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Sectoral Implications

As outlined in Section 1, e-commerce will have a pervasive influence on all sectors of the economy. It will also accelerate the emergence of new sectors and new forms of economic activity.

This section examines some of the potential implications for key and potential growth sectors of the Irish economy. The sectors were selected following consultations with international experts and industry. It is not intended as an exhaustive examination; rather, by illustrating the opportunities and challenges of e-commerce for these sectors, it serves as a basis for extrapolation to other sectors.

The first part of this section concentrates on key sectors, including electronics hardware, software, the food sector; and tourism. These sectors are important economically to Ireland. They include both high-tech and low-tech areas and both Irish- owned and foreign-owned companies. Furthermore, given the importance of small and medium-sized enterprises (SMFi) in Ireland, the implications of e-commerce for such companies are examined.

The section also examines the implications of e-commerce for traditional areas that are emerging as e-commerce growth sectors, and sectors that are critical to the development of e-commerce. These are examined under the broad headings of digital content industries including education and training, music and entertainment and new digital support services.

The upstream and downstream implications of e-commerce in each sector are assessed under the broad headings of marketing and operational implications, both for Irish enterprises and for overseas enterprises located or considering locating in Ireland.

2.1 Software

The Irish software sector has come a long way in a short period of time. From a handful of companies a decade ago, there are now over 760 software firms in Ireland, employing over 22,000 between them in 1998. It has been the most significant contributor to export growth, with software exports estimated at IR£4,600m in 1998, and rising strongly.

While direct employment in the sector is vital, software is also a key enabler of progress in other sectors. Software and ICT contribute to efficiency improvements in manufacturing industry and enable the growth of services. They are also the means by which whole new business models are made possible. According to the US Department of Commerce, one third of all US economic growth in recent years has been attributed to information and communications technologies that are critically dependent on advances in software. This is underlined by the findings of the first Irish Technology Foresight report, prepared by the Irish Council for Science, Technology and Innovation (ICSTI), working with Forfás. In this exercise expert panels were established for eight sectors and they all allocated a high priority to Information and Communications Technologies applications in their individual fields.

The software sector 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 following strategic areas, within the broader software area, are vital facilitators of e-commerce:

The most significant impact of e-commerce on the software industry will be the move to digital distribution of software directly to businesses and consumers. It is likely that this sector will deliver its products digitally directly to businesses within three years and directly to consumers within five years.

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

2.1.1 Overseas

Large software companies, predominantly of US origin, are major employers in Ireland. The key decision factors for investing here are availability of skills and services, low corporate taxation, and access to European markets. Early investments in the sector involved rather low-skill employment such as disk duplication, manual production and packaging operations. Advances have been made in shifting them towards greater value-added activities, such as marketing activities for Europe, the Middle-East and Africa, back office activities such as corporate treasury, accounting and legal activities, as well as the development and localisation of software. Strategic market development is nearly always driven from headquarters.

As the industry moves towards greater use of e-commerce, delivery of software is moving from physical shipment to electronic delivery over networks (referred to as ESD – electronic software distribution). The shift will result in a more direct relationship between producer and end-user, probably reducing the role of distributors.

Alongside the change in distribution, after-sales support is also being delivered over networks. This can extend to automatic upgrades and problem diagnosis (including prevention of potential failures). There are early indications that the industry is moving from a product sale business model to a software services model. In the latter, the software producer contracts to provide users with continuing service (software set-up, upgrades and product support both in fault correction and in effective use) over a defined period in return for a guaranteed income stream.

Unless responded to, the above can be viewed as threats to the sector in Ireland, but there are also whole new areas of opportunity. For example, in-vehicle applications of software are expanding dramatically, empowered by greater processing power in “smart” radios and navigation systems. Mobile systems in general are a huge growth area, with subscribers to wireless phone services forecast to grow from 170 million in 1997, to 600 million in 2001. There is a significant overlap between cellphone users and web users, and it is generally believed that the cellphone will be the vital new connection to web services.

Marketing Implications

Electronic Software Distribution (ESD) will have an increasing impact on the sector. As well as changing the mechanisms employed to distribute software, the networked economy is starting to enable whole new value propositions. Taken together, these will probably lead to more centralised approaches to marketing, supported by local presence in key markets. The centralised marketing will control operations and include risk management services such as a credit card fraud screening service, global rights management to protect the property rights to digital products in the distribution chain, and an export control service to meet government export regulations. Other services will include automatic multi-currency payment processing, territory management, VAT calculation, fulfilment, tracking, warehousing, and secure delivery.

Operational Implications

Localisation has been a major business function in the software sector in Ireland, but the Internet and Internet protocol (IP) standards have reduced the technical localisation and support required. Language localisation will be carried out increasingly in the destination country, which has the advantages of mother tongue and culture, supported by the web technologies.

In the consumer software area, ‘shrink wrap’ products have dominated. There is a trend toward making a greater range of product offerings available to the consumer, and ‘bundling’ modules and services in a way that expands the range of options available to the consumer. This will place demands on support services, and commentators speculate on whether this will occur at a centralised level for a region (such as Europe) or will occur at country distributor level.

There is concern that the design, development and testing functions associated with foreign investment is less represented here than might be expected on the basis of turnover. These activities are changing with e-commerce. “Virtual teams” can now be co-ordinated with ease across country borders. Overseas-owned companies in Ireland can use this technology to more easily participate in development work carried out by their parent companies.

In software production, the role of actual coding is diminishing. The routine function of coding has reduced in relative importance (but not in total numbers employed) ; increasing emphasis is being put on command and control centres: locations in which the strategic development and evolution, project management, testing, and support are directed and controlled.

In the foreign-owned sector, much of the activity 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, a corollary requirement of e-commerce is increased technical support, accounts and digital distribution personnel. The IDA must encourage client companies to develop e-commerce, and in particular, to be in a position to deliver products digitally to business within three years, and to consumers within five years.

As software moves from distribution on physical media to electronic distribution, the physical location of the producer will be irrelevant. Ireland could become a world centre for distributing software, and managing the associated intellectual property rights, credit control, customisation, and service and support.

