ECA Innovation and Competitiveness WorkshopECA Innovation and Competitiveness Workshop

e-Business for MSME Competitiveness

February 18, 2004

Jim Hanna

Lead Operations Officer & eBusiness Advisor

Latin America & Caribbean Region

jhanna@worldbank.org

The World BankThe World Bank GroupGroupWorking for a World Free of PovertyWorking for a World Free of Poverty

• e-Business as innovation

• Contributions to development

• Accelerating e-business adoption

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“E-business is a major business innovation that most firms will have to adopt.” “ICT and Economic Growth: Evidence from OECD Countries, Industries & Firms”, OECD, 2003

e-Business…more than PCs and wirese-Business…more than PCs and wires

Most economic benefits of e-business begin with:

• Transactions – “front office” relational & product innovation to improve market reach and product range

• Customer development & e-marketing solutions

• E-business solutions to buy & sell services via Internet

• Customer service and support solutions

• Integration –“back office” process & organizational innovation to improve production and management

• Product design and production solutions

• Procurement and supply chain management

• Finance, online banking and accounting solutions

• eLearning solutions to upgrade employee skills

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Contributing to productivity & growthA micro viewContributing to productivity & growthA micro view

“Net Impact Study Canada: The International Experience” 1/ Canadian eBusiness Initiative, May 2003

Key business innovation impacts

• Lower customer service costs

• Sales and marketing efficiency

• Increased worker efficiency

• Reduced materials costs

• Improved inventory management

• Lower dist’n or shipping cost

• New customer acquisition

___________________________________

eBusiness Adoption by Small FirmsSolutions Adopted

0 10 20 30 40 50 60 70

Customer Dev. & e-Marketing

e-Commerce (incl. B2B)

Customer service

Finance & Accounting

Procurement

Sales Force Automation

Supply Chain Management

% Share of Total Firms

EU

Canada

US

eBusiness Adoption by Small FirmsFinancial Impacts

0 2 4 6 8 10 12

% Increase inRevenue

% Decrease inCost of Goods

Sold

% Decrease inSales & Gen.

Admin.

EU

Canada

US

1/ Source: The Canadian e-Business Initiative (CeBI) and the OECD ICT Database Eurostat Survey measuring the Information Economy, 2002. Total survey size was 1,668 small (to 100 employees) and medium (100-250 employees) firms in Canada, the US and EU. Results reflect 1-2 years implementation periods.

Front Office

Back Office

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Reducing transaction costs, expanding opportunityChile Reducing transaction costs, expanding opportunityChile

Programa Ventanilla

Empresa 2002-2003

• Simplified and Internet-enabled

• New business registration - tax administration, trademarks & patents, health

• Export procedures - customs, transport permits, public health certificates

• Labor regulations - labor ministry work permits, severance, contractor certification

• Selected by 1,200 entrepreneurs themselves in focus groups

• Cost-shared among 17 government participating institutions

• Implementation costs already paid for in public budget savings – business savings to be calculated

eBusiness agencies development

services programs

• MIN. ECONOMY’S www.comprachile.cl

• Information & bidding on public services• Contracting for more than 100 public services

• SERCOTEC’s www.redsercotec.com

• Supports small business management• Facilitates new business opportunities• Encourages business networks• Access to training and consulting services

• PROCHILE’s “VideoNegocios” and “Inter-PYME”

• Export market information & assessments • Export management support and training

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• Business

• Women’s cakes & desserts baking network

• Producing & delivering to families in 8 provinces of Peru

• Goods purchased mainly by Peruvian expatriates

• E-business functions • Web-based marketing, ordering and payment

• Business growth • 4-5 orders per month to 50 orders per day, now with

a client base of 500 customers

• Employment • Full-time for 14 “mamas”

• Wages & profitability• Twice minimum wage, 30% margins

• Non-monetary benefits• “...settles a conflict between finding a job or being with our children”

• “…a way for women to become comfortable with technology”

• “…right here in Peru, we are part of the globalization process”

María del Carmen Vucetich, Proprietor

Advancing the MDG to reduce povertyPeruAdvancing the MDG to reduce povertyPeru

“Tortas Peru” - the virtual cake network expanding market outreach and income

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e-Business market trends e-Business market trends

• LA e-business markets - est. $6.5 billion in 2002, of which Brazil $3.7 billion

• Argentina – most advanced infrastructure but in deep recession depressing investment

• Brazil & Mexico - largest LA markets for hardware, software, internet access services, e-business revenues

