Status Quo AND DEVELOPMENT PROSPECTS OF ELECTRONIC COMMERCE IN GERMANY, EUROPE AND THE USA, With special consideration OF ITS USE IN SMALL AND MEDIUM SIZED BUSINESSES

Complete Report (German)

Abridged Version For The Federal Ministry Of Economy And Technology:

Contents

Effects of E-Commerce

E-Commerce Strategies for SMEs

Internet and E-Commerce in Businesses

Model of the Development Stages of E-Commerce

Internet and E-Commerce in Private Households

E-Commerce Usage and Potential Indices

Conditions for E-Commerce in Germany: Status Quo and Need for Action

Recommendations for Specific Measures

Principal Recommendations

Effects of E-Commerce

[1] E-Commerce, the electronic initialisation, negotiation, transaction and maintenance of business processes between commercial subjects, already provides many small and medium sized establishments (SMEs) with considerable competitive advantages. The application of E-Commerce reduces transaction costs, ie the costs of the transaction for exchange of goods and demands on the market, and will thus lastingly change, if not revolutionise, the economic structure of all sectors. SMEs which began to develop E-Commerce strategies early on benefit in particular from cost advantages, increased control over forward and backward linkages to their suppliers and distribution partners as well as considerably improved opportunities for customer service.

[2] At the same time, E-Commerce opens up new prospects for the development of innovative business models. New markets and new functions, particularly in the intermediate area (agency services), are created. A multitude of newly formed, small businesses (start-ups) arrive on the scene to make use of the opportunities presented by the Internet and so create new, high-quality employment opportunities.

[3] However, E-Commerce also presents an enormous challenge for established small and medium sized businesses: Many of the traditional markets of SMEs have been shaken up to an extent that was inconceivable only a few years ago. Falling barriers to entry into the market and globalisation jointly lead to an increase in competition even in hitherto protected markets. The effect of E-Commerce can be seen in all sectors.

E-Commerce Strategies for SMEs

[4] The consequence of these developments: Every business, no matter how small or how far removed from the “classic” online shopping products such as books, software, and CDs, needs to develop an E-Commerce strategy. Initially, an E-Commerce Strategy may even consist of merely an Internet presence, which should be obligatory, with no further commitments and then to just wait and see. However it is crucial that every SME closely monitors E-Commerce developments so that they can react early on to changing market conditions. Markets, which today – for whatever reasons – are still scarcely affected by E-Commerce, can readily be shaken up tomorrow.

[5] SMEs which decide to implement an E-Commerce system can and must learn from the mistakes of their predecessors. A successful strategy is based on the 10 basic rules of the E-Commerce arrow:

The E-Commerce Arrow: 10 Basic Rules For A Successful E-Commerce System (Source: Empirica)

1. A necessary requirement is the commitment of the top management with a clear strategic orientation, ambitious but realistic goals and measurable success criteria. Nothing works without great staying power: Investment is needed today even if amortisation cannot be realised in the short term.

2. Complete integration of front-end-applications (websites) with each other (eg access via call centre and Internet) and with the subsequent business processes. Media changes should be avoided or successively diminished. However, integration also means the co-ordination of online marketing with other existing or still to be created distribution channels.

3. Cooperation not only with technology providers but also at a strategic level with partners from their own or neighbouring sectors, in order to round off the range offered on their own website.

4. Content/ added value, ie creation of additional benefits from a client’s point of view compared to alternative sources of whatever type (eg price advantages, increased comfort, improved service, and increased topicality, for example with real time databank access).

5. Targeting functions which can only be realised with a high number of users (critical mass) where network effects become important. The following applies: The more users participating, the higher is the added value of what’s on offer compared to alternative options and the easier it becomes to gain further users.

6. Great attention must be given to clear structuring and user friendliness, ie functionality of user interfaces as well as the back-office business processes lying behind.

7. Users should be encouraged to give critical feedback. In parallel, structures should be established that allow such feedback to automatically influence the further development of the range on offer.

8. Whoever wants to be noticed in the worldwide marketplace has to shout very loudly. Here, a stringent marketing concept must be established which will also include the advertisment of a web presence in the traditional media.

