Report on the internet economy In focus: The retail and wholesale sector IV. 2001
2002. 11. 17.
In association with Webigen Inc. and Sun Microsystems Hungary, GKI Economic Research Co. conducts quarterly surveys on internet usage and the development of the electronic economy in Hungary. The following is a summary of the most crucial results of the 2001 fourth-quarter survey in the retail and wholesale sector.
Currently 78% of retail and wholesale companies have internet access. This ratio will likely rise to 90% by the end of 2002. Companies are paying more and more attention to internet security measures. At present, as few as 7% of all retail and wholesale companies have written security protocols, but there could be a five-fold increase in this percentage over the next year. In terms of procurement, companies say the reliability of suppliers as well as in-depth market knowledge are the key factors. The majority, however, continues to be skeptical about electronic transactions. They think that the government could promote the advancement of the internet economy by offering investment tax benefits, government subsidies, as well as credits with zero or reduced interest.
The expectations of companies are synthesized in the GKI-Webigen Retail and Wholesale Internet Usage Index. The following illustration shows the index trends.
This sentiment index, representing the expectations of certain segments of the economy regarding the market impact of internet use and internet applications, is comprised of responses to four questions. The questions relate to the following issues: expectations regarding internet 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.
Remark: the GKI-Webigen Retail and Wholesale Internet Usage Index is the mathematical average of the subindexes (the values are between -100 and +100, with figures above 0 indicating positive expectations).
In the fourth quarter of 2001, the GKIeNET-Webigen Internet Economy Index was at 4.8, reflecting a modest rise from the previous period. The performance of the index over the past five quarters reveals that despite moderate declines during 2001 (except in the fourth quarter), the index persistently remained in the positive range. Apparently, companies tend to be optimistic regarding the impact of the internet on their markets. Even though the majority of businesses fail to take full advantage of the technological opportunities the internet provides, they are confident that the internet will buoy their markets in the medium term.
Retail and wholesale companies, along with other corporate segments, increasingly agree that new technological solutions such as the internet are indispensable in today’s economy. Although companies generally think that internet solutions do not yet generate significant resource savings, 78% of the firms in the fourth-quarter survey pool have web access. In an effort to avoid being at a disadvantage when it comes to maintaining or increasing market shares, companies slowly get used to this new form of long-distance communication and explore the opportunities to possibly gain competitive advantages in this way in the medium term. Internet penetration could reach 90% among retail and wholesale companies within the next year, which reflects the importance of this issue in this segment. These days internet usage is no longer the privilege of large corporations only. At present, three out of four micro- businesses and four out of five small businesses have access to the internet and are able to use internet applications. 7% of the responding companies have already prepared documents containing security regulations pertaining to internet use. This percentage will likely rise in the future, possibly as high as 35% in a year. Within the retail and wholesale segment, medium-sized companies are and will probably continue to be the ones placing the greatest emphasis on this issue.
The increasing role of security is reflected by the fact that retail and wholesale firms are planning to spend significantly larger amounts on IT security measures in 2002 than a year earlier. Companies with 20-30 employees and companies with 300+ employees are particularly increasing these types of expenditures. Currently, more and more companies use the internet in the area of procurement. 38% of the companies use the internet to place orders and more than 50% to request offers.
As far as the procurement of strategic materials is concerned, retail and wholesale companies believe that the reliability of suppliers and the in-depth knowledge of the market are the key factors, while negotiating skills and IT tools are generally attributed less significance. In the area of online procurement, two out of five companies say that their lack of confidence in internet transactions is the major obstacle in the more frequent use of internet solutions. One-third of the companies believe that online procurement solutions would not be cost-effective for their company size. The fact that high initial investments are often followed by substantial operating costs tends to delay the date when projects become profitable. At a number of companies the attitude of partners and the lack of computer skills also curb the implementation of electronic applications.
Overall, it is promising that once the procurement problems are solved, one-fourth of the companies would definitely make purchases over the internet, with another 47% indicating likelihood. Combined with the percentage of hesitant companies that are unable to make a decision about this issue at this point (14%), the total percentage of potential online customers could be as high as 80%. In the fourth quarter of 2001 as low as 3% of the responding firms indicated that they would not make purchases over the internet under any circumstances.
The government plays a strategic role in promoting the most modern technologies and stimulating the use of innovative applications. Companies believe that the government could promote the development of the internet economy by offering subsidies, investment tax benefits, zero-interest credits and innovation loans.
For the most part, companies are optimistic with respect to online procurement transactions in the short term. The retail and wholesale segment as a whole is likely to see a modest increase in this respect. Companies selling cultural and electronic products have the most promising outlook for growth in terms of online procurement. Companies in the areas of fuel and construction materials as well as pharmaceutical products are not expected to modify their procurement strategies in the future (online procurement is currently used to a limited extent in this segment, due to the fact that these companies do not easily give up their existing procurement channels, and also because of the special character of their products).