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Risks for SMEs

New competitors

A common misconception, at least if stated in a simplified and uncritical way, is that electronic commerce presents a huge opportunity for SMEs because it opens for them the door to the world. While this statement is not necessarily wrong, it lacks a critical point: electronic commerce is not a one-way road. Obviously, if e-commerce facilitates local or regional sellers to enlarge their business markets, it reduces at the same time the barriers for competitors to enter the formerly protected regional market of the same local sellers, since their local customers can also order products online from anywhere. Large enterprises are often in a privileged position to profit from this opportunity. Online-retailers are a good example: amazon.com is a threat for traditional small bookshops, while their opportunities to compensate by selling books online themselves are rather limited. Business migration is another example: ICT and e-business have lowered barriers for market entry, which attracts large firms to extend their activities into new sectors and markets (for instance, retailers acting as travel agencies or car manufacturers starting their own banks). Small craft and trade firms, particularly if they are not integrated in any SME network or cooperation, are also vulnerable to new competition from abroad.

Eroding profit margins for suppliers

Electronic procurement systems implemented by large enterprises tend to benefit the buyer rather than the supplier. Some large companies report that they have "successfully streamlined" the selection of their supply firms, which effectively means that many suppliers have become redundant. As many small firms sell to a few customers only, this can have dramatic effects on their business situation. E-procurement systems, either via their own platform or through Internet trading platforms operated by third parties, have led to a price transparency for supply goods hitherto unknown in the marketplace, comparable to the effect of price finders and auction platforms in the consumer market. This development involves a huge risk of eroding profit margins for suppliers. This issue has emerged, for instance, in the discussion of reverse auctions and their possible implications for fair competition.


In the B2C e-commerce arena, a new type of company has emerged: firms entirely specialising in online-sales. These firms are the online-equivalent to the traditional mail-order company. They typically set up an e-commerce website and restrict their activities to storing goods and processing the incoming orders, while they do not operate any point-of-sale location or provide after sales services. As a consequence, they can offer better prices than shop-retailers. This has led to a customer behaviour about which shop-retailers understandably complain: Many customers first go to the traditional shops for pre-sales information and advice and to test products, but then order the item at the (cheaper) online-shop. A similar development takes place in the tourism industry, where dis-intermediation and re-intermediation take place in parallel.

Economies of scale – large firms benefit more from implementing e-business

Although software companies have begun to turn their attention to the requirements of SME customers, large firms are still in a privileged position to benefit from e-business software. As with other business functions, large enterprises tend to profit from economies of scale. They can afford to implement disproportionately more powerful IT solutions and reap the respective benefits. In addition, they need to employ relatively fewer IT people (measured as % of the total staff) than small enterprises, even if the architecture of their ICT networks is much more complex. This applies to all sectors.