1 From Electronic Commerce to the e-Economy – Strategies for a Digital World Catherine Peters Industry Canada ITS 15 th Biennial Conference September 4-7,

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From Electronic Commerce to the e-Economy From Electronic Commerce to the e-Economy – Strategies for a Digital World – Strategies for a Digital World


Catherine PetersIndustry Canada

ITS 15th Biennial Conference September 4-7, 2004

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Electronic Commerce to e-EconomyElectronic Commerce to e-EconomyOutline of PresentationOutline of Presentation

• The Growth Story• ICTs, Productivity and Growth• The Internet as a Platform• e-Business Networks• Canada’s Place in the World• Canada’s Digital Economy Report

– Broadband Gaps– e-Business Deployment

• Canada’s Challenges and Strategy Response

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The Growth StoryThe Growth Story

“Many countries that improved growth performance in the 1990’s did so because they

have been able to get fundamentals right; they had created an environment that could take advantage of the new technologies and business opportunities

when they emerged”

The New Economy Beyond the Hype,The OECD Growth Project, OECD, 2001

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ICT-Intensive Economies led Economic GrowthICT-Intensive Economies led Economic Growth

0 2 4 6 8 10 12

Total Economy% changes at annual rates

France

UK

Belgium

Sweden

Netherlands

Spain

US

Canada

Finland

I reland

Growth of GDP across OECD countries

1990-2000 1996-2000

Source: The Sources of Economic Growth in OECD Countries, OECD, 2003

The Growth StoryThe Growth Story

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Historically, Technological Innovation…Historically, Technological Innovation…

Steam Engine • Started First industrial Revolution – Mechanized factory-based mass

production

Railroad, Postal and Telegraph communications• Changed the way goods and services were produced and distributed

as well as the mobility of people, creating the first national economies

Electricity • Propelled the growth of industrialized economies by the

enhancement of production capacities and productivities and the proliferation of a vast array of household goods and services

Internet and ICT Networks• Alters market structure and industrial organizations, similar to the

previous impact of railways and electricity

…has fuelled rapid economic growth…has fuelled rapid economic growth

ICT Productivity and GrowthICT Productivity and Growth

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ICT-based InnovationICT-based Innovation

0 5 10 15 20 25 30 35 Percent of Total Output Growth

J apan

United States

I taly

Western Germany

Canada

United Kingdom

Australia

France

Percentage of Total Output Growth due ICT Capital(Business Sector, based on harmonised price)

1990-1995 1995-2000

Source: The Sources of Economic Growth in OECD Countries, OECD, 2003

ICT Productivity & GrowthICT Productivity & Growth

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• The productivity derived from Metcalfe’s law is inherent in the economics of networks, meaning that value gained from the operation of such networks exceeds the sum total of utility to the individual participants

• Moore’s law, combined with the networking of computers, produces a further range of benefits as a result of the convergence of network externalities with the massive growth of computer processing power;

Consequently, as networks spread and as computers and artificialintelligence becomes more and more pervasive in industrial

processes of all kinds, these positive externalities can be captured throughout the economy.

Networks enhance Productivity Growth Networks enhance Productivity Growth ICT Productivity & GrowthICT Productivity & Growth

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“Everything we ever said about the Internet is happening”

– Andrew S. Grove, Intel Corporation

The Internet as a Platform

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606552

451

254

150

55101

562.3

665.4

752.6830.3

921.4

0

100

200

300

400

500

600

700

800

900

1000

1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006

Actual Users* Projected**

In Millions of Users

Sources: * http://www.nua.com/surveys, ** Computer Economics, June 2002

The Internet as a PlatformThe Internet as a Platform

Internet Usage Races AheadInternet Usage Races Ahead

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People are Well Connected to the Internet…People are Well Connected to the Internet…

64%

57% 57%

52% 51%

47% 46%43%

35%

31%

Sweden UnitedStates

Canada Finland UnitedKingdom

J apan Australia Germany France I taly

% of Population Online 2001

Source: World Information Technology and Services Alliance, Digital Planet 2002, February 2002


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Businesses Also Well ConnectedBusinesses Also Well Connected

0

20

40

60

80

100

Have Internet access Have own Web site

Source : OECD, Measuring the Information Economy 2002

Businesses with Internet Access and Web Site, 2001

(Percentage of businesses with ten or more employees)


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e-Business Networks

The use of ICT by businesses is directly linked to innovation and the transformation of business processes.

“Technological innovations can disrupt not only systems and business models, but also organizational cultures.

Creative destruction indeed.” Robert Bruner 2001

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E-Business has Entered the Economic MainstreamE-Business has Entered the Economic Mainstream

e-Business Networkse-Business Networks

Business Week, May 10 2004

“The Web players new assault should keep the productivity gains coming.”

