Communication from the Commission to the Council and the European Parliament - The impact of the E-economy on European enterprises: economic analysis and policy implications
Date: 2001-11-29
Institutions: European Commission
Subjects: distributive trades, economic analysis, electronic commerce, gross domestic product, information technology, market organisation, new technology, small and medium-sized enterprises

COMMISSION OF THE EUROPEAN COMMUNITIES

Brussels, 29.11.2001
COM(2001) 711 final

COMMUNICATION FROM THE COMMISSION
TO THE COUNCIL AND THE EUROPEAN PARLIAMENT

THE IMPACT OF THE E-ECONOMY ON EUROPEAN ENTERPRISES:
ECONOMIC ANALYSIS AND POLICY IMPLICATIONS

COMMUNICATION FROM THE COMMISSION
TO THE COUNCIL AND THE EUROPEAN PARLIAMENT

THE IMPACT OF THE E-ECONOMY ON EUROPEAN ENTERPRISES:
ECONOMIC ANALYSIS AND POLICY IMPLICATIONS

Table of Contents

INTRODUCTION...................................................................................................................... 4

I.

1.

2.

3.

4.

II.

1.

1.1

1.2

1.3

2.

2.1

2.2

2.3

3.

3.1

3.2

3.3

3.4

3.5

MACROECONOMIC ISSUES: THE EMERGENCE OF THE E-ECONOMY ........ 5

Economic Growth and the role of ICT......................................................................... 5

Productivity growth and employment growth ............................................................. 5

ICT, enterprise organisation and total factor productivity........................................... 6

Will productivity growth be sustained over the long term?......................................... 7

MICROECONOMIC ASPECTS: IMPACT OF THE E-ECONOMY ON
ENTERPRISES AND SECTORS ............................................................................... 7

The e-Economy as a catalyst for change...................................................................... 8

Fast changing enterprise demographics ....................................................................... 8

New business dynamics: role of risk capital and market-based financing................... 8

New ICT skills for a fast changing economy............................................................... 9

New business models for the e-Economy .................................................................... 9

Diverging sectoral impacts........................................................................................... 9

Sectoral drivers and inhibitors ................................................................................... 10

Spreading business innovation: from "dotcoms" to "traditional industries".............. 10

New distribution channels and new market dynamics............................................... 11

Blurred boundaries, new distribution channels, new market organisation ................ 11

E-marketplaces: a potential catalyst for the internal market...................................... 12

B2C: a new relationship between enterprises and consumers ................................... 12

Delivering the e-Economy: a key role for logistics in sustainability. ........................ 12

The mobile dimension: a strategic opportunity for Europe ....................................... 13

ii

III.

IMPLICATIONS FOR ENTERPRISE AND RELATED POLICIES,
A CENTRAL ROLE FOR ENTREPRENEURSHIP ................................................ 14

1.

2.

3.

4.

5.

6.

Foster full participation by SMEs in the e-Economy................................................. 14

Ensure appropriate skills for the e-Economy............................................................. 15

Maximise the opportunities offered by the internal market ....................................... 16

Promote openness and competition............................................................................ 17

Promote e-Economy research .................................................................................... 19

Increase efficiency in government-business relationships......................................... 19

CONCLUSION ........................................................................................................................ 21

Annex 1: GDP, productivity and employment growth ............................................................ 22

Annex 2: Difference in total factor productivity growth.......................................................... 23

Annex 3: B2B estimated cost savings by sector ...................................................................... 23

Annex 4: E-marketplaces "take up index" by sector................................................................ 24

Annex 5: Three case studies..................................................................................................... 24

Case study 1: The automotive industry .................................................................................... 24

Case study 2: The retail and distribution industry.................................................................... 25

Case study 3: The multimedia industry.................................................................................... 26

iii

INTRODUCTION

Information  and  communication  technology  (ICT)  is  having  a  profound  impact  on  the
potential for economic growth; it has become one of the main sources of competitiveness and
increases  in  incomes.  As  a  result,  it  has  moved  to  the  centre  of  the  policy  debate.  When  in
March  2000,  in  Lisbon,  the  European  Union  set  itself  the  ambitious  target  of  becoming  the
world's  most  "competitive  and  dynamic  knowledge-based  economy"  within  ten  years  it
recognised  that  the  achievement  of  this  goal  depended  on  making  the  best  possible  use  of
ICT.  The  Lisbon  strategy  reinforced  the  response  to  the  knowledge-based  society  within
existing  policy  processes  and  launched  the  eEurope  2002  Action  Plan  as  a  roadmap  to
modernise the European economy.

The  Commission  is  keeping  the  impact  of  ICT  on  the  economy,  on  enterprises  and  on  the
main  economic  policy  instruments  under  constant  scrutiny.  Employment  issues  are  also
comprehensively  addressed  within  the  European  Employment  Strategy.  The  present
Communication reviews the impact of the  e-Economy 1 on European enterprises in the light
of the recent market developments and of the numerous contributions on this topic. It builds
on the considerable work achieved in the areas of telecoms liberalisation and legislative action
in favour of a clear and predictable framework for e-business. It also builds on the discussions
that  have  taken  place  during  the  e-Economy  conference  organised  by  the  Commission  in
March  2001 2.  The  correction  of  excessive  stock  market  valuations  and  the  consolidation
phase  taking  place  within  the  ICT  sector  have  eliminated  most  of  the  exaggeration  that  has
clouded  the  debate  in  the  past.  Statistical  evidence  has  allowed  the  emergence  of  a  broad
consensus that ICT is, indeed, increasing the rate of growth of productivity. Finally, the way
in which ICT is changing the life of enterprises, workers, public administrations and citizens
in general is becoming more widely understood.

This  Communication  contributes  further  detailed  analysis  confirming  the  appropriateness  of
the strategy that the European Union has been following in recent years. ICT is producing an
acceleration  in  the  pace  of  technological  progress,  which  will  be  best  exploited  in
circumstances where enterprises are stimulated to adapt to a new environment and where new
enterprises  are  created,  expand  and  replace  older  ones.  Since  the  tragic  events  of
11 September 2001, consumer and business confidence has deteriorated sharply and restoring
and  supporting  consumer  confidence  and  entrepreneurial  dynamism  is  a  fundamental  pre-
condition to securing good economic prospects. Creating an environment more favourable to
entrepreneurship  and  accelerating  structural  reforms  is  the  right  strategy  likely  to  produce
more visible and significant returns.

This  Communication  suggests  targeted  activities,  improving  action  already  under  way  to
foster the take up of ICT, to integrate it with converging production technologies, to increase
the  availability  of  the  necessary  skills,  to  exploit  further  the  opportunities  of  the  internal
market, to encourage innovation and to support research. It also highlights the need to make
sure that public administrations not only exploit ICT effectively themselves but also become
catalysts for its wider use.

1

2

The word "e-Economy" has been used as a shortcut for the modifications in the behaviour of economic
agents and citizens resulting from the possibilities offered by the spectacular development and reduction
in price of ICT and, in particular, from the development of the Internet.
The  e-Economy  in  Europe:  its  potential  impact  on  EU  enterprises  and  policies.  March  1–2,  2001  in
Brussels. See: http://europa.eu.int/comm/enterprise/events/e-economy/index.htm.

4

                                                
I.

1.

MACROECONOMIC ISSUES: THE EMERGENCE OF THE E-ECONOMY

ECONOMIC GROWTH AND THE ROLE OF ICT

During  the  second  half  of  the  1990s  the  US,  but  also  some  EU  Member  States  (notably
Ireland,  the  Netherlands,  and  Finland)  and  some  other  OECD  countries  (e.g.  US,  Australia
and Canada), have recorded a resurgence of economic growth and of productivity, steady or
declining inflation and diminishing unemployment (see annex 1).

Increasingly,  policy  makers  have  begun  to  appreciate  the  central  role  played  by  the
deployment of ICT in these developments. Indeed, ICT now permeates virtually all facets of
economic  life  and  is  affecting  in  a  fundamental  manner  the  way  in  which  business  is
organised and conducted. The acceleration of productivity and economic growth in the 1990s
is closely associated with developments in the ICT sector. Prices of semiconductors have been
declining at an unrelenting pace throughout the past forty years while their capacity has been
increasing  at  an  equally  remarkable  pace.  The  quality-adjusted  price  declines  accelerated
dramatically  during  the  second  half  of  the  1990s  reflecting  in  part  the  shift  of  this  industry
from a three-year to a two-year product cycle but also increased competition. The decline in
the  cost  of  ICT  capital  has  provided  powerful  incentives  for  substitution  away  from  other
forms  of  capital  and  from  labour  services.  Indeed,  a  process  of  ICT  capital  deepening  has
accelerated  in  several  countries,  bringing  into  use  new  and  more  productive  capital  and
raising  the  economy’s  capacity  to  produce.  The  acceleration  of  productivity  and  economic
growth is also closely associated with developments in the software and control technologies
sector.  These  are  not  so  much  characterised  by  price  declines  but  much  more  by  improved
capacity and user friendliness leading to improved quality of products and services.

