e-Newsletter No. 1/2008, January 2008

e-Business in the chemicals, rubber and plastics industry

The chemical, rubber and plastics (CRP) industries are an economically important sector, providing jobs for about 3.6 million people in the EU-25. The sector comprises large, internationally operating companies (notably in the chemical industry) as well as numerous highly specialised small and medium-sized firms, notably in the manufacture of rubber and plastics goods.

As in other manufacturing industries, e-business has become more mature and sophisticated over the past 3-5 years, with large companies taking the lead. In the recent survey of 2007, about 20% of firms with at least 10 employees said that their data exchanges with business partners were mostly conducted electronically. About 35% said that they processed orders and related messages electronically internally, but then exchanged them in a paper-based format. The remaining 45% said that their data exchanges were still mainly paper-based – thus forgoing the potential to improve process efficiency and productivity.

To some extent, there is a "chicken-and-egg" problem hindering the wider deployment of e-business: companies argue that their business partners are simply not yet "e-ready" (more than 60% said that this was a major reason for not using e-business more intensively). By comparison, only about 25% said that the technology was too complicated. For small firms, ICT costs are another key challenge: 40% argued that cost was an important barrier.
Further progress in standardised data exchange can be important for the sector's competitiveness, however. It is a pre-condition for optimising supply chain management, which translates into improved customer service. Particularly in commodity producing sectors with little potential for differentiation on the basis of quality (e.g. basic chemicals), the level of customer service is a key determinant of competitiveness – next to price – in international competition.

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e-Business in the steel industry

Steel, an alloy comprised mostly of iron with carbon and other elements acting as a hardening agent, is used in many aspects of business, from automotive manufacture to construction products, and from cargo ships to the scalpel for hospital surgery. Thus, steel is a very important engineering and construction material with economic importance for a broad range of sectors.

The new e-Business Survey 2007 finds that the steel industry is not a laggard in ICT and e-business use. Almost all of the 349 European steel companies interviewed stated they have internet access. 58% said they ordered goods or services on the internet or via other computer-mediated networks. 33% said that they used an enterprise resource planning (ERP) system and 14% a supply chain management (SCM) system. These shares are slightly below the figures for the chemicals industry and slightly higher than those for the furniture industry.

However, the survey also found that there is large potential for more sophisticated e-business use in the steel industry. Only 25% of the steel firms stated that their customers can order goods online, as opposed to more than 30% in the other two manufacturing industries. Furthermore, the survey found that ICT and e-business practices in EU steel firms tend to be lower than in the USA. 75% of the US steel firms stated that they procured online and 35% stated that they enabled customers to place orders online.

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e-Business in the furniture industry

The EU furniture industry employs about 1.2 million people. The sector is SME dominated: while there are about 80,000 companies in the EU with fewer than 20 employees, only about 8,800 companies have more than 20 employees.

An earlier study by the EITO Observatory (2001) found that ICT uptake in the furniture industry lagged behind compared to manufacturing sectors. The new survey by the Sectoral e-Business Watch shows that there is still a gap, notably among the smaller firms. For example, still companies representing more than 40% of employment in the furniture industry say that their data exchanges with suppliers and customers are "mostly paper-based", compared to only 25% in the steel and 35% in the chemical industry. Among small firms (with 10-49 employees), more than 60% exchange orders and related documents mostly paper-based.

Small furniture manufacturers often act as sub-contractors for larger firms, including furniture retailers. ICT is expected to have an unexploited potential for process efficiency gains in these exchanges, notably for digitally integrating manufacturers and retailers. There is promising evidence in this respect, too. The percentage of firms that accept online orders from customers is about 30% (in all size-bands), which is similar to other manufacturing industries such as the chemical industry.

ICT has also become an important tool to support design and production planning processes in the furniture industry. According to the survey, about 80% of medium-sized firms and more than 90% of large firms use CAD (computer-aided design), about 50% (of medium) and 80% (of large firms) a 2D modelling system and 60-70% a 3D modelling system.

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e-Business in the retail industry

Retail is one of the largest economic sectors in Europe providing employment to more than 15 million people. One of the characteristics of the retail sector is its pattern of organisational sizes: large organisations and micro firms dominate the market with a majority of micro firms catering for niche markets and specialising on supplying goods in specific geographical locations.

Widening market reach through e-commerce - myth or reality: e-Commerce is often promoted as giving retailers access to a global market through the internet. Evidence about this phenomenon however is scarce. The new survey of the Sectoral e-Business Watch finds that the majority of people ordering goods online at retailers from seven EU countries are mostly regional and national customers. 47% of firms report that their orders are mainly from regional customers and 49% are from national customers. A mere 4% of firms report that their online orders mainly come from international customers. This finding challenges the commonly assumed role of e-commerce for widening market reach beyond local and national boundaries.

