From Electronic Commerce to the e-Economy – Strategies for a Digital World Catherine Peters Industry Canada ITS 15th Biennial Conference September 4-7, 2004

Electronic Commerce to e-Economy Outline 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

The 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

ICT-Intensive Economies led Economic Growth The Growth Story ICT-Intensive Economies led Economic Growth This this growth in productivity has led to improved standards of living. The story is not, however, just about how the ICT sector has grown. It is about how ICTs have stimulated productivity, trade and investment in all sectors of the economy. Source: The Sources of Economic Growth in OECD Countries, OECD, 2003

Historically, Technological Innovation… ICT Productivity and Growth 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

ICT-based Innovation ICT Productivity & Growth Source: The Sources of Economic Growth in OECD Countries, OECD, 2003

Consequently, as networks spread and as computers and artificial ICT Productivity & Growth Networks enhance Productivity Growth 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 artificial intelligence becomes more and more pervasive in industrial processes of all kinds, these positive externalities can be captured throughout the economy.

“Everything we ever said about the Internet is happening” Andrew S. Grove, Intel Corporation The Internet as a Platform

Internet Usage Races Ahead The Internet as a Platform Internet Usage Races Ahead In Millions of Users Sources: * http://www.nua.com/surveys, ** Computer Economics, June 2002

People are Well Connected to the Internet… The Internet as a Platform People are Well Connected to the Internet… Source: World Information Technology and Services Alliance, Digital Planet 2002, February 2002

Businesses Also Well Connected The Internet as a Platform Businesses Also Well Connected Businesses with Internet Access and Web Site, 2001 (Percentage of businesses with ten or more employees) Source : OECD, Measuring the Information Economy 2002

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

E-Business has Entered the Economic Mainstream e-Business Networks E-Business has Entered the Economic Mainstream The Economist, May 15 2004 “E-commerce will continue to change every kind of business, offline as well as online…” Business Week, May 10 2004 “The Web players new assault should keep the productivity gains coming.”

E-Commerce Exceeding Expectations $- $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 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

Larger Business and Economic Revolution Underway: e-Business Networks Larger Business and Economic Revolution 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

Organisational Change Critical to Make ICTs Effective e-Business Networks Organisational 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

Firm-Level Benefits from e-Business e-Business Networks Firm-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

The Digital Economy in Canada

Canada’s e-Report Card: 2002 Canada’s Digital Economy Canada’s e-Report Card: 2002 Progressing Rapidly >> > II < Falling Behind Progressing Paused e-Business Readiness Growth & Acceleration Investment & Image > Venture Investment Businesses Online II > e-Business Talent >> > Tax and Regulatory Consumers Online > SME Adoption Privacy and Security Practices II < e-Business Supply e-Business Brand II Source: Fast Forward 4.0, Growing Canada’s Digital Economy, Canadian e-Business Initiative (CeBI), May 2003

Canada’s Digital Economy E-Business Benefits are Captured by Canadian Firms, but 50% of SMEs have not Adopted an IBS* Satisfaction with Internet Business Solutions (IBS) Investment, as % of Respondents Size of Cost Reductions and Revenue Increases Due to IBS Investment Don’t know Highly satisfactory Satisfactory Neither satisfactory or unsatisfactory Unsatisfactory Increase in revenue Decrease in cost of goods sold Decrease in sales and general administration expenses Highly unsatisfactory 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.

Uneven e-Business Deployment

Online Business Activities in Canada - 2000-2002 High Business Connectivity, but Low Adoption Rates of Advanced Online Activities Online Business Activities in Canada - 2000-2002 Percentage of firms Size of firm also matters. Source: Survey of Electronic Commerce and Technology, Statistics Canada, April 2003.

Not All Sectors Are Capturing the Benefits Uneven e-Business Deployment Not All Sectors Are Capturing the Benefits 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 e-Commerce Sales by Industries 2003 Wholesale 24% Retail 11.4% Manufacturing 13.5% Transport & Warehousing 18.5% Other 20% Professional Services 5.8% Finance & Insurance 6.8% Last year (2001?), those sectors accounted for 74% of total E-Commerce sales Source: Survey of Electronic Commerce and Technology 2003 Daily April 16, 2004, Statistics Canada

Broadband 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

Worldwide Internet and Broadband Use Continues to Grow Broadband Gaps Worldwide Internet and Broadband Use Continues to Grow Broadband and Internet use, world, millions 700 10.7% Broadband as % of Internet users Internet 600 7.4% Broadband 500 4.0% 400 1.4% 300 0.3% 200 0% 0% 100 0% Of course, these numbers are simply a Canadian phenomenon. Worldwide, internet use, and broadband use, continue to grow. 1995 1996 1997 1998 1999 2000 2001 2002 Source: ITU

Canada is Well Positioned . . . Broadband Gaps Canada is Well Positioned . . . Broadband subscribers per 100 inhabitants Top 10 Countries End of June 2003 23.2 14.8 14.5 13.1 12.3 11.6 11.4 10.8 10.7 9.8 . . .To Adopt High-Speed * Ethernet LANs, two-way direct satellite, fibre to the home, and fixed wireless. Source: OECD, ICCP Broadband Update, December 2003

Broadband Gaps Broadband 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

The growth of e-Business requires Broadband platform and service deployment and availability Investment in E-business Development Investment in Broadband Infrastructure “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 Creating Economy-wide Platform for e-Business Access for SME’s Greater Availability, Affordability Virtuous Circle Sector-wide deployment Increased Capability of Networks Profitability Increased Sustainability Generating Revenue Streams for Infrastructure Investment

The economic, social and cultural potential is 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

The 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

Canada’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

From Electronic Commerce to the e-Economy – Strategies for a Digital World Catherine Peters Industry Canada ITS 15th Biennial Conference September 4-7, 2004