These developments have been reflected in the economy through the ICT sector – computers,
computer software and telecommunications equipment and services. The wide application of
ICT  has  led  to  a  rapid  decline  in  the  prices  and  costs  in  the  areas  of  computing  and
telecommunications with positive repercussions for a variety of other products, including for
the  production,  for  example,  of  aircraft,  automobiles  and  scientific  instruments.  In  turn  the
sharp decline in 2001 of the level of ICT investment of enterprises, in the US then in Europe,
had a negative impact on economic growth prospects.

2.

PRODUCTIVITY GROWTH AND EMPLOYMENT GROWTH

The good macroeconomic performance has also benefited the labour market. The resurgence
of output growth has raised employment both in Europe and in the US. Thus, despite the on-
going capital substitution process, the output–induced increase in the demand for labour has
led  to  net  increases  in  employment.  In  the  period  1995-2000,  net  job  creation  in  the  EU
amounted  to  almost  10 million.  The  sectors  with  the  strongest  employment  growth  at  EU
level  have  been  and  continue  to  be  those  characterised  by  either  high  technology  or  ICT-
related jobs and/or by high knowledge intensity as reflected in the high educational levels of
the workforce. In 2000 alone, these sectors created 1.6 million net jobs in the EU.

Productivity growth is a crucial determinant in the rise in the standards of living. However, in
the  short  term,  increased  investment  in  productivity-raising  ICT  capital  may  have  adverse
consequences for workers who lack the skills needed for the use of these new technologies. In
turn, the demand for labour with ICT skills is likely to increase, as the experience of Europe

5

and the US in the 1990s has shown. Despite significant redundancies, which occurred in 2001
in the ICT sector 3, long-term employment prospects remain strong.

Ultimately, ICT-induced productivity increases are a source of job creation. While jobs may
be destroyed in some areas, the overall dynamism resulting from ICT use leads to job creation
in other areas to an extent that  more  than  offsets  the  losses.  In  general,  ICT  use  does  away
with repetitive jobs often carried out by workers with low skills. The new jobs are likely to
emerge in ICT related  areas and in  "face-to-face" services –  areas  which  require  higher  and
different  skills.  Skills  mismatches  pose  serious  challenges  for  the  design  and  conduct  of
labour market and also for education policies in the Member States – skill shortages may slow
down the dissemination of ICT and thus constrain growth.

3.

ICT, ENTERPRISE ORGANISATION AND TOTAL FACTOR PRODUCTIVITY

ICT is economically important partly because it facilitates the adoption of innovations and of
organisational changes in enterprises and partly because it changes competitive conditions and
the structure of markets. ICT contributes to economic growth directly, through the production
of  ICT  goods,  and  through  the  diffusion  of  ICT  use  in  the  economy.  The  macroeconomic
evidence  on  the  acceleration  of  productivity  growth  in  part  reflects  organisational  reforms
undertaken by enterprises in response to ICT innovations.

The share of ICT investment in industrialised economies is increasing. In 1999, the share of
ICT  investment  was  4.54 %  of  GDP  in  the  US,  up  from  2.60 %  in  1992.  For  the  EU  as  a
whole,  the  corresponding  estimated  GDP  share  is  2.42 %  in  1999,  up  from  1.81 %  in  1992.
Amongst  individual  EU  Member  States,  the  share  of  ICT  investment  in  1999  ranges  from
1.58 % in Spain to 3.76 % in the UK 4. It is clearly worrying that the EU is lagging behind the
US in ICT investment.

Evidence from European data (see annex 2) shows that total factor productivity growth in six
Member States - in descending order, Denmark, UK, Germany, Italy, Luxembourg, and Spain
-  slowed  down  in  the  period  1996-2001  compared  to  the  period  1991-1995.  In  contrast,
productivity growth increased markedly in Greece, Finland and Ireland and to a lesser extent
in  Portugal,  Belgium,  France  and  Sweden.  Productivity  growth  showed  no  marked  change
between  the  two  periods  in  the  Netherlands  and  Austria.  Such  differences  in  productivity
growth between EU member states are not only the result of different use of ICT, but in some
cases also reflect a catch-up process.

Annual average productivity growth in the EU-15 decreased by 0.1 percentage points between
the  first  and  the  second  half  of  the  1990s,  while  in  the  US,  it  increased  by  0.6 percentage
points. Productivity  growth  in  Greece,  Finland  and  Ireland  accelerated by  more  than  that  in
the US. The lack of acceleration in productivity  growth in some Member States may reflect
the slow rate of ICT diffusion and institutional rigidities. ICT is available for every one. Yet
the large differences  in  ICT investment and  in productivity  growth between  the  US  and  the
EU suggests that Europe has not fully exploited this potential.

3

4

The previous consolidation phase took place in 1989-1992.
The investment figures for Europe are estimates based on ICT expenditure. See Daveri, F., "Information
technology growth in Europe", University of Parma, 2001.

6

                                                
4.

WILL PRODUCTIVITY GROWTH BE SUSTAINED OVER THE LONG TERM?

Some researchers have suggested that the productivity surge in the second half of the 1990s in
the  US  is  only  restricted  to  the  narrow  ICT-producing  segment  of  the  economy  with  little
changes  in  the  remaining,  largest  component,  or  the  "old  economy".  It  has  also  been
suggested that part of the productivity surge in the 1990s was cyclical, and therefore would be
reversed in an economic downturn. Despite the current economic downturn, more  and  more
evidence  is  emerging  to  confirm  that  ICT  has  led  to  fundamental  changes  in  the  way  our
economies operate, and its effects on productivity are felt beyond the  ICT-producing sector.
Furthermore,  in  view  of  the  prospect  for  a  further  precipitous  decline  in  the  price  of
semiconductors and the qualitative improvements of the new generations of technologies, the
ICT sector will continue to make possible the introduction of new, more productive capital in
the economy at diminishing cost. If, as suggested by some, this process continues for at least
another ten years, the potential for raising the standards of living is substantial.

It is clear that the US has offered a fertile ground to the use of ICT and has realised substantial
productivity  gains  associated  with  these  new  technologies.  However,  the  US  has  also
outperformed the EU in other areas, including its superior employment performance. Europe
has  a  significant  need  to  catch  up  with  the  US.  However,  if  the  e-Economy  becomes  the
trigger leading to further  progress in opening up the internal  market  and  boosting  structural
reforms,  the  potential  benefits  could  be  even  larger  than  in  the  US.  Realising  this  potential
across  all  the  Member  States  is  a  crucial  challenge  ahead.  With  most  of  Europe  lagging
behind  the  US  in  terms  of  productivity  growth,  failure  to  draw  the  lessons  about  the
importance of ICT from both the rapidly advancing European countries, and from the US in
particular, will be a costly failure indeed.

II.

MICROECONOMIC  ASPECTS:  IMPACT  OF  THE  E-ECONOMY  ON
ENTERPRISES AND SECTORS

There is evidence to suggest that the e-Economy is leading to changes in organisational and
market structures. These essentially consist of:

–  Increased competition, resulting from lower barriers and the creation of new channels for

delivery of products and services;

–  New business models, with cost savings, better quality and customer-driven innovation;

–  New ways of buying and selling, with a further customisation of products and services;

–  New skills requirements.

The  impact  of  the  e-Economy  varies  substantially  from  sector  to  sector.  Information-rich
sectors such as digital goods, information services, financial and business services witness the
emergence  of  new  business  models  and  increased  market  competition.  In  industries  where
entry barriers are higher, such as construction and heavy engineering, the impact is likely to
be  more  gradual.  Digital  interactions  between  administrations  and  business  are  important
components of the e-Economy. By offering online access to public services, administrations
can add concrete, direct incentives for enterprises to go digital themselves.

7

1.

1.1

THE E-ECONOMY AS A CATALYST FOR CHANGE

Fast changing enterprise demographics

The faster pace of technological change, for which the widespread use of ICT is a catalyst, is
having  a  great  impact  on  the  structure  and  lifecycle  of  enterprises.  Firstly,  ICT  reduces  the
economic impact of distance and the cost of access to information, thus increasing the scope
for  competition  within  markets.  Secondly,  ICT  often  tends  to  lower  the  cost  of  setting  up
small enterprises thus, potentially, providing for additional competition. Thirdly, ICT creates
the  opportunity  for  new  co-operative  means  of  product  and  service  delivery  potentially
leading to improved quality and cost efficiency. Finally, and perhaps most importantly,  ICT
gives rise to many new products and services.

