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This study by the Sectoral e-Business Watch focuses on ICT usage and e-business in the chemical, rubber and plastics products (CRP) industries. The main study objectives are to describe how companies in this industry use information and communication technology (ICT) for conducting business, to assess impacts of this development for firms and for the industry as a whole, and to indicate possible implications for policy. The analysis is based on literature, an international survey of 911 enterprises from the sector on their ICT usage, expert interviews and case studies.
The CRP industries as defined for this study cover the following business activities: the manufacture of chemicals, chemical products and man-made fibres (NACE Rev. 2 20), and the manufacture of rubber and plastic products (NACE Rev. 2 22) – see Section 2.1. It is one of the largest manufacturing sectors, providing jobs for about three million people in the EU. As a major supplier to many other industries, and as a provider of innovative materials and technological solutions, the sector plays an important role for the industrial competitiveness as a whole. Europe is still a major player in the global CRP market, but experiences increasing competition notably from Asian competitors. In the total CRP industries, the EU had a positive trade balance in 2006 with a surplus of about €36 billion (for the EU-27). The chemical industry accounted for most of the surplus (see Section 2.2).
Besides global competition, key challenges for the European industry are rising costs of energy and raw materials, coping with new environmental and safety regulations (notably with the implementation of REACH), having access to raw materials, and (for some segments of the sector such as the tyre industry) combating counterfeiting. An important goal for European policy in this context is to ensure a level playing-field, i.e. that EU exporters do not face obstacles which their competitors, when importing into the EU, do not experience (see Section 2.3).
NACE Revision 2 is a four-digit classification of business activities. It is a revision of the “General Industrial Classification of Economic Activities within the European Communities”, known by the acronym NACE and originally published by Eurostat in 1970. NACE Rev. 2 replaced version Rev. 1.1 on 1 January 2008.
The quality of companies' ICT infrastructure has significantly improved since the last measurement by e-Business Watch in 2003, in particular among small and medium-sized enterprises (SMEs) – see Sections 3.1 and 3.2. Examples to demonstrate this include:
The share of small firms (with 10-49 employees) that have broadband internet connections has increased from 10% (2003) to nearly 40% (2007).
The diffusion of Wireless LAN (W-LAN) technology has surged; close to 60% of employees in the sector work in companies that operate a W-LAN.
The share of companies that enable remote access to their computer network –to support mobility and flexible forms of work– has significantly increased.
Exhibit: % Companies with internet access >2 Mbit/s
The improved ICT infrastructure enables companies to introduce more advanced forms of e-business. In fact, the study finds that companies in the sector are increasingly replacing paper-based, manual processes by electronic exchanges. "Real e-business" based on automated data exchanges between players in the value network is now evolving at fast pace, empowered by the increased diffusion of e-business software systems.
More than a quarter of the companies (by their share of employment) feel that at least a good deal of their exchanges with business partners are conducted electronically; three quarters say that at least some of their processes are conducted as e-business (see Section 3.3).
Exhibit: % of companies saying that most / a good deal / some / none of their business processes are conducted as e-business (2007)
yThe following results of the e-Business Survey 2007 are indicators of the dynamic development of e-business in the sector:
The installed base of ERP (enterprise resource planning) and SCM (supply chain management) systems among companies in the sector has significantly increased since 2003. These advanced software systems enable the digital integration within the supply chain.
e-Invoicing on the rise: companies are increasingly sending and receiving invoices electronically. 33% send invoices directly from their computer system to that of a business partner. Adoption will further increase, as large firms impose e-invoicing on their SME trading partners.
More e-procurement: about 70% of the companies (by employment) place at least some of the orders to suppliers online, up from about 50% in 2003. The average share of supplies ordered online has also increased.
A sector-specific ICT opportunity is to facilitate REACH compliance: software vendors of ERP, corporate governance and risk management software are developing specific modules for this purpose.
e-Standards and intermediaries facilitate electronic data exchange
Advanced forms of e-business require the agreement on standards for data exchanges; this includes identification, classification, catalogue exchange, transaction and business process standards. Chem eStandards, developed by CIDX (an industry-led non-profit organisation focusing on e-business), are the main data exchange format in advanced e-business exchanges in the sector. In contrast to other sectors, this industry-led initiative was successful in establishing an industry-specific standard facilitating data exchanges (see Section 3.4). Many e-business solutions for the chemical industry are compatible with Chem eStandards.
