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December 2009 (PDF, 3.4 MB)
This study analyses the use of information and communication technology (ICT) and e-business in the glass, ceramics and cement (GCC) industries. The objectives are to assess the business implications for companies and the economic impact of ICT for the sector as a whole, and to suggest action lines for strategic responses, addressed to industry and policy.
The study is based on micro and macro-data, primary and secondary sources (Section 1.4). Micro-data about the e-business activity of firms have been collected through a representative ICT decision-maker survey among 676 enterprises from six EU countries (see Chapter 3) and through case studies (Chapter 4). The macro-economic analysis is based on aggregate industry accounts extracted from the EU KLEMS growth and productivity accounts database (Chapter 5).
The GCC industries as defined for this study cover business activities specified in NACE Rev. 2 Division 23 as the "manufacture of other non-metallic mineral products". The study focuses on Groups 23.1 to 23.6, which broadly comprise the manufacture of glass, ceramics, cement, concrete, lime and plaster, and of products made of these materials. According to Eurostat, the sector employs about 1.3 million in the EU and comprises about 65,000 enterprises (see Section 2.1).
The GCC industries are a long-established, traditional manufacturing sector in the EU and an important supplier to other industries: the sector produces raw materials and components for the building and construction industry, packaging solutions (container glass) for the consumer goods industry, and specific materials or components used, for example, in the aerospace, automobile, electronics and medical industries. The sector also produces household goods such as glass and ceramics tableware and cookware.
The EU still has a trade surplus in international trade. However, especially imports of flat and container glass have surged in the past five years, with China being a major competitor (see Section 2.1).
The glass, ceramics and cement production have in common that non-metallic raw material inputs are blended before a heating process takes place to create these materials. This process transforming is energy intensive and inevitably leads to significant carbon dioxide emissions. Coping with environmental objectives is therefore a key issue and challenge for the sector's competitiveness (Section 2.2).
e-Readiness comprises three main dimensions which are discussed in this study: the technical infrastructure, ICT skills, and the financial aspect, i.e. the capacity and willingness to make investments in ICT (see Section 3.1).
ICT infrastructure and skills
Basic technical infrastructure is no longer a critical barrier for the use of e-business. More than 80% of the companies, small ones included, have broadband internet access. About 60% of all employees work in companies which enable employees to remotely access files on the company's computer network (e.g. from home or when travelling).
With regard to ICT skills (see Section 3.1.2), figures indicate that the vast majority of companies in the GCC industries is currently not directly affected by a shortage of ICT practitioners (i.e. staff with the specialised skills and tasks of planning, implementing and maintaining ICT infrastructure). However, many of the small companies lack e-business skills.
ICT expenditure
The general climate for ICT investments has significantly changed due to the economic crisis since late 2007 (see Section 3.1.3). Many large companies are cutting their ICT budgets or cancelling projects. In total, more than 40% of the GCC companies said that the crisis would affect their ICT investments. More than 20% had already downsized or cancelled existing projects, and 20% said that they planned to cut down on their budget. This was the highest trend towards decreasing ICT budgets ever recorded by e-Business Watch (in any sector) since this type of survey was first conducted back in 2002.
About 16% of the companies interviewed in 2009 said that they had outsourced ICT functions to external service providers which they had previously conducted in-house in the past 12 months (prior to the interview).
e-Business is about automating formerly paper-based document exchanges and their manual processing through electronic exchanges, both between and within companies. Most companies in the GCC industry focus on the use of ICT for optimising internal processes rather than on data exchanges with suppliers and customers.
Focus on efficient production processes
A central application area for ICT systems in this sector is the support of production processes (e.g. demand planning) and their links with the supply chain (see Section 3.2.2). CAD/CAM systems are widely used in the sector. Some of the large companies use innovative RFID-based applications for many purposes, indicating the future potential of this technology.
