Executive Summary

1. Background

One of the most significant drivers of enterprise over the next three to five years will be e-commerce and the information and communications technologies that support it. Ireland’s success in exploiting the opportunities involved will be a critical determinant of future growth in competitiveness, income and employment.

For the purposes of this report, e-commerce is defined in its broadest sense as including all aspects of business that takes place over networks such as the Internet. It includes goods and services that are delivered over these networks, such as software and music, and goods ordered over the networks but delivered in some other way, such as personal computers. It covers the whole range of business functions required to support these activities from marketing to production to delivery and service and includes the hardware, software, content-generation, telecommunications, and support services that makes all this possible.

E-commerce provides a fundamentally new way of conducting commercial transactions and has far-reaching economic and social implications. It will affect industry structures and competition in home and international markets. It presents major new business opportunities for Irish-based enterprises and for the development of new sectors. It also poses significant threats for enterprises that do not prepare for the fundamental changes that are taking place. At a national level there is a need to ensure that the required legal, regulatory and facilitatory business environment is conducive for the enterprise sector to fully exploit the opportunities and to develop Ireland as a leading location for e-commerce-driven investment. At the level of the development agencies, it requires a new approach to the development of national enterprise policies and new actions.

E-commerce offers a new route to overcoming some of Ireland’s strategic challenges, including our peripheral location on the edge of Europe, the high proportion of small and medium sized enterprise (SMEs) within indigenous industry, and regional imbalances in the distribution of industry.

This report was prepared by Forfás at the request of the Tánaiste and Minister for Enterprise, Trade and Employment, Mary Harney, T.D. It provides a framework within which Enterprise Ireland, IDA Ireland, Shannon Development and Údarás na Gaeltachta can formulate the required promotional strategies. It complements previous Forfás work on the telecommunications infrastructure which is one of the two most critical factors in developing our capability to exploit e-commerce, the other being skills. The report does not deal with the telecommunications infrastructure, except to briefly outline what is being done, but concentrates on how to make best use of that infrastructure.

Other Forfás reports have shown that the availability of a broadband telecommunications infrastructure in all parts of the country, with high capacity international links, is a prerequisite for the development of the digital economy. Forfás and the Department of Enterprise, Trade and Employment continue to work with the Department of Public Enterprise, other government departments and the development agencies to ensure that the required telecommunications infrastructure is put in place. This is a major priority for Government and significant progress has been achieved including the following initiatives:

• The liberalisation of the Irish telecommunications market from 1 December 1998, which has spurred a dramatic increase in investment by telecommunications companies
• A major investment to significantly increase international connectivity, by the end of 2000, has been announced
• The sale of Cablelink has been completed subject to an upgrade of the network to provide broadband services
• EU Structural Funds have been allocated to support the deployment of broadband networks to the regions.

The Report of the Expert Group on Future Skill Needs, published by Forfás in December 1998, sets out the third level education requirements for the information technology sectors. It formed the basis for a Government decision to provide IR£75 million ( 95.2 million euros) for an additional 5,400 third level places to increase the supply of skills in Information Technology.

1.1 The Digital Economy

E-commerce and the associated Information Technology (IT) industries are radically changing and growing at breathtaking speed, fundamentally altering production, consumption and communications. The figures are staggering. Business-to-business and business-to-consumer e-commerce are estimated, in a recent study, to have reached $102 billion world-wide in 1998¹ . Forrester Research estimates that business-to-business e-commerce will rise to at least $1.3 trillion by 2003² . Online retail sales are forecast to reach $80 billion by 2002 compared with an estimated $15 billion in 1998. While up to 80 per cent of this may be substitution for traditional forms of commerce, it is estimated that the use of Internet technologies is spurring additional commercial growth of up to 20 per cent per annum.

E-commerce is developing strongly in Ireland. Government is fully aware of its importance and potential, both as an instrument of economic and regional development and for the achievement of greater social equity through the distribution of employment opportunities and improved access to Government services. A number of key building blocks are being put in place. These include the international and local telecommunications infrastructure referred to above, increased information technology skills places in third level education and the commitment of resources to developing the research infrastructure.

In the business sector, a number of leading multinational companies are integrating their European operations in Ireland and using Internet technologies to serve markets in Europe and beyond. Irish-owned companies across a range of sectors are rapidly developing e-commerce and achieving significant growth in international markets using the Internet. A number of Irish companies are establishing leadership positions in key e-commerce enabling areas such as security and web tools.

The impact of e-commerce is so pervasive, however, and the pace of change so rapid that companies in all sectors need to develop strategies for the effective integration of the Internet into their businesses. Businesses that respond by seizing the opportunities available will find new products, new processes, new ways of attracting and retaining customers, new ways of delivering their goods and services, new ways of sourcing supplies, and new ways of providing customer care. E-commerce offers major potential for smaller businesses that are attuned and responsive to the developments taking place. Businesses that fail to respond will find – often suddenly and without warning – that their customers disappear, and their products become uncompetitive.

1.2 Methodology

A Steering Group chaired by Mr Michael McKenna, Assistant Secretary, Department of Enterprise, Trade and Employment, guided the preparation of this report. The Steering Group’s membership is drawn from Irish and overseas industry the Department of Enterprise, Trade and Employment, the Department of Public Enterprise, academia, and IDA Ireland, Enterprise Ireland, Shannon Development, Údarás na Gaeltachta, and Forfás.