The process of creation of new enterprises and of adaptation or of replacement of traditional
enterprises is the way the economy adapts to new market conditions. This process, which is
the very essence of changes in the rate of economic growth has accelerated considerably since
the late 1990s. The  responsibility of policy  makers is to make sure  that  it can take place  as
effectively  and  smoothly  as  possible,  which  also  includes  ensuring,  through  the  appropriate
social "shock absorbers", that it does not disrupt the fabric of society.

1.2

New business dynamics: role of risk capital and market-based financing

ICT provides the trigger for change, but many important other conditions must be met for the
process  described  above  to  actually  take  place.  For  instance,  access  to  adequate  means  of
finance is so important that many analysts tend to identify it as one of the key factors behind
the spectacular performance of the US economy over the last decade.

Equity  capital  has  proved  more  appropriate  and  more  efficient  as  a  way  of  financing  new
ventures  than  traditional  bank  lending  which  remains  the  main  source  of  finance  for  many
SMEs, particularly outside the core e-Economy sector. Very often the new ventures that are
made possible by ICT tend to be based on an idea, a concept, a software application as well as
the  skills  and  energy  of  an  entrepreneur.  Enterprises  based  on  so  called  "intangible"  values
have  often  had  difficulty  raising  finance  from  traditional  sources.  However,  the  relative
weakness  and  fragmentation  of  the  risk  capital  in  Europe  constitutes  a  barrier  to  the
development of the e-Economy. Although the situation is improving, the EU venture capital
market remains only a fraction of that of the US, where pension funds play a major role. Early
stage  investments  in  2000  were  five  times  higher  in  the  US  than  in  Europe 5.  The  financial
environment in Europe is still insufficiently favourable to innovation, both technological and
organisational. Such handicaps have to be overcome in Europe so that the structural changes
will  take  place  swiftly  and  on  a  larger  scale.  As  requested  by  the  Lisbon  strategy,  the
European  Investment  Bank  with  its  "Innovation  2000"  initiative  and  the  Commission  under
the  Action  Plan 6  on  financial  services  and  the  multi-annual  programme  for  enterprises  and
entrepreneurship (2001-2005) have taken initiatives to contribute to the supply of risk capital
for innovative businesses.

5

6

Source: European Venture Capital Association (EVCA).
COM(1999) 232  final,  11.5.1999.  "Financial  Services:  implementing  the  framework  for  financial
market: Action Plan".

8

                                                
1.3

New ICT skills for a fast changing economy

New processes typically require new skills. Skills mismatches have traditionally been an issue
that  policy-makers  have  had  to  address  and  education  systems  have  always  been  under
pressure  to  adapt  to  changing  demands.  ICT  has  added  a  new  dimension  to  this  traditional
problem. ICT has changed production processes throughout the economy replacing traditional
tasks with process control tasks based on ICT. Employers are facing difficulties in recruiting
ICT skilled workers and on the other hand  ICT is eliminating repetitive tasks, thus reducing
the demand for unskilled workers.

Despite  the  recent  downturn  of  the  economy,  Europe's  long-term  demand  for  skilled  ICT
people remains strong. Short term events do not undermine the basic growth trend. There has
been  a  sharp  reduction  in  ICT  industry  growth  resulting  in  significant  redundancies.
Inevitably that does temporarily narrow the  gap between the supply of, and the demand for,
skilled  ICT  personnel.  However,  estimates  indicate  that  the  ICT  skills  gap  would  reach  the
amount of 1.5 million workers by 2003 7.

Enterprises  react  in  various  ways.  Some  are  outsourcing  some  ICT  functions,  thus  further
stimulating the market for ICT services and consulting enterprises. It allows them to acquire
technology and know-how more quickly, but not necessarily cheaply. The actual behaviour of
enterprises  suggests  that  the  scope  for  in-house  training  is  limited.  Additionally,  it  must  be
noted that much of the demand comes from SMEs, which often face substantial difficulties in
attracting qualified ICT and e-business professionals in competition with larger players which
absorb most of the available expertise.

The  ICT  skills  gap  is  a  major  risk  hampering  further  growth  in  Europe.  It  is  particularly
sensitive in Europe due to declining demographic trends and the decreasing level of interest of
young  Europeans  in  scientific  studies.  Legislative  measures  taken  by  some  of  our  trading
partners,  such  as  the  "US  Competitiveness  and  Workforce  Improvement  Act"  which  allows
visas for foreign professionals increase the competition for qualified workers in Europe. Many
young  Europeans  are  attracted  by  higher  pay  and  better  working  conditions  in  the  US.  The
cultural  and  regulatory  environment  in  Europe  often  limits  the  possibility  of  attracting  and
retaining  talented  foreign  professionals.  Restrictions  on  temporary  workers,  residency
requirements, pensions transfer, tax, sub-contracting arrangements and training subsidies are
further impediments towards greater attractiveness of Europe for ICT specialists.

2.

2.1

NEW BUSINESS MODELS FOR THE E-ECONOMY

Diverging sectoral impacts

A  key  differentiation  between  sectors  is  the  potential  for  cost  savings  and  productivity
growth.  For  decades,  ICT  has  been  used  to  boost  productivity,  improve  quality,  and  to  cut
costs.  However,  even  in  the  most  efficient  sectors,  Internet-based  applications  bring  a  new
dimension (see annex 3).

Cost  savings  are  a  compelling  motivation  to  engage  in  e-business.  The  move  from  first
generation  applications,  such  as  electronic  data  interchange  (EDI),  to  second  generation
Internet-based  e-business  applications  is  generally  acknowledged  to  result  in  further  cost
savings. In addition, e-business applications are capable of assisting with an enhanced product

7

Source: International Data Corporation (IDC), June 2001.

9

                                                
and service offering, such as step by step order tracking for customers and online after sales
service. This enables enterprises to respond more promptly and flexibly to market signals and
offer enhanced customer service in some sectors.

The  e-Economy  creates  a  significant  opportunity  to  use  different  collaborative  models  to
enhance  product  and  service  offerings  and,  therefore,  enhance  corporate  profitability.  For
example, just in time has been enriched by new forms of co-operation between manufacturers
and  their  networks  of  partners  across  supply  chains.  In  contrast  with  EDI,  new  forms  of
collaborative commerce allow not only more open relationships, but also a far wider range of
interaction. Typical models include real-time collaborative design, joint product development,
collaborative marketing and exchange of personnel. In some cases, enterprises share access to
their production and supply processes to partners – moving to full contact e-business.

2.2

Sectoral drivers and inhibitors

As a general rule, the more information-dependent sectors are, such as for example financial
services and ICT products and services, the higher the cost reductions and/or the productivity
gains  realised  and  the  deeper  the  extent  of  organisational  transformation.  For  sectors  which
have already implemented efficient production processes and operate in a highly competitive
environment  (e.g.  automotive),  e-business  represents  an  incremental  change  and  additional
efficiency gains, rather than a revolution (see annex 4 and 5).

Conversely,  the  more  diversified  the  market  structure  of  a  sector,  the  greater  the  potential
benefits  from  e-business.  The  textile  industry,  for  example,  with  its  highly  fragmented
structure, strong cross-border component, and rapid product rotation has been described as an
ideal  industry  to  benefit  from  e-business.  Similarly  the  tourism  industry  has  been  at  the
forefront of Internet use. This has been characterised by existing players re-engineering their
business processes and concentrating on added value services, and on the emergence of new
Internet-specific players. Another yardstick for the extent of transformation brought about by
e-business  is  the  degree  of  specialisation  of  an  enterprise.  Highly  specialised  SMEs  have
tended in some cases to exploit the opportunities afforded by e-business to offer their products
and services to new markets.

2.3

Spreading business innovation: from "dotcoms" to "traditional industries"

A  characteristic  of  the  e-Economy  is  the  emergence  of  new  business  models.  A  substantial
number  of  these  have  failed,  along  with  many  dotcoms.  Others,  however,  notably  in  the
business-to-business (B2B) area, have proved to be viable. Entering the e-Economy at a more
mature  stage  may  constitute  an  opportunity  rather  than  a  disadvantage  for  EU  enterprises.
Having learnt from the mistakes of pioneers, they can now use tried and tested technologies,
as  well  as  viable  business  models.  However,  for  many  enterprises  "going  digital"  and  fully
engaging into e-business is a complex process, which almost has taken more time and effort
than originally expected.

It  is  now  generally  accepted  that  traditional  industries,  rather  than  dotcoms,  are  likely  to
remain the driving  force  for the e-Economy in  Europe.  It is  B2B  rather than dotcom-driven
consumer  applications,  which  constitute  the  core  of  the  market,  being  forecast  to  generate
more than 90 % of all e-business revenues. It is also the area where Europe tends to be most
competitive. A specific driving factor for the e-Economy in Europe is the continued demand
for e-business technologies by user industries, in contrast with the US, where industries have
invested heavily in recent years and are now reining back investment.

10

3.