Business process outsourcing to intermediaries is an opportunity to increase the efficiency and productivity. Interoperability challenges have led to the emergence of specialised service providers, which can help companies significantly in connecting digitally. Elemica (see case study, 5.3) is the leading connectivity hub for the sector, matching document delivery and receipt formats between sellers and buyers for a range of processes. e-Procurement solution providers such as cc-hubwoo are working in the line of traditional e-marketplaces. Finally, there are highly specialised service providers focusing on specific business processes such as e-invoicing (see case study on Acordis and OB10, Section 5.1). These intermediaries enhance the deployment of e-business activity, but mostly between large enterprises and within the sector. The new challenge is to expand connectivity to the numerous smaller companies, and between sectors.
From transactions to solutions: the focus on customer service
A forecast of an earlier e-Business Watch study (2004) can be confirmed: there has been a significant uptake of e-commerce activity in the past few years in the CRP industries (see Section 3.5). Evidence for this development is that an increasing number of companies offer their products online. About a third of all companies –irrespective of their size– enable customers to order products online (2007), compared to only 10% that said they sold products online in 2003.
Exhibit: % Companies selling online (2003) /
accepting orders online (2007)
In parallel, the intensity of this activity, measured as the average share of orders that are received online, has surged since 2003. The Sectoral e-Business Watch estimates (based on estimates obtained from companies in the survey) that the average share of online sales in the sector –considering those companies that engage in this activity– has increased from about 5-8% (2003) to about 25-30% (2007).
The dynamic adoption of marketing and sales related e-business activities can be regarded as part of an enormous effort companies are undertaking to optimally serve their customers. The general trend is to move from merely conducting transactions electronically ("e-commerce") to providing "e-solutions" to customers. This comprehensive approach to e-business focuses on providing integrated services such as enhanced access to a wide range of order-related information, for example about the order status and about products which customers have purchased (see case study on BASF, Section 5.2).
Technically, companies can take different routes to e-commerce. Large players usually practice for a multi-channel approach. They connect with some business partners via EDI, use Elemica to connect to others and operate sophisticated extranet customer portals, mainly as a customer service for SMEs. These portals typically offer customers a holistic view of their orders and access to all kinds of order-related information. The objective is to offer customers several options how to conduct the business, while at the same time keeping focused on the efficiency of processes. In short, e-business solutions are becoming indispensable tools to meet customer expectations and to do enter new markets abroad.
The empirical evidence does note allow straight forward conclusions on the economic impact of ICT. There is mixed evidence in this regard: micro-data and case studies point towards a high importance of ICT and e-business, but this is not confirmed by macro-economic analysis for the industry as a whole.
Macro-economic evidence: no pronounced ICT impact on productivity and growth in the CRP industries
An economic analysis based on productivity and growth accounts (macro data) did not find convincing evidence for substantial productivity or growth effects of ICT capital in this sector (see Section 4.1). Growth accounting for the CRP industries in nine EU Member States suggests that non-ICT-capital investments contributed to a higher extent to value added growth in the CRP industries than those in ICT-capital (1995-2004), even if ICT-capital also contributed positively in most of the Member States for which data were available. Also, the key driver for labour productivity growth (measured as gross production value per working hours) was found to be intermediate inputs intensity, rather than ICT capital.
However, there are some caveats. The econometric analysis conducted for this study is based on "ICT capital" as input factor, which is (roughly) defined as investments in information and communication technology products and software, on the basis of selected NACE groups. This does not include all forms of "embedded ICT", i.e. ICT components that are embedded in other infrastructure such as the complex equipment of chemical plants. Also, there may be a time lag between ICT adoption and the impact on productivity and growth, which may be fully reflected by the analysis.
Micro-economic evidence: high relevance of ICT for innovation and business process efficiency
On the other hand, case studies and the firm survey conducted for this study (i.e. micro-data evidence) indicate a dynamic development of e-business in the sector. ICT have become a general purpose technology that is widely used across all business functions (see Sections 3.1 – 3.5, 6.1).
A regression analysis how specific ICT-related factors are linked with innovation activity found significant links between e-business activity and the likelihood of conducting innovations (see Section 4.2). While ICT hardware endowment (measured in terms of network infrastructure usage and internet access) by itself is not correlated with the likelihood of introducing organisational changes, the use of software applications for e-business is highly correlated. Moreover, Firms with a higher incidence of ICT-enabled innovation activity are more likely to report a turnover increase, i.e. to have experienced a sales growth. (This finding does not claim to establish a direct causality, though.)
ICT impact on competition: About 45% of companies (by employment) believe that ICT has an impact on competition in their sector. Most of them argue that competition has "somewhat increased" due to ICT. However, the assumption that a (perceived) increase in market rivalry triggers ICT adoption (as a measure to withstand the pressure) is difficult to verify by means of simple regression analysis. Companies from the CRP industries that experience an increasing intensity in market competition do not use more ICT than companies feeling that the degree of competition is stable (see Section 4.3)
Although the study cannot confirm an immediate economic impact of ICT capital on productivity and growth in the sector, there is much evidence smart use of e-business matters for the competitiveness of companies. The importance of an adequate e-business strategy will probably further increase. A majority of the companies interviewed for this study are convinced that ICT will actually have an impact on the way they do business in the years to come, in practically all areas of business (see Section 6.1).