The sectoral implications and the required business environment were discussed with experts both in Ireland and abroad. Workshops were held with over 150 industry participants to assess and test the sector-specific implications of e-commerce. These workshops examined the marketing and operational implications for Irish and overseas firms in a number of sectors in Ireland, specifically electronics hardware, software, food, and small and medium sized enterprises. The workshops also assessed the implications in new and emerging sectors, such as digital support services, education and training, and digital content distribution.

This report is presented in four broad sections:

• The first section assesses the development of e-commerce in Ireland and its potential. It also examines the policy responses of other countries
• The second section assesses the sector-specific implications of e-commerce and the required operational and strategic responses
• The third section sets out the policy actions that are required in the business environment to facilitate the development of e-commerce
• The fourth section sets out the strategies of the development agencies.

Specific recommendations are made for the consideration of government departments, development agencies³ , and business firms.

2. Sectoral Implications

The implications and emerging opportunities presented by e-commerce for a range of key sectors of the Irish economy were analysed. The analyses kept a sharp focus on the marketing and operational impacts. The sectors chosen for analysis was for illustrative purposes. They do not purport to be exhaustive. It can be said, however, from the analyses undertaken that no sector is unaffected by e-commerce developments.

2.1 Software

Software is one of the foundation sectors for the new e-commerce economy. Dramatic growth is expected in the provision of software for the Internet and for telecommunications. A wide range of opportunities are arising to provide software for specialised applications. Each business sub-sector will require software to meet its individual needs and every business will require standard software to drive its conversion to e-commerce. The software sector is, however, highly knowledge-intensive and skills-intensive with a high degree of locational mobility. The telecommunications infrastructure, skills availability, underlying costs and regulatory framework are key factors influencing the location decisions of firms. Locational competition for the high value-added activities within the sector is intense and will further intensify.

The software industry in Ireland is being fundamentally affected by the Internet in its operations and in its marketing. The biggest impact is the rapid emergence of digital distribution over the telephone lines, wireless and satellite. It is likely that most software in Ireland will be distributed over the telecommunications infrastructure direct to business within three years and to consumers within five years.

E-commerce gives indigenous companies a powerful tool for competing on global markets. However, moving to Internet-based operations requires a significant investment of resources to transform existing products and processes to digital formats. The objective for Irish companies must be to identify, exploit and dominate specific niche product areas, and to establish brands that are recognised and trusted world-wide in key high-growth markets. This may involve consolidation of some small companies, as scale becomes more important to competitiveness.

Research and development of new software products is changing. “Virtual teams” can be co-ordinated with ease across country borders. Overseas owned companies in Ireland can more easily participate in development work carried out by their parent companies. Irish owned companies can use the Internet to gain a foothold in the R & D subsector and to forge relationships with multinational companies located in Ireland, and in particular, with the global headquarters (HQs) of such companies. Some have already done this but many more need to do so.

The localisation activities of software enterprises in Ireland, to meet the individual needs of various EU markets, will increasingly come under competitive threat and will change. The Internet will facilitate language translation in the destination countries will rather than in Ireland. Other localisation activities are also likely to decline. The standardisation of user interfaces and operating platforms will reduce technical localisation work and the more routine coding and testing activities will migrate to lower-cost countries.

In the foreign-owned software sector, much of the activity currently carried out in Ireland is concerned with the physical manufacture and distribution of products. These labour-intensive activities will decline as e-commerce develops. However, the growth in digital distribution will increase the need for technical support, accounts, and digital distribution personnel. As software moves from distribution in physical form to digital distribution, the physical location of the producer will become less relevant.

Marketing activities are likely to reduce in individual country markets with direct digital distribution. The increased demand for software and the new digital delivery systems will result in increased outsourcing by foreign-owned companies in Ireland and throughout the world.

These fundamental changes in the nature of the sector pose threats and provide significant opportunities for promoting both inward investment and the development of Irish-owned companies. If the infrastructural, regulations, skills and cost environment are competitive the opportunities for Ireland include:

• becoming a major world-centre for the digital distribution of software
• managing the associated intellectual property rights, customisation, credit control, services and support
• the consolidation of software related marketing functions at present located in a number of countries into a single centre based in Ireland
• meeting the increased outsourcing needs of companies based in Ireland and elsewhere for e-commerce-related products and services

To take advantage of these opportunities a number of actions are recommended including:

Agency Actions

Assist Irish-owned firms to move up the value chain from bespoke⁴ software to world class niche and other products. (Enterprise Ireland and Shannon Development)

Encourage Irish-owned software firms to supply multinationals globally. (Enterprise Ireland, IDA Ireland and Shannon Development)

Encourage the selective consolidation of Irish owned software companies to create the scale and skills base needed to become significant internationally trading enterprises. (Enterprise Ireland and Shannon Development)

Promote Ireland as the premier EU location for digital distribution of software to business and personal consumers. (IDA Ireland)

Promote strongly, to overseas software companies, the benefits of centralising their European marketing and technical support in Ireland. (IDA Ireland)

Promote suppliers of Internet and telecommunications software to locate in Ireland (IDA Ireland) and develop indigenous software companies in these software sectors. (Enterprise Ireland and Shannon Development)

Promote overseas companies in Ireland to undertake additional development work in Ireland as part of virtual teams with their parent companies. (IDA)

Enterprise Actions (Indigenous)

Reposition bespoke software businesses as product development businesses, using the Internet to identify and develop relationships with new customer groups.