3.1

NEW DISTRIBUTION CHANNELS AND NEW MARKET DYNAMICS

Blurred boundaries, new distribution channels, new market organisation

In  the  e-Economy,  products  are  increasingly  becoming  "extended  products",  including  an
important  service  element.  Traditional  industries  are  increasingly  engaging  in  the  offer  of
value-added  services.  Retailers  have  started  to  offer  insurance  and  other  financial  services,
while  IT  manufacturers  have  continued  their  migration  from  "box  makers"  to  service
suppliers by adding  e-business services  to their portfolio.  In  some  sectors, such  as logistics,
the  migration  from  traditional  activities  –  carrying  goods  –  to  information  management  –
offering a "one-stop-shop" for all e-business needs – results in a radical transformation of the
core business. In many areas, more added value is derived from the service segment than from
the goods supplied.

Many businesses are moving towards a mixed model of on-line and physical presence (the so-
called  "bricks  and  clicks"  model).  Internet-oriented  enterprises  are  starting  to  acquire  the
characteristics of traditional enterprises, such as warehouses and chains of shops. Conversely,
traditional retailers are starting to shift part of their activities on-line, adding new distribution
channels  and  new  sourcing  strategies.  This  process  of  hybridisation  fuelled  by  the
consolidation  of  dotcoms  has  resulted  in  different  market  dynamics.  In  most  areas,  the
reorganisation  of  distribution  channels  simply  results  in  increased  price  transparency  and
heightened  competition.  In  others,  e-business  is  de  facto  challenging  the  status  quo  and  in
some cases highlighting the consequences of quasi-monopolies created by law or regulation.
This is the case in sectors with prescribed  distribution channels,  as  in  pharmaceuticals or in
regulated professions, such as the legal and medical professions etc. In this sense, e-business
contributes to erosion of market niches, bringing competition into new areas.

The e-Economy is increasingly becoming dependent on an information infrastructure, which
underpins  any  business  process  and  transaction.  It  is  characterised  by  unprecedented
dependence  on  other  infrastructures  like  energy,  telecommunications,  finance,  transport  etc.
Enterprises  also  increasingly  need  to  define  and  manage  the  risks  associated  with  extended
and  dynamic  enterprise  configuration.  Corporate  profitability  will  increasingly  depend  on
mobile  and  distributed  resources,  based  on  temporary  strategic  partnerships  as  well  as  on
networks  of  clients, suppliers  and intermediaries.  This  implies  that  organisational,  legal  and
technical processes need to be considered holistically.

The Commission has sought to contribute to the ability of enterprises to assess opportunities
and  risks  holistically.  For  example,  the  Communication  on  network  security 8  foresees
concrete  measures  for  awareness  raising  and  best  practice  dissemination  in  that  area.
However, substantial work remains to be done. The challenge is to ensure economic security,
which will unavoidably rely on a predictable  and dependable functioning of the information
infrastructure, while enabling enterprises to conduct business in an open environment.

8

COM(2001) 298  final,  6.6.2001.  "Network  and  information  security:  proposal  for  a  European  policy
approach".  The  Communication  foresees  measures  to  improve  co-ordination  among  Member  States
(e.g.  collection  and  diffusion  of  information  on  emerging  security  threats);  to  ensure  more  efficient
standardisation and certification; to provide better legal protection against cybercrime; to enlist active
support from governments in using secure solutions for public services; and to strengthen international
co-operation.

11

                                                
3.2

E-marketplaces: a potential catalyst for the internal market

E-marketplaces are a specific aspect of "collaborative e-business". Several hundred public and
private e-marketplaces were launched over the past two years in the US and in Europe. Some
of  these  were  sector-specific  addressing  the  needs  of  an  industry,  others  were  horizontal.
Some were formed by consortia of either buyers or sellers; others were set up by third party
operators or technology providers. The way e-marketplaces work has been well documented.
These establish communities of buyers and sellers and mechanisms that allow enterprises to
participate  cost  effectively  in  global  markets.  In  addition  to  technical  interoperability,
e-marketplaces  require  compatibility  between  business  practices,  e.g.  common  catalogues,
payment  methods  and  security.  Here,  XML-based  standards  that  are  being  developed  by
industry consortia could potentially play a very important role.

E-marketplaces  offer  opportunities  to  source  a  wide  range  of  products  from  fragmented
sources. In that respect they may offer opportunities for SMEs to broaden their customer base.
However, in reality, the vast majority of independent e-marketplaces have failed to establish a
viable revenue base. As they condition opportunities for economic development, notably  for
SMEs,  e-marketplaces  potentially  raises  important  public  policy  questions  about  openness,
rules of participation, ownership and control. E-marketplaces also pose concrete problems in
the  area  of  trust  and  confidence,  such  as  the  need  for  quality  standards  to  assess
trustworthiness of trading partners, and commonly agreed product specification. As such they
call for consensus building and the development of industry-led business standards.

3.3

B2C: a new relationship between enterprises and consumers

The  potential  of  business-to-consumer  (B2C)  remains  to  be  tapped.  Its  penetration  in  retail
sales remains at about 1 % in the EU. The lack of a real take-off can be attributed partly to an
inability of enterprises to develop  compelling offers and successful business models and the
failure  to  address  the  security,  confidentiality  and  product/service  delivery  concerns  of
customers. One early conclusion is that pure play B2C models seem unlikely to flourish. The
most promising experiences are bricks and clicks models, which synthesise the best of the on-
and off-line worlds.

Differences  in  the  regulation  of  on-  and  off-line  commercial  practices  clearly  hinder  those
enterprises trying to seamlessly integrate their on- and off-line worlds. EU policy is helping to
address these obstacles. The internal market, as the biggest pool of consumers in the world, is
also potentially a big enough market able to sustain a very diverse e-Economy. The advent of
euro notes and coins could provide a major psychological boost to cross-border shopping. To
make  this  potential  a  reality,  policy-makers  need  to  address  the  obstacles  to  consumer
confidence in shopping cross-border and to business in making offers cross-border.

3.4

Delivering the e-Economy: a key role for logistics in sustainability.

Most  of  the  new  business  models  typical  of  the  e-Economy  are  dependent  on  efficient
logistics.  Logistics  play  a  key  role  in  increasing  the  efficiency  of  supply  chains,  and  in
implementing e-marketplaces and new forms of collaborative commerce. The logistics sector
is therefore a powerful force – not only as a facilitator for other businesses, but as a pioneer of
the  e-Economy  itself.  The  choice  of  transport  mode  now  permits  what  some  would  term
e-materialisation  where  goods  formerly  moved  physically  are  shipped,  at  least  in  part,
electronically to places of distribution closer to the customer. While the core business remains
the efficient delivery of goods, in particular across borders, global logistics  enterprises have
enhanced their information  management  capability.  Services  offered include not  only  added

12

functionalities,  such  as  parcel  tracking,  tax  collection,  automated  calculation  of  "landed
costs", but also the provision of a one-stop shop for e-business needs.

In terms of sustainability 9, the challenge for logistics is to substantially reduce environmental
and energy impact of the enhancement of e-business revenues. In line with the Conclusions of
Gothenburg  European  Council,  it  is  intended  that  the  link  between  economic  growth  and
transport  growth  can  be  broken  without  restricting  mobility,  by  making  transport  more
effective and efficient. While e-business is seen to increase the individual consignments to be
delivered  and  has  the  potential  to  increase  the  number  of  vehicles  involved  in  delivery,
efficient logistics can reduce the harmful impact especially on congestion and in pollution by
reducing  wasted  kilometres  travelled  and  the  proportion  of  low  load  factor  and  empty
running.  Already,  highly  efficient  grouping  and  shipment  brokerage  systems  are  increasing
load  factors  on  road  and  rail  in  Europe.  In  particular,  mobile  data  services  offer  logistics
enterprises  more  efficient  way  of  matching  demand  with  available  capacity.  Thus,  delivery
consolidation for SMEs is likely to be one of the first applications driving e-business through
mobile networks.

3.5

The mobile dimension: a strategic opportunity for Europe

Mobile  communications  are  a  potential  new  dimension  to  the  e-Economy.  This  potentially
represents  a  strategic  opportunity  for  Europe.  Mobile  communications  have  been  an
outstanding success in the EU. Penetration rates for GSM (about 70 % today, 85 % expected
in 2003) put Europe well ahead of the US. The challenge is to turn EU leadership in mobile
communications into competitive advantage for mobile business.

Next generation applications, based on intermediary technologies or full third generation (3G)
standards, are expected to have an important impact in the consumer environment, and in the
enterprise environment. A broad range of enterprises (e.g. retail, banks, and business services)
is working actively to develop commercially viable consumer and business applications. The
economics  of  3G  will  not  solely  be  based  on  voice  telephony,  but  also  additional  related
services  (such  as  e-mail  or  location)  and  content.  This  may  open  possibilities  for  a  broad
range of enterprises (retail, banks, business services) to be involved not only as users, but also
as participants in the design and implementation of innovative, added value services.

