Impact of the e-Economy on European enterprises

This communication analyses the impact of information and communication technologies on European companies and the European market. The objective is to support the full introduction of the e-Economy in Europe.

ACT

Communication from the Commission to the Council and the European Parliament - The impact of the e-Economy on European enterprises: economic analysis and policy implications [COM(2001) 711 final - not published in the Official Journal].

SUMMARY

Background

Information and communication technologies (ICT) are having a profound impact on the potential for economic growth and have become one of the main sources of competitiveness and increases in incomes. As a result, they have moved to the centre of the policy debate. When in March 2000, in Lisbon, the European Union (EU) set itself the ambitious target of becoming the world's "most competitive and dynamic knowledge-based economy" within ten years, it recognised that attaining this goal depended on making the best possible use of ICT. The Lisbon strategy placed greater emphasis on the knowledge-based society within existing policy processes and launched the eEurope 2002 Action Plan as a roadmap to modernise the European economy.

The emergence of the e-Economy: macro and microeconomic issues

It is generally accepted that, at macroeconomic level, the increased use of ICT leads to productivity gains and hence improves the competitiveness of enterprises and the economy as a whole. ICT-induced productivity gains are also a source of job creation in certain sectors - whereas jobs may be destroyed in others. ICT use does away with repetitive jobs often carried out by workers with low-level skills. The overall dynamism resulting from ICT use leads to job creation in other areas to an extent that more than offsets the losses.

In this context, the matching of skills poses a major challenge for the design and conduct of the labour market. The ICT skills gap is a major risk hampering further growth in Europe. The situation is particularly sensitive in Europe due to declining demographic trends and the decreasing level of interest of young Europeans in scientific studies.

At microeconomic level, the e-Economy is leading to important changes in organisational market structures. The faster pace of technological change is having a major impact on the structure and lifecycle of enterprises. Firstly, ICT reduces the economic impact of distance and the cost of access to information, thus increasing the scope for competition within markets. Secondly, ICT often tends to lower the cost of setting up small enterprises thus, potentially, providing for additional competition. Thirdly, ICT creates the opportunity for new cooperative means of product and service delivery, which can lead to improved quality and cost efficiency. Finally, and perhaps most importantly, ICT gives rise to many new products and services.

The process of creating new enterprises and of adapting or replacing traditional enterprises is indicative of the way the economy adapts to new market conditions. This process has accelerated considerably since the late 1990s. Products are increasingly becoming "extended products" which include an important service component. Internet-oriented enterprises are starting to acquire the characteristics of traditional enterprises, such as warehouses and chains of shops. Conversely, traditional retailers are starting to move part of their activities on-line, adding new distribution channels and new sourcing strategies.

The impact of ICT varies, however, from sector to sector. Information-rich sectors (digital goods, information services, financial and business services, etc.) witness the emergence of new business models and increased market competition. In industries where entry barriers are higher, such as construction and heavy engineering, the impact is likely to be more gradual. Digital interactions between administrations and business are key components of the e-Economy. By offering online access to public services, administrations can add concrete, direct incentives for enterprises to go digital themselves.

One characteristic of the e-Economy is the emergence of new business models. A substantial number of these have failed, along with many "dotcoms". Others however, have proved to be viable, notably in the business-to-business (B2B) area. Entering the e-Economy at a more mature stage may constitute an opportunity rather than a disadvantage for EU enterprises which have learnt from the mistakes of pioneers. Enterprises can now use tried and tested technologies, as well as viable business models - more specifically B2C (business-to-consumer) whose potential has still to be tapped.

E-Economy enterprises increasingly need to define and manage the risks associated with extended and dynamic enterprise configuration - not just the risks associated with the information infrastructure but also, and especially, those relating to access to adequate financial resources. Although the situation is improving, the EU venture capital market remains only a fraction of that of the US, where pension funds play a major role. Early stage investments in 2000 were five times higher in the US than in Europe. The financial environment in Europe is still insufficiently conducive to innovation, both technological and organisational. In this respect, the European Investment Bank with its "Innovation 2000" initiative and the Commission under the Action Plan on financial services and the multiannual programme for enterprises and entrepreneurship (2001-2006) and the Competitiveness and Innovation Framework Programme (CIP) (2007-2013) have takenn initiatives to contribute to the supply of risk capital for innovative businesses.

Maximising the benefits of the e-Economy: the next steps

This Communication highlights the steps that will have to be taken to maximise the benefits arising to European enterprises from the e-Economy. These steps encompass:

• the fostering of a culture of entrepreneurship;
• enhancing the ICT skills levels needed to participate effectively in the e-Economy;
• raising the ability of European enterprises to compete in a modern global economy;
• further improving the functioning of the internal market.

Skills underpin entrepreneurship. Both issues are tightly interrelated. The problem of the skills gap (entrepreneurial skills and technical ICT skills) has been addressed through a number of initiatives, notably in the European Employment Strategy and in the eLearning Action Plan (2001-2004). Taking into account these challenges, there is a need to:

• accelerate the development of focused skills programmes and e-learning solutions;
• strengthen research efforts not only in the area of technology, but also with regard to related socio-economic issues and to the effects on human resources;
• strengthen on-going initiatives at all levels to help enterprises, especially small and medium-sized enterprises (SMEs), acquire ICT and e-business skills;
• monitor the demand for ICT and e-business skills in Europe, benchmark national policies, and strengthen co-operation and co-ordination at the European level;
• launch focused projects in 2002, in close co-operation with Member States and the private sector, which aim to address the specific needs of enterprises, particularly SMEs.

The simplification and harmonisation activities undertaken at European level up to now should be continued in order to enable rapid development of pan-European businesses and fair trade in both the B2B and B2C environments. On the other hand, it is necessary to continue to review existing product legislation, in particular certification requirements and procedures to ensure that they are neutral between different means of product and service delivery.

Not all problems, however, can be resolved by legislation alone. Self-regulation should play an important role in promoting trust between partners in electronic transactions. Public policy should be aimed at raising credibility for self-regulation and at ensuring that codes of conduct are respected, through the availability, if needs be, of legal remedies.

In Europe, the e-Economy depends to a significant extent on the full participation of SMEs. The eEurope Go Digital initiative provided a first response to this challenge. It aimed to ensure that European enterprises, and in particular SMEs, fully embraced e-business and became active participants in the e-Economy. It is therefore necessary to:

• foster open standards and certification procedures;
• reinforce the security of networks and of information;
• contribute to reinforcing legal certainty for SMEs engaging in cross border e-business;
• optimise the use of existing resources, such as structural funds and research and technological development (RTD) budgets.

Exchanges between business and public administrations are a potentially powerful driving force for the e-Economy. This communication encourages public administrations to be at the leading edge of on-line service delivery, and to provide incentives for enterprises to access such services. Public administrations are also urged to continue these efforts to modernise their internal structure, by fostering, for example, the delivery of online services. The aim is to ensure broad interoperability both across borders and between administrations and business.

RELATED ACTS

Communication from the Commission of 13 March 2001 - eEurope 2002: Impact and Priorities

[COM(2001) 140 final - not published in the Official Journal].

Communication from the Commission of 13 March 2001 - Helping SMEs to "Go Digital" [COM(2001) 136 final - not published in the Official Journal].

Council Decision 2000/819/EC of 20 December 2000 on a multiannual programme for enterprise and entrepreneurship, and in particular for small and medium-sized enterprises (SMEs) (2001-2005) [Official Journal L 333 of 29.12.2000].

Last updated: 03.09.2007