Yet, ICT certainly matters in this industry. Research indicates that e-business is increasingly transforming elements of supply chain management in the retail sector. Retailers operating in an ‘internet target segment’, for example, might have been pressured by technologically innovative competitors to adopt internet sales strategies. While the diffusion of e-business is continuously affecting retailers, the survey indicates that understanding about supply chain management issues in retailers is fragmented, with the anticipated dichotomy between small and large players. For example, 35-40% of large retail companies (with more than 250 employees) use advanced e-business systems such as SCM (supply chain management) and CRM (customer relationship management), but only about 20% of medium-sized and 10% of small retailers.

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e-Business in the transport & logistics services sector

Transport and logistics are key components of a successful economy, and governments worldwide seek to increase competitiveness through new or replacement infrastructure.

The sector underpins the economy, enabling the movement of goods, services and people as efficiently as possible. ICT play a major role in this industry, enabling the digital integration of information along the whole logistics value chain, including inbound and outbound transportation, distribution, warehousing, and fleet management.

However, there is a huge digital divide between the advanced users in the industry (including the large internationally operating logistics services company) and the vast majority of small service providers, notably haulers and other road freight companies. For instance, firms representing close to 40% of employment in the logistics sector use an extranet, typically to enable customers to track the status of the shipment of their goods. By comparison, only 20% of companies in the road freight transport sector have an extranet.
Similarly, the more advanced ICT systems for transport & logistics are mainly used by larger firms, and notably by the logistics sector. In total, more than 40% of large firms report using a specific software system for fleet control, about 30% for cargo handling and 47% for maintenance management.

About 30% of companies in the sector enable customers to place orders online. In the passenger transport sub-sector (including road and rail passenger transport), where e-ticketing services have become highly popular, nearly 40% of firms offer customers to buy tickets online. However, about 50% of these firms say that online tickets still account for only up to 5% of their total sales.

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RFID adoption

The development of RFID technology promises to be one of the most interesting innovations for the improvement of efficiency and effectiveness of business processes across the manufacturing, transportation & logistics, wholesale distribution and retail trade sectors. RFID is essentially a new data acquisition platform for enterprises, and as such it needs to be integrated within evolving IT infrastructures.

The Sectoral e-Business Watch conducted a survey among about 430 medium-sized and large firms from various sectors to assess the current deployment of RFID, the main application areas and drivers and barriers for adoption. Companies representing 24% of employment in these sectors said they actually used RFID. The technology is currently mostly used by large firms with more than 1000 employees (29%). 3% said they had "concrete plans" to use RFID in the near future. 19% said they preferred a "wait-and-see" strategy, in the sense that they observed the market development and would adopt when necessary. 10% said that they had considered the subject, but expect that they would not need and use RFID in the future.

This leaves about 45% of companies (by employment) saying that they "had not yet considered" the subject. Among medium-sized firms (with 50-249 employees), an astounding 71% of companies admit that they are more or less unaware of the topic. In other words, in spite of the of the broad coverage of RFID developments in ICT and business magazines, there is still a huge demand for awareness raising, in order to help companies taking informed decisions whether to adopt or not.

The most widely used RFID application is inventory management. 70% of firms that actually use RFID say that this is one of their application areas; in retail and manufacturing, it is even 95%.

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Intellectual Property protection in the ICT industry

Intellectual property (IP) —including copyrights, patents, trademarks and trade secrets— is widely recognised as a key driver of innovation in the ICT arena. Adequately protecting and promoting IP is thus fundamental to Europe’s future ICT competitiveness. On the other hand, IP regulation is at the heart of some of the most heated competitive battles in the industry, concerning software production and concerning digital rights management for media content.

The Sectoral e-Business Watch conducted a survey among about 680 small and medium-sized firms in the ICT industry about their approaches to IP protection. About 50% of the companies said that they protected IP by means of copyrights; in software publishing, about 60% do so. About 36% of the ICT-SMEs said they registered patents, notably in the ICT manufacturing sub-sector (53%).

Those companies that held patents reported, on average, that they possessed or had applied for about 10 patents; in ICT manufacturing, the average number is 15. Small firms with fewer than 50 employees have only 3-5 patents on average.

The survey also asked companies about the satisfaction with the regulatory framework. About 60% of the companies felt that the legal framework for the protection of IP rights was "well-suited to the company’s needs"; however, at the same time, 70% said that the "national and European rules should be better harmonised".

Forthcoming »