2.1.2 Indigenous

The indigenous software sector employs over 10,000 people in 560 companies. While average company size has been growing, the typical firm is still small by international standards. Exports in 1998 were over £450m or 60 per cent of total revenue in the sector. The major challenge for the sector is to achieve sustainable scale by growing in new markets. This can be done both by natural growth and product development, and by acquisitions and mergers.

Marketing Implications

There is a clear need to develop the export sales of software. About 46 per cent of indigenous firms earn less than 30 per cent of their revenue from exports.

Bespoke development and general business applications account for 34 per cent of software income. These are threatened due to the increasing reliance on generic software products. Niche software, such as specialist applications and tools for the food sector, already dominates the strategic focus of the sector, and there is great potential to exploit the web to enlarge the customer base. Sectors such as telecommunications, router and switch producers should also be targets for relationship development.

Products and brands are just as important an issue in e-commerce as in any other marketplace. Building product and brand awareness for the general market demands funds that are beyond the capacity of most Irish companies. They must therefore focus on the specific needs of smaller customer groups, a process greatly facilitated by the relationship-building capabilities of web marketing techniques.

A possible entry opportunity for Irish firms into exports is though relationships with larger companies in the target market. The headquarters staff (predominantly US-based) of multinationals with investments in Ireland are a group of high potential targets.

Support services for web companies, such as systems integration and management, are an area of high potential. The production of web content and features for Europe is an opportunity that should be addressed.

Research and development of new software products will gain an impetus from the adoption of e-commerce. Irish companies can use the Internet to gain a foothold in the Research and Development subsector by forging relationships with US companies, and in particular, with the headquarters of such companies. IDA Ireland has a role to play in facilitating such strategic partnerships.

Operational Implications

The continuous pressure for higher value-added activities implies that only those organisations that focus on the unique value proposition to the customer can prosper. The acquisition, interpretation and realisation of customer preferences are key high-value activities. Coding will be less important, and can easily be outsourced to other locations.

Some observers have commented on the speed, flexibility and competitiveness of small teams in the software sector, as though small size was an advantage in itself. As the industry matures, the same dynamic will apply as in any other sector: there is a minimum scale to attract all the resources necessary to maintain sustainable competitive advantage. However, increasing standards and formal methods make it very difficult for lone players to prosper in the long term. The agencies must encourage consolidation of companies where the scale is an important factor in competitiveness. The industry itself must examine this need and the existing opportunities for consolidation. Successful companies grow by acquisitions and mergers, attracting the resources to themselves for dynamic growth and development.

Major new growth areas are often first developed at the interface between disciplines, such as between software and medicine, and between software specialists and financial services. Recognition of this must lead to increased co-operation across sectors to ensure that Irish companies make the best returns for their stakeholders.

2.1.3 Actions

The following actions are recommended:

Agency Actions

Enterprise Actions (Indigenous)

Enterprise Actions (Overseas)

2.2 Digital Content and Intellectual Property Management

The Internet facilitates the transfer over the telephone lines of products that can be digitised. 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.

The development, management and control of intellectual property will be the key value creation activity in content industries in the future. The internet and the convergence between media, entertainment, content, and software sectors is giving rise to significant new opportunities for digital content distribution in a range of sectors that previously required physical distribution media. The most significant growth sectors include education and training services, music distribution, entertainment, and Internet broadcasting services that can now be delivered directly to the desktop computer. The Internet is also giving rise to new content production and distribution methods and new ways of providing support services.

This section assesses new opportunities for Ireland in a number of key content sectors.

2.2.1 Media Asset Management

Ireland can develop as a centre for media asset management for a range of content industries that are moving to distribution over the Internet. These include entertainment products, educational training, music, library archives, and audio-visual broadcasting. Media asset management involves tracking the flow of transactions and remittance of royalty payments to copyright holders. The necessary technologies and tools are now available to allow owners and distributors of copyright material to determine the cost and price applicable to content or segments thereof, and collect royalties electronically.

Companies are undertaking media asset management in-house, as well as outsourcing these activities. IDA Ireland should encourage the major entertainment, music and video publishers to centralise these activities in Ireland, including royalty collection and remittance. There is significant scope for the development of indigenous companies either individually or collaboratively to provide these services.

Success will require the development of legal expertise in cross-border copyright management and data protection, as has been developed in the areas of tax and cross-border accounting. US companies, in particular, will need access to experts in EU and domestic copyright and piracy protection laws. Expertise in data protection legislation in European countries will be required to facilitate effective customer relationship management and marketing by the media asset management companies.

Other support services required include settlement and credit management services. Ireland needs to develop a strong competence in this area and the banks should take a lead. Inventory and data warehousing services will also be required. Ireland has a number of companies that could support the development of media asset management activities here. The sector will require to be underpinned by dedicated security tools, which is also a burgeoning sector in Ireland.

2.2.2 Music

The Internet is set to have a major impact on the music distribution and recording industry. E-commerce in music is growing in the US and internationally. Of the US companies currently selling music over the Internet, over 25% of their sales are outside the US. World-wide online sales of music are forecast to reach $1.6bn by 2003. This will include both downloading music from music sites and ordering CDs that are then physically distributed.

The pace of development of e-commerce in the music industry will depend somewhat on the pace of adoption by the big five, BMG, EMI, Polygram, Sony, and Warner, which control about 75% of music distribution. However, new competitors are entering this business through the Internet, such as Microsoft, CDNOW and Amazon.

While Ireland has a strong base of songwriters, artists and musicians, it does not have a well-developed music recording and distribution sector. E-commerce could, however, provide an opportunity to attract some of the back-office functions that will be required for digital distribution to locate in Ireland. Ireland’s success in this will depend on the adequacy and enforceability of our copyright laws.

E-commerce offers the potential for the large international music distributors to establish centralised marketing, distribution and back office activities, that can be accessed from specific markets or from around the world. This would also give rise to the need for the localisation of marketing content on websites.

