RealTime IT News

B2B E-commerce Seen Growing

B2B e-commerce in the U.S. will grow from $1.2 trillion this year to $4.8 trillion in transaction value by 2004, says a new research report, and this despite the fact that "price negotiations and online collaboration have still to migrate online in a significant way."

The report is contrary to what some nay-sayers are predicting for the procurement market. Some economists have predicted the efficiencies of the Internet will result increased competition, lower prices and layoffs due to the advent of vertical exchanges. However, the study by the Boston Consulting Group (BCG) shows that, for the next few years at least, the vast majority of transactions will be ordering and replenishment and not price negotiations.

"B2B e-commerce is advancing quickly in terms of penetrating the total procurement market, but at the same time, remains fairly immature in its development," said Andy Blackburn, BCG vice president. "By 2004, online purchasing will represent 40 percent of total purchasing, however only 11 percent of all purchases will involve online price negotiations. For many companies, negotiating prices online is a necessary first step toward broader and deeper buyer-seller collaborations online."

The report is based on survey responses from more than 260 buyers, sellers and e-marketplaces as well as in-depth interviews. BCG's research shows that the size of the B2B e-commerce market is far greater than is commonly reported, in part because it recognizes the established base of Electronic Data Interchange (EDI) over private networks and its extensions to the Internet.

"In the near term, B2B e-commerce may not be as disruptive to many traditional buyer-supplier relationships as originally thought," said Jim Andrew, BCG vice president. "Almost half of the companies surveyed find that off-line communication is almost always needed to complete online transactions. Suppliers will continue to send sales staff to court buyers, and buyers will continue to demand personal commitments from their suppliers. One emerging message is -- don't sell your golf clubs."

As the market matures and price comparisons become easier, sellers do expect price pressures to increase, the report says. While only 25 percent of sellers have experienced incremental price pressure, an additional 50 percent expect to experience it in the near future. Almost two-thirds of sellers are taking steps to differentiate their offerings and fight commoditization.

"The lag in the migration of price negotiations online gives some sellers a window of opportunity to beat the price squeeze," said BCG Senior Vice President Hal Sirkin, leader of BCG's e-commerce business area. "Sellers can use technology to offer more sophisticated forms of online collaboration such as online product design, project management, supply-schedule co-ordination and build-to-order capabilities. In this way, sellers can differentiate their offering, create stronger client relationships and resist pressures on price."