes it possible to put multiple skills together and make information
and knowledge the primary resource for value creation. Value will increasingly be
carried by intangibles such as digital information, services, entertainment, brand,
trust, etc.
This leads to entirely new thinking about what a product actually is composed of.
The products of the future are extended products, consisting of tangible and
intangible components.
A mobile phone is a good example. The handset, the tangible component itself, has
some value. But the software and content is already more decisive in affecting the
value to the customer. This intangible component can be modified and upgraded, at
a fee.
For example, popular services in Japan and Finland are ringing sounds and icons
that can be downloaded and exchanged. Although still small this is already a viable
business. The value of the product is realised through the services, starting with
basic telecom and Internet access. On top of that there are relationship-based
services that is personalised and possibly localised services in which there is plenty
of room for innovation.
Electronic commerce, even though still relatively small compared to total GDP, is
already starting to shake up whole industry sectors as radically new business
models are being explored. Banks are re-thinking their retail operations and some
such as ABN-AMRO or Bundesbank have already announced large changes due to
the rise of Internet banking.
Major new economic sectors are arising such as a new integrated multi-media
communication, information, and entertainment industry that freely and flexibly
exploits any delivery mechanism thriving on the convergence between TV
broadcast, Internet, fixed and mobile phones. What matters for that convergence
industry is access to large numbers of individual customers, everywhere and
anytime.
The mergers of today are the signals of the change, as companies are buying
themselves a place in the converged landscape where they have access to huge
numbers of consumers. Stock markets recognise that it is access to customers that
matters and express it in the valuation of the new brands such as Vodafone,
Freeserve, Amazon, AOL-Time Warner, World Online, Ericson, Nokia and others.
The battle for the customer base is already starting to blur boundaries between
industry sectors. The media world has been going through a shock recently when
an Internet-only company, AOL, bought the world’s largest media concern, TimeWarner. ISPs and telecom companies become banks, petrol companies become
retailers, retailers become entertainment publishers, publishers become consumer
health companies, and so on. But this will not be a world of mega-concerns only, as
these large companies need many smaller partners to provide design, content,
services, specialised software and so on.
4
Going hand-in-hand with the growth of this new industry is the growth of the
personalisation industry. Understanding the customer, data mining, profiling,
personalised marketing, one-to-one customer interaction, call centres, are all
approaches to individualise and personalise products and services. And they are
not always about automation. In fact, as Internet call centres and the integration of
brick and click show, there is a great opportunity to create jobs by providing personto-person and face-to-face services of which we have only seen the very beginning.
In business-to-business procurement enormous changes are happening too. Ford
and General Motors are moving their procurement onto the Internet, which will bring
all their suppliers and sub-assembly suppliers online. New B-to-B intermediaries are
arising of a kind that we have not seen before. These are the market makers, the
third party marketplace providers, who set up exchanges for businesses to trade
with each other much faster, cheaper, and with much more choice than before.
The smartest of the new intermediaries exploit Metcalfe’s law which says that the
value of a network grows with the square of the number of participants. They exploit
these network effects for example through buyer and seller coalitions. The winnertake-all nature of the new economy will almost certainly lead to a situation where
some of these new market makers become very big.
The B-to-B intermediaries provide the infrastructure for the new economy,
consisting of large scale trading systems to which services like financing, transport
and logistics and even assembly are subcontracted. The companies providing the
underpinning software and trust services are amongst the fastest rising companies
on the stock markets. The new market makers revolutionise the industrial
perspective, shifting it from factory- or production-centred to market-centred.
All of these changes radically alter the pattern of competition. Some managers say:
what I fear most is not my competitor of today, it is the Internet company that does
not yet exist.
The examples illustrate some of the paradigm shifts of the new economy. There are
more such shifts to come or already underway, in business, work, education, public
services etc. Growth opportunities are vast provided that the right business models
are found, that technology becomes more user-friendly and that legal frameworks
are adapted and clarified with a view to creating confidence in the new economy.
Already now the information society sector is creating new jobs at a rate of nearly
10% per year, which is far above the average of industry and service sectors.
3. Vision
We are at a breakpoint in economic history. Dealing with the changes requires that
we put together all resources and insights from business, politics, research and
technology. For those who might be tempted to think so: there is no brake that can
be applied to slow down the change which technology will continue to drive. The
Internet and electronic commerce force us to re-think many of our policies and
indeed, our own organisation.
5
In Europe we want to fully benefit from the emerging of the e-economy, without
excluding anyone. We believe that the information society in Europe can have a
positive impact on employment, growth, productivity, and social cohesion. We have
successfully managed to create a single market in Europe and a single currency
that have significantly increased wealth and wellbeing in the European Union. Our
vision is now to create a strong European e-economy in the global economy.