Decentralised recording, editing and production will be possible over the Internet and some of these functions could be located or out-sourced in Ireland. There will be opportunities for Ireland to become the European base for new companies entering the music distribution business.

The Internet provides opportunities for the promotion of Irish music and artists. It presents opportunities for developing communities of interest in Irish music across the world. Irish artists, recording companies and distributors will be able to target these communities. E-commerce will also present opportunities for marketing direct to independent distributors and retailers in new markets that may not otherwise have been accessible.

The Internet is likely to increase the opportunities for recording, editing and producing music remotely by Irish enterprises. These opportunities will arise in the music industry itself, the audio-visual and film industry, and in other content and software sectors that need music for their products or websites, such as education and training packages.

2.2.3 Entertainment and Internet Broadcasting

Ireland could attract Internet entertainment companies to locate their European digital distribution and shared services operations in Ireland.

Internet broadcasting is likely to be a large growth sectors with audio-visual programming edited and customised to individual requirements. There may be opportunities to attract the major broadcasting companies to locate operations associated with Internet broadcasting. These could include back office transaction processing and distribution.

2.2.4 Actions

The following actions are recommended:

Government Action

Agency Actions

Enterprise Actions

2.3 Electronics Hardware

Ireland has developed a strong electronics hardware, manufacturing sector, with employment of over 62,000 in 1998 and exports of over £10bn. The sector has been a key driver of economic development in the 1990s, as Ireland benefited from the location here of key players in the PC revolution, such as Intel, Dell, 3Com, and Hewlett Packard, as well as the strategic development of established companies such as Nortel, Ericsson and IBM. In addition, a significant indigenous sector has developed both to meet the sub-supply requirements of the overseas companies and as a supplier of proprietary products.

It is useful to distinguish two categories of firm: those that produce finished end-user products, and those that act as sub-suppliers to other enterprises. E-commerce will impact differently on each category.

Producers of finished products must build relationships with end-users, even if there are intermediaries in the value chain. It is only through this direct relationship that customer value can be provided in a competitive time-scale.

Sub-suppliers must work almost as an extension of the ‘marketers’ fulfilment system. They must employ the technologies to become part of the extended enterprise. Increasingly manufacturers require integration of systems. Up to now, EDI was the way of achieving this integration, with required significant expenditure needed on systems. Now, however, the Internet provides access for smaller suppliers to larger electronics hardware firms. While this places demands on their production systems, it also offers the opportunity of extending their market reach, to others in similar industries as well as to other geographical locations.

Since the mid 1980s, the electronics hardware sector has been dominated by the PC revolution, which in the past five years has been amplified by the speed of the Internet. This is leading to the much-heralded merging of datacoms and telecoms that will provide the basis for the e-commerce revolution. However, the industry itself will also be profoundly affected by the e-commerce revolution, in terms of both marketing and operations.

Marketing Implications

In terms of marketing, companies like Dell are leaders in applying the Internet to an already sophisticated direct selling operation. The impact extends right down to their sub-suppliers, with machines being built to customer order in very short production cycles.

This type of marketing model will increasingly apply to both business-to-business and business-to-consumer selling. This in turn will create greater demand for marketing, technical support and control activities. Ireland must focus on capturing this growing part of the sectoral value chain, as well as new hardware support companies.

There are also opportunities for companies developing and manufacturing Internet access for specialist purposes.

Operational Implications

There will also be significant operational issues for hardware manufacturers. The opportunities presented by e-commerce to improve supply chain management will inevitably lead to the relocation of lower value-added manufacturing jobs to lower cost locations, while the elements of customisation will present opportunities. Therefore the manufacturing activities that will remain viable in Ireland will have some or all of the following characteristics

The improved efficiency of the supply chain will also present threats and opportunities for Irish suppliers to MNC operations in Ireland. On the one hand, process re-engineering will produce greater pressure for lower costs and efficient delivery, while on the other hand, it will create global market opportunities for firms producing high quality products at a competitive price. Such companies should be helped to extend their marketing range to the global market.

Outsourcing will become increasingly common on a European/global level; with more associate companies coming within the extended enterprise to deliver value to the customer.

Overall, the ratio of low-skills employment in the sector in Ireland will shrink. Software is allowing new benefits to be built into the hardware package, and the key driver for the industry is the software features and benefits. This has implications for the service and support of the product once it moves into the field. The relentless shift towards up-skilling and knowledge intensity that is evident elsewhere is merely emphasised here.

Internet sales and technical support will provide opportunities for development. The challenge for the agencies is to ensure that the command and control centres replace the lower value-added components of the enterprise in Ireland. These centres will have the crucial role in responding to customer preference by integrating order entry, production planning, logistics and technical support.

The following actions are recommended:

Agency Action

Enterprise Actions

2.4 Support Services

E-commerce in Ireland will succeed only if there is a base of world-class, competitive digital support services. The development and supply of these services is a major opportunity for inward investment and for entrepreneurship among Irish-owned companies. Data mining and relationship marketing, enabling services and digital distribution services are considered below:

2.4.1 Data Mining and Relationship Marketing

Online data services such as those described below are important because many companies will want to outsource these activities, or to operate them as separate cost-or profit-centres.

As the number of e-commerce users rises, so does the capacity of business to gather, store and, most importantly, to access transaction data that links consumers to products. These databases are essential e-commerce tools. Businesses use the information gained in this way to use product suggestions and personalised interfaces as marketing tools. According to Dataquest, the worldwide data warehousing and mining industry grew by 34% in 1997, with revenues reaching over $1.88bn in 1998. Most enterprises engaging in e-commerce will initially need to outsource these activities due to lack of in-house expertise. There are opportunities to establish Irish owned projects and to attract international players to locate in Ireland.

Mobile investment opportunities are likely to arise as e-commerce provides the option for companies to move out of the main financial and news centres, to locations that offer good telecommunications links and the availability of skilled staff. Initially, the inward investment opportunities in this area are likely to be modest, with the information created in other locations. Over time, skills in content development and adaptation could lead to more of the high-value added activity being undertaken in Ireland.