9. Suitable measures must be taken to give users a “good feeling” about shopping online, ie building trust. Some basic rules for data protection must be adhered to at all costs. Furthermore, the client should be offered several options for the execution of the transaction.

10. It is true for all the above rules that they can only be applied if the right (ie target appropriate) technology is chosen.

Internet and E-Commerce in Businesses

[6] The need for an increasing consideration of E-Commerce is met by the rather sobering current reality. Results of a representative business survey of 3,117 establishments in Germany, a further 5 European countries, and the USA, carried out by empirica in 1999, show that SMEs often see no benefit in E-Commerce and that the majority is of the opinion that they are not affected by it. This is particularly true for German establishments: For example, almost 50% of German establishments with up to 50 employees see no benefit in offering online ordering whereas this is true for only 33% of large establishments. More than 60% of establishments with less than 50 employees are convinced of the ineffectiveness of online shopping; this still applies to 50% of the larger establishments.

[7] The use of appropriate information and communication technologies (ICT) is a basic requirement to participate in E-Commerce. Today the Internet is the basic platform for transaction of E-Commerce. A comparison of the 7 surveyed countries shows that, with regard to the use of E-Mail, Internet and Intranet, Germany is in 5^th position in all cases. A similar picture emerges for the presence of German establishments on the Internet and for the use of E-Commerce in general. With regard to selling on the Internet or carrying out business processes with partners online, Germany is in 4^th position amongst the 7 countries surveyed. Concerning advertising and marketing activities on the Internet or online data exchange with suppliers or clients Germany again takes up only 5^th position.

Use of ICT by Establishments in Europe and the USA (Source: Empirica, Decision Maker Survey 1999)

E-Commerce-Use of Establishments in Europe and the USA (Source: Empirica, Decision Maker Survey 1999)

[8] Although the use of ICT and E-Commerce is expanding at a very high rate in German medium sized establishments, establishments’ investment plans for the next 1 to 2 years do not indicate a change in the near future of Germany’s current relative position compared with the other countries surveyed.

[9] In all countries SMEs lag behind large establishments. It is however alarming that German SMEs in particular– even more than German establishments in total – show a clear deficit compared with the leading European countries Finland, Great Britain, and the Netherlands, as well as the USA. With regard to use of Internet and E-Commerce German SMEs are situated in the lower European midrange at best, or, expressed in a different way: In the European comparison German SMEs are at the head of the group of latecomers. Establishments from the small and medium size classes in particular lie behind the corresponding establishments from the countries in the comparison, whereas larger establishments can certainly keep up with the European leaders. This can be illustrated by the examples of the use of E-Mail and Internet:

E-Mail-Use According to Establishment size in Europe and the USA (Source: empirica, Decision Maker Survey 1999)

Internet-Access According to Establishment size in Europe and the USA (Source: empirica, Decision Maker Survey 1999)

Model of the Development Stages of E-Commerce

[10] A comparison of the use of E-Commerce in a leading country such as Finland with that of Germany, using a model of development stages, shows that Germany still has far to go in order to make its businesses - in particular the SMEs – into extensive E-Commerce users. Finland is a good 3 years ahead. The proportion of small establishments in Germany which can be described as “offline”, ie which are not yet adapted to E-Commerce in any way, is still considerable. Whereas only 7% of Finnish establishments with between 10 and 50 employees are offline, the corresponding proportion in Germany lies at 36%.

[11] One result: The relationship between use and establishment size is disproportionately high for E-Commerce technologies in Germany. In this country small establishment size presents a greater handicap for participation in E-Commerce than in the majority of the countries in the comparison. This finding is particularly true for the manufacturing industry. However, smaller establishments in the finance and business services sector which are not subsidiaries of one of the leading players in the market also use the Internet considerably less than should be expected given their important role as catalysts of economic activity.

[12] From a regional perspective, the smaller establishments in rural areas in particular give cause for concern: In no other country in the survey do the rates of Internet and E-Commerce use in large and small establishments in rural areas differ so much as in Germany. In the USA on the other hand, the use by small and large establishments hardly differs with regard to their location. Furthermore, in almost all countries the urban/rural comparison shows that the user behaviour of larger establishments (from around 200 employees) is to a large extent independent of their location.