• Chile - most developed technology infrastructure and highest Internet penetration in region, small market (16 million people)

• LA markets small in relation to OECD – nearly $1 trillion in B2B e-business in 2002

• No sign of major expansion a la Korea, where total B2B

revenues nearly doubled over 2001-03 to over $170 billion • eBusiness transactions and integration rates are not following

trends in Internet access rates, even in market leader Chile,

• Rates are markedly lower than in digitally advanced countries

• e-Business remains mainly a large-firm activity operating in upper socio-economic income segments

• 90% of Brazil’s e-business generated by 30 largest firms

• Only 2% of Mexican SMEs engaged in e-business transactions

Functionality 2000 2001 2002 2003

Internet access 42 61 64 69

Web presence 7 11 16 25

order online 16

receive orders online 11

2000 2001 2002 2003

Internet access 56 69 72 84

Web presence 16 22 24 64

order online 4 20 25 43

receive orders online 6 9 26 37

(share of total firms)

Australia, 2000-2003

E-business Adoption Rates in Australia & Chile

Chile, 2000-2003

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• ESW & CAS exercises

• “From Natural Resources to the Knowledge Economy – increasing growth and job quality” Flagship Report (2002)

• Chile and Colombia CAS (2002)

• “Closing the Gap in Education and Technology” Flagship Report (2003)

• Argentina & Chile New Economy Study (2003)• Brazil and Mexico CAS Reports (2003)

• e-Readiness assessments (infoDEV)

• Bolivia

• Honduras & Nicaragua (Bank)

• Costa Rica

• Jamaica

• Panama & T&T

• Telecom reform & connectivity project finance

• Bolivia Rural Telecommunications

• Chile Community Telecenters (infoDEV)

• El Salvador Mobile Telphony

• Honduras Solar Power Rural Telecenters

• Nicaragua Telecommunications Reform

• Venezuela Movilnet 

Supporting ebusiness innovationLACSupporting ebusiness innovationLAC

• e-Business project finance & piloting

• Ecuador Power, Communications & Rural Services Reforms (Bank, MicroNet component)

• Mexico E-business for Small Business Development Project (Bank, free-standing project)

• NOVICA e-business portal for artisans (IFC)

• Peru – Connecting Small-Scale Coffee Farmers and Consumers via Internet (infoDEV)

• LAC e-Business for Small Business Competitiveness Initiative (2004)

• Research on good practices programs

• GDLN e-Business series LAC & advanced countries

• “En Breve” dissemination series

• www.worldbank.org/ebusinesslac web site

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Building e-business leadershipBuilding e-business leadership

• Policy reforms

• Promote coordinated regulatory reforms and digital adoption across government agencies

• Program designs

• Decentralize program focus on end-users at regional and local levels

• Encourage sectoral & inter-sectoral collaboration

• Implementation

• Minimize expansion of public entities utilizing outsourcing

• Facilitating private intermediary market delivery capacity – consulting, trade associations, banks, training institutes, etc.

• Monitoring & evaluation

• Regular national, sectoral & regional data collection, surveys, analysis & dissemination

• Refocus impact indicators on innovation & productivity-oriented benchmarks

• ICT skills & e-Learning • new market outreach • B2B relationships • trust & security

The EC’s eBusiness Support Network

Supporting member countries’ national programs of the EU eBusiness Action Plan 2005

• Policy analysis, workshops and summits on• ICT & e-business skills

• Economic analysis of e-business

• Methodologies in e-business measurement

• Legal environment for e-business

• B2B Internet trading platofrms

• Competitiveness of the ICT sector

• Regular benchmarking of progress and constraints to e-business adoption

• Outsource contractor for member state firm-levels surveys and analysis

• Web-based tools, such as eBusiness Lex on legal issues in doing e-business

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Continuing policy reforms Infrastructure, trust and securityContinuing policy reforms Infrastructure, trust and security

• Trust –most Latin American countries enacted legislation on electronic signatures, contract & other documents

• model legislation, like UNCITRAL (Colombia, Peru)

• own legislation based on comparative law (Argentina, Brazil, Chile, Panama, Venezuela)

• specific amendments to federal civil & commerce codes, administrative law, criminal code (Mexico)

• Security - upgrading is now a main focus

• Protection from third-party access/threat to communications, transactions and confidential information

• Increase in firm-level and private sector protection – digital tools, risk management strategies, trust marks and seals

• Cybercrime legislation to criminalize interference with infrastructure, transactions

• Privacy & data protection laws to regulate collection, use, dissemination of personal data accessible to Internet actors

• Intellectual property protection of digital rights management systems to protect content, secure rights, revenues

• Awareness campaigns and regulatory simplification to build trust of MSMEs

• Broadband makes firms more competitive

• Unmetered and fast access to the web• Use of videoconferencing, outsourcing (ASPs), e-learning• Online procurement/auctions, online ordering, email

marketing and customer service support• Accelerates local content development

• Key broadband access policy issues – foster private sector competition

• Promote and facilitate inter-modal competition between cable, DSL, fiber and wireless operators.