Evolve from contract outsource work to software product developers, supplying the multinational sector and other customers. Move higher up the value chain with a focus on developing specialised products for distribution to international customers using the Internet.

Build relationships with key staff in the headquarters of multinationals in order to identify new outsourcing and collaborative opportunities.

Examine the need and opportunities for alliances and consolidation with other firms in order to provide a more comprehensive product range and knowledge base or to share the costs of product development, market development and expansion and sharing of overheads.

Enterprise Actions (Overseas)

Expand the range of business functions carried out in Ireland, to include marketing, sales, support, research and development, digital distribution, technical support and management and control of intellectual property.

2.2 Digital Content and Intellectual Property Management

The Internet facilitates the transfer over the telephone of products that can be digitised. These include software, education and training products, music and broadcasting. It also includes multimedia products that combine text, music, photographs, maps, drawings or video clips. The ease with which these goods can be transmitted is however a major business issue. Digitised goods can be copied easily and, thereby, misappropriated. This is giving rise to opportunities for the development of technologies for secure digital distribution. It is also giving rise to opportunities for the management of digital distribution for content companies.

To realise the major opportunities arising from these “content” industries businesses will need to develop new ways of managing, controlling, and ensuring payment for intellectual property and other associated payments. Providing such assurances to companies presents a major opportunity for Ireland. Early movers will have the opportunity to become world leaders in the collection, management and settlement of royalty payments, licence fees and tax associated with the use of copyright materials delivered electronically.

To realise these opportunities a number of actions are needed by Government, the development agencies and business firms including:

Government Action

Ensure, as set out in Section 3, that the legislative and regulatory environment for the protection of intellectual property provides a secure environment from which to create and distribute intellectual property and content. (Department of Enterprise, Trade and Employment)
Ensure that the education system provides sufficient numbers of law graduates with expertise in intellectual property law and procedures. (Department of Education)

Agency Actions

Encourage the development of indigenous companies in the provision of digital distribution and intellectual property management support services. (Enterprise Ireland and Shannon Development)

Promote Ireland as the premier EU location from which to digitally distribute content products. (IDA Ireland)

Encourage major music, media, and information publishers to centralise digital distribution in Ireland and to undertake additional value-added activities such as media asset management, and royalty collection and remittance. (IDA Ireland)

Enterprise Actions

Develop businesses that can take advantage of outsourcing opportunities for the wide range of content industries that are moving to distribution over the Internet.

Develop businesses to track the flow of transactions and remittance of royalty payments to copyright holders for digitised content such as film clips, literature, music, photographs, and other content from archives and libraries.

2.3 Electronics Hardware

The electronics sector in Ireland includes most of the key international hardware companies that are driving the development of the Internet. The sector has made a significant contribution to Irish economic growth over recent years. There are two broad categories of electronics firms in Ireland; end-user product manufacturers and sub-suppliers. All business firms in the electronics sector will be significantly affected by e-commerce, but in different ways.

E-commerce allows large hardware companies move towards the use of a smaller number of suppliers that are of the scale to meet their global needs. These companies are increasingly using extranets throughout their supply chains to link with sub-suppliers. Sub-suppliers will need to link into the supply chains of these businesses. They can use the Internet to respond to the changing demands of customers in terms of delivery times and technical specification.

Producers of finished electronics goods are using the Internet to develop new ways of selling direct and managing customer relationships. The Internet also enables the instantaneous comparison of price, delivery times, and service quality levels between alternative sources.

Major electronics corporations are moving towards the establishment of global command and control centres. These centres use digital communications networks to integrate the management of production, and sub-supply arrangements, and offer significant efficiencies in serving global customers. The Internet enables the central administration of orders from customers around the world, the scheduling of production internationally, arranging distribution, tracking delivery and providing on-going technical support. These centres are of strategic importance for high income, knowledge intensive jobs as manufacturing moves increasingly to lower cost locations. They are less vulnerable than production units to competition from low-cost locations in other parts of the world.

To facilitate the location of such centres in Ireland, and to address the other issues outlined above, a number of actions are important including:

Agency Actions

Encourage Irish-owned electronics SMEs to develop e-commerce capabilities in their supply chains using Internet solutions. (Enterprise Ireland and Shannon Development)
Promote Ireland strongly as a location for command and control centre investment. (IDA Ireland)

Enterprise Actions

Build and integrate e-commerce systems to serve customers in Ireland and internationally.
Identify distribution channels that sell and deliver products direct to consumers, and adopt business strategies that build relationships directly with end-users.

