Report on the internet economy: I. 2002
2002. 11. 17.
In association with Westel Mobile Telecommunication Company and Sun Microsystems Hungary, GKI Economic Research Co. conducts quarterly surveys on internet usage and the development of the electronic economy in Hungary.
The GKI-Westel Internet Economy Index reveals that companies are somewhat less optimistic than in the previous quarter (at the end of 2001) regarding their prospects in the internet economy. The index was at 10.8 in the first quarter of 2002, compared with 11.7 previously. The lower expectations of the industrial and services sector as well as the tourism segment were partially offset by the growing optimism of the retail and wholesale sector.
75% of companies with five or more employees have internet access, with an additional 11% planning to get web access within the next year. Due to the successful marketing campaign and the competitive pricing, ADSL-type connections increased at a remarkable rate. While ADSL accounted for 1-2% of all internet connections last September in the corporate segment under study, its ratio surged to 8% by this March. Expectations are definitely pointing to the increasing prevalence of broadband internet technologies, particularly ADSL connections.
Based on the calculations of GKI Economic Research Co., internet transactions in 2001 amounted to 31.5 billion forints in the wholesale segment and to 5.4 billion forints in the retail segment. Compared with 2000, these figures indicate a 66% growth in wholesale (2000: 21 billion forints) and an almost five-fold increase in online retail sales (2000: 1.1 billion forints). Despite this surge, online sales account for an average of 0.1% of total revenues. Companies forecast a 52% increase in online sales for 2002, with the retail and wholesale sector being the expected motor of this growth.
II. Detailed report
1. Declining optimism
As in numerous other research projects of GKI Economic Research Co., the results of this survey are synthesized in one index, called the GKI-Westel E-Economy Index.
This sentiment index, representing the expectations of certain segments of the economy regarding the impact of internet use and web-based applications on their market, is comprised of responses to four questions. The questions relate to the following issues: expectations regarding online sales and procurement, the impact of the internet on the market of the company as well as the utilization of the internet in the present and in the future.
The GKI-Westel E-Economy Index was at 10.8 in the first quarter of 2002 (compared with 11.7 in the previous quarter). Retailers and wholesalers were more optimistic this time, while expectations in the industry, in services as well as in tourism-related sectors were down. The expectations of the financial sector have not changed significantly over the past few months; financial institutions immediately follow the retail and wholesale sector in terms of positive expectations regarding promising prospects associated with the growing internet penetration as well as the increasing number of web application users.
(Note: Values above zero indicate optimism and positive expectations.)
The decline in the index value can be attributed to two factors. On the one hand, companies predict a smaller impact of the internet and online applications on their markets. On the other hand, respondents expect a slower growth in online sales.
2. ADSL on the rise
The gap between small/medium-sized companies and large corporations in terms of the rate of internet access is diminishing very slowly. There continues to be a close correlation between company size and internet access: almost all large companies with 300+ employees have access to the internet, while the percentage of micro- and small businesses and medium-sized companies with web access is 70-78% and 85%, respectively. Survey responses project an 11% increase in corporate internet access over the next year.
ADSL-type internet connections increased at an extremely rapid rate over the past six months, resulting in a new structure in corporate web access as far as connection types are concerned. While ADSL connections accounted for only 1-2% of all internet connections last September, the rate rose to 8% by March 2002. This surge can be attributed to a substantial and obviously successful marketing campaign of internet service provides over the last quarter of 2001, as well as to reduced subscription costs. As a result, ADSL became a competitive alternative to both other broadband connection types and dial-up.
In addition to ADSL, internet connection via cable TV is also gaining popularity in the corporate segment under study. The market share of the two types of broadband connections is increasing primarily at the expense of dial-up connections.
Expectations are definitely pointing to the further expansion of the ADSL technology. The current rate of ADSL access is expected to double over the next twelve months. As ADSL connections become more widespread, it is mostly the traditional dial-up connections that will lose market share.
3. Online commerce: slow stride?
Even though three-fourths of businesses have access to the internet, most companies do not participate in the “internet economy” except for a few medium-sized and large firms. In the category of medium-sized and large companies with 50+ employees, internet-based business applications are primarily used in the area of customer relationship management (9% of respondents). Only 6% have implemented online applications for the management of supplier relationships. As low as 5% of medium-sized and large companies use internet applications in marketing processes. Expectations predict these trends to continue; the majority of firms intend to implement internet business solutions for customer relationship management.
According to the calculation of GKI Economic Research Co., wholesale internet sales amounted to 31.5 billion forints in 2001, while retail internet sales totaled 5.4 billion forints. Compared with 2000, these figures indicate a 66% growth in wholesale (2000: 21 billion forints) and an almost five-fold increase in online retail sales (2000: 1.1 billion forints).
Despite this growth, online sales account for an average of 0.1% of the total revenues of firms. Companies forecast a 52% increase in online sales for 2002, with the retail and wholesale sector being the expected motor of this growth.
4. About the research methodology
The survey targeted incorporated and non-incorporated entities with five or more employees in March 2002 (based on the database of the Hungarian Central Statistical Office). For the evaluation of the survey results, the responses in the individual categories were weighted to make them representative of the entire segment. The more than 1200 responding companies represented the segment at 10% in terms of 2000 annual net revenues and at 14% in terms of employment.