This reflects the untapped potential of more advanced forms of e-business. Most companies in the CRP industries, including the smaller ones, have adopted basic ICT infrastructure. There is little strategic potential to be gained from this type of ICT infrastructure in itself; it has become a basic technology for doing business: a "commodity". By contrast, more advanced forms of e-business are not yet as widely deployed and hold a higher strategic potential for many companies, notably for SMEs. Practices such as the exchange of standardised data with suppliers and customers, and the integrated processing of data between different segments can be means to gain competitive advantage. Technologies and applications supporting these processes can be expected to become key technologies for SMEs in the years to come (see Section 6.1).
Advanced e-business processes from a technology life-cycle perspective
The empirical evidence do note allow straight forward conclusions whether and to what extent there is a need for ICT-related policy initiatives specifically for the chemical, rubber and plastics industry, as the evidence on ICT impact is mixed (see above). Moreover, the chemical industry is confronted with urgent and highly complex challenges that are not directly related to ICT, such as the rising costs of raw materials and energy, the compliance with new environmental regulations, and increasing global competition (see Section 2.2). These challenges pose, by all measures, more direct concerns for industrial policy than the use of ICT.
Nonetheless, micro-data and case study evidence (see Sections 3 and 5) points towards a rising importance of e-business for the competitiveness of companies and, ultimately, industries. This should not just be ignored. It can be argued that evolutionary ICT-enabled innovation processes should be accelerated by appropriate measures, in order to sustain and enhance the –still existing– competitive advantage of the European CRP industry. ICT infrastructure and e-business can be seen as an important factor condition for an economy to achieve competitive advantage, in particular in the emerging knowledge economy.
From a systemic perspective, (European) policy measures in this field should be embedded within the broader policy framework of the European Commission's DG Enterprise and Industry for promoting sustainable industrial development and the competitiveness of European industry, in which innovation plays a central role. They should also be linked with the recommendations of the High Level Group (HLG) on the Competitiveness of the European Chemicals Industry, which was set up by the Commission in June 2007.
The study proposes four lines of possible action to enhance and exploit ICT-driven innovation potential in the CRP industries (see Section 6.3):
e-Skills related actions (I): improving the managerial understanding of e-business among smaller companies
The study confirms that there is still a "digital divide" between large and small companies in e-business practices, notably when it comes to advanced forms of data exchange. Case studies demonstrate that, in smaller companies, the understanding and commitment of the management is a critical factor for introducing ICT-based innovation in the firm. There is a wide range of instruments to raise awareness and to promote the understanding of e-business concepts among this target clientele.
The study recommends to support such activities. Possible measures include the collection and wide dissemination of best e-business practices among SMEs in the sector, and grant schemes for SME projects (ideally combined with documentation of best practices afterwards).
e-Skills related actions (II): strategies and new educational schemes to ensure the adequate supply of ICT and e-business professionals in Europe
The study results show the importance of a good skills base. A shortage of ICT and e-business professionals would not only affect the ICT industry itself, but also larger companies in the ICT using sectors. First, they face difficulties in finding professionals for their own IT departments and e-business operations. Second, a shortage of professionals among ICT service providers negatively affects the quality of the services offered to their customers. The study recommends a close cooperation of policy, educational organisations and the ICT industry, typically in the form of "multi-stakeholder-partnerships", to address this challenge.
Further harmonisation of the regulatory framework for e-business in Europe
In specific areas, existing regulatory frameworks can be difficult to apply to new ways of electronic data exchange, which can lead to legal uncertainty for business and hinder innovation. It is the main responsibility of policy to address such issues and thus create a favourable overall framework for ICT usage. The study recommends to sustain and enhance existing efforts to solve related problems, for example with regard to cross-border e-invoicing.
Explore opportunities to facilitate REACH compliance by use of ICT
The study concludes with a sector-specific recommendation. It proposes to carefully consider the potential of ICT to make the technical implementation of the REACH regulation as efficient as possible – for both sides, the companies and the regulatory authorities. Goals should be to ensure that solutions offered by service providers effectively meet the legal requirements and are widely used by enterprises, including SMEs. Means to address this include stakeholder coordination initiatives, involving the ICT industry and federations from the CRP sector, and the provision of targeted information about opportunities to SMEs.
A study by the EC, DG Enterprise and Industry, on "Multi-stakeholder-partnerships for e-skills" (2007) has assessed different approaches, identified best practices and made recommenddations how to establish and sustain MSPs.