Electronic publishing and online distribution is growing rapidly across a range of media sectors, including newspapers, magazines, periodicals and books. It is increasingly being outsourced to specialist companies. There is an opportunity to attract such companies here.

2.4.2 Enabling Services

E-commerce enabling services include any activity that promotes or supports trading and selling online, such as:

The online booking and reservation market is set to expand dramatically as the Internet becomes the preferred medium for dealing directly with customers. The largest systems are currently in the airline industry serving the booking needs of travel intermediaries, such as travel agents, rather than being available direct to customers. The major players are Sabre, Galileo and Amadeus.

There is already significant growth in companies developing e-cash products. These include companies that are supporting transaction centres, and server centres of banks offering online services for businesses and personal customers together with companies developing and distributing certification and encryption services, and integrated Internet-based customer service centres. <

2.4.3 Digital Distribution Services

As companies involved in software and content industries move to digital distribution, they are likely to increasingly outsource distribution and transactions processing activities to specialist companies. There is an opportunity to attract these specialist companies to locate their European or worldwide operations in Ireland. There is also an opportunity to develop indigenous enterprises in this sector that can undertake the specialist distribution and transactions processing activities for large corporations.

The development of and technical support for mirror sites and data centres will be a key part of the infrastructure for developing an e-commerce presence on a number of continents. Mirror sites are sites that duplicate the information on a website to facilitate access and relieve traffic pressure. They include:

While the direct employment associated with mirror sites is generally low, there can be associated spin-offs to companies providing technical support and content adaptation services.

The support services associated with these various infrastructure elements include the content generation and packaging stages of the value chain, such as:

Animation and graphics activities that currently serve the film, video and multimedia sectors will increasingly be required for the development of Internet content. Computer modelling and simulation services, used in the development of training and education material, will be required to support a range of content industries. At present, these are mainly supplied by large US companies, which are likely to need a base in Europe for localisation activities. The development agencies should identify potential partners for small companies wishing to form strategic, co-operative relationships. Enterprise Ireland should promote technology companies providing support services.

2.4.4. Actions

The following actions are recommended:

Agency Action

2.5 Food and Agribusiness

The food-processing sector contributes significantly to the Irish economy, through direct and indirect employment, output and exports, and through its linkages with primary sectors of the economy. Over 50,000 people are directly employed predominantly in Irish-owned companies and 50% of output is exported, with 40% destined for the UK.

Overall, e-commerce is likely to impact most significantly on business-to-business relationships in the sector, primarily as a result of the development of extranets by the large retail and wholesale chains in Ireland and the UK. Retailers are using e-commerce to drive efficiency in their supply chains, to streamline distribution networks, to improve traceability and quality assurance, and to build customer relationships and loyalty. E-commerce is also allowing retailers increase global sourcing, driven by relentless price competition.

E-commerce will impact on this sector mainly by changing the traditional supply chain relationships. In some cases, it will enable producers to forge new direct relationships with customers; in others, it will raise the technological barrier to market entry, for example, by increased use of extranets. How Irish companies in the sector respond to these threats and opportunities will have a significant impact upon their ability to survive and prosper.

The following sections analyse some of the marketing and operational implications for Irish food companies.

Marketing Implications

The potential implications of e-commerce for marketing are different for business-to-consumer and business-to-business relationships.

Business-to-Consumer Marketing

E-commerce could have a positive impact on the sales of Irish food companies, though, in proportion to total sales, electronic sales may remain small. It will give food companies access to new markets, in particular for producers of non-perishable specialist products and products that could economically be purchased in bulk, for example, Irish chocolates, smoked foods, gourmet sauces, pet foods and drink.

The Internet will provide a new medium for Irish food companies to promote products and brands, market directly to target communities and consumer groups, gather feedback, and develop loyalty with customers around the world. These promotional opportunities will be available through dedicated international food portal sites, and through the websites of the national food promotion agencies such as An Bord Bia, An Bord Glás, An Bord Iascaigh Mhara, and the Irish Dairy Board.

E-commerce offers Irish food SMEs the potential to build awareness of their own products and brands. It will also provide the opportunity for these food companies to collaborate with more established companies in marketing complementary food products on the Internet. These aggregation opportunities are likely to be both within food categories, such as Irish cheeses and sauces, and between food categories, such as chocolates, drinks and smoked foods.

Business-to-Business Marketing

The internet enables continental multiples to search for competitive sources internationally, and provides an opportunity for Irish food companies to market directly to retail multiples on the continent. Irish suppliers could have advantages within the euro-zone.

The US has witnessed the rapid growth of virtual exchanges for physical commodities (spot markets) and of agricultural futures and options on the Internet. E-commerce allows both suppliers and buyers of commodity products to find new markets for bulk supply as spot markets develop, and will provide particular opportunities for ingredients and meat processors seeking new export markets.

While retailers are likely to increase their dominance of food channels to consumers as they develop Internet retailing, new food distribution intermediaries are also emerging to sell and deliver food and groceries directly to consumers. Irish food companies will have the opportunity to market directly to these new food distribution intermediaries as they emerge in key markets such as the US.

Food companies are focusing increased marketing efforts on national and international food service providers, such as restaurants, catering companies and franchisees, to boost international sales. This is as a result of the trend towards increased eating out in developed economies and consolidation in the retail sector. The Internet offers the potential for food companies to market directly to the food service industry internationally. It will provide a medium for food companies to promote the range and quality of Irish food products. Suppliers will also have the opportunity to engage in mutual marketing with food service companies using Irish food inputs.

Operational Implications

The most significant operational implication for food companies and their sub-suppliers is likely to be the ability to link with and use the extranets that are being developed by the large retail chains. Extranets connect and manage the flow of products throughout the supply chain, from farm to consumer. They increase supply chain efficiency and reliability, and enhance cost and performance transparency.

While e-commerce will significantly improve the efficiency of logistics operations, it will also require changes to the distribution networks of Irish food companies. With e-commerce and extranets, both retailers and customers will increasingly purchase in smaller batch sizes and in individual units.