The Economist, May 15 2004

“E-commerce will continue to change every kind of business, offline as well as online…”

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E-Commerce Exceeding ExpectationsE-Commerce Exceeding ExpectationsE-Commerce Exceeding ExpectationsE-Commerce Exceeding Expectations

Note: Charts reflect "Internet Commerce", a subset of electronic commerce that includes the purchase or trade of goods and services via the Internet / World Wide Web, but excludes financial services' transactions

Source: International Data Corporation, 1999 and 2002

$-

$1,000.0

$2,000.0

$3,000.0

$4,000.0

$5,000.0

Worldwide

E-Commerce

(U.S. $Billions)

1999 2000 2001 2002 2003 2004 2005

1999 Estimates

2002 Estimates

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Larger Business and Economic Revolution Larger Business and Economic Revolution Underway:Underway:

Supply chain transformation (B2B)

Virtual firms Offshoring & outsourcing

Reshaping of the consumer marketplace

Impact on industry competition

Development of new electronic marketplaces

Renewal of Public Services

Source: Restructuring value chains: Impact of the Internet, EBIP, WPIE 2002


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Organisational Change Critical to Make ICTs EffectiveOrganisational Change Critical to Make ICTs Effective

ICT capital becomes more effective if a company is organised to exploit it

This takes additional investment• US$1 investment in ICT require US$9 of

complementary investment

Fundamental transformation of the conventional business process

“We know that it’s a real business transformation because it survived the economic downturn.”

Alice M. Rivlin, Brookings Institute

Source: ICT & Business Performance, OECD


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Firm-Level Benefits from e-BusinessFirm-Level Benefits from e-Business

Reduce costs

Increase transaction speed and reliability

Improve management capabilities

Develop or improve collaborative capabilities

Create interdependencies

Manage customer relations better

Create more added value

Source: Restructuring value chains: Impact of the Internet, EBIP, WPIE 2002


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The Digital Economy in Canada

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Canada’s e-Report Card: 2002Canada’s e-Report Card: 2002

>

>

II

>

>>

II

>

II <

> II <

e-Business Readiness Investment & Image

Progressing

RapidlyProgressing Paused Falling

Behind

Venture Investment

Tax and Regulatory

e-Business Brand

Businesses Online

Consumers Online

e-Business Talent

e-Business Supply

SME Adoption

Privacy and Security Practices

>>

Growth & Acceleration

Source: Fast Forward 4.0, Growing Canada’s Digital Economy, Canadian e-Business Initiative (CeBI), May 2003

Canada’s Digital EconomyCanada’s Digital Economy

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E-Business Benefits are Captured by Canadian Firms, but E-Business Benefits are Captured by Canadian Firms, but 50% of SMEs have not Adopted an IBS*50% of SMEs have not Adopted an IBS*

1.4%

8.5%

21.3%

55.9%

6.3%

6.6%

Source: The Canadian e-Business Initiative, Net Impact Study Canada, The SME Experience, November 2002. Based on 398 Canadian enterprises with 50-500 full-time employees. *Net Impact Canada IV, 2004.

7.0%

9.5%

7.5%

Satisfaction with Internet Business Solutions (IBS) Investment,

as % of Respondents

Size of Cost Reductions and RevenueIncreases Due to IBS Investment

Don’t know

Highly satisfactory

Satisfactory

Neither satisfactoryor unsatisfactory

Unsatisfactory

Highly unsatisfactoryIncrease in

revenueDecrease in

cost of goodssold

Decrease insales andgeneral

administrationexpenses

Canada’s Digital EconomyCanada’s Digital Economy

Uneven e-Business DeploymentUneven e-Business Deployment

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High Business Connectivity, but Low AdoptionHigh Business Connectivity, but Low Adoption

Rates of Advanced Online ActivitiesRates of Advanced Online Activities Online Business Activities in Canada - 2000-2002

Source: Survey of Electronic Commerce and Technology, Statistics Canada, April 2003.

6%

18%

26%

63%

7%

22%

29%

71%

8%

32%

32%

76%

Sell Online

Purchase Online

Web Presence

Internet Access

2000 2001 2002 Percentage of firms

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Source: Survey of Electronic Commerce and Technology 2003

Daily April 16, 2004, Statistics Canada

Wholesale 24%

Retail 11.4%

Manufacturing 13.5%Transport & Warehousing 18.5%

Other 20%

Professional Services 5.8%

Finance & Insurance 6.8%

e-Commerce Sales by Industries 2003

• Six leading sectors account for 80% of all Canadian Internet Sales

• Private firm sales were $18.6 billion in 2003

• Leading e-Commerce Sectors are: Wholesale Trade, Transportation and Warehousing, Manufacturing and Retail Trade – 67% of sales

Not All Sectors Are Capturing the BenefitsNot All Sectors Are Capturing the Benefits

Uneven e-Business DeploymentUneven e-Business Deployment

Broadband GapsBroadband Gaps

"The broadband problem is particularly frustrating because it is the one piece of the physical infrastructure of computing that is limiting a 'miracle environment' of new applications thanks to ever-increasing computer speed, power and video-display capabilities."