However,  to  date  3G  environment  has  posed  considerable  –  and  mostly  unanswered  –
challenges. This includes the part to be played by various stakeholders, especially the content
industry  and  new  intermediaries,  in  the  creation  of  value  and  in  the  control  of  revenue
streams. Mobility  is  adding  a new  dimension  to  "classic"  e-business  issues,  such  as  privacy
and security. Innovative developments such as location-based marketing or mobile access to
critical  business  functions  for  the  mobile  workforces  pose  new  legal  and  management
challenges.  Service  providers  are  also  faced  with  financial  burdens  arising  from  licence
acquisition costs and the costs of establishing an appropriate 3G infrastructure. Similarly, the
role  of  intermediary  technologies  is  still  unclear.  Finally,  international  competition  is
growing. Japan made some advances  in the  next generation of mobile data services,  though
even in Japan there have been some technical difficulties in delivering services to end users.
The success of I-Mode, closely watched by European operators, may give useful pointers for
business success. It may also prove substantial competition in the global e-Economy.

9

The  White  Paper  on  the  "European  Transport  Policy  for  2010:  time  to  decide"  seeks  to  redress  the
negative  consequences  arising  from  the  increased  demand  for  mobility,  through  a  range  of  measures
including transport infrastructure charging; a shift away from road modes to revitalised other modes and
targeted investment.

13

                                                
III.

IMPLICATIONS  FOR  ENTERPRISE  AND  RELATED  POLICIES,  A
CENTRAL ROLE FOR ENTREPRENEURSHIP

The  e-Economy  has  become  a  wide-ranging  phenomenon,  cutting  across  geographical
boundaries and industry sectors. It also cuts across a whole range of European policies. The
analysis  of  the  effects  of  the  e-Economy  at  the  macro  and  micro  levels  provide  additional
justification  for  the  policy  orientation  that  the  EU  has  given  itself  at  Lisbon,  and  that  the
Commission is implementing through various initiatives.

Entrepreneurship is the central pillar of the Lisbon strategy. It is also an essential prerequisite
for  the  e-Economy.  Entrepreneurship  is  one  of  the  most  important  drivers  of  dynamic
economies and enterprises. Fostering entrepreneurship calls for a holistic approach, consisting
of a series of complementary measures to ensure a more favourable business environment, to
encourage more risk taking, to create a market for new skills and for new attitudes. It calls for
the removal of barriers to the creation and growth of new enterprises and to the transformation
of existing ones, as well as for providing incentives to reward mobility and facilitate access to
capital.  The  Lisbon  strategy  called  also  for  strengthening  the  European  efforts  on  RTD  and
innovation  in  order  to  achieve  by  2010  the  goal  of  turning  Europe  into  a  knowledge-based
economy, exploiting the potential of the information society. The Commission's proposal for
the  Framework  Programme  (2002-2006)  is  fully  committed  to  this  objective  in  the  overall
context of the progressive build-up of a European Research Area.

In order to ensure that sufficient focus is given to the needs of enterprises in the e-Economy,
the issues described below will need to be further addressed at Community level.

1.

FOSTER FULL PARTICIPATION BY SMES IN THE E-ECONOMY

The e-Economy in Europe depends, to an significant extent, on the full participation of SMEs.
The eEurope Go Digital initiative 10 provides a first policy response to this challenge. It aims
to  ensure  that  European  enterprises,  and  in  particular  SMEs,  fully  embrace  e-business  and
become active participants in the e-Economy. This includes, in particular, the benchmarking
of national strategies in favour of e-business for SMEs, raising awareness and promoting best
practices, and providing support for SMEs. As a rolling action plan, Go Digital will continue
to identify and address the obstacles encountered by SMEs.

In particular, SMEs are keenly interested in interoperability of solutions, open standards and
robust  technical  applications.  They  are  crucially  dependent,  to  an  even  greater  extent  than
larger enterprises, on the dependability and reliability of networks and information. They are
also  particularly  vulnerable  to  security  threats,  which  might  disrupt  business  and  hurt  their
economic  viability.  SMEs  need  a  clear  and  predictable  legal  framework,  as  well  as  easy
access  to  legal  advice  on  applicable  law  and  existing  codes  of  conduct.  Unlike  larger
enterprises,  who  are  able  to  call  upon  in  house  legal  resources  or  purchase  such  resources
externally,  SMEs  often  lack  the  necessary  expertise  and  financial  resources  –  making  it
essential to develop easily available on-line legal information and  affordable  advice tailored
to their needs. Finally, in their relations with public administrations, they are likely to be the
first  beneficiaries  of  e-government  initiatives.  These  can  also  add  a  tangible  incentive  for
SMEs to go digital. Indeed, electronic filing of taxes, implemented in a number of Member

10

COM(2001) 136 final, 13.3.2001, "Helping SMEs to Go Digital".

14

                                                
States,  has  been  identified  as  one  of  the  main  drivers  for  SMEs  to  participate  in  the  e-
Economy.

There is therefore a need to:

–  Foster  open  standards  and  certification  procedures.  This  is  why  the  Commission  will

continue active support to the eEurope standards action plan;

–  Reinforce the security of networks and of information. This will entail specific actions to
raise  awareness  and  spread  best  practices,  not  only  in  the  area  of  available  technology
solutions, but also in that of security processes and of risk management;

–  Encourage public administrations to be at the leading edge of on-line service delivery, and
to  provide  appropriate  incentives  for  SMEs  to  access  such  services,  particularly  in  key
areas  such  as  e-procurement,  e-tax  and  social  security  compliance,  online  business
registration,  on  line  compliance  with  employment  legislation,  licensing  regulations,  and
patent registration etc;

–  Contribute to reinforcing legal certainty for SMEs engaging in cross border e-business, not
only  through  the  implementation  of  a  clear  and  predictable  legal  framework,  but  also
through  the  user-friendly  availability  of  easily  accessible,  affordable  and  practical  legal
advice on applicable law and available codes of conduct. To that effect, the legal portal for
SME project will be reinforced and further developed;

–  Optimise the use of existing resources, such as structural funds and RTD budgets, to foster

the above goals, notably to launch pilots and dissemination activities.

2.

ENSURE APPROPRIATE SKILLS FOR THE E-ECONOMY

Skills underpin entrepreneurship. Both issues are very tightly interrelated. The problem of the
skills  gap  -  both  in  terms  of  entrepreneurial  skills  and  technical  ICT  skills  -  has  been
addressed  through  a  number  of  important  initiatives,  notably  in  the  European  Employment
Strategy 11  as  well  as  in  the  eLearning  Action  Plan 12  (2001-2004)  and  the  Career  Space
initiative 13.  In  addition, the High  Level  Task  Force on  Skills  and  Mobility  endorsed  by  the
Stockholm European Council, and drawing on expertise from business, education and social
partners,  has  focused  on  the  issue  of  skills  shortages  and  occupational  mobility  within  the
European labour market, and is expected to recommend a series of policy initiatives to form
the basis of the Commission's Action Plan on Skills and Mobility in 2002.

However, specific attention needs to be given to the enterprise dimension of ICT skills. The
question  is  how,  specifically,  the  ICT  and  e-business  skills  gap  affects  enterprises,  notably
SMEs – both ICT and end user industries. There is a need to close the supply and demand gap
rapidly, and provide concrete solutions to help EU enterprises adapt to the e-Economy, even

11

12

13

The European Employment Strategy includes relevant guidelines to Member States on training for the
unemployed, lifelong learning, e-learning, skill bottlenecks, education and training for entrepreneurship,
and  digital  literacy  as  part  of  workers'  wider  adaptability.  Parallel  initiatives  include  in  particular  the
Commission's  Communication  on  "Strategies  for  Jobs  in  the  Information  Society",  COM(2000) 48
final, 4.2.2000, and its follow-up report SEC(2001) 222, 7.2.2001. "Benchmarking Report following-up
the "Strategies for jobs in the Information Society".
COM(2001) 172 final, 28.3.2001. "The eLearning Action Plan – Designing Tomorrow’s Education".
Career Space is a major industry-led initiative. See: http://www.career-space.com.

15

                                                
before the  Lifelong  Learning Communication 14 and other  horizontal  initiatives  start  to  bear
fruit.  Enterprise-focused  policy  actions  should  concentrate  on  concrete  and  pragmatic
solutions.  In this  respect a  number  of  tools  should  be  explored,  including  tax  incentives  for
mobility  and  maximising  the  range  of  skill  development  tools  used  by  enterprises  (e.g.
knowledge networks, and corporate universities or skills programmes set up by industry and
business schools) etc.

