Size of Market Study for Electronic Commerce

1
Size of Market Study for Electronic Commerce
March 1999

Ministry of International Trade and Industry
Ministry of International Trade and Industry
2
Purpose and Scope/Summary of Forecasts Approach
to Estimating the Size of the Market for
Electronic Commerce Size of Business - Consumer
(B to C) Electronic Commerce Market Size of
Business - Business (B to B) Electronic Commerce
Market Comparison with Other Forecasts Conclusion
s Supplementary Materials (Excerpts from
Interviews and Surveys)
3
Purpose and Scope of Study
This document summarizes the report on Size of
Market Study for Electronic Commerce in Japan
conducted by the Electronics Policy Division,
Machinery and Information Industries Bureau,
Ministry of International Trade and Industry and
Andersen Consulting between November 1998 and
March 1999.
?Purpose?
The purpose of this study was to estimate the
current scale of electronic commerce transactions
in Japan and the size that the market could be
expected to reach in the future. The following
points were emphasized in this study
Efficiency The study aimed to make rough
estimates in a short period of time. It therefore
supplemented independent surveys and interviews
with existing data and information to fill in
the gaps. Facilitation of comparisons with US
market size. Clear definition of electronic
commerce. Clear methods of market forecasting.

?Scope?
Coverage
The study covered the market for electronic
commerce transactions in Japan. The study
estimated market size for individual categories
of products and services in business-consumer (B
to C) and business-business (B to B) electronic
commerce transactions. Note that no surveys or
interviews were performed for the forecasts of
the size of the electronic commerce market in the
United States. We independently analyzed and
corrected existing forecasts.
Definition of electronic commerce
For the purposes of this study, electronic
commerce refers to the conducting of commercial
transactions (the exchange of merchandise,
services, information, and/or money between
suppliers and receivers for the commercial
transfer of goods between economic actors)
through electronic mediation using Internet
technology.
Forecast range
19982003 (next five years)
Internet technology refers to the use of
TCP/IP protocol whether the network circuits are
on public lines, dedicated IP networks, Internet
VPNs, satellite circuits, or other similar media.
4
Companies Cooperating with Survey and Interviews
Breakdown of Companies Interviewed (35 total)
Breakdown of Companies Returning Questionnaires
(125 total)
Number of responses (companies)
Number of responses (companies)
Industry
Industry
Automotive
Automotive
6
1
4
Electric power, gas
Steel, nonferrous metals, raw materials
1
Electric power, gas
6
Petroleum, petrochemicals
2
3
Heavy equipment
1
Petroleum, petrochemicals
4
Industrial machinery and parts
Information services
1
5
Electrical equipment
Textiles, apparel
6
2
Telecommunications
Printing
1
Heavy and consumer electrical/electronic
equipment
10
Office equipment and supplies
1
8
Machinery
Cosmetics, toiletries
1
Mining
Printing
3
1
6
Construction
Office equipment and supplies
1
Aircraft
3
Miscellaneous consumer goods
1
5
Wholesaling
Food and beverages
1
Retailing
3
Construction, real estate
2
Wholesaling
Speciality shops
8
2
Services
Department stores
2
3
13
Speciality stores, non-store retail sales
Finance
2
Travel, transportation
4
Cyber-malls
1
4
Industrial VANs
Newspapers, publishing
1
1
Other services
8
Physical distribution
Banking, securities
7
Search services
1
5
Insurance, leasing
Electronic commerce software
1
Cyber-malls
3
Verification/authentication services
1
3
Electronic commerce-related industries
Payment services
1
5
Summary of Forecasts of Electronic Commerce
Transactions in Japan and USA
Comparison of scale of electronic commerce
transactions in Japan and USA
Japan
USA
1998? ?65 billion ? (0.02)
2003? ? 3,160 billion (1)
1998? ? ? 2,250 billion (0.4)
2003? ? 21,300 billion (3.2)
B-C
? 8,620 billion (1.5)
? 68,000 billion (11.2)
?19,500 billion (2.5)
? 165,300 billion (19.1)
B-B
? 1) US1 ?120 ? Numbers in parentheses ( )
indicate percentage of commercial transactions
conducted electronically.
6
Purpose and Scope/Summary of Forecasts Approach
to Estimating the Size of the Market for
Electronic Commerce Size of Business - Consumer
(B to C) Electronic Commerce Market Size of
Business - Business (B to B) Electronic Commerce
Market Comparison with Other Forecasts Conclusions
Supplementary Materials (Excerpts from
Interviews and Surveys)
7
Approach to Estimating the Size of the Market for
Electronic Commerce, Distinguishing Features

• We began by creating a model for forecasting the
  size of the market for electronic commerce
  transactions. The estimates for variables in the
  model were arrived at from forecasts for the US
  market and comparative analyses of factors that
  would encourage and impede electronic commerce
  transactions in Japan and the United States.
  These values were then adjusted to reflect the
  current size of the market as indicated by our
  fact base before being used to compute the size
  of market forecast.

Approach
Step
Description
Create model to calculate the size of the market
for electronic commerce transactions
- Create a model to compute the size of the
market for electronic commerce transactions in
both the B to C and B to B sectors.
Features
Forecasts based on clear assumptions and
processes Wherever possible we indicate how
forecasts were calculated and the assumptions
upon which they are based, not just the forecast
results. Current size of market estimated from
fact base There have been few prior attempts to
estimate the size of market based on surveys of
125 companies and interviews with 35 companies
(this is the first attempt for the B to B
sector). Japan-US comparisons of factors that
encourage and impede electronic commerce
transactions We reviewed the factors that would
encourage and impede electronic commerce
transactions before analyzing differences
between Japan and the US, and wherever possible
we have quantitatively reflected those
differences in our estimates of the size of the
markets for electronic commerce transactions
in Japan and the US.
- Analyze and integrate forecasts for the US
market with reference to current US conditions.
Analysis of US forecasts
- Review factors that would encourage and impede
electronic commerce transactions and analyze the
differences between Japan and the US for each
factor.
Estimate variables in the model
Comparative analyses of factors that would
encourage and impede electronic commerce
transactions in Japan and the United States
- Use results of surveys and interviews to add up
an estimated size of market in Japan at the
current time. - Use published information on
corporate endeavors and results to cover gaps in
information.
Current size of the market as indicated by fact
base
- Use integrated US forecasts and comparative
analyses of factors that would encourage and
impede electronic commerce transactions in Japan
and the United States, adjusted with reference to
findings for current size of market, to compute
estimate values for each variable in the model.
Computation of estimates for each variable
Computation of size of market forecast
- Plug estimates for each variable into the model
to compute a size of market forecast.
8
Outline of forecasting model

• Input consists of results from comparative
  analyses of factors that would encourage and
  impede electronic commerce transactions in Japan
  and the United States, US forecasts, macro
  statistical data, and relevant existing
  information. This input is adjusted to reflect
  findings from interviews and surveys before
  computing the variables in the forecasting model.

B to C
B to B
Size of market for electronic commerce
transactions
Size of market for electronic commerce
transactions
Input data
Input data


Population

• Macro statistical data (Japanese demographic
  estimates)

Independent analysis
Percentage Internet users

• Interview/survey findings
• Other relevant data and information

Total sales

• Macro statistical data (computed from
  input-output tables)

Independent analysis

• Existing US forecasts by overseas research
  institutions
• Other relevant data and information

Percentage electronic commerce users
US forecasts



Independent analysis
Comparative coefficients of factors that
encourage and impede in Japan and the US

• Interview/survey