The number of customers served through the distribution networks of food companies is likely to increase as a consequence of the growth of e-commerce. To distribute directly and competitively to consumers in international markets, food companies may have to establish distribution centres in international markets, or to develop alliances with fulfilment companies in these markets.

Full traceability of food products throughout the production and supply chain is facilitated by e-commerce. Providing online traceability, back to farm level, could be a major competitive advantage for Irish food companies. Traceability will increasingly be required for European consumer markets, to identify whether or not genetically modified ingredients have been used in food preparations. It will also be possible to trace meat products back to farm level, enabling producers to provide assurances to consumers and retailers on breeding and disease status.

E-commerce will significantly increase the amount and quality of data and information available to retailers and suppliers on production processes, costs, and consumer buying habits. Food companies will need access to the data gathered by retailers as well as the ability to analyse it. The sharing of information over the Internet could provide an opportunity for Irish food companies to analyse consumer trends, performance and efficiency. Food companies can use the information strategically in structuring their own production processes and plans, and as part of their market research on consumer buying patterns and preferences.

The following actions are recommended:

Agency Action

Enterprise Actions

2.6 Education and Training

E-commerce is likely to have a significant impact on the education and training sector, through the development of new education and training products and the conversion of existing textbooks and material. Online material can be a more effective learning medium than traditional methods, and offers great potential to improve the efficiency of in-company training.

Although distance learning has existed for some time, the Internet makes possible a dramatic expansion in coverage and better delivery of instruction. Such technical improvements coincide with a general demand for retraining and upskilling by those who, due to work and family demands, cannot attend traditional courses. Distance learning over the Internet is likely to complement existing schools for children and university students, but it could have more of a substitution effect for vocational training and continuing education programmes. For some degree programmes, high-prestige institutions could use their reputation to attract online students who would otherwise attend a local faculty.

The education software market is already experiencing dramatic growth. According to OECD estimates, the US is the largest market, accounting for 69% of the world education software, followed by Germany at 12%, the UK at 7% and France at 5%. The professional and corporate market accounts for 48% of total sales, the home and consumer market for 32%, and institutions for 20%. The industry is currently growing at 45% per annum and is forecast to maintain this growth into the future. Five US firms account for about 60% of the market, namely Computer Curriculum, Jostens Learning, CUC Software, Educational Management, and McGraw Hill.

Overseas

There is an opportunity to attract the leading education and training companies to locate their marketing, distribution and support service activities in Ireland. Ireland has a strong skill base in education and training content development for the Internet. The conversion and localisation of textbook content for European markets requires significant input from educationalists, software developers, and multimedia specialists.

E-commerce creates opportunities for overseas distance teaching providers to locate their education support and tuition services in Ireland. As education and training establishments internationalise to provide courses in Europe, there will be opportunities to attract these establishments to locate their European bases in Ireland. E-commerce also provides opportunities to attract the in-company education and training development centres of large corporations for the development of products to meet their own needs and for other customers.

Indigenous

The Internet provides a medium for both public and private education and training providers in Ireland to move to distance learning. It also provides a new medium for promoting online services and for marketing to students who are prepared to travel for courses, such as for foreign language study.

Irish education and training providers will have opportunities to market to individuals and corporate customers around the world using electronic means. Universities, institutes and specialist colleges can develop online courses, and leverage the strong reputation of Ireland’s education system to develop their brands on the Internet and target niche markets.

The Internet could provide an opportunity for Irish universities and colleges to recruit students in Asia, the Middle East and Africa who are considering studying overseas. The US currently captures the majority of these students, and a number of UK and continental European universities are actively targeting them.

There are entrepreneurial opportunities for the development and provision of specialist training courses for different industries and professions. Companies that have well-developed and specialised in-house training programmes and materials will have opportunities to market these products to companies with similar needs.

The Irish software and multimedia sector is well positioned to seek out opportunities for the conversion of training and education material for delivery over the Internet for in-company training programmes, for leading education publishers, and for Irish universities and colleges. E-commerce will facilitate collaboration between these educationalists and Irish software development companies, distributors and service providers.

Actions

The following actions are recommended:

Agency Action

Enterprise Actions

2.7 Tourism and Other Sectors

E-commerce will be pervasive across all sectors of the economy, and the detailed implications examined in previous sections are intended to provide a basis for extrapolation into other sectors of the economy. The implications for all sectors should be examined in future work, with a particular focus on the economic implications of e-commerce for some of the sectors below.

2.7.1 Tourism

E-commerce will have far-reaching implications for tourism promotion and tourism policies. It will profoundly affect each part of the tourism distribution chain including suppliers such as hotels and golf courses, intermediaries such as tour operators and travel agents, sectoral, regional and national marketing organisations, and finally, the perceptions, behaviour and purchasing patterns of consumers. It will also have implications for the industry workforce and in particular the SMEs that make up the bulk of the Irish tourism industry and contribute so much of its character.

There will be increased opportunities for direct marketing to potential tourists and for developing communities of interest in Irish tourism products. Electronic information agents will increasingly match customers to tourism products. Tourism areas and regions will have an opportunity to increase visibility to potential tourists, and to complement national marketing material and campaigns, both online and conventional. The Internet will, over time, increase the cost-effectiveness of marketing by reducing production and distribution costs.

The challenge for Irish tourism is to maximise the benefits of e-commerce while building on the existing strength of the destination as a brand. In the world of global online travel shops with increasingly homogenous product, there is a need to manage the presentation of Ireland’s image as a destination. The content of the electronic shop window must be rich, comprehensive, and up to date. The quality of the national product and its accessibility must be optimised by the tourist board and branded as such with an ‘approved’ indicator. Destinations with a coherent and inclusive e-commerce strategy, which includes all potential distribution channels, will be at a competitive advantage in the growing online community.

Tourism providers and their employees will need advice, training and support to avail of the opportunities presented by e-commerce, including website construction and management, online marketing, transaction processing and communications.