Europe can become a leader in ‘electronic commerce and services for all’. That is,
electronic commerce that is accessible and beneficial to all citizens and businesses
and public administrations in Europe.
A strong e-economy for all in Europe can exploit our strengths in inclusiveness,
cultural richness and diversity, mobile and secure technologies such as mobile
phones, smart cards and enterprise management software. Europe needs a strong
societal and technical infrastructure for the e-economy in terms of skills, legal
framework, and interoperable technologies and dependable networks.
European broad and high level of education for all can become a key part of the
infrastructure of the e-economy. Its value will increase exponentially for everyone
once network effects kick in through Internet-enabled sharing and collaboration.
This infrastructure is the basis for knowledge-based and networked ‘smart SMEs’ to
add a wealth of personalised products and services.
4. Actions
How to realise the vision of a strong e-economy for all in Europe?
Since 1994 the European Union is committed to the information society. Since 1997
it has taken a leading position together with our main trading partners in promoting
electronic commerce, starting with the European Initiative in Electronic Commerce.
This was followed by an ambitious succession of measures.
The completion of an enabling legislative framework is on its way at EU level,
including the adoption of a Directive for the use of electronic signatures and the
forthcoming Electronic Commerce Directive. EU supports a large number of
electronic commerce R&D and standardisation projects. We are actively working
with business to create awareness and support self-regulation in forums such as the
GBDe and others.
From this year onwards we foresee to step up further our commitment to
accelerating electronic commerce or the e-economy in Europe. This includes the
recent eEurope initiative to bring the benefits of the information society within reach
of all in Europe. We need to push the frontiers of electronic commerce further by
exploring the future of technology and business models in the Information Society
Technologies programme.
We are aware that accelerating the e-economy requires a coherent approach to
advancing the legal framework and self-regulation, providing cheaper access to
faster networks and better technology, and promoting economic and societal
development including skills for the information society. The challenge is to balance
the mix between these elements.
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We are convinced that even where legislation is in some cases needed as the
ultimate safety net, we often need self-regulation and technology to create trust and
confidence in electronic commerce. These elements need to develop hand-in-hand,
in partnership between the private and public sector, that is, in a process of coregulation.
The legal and regulatory framework for the e-economy should be appropriate for the
wide variety of information services that are emerging, protect key interests such as
privacy and consumer rights, involve all actors and be kept simple, flexible and
technology-neutral as far as possible.
The particular issues to deal with on short term are the following.
 The information society in general and electronic commerce specifically benefits
greatly from healthy competition in telecommunications services – cheaper
access in short. Following onto the 1999 Communications Review the
European Commission will propose legislative changes to progressively relax
regulation as markets become more competitive. It intends to accelerate the
process as much as possible amongst others in local loop unbundling, giving
consumers more choice and arriving at lower prices for high-speed Internet
access.
 The recent adoption of the Electronic Signatures Directive and the political
agreement in December 1999 on the central Electronic Commerce Directive
will contribute to establishing a clear environment for all actors in the Information
Society in the EU, from providers to consumers. Both directives, once the
political process and the implementation in the Member States are completed,
will remove hesitations to engage in electronic transactions. They will clarify
issues such as the legal framework applicable to providers established in
Member States, the legal validity of an electronic signature or an electronic
transaction or the liability of providers of Internet-based services.
 Enhanced consumer protection regarding financial services will become available
with the adoption of the current draft Directive on the distance marketing of
consumer financial services. This will complete the already existing consumer
protection measures in electronic commerce and other distance selling methods
such as the Directive on distance contracts adopted in 1997.
 The protection of content will clearly benefit from the Copyright Directive which
is also awaiting final adoption. It aims to ensure an Internal Market in copyright
and related rights with particular emphasis on new products and services. It
links to the Electronic Commerce Directive on the issue of liability, where the
provisions of the Electronic Commerce Directive will complement the Copyright
Directive in cases of copyright breaches.
 A multi-annual Action Plan adopted in January 1999 is providing the
incentives for safer use of the Internet, that is to fight against illegal and
harmful content. Measures include self-regulation, awareness actions and
increased availability of tools such as filtering and rating software. The Internet
has proven to be too easy a target for attacks of all kind, ranging from benign to
severe, such as the denial of service attacks recently experienced by major
Internet companies. The Commission will soon issue a Communication which
will propose actions to fight computer-related crime combining legislative
measures, awareness raising and international co-operation.