Taking  into  account  these  challenges,  and  in  conformity  with  the  European  Employment
Strategy, there is a need to:

–  Reinforce  the  dialogue  with  all  stakeholders  and  foster  public-private  partnerships  to

accelerate the development of focused skills programmes and e-learning solutions;

–  Strengthen on-going initiatives at all levels to help enterprises, especially SMEs, to acquire
ICT  and  e-business  skills,  support  industry-led  initiatives  and  foster  co-operation  with
applicant countries;

–  Monitor the demand for ICT and e-business skills in Europe, benchmark national policies,

and make policy recommendations to foster the supply of skilled workforce;

–  Strengthen co-operation and co-ordination at the European level to maximise the impact of

existing instruments;

–  Launch focused projects in 2002, in close co-operation with Member States and the private
sector,  which  aim  to  address  the  specific  needs  of  enterprises,  including  SMEs.  These
projects would support and complement the activities of the ICT skills monitoring group 15.

3.

MAXIMISE THE OPPORTUNITIES OFFERED BY THE INTERNAL MARKET

The e-Economy has the potential to provide a further boost to the internal market. Increased
transparency of prices, strengthened by the euro, and wider choice and ease of ordering across
borders are strong catalysts for the internal market. However, the development of e-business
highlights  the  limitations  of  existing  legislation,  both  at  Community  level  and  at  national
level. Variations in national approaches to facilitating the internal market are becoming more
visible, as are potential distortions between  alternative distribution channels and the risks of
distortion of competition between EU and non-EU enterprises.

Regulation  should  facilitate,  not  hinder,  the  development  of  the  e-Economy.  Differences  in
the regulation of on and offline commercial practices clearly hinder the enterprises trying to
seamlessly integrate their online and offline offers In the area of electronic services, the legal
foundation has been laid by e-Commerce Directive 16. There is a need to systematically assess
the  extent  to  which  existing  legislation  remains  adequate  to  address  the  needs  of  the  e-
Economy. Further work still needs to be done, notably in the area of product legislation and
consumer  protection,  as  well  as  in  the  area  of  off-line  services 17.  Policy-makers  need  to

14

15

16

17

COM(2001) 678 final, 21.11.2001. “A European Area of Lifelong Learning”.
See: http://europa.eu.int/comm/enterprise/ict/policy/ict-skills.htm.
Directive 2000/31/EC, OJ L 178, 17.7.2000, p. 1.
For  this  reason,  the  Commission  has  launched  "An  Internal  Market  Strategy  for  Services"  -
COM(2000) 888 final, 29.12.2000 and a Green Paper on EU consumer protection that addresses many
of  these  issues,  COM(2001) 531  final,  2.10.2001.  It  has  also  come  forward  with  a  proposal  for  a
Regulation concerning sales promotions in the Internal Market, COM(2001) 546 final, 2.10.2001.

16

                                                
address  the  obstacles  to  consumer  confidence  in  cross-border  shopping  and  to  business  in
making cross-border offers.

EU  policy  has  a  continuing  role  to  play  in  addressing  the  obstacles  confronting  enterprises
which  try  to  develop  e-business.  It  is  also  important,  in  the  interests  of  transparency  and
accessibility, that product legislation and product standards are  available on-line to facilitate
compliance.  Moreover, the  global nature of e-business is challenging  the  appropriateness  of
the  existing  conformity  assessment  procedures,  notably  where  third  country  manufacturers
seek  to  certify  their  products  in  the  EU.  There  is  also  a  need  to  further  review  product
legislation to ensure that it is neutral as between on-line and off-line distribution. E-business
is  increasing  the  number  of  cross-border  transactions  and  this  may  lead  to  conflict  between
different national rules on the distribution of products (e.g. distance selling of pharmaceutical
products).  In  parallel,  e-business  poses  new  challenges  in  terms  of  market  surveillance  and
enforcement  of  product  legislation,  both  in  the  B2B  (e.g.  illegal  chemicals)  and  B2C  (e.g.
medicines  not  approved  in  the  EU).  There  is  a  need  to  ensure  that  market  surveillance
authorities will be able to effectively ensure that products sold online in their territory by non-
EU enterprises comply with the relevant EU product legislation.

Not all problems can be resolved by legislation. Self-regulation can play an important role in
establishing  trust  and  confidence  between  partners  in  electronic  transactions.  Public  policy
should be aimed at raising credibility for self-regulation and to ensuring that codes of conduct
are respected, through the availability, should they be required, of legal remedies.

In order to address these issues, there is a need to:

–  Continue to review existing product legislation, in particular certification requirements and
procedures  to  ensure  that  they  are  neutral  as  between  different  means  of  product  and
service delivery;

–  Analyse  the  impact  of  e-business  on  different  distribution  channels,  and  in  particular
potential  conflict  between  legislation  in  different  Member  States  (e.g.  with  respect  to
marketing and advertising);

–  Strengthen  market  surveillance,  in  particular  with  respect  to  illegal  imports  and  unfair
commercial practices from third countries, and to improve co-ordination and co-operation
between Member States in this field;

–  Simplify  and  harmonise  the  regulatory  framework  to  enable  rapid  development  of  pan-
European  businesses;  promote  fair  trade  in  both  the  B2B  and  B2C  environments,  in
particular through the reinforcement of self-regulation mechanisms;

–  Continue to analyse the transport and logistics implications of the e-Economy.

4.

PROMOTE OPENNESS AND COMPETITION

The  development  of  the  e-Economy  and  in  particular  innovative  new  business  and  market
models  is  likely  to  increase  competition.  It  potentially  increases  market  transparency,
contributes  to  the  further  integration  of  separate  geographical  markets,  and  facilitates
expansion into new global markets. However it also raises potential challenges. Data is often
hard  to  find  and  products  and  services  are  often  technically  complex  and  fast  changing  -
raising questions about the definition of the relevant market.

17

Existing  competition  rules  provide  powerful  and  flexible  instruments  to  prohibit  anti-
competitive activities, as prohibition of anti-competitive activities is laid out in general terms.
A number of  issues for concern have emerged  in relation  to infrastructure  (communications
infrastructure, domain names, and encryption) as well as services (B2B exchanges, consumer
portals, online music, interactive television services). Fears have been expressed in particular
about market dominance, control of information, joint purchasing and selling, discrimination,
and collusion. Competition authorities in the EU, the US and the Member States have recently
examined  a  number  of  individual  cases,  notably  in  the  automotive  and  financial  services
sectors. So far, the majority of these have not raised undue concerns about the risks of anti-
competitive  behaviour,  and  been  given  the  green  light  by  competition  authorities.  While  no
reform  of  competition  rules  seems  necessary,  the  Commission  will  keep  abreast  of
developments in order to ensure a coherent application of  existing competition rules in both
on-line  and  off-line  environments.  The  goal  is  to  minimise  restrictions  on  competition,  and
prevent market dominance.

Standardisation  also  provides  another  powerful  tool  to  promote  openness.  European
standardisation, a voluntary industry-led consensus-building process, has contributed to create
a  level  playing  field  for  products.  However,  the  e-Economy  raises  new  challenges  for
standardisation.  The  development  of  digital  technologies  and  the  advent  of  the  Internet  are
further blurring the borders between telecommunication, broadcasting and IT. New integrated
services,  products  and  applications  are  emerging.  In  addition,  the  e-Economy  is  by  nature
global and market-driven. Considerable amount of co-operation between stakeholders will be
required to solve technical and organisational interoperability problems.

The  Commission  has  a  keen  interest  in  ensuring  that  the  European  standardisation  system
provides  an  open,  neutral  and  transparent  platform  for  participation  in  the  e-Economy.  The
main  issue  for  standardisation  is  to  offer  to  all  relevant  European  stakeholders  (service
providers  and  consumers)  common  platforms  in  order  to  both  increase  the  economic
efficiency of enterprises and to support the wider public interest in achieving the objectives of
competition  policy.  European  standardisation  should  therefore  reflect  on  its  organisational
structures,  including  the  role  of  the  national  standards  bodies,  in  order  to  respond  to  the
challenges raised by the e-Economy. The Commission finalised recently a report indicating in
particular,  how  standards  and  other  forms  of  voluntary  agreements  can  be  better  used  to
ensure  the  openness  of  e-marketplaces  and  to  build-up  the  necessary  level  of  trust  and
confidence 18.

In this context, there is a need to:

–  Continue to assess potential competition issues, on a case by case basis;

–  Promote  the  development  of  codes  of  conduct  in  the  B2B  and  B2C  area,  notably  to

guarantee access and openness in e-marketplaces;

–  Support  standardisation  activities,  both  formal  and  informal,  notably  in  support  of  the

eEurope 2002 Action Plan;

–  Discuss  with  Member  States  and  other  stakeholders  on  the  role  of  "new  standardisation
deliverables", based on more flexible rules and faster adoption, in support of EU policies.

