Higher Growth Rates Predicted for B2B E-Commerce
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The size of the business-to-business e-commerce market is far greater than is commonly reported, according to The Boston Consulting Group, and Electronic Data Interchange plays a large role.
One-fourth of all US business-to-business purchasing will be done online by the year 2003, according to a study by The Boston Consulting Group (BCG).
The research estimates that between 1998 and 2003, US business-to-business e-commerce will grow by 33 percent each year and reach $2.8 trillion in transaction value.
"In 1998, US business-to-business e-commerce was $671 billion, comprising $92 billion in Internet-based transactions and $579 billion in transactions using Electronic Data Interchange (EDI) over private networks," said BCG Senior VP David Pecaut.
EDI is the transfer of data between different companies using networks such as the Internet.
According to BCG, the research shows the size of the B2B e-commerce market is far greater than is commonly reported, in part because it recognizes the established base of EDI using private networks and its extensions into the Internet.
While EDI over private networks represented the lion's share of 1998 volume (86 percent), nearly all of the additional volume in 2003 (90 percent, or $2.0 trillion) will be Internet-based transactions. BCG predicts that business-to-business e-commerce will account for 24 percent of total business-to-business commerce by 2003.
While business-to-business e-commerce takes place all over the globe, the North American market currently dominates. The $700 billion North American market is twice the size of B2B e-commerce in the rest of the world combined ($330 billion).
North America will likely retain its significant lead over the next few years, but the global dynamics of B2B e-commerce will shift. According to BCG, Western Europe lags 18 months behind North America in B2B E-commerce adoption, but several Western European nations have accelerated their e-commerce investments and will significantly close this gap.
Asia and Latin America remain further behind, but this may change as global supply chains go online. For local suppliers in local markets, B2B e-commerce presents significant growth opportunities, as they expand their networks and customer bases by accessing new export markets.
BCG's research found that growth will be strong in every market:
- In North America, B2B e-commerce penetration will triple from 7 percent to 24 percent
- In Western Europe it will grow from 3 percent to 11 percent
- In Asia/Pacific it will grow from 2 percent to 9 percent
- Latin America will move from 2 percent to 7 percent
BCG also reports that companies that have moved aggressively into B2B e-commerce report cost savings on materials of up to 15 percent. Reported transaction cost savings alone, in the purchase and ownership of indirect materials, could reach almost 65 percent as buyers' internal purchasing and record keeping processes are simplified.
BCG developed its forecast by focusing on the entire purchasing process, according to BCG VP Andy Blackburn. The research counted all of the intermediate transactions in the supply chain are considered direct