[13] Single business organisations find it harder to adopt the E-Commerce innovation than those establishments which, as part of multi-business organisations, can rely on the help of other parts of the organisation when introducing ICT.

[14] In general German establishments behave very restrictively with regard to providing their employees with access to E-Mail and Internet. Given the importance which daily contact has for generating competence and creating faith in the new forms of communication, this is a very unfortunate finding. In this area smaller establishments have something of a competitive advantage: In establishments with Internet access, the likelihood of an employee having free access to the Internet at his workplace is considerably higher in smaller establishments than in establishments with a larger number of employees.

Employee Access to the Internet According to Establishment size in Establishments in Europe and the USA (Source: empirica, Decision Maker Survey 1999)

[15] Clear differences exist in the use of certain ICT between East and West Germany. In the new federal states in particular there are a lot less establishments which have an intranet or which are planning to implement one in the near future. This result indicates that internal information transfer and thus training of personnel has lower status in East Germany than in the West. Such a development should be avoided at all costs in the interest of the East German economy’s “catching up”-process. Furthermore, East German establishments show noticeably lower growth rates than their West German counterparts. Here action is needed.

Internet and E-Commerce in Private Households

[16] Compared with other European countries the German population is equipped with PCs in the home at a disproportionately high level. However, the proportion of PCs which also have online access and thus directly enable E-Commerce activities is very low. Only 30% of all Germans who have a PC in the home can also go online – compared to 53% in Finland and 43% in Great Britain. In relation to E-Mail use these countries and the Netherlands are also far ahead, a disparity that has to be made up.

[17] A third of the German population have at one time or other surfed the Internet, 20% can be classified as regular users. In the leading countries the diffusion of the Internet particularly into everyday life is further advanced: In Finland for every occasional user there are 3 or 4 regular users, whereas occasional users still predominate in Germany.

[18] The disparity between the leading countries and Germany can be explained to a certain extent by the disproportionately high numbers of non-users in those parts of the population that traditionally belong to the late adopters of technological innovations: Women, elderly people from 50 years onwards, people with a low level of education as well as – from a location viewpoint – inhabitants of rural areas.

E-Commerce-Use by Population in europe and the USA (Source: Empirica, General Population Survey 1999)

Demography of Internet Users in Germany (Source: Empirica, General Population Survey 1999)

[19] Internet use and E-Commerce by no means excludes senior citizens – at least 700,000 German citizens above the age of 65 are occasionally online. Nonetheless, diffusion rates for adults decrease noticeably with increasing age.

[20] People with a low level of education, ie with only a secondary school leaving certificate or no leaving certificate at all, show Internet and E-Commerce user rates dramatically below those of the other population groups. 71% of them are PC non-users and so still far from taking part in E-Commerce. This compares with between 35% and 30% of people with intermediate high-school leaving certificate (O-levels) and high-school leaving certificate (A-levels) or college or university degrees. In light of this the formation of a “digital divide” (the term used in the USA) is becoming a reality in Germany: There is a danger of dividing the population in 2, those who participate in the online development and those who, because of their socio-economic circumstances, are to a large extent excluded from participation.

[21] The disparities in usage between East and West Germany are much less pronounced in the population than between establishments. The focus of specific supportive measures for the new federal states should therefore be on the latter.

[22] Persons who are employed in large organisations use private E-Mail and the Internet at a disproportionately high level. The diffusion of these applications into the home obviously occurs after initial contact takes place at the workplace. Even if E-Commerce applications are generally used in the home, the acquisition of user know-how, which happens at the workplace, plays an important role in its diffusion. Measures which support professional Internet and E-Mail use and in particular its availability at each individual workplace will therefore increase demand for E-Commerce not only by businesses but also private households.