18

COM(2001) 527 final, 26.9.2001. "Report on the actions taken following the Resolutions on European
standardisation  adopted  by  the  Council  and  the  Parliament  in  1999".  The  Council  pointed  to  these
challenges in its Resolution on the role of standardisation in Europe of 28 October 1999, OJ C 141 of
19.5.2000.

18

                                                
5.

PROMOTE E-ECONOMY RESEARCH

To  remain  competitive  European  enterprises  must  evolve  towards  ICT-intensive  production
systems. However,  ICT is  a  highly labour  intensive service  still  representing relatively  high
costs for  many  enterprises.  In  addition  the  accessibility,  functionality  and  openness  of  ICT-
based  systems  still  fall  short  of  user  expectations  in  too  many  cases.  Taken  together,  these
facts risk slowing down the further integration of ICT within enterprises. Research activities
are needed to fill these gaps, mainly by developing user friendly, affordable and interoperable
technical solutions that are crucial for supporting the development of the e-Economy among
enterprises.

the  modernisation  of  European  enterprises 

Moreover, 
the  e-Economy  requires
complementary  research  efforts  not  only  in  the  area  of  technology,  but  also  with  regard  to
related  socio-economic  issues  and  to  the  effects  on  human  resources.  European  research
efforts are aimed, inter alia, at promoting skills, mobility and sectoral training plans, and at
encouraging new interdisciplinary working practices.

in 

There is therefore a need to:

–  Support ambitious multidisciplinary research activities for more flexible, knowledge-based

and sustainable enterprises in the e-Economy;

–  Stimulate management of change in the organisation of enterprises within the e-Economy,
through research and demonstration activities (e.g. on efficient and reliable B2B and B2C
operational tools optimising the overall value chain);

–  Launch take-up initiatives addressing issues such as:

- technologies  and  applications  with  a  global  dimension  for  the  competitiveness  of
enterprises (e.g. mobile business and e-work environments);

- solutions to strengthen the functioning of the internal market (e.g. interoperable EU-wide
financial and e-logistics systems, e-government, security solutions);

- indicators,  metrics,  modelling  and  scenarios  for  the  e-Economy  for  mid-  to  long-term
assessment of the impact of technology and enterprise policies.

6.

INCREASE EFFICIENCY IN GOVERNMENT-BUSINESS RELATIONSHIPS

Exchanges between business and public administrations are a potentially powerful driver for
the  e-Economy  i.e.  an  area  where  public  authorities  can  influence  behaviour  through
providing  positive  examples  of  on-line  applications.  In  particular,  public  authorities  should
offer on-line services aimed at lowering administrative costs for  citizens and enterprises. To
do  this  it  is  necessary  to  try  to  ensure  that  e-government  solutions  are  not  developed  at  a
different  pace  and  using  different  technical  strategies  than  those  adopted  by  commercial
enterprises. This applies, for example, to payment mechanisms and authentication procedures.
In  parallel  with  the  removal  of  discrimination  against  electronic  signatures  and  electronic
contracts  in  the  business  environment,  discrimination  against  electronic  filing  of  official
documents should be progressively abolished. In this respect, the use of open standards  and
off the shelf applications is the key to ensure interoperability.

19

Similar openness should be achieved across  borders,  especially  where  there  is  an impact  on
internal market objectives i.e. e-government applications should as far as possible be open not
only to enterprises within an individual Member State, but to all European enterprises.

In this respect, there is a need to:

–  Foster  the  online  availability  and  exchange  of  information.  This  should  happen  at  all
levels,  between  manufacturers  and  public  authorities,  between  different  administrations
and with certification and standardisation bodies. The Commission will encourage Member
States to offer the possibility of e-registration of products;

–  Promote  interoperability,  both  in  terms  of  infrastructure  like  electronic  signatures,  cross
certification and smart cards, as well as in terms of service standards. The aim is to ensure
broad interoperability both across borders and between administrations and business;

–  Benchmark  online  services  of  public  administrations  in  Member  States.  To  this  effect,  a

study will be launched to assess existing solutions and to highlight best practice.

20

CONCLUSION

In  March  2001,  the  e-Economy  conference  organised  by  the  Commission  brought  major
European business leaders together with President Prodi and six European Commissioners to
discuss  the  transformation  of  the  European  economy  arising  from  the  wide  ranging
enhancement  of  the  use  of  ICT.  It  is  now  generally  accepted  that  the  increased  use  of  ICT
leads  to  productivity  gains  and  hence  improves  the  competitiveness  of  enterprises  and  the
economy as a whole, leading to higher economic growth than otherwise achievable.

The recent economic downturn and the collapse of many dotcoms have demonstrated that the
"new"  economy  is  as  exposed  to  the  ups  and  downs  of  the  economic  cycle  as  the  so-called
"old"  economy,  and  that  sound  management  is  indispensable  for  the  survival  of  any
enterprise. This, however, does not distract from recognising the potential of ICT to increase
the productivity of enterprises, to improve their organisational efficiency, and to optimise the
design  of  the  value-chain.  Indeed,  the  Commission  firmly  believes  that  the  successful
integration of  ICT in  the  core  business  processes  of  enterprises  is  fundamental  for  ensuring
continuous and sustainable competitiveness both at macroeconomic and firm level.

This is why it is important to spread the knowledge of the possibilities offered by ICT among
European  enterprises.  In  this context,  the  "Helping  SMEs  Go  Digital"  initiative  launched  in
2001 is an important policy  step  to  help  Europe’s  19 million  SMEs  to  harness  the  potential
benefit of ICT and e-business.

This  Communication  highlights  the  next  steps  that  will  have  to  be  taken  to  ensure  that  the
benefits  arising  to  European  enterprises  from  the  e-Economy  are  maximised.  These  steps
encompass the fostering of a culture of entrepreneurship and innovation; enhancing ICT skills
levels necessary  to  participate  effectively in  the  e-Economy;  raising  the  ability  of  European
enterprises to compete in a modern global economy; and further improving the functioning of
the internal market.

These challenges must be addressed through a clear and shared vision as well as a long-term
strategy  for  enterprise  policy.  The  practical  implementation  of  policy  measures  will  require
good  and  timely  co-ordination.  This  will  require  a  strong  commitment  from  the  relevant
stakeholders to take up the challenge of the Lisbon European Council, i.e. to make Europe the
most  competitive  and  dynamic  knowledge-based  economy  within  ten  years.  This  will  also
require  the  systematic  integration  of  the  "e-dimension"  into  all  EU  policies  relevant  for
European enterprises, including SMEs.

To  this  end,  in  2002  the  Commission  will  intensify  the  debate  and  deepen  its  co-operation
with  all  relevant  stakeholders,  including  Member  States,  industry,  consumers  and  social
partners,  to  develop  an  agenda  for  maximising  the  benefits  of  the  e-Economy  for  European
enterprises.

21

Annex 1:
GDP, productivity and employment growth

GDP growth

IRL

FIN

USA

P

S

10

9

8

7

6

5

NL

4

E

EL

B

UK
DK

A

F

EU-15

I

D

3

2

1

0

FIN

USA

NL

E

P

EL

S

B

UK

EU-15

DK
F

I

A

D

IRL

5

4

3

2

1

0

1

2

3

4

5

6

Total Factor Productivity growth

Employment growth

Percentage changes, annual average

This chart presents data on GDP growth, employment growth and productivity growth 19 for
the period 1996-2000 for the EU member states and the US.

It can be seen that all countries have recorded GDP growth rates above those of employment,
thus  experiencing  rising  labour  productivity  during  this  period.  In  particular,  however,  a
group of nations – Ireland, Finland, the Netherlands, Spain and the US – stand out as having
recorded the best combination of output and employment growth during this period. Another
group  consisting  of  Germany  and  Italy  has  recorded  the  worst  combination.  The  remaining
Member States and the EU-15 average cluster between these groups.

19

Measured  by  total  factor  productivity  (TFP)  growth.  TFP  represents  that  part  of  output  growth  not
explained by the growth in the capital and labour input, and is believed to represent the contribution of
technology, including recently the contribution of information technology, to economic growth.

22

                                                
Annex 2:
Difference in total factor productivity growth

3

2

1

0

-1

GR

IRL

B

F

USA FIN

D

P

NL

A EU15

S

L

I

UK

DK

Difference between 1995-2001 and 1990-1995 in period averages in percentage points.