All in all, most companies (70%) said that at least some of their processes were conducted electronically in 2009. About 15% see themselves as intensive users, where e-business accounts for "most" or "a good deal" of their business activity (see Section 3.2.1). These results are comparable to those of other manufacturing sectors. Electronic invoicing, a specific example for the digitisation of paper-based processes, is already widely used.
Supply-side e-business
Improving the efficiency of supply chain processes is an important objective for all manufacturing businesses. ICT can support this objective by facilitating data exchanges with suppliers and improving the transparency of procurement processes.
In the GCC industries, companies representing about 60% of employment (in the six countries surveyed) said that they placed at least some orders to suppliers online. Adoption among small companies, however, is below the levels of other sectors. Large companies also procure, on average, a higher share of their supplies online than smaller ones (see Section 3.2.3).
Companies use different approaches for connecting with their suppliers. Electronic data exchange via EDI is still among the preferred methods. A quarter of all companies (by their share of employment) said that they had access to the extranet of a supplier. More than 40% buy supplies by directly ordering from websites of suppliers. This is the most simple method of online ordering as there are no technical requirements other than having internet access.
More advanced methods include the use of specific ICT systems to coordinate the purchasing activities of different units, and e-procurement by conducting online auctions among selected suppliers. The case studies provide examples of such practices.
e-Marketing and sales
e-Commerce with customers is not widespread in the GCC sectors, although web-based marketing would pose opportunities in particular for the smaller companies, notably those in B2C sectors. Only about 20% of all companies active in the GCC industries enabled customers to order their products online in 2009. In these companies, online sales account on average for about 15-20% of total sales (see Section 3.2.4). EDI is still one of the main channels for B2B data exchanges with suppliers and customers. Only few companies offer e-commerce on their website.
Many of the small, traditional companies, typically those in labour intensive segments of the sector, believe that ICT (other than e-mail) does not present a business opportunity for them, neither for improving the products nor for providing a better service to customers. The dilemma is that they are caught in a vicious cycle: the enormous business challenges and pressure in their daily routines does not give them the time to consider the issue and become knowledgeable about ICT - this, in turn, leaves ICT-based opportunities unexploited and the pressure increases further.
ICT and innovation
The capability for innovation is considered very important by European companies in the GCC industries in order to face global competition and to keep their position in higher market segments, which rely on differentiation and quality (cf. ECORYS SCS Group, 2008a). This study explored to what extent ICT enables innovation activities in the GCC industries.
Results broadly confirm the picture found in earlier years for most manufacturing industries. The majority of process innovations in the industry, according to the innovating companies, are linked in one way or the other with ICT usage, at least in larger companies. For product innovation, ICT matters as well, but to a lesser extent.
ICT as a means to improve environmental sustainability
Rising energy costs are a business concern in the GCC industries. 50% of the companies interviewed said that energy costs represented a "very important" factor for their competitiveness. To counteract rising energy costs, the industry has already made enormous efforts to become more energy efficient in production.
There is hope that special ICT systems might enable companies to further increase their energy efficiency, even if opinions about the remaining potential differ. So called energy management systems (EMS) are not widely used yet, however. Only about 20% of all companies have such a system in place. About 20% of the users reported that the energy efficiency of their company had "significantly improved" due to the EMS, and about a third of the companies said the efficiency had "somewhat improved".
The case studies in this report provide practical examples of e-business activity in companies, the enabling role of ICT and the strategic implications of this activity for companies. They document the diversity of activities and requirements in the sectors covered by the study, including global companies with highly automated production processes and small niche-players in labour intensive sectors.
A standard growth accounting framework and correlation analysis (see Section 5.1) was used to analyse the economic implications of ICT adoption for industry growth and labour productivity. A comparison was made between the sector at stake and the whole manufacturing industry. The main findings are:
ICT capital contributes positively to value added growth in the GCC sector as well as in the total manufacturing industry, but the contribution is relatively low for both industry aggregates, typically accounting for 0.1-0.5% of annual growth. There are pronounced differences between countries and the periods analysed (see Section 5.2.2).