E-Commerce Usage and Potential Indices

Comparison of E-Commerce Usage and Potential Indices for Europe and the USA (Source: Empirica)

[23] Is the poor performance of Germany in relation to E-Commerce use in line with its actual potential or do potential and usage deviate from each other? In order to answer this question a potential index and a usage index was calculated for each country. The potential index included the following variables: personal preferences (turnover in the mail order trade, diffusion of electronic payment, TV usage); educational level/media competence (PC usage, knowledge of the English language, general educational level/schooling); economic structure/ interconnections in the economy (importance of the finance and business services sector, inland goods transportation services, export quotas); technological infrastructure (investment in telecommunications infrastructure; households connectable to the broadband cable TV network; ISDN connections); conditions for delivery (degree of urbanisation; postal delivery times). The usage index is based on data which were polled within the decision maker and general population surveys as well as supplementary infrastructure indicators (eg number of Internet hosts).

[24] The outcome of a comparison of the results of both indices is striking. The potential for E-Commerce is noticeably higher than the usage in Germany (in relation to the countries in the comparison). Evidently, Germany has not yet sufficiently developed its above average potential for E-Commerce.

Conditions for E-Commerce in Germany: Status Quo and Need for Action

[25] As E-Commerce can provide smaller businesses in particular with competitive advantage and is necessary for defending current market position, its potential as a whole must be utilised much better and also, in Germany, the current dependence on establishment size decreased. In order to achieve this it is necessary to identify the actual barriers which deter small businesses in Germany from using E-Commerce more so than in other countries, to anticipate their future development and to introduce appropriate measures if this seems advisable. In the following the fundamental conditions are set out in brief.

[26] Despite the comparatively restrictive trading hours legislation a large part of the German population still fail to see a sufficient benefit in E-Commerce; the same applies to businesses, to SMEs in particular. Businesses complain in particular about the fact that demand as well as supply on the Internet is not sufficiently large to justify their activities. Furthermore, the opinion that only a small number of products with very specific features (easily describable mass products with low quality variance) are suitable for online trade still prevails - in spite of much evidence to the contrary.

[27] High costs and the lack of specialised know-how are further barriers which deter businesses from implementing E-Commerce systems. SMEs which, with the help of websites, want to reach new clients in the Business-to-Consumer field have to undertake extensive marketing efforts. The shortage of network and Internet specialists on the labour market does the rest to make the acquisition of the necessary know-how more difficult. Recently, German policies have attempted to facilitate German employers’ access to the international market for computer specialists. These activities must be perpetuated and expanded as the cross-border labour markets in these areas will gain importance in the coming years.

[28] From a demand point of view, high costs for telecommunication links in general and for Internet access in particular have a negative effect on the interest in and the intensity of Internet use. Only a few years ago, telecommunications costs in Germany were still amongst the highest in Europe, and deregulation of the local telephone networks is still to come. A flat rate tariff, where costs are independent of duration and intensity of use, should lead to a significant increase in use. In the USA flat rates in the local telephone networks have been common for a long time whereas in Europe attractive offers for the private user are only now available on the market.

[29] Concerns regarding security of data transfer as well as the danger of fraud are not decisive in the fundamental decision of large sections of the population and economy not to use E-Commerce. However, they influence the extent and the type of Internet usage. Therefore, measures which build trust in the Internet as a medium for transactions are urgently needed. Here, the German Government has done pioneering work with the passing of the Signature Law (SigG) which, already in 1997, produced the legal basis for the use of digital signatures in business transactions. However, so far the digital signature is used only rarely, indicating an implementation deficit.

[30] An analysis of consumer and data protection issues reaches the same conclusion. The EU – with a considerable contribution from the German Government – has provided a legal framework which can be regarded as exemplary from the consumers’ point of view. However, as the majority of E-Commerce applications are carried out by US American organisations or their European branches, the regulations currently in force in the USA are also of great importance. So far, the USA have refused to take the European Protection Standard on board and therefore threaten to undermine the effectiveness of the European regulations.

[31] A number of regulatory barriers which still exist in the area of competition law are in need of critical examination. Discount law and book price fixing for example make it impossible for German online businesses to gain competitive advantages over traditional distribution channels, whereas in other countries these played a significant role in the boom of the Internet economy. One example is amazon.com – a success story that under current conditions would not be possible in Germany.