2.4 Support Services

E-commerce requires a wide range of support services. This is resulting in opportunities for new inward investment and for new indigenous enterprise. The availability and competitiveness of these services in Ireland will be critical for the development of e-commerce. They include the following:

Localisation services	Marketing and advertising
Graphic artists and design	Electronic data analysis and warehousing
Creative writing	Internet services provision
Specialised Software Developers	Server farms and mirror sites5
Fulfilment and digital distribution	Contract shared services provision
Settlement and credit management

A number of actions are required to encourage the development of a competitive e-commerce support sector in Ireland including:

Agency Actions

Formulate sectoral strategies to exploit opportunities for indigenous development in emerging e-commerce support services. (Enterprise Ireland and Shannon Development)

Promote technology companies providing e-commerce support services, such as Internet transactions processing, digital distribution and design. (Enterprise Ireland and Shannon Development)

Continue to focus on the attraction of leading and emerging e-commerce support service providers to Ireland. (IDA Ireland)

Identify potential international partners for small Irish owned companies with high growth potential in e-commerce support services. (Enterprise Ireland and Shannon Development)

2.5 Food

The food sector is dominated by Irish-owned companies that source most of their raw materials in Ireland. They should continue to develop the ability to link into the supply chains of the major Irish, UK and other European multiples as e-commerce accelerates the move to “just in time” delivery.

Food retailers are using extranets and e-commerce tools to drive efficiency in their supply chains. The Internet can be used to streamline distribution networks, to improve traceability, to enhance quality assurance, and to build customer relationships and loyalty. E-commerce allows retailers to increase global sourcing, as they force relentless price competition. On the other hand, e-commerce creates global market opportunities for firms producing high-quality products at a competitive price.

Food producers can command a price premium if they offer full traceability on raw materials. The Internet can be used to track animal health and the use of genetically modified ingredients. The Internet makes this possible by providing a flow of information on the origin and ingredients of products, from farm to retail shelf.

There will be opportunities for some food companies to sell directly to consumers over the Internet. These will be mainly in specialist areas such as non-perishable gourmet foods and chocolates. Products that can be purchased in bulk, such as pet foods, will also be sold directly to consumers.

To take advantage of the opportunities a number of actions are required including:

Agency Actions

Encourage food businesses to use extranets to market and link with retailers world-wide. (An Bord Bia, Enterprise Ireland and Shannon Development)

Provide advice, training and support for food companies developing e-commerce strategies. (An Bord Bia, Enterprise Ireland and Shannon Development)

Encourage the development of Internet based solutions to provide full traceability of raw materials in the food chain in Ireland. (An Bord Bia, Enterprise Ireland and Shannon Development))

Enterprise Actions

Build e-commerce systems and extranets in food supply chains to serve business customers.

Identify new food distribution intermediaries that sell and deliver products direct to consumers.

Leverage traceability for food products throughout the supply chain as a competitive advantage.

Explore aggregation opportunities within and between food categories.

2.6 Education and Training

E-commerce will have a significant impact on the education and training business through the development of new digital-based education and training products, and through the digital conversion of existing textbooks and other material. The Internet enables distance-education courses to be delivered globally. This presents an opportunity and a challenge for the Irish education and training sector. It means that the catchment area for courses is greatly expanded. It also means that Irish students can participate in courses presented from anywhere in the world. To take advantage of these opportunities Irish education and training establishments will need to develop the capability to deliver courses online.

The demand for education software world-wide is experiencing dramatic growth. It offers tremendous potential for specialist software companies and education and training providers. To meet this demand, which is more content expansive and more geographically extensive than the traditional demand for educational and training outputs in Ireland, Irish education and training institutions will need to engage in online education, training provision and distance learning. They will also need to develop strong links with the multimedia industry in Ireland.

To take advantage of the opportunities a number of actions are required including:

Agency Actions

Leverage the strong reputation of Ireland’s education system to develop on the Internet. Assist businesses and institutions to target niche markets. (Enterprise Ireland and Shannon Development)

Encourage the leading education and training companies to locate their content-generation, localisation, marketing and distribution and support service activities in Ireland. (IDA Ireland)

Encourage overseas distance-teaching providers to locate their education support and tuition services in Ireland. (IDA Ireland) Attract the in-company training development and provision units of multinationals. (IDA Ireland)

Encourage universities and institutions from other countries to locate their distance learning centres in Ireland. (IDA Ireland)

Enterprise Actions

Convert education and training products and provision to Internet-based platforms for delivering distance-learning products.

Develop in-house corporate training programmes, into specialist products, for marketing and delivering internationally over the Internet to companies with similar training needs.

Develop alliances in multimedia and other sectors to convert content for use on the Internet.

2.7 Tourism

E-commerce brings increased opportunities for all tourism providers to market directly to tourists around the world. It also provides the opportunity to develop communities of interest in Irish tourism products. Electronic information agents on the Internet will increasingly match customers to tourist products.

A number of actions are recommended including:

Joint Agency/Enterprise Actions

Train employees in website management and transaction processing. (CERT) Integrate existing information technology systems to the Internet, and to local and national tourism offices, websites and booking systems. (Bord Fáilte)

2.8 Banking and Finance

Irish financial services have not yet evolved to meet the needs of business-to-consumer e-commerce. However, the changeover to e-commerce in the economy will require that all SMEs have access to some form of secure payment process. In North America, for example, an Address Verification Service provides considerable security for web-based transactions. This is unavailable in Europe. Irish entrepreneurs need information about the e-commerce banking and credit card clearance options available in target markets.