Irish tourism providers will need to integrate existing information technology systems and the Internet into local and national tourism offices, overseas market offices, websites and booking systems, to create a comprehensive electronic infrastructure linking all sectors of the industry.

The following actions are recommended:

Joint Agency/Enterprise Actions

2.7.2 Retailing

E-commerce is having a major impact on the retail sector. Retailing is increasingly disintermediated: suppliers can sell direct to consumers anywhere in the world. In 1997, 12 per cent of US retailers sold products on the Internet. In just one year, this number trebled to 39%. According to a 1997 survey, 52% of European retailers think that e-customers will cease using traditional outlets.

Retailers will need to adapt quickly to marketing on the Internet and to fulfilling e-commerce orders. They will need to maintain a presence in both physical and cyber channels. There will also be opportunities for new entrepreneurial entities in retailing small niche operators that can deliver high value goods directly to consumers.

2.7.3 Health Services

Telemedicine is set to be a major growth area. At least three different services can be provided: teleradiology (transmission and diagnosis of X-rays, ultrasound images, or magnetic resonance images), telepathology (real-time transmission and diagnosis of information to a pathology laboratory during an operation), and virtual reality (the use of computer simulation techniques to train and instruct).

The increased demand for health services as populations age, budgetary pressures to contain health costs, and regulatory reform will help to promote future e-commerce activity in health services.

2.7.4 Professional Services

Professionals whose occupations largely involve the exchange of ideas or advice, such as architects, engineers, accountants, lawyers, and consultants are likely to increasingly rely on e-commerce, especially to acquire and serve clients. While clients are unlikely to engage such services without direct personal contact, e-commerce is likely to expand the market for them and increase the level of client interaction, for example, in the review of draft legal agreements.

The rapid take-up of e-commerce among the professions will be an important determinant of take-up in the economy in general, as they interact with all types of businesses, in particular with SMEs.

2.8 Banking and Finance

Financial services, including banking, stock trading, insurance, and provision of financial information, are likely to be significantly affected by e-commerce. As for other products, the displacement of existing activities will be offset by overall increases in the market for these services, as prices decline and people make more frequent use of them. For example, there is more frequent stock trading now that commissions are low. E-commerce can make a major contribution to improved efficiency in the banking sector. Preliminary results from a Canadian Survey of Innovation (1996) reveal that 82% of the banks are using the Internet, and that 19% use it to sell goods and services.

Irish banks are evolving to support the emergence of a vibrant small business sector on the Web, particularly in relation to business-to-consumer transactions. In this form of transaction, the merchant provides a facility to customers whereby credit cards can be accepted over the web interface. At the Business-to-Business level, electronic movement of value is not a particular problem. The biggest volume of electronic transfer of funds in the world is by the Clearing House Interbank Payments System in New York. CHIPS handles a trillion dollars a day clearing Eurodollars1 . It has been doing this successfully for a long time, with no breaches in security.

All major Irish banks will be in a position to facilitate Business-to-Business and Business-to-Government transactions with new service offerings that are currently undergoing testing. These have the ability to effect domestic and international third party payments, and combined with certification services becoming available, will have a facilitating role to play in domestic and cross-border trade.

No shop, online or offline, can accept credit-card payments without getting merchant status from a commercial bank. It is relatively easy for a brick-and-mortar business to get the required hardware and services – usually just a trip to a commercial bank. Things are different in the online world. Telephone and online retailers cannot get their customers’ signatures at the point of sale. So, in theory, the risk of forged identities and stolen credit-card numbers is greater. There is a real risk to the on-line merchant as well as to the credit-card agency and precautions are necessary.

The larger Irish banks have initiatives at final stages of development that will allow them to offer a service to online retailers. This will provide retailers, that achieve a satisfactory risk profile with an effective service. The criteria are likely to include minimum trading period, liquidity and reserves.

Since credit cards are the most common means of doing Business-to-Consumer e-commerce, intermediaries take on the risk for smaller retailers for a significant fee. Examples of these include NetBanx and the US InternetSecure (http://www.internetsecure.com).

There is a rapidly developing international market in these types of services. Information on the range and scope of these should be included in any awareness and training campaigns.

There is an opportunity to build upon the success and reputation of the International Financial Services Centre to position Ireland as a centre for international e-commerce financial services. The leading US Internet-based financial services organisations could beneficially use the IFSC as the base for launching their services into Europe.

The following actions are recommended:

Government Action

Agency and Enterprise Actions

2.9 Logistics and Fulfilment

E-commerce presents a real opportunity to grow the logistics and postal services in Ireland. While the Internet will enable the electronic distribution of many products, such as software and music, most products will still require physical delivery. Increased parcel delivery of goods that are ordered over the Internet is likely to be one of the most immediate impacts of e-commerce.

For some businesses, this will require increased flexibility in logistics. For others, it will mean a complete re-engineering of their logistics processes. Businesses targeting consumer markets will need the ability to produce, package, and deliver customised orders, within a specified time period, to a guaranteed level of quality. For Ireland-based enterprises targeting business markets, it will require the management of integrated extranets on which customers can order and schedule delivery to their batch sizes, and track and trace their order through the production and distribution processes.

Logistics can be a mix of in-house and out-sourced functions in the e-commerce space, including parallel delivery, customer support and, in some cases, collection of taxes. Due to the flexibility and distribution networks required by e-commerce, over 25% of current e-commerce-related logistics is outsourced in the US. Federal Express estimates that 68% of their orders originate online. This is giving rise to an initial dominance of global courier companies. Presence in local markets is a key advantage for these companies, although more economic alternatives will be required if e-commerce is to realise its full potential.

An Post is well placed in Ireland to serve the needs of Irish companies engaged in e-commerce, as it has both a national door-to-door distribution network and direct access to the distribution networks of postal services in most countries across the world. It is also a comparatively cost-effective solution for low volume distribution. For Irish enterprises to be competitive in the e-commerce environment, An Post must rapidly develop the capability to guarantee delivery times and quality of delivery. It will need to develop alliances and extranets with international postal services in order to provide such guarantees. Cash-on-delivery services to Irish businesses need to be developed. Businesses will also need access to online tracking and tracing services for parcels being delivered to customers across the world.