[32] The circle of potential users of E-Commerce in the B2C-area is not unlimited: Users must satisfy the technological requirements in order to be able to access the services offered and they must also have the skills and abilities needed. Because so far the PC has been almost exclusively the access medium to the Internet the potential is currently limited to those people who have access to a PC and who can and want to use it. As this description does not apply to large sections of the population these are therefore excluded from participation in E-Commerce right from the start. In order to change this situation two basic options are available: Firstly, the opening of new access opportunities to the Internet and secondly awareness creation and education of current non-users.

[33] A new access path to E-Commerce applications which is already clearly emerging is mobile access via the mobile phone or a mobile mini computer. In Japan it has already been proven that significant new user circles made up of those who refuse to use a PC can be opened up through M-Commerce. The fact that the share of mobile phone users in Germany is significantly lower than in most other EU countries proves to be a disadvantage. However, only the integration of common television and Internet-Browser (called Web-TV) would turn almost all households into potential E-Commerce users.

[34] There is no need however to rely solely on technological solutions. Active measures to introduce today’s non-users to the Internet are urgently required. The high speed at which the number of Internet connections increases even in Germany takes attention away from the existing and newly developing disparities in usage between different sections of the population. A special effort is needed to introduce all German inhabitants to the Internet, those with low education and low income in particular. Here, measures are needed which work against the development of a digital divide. Attempts must be made in these target groups to win over a critical mass of users of E-Commerce and thus prepare them for the demands of the information society. This represents a primary political goal.

[35] In the education field projects such as “Schools on the net” have noticeably improved the equipment available in schools. However, there is increasingly a shortage of qualified teaching staff. The “equipment drive” must now therefore be followed up by an “education drive” which will aim to comprehensively prepare teaching staff for the demands of the information society.

[36] For a long time the German capital market has been ill prepared for the demands of the Internet economy. Business start-ups with innovative ideas lacked access to capital. In 1998, the extent of venture capital investment in technology businesses in Germany (in % of GDP) was still only a quarter of the US American value. However, at the same time the venture capital market is also growing rapidly in Germany so that a significantly improved situation can be expected in the medium-term.

Venture Capital Investments in Technology Companies 1998 (Source: Price Waterhouse 1998a, 1999b, own calculations)

[37] At the beginning of the new decade the economic requirements regarding available finance and personnel capacity are favourable for SMEs. E-Commerce activities in the individual businesses will benefit in particular from the fact that the two major tasks, transfer to the EURO and the Y2K problem, which took up significant capacities are finished and that the relevant personnel can now address new topics.

[38] To summarise, a rapid improvement of the situation in Germany can be expected for the majority of the framework conditions mentioned, which in the immediate future is likely to lead to a marked increase in E-Commerce uptake. However, doubts remain as to whether Germany will be able to catch up on the current deficit compared to the world’s leading countries. Time is needed to convince businesses that E-Commerce is important for everyone, that confronting its opportunities and risks can be decisive for their competitiveness and thus for their survival in a marketplace which is increasingly influenced by (global) competition. Even more time is needed to convince the population to change old (shopping) habits and to exploit the advantages of E-Commerce. Thus, an improvement of the framework conditions will not immediately affect the speed of diffusion but this will take some time. A considerable persistence of the current structures is to be expected.

Recommendations for Specific Measures

[39] Therefore, if Germany wants to catch up on its backlog to the other European countries and the USA, ie realise its potential, significant political efforts are also necessary. For this we recommend a number of suitable measures starting with the determinating factors for E-Commerce diffusion and divided into the following sections:

1. Promoting innovation

2. Optimisation of market function

3. Amendment of the regulatory framework

4. Promoting take-up

[40] The recommendations can be grouped by effort required for implementation and degree of outcome: Initially, those recommendations which can be implemented with low or medium effort and are at the same time likely to have potentially strong outcomes, should be implemented with a high priority. These are as follows:

Recommendations with low implementation requirements and

potentially strong outcomes

Promoting take-up

9.2-7 Media partnerships: Aim: Generate awareness and motivation for Internet and E-Commerce in population and businesses