To take advantage of the opportunities a number of actions are required including:

Government

Ensure that resources and systems are in place to provide for fast regulatory approval of new e-commerce related financial services. (Department of Finance)

Agency and Enterprise Actions

Create and maintain a website with information and links to sources of e-commerce banking and financial services, such as credit card processing. (Enterprise Ireland)

Assemble and publish a guide to e-commerce facilitating financial services available to small business. (Chambers of Commerce, Irish Internet Association, Banks)

Strongly promote the development of a full range of web-based banking, credit card validation, transaction processing, and fulfilment services that can be used by retailers and other businesses moving to e-commerce. (Irish Bankers Federation)

2.9 Logistics and Fulfilment

While the Internet will enable the electronic distribution of many products, most will still require physical delivery. As e-commerce develops, one immediate impact will be an increase in the volume of parcel deliveries. Goods ordered over the Internet will increasingly be delivered directly to the consumer rather than through traditional retail outlets.

These distribution requirements – which must be flexible and world-wide in scope – will encourage suppliers to outsource their logistics requirements. E-commerce, therefore, presents a real opportunity to grow the logistics and postal services in Ireland.

An Post is well placed to exploit this opportunity and provide competitive logistics solutions for Irish SMEs engaging in e-commerce. An Post has both a national door-to-door distribution network and direct access to the distribution networks of postal services across the world. The ability of a range of companies in Ireland to provide competitive logistics and fulfilment services will be important for Irish-owned and for existing and new overseas companies. The latter could include e-retailers that require overnight delivery of e-commerce purchases.

The Logistics Sector itself is highly dependent on specialised telecommunications and information and communication technology (ICT) requirements. As e-commerce expands rapidly, there will be an increasing demand for the upgrading of ICT capacity in the sector.

To take advantage of the opportunities a number of actions are recommended including:

Government Actions

Encourage An Post to develop the capability to guarantee international delivery times, build alliances with international postal services for e-commerce delivery, and provide cash-on-delivery services. (Department of Public Enterprise and An Post)

Agency Actions

Determine the information and communications technology requirements of e-commerce in the logistics sector and the required actions to put them in place. (Enterprise Ireland, Shannon Development & National Institute for Transport and Logistics)

Examine the warehousing and distribution needs of SMEs delivering goods sold on the Internet and the need for consolidated warehouses in international markets. (Enterprise Ireland and Shannon Development)

Promote the design and production of specialised packaging for e-commerce distribution. (Enterprise Ireland and Shannon Development)

Promote global logistics providers to establish their European courier distribution centres in Ireland. (IDA Ireland)

2.10 Small Business

E-commerce is leading to new business opportunities for all SMEs, which account for over 99 percent of enterprises in Ireland. E-commerce provides the means for overcoming disadvantages of scale and geographical position. The global reach of the Internet means that any small business can access global markets. It provides a means for targeting customer groups internationally. It also provides a means for building and managing relationships with customers across the world. On the other hand, small businesses are likely to face increased global competition in home markets.

The efficient delivery of goods and services to the specifications ordered by customers, commonly referred to as the ‘fulfilment’ of small orders, is a critical capability for which SMEs engaging in e-commerce will need to formulate effective action plans. Customers ordering over the Internet expect fast and efficient delivery of the goods to their specification. SMEs, marketing their products on the Internet, need to ensure that they have the in-house capabilities to fulfil electronic orders promptly. They will also need to work closely with logistics partners that can provide services efficiently.

One of the key SME policy issues is how best to raise SME awareness of the opportunities and threats of e-commerce. Businesses need to ensure that key personnel have had appropriate training on Internet applications. They also need to ensure that company strategies are developed to exploit the technologies associated with e-commerce.

To take full advantage of the opportunities emerging for SMEs a number of actions are required including:

Agency Action

Promote the use of e-commerce and provide training support for SMEs. Efforts to increase the awareness of opportunities and threats should be undertaken on a sector-specific basis. (Enterprise Ireland and Shannon Development)

Ensure that e-commerce projects are given priority in the allocation of funds under the R&D incentive programmes of the development agencies. (Enterprise Ireland and Shannon Development

Promote the development capital and capability supports available from County Enterprise Boards for smaller e-commerce projects. (Department of Enterprise, Trade and Employment and County Enterprise Boards)

Develop plans by mid 2000 to provide full electronic services to clients. (Enterprise Ireland, Shannon Development & IDA Ireland)

Enterprise Action

Build upon local trade association networks to heighten awareness of the opportunities and threats which e-commerce will bring.

Lead in delivering benefits to customers through affiliations of associate companies using web technologies.

Provide training at local level through co-operative networks of similar or related companies.

2.11 Trade and International Marketing

E-commerce offers the potential to significantly increase international trade across all sectors of the economy. This potential exists in electronically delivered or electronically ordered products and services. It will bring with it a strong impetus towards harmonisation of international regulatory frameworks in areas such as accreditation, licensing, and restrictions on activity for newly tradable products. The Internet is a major new resource for all business firms engaging in market research and marketing. Marketing information is easily disseminated over the Internet. It is also easy to access the information of competitors.

Portals that provide a gateway through which customers can easily identify and interact with Irish suppliers will be important as businesses increasingly use the Internet to source competitive supplies on a global basis. A portal should be operated at a national level by Enterprise Ireland and should contain general company and product information. Customers who require more detailed product information or who wish to place an order could be switched directly to the Internet site of the supplying companies. Key words should be carefully chosen to ensure “search engines” locate such a site.

The development of a consistent quality standard across all state agency websites that are involved in promoting Ireland would greatly assist international Internet users. A central website containing market information, including information on consumer protection legislation in key export markets, would be valuable for Irish exporters.

