International Study Reveals Online Commerce Accounts for Only Small Share of Most Companies' Sales and Purchases; Still, Solid Market Exists

Irvine, Calif., July 16, 2002 -- Business executives can, and probably should, proceed carefully with the development of e-commerce in their firms, according to findings from an international e-commerce study by The Center for Research on Information Technology and Organizations (CRITO) at UC Irvine and the International Data Corporation (IDC). The rush for the gold in e-commerce is over, and the results have proven to be less spectacular than many had hoped.

The key message that can be drawn from the study, titled "Global E-Commerce Survey: Report of Results Overall and by Industry Sector," is that early predictions about the growth of e-commerce (buying and selling online) were overly optimistic. While the Internet has grown dramatically, it has not resulted in large-scale business use of e-commerce. Rather, the 10-country study finds that use of the Internet by businesses is quite widespread, but actual e-commerce is still very shallow, accounting for a small share of most companies' sales and purchases. CRITO Director Kenneth Kramer and CRITO researchers Jason Dedrick and Debbie Dunkle co-authored the report.

"E-commerce had its 15 minutes of fame in the late '90s and was hyped as the next big thing, a business value cousin of the Internet," said Kraemer, who also is the Taco Bell Professor of Information Technology for Management. "The study reveals that the engine of e-commerce growth is humming along but at a slower rate than was anticipated in its early days. However, the widespread diffusion we found leads us to believe that there is a solid market for e-commerce products and services, it is just a market that needs to mature."

The use of e-commerce was expected to spread rapidly around the world with the growth of the Internet. Although e-commerce existed before the Internet -- through electronic data interchange, for example -- e-commerce was expected to spread more rapidly with the Internet because of its openness, lower costs, wider availability and network effects. A key question for the survey was to what extent has e-commerce diffused. Also, if it has not diffused, why not? And, what have been the impacts on businesses that participate in e-commerce through the Internet?

The following survey findings support these conclusions:

Among those firms surveyed who use the Internet for business, 58 percent use it for advertising and marketing, about one-half use it for purchasing online and only one-third use it for selling online.

Among those using the Internet for selling or buying, online sales and purchases represent less than 5 percent of the businesses' total sales and purchases.

Of those selling online, only one-third support online payment.

Among those businesses using the Internet, about 8 percent use the Internet to provide services to consumers, and only slightly more (11 percent) use it to provide services to business customers.

The picture isn't much better when looked at by industry sector, which is significant because the survey focused on the three sectors that are the most advanced users of the Internet for business: manufacturing, distribution and finance.

Financial services (banking and insurance) is the leading sector, with slightly more than half of the businesses using the Internet for making purchases online, followed by wholesale and retail (48 percent) and manufacturing (43 percent).

Banking and insurance also leads in online sales, but even fewer use the Internet for making sales online (33 percent), followed by wholesale and retail (32 percent) and manufacturing (25 percent).

Online sales are less than 4 percent of total sales regardless of industry sector, whether for business-to-consumer or business-to-business sales.

Why is use not greater?

The primary factors that businesses identify as barriers to greater use of the Internet are concerns about privacy and security (44 percent) and inadequate legal protection for Internet purchases (34 percent). Concern for privacy and security is most significant for the banking and insurance industry (62 percent), while inadequate legal protection is most significant for manufacturing (37 percent).

Those who do make greater use of the Internet for business do so in order to expand markets (48 percent), enter new markets (42 percent), improve coordination with their suppliers and customers (44 percent), reduce costs (36 percent) and respond to customer demands that they do so (37 percent). Competition from other competitors who are online is also an important driver for about one-third of the businesses.

Interestingly, government incentives and procurement requirements do not appear to be drivers of e-commerce. However, concerns about security and privacy could be addressed through legislation, suggesting that public policy could play an important role in surmounting these key barriers to greater business use of the Internet for e-commerce.

About the global e-commerce survey

The survey was developed by CRITO with the assistance of IDC, which also supervised the interviews in each of 10 countries. The survey was conducted to provide insights into the current and future adoption and usage of the Internet and e-commerce by country, industry and firm. The survey defined e-commerce as the "use of the Internet to buy, sell or support products and services." Surveyed were a total of 2,139 establishments in 10 countries -- Brazil, China, Denmark, France, Germany, Japan, Mexico, Singapore, Taiwan and the United States.

Establishments within three major industry sectors that are known to be more extensive and advanced users of e-commerce -- manufacturing, distribution (wholesale and retail) and finance (banking and insurance) -- were included. Hence, the study was not concerned with the actual incidence levels of e-commerce within countries or globally, but rather with the incidence rates on how the Internet is being used for business among relatively more technologically advanced businesses within each country.

About CRITO

CRITO is a multidisciplinary research unit at UCI that studies the impact of technology on society and organizations. It is among 50 industry-university cooperative research centers in the U.S. supported by grants from the National Science Foundation (NSF). CRITO is unique in its focus on the impact of information technology on organizations, markets and society. In addition to funding from the NSF, CRITO is supported by corporate partners including The Boeing Company, Canon Information Systems, Conexant, IBM, Intel, Microsoft, Quantum, Sun Microsystems and the U.S. Department of Defense.

For Further Information

Reports from the global e-commerce survey are published on the CRITO web site. When a new report is published, CRITO sends an email notification to people who have expressed interest in CRITO's work in the past. If you wish to be added to the email list, please send your email address to dedunkle@uci.edu or fill out the information at www.crito.uci.edu/contact.asp.

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