9.2-6 E-Commerce competition for SMEs

9.2-9 Deregulation of the local telephone network

The experience made with announcements of tenders at home and abroad shows that a combination with targeted media partnerships can be very successful and can have far reaching effects. Input requirements can be kept at a manageable level with the help of sponsors from industry, and additionally with certain topics – such as E-Commerce - the media have a personal interest in comprehensive reporting, especially so when a Federal Minister acts as patron; hence, substantial results can be achieved with limited financial input. Competitive tendering should be repeated annually, until the results of the international E-Commerce Monitoring and Benchmarking Project suggested below reach the previously defined goals (eg 70% of SMEs practice E-Commerce).

[41] The implementation of recommendation 9.2-9, deregulation of the local telephone network, includes the continuation of work already started by the Department for Regulation of Telecommunication and Postal Services (RegTP) as defined by the legislator, in order to achieve competition in the local telephone network. What matters most is to work energetically towards this so that Germany can achieve as good an international competitive position in local telephone networks as in the fast long distance network. At present Germany, together with France, Switzerland and Austria, form the bottom of the scale in this area. Urgent action is needed if Germany does not want to miss the connection at an international level.

[42] The implementation of a number of the recommendations listed below lies outside the area of responsibility of the Federal Ministry for Economy (BMWi). However, in order to accelerate desirable developments, the BMWi can in many cases exert influence in the appropriate quarters. Amongst these recommendations there is for example recommendation 9.2-10, “PC/Internet equipment initiative (free of tax)”, which falls under the jurisdiction of the Federal Ministry of Finance. Countries like Sweden and Denmark have already successfully carried out such initiatives. In Germany, large organisations such as Bertelsmann and Ford have set a good example without having been able to take advantage of relevant tax relief measures. However, in order to achieve positive effects on a wider scale, SMEs, which are not often financially strong enough for such initiatives, must also be put in such a position. It must be taken into account that in Germany two thirds of employees work in businesses with less than 200 employees and that these are to a large extent excluded from such activities by their employer. The implication here is that the purchase of a PC for an employee should be cost effective for the employer. For the employee this should be tax neutral, ie no “financial advantage” should be gained.

Recommendations with medium implementation requirements and potentially strong outcomes

Promoting innovation

9.2-3 Multiplier appeal and acquisition *)

9.2-10 PC/Internet equipment initiatives **)

9.2-15 Careful interpretation of patent law *)

Optimisation of market function

9.3-5 Liberalisation of telephone charges in the local telephone network #)

9.3-10 Regionalisation of E-Commerce centres of competence*)

Amendment of the regulatory framework

9.4.1 Internet and E-Commerce Train-the-Trainer measures at schools #)

9.4-2 “Primary schools on the net“ #)

9.4-4 Stronger orientation of education policy towards ICT #)

9.4-5 Continuation/Intensification of promotional measures for E-Commerce in SMEs *)

9.4-6 Supranational harmonisation for the creation of an international legal framework*)

9.4-10 “Disarmed“ forms of the digital signature *)

9.4-11 Worldwide data protection regulations following the EU example *)

9.4-12 “Code of Conduct“ for consumer protection in E-Commerce *)

9.4-13 Examination of regulatory barriers for E-Commerce relating to competition law *)

*) BMWI relevant

**) conditionally BMWi relevant

#) not BMWi relevant

[43] An implementation of recommendations for education policies comes under the jurisdiction of the Federal Ministry for Education and Research. The recommendations made here address problems which urgently need to be resolved and exist in the same or in a similar form in all the other European countries.

[44] The following recommendations come directly under the jurisdiction of the BMWi:

9.2-3 Multiplier appeal and motivation: In order to reach the wide range of businesses in Germany, cooperation on E-Commerce well-targeted to the specific industries, sectors, trades and other relevant associations is advisable. Its aim should be to interest the SMEs from the different sectors in the topic and to facilitate their first steps towards its realisation. The existing communication channels to the above mentioned associations could be used for this. An even better way would be an effective publicity drive by the associations together with the BMWi or integration in the D21-initiative of the German economy in which the BMWi is already involved. In addition there are close connections to the recommendations 9.2-1 “Examples of E-Commerce success and showrooms” and 9.2-2 “E-Commerce Info-Mobil”.