A number of actions are required including:

Government Action

Agree bilateral open market principles on e-commerce trade with key, non-EU leading countries in e-commerce, including Japan, Australia, Singapore, and Canada. Such agreements should be similar to that agreed between Ireland the US in September 1998. (Departments of the Taoiseach and Enterprise, Trade and Employment)

Agency Actions

Create and maintain a website providing market information, including consumer protection information on key international markets. (Enterprise Ireland and Shannon Development)

Redesign agency websites to act as portals for promoting the products and services of client companies. (Enterprise Ireland, Shannon Development & IDA)

Exploit the potential of e-commerce as a way to increase the number of services firms exporting for the first time. (Enterprise Ireland/Shannon Development)

Develop a favourable and consistent standard for agency websites that promote Ireland. (Foreign Earnings Committee & Enterprise Ireland and Shannon Development)

Design portal sites in such a way that search engines rapidly locate sites promoting Ireland. (Enterprise Ireland and Shannon Development)

Enterprise Actions

Continue to focus Internet market attention on specific geographic markets. Develop logistics and credit management capabilities for international e-commerce markets.

Leverage the Irish image on entering new markets and Internet communities. Create communities of interest on the Internet around groups of complementary Irish suppliers and their international customers, to establish a tight and responsive value chain, and win customer loyalty.

2.12 Government and Public Administration

Government departments and the development agencies must play a leadership role in encouraging e-commerce in the enterprise sector. The Government’s Information Society Action Plan set out a coherent framework for the development of e-government. In moving forward, the public sector needs to heighten its focus on the needs of the enterprise sector, and act in such a way that the state e-commerce initiatives generate and foster initiatives in the private sector.

A wide number of actions are already being progressed and the following additional actions are now proposed:

Government Action

Develop a co-ordinated awareness and training programme involving all trade organisations and the social partners. (Information Society Commission)

Provide government and agency forms on the Internet by mid-2000 so they can either be printed for completion or completed electronically. (Department of the Taoiseach)

Introduce electronic funds transfer and payment systems within government departments and state agencies for transactions with the enterprise sector by the end of 2001. (Departments of the Taoiseach and Enterprise, Trade and Employment)

Develop standards for structuring public information websites in a consistent way.

Develop codes of practice for handling electronic communications between the public sector and the enterprise sector. (Department of Enterprise, Trade and Employment)

Develop links between all websites that provide government services to business firms. (Department of an Taoiseach & ISC)

3. Business Environment

This section summarises a number of the key issues that require action in order to create a business environment in which e-commerce and the digital economy can thrive.

3.1 Regulatory and Legislative Framework

The rapid development of e-commerce is giving rise to fundamentally new forms of business processes, for which the legal framework has yet to be determined. A number of key aspects of the legal framework are being discussed at EU level. Ireland should seize the opportunity to move ahead of other European countries and provide a clear, certain and secure environment for electronic business.

3.1.1 Certification and Trusted Third Parties

Trust is essential to all commercial undertakings, but particularly in e-commerce, where the parties to the transaction may never meet. The buyer wants assurance that the seller (a) exists, and (b) is worth doing business with. The seller likewise wants to know that the buyers are who they say they are, and that the payment is secure.

A system whereby organisations are accredited to certify the existence of individuals and companies in Ireland is required. Such organisations should interact with their counterparts around the world so that the same information, on potential suppliers and customers, can be made available to Irish companies and individuals trading internationally. It is proposed that accreditation should be on a voluntary basis. The provision of assurances that individuals and companies are worth doing business with should be left to the market. Financial and other organisations may decide to provide such information.

The Chambers of Commerce of Ireland and An Post, through PostGem, have introduced certification services.

A draft Consultation Paper has been prepared (Outline Legislative Proposals on Electronic Signatures and Certification Service Provision, Department of Public Enterprise, April 1999). A Bill to implement its proposals is expected in the third quarter of 1999.

A number of actions are required including:

Government Action

Bring forward, as a matter of urgency, the Bill to provide a framework for voluntary certification. (Department of Public Enterprise, Department of Enterprise, Trade and Employment)

Agency Action

Develop and administer a national voluntary scheme for accrediting organisations to certify that individuals and organisations in Ireland exist. The accreditation scheme should be put in place quickly and prior to the enactment of legislation. (National Accreditation Board)

3.1.2 Copyright

Copyright protection is fundamental to e-commerce and digital distribution of content. A Copyright Bill is being brought forward by the Department of Enterprise, Trade and Employment to be passed into legislation by the end of 1999. It accommodates all outstanding EU and World Trade Organisation (WTO) directives, and is intended to provide international protection for copyright material in Ireland. Ideally, the legislation should enable the promotion of Ireland as the most secure place from which to do digital business.

A number of actions are required including:

Government Action

Ensure that the new copyright legislation:

• Makes it an offence to post copyright material on public web sites without the copyright owner’s consent, even if not downloadable.
• Includes protection for technical designs posted on the Internet.
• Enhances the enforcement powers and penalties for electronic breach of copyright. (Department of Enterprise, Trade and Employment)

3.1.3 Electronic Contracts

A Directive on certain legal aspects of electronic contracts is under discussion at EU level, but it could be 2001 before an agreed directive is implemented. Ireland should move in the interim to provide a framework of legal certainty.

