B2B E-Commerce Will Survive Growing Pains

The total worldwide value of goods and services purchased by businesses through e-commerce solutions will increase from $282 billion in 2000 to $4.3 trillion by 2005, according to International Data Corp. (IDC). That’s a lofty compound annual growth rate of 73 percent during the forecast.

The key to continued growth in the B2B sector, according to IDC, will be the shift in business philosophy from creativity to innovation.

“Innovation in information exchange between companies rather than basic e-commerce transactions will be much more important to long-term e-business success,” said Richard Villars, vice president for IDC’s Internet and eCommerce Strategies.

Over the next four years, B2B purchases will be focused on products rather than services, and cultural differences will influence the adoption of B2B models by region. In the near term, IDC predicts faster-than-expected adoption by volume procurement managers will protect e-commerce solutions from the purchasing slowdown caused by the weak economy.

“While overall purchasing may diminish or remain flat, the percentage purchased via online solutions will continue to increase at a significant rate,” Villars said.

According to IDC, the United States will remain the largest region for B2B e-commerce, with purchases increasing at a compound annual growth rate of 68 percent from 2001 to 2005. Close behind is Western Europe, where B2B purchasing will increase at a compound annual growth rate of 91 percent from 2001 to 2005. Asia-Pacific is the growth leader with a compound annual growth rate of 109 percent during this time.

Such optimistic forecasts for B2B e-commerce are somewhat of a surprise because the process of making online purchases, especially in among businesses, isn’t yet a smooth ride. According to a study by Giga Information Group, Inc. and Booz Allen Hamilton, most companies are disappointed with the performance of B2B exchanges, but still expect to use them for a greater portion of their future business spending.

Nearly half of the respondents to the survey reported that exchanges have “mostly” or “absolutely” failed to meet their expectations, and only 10 percent of the respondents felt exchanges met expectations. Those surveyed agreed that organizational changes, such as standardizing and developing new procedures, improving and introducing technology systems and introducing integration technology, are needed to capture benefits from exchanges.

In spite of the challenges, companies expect to conduct the bulk of their direct materials and indirect materials spending through exchanges within three years.

“We found while companies are disappointed with the benefits they’ve gotten from e-marketplaces, they still see great potential for these intermediaries to make inter-business transactions and collaboration easier and more effective,” said Giga Vice President Andrew Bartels.

The greatest potential benefit companies envision, not surprisingly, is saving money — both in the price of goods they buy and in the cost of the processes for buying and selling. Companies also anticipate savings by collaboratively developing products, planning and forecasting demand, production and logistics with partners and managing their relationships with their customers.

Three principal types of exchanges — private exchanges, consortia public exchanges and independent public exchanges — will divide most of the transaction flow. Creating a portfolio of exchanges — as opposed to finding or building one exchange that meets all needs — appears to be the best strategic choice to satisfy all business demands.

“The survey results indicate a growing degree of realism on the part of companies, both in terms of the benefits they can — and can’t — achieve through exchanges, and in terms of the work that is required to achieve these benefits,” said Booz Allen Vice President Tim Laseter. “Companies now realize that exchanges are not panaceas and that hooking up to them is not exactly ‘plug and play.’ Still, it’s clear that companies believe the benefits outweigh the challenges.”

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