9.2-15 Careful interpretation of patent law: As can be seen in practical examples (eg the fight over the “one-click-shopping” patent of amazon.com) a market leader can, through patenting of a commonplace technology, obstruct competition in a whole area and thereby gain an unfair competitive advantage. For such cases we recommend a very careful interpretation of patent law in order to avoid such “misuses”.

9.3-10 Regionalisation of E-Commerce centres of competence: We recommend an even further reaching regionalisation of E-Commerce centres of competence. Decision makers in SMEs in particular are involved in the day-to-day business to such a large extent that they should be provided with low level user opportunities from these centres. Attempts should also be made to bring these centres closer to SMEs from a regional perspective. In order to remain cost effective it is advisable to attach the new centres organisationally to already existing centres of competence in the districts and towns.

9.4-5 Continuation or intensification of existing E-Commerce promotions for a rapid creation of a “critical mass” with regard to supply and demand: It should be an urgent aim of politics to rapidly create a critical mass for supply and demand of E-Commerce applications. Here again well-targeted support measures aimed at SMEs as already carried out by the BMWi are required. The existing programmes should be continued and if possible intensified and their content expanded. In this connection it would be worth considering expansion in the direction of E-Commerce competitive tendering (see recommendation 9.2-6). The BMWi has already made positive experiences with in this area with the topic “telework”. In the last 5 years, the number of teleworkers in Germany has increased from a few hundred thousand in 1994 to around 2.1 million in 1999, not least due to the convincing measures taken by the government.

9.4-6 Supranational harmonisation for the creation of an international legal framework: The Federal Government is already trying very hard to develop an internationally valid legal framework and suitable regulations for E-Commerce in agreement with the governments of their trade partners (eg in the areas of tax law, copyright law, consumer protection, custom and trade regulations). However, considering the extensive effects of E-Commerce on the existing trade relations it is not surprising that there is still a lot to be done. The efforts made so far should be continued and intensified as clear and binding statements and regulations contribute a lot to generating trust between the agents in E-Commerce and so this will also contribute to an acceleration of its diffusion.

9.4-10 “Disarmed“ forms of the digital signature: To support a rapid diffusion of E-Commerce we recommend trying out the introduction of ”disarmed” and cheaper forms of the digital signature besides the already existing solutions. The aim should be for a graded system of digital signatures with varying security and input levels where the selection is left to individual users.

9.4-11 Worldwide data protection regulations following the EU example: The German and EU data protection regulations on E-Commerce represent a solid legal foundation. Given that demand for government regulation following the EU example is increasing in the US American population, the chances are currently good for the development and adoption of worldwide data protection regulations following the European example. If necessary, the pressure on the US American negotiation partners must be intensified as the trust in the security of E-Commerce applications that can be gained with the help of satisfactory data protection regulations is of decisive importance for further diffusion in Europe.

9.4-12 “Code of Conduct“ for consumer protection in E-Commerce: We recommend the integration and concentration of previous activities and results in consumer protection into a Code of Conduct, which should then be developed into a worldwide basis for E-Commerce, within the framework of cross border efforts. We can safely assume that this additional security will contribute to further diffusion of E-Commerce particularly on the demand side.

9.4-13 Examination of regulatory barriers to E-Commerce relating to competition law: The effect of the current regulatory framework on the diffusion of E-Commerce must be analysed in detail for all sectors of the economy. Its results can highlight measures for further progress for example in the areas of book price fixing, discount law, and auctions.