A number of actions are required including:

Government Action

Enact legislation to ensure the legitimacy and enforceability of e-commerce contracts. The legislation should also ensure certainty on the applicable jurisdiction. Pending agreement at EU level this legislation should be based on a contractual model which has been developed by the United Nations.
Ensure contracts made and signed electronically have the same force in law as if they had been made and signed physically.

Establish a resource on the Internet to provide information for businesses on electronic contracts. (Departments of Enterprise, Trade and Employment/Public Enterprise)

Enterprise Action

Specify on websites and in e-commerce transactions the legal jurisdiction that will apply to contracts with clients and, where possible, the key legal provisions or a link to a resource setting out the relevant provisions.

3.1.4 Electronic Evidence and Dispute Resolution

There are a number of issues that should be resolved relating to the circumstances in which electronic evidence may be used in court and the weight assigned to it. Dispute resolution procedures in respect of electronic transactions should be established. There is an opportunity for Ireland to develop as an international centre for arbitration of disputes on electronic transactions.

Unlawful interference with the business resources of Irish e-commerce users (hacking) can be a serious problem for companies where confidential information is involved, and should be deterred by penalties.

A number of actions are required including:

Government Action

Update the Criminal Evidence Act, 1992 to provide for electronic evidence in civil proceedings.

Promote arbitration as a suitable dispute resolution mechanism of e-commerce transactions.

Encourage national courts to develop e-commerce expertise.

Consider the establishment of an online international arbitration mechanism, which companies can use to resolve disputes, regardless of their country of origin.

Consider the establishment of an online Small Claims Court to deal with disputed e-commerce transactions.

Ensure appropriate regulatory provisions and penalties are in place to deter ‘hacking’ of e-commerce resources. (Departments of Enterprise, Trade and Employment and Public Enterprise)

Agency and Enterprise Action

Encourage the development of a pool of arbitrators to deal with disputes on e-commerce transactions. (Law Society, Bar Council, Enterprise Ireland and IDA Ireland

3.1.5 Liability in Respect of the Sale of Goods and Services

The number, characteristics and liabilities of intermediaries involved in e-commerce transactions, particularly those active in digitally-delivered services, are different from those in traditional commerce. In the context of the Internet, intermediaries include on-line retailers, network operators supplying the telecommunications links, internet service providers or “web hosts” that offer space on their systems for others to use for promotion, sales or other purposes.

The legislation relating to the sale of goods and services should be updated to recognise goods and services offered, sold, or distributed electronically. The new legislation should apportion liability for loss or damage between the provider of the goods or services, distributors and those intermediaries that act as ‘mere conduits’. Intermediaries that simply facilitate or provide access between one party and another should not incur liability for the sale of a product or service. Uncertainty on this issue can deter the establishment of intermediaries in Ireland and they are an important element in developing an e-commerce economy.

A number of actions are required including:

Government Action

Update the body of legislation relating to the sale of goods and services to recognise goods and services offered, sold, or distributed electronically. The legislation should apportion liability for loss or damage between the provider of the goods or services, and any intermediaries or distributors. (Department of Enterprise, Trade and Employment)

Enterprise Action

Agree in advance with intermediaries the terms of business for delivery (electronic and physical quality, expected reliability standards, and liability in event of loss or damage.

Review existing enterprise insurance cover where new modes of delivery, such as courier parcel delivery, are being used to fulfil e-commerce purchases.

3.2 Skills

The emergence of skills shortages is a major issue which could constrain the development of the Irish economy. It is receiving a high priority in other work carried out by Forfás and is not, therefore, dealt with in great detail in this report.

The recommendations of the Expert Group on Future Skill Needs, referred to earlier, in respect of new information technology places in third level education, are being implemented. These skills are critically important for e-commerce but highly specialised IT skills are also needed in some sectors. E-commerce skills are required in key areas of management, marketing and strategic planning. A variety of content management, multimedia and design expertise are required. All disciplines should have modules that provide IT and e-commerce skills to enable graduates to work in an e-commerce environment.

A number of actions are required including:

Government/Agency Action

Examine the multi-disciplinary and e-commerce skills needs of major sectors. (Expert Group on Future Skills)

Encourage the introduction of IT modules in all third level courses. (NCEA, NUI and CHUI)

Promote the establishment of a National College of Multimedia. (Departments of the Taoiseach and Education and Science)

Enterprise Action

Examine the operational and marketing skill sets required to compete in an e-commerce environment and prepare in-company skills development programmes.

3.3 Research and Technological Innovation

The leadership of the US in e-commerce has been fuelled by the innovative and commercial sharing and use of technological research between the research community and industry. It has also been based on the continuous flow of new developments and applications in telecommunications and information technology arising from research programmes.

A greater awareness by industry in Ireland of the potential impact of telecommunications and IT research is required. This should include an understanding of the benefits of deeper collaboration between third-level colleges and industry. The Irish Council for Science, Technology and Innovation (ICSTI), working with Forfás, has proposed the development of the research base in information and communications technologies to world class standards as part of a “Technology Foresight” exercise.

A number of actions are required including:

Government Action

Implement the recommendations of Technology Foresight in order to make Ireland a centre of world-class research in information and communications technologies.