• Remove barriers to local loop and leased line competition and sharing of infrastructure

• Promote demand by shared use of Internet (schools, SMEs, etc) and community access to broadband (telecenters, schools)

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• Issues

• Registration time for business formation is 91 for medium complexity and 136 days for high complexity firms (Monterrey)

• Government lacks comprehensive system to electronically link the more than a dozen agencies involved in the process  

• Objectives

• Process re-engineering to simplify registration & operating permits in 10 states

• ICT-based solutions to integrate operations at all layers

• Improved e-procurement system to build value chains

• Training for government staff and business

• Dissemination program among business to promote use

• Approach

• Demand-driven by interests of states and municipalities

• Coordinated with Federal regulatory reform program (SARE) for business process simplification

• Managed under each state and local authorities working group by integrator managers

• Bank financing of consulting services, equipment, works and training under approved reform plan

• Minimum 25% state financing contribution

Expanding G2BBusiness registration & procurement in MexicoExpanding G2BBusiness registration & procurement in Mexico

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Deepening ebusiness marketsAwareness, training & learning-by-doingDeepening ebusiness marketsAwareness, training & learning-by-doing

Barriers to Adoption of E-business by Chilean Firms(Percentage of total responses)

0 5 10 15 20 25 30 35 40

Not interested or consider unjustif ied

Staff unprepared

No trust or lack of know ledge

Inadequate f inancial resources

Inadequate ICT infrastructure

Size of f irm

Privacy/security

Cost

Complexity

• Top barriers to e-business adoption among MSMEs

• Lack understanding of how e-business functions as a strategic, value-adding tool

• Lack metrics and models that convince them that benefits are greater than costs

• Lack internal ICT & e-business know-how, outside support & time to design and implement e-business systems

• Promote e-business awareness information, tools & training programs used to determine business case and prepare e-business investment plan

• Workshops and peer exchange of experience

• Online information, downloads and self-service tools

• Initial economic & technical consultations

• Facilitate pre-investment support for in-firm learning-by-doing and innovation

• Demonstrates success in overcoming market failures

• lack of information & hands-on experience in e-business

• underestimate e-business value & under-invest in e-assets

• Support development of intermediaries to facilitate adoption

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• Reaching the poor - lessons of telecenters in LAC

• Good at expanding communications• Weak ICT and e-business training and upskilling• Low sustainability and business value added • Low development impact• Little commercial investment in e-learning, applications & content

• Need to redirect toward high value, sustainable e-business service markets - pilots in Ecuador and Mexico to

• Reach at least 50,000 low income microbusinesses• Generate market outreach, competitiveness, growth• Yield financial sustainability & franchising within 3 years

• Key design features

• Private sector management, governance & co-financing• Sector-specific e-learning programs • Microbusiness-appropriate applications for market outreach,

transactions and improving core business processes• Local business content market development• eBanking services with microfinance partners

Peru - Red Cientifica Peruana (RCP)

Connectivity, not productivity

• 89% of Peru’s Internet users use RCP “Cabinas Publicas”

• User profile - higher education & income

• 56% users between 15- 25 years old • 40% users have a computer at home

• Use profile – email, info search, chat

Email (60%), Search for information (51%), chat (39%)

60,5% total users visit Cabinas between 2 to 3 times per week.

Deepening ebusiness markets among microbusiness Sustainable eBusiness development services markets Deepening ebusiness markets among microbusiness Sustainable eBusiness development services markets

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RecapRecap

E-business is one important innovation strategy that can

– Advance productivity, competitiveness and growth

– Reduce business environment barriers

– Contribute to MDG for poverty reduction

The Bank can help accelerate e-business adoption by supporting

1. e-leadership institution-building for policy reforms, programs, monitoring and evaluation

2. Continued reforms in ICT infrastructure, trust and security regulations

3. G2B programs to lower transaction costs and expand opportunities

4. Awareness, training and pre-investment programs to deepen e-business markets

5. Expansion of sustainable e-business services markets to reach low-income microbusiness