Source: European Commission – Ameco Database

Annex 3:
B2B estimated cost savings by sector

Estimated savings

11 %
10 %
2 %
5-15 %
11-20 %
29-39 %
3-5 %
15-25 %
15-20 %
5 %
12-19 %
22 %
10-15 %
5-15 %
10 %
11 %

Sector
Aerospace machining
Chemicals
Coal
Communications
Computing
Electronic components
Food ingredients
Forest products
Freight transport
Health care
Life Science
Machining (metals)
Media and advertising
Oil and gas
Paper
Steel

Source: Goldman Sachs (2000)

23

Annex 4:
E-marketplaces "take up index" by sector

Source: Forrester Research (2001)

Annex 5:
Three case studies

CASE STUDY 1: THE AUTOMOTIVE INDUSTRY

Building on extensive use of EDI, the automotive industry has pioneered innovative uses of
Internet  technologies.  In  the  supply  chain,  a  plurality  of  Internet  based  platforms  were
launched, some enterprise specific  (e.g.  BMW),  some  shared  by  a number of manufacturers
(Covisint) and some operated by IT enterprises (e.g. IBM). The rationale is to redefine supply
chain  integration,  through  more  open  communication  between  manufacturers  and  suppliers,
and enhanced functionality (negotiating tools, collaborative design software). Such efforts at
supply  chain  re-engineering  are  part  of  a  broader  transformation,  which  includes  the
e-enabling of internal processes within enterprises and ultimately embracing customers.

In terms of cost reduction, the industry estimates that economies will come from:

–  A reduction of supply prices due to increased competition among suppliers (estimates from

3 to 14 %, according to Ford),

–  A reduction in business transaction costs (to fall by 90 %, according to Daimler Chrysler),

–  Speedier communication, faster delivery, and reduction of inventory costs. In this area, the
Internet is deemed to provide substantial cost advantages compared with previous "just in
time" systems. Overall, the goal is to reach total supply chain costs savings of 3 500 Euros
per vehicle (Ford 2001).

24

In addition to cost reduction, e-enabling the enterprise provides crucial business advantages:
shorter time to market, better response to market changes, lower inventory and built to order
products. Simultaneously, deeper collaboration allows for optimised (real-time collaborative)
product development, better procurement (including on-line requisitioning and tendering), and
more  effective  supply  chain  management  operations  (real  time  visibility  across  the  whole
supply  chain,  optimised  inventory  management  and  improved  logistics  management);
e-marketplaces  have  been  a  highly  visible  development.  Covisint  was  launched  in  October
2000. It links manufacturers (the four founders i.e.  Ford, General Motors, Daimler Chrysler
and Renault-Nissan, joined later by five other manufacturers) and component enterprises. This
proved  to  be  far  from  easy  to  deliver  in  practice  and  faced  numerous  challenges,  including
legal uncertainties, technological difficulties, and commercial  issues, such as  culture change
and parallel market making activities by its backers. Covisint has emerged  from its  teething
troubles but it illustrates the considerable difficulties of establishing new marketplaces.

B2C  has  not  yet  had  the  revolutionary  effect  predicted  on  the  automotive  industry.  Direct
sales to consumers remain limited: although the Internet is used in 45 % of car purchases in
the US, its main role is for information gathering. However, a variety of innovative business
models are  developing.  These  include  third  party  services  (referral  services  that  do  not  sell
but direct customers to dealers, e.g. Autobytel); direct brokers (selling directly to consumers,
e.g.Virgincars); information services (deriving revenue from advertising and partnerships with
dealers,  e.g.  Yahoo-cars);  manufacturer-dealer  joint  ventures  web  sites  (e.g.  FordDirect);
manufacturers sites (providing information, referring to dealers by also offering special deals,
e.g.  Citroen);  dealership  group  sites  (e.g.  French  dealers  association  Ecarcom).  Through
increasing  price  transparency,  and  increasing  choice  across  borders:  the  Internet  is  also
putting increasing pressure on the existing distribution arrangements.

CASE STUDY 2: THE RETAIL AND DISTRIBUTION INDUSTRY

The  European  retail  market  was  worth  nearly  € 1 800  Billion  in  2000.  It  is  very  diverse,
encompassing large players with global operations (Carrefour, Metro, Ahold, Tesco etc), and
a large number of SMEs and family operations, particularly in southern Europe. Overall, this
sector is undergoing a rapid restructuring process, indirectly speeded up by ICT and Internet.
It is marked by three dominating trends:

–  Concentration (with closer links between manufacturers, wholesalers and retailers);

–  Diversification  (e.g.  downstream  into  financial  services,  travel,  as  well  as  upstream  into

co-manufacturing and logistics management);

–  Globalisation (with EU retailers like Ahold expanding outside the EU, and US retailers like

Wal-Mart and Costco developing in Europe).

This  sector  has  been  seen  as  the  prime  candidate  for  the  e-business  revolution.  Initial
expectations  of  B2C  development  (e.g.  2000  estimates  by  Merrill  Lynch  that  B2C  would
reach between 5  and  7 %  of  the  total  EU  retail  market)  have  been  revised  downwards.  The
true revolution is happening upstream in the supply  and sourcing areas, where  large  groups
have  embraced  e-business  to  cut  costs,  reduce  inventory,  respond  to  market  demand  and
provide  better  service.  Internet-only  retailers  have  seen  their  numbers  decrease  with  the
demise of the dot coms - many of whom being acquired by larger groups. The Internet is now
part of a diversified channel strategy by retailers.

25

On  the  supply  side,  large  EU  retailers  have  developed  new  purchasing  and  collaboration
platforms.  While  some  groups  (Carrefour,  Sears)  have  gone  the  way  of  multi-enterprise
e-marketplaces  (e.g.  GlobalNetXchange),  others  are  favouring  enterprise  specific  buying
platforms (e.g. Tesco Information Exchange). The largest of these platforms aim to provide a
neutral  open  environment,  with  low  entry  costs  for  suppliers  as  opposed  to  previous  EDI
systems used  by the  industry.  The  initial  aim  was  to  fully  automate  combined  supply  chain
purchases from 85 000 suppliers worldwide, for goods worth an estimated € 85 000 million.

Cost savings are important in this traditionally low margin industry. Carrefour estimates that
savings  averaged  10 %  by  purchasing  through  a  digital  exchange  (although  it  is  not  clear
whether  such  savings  are  not,  in  reality,  pressure  on  the  supplier  margins).  Similarly,
Sainsbury  estimates  that  its  € 300 000  investment  in  its  e-purchasing  platforms  will  bring
savings  of  € 3.3 million  in  over  18 months,  while  reducing  inventory  and  allowing  better
response to market changes.

Integration  of  purchasing  platforms  with  store  management  applications  and  with  customer
relationship management applications (CRM) is seen as the main challenge by retailers. This
is  particularly  true  for  smaller  retailers  who  lack  the  financial  and  technical  resources,  not
only  to  install  such  systems,  but  also  to  use  them  effectively.  The  multiplicity  of  vendors
(notably  in  the  CRM  area),  and  the  practical  difficulties  of  integration  between  supply-side
and  customer  applications  has  meant  so  far  that  the  benefits  of  such  integration  have  been
difficult to realise

On  the  customer  side,  in  an  increasingly  competitive  environment,  attention  to  customer's
needs’ has become critical. In this area, established bricks and mortar retailers have a crucial
advantage over Internet-specific enterprises, both to capture and to retain new customers. The
most successful retailers (e.g. Tesco, Sainsbury)  have focused on  a  multi-channel  approach,
integrating in-store and on-line customer management.

CASE STUDY 3: THE MULTIMEDIA INDUSTRY

As  a  result  of  convergence  of  networks,  platforms  and  content,  the  multimedia  sector  has
grown rapidly in recent years. The ability to digitise and exploit content across many different
platforms has provided the business driver for large multimedia alliances, such as AOL-Time
Warner and Vivendi-Universal. It has also fuelled the emergence of large number of smaller
enterprises, notably in Europe.

Key impacts of the e-Economy include:

–  Development of new business models

A  variety  of  new  business  models  are  emerging,  based  on  the  "repurposing"  of  content
across different media, and on new distribution channels. While the publishing and music
industry have been  at  the  cutting  edge  of  new developments, the cinema industry  is  now
testing the Internet as a new distribution channel.

Key  business  issues  include  the  risk  of  cannibalisation  of  existing  distribution  channels
(e.g.  impact  of  Internet  distribution  of  films  on  the  pay-per-view  market,  of  on-line
newspapers  and  magazines  on  newspaper  sales)  and  the  emergence  of  new  distribution
channels enabled by the Internet (e.g. Napster).

26

In  general,  Internet-only  operations  have  met  with  limited  success,  either  through
insufficient  funding  by  parent  enterprises  (e.g.  closing  down  of  a  number  of  "Webzines"
launched  with  great  publicity  in  the  late  1990s)  or  successful  lawsuits  by  incumbent
players.

Conversely,  multi-channel  distribution  (i.e.  repurposing  and  cross  promoting  content
across different channels) is becoming the rule.

–  Emergence of new policy challenges:

These include competition issues (e.g. lawsuits by commercial publishers and multimedia
operators,  such  as  Pearson,  against  state-funded  European  public  broadcasters  in  the
multimedia field) and major copyright and digital management rights issues.

27