Ensure that the National Development Plan includes an Information Society sub-programme (within the RTI provisions) with a focus on e-commerce applications and content. (Department of Enterprise, Trade and Employment)

Agency Actions

Ensure that the criteria used to evaluate e-commerce projects for funding are appropriate to the nature and risk inherent in them. (Enterprise Ireland and Shannon Development)

Re-emphasise, among client companies, the e-commerce related research opportunities in the EU Fifth Framework Programme that offers part funding on a competitive basis to successful consortia. (Enterprise Ireland/Shannon Development)

Enterprise Actions

Use the results of research and development studies to help develop new, innovative e-commerce related products and services. Use web technologies to improve relationships among research groups and industry.

3.4 Value Added Tax

Under current rules, the supply of digital services, such as software and music, to business and private customers within the EU is subject to VAT. However, services from non-EU suppliers to EU private customers are not directly subject to VAT in the EU, due to collection and monitoring issues. As the main e-commerce trade is east to west, this VAT ‘loss’ is a legitimate concern for the EU. As trade shifts from business to end-user, the transaction is more difficult to track, and hence the VAT harder to account for.

At present, companies must register in each member state if supplying goods or services in that State. The EU is however, considering amendments, and aims to have a single place of VAT registration for all electronic traders. Under these proposals the VAT rate applicable in the country of registration would be applied to all business -to-consumer transactions. As Ireland’s VAT rate of 21% is higher than some other EU countries, companies will have an incentive to register in and digitally distribute products from the countries with the lower VAT rates, such as Germany with a 16% VAT rate or the UK with a 17.5% VAT rate. Companies will also consider differences in other costs, such as corporation tax, in their location decisions.

It would be more in keeping with the basic principles of VAT to have the VAT on digitally supplied services to consumers levied at the rate applicable in the country of residence of the consumer and remitted back to that member state. Ireland should push for the adoption of this solution by the EU.

A number of actions are required including:

Government Action

Seek EU approval for services to be taxed at the VAT rate in the country in which they are consumed. (Departments of Enterprise, Trade and Employment, Finance and Revenue Commissioners).

Agency Actions

Examine the issues and options relating to the development of a VAT regime in Ireland that will best facilitate the growth of e-commerce, including the option of reducing the standard rate. (Forfás)

3.5 Performance Indicators

Accurate and timely statistics will be vital for effective policy development in the digital age. The speed of change is such that web technologies themselves must be used for information interchange and dissemination.

Benchmarks must be developed to monitor e-commerce developments at enterprise sub-sector level. The objective of this work is to determine best practices and potential and to set targets for the adoption of e-commerce.

Benchmarking should monitor the comparative take up of e-commerce in the enterprise sector in Ireland with leading countries. This work should build on the benchmarking already underway in the development agencies, in the National Competitiveness Council’s Annual Competitiveness Reports, the Information Society Commission and in the Forfás Telecommunications Benchmarking Index.

A number of actions are required including:

Government Actions

Assess Ireland’s e-commerce statistical requirements and undertake a review of relevant indicators. (Department of Enterprise, Trade and Employment, the CSO, Revenue Commissioners, Forfás and Enterprise Ireland)

Agency Actions

Include e-commerce indicators in agency surveys where appropriate. (Forfás, Enterprise Ireland, Shannon Development, IDA Ireland)

Develop the Forfás annual Irish Economy Expenditures Survey to track e-commerce trade in the manufacturing and internationally traded services sectors. (Forfás)

Co-ordinate and develop sectoral benchmarking to incorporate appropriate measures on e-commerce. (Forfás, Enterprise Ireland, Shannon Development)

4. Implementation

The policy and other actions set out in this report for government departments, development agencies and enterprises need to be adopted quickly. Steps should be taken to ensure their implementation if the potential of the digital economy is to be realised. Ireland is heavily dependent for income and employment on sectors that will be changed dramatically by e-commerce. The potential of e-commerce for these sectors is significant; so too are the consequences of inaction.

The Government’s role is to take the steps required to create the best regulatory and business environment in the EU in order to maximise the development of e-commerce. The development agencies, enterprise associations and enterprises themselves need to build on recent initiatives to foster the rapid take-up of e-commerce. Ireland should aim to develop a leadership position in business-to-business e-commerce, business-to-consumer e-commerce, and e-commerce enabling technologies and services.

This report on e-commerce should be the first step in a process of partnership in developing Ireland’s digital economy involving the Department of Enterprise, Trade and Employment, other government departments, the development agencies and the enterprise sector.

The following action is recommended:

Government Action

Establish a group to oversee implementation of the actions set out in this report and to prepare a progress report at the end of the year for the Tánaiste and Minister for Enterprise, Trade and Employment. (Department of Enterprise, Trade and Employment)

Footnotes

1 The Internet Economy indicators', Barua, A., Shutter, J., and Whinston, June 1999 (http://www.internetindicators.com)

2 Forrester Research press release, December 17, 1998 (http://www.forrester.com).

3 The recommendations throughout this report for Enterprise Ireland apply in general to Shannon Development and Údarás na Gaeltachta.

4 Bespoke software involves the provision of software services to customer specifications rather than product development.

5 Server Farms and mirror sites are increasingly required by US and other multinationals to process Internet enquiries from the EU. This activity can be outsourced to specialised operators providing the service for a number of companies.