Gartner cuts forecast for B2B

As the US economy shows signs of slowing down, Gartner Group Inc. has cut its world forecast for the growth of B2B (business-to-business) e-commerce revenue over the next four years due to underlying economic factors. However, growth in private exchanges means the research company sees Asia-Pacific staying on target.

Following a review of data last week, Gartner now forecasts worldwide revenue for e-commerce, including older forms such as EDI (Electronic Data Interchange), at USUS6.2 trillion per year by 2004. It earlier had estimated the number at $7 trillion. However, Gartner stands by its estimate of US$1 trillion in e-commerce revenue in Asia by 2004.

The forecasts were presented at a Hong Kong e-commerce forum Tuesday by Gartner analyst Lane Leskela, who said growing deployment of e-commerce technology will reverse the trend seen so far in use of electronic transactions.

Speakers at the Telecom InfoTechnology Forum were optimistic about the long-term prospects for e-commerce growth in China, Hong Kong and Taiwan but warned there are obstacles ahead in the short term.

E-commerce use will shift in the next few years from being driven by retailing and manufacturing companies in advanced economies that buy components and products, to companies elsewhere that supply the materials and components that go into final products, Leskela said. Whereas companies in countries such as the US have already adopted e-commerce in various forms, uptake of the technology soon will be more rapid in areas such as Asia that are catching up.

E-commerce exchanges will not look the same in China and the rest of Asia as they do in the West, however. The most prominent forms of exchanges in this region will be private, growing out of existing practices between governments and businesses or among longtime partners, observers at the forum said.

Over the next year, half of all open, public exchanges will fail, Leskela said.

"What we will see is vertical collaboration, very private, between companies that are comfortable doing business with each other," he said.

Private exchanges led by established local companies such as trading company Li & Fung Ltd. and Cathay Pacific Airways Ltd. have the advantage of already having brand equity, Leskela added.

South Korea leads Asia's march into B2B exchanges, according to Gartner's forecast, largely because the country's conglomerate business groups, or chaebol, are ready-made for such online collaboration, Leskela said.

In China, B2B exchanges are likely to thrive most around the large state-owned enterprises normally associated with the country's inefficient, communist past, said Peter Lovelock, assistant director of the Telecommunications Research Project at the University of Hong Kong and a "thinker" at Beijing consulting firm MadeforChina.com.

"When people talk about B2B in a place like China, they're talking about something very different from what we're talking about ... in the West," Lovelock said.

The small and medium-size enterprises (SMEs) that are spun off as the large state-owned enterprises are reorganized will be a ripe market for B2B exchanges. But to succeed, those exchanges will have to have certain credentials: support by a state agency, support from venture capitalists, alliances with key foreign players and a focus on SMEs. Barriers to electronic commerce in the country remain the inadequate systems for online settlement and relatively limited product delivery systems, as well as continuing monopoly practices and poor management in B2B companies, Lovelock said.

Meanwhile, Hong Kong's many SMEs may be lagging in e-commerce just as competition from China heats up.

Survey results from the Hong Kong Productivity Council presented at the event showed interest in e-commerce initiatives by the territory's many small and medium businesses turned flat after the crash in Internet-related stocks in April 2000. Only creation of company web sites has grown significantly since then, according to graphs shown by K.T. Yung, general manager for information technology at the business development agency.

Business partners in bread-and-butter Hong Kong industries, such as textiles, "still rely very much on interpersonal skills," Yung said.

"Total integration (of business processes with online systems) will be very slow," he predicted.

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