Global logistics providers should be encouraged to establish their European distribution centres in Ireland, both to provide competitive services to enterprises in Ireland engaged in e-commerce, and to build up the base of subsupply services required to attract e-commerce companies. The latter could include retailers that require overnight delivery of orders. IDA Ireland and Enterprise Ireland should target the major fulfilment and logistics providers to locate in Ireland, and to develop Irish logistics companies into e-commerce fulfilment companies. These service providers take orders for clients, break bulk and fulfil the orders from stock in warehouses, dispatch and track delivery.

For many Irish SMEs engaging in e-commerce, the cost and time associated with dispatch from Ireland will impact on the competitiveness of their products. To serve export markets such as the US, there may be a need to ship product in bulk to the destination market and break bulk locally as orders are received. This activity could be undertaken by establishing a distribution centre in these markets, by outsourcing to a fulfilment company in that market or through alliances with other Irish exporters to achieve economies of scale in distribution. An Enterprise Ireland initiative, similar to the Pleroma consumer foods distribution centre established in the UK for breaking bulk, may be required for the US and other markets.

Delivery of product through the postal service or by courier will require new forms of packaging. A high level of innovation will be required in packaging design to maintains the quality of product shipped while reducing the bulk. Irish packaging companies can develop a first mover advantage in designing and producing specialised packaging for e-commerce distribution. The agencies need to assess the capability and opportunities for the packaging industry to meet the new requirements of e-commerce logistics.

The following actions are recommended:

Government Action

Agency Actions

2.10 Small Businesses

E-commerce is likely to have its most fundamental impact on SMEs. In Ireland. 99.4% of enterprises are SMEs (fewer than 250 employees), accounting for just under half of total enterprise employment and 50% of SMEs employ fewer than ten people. In view of the importance of SMEs to the economy, and the threats and opportunities offered by e-commerce, there is a need to focus on enhancing their growth and participation in the knowledge-based economy and global marketplace.

E-commerce increases the business opportunities of SMEs, providing the means for overcoming disadvantages of business scale and geographical position. However, compared to large corporations, SMEs do not have sufficient business resources (either human or capital) to invest in the construction and operation of systems.

The key marketing and operational implications of e-commerce for SMEs are set out below.

Marketing Implications

E-commerce will provide SMEs, including previously non-exporting firms, with immediate access to international markets. There will be increased opportunities for a wide range of SMEs to open up new markets, not only in the speciality food and software areas, but also in areas such as giftware, crafts and fashion. It will enable SMEs access the more sophisticated markets in the US, such as the highend of the mail-order business.

Currently only 3% of service businesses in Ireland are actively exporting. E-commerce will increase the transportability of services and offers the greatest potential for enabling services SMEs to start exporting.

Competition in all the main domestic and international markets of Irish SMEs will increase as a result of e-commerce, as barriers to entry for foreign companies are significantly reduced. Irish SMEs will need to concentrate initially on the management of existing customer relationships and on selling direct in existing supply/distribution channels.

E-commerce will enable Irish SMEs develop and build marketing and distribution alliances with American SMEs trading over the Internet that need a ‘local’ partner in Europe. The Internet will provide increased access to information for SMEs for market research and intelligence, for market segmentation, and for targeting and building communities of interest. It will also provide promotion opportunities both for trading over the Internet and for using the Internet to build brand and market awareness. Multi-lingual content will be important in this regard, as well as skills in web marketing.

The strategic implications for business-to-business marketing will include increased opportunities to market direct to multinationals based in Ireland, and to their corporate headquarters. However, it will also result in increased transparency of competitiveness in terms of costs and performance, in particular relative to other SMEs in the euro-zone, and will require SMEs to market other strengths, such as quality and reliability of service.

The Internet will present new opportunities for specialist craft companies and artists in Ireland to reach new customers, in new ways, across the world. The Internet will make it possible to target and build communities of interest in crafts and goods that are uniquely Irish. The Irish diaspora of more than 80 million people will become more accessible. Irish artists and crafts companies will need the services of aggregators or national portals for promotion, for the management of customer relations, and to encourage those involved in crafting uniquely Irish goods to engage in e-commerce.

Operational Implications

The development of extranets connecting business production and operational systems is more likely to impact on logistics than on any other significant operational area. The impact will be greatest on sub-suppliers to MNCs. They will have to adapt quickly to the systems and standards of larger companies. MNCs will be able to compare the offerings of alternative suppliers from around the world. E-commerce will facilitate logistics and procurement pooling among SMEs, as both exports and imports can be scheduled and tracked electronically by SMEs.

SMEs may have separate extranets with more than one large customer, and systems integration between existing IT systems and Internet systems will be a significant challenge for such companies. SMEs will need to plan the development of their Internet strategies, and ensure that their systems are based on international standards that can accommodate MNC-specific extranets.

E-commerce offers major potential for SMEs to improve the efficiency of their procurement processes, as the Internet will allow them to buy directly from suppliers, by-passing intermediaries and wholesalers.

SMEs will be able to capture a great deal of significant business information, in relation to costs and performance of their supply chains, and customer trends and purchasing patterns. The ability to analyse and interpret the data generated will be critical for efficiency improvement and competitive advantage.

Awareness and Training

The implications of e-commerce for all aspects of enterprise development and competitiveness must be understood at company level. Specifically, there is a real need to develop awareness and training in e-commerce for SMEs.

While most businesses have some general awareness about e-commerce and the Internet, there is a general lack of understanding about the opportunities and implications of e-commerce for specific sectors. The levels of e-commerce deployment by enterprise, and individual Internet access, are significantly below international leaders.