Total factor productivity (TFP), the residual that cannot be statistically explained (or accounted for) by the other input factors, accounts for a relatively high share of growth in the GCC sector in most of the countries analysed. This finding is quite specific for capital intensive manufacturing industries such as the GCC or the chemical industry, in particular in comparison to service sectors. It indicates the importance of non-tangible "assets" such as organisational innovation (see Section 5.2.2).
Real fixed ICT capital stock has surged in the GCC industries since 1995 in nearly all countries analysed. The average annual growth rate (CAGR) from 1995-2005 was 12.8% across the seven EU countries (see Section 5.3.1).
ICT capital stock is strongly positively correlated with labour productivity growth in the manufacturing industry and even more so in the GCC sector. The correlation with the number of hours worked is negative (at a less significant level). This does not imply a simplistic, direct causality, though (see Section 5.3.2).
In contrast to (accumulated) ICT capital stock, annual ICT investments are not correlated with labour productivity growth and hours worked. This could imply a time lag between the point of investment in ICT and the actual return on investment in terms of productivity growth (see Section 5.3.2).
Although the study does not find a massive economic impact of ICT capital on productivity and growth in the sector at the aggregate level, the survey and case studies demonstrate that the smart use of ICT and e-business is, for many companies, a relevant factor for their competitiveness. Thus, there is mixed empirical evidence, and no simplified conclusions should be drawn with regard to strategic responses for industry and policy.
On the one hand, companies in this sector are 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, the results indicate specific aspects of ICT use that are worth being considered. It can be argued that evolutionary ICT-enabled innovation processes could (or should) be accelerated by appropriate measures, in order to sustain and enhance the -still existing- competitive advantage of the European GCC industries in many segments. In particular, deficits among SMEs from the sector in this respect should be addressed, as they their approach to ICT tends to be too defensive and passive.
The study proposes four areas for strategic responses to enhance and exploit the ICT-enabled potential in the GCC industries (see Section 6.2):
(1) Improving the e-skills of SMEs
The "digital divide" in this sector (between large and small companies) is even more pronounced than in most other manufacturing sectors. Many small companies do not use any ICT systems other than e-mail.
The challenge for many small firms is to take an informed decision on adoption or non-adoption, as they are not at all familiar with ICT concepts and related business opportunities. Therefore, sector-specific actions to improve the e-business skills of SMEs could / should be considered.
(2) Promoting agreements on standards for e-business within sectoral value chains
e-Business with suppliers and customers has significant scope for expansion in the GCC industries. In contrast to other manufacturing sectors such as the chemical and paper industries, the industry itself has not taken any coordinated initiatives to facilitate electronic data exchanges, for instance by agreeing on the use of e-business standards. The industry could consider initiatives to either promote the use of existing e-business standards among its companies, or copy approaches which other sectors have taken in that respect.
(3) Improving the framework conditions for electronic data exchange
A specific business process which is well suited to be digitised is invoicing. The migration to structured electronic invoicing has been on the agenda of European institutions and a number of Member States for some years, as it promises substantial cost savings.
However, there are still complex issues to be solved in order to exploit the full potential. The Expert Group on e-Invoicing implemented by the EC made comprehensive recommendations (November 2009) how the framework conditions for e-invoicing could be improved. This study confirms the relevance of the Expert Group's work. It is recommended that policy should continue its efforts in this area, based on the recommendations of the Expert Group.
(4) Use ICT to facilitate compliance with regulatory requirements
Compliance with environmental legislation is a challenge for many companies in the GCC industries. While these issues are not directly ICT-related, ICT systems can facilitate compliance, as they help companies monitoring and reporting their energy consumption and greenhouse gas emission levels. Policy and industry should jointly aim at maximising the potential of ICT in this respect, in particular for SMEs, and foster the adoption of related systems (such as EMS - energy management systems).