Bill Gates, September 2001

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Broadband and Internet use, world, millions

1995 1996 1997 1998 1999 2000 2001 2002

Internet

Broadband

700

600

500

400

300

200

100

0

Broadband as % of Internet users

0%0%

0%

0.3%

1.4%

4.0%

7.4%

10.7%

Source: ITU

Worldwide Internet and Broadband Use Continues to GrowWorldwide Internet and Broadband Use Continues to GrowWorldwide Internet and Broadband Use Continues to GrowWorldwide Internet and Broadband Use Continues to Grow


26

0 5 10 15 20 25

United States

Japan

Sweden

Switzerland

Netherlands

Belgium

Denmark

Iceland

Canada

Korea

DSL

Cable

Other*

* Ethernet LANs, two-way direct satellite, fibre to the home, and fixed wireless.

23.2

14.8

14.5

12.3

11.611.4

10.8

10.7

9.8

13.1

Source: OECD, ICCP Broadband Update, December 2003


Canada is Well Positioned . . .Canada is Well Positioned . . .

Broadband subscribers per 100 inhabitants

Top 10 Countries End of June 2003

. . .To Adopt High-Speed . . .To Adopt High-Speed

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Broadband DeploymentBroadband Deployment

Market problems – business case for deployment nonexistent in rural/remote areas, in particular in low density countries such as Canada, Australia

Relevance for community development and digital divide

Relevance for business and delivery of public services


“Broadband, or what they call high-speed Internet, is critical in making our high-speed economy even more productive… The goal is to be ranked 1st when it comes to per capita use of broadband technology. It’s in our nation’s interest. It’s good for our economy.”

President George W. Bush, Speech at the Department of Commerce, June 24, 2004

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The growth of e-Business requires Broadband platform The growth of e-Business requires Broadband platform and service deployment and availabilityand service deployment and availability

Virtuous Circle

Virtuous Circle

• Increased Capability of Networks

• Greater Availability, Affordability

• Increased Sustainability

• Creating Economy-wide Platform fore-Business

• Profitability

• Sector-wide deployment

• Access for SME’s

• Generating Revenue Streams for Infrastructure Investment

“The deployment of broadband services would help spur the growth of e-commerce and vice versa. The future is very bright for both.”

Bruce Mehlman, U.S. Dept. of Commerce, Aspen Institute Summit,

August 2002

“Several applications, such as broadband and e-commerce are still in their early stages and may have a large potential for future growth.”

Meeting of the OECD Council at Ministerial Level, Seizing the benefits of

ICT in a digital Economy, 2003

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The economic, social and cultural potential The economic, social and cultural potential is enormousis enormous

• Advanced networks are the key to productivity growth– Existing businesses need them in order to grow– New businesses become possible with them– ICT is a major industry in its own right

• Advanced networks can deliver social programs– Healthcare – Education – Government On Line

• Advanced networks offer new cultural opportunities– HDTV– Interactive video– Internet radio– Online specialty television

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The e-Economy AgendaThe e-Economy Agenda

• Centre Canada’s economic strategy on the contribution of networked-based information technologies

• Accelerate the rollout of broadband infrastructure• Build a world-class intelligent infrastructure • Ensure that Canada continues to have the world’s best legal

and policy environment for innovation• Strengthen stakeholder partnerships and cooperation• Develop sectoral-specific strategies for industrial e-business

adoption, particularly among SMEs• Remove cross-border and inter-jurisdictional barriers that

inhibit the global spread of e-commerce and its benefits

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Canada’s e-Economy TargetsCanada’s e-Economy Targets

• Reach levels of SME e-readiness comparable to the United States

• Continue to lead all G8 countries in access and availability of broadband networks

• Upgrade all industrial and resource sectors and supply chains to North American best practices for employing e-solutions and conducting business online

• Bring the education and health sectors to the top rank in technology use and innovation

• Rank #1 in terms of the speed, size, functionality and intelligence of advanced networks

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Catherine PetersIndustry Canada

ITS 15th Biennial Conference September 4-7, 2004

1 From Electronic Commerce to the e-Economy – Strategies for a Digital World Catherine Peters Industry Canada ITS 15 th Biennial Conference September 4-7,

Documents

growth story slide

growth performance

platform slide

economic growth source

oecd growth project

sources of economic

internet source

growth story icts