Current levels of e-commerce adoption are seriously at odds with the international perceptions of Ireland as the “Celtic Tiger”. In April 1999, Forfás and IBEC jointly published and distributed to enterprises 15,000 copies of Telecommunications for Business – A User’s Guide explaining developments in advanced telecommunications and e-commerce from an enterprise perspective. The Information Society Commission is actively engaged in a number of initiatives aimed at raising public awareness, and launched an enterprise awareness-raising campaign with IBEC in early 1999. Enterprise Ireland are developing a programme of awareness for their clients. This will be followed with training support targeted at the needs of the specific sectors. Enterprise will be encouraged and supported in getting connected to the internet. Support will also be provided to develop e-commerce strategies appropriate to their needs.

A co-ordinated national awareness campaign, involving all trade and business representative organisations and the social partners, should be established. The Information Society Commission should take a lead in the provision of well researched and easy-to-understand information and guides, targeted at specific sectors. Organisations and the social partners must then act as information multipliers and providers of training support for their members across the country.

Initiatives are also to equip Government departments and agencies to deal with SMEs through e-commerce. This are considered in section 2.12 Government and Public Administration.

Actions

The following actions are recommended:

Government Action

Agency Actions

Enterprise Actions

2.11 Tourism and International Marketing

The Government’s Trade Policy Statement, published in January 1998, noted that Government activity must continue to focus on measures to enhance the competitive environment, and to ensure coherence between trade policy and policy objectives in related areas.

E-commerce will increase international trade in services as well as manufactured products. Many services have not yet been exposed to significant international trade, but have operated on a global level only for large corporate clients. This change may come as a shock to sectors that have been sheltered by logistical or regulatory barriers. In addition, it will generate pressures to reduce differences in regulatory standards.

In the same way as Ireland agreed a bilateral communiqué on e-commerce with the US in September 1998, Ireland should agree similar bilateral open market principals on e-commerce trade with key non-EU leaders in e-commerce, including Japan, Australia and Canada. The US has signed similar bilateral agreements with a range of countries, including Japan and France. At a wider level Ireland should consider participating in an e-commerce agreement between US (“representing” NAFTA), Ireland (“representing” the EU), and Singapore (“representing” the Asia Pacific region) to facilitate the development of a pervasive, consistent and secure global technical and regulatory environment for e-commerce.

Ireland should develop a special relationship with an Asian partner to complement that with the US. Singapore is advanced in developing IT and e-commerce and would provide significant opportunities to leverage its learning and expertise.

E-commerce offers the potential for a significant increase in the number of first-time exporters and this should be a particular focus of agency resources. Enterprise Ireland should take appropriate measures to provide businesses with better access to relevant market information in respect of e-commerce, including the establishment of a website for information on all EU regulations and consumer protection information on key international markets.

Portals

A key issue for Irish enterprise is how to ensure that consumers and businesses around the world find the Irish sites, before the sites of their competitors. The rapidly-increasing volumes of information and companies on the Internet pose a challenge to businesses to entice customers to their sites. Global “search engines” and portals are emerging, for example, Yahoo and Alta Vista which are used by Internet users, regardless of nationality.

The development agencies should undertake a review of the use and development of portals to determine how Irish enterprises can most effectively use the Internet to get access to global markets. The Review should address the marketing and promotion needs of the main sectors. Enterprise Ireland should take the lead in developing a favourable image for Ireland, which companies could use, on the Internet. Consistency in delivering such an image is important, aided by an on-going programme of market research to identify weaknesses in the Irish image on the Internet. Irish companies could take advantage of a well-developed Irish Internet image to differentiate their products and services.

The development agencies should provide business with advice and guides on web marketing. This should include developing national codes of practice and guidelines in the use of the Internet for business. Attention should be paid to the design and functionality of websites, and to the effective use of websites for market intelligence. 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 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 and web marketing undertaken to ensure search engines locate such a site.

Access to the Irish internet address, “.ie”, is administered by the Computer Science Department of UCD. Access is expensive relative to other countries. It is available only to registered companies and trademark holders. The address should now be made widely available and promoted to assist in the development of an Irish image on the internet.

Actions

The following actions are recommended:

Government Action

Agency Actions

Enterprise Actions

2.12 Government and Public Administration

Government departments have a key leadership role to play in encouraging e-commerce in the enterprise sector. The Assistant Secretaries Information Society Action Plan published in January 1999 sets out a three-stage approach for the development of e-government over the next three years. This plan is important in encouraging the take-up of e-commerce in the country.

There are a number of pilot projects set out in the plan that will be of direct benefit to the enterprise sector and are particularly welcome. These include initiatives being introduced by the Revenue Commissioners for the electronic submission of tax returns and the development of online registration and returns to the Companies Office.

The Department of Enterprise, Trade and Employment, relevant government departments and development agencies need to help SMEs overcome barriers to the use of the Internet and e-commerce. An initiative is needed to :

Systems should be introduced to allow electronic funds transfer and payment systems within all government departments and state agencies and should start to become available to enterprise clients by the end of 2000.

Codes of practices for handling electronic communications should be developed for the public sector. Contact details and email addresses of relevant sections and staff should be clearly identifiable on departmental websites.

There is a need to develop standards for the consistent structuring of public information and websites. The relevant government departments need to co-operatively develop an online resource, detailing the legal and regulatory framework pertaining to e-commerce. This needs to include the Departments of Enterprise, Trade and Employment, Justice and Law Reform, Public Enterprise, and agencies, such as the Competition Authority.

Ireland should maintain a close watching brief on emerging global e-commerce regulatory and legislative environments. The rapid move to e-commerce has implications for all aspects of public policy formulation, public administration and competitiveness. It is important that the public administration system actively monitors developments internationally, understands the implications for administration and public policy in Ireland and ensures that necessary action is taken.

Government Actions

Summary of Key Actions

Government Actions

Agency Actions

Enterprise Actions

Footnotes

1 The Euro market was created at a time when American banks were prohibited from paying interest on checking accounts and much US money began moving overseas. It became stateless money. The Euromarkets are now the greatest mobile pool of capital in the world. "Money goes where it is wanted and stays where it is well treated." This is instructive in terms of taxation and other policies in a world were the importance of borders has been greatly diminished.

Last modified: 28/09/2001

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