Interim study report - Executive Summary (January 2008)
(The final study report will be available by the end of September 2008.)
This is a study by the Sectoral e-Business Watch on ICT usage and e-business in the chemical, rubber and plastics (CRP) industries. The 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. Analysis is based on literature, an international survey among 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). 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.
In addition to global competition, key challenges for the European industry are coping with environmental regulation (notably the REACH regulation), 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 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.
The quality of companies' basic ICT infrastructure has significantly improved since the last measurement by e-Business Watch in 2003, notably among SMEs. For example, the share of small firms (with 10-49 employees) that have broadband internet connections has increased from 10% (2003) to nearly 40% (2007).
Exhibit: % Companies with internet access >2 Mbit/s
The diffusion of Wireless LAN (W-LAN) technology has also surged: close to 60% of employees work in companies that operate a W-LAN. Also, the share of companies that enable remote access to their computer network –to support mobility and flexible forms of work– has significantly increased since 2003. In short, a lot more companies are well prepared to introduce advanced forms of e-business than back in 2003.
With regard to ICT and e-business skills, the vast majority of companies appears not to suffer from a shortage of ICT practitioners. Out of those firms that actually employ practitioners, only about 15% reported that they had experienced difficulties in finding qualified personnel in the 12 months prior to the interview. A more important concern, however, is the general managerial understanding of e-business concepts, notably among smaller companies. This has broadly been recognised by policy and industry and led to awareness and training initiatives, for example by means of good practice dissemination.
The improved endowment with ICT infrastructure bears fruit: companies in the CRP industries are eagerly embracing opportunities to substitute paper-based, manual processes by electronic exchanges. The development in this field has been very dynamic and is likely to gain further momentum. As a result, "real e-business" with automated data exchanges between players is now evolving at fast pace, empowered by the increased diffusion of e-business software systems.
Already 27% of the firms (by their share of employment) feel that their exchanges with business partners are "mostly conducted electronically"; a further 40% say they process data internally electronically (but still send mostly in paper-based format). A good example to demonstrate this development is that companies are increasingly sending and receiving invoices electronically. 33% of the sector's firms send invoices directly from their computer system to that of a customer or supplier. Adoption will gain further momentum, as many large firms impose e-invoicing on their SME trading partners.
Exhibit: % Companies with an ERP system
e-Business software systems such as ERP (enterprise resource planning) and SCM (supply chain management) are the basis for digital integration within the supply chain. Good news here as well: the installed base of ERP and SCM system among companies in the sector has significantly increased since 2003. .
Advanced forms of e-business require the agreement on standards for data exchanges; this includes identification standards, classification standards, catalogue exchange standards, transaction standards and business process standards. Interoperability between the broad range of ICT systems in place is still a big challenge.
To address it, large players from the CRP industries have jointly launched e-business initiatives. This includes the development of Chem eStandards (by CIDX) and the foundation of specialised connectivity providers such as Elemica; in addition, specialised intermediaries such as cc-hubwoo provide B2B connectivity services. Although these initiatives and companies have made significant contributions to the advancement of e-business, they are currently mostly used for exchanges between large enterprises and within the sector. The new challenge ahead is to expand connectivity to the numerous smaller companies, as well as enhance exchanges between sectors.
Exhibit: Companies using standards for e-business: EU vs. USA (in %, by their share of employment, EU-7 include DE, ES, FR, IT, PL, SE, UK)
With regard to the deployment of standards, among large firms, EDI-based standards are still widely used for B2B exchanges; nearly 50% of large firms maintain EDI connections with business partners. XML-based standards are used by about 20% of large firms. Comparatively few small companies say that exchange data in these formats.
Relatively few companies (about 6% by their share of employment) say they use the Chem eStandards by CIDX. However, this initiative derives its importance not so much from the number of enterprises that use it, but from the fact that it is used by the large players, and – as a result – the value of the transactions that is accomplished with it.
A forecast of the earlier e-Business Watch study can be confirmed: there has been a significant uptake of e-commerce activity in the past few years in the CRP industries. This dynamic development is likely to continue, as there is room for further diffusion.
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)
The most amazing and dynamic development, however, concerns the intensity of e-commerce measured as the average share of orders that are received online, which has surged since 2003. Figures for the absolute volume of chemical, rubber and plastics products traded online are not available; however, the Sectoral e-Business Watch estimates (based on estimates obtained from companies in the survey) that the total share of sales that are conducted online in the sector –by those companies that engage in this activity– has increased form about 5-8% (2003) to about 25-30% (2007). Counting in all companies, including those that do not accept orders online, the total share of online sales has probably increased from less than 1% (2003) to about 10% (2007).
Technically, companies can take different routes to e-commerce. The large players in particular increasingly maintain sophisticated extranet portals for their clients; modern extranets offer customers a holistic view of their orders and access to all kinds of order-related information.
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. In fact, there is evidence that customer requirements drive e-business developments. 45-50% of medium-sized and large firms report that customers asked them to adapt their ICT systems or data exchange formats in order to facilitate data exchange with them. More than 80% of those firms have reacted to this request and introduced changes.
The growing diffusion of ICT in all areas of business is a major enabler of technological change and innovation in the sector, and thus –ultimately– economic development.
Exhibit: % Companies having introduced new or significantly improved processes (in past 12 months prior to interview)
It was a consistent finding in e-Business Watch sector studies that ICT play a crucial role in particular to support process innovation, in manufacturing as well as in service industries. This can be confirmed for the CRP industries: out of all companies that said they had introduced new or significantly improved processes, more than 70% (by their share of employment) said that the new processes are enabled by ICT.
However, within the sector, the picture for small companies differs from the one for medium-sized and large firms: in small firms, "only" about 50% of companies reported that their process innovation(s) were ICT-enabled. In medium-sized firms, the share was about 70%, in large firms even 80%. This is evidence for the relatively higher importance of ICT for planning and managing business processes in larger companies.
Studies by e-Business Watch found that ICT adoption and e-business activity are mainly determined by value chain characteristics and firm size. Regional factors are less important in this regard. However, the new survey results – or the first time including US companies– also point at some differences between Europe and the US firms in the pattern of ICT adoption.
Exhibit: e-Business adoption in EU vs. US enterprises (in %, by their share of employment) - 2007
In a few areas, European companies appear to be better equipped on average than their US counterparts. For example, the installed base of ERP-systems in the CRP industries (but also in other sectors is significantly higher among European enterprises, although the average firm size is higher in the USA (which would suggest that more US companies use these advanced e-business solutions).
On the other hand, more US companies from the CRP industries are actively using e-commerce than in Europe. While about 65% of US firms (by their share of employment) say that they let customers order their products online, only about 35% of European companies do so.
Similarly, the percentage of firms that say that their data exchanges with business partners are "mostly processed and exchanged electronically" is much higher in the USA (47%) than in Europe (27%). If this self-perception of companies holds true, the degree of digitisation is higher in the USA.