[45] The recommendations which can be implemented with medium effort and with potentially medium strong results are also not insignificant. This relates to the following recommendations:

Recommendations with medium implementation requirements and potentially medium strong outcomes

Promoting innovation

9.2-1 Successful E-Commerce examples and showrooms *)

9.2-2 E-Commerce Info-Mobil *)

9.2-4 Analysis of current Internet/E-Commerce supportive programmes by BMWi

9.2-5 Ambitious targets

9.2-8 E-Commerce information campaign for SMEs **)

9.2-11 Help from an SME advisor with selection of the right E-Commerce system **)

9.2-12 BMWi brochures on eCL@ss and BMEcat **)

9.2-13 Additional E-Commerce-application in government departments via public access terminals

9.2-14 Illustration of E-Commerce solutions in “difficult“ sectors **)

Optimisation of market functions

9.3-1 Staffed public places for passing on Internet competence

9.3-2 Annual “Digital Divide Report“ by the Government

9.3-3 Establishment of a “Digital Divide Clearing House“

9.3-4 BMWi guideline on new forms of online marketing for SMEs in particular **)

9.3-7 Evaluation of education structures in Germany

9.3-9 Evaluation of E-Commerce centres of competence

Amendment of the regulatory framework

9.4-8 Data security: Public administration as a leader

9.4-9 Information campaign “Data security and contract law in E-Commerce“ **)

Promoting take-up

9.5-1 Targeted measures to reach senior citizens and “young old people” for creating awareness of the Internet

*) and **): We suggest to integrate these measure in a single action (see below)

[46] The recommendations:

9.2-1 Successful E-Commerce examples and showrooms

9.2-2 E-Commerce Info-Mobil

9.2-8 E-Commerce information campaign for SMEs

9.2-11 Help from an SME advisor with selection of the right E-Commerce system

9.2-12 BMWi brochures on eCl@ss and BMEcat

9.2-14 Illustration of E-Commerce solutions in “difficult“ sectors

9.3-4 BMWi guideline on new forms of online marketing for SMEs in particular

9.4-9 Information campaign “Data security and contract law in E-Commerce“

can very easily be combined into one larger and regionally differentiated initiative, for example into a single awareness rising and information campaign, which is targeted at SMEs and has two main thrusts:

• Information and awareness rising with regard to E-Commerce in general and E-Commerce-key topics such as data security in special, as well as

• „Hands-on-Experience“.

[47] In parallel, an independent evaluation of E-Commerce centres of competence is needed in order to find out how structures and work methods can be further optimised, how to guarantee that measures are complimentary and how synergies can be enhanced. The BMWi has just embarked upon such an incentive by tender in March 2000. The same is true for the analysis and evaluation of the BMWi’s current Internet/E-Commerce support programmes, which should be embarked upon immediately.

[48] Further recommendations in this group aim at countering an emerging “digital divide” following the US American example (see recommendations 9.3-1, 9.3-2, 9.3-3 und 9.5-1), others aim for the public services to become a supplier of, or even a leader in E-Commerce (see recommendations 9.2-13 and 9.4-8). This is a matter of creating a critical mass of E-Commerce users in all sections of the population, economy and public administration.

Principal Recommendations

[49] Co-ordination of the actions and initiatives of individual departments of the Federal Government and the governments of the Federal states is urgently required. Initially, activities must be co-ordinated at a Federal level and attempts must then be made to convince the Federal states to cooperate voluntarily in order to create synergies, to avoid conflicting activities and to guarantee efficiency. The establishment of a Government E-Commerce officer, which could be located in the BMWi, is worth considering. The co-ordination of government E-Commerce activities is also regarded as a priority by other countries. In Great Britain, for example, the “Performance and Innovation Unit“ introduced by the Cabinet has recommended urgent measures to that effect, culminating in a demand to appoint an “e-Minister on Information Age Issues” immediately and so make the political co-ordination of E-Commerce and E-Government activities a task of the highest importance.

[50] In order to achieve reliable information about current E-Commerce in Germany continuous market observation and monitoring of supply and demand parameters is necessary. At present the acute lack of the necessary statistics hampers political decision making to a great extent. In order to analyse and judge Germany’s relative performance in Europe and worldwide, monitoring must not be limited to the national area but must also include key European countries and at least also the USA and Japan. Only such an undertaking can allow exact benchmarking analysis and enable political and economic agents to adopt adequate measures to influence the principal parameters of the Internet economy.