7
 The Data Protection Directives, both the general one and the
telecommunications sector specific one, are progressively getting in place in
most Member States. Negotiations are still on-going with the United States to
establish the basis for a Safe Harbor approach which would ensure between the
EU and the US the adequacy required by the data protection Directive in the
case of personal data transfer to third countries. Very recently we have heard
positive signals from these talks. The two directives are contributing to
awareness on the need for a solid basis to such protection in the international
environment.
 The challenge for the coming years will be to establish effective self-regulation
which is, with technology, the indispensable partner to the legal framework in
order to provide the flexibility needed for this fast-moving economy. Some
initiatives are already arising for example in trust labelling, money-back
guarantees, and soon out-of-court and other alternative fast-track dispute
settlement systems for consumers.
 The participation of Europeans in the world-wide governance of the Internet
has been acknowledged as crucial. Competition for registration of domain
names is now open, following the establishment of ICANN. Despite numerous
difficulties, the structure of ICANN allows for a more balanced world-wide
participation. The Commission has very recently launched a consultation on the
creation of a ‘.eu’ top level domain.
 Particularly challenging remain certain issues including taxation and especially
indirect taxation such as VAT as well as the jurisdiction and applicable law
questions. Regarding taxation, progress has been made in the OECD context
but certain problems remain. Jurisdiction and applicable law issues are yet to be
finally resolved. The Commission has recently held an open hearing to listen to
the views of the stakeholders. The outcome emphasised the need of a balanced
solution. It also made clear that further work on online alternative dispute
resolution mechanisms provides a way forward.
Electronic commerce will develop in many different ways in Europe. Three
examples can illustrate the opportunities and challenges: the eEurope initiative,
electronic commerce for everyday and mobile electronic commerce.
The first is the take-up of electronic commerce on the short term. The challenge is
to bridge the gap with the USA soon. It is not too late and the signs of growing
interest throughout Europe are encouraging.
Accelerating the take-up of electronic commerce amongst SMEs and governments
is one of the priorities of the eEurope initiative. The key targets by the end of 2000
are to complete the internal market framework for electronic commerce, to promote
e-procurement by governments, to support self-regulation including the setting up of
online and alternative dispute resolution in Europe, to help SMEs go digital and to
set up an ‘.eu’ top level domain name as mentioned before.
8
The second example of the future of electronic commerce in Europe is making
electronic commerce or services suitable for and an integrated part of everyday
business, work and daily life. We are challenged to conceive a next generation of
electronic commerce or services that should provide a natural support to everyday
activities, for all citizens and all businesses, large and small, global and local. We
have an excellent opportunity to contribute to such ‘electronic commerce for
everyday’, or human-centred electronic commerce in the EU Information Society
Technologies R&D programme.
Advanced electronic commerce should offer natural interaction using voice, text,
video, gestures, and natural language. It should make use of a widely present
communications infrastructure and freely mix fixed and mobile work and business
environments. Business transformation and new skills development should be
experimented with to integrate electronic commerce naturally into new business and
work behaviour.
To a large extent ‘electronic commerce for everyday’ will have to rely upon selfconfiguring, autonomous electronic commerce systems. It will also have to meet the
challenge of dynamically combining a wide variety of services such as ordering,
payments, logistics, and after-sales, which will require a next level of thinking about
interoperability. Realising this will enable many forms of dynamic networked
collaboration between companies and individuals, which will increase their creative
and value-adding potential.
Mobile electronic commerce is the third example of the future of electronic
commerce in Europe. The estimates say that there will be one billion mobile phone
users in 2003, up from 300 million today. No less than 65% of all Europeans will
have a mobile phone by 2003. 85% of these third-generation phones will be WAPenabled, which means that they have built-in Internet access.
It is likely that a flood of new services will be offered to the many newcomers on the
Internet and that many of today’s PC-based information and online shopping
services will move onto mobile phones and personal digital assistants. Europe is
well placed to profit from this opening of the floodgates onto the Internet.
Mobile e-commerce turnover in Europe is expected to surge to € 24 billion in 2003.
This can become a big push for Europe. We support active experimentation with
new business models and applications for mobile commerce in areas such as
tourism, health, entertainment, and logistics. The combination of location and
mobility, for example with the help of global positioning satellite systems, opens up
exciting possibilities for partnerships between local information and service
providers.
There are also some open questions regarding liability and crime-prevention that
need to be addressed with the help of technology and perhaps by reinforcing the
legal safety net. It will also be very interesting to see how competition and
collaboration in the industry develops in view of the future competitive structure of
the economy.
Summary
Europe is in the middle of an economic revolution. This is the time for a call for
action to both the private and the public sector in Europe. We must work for a
strong European e-economy which realises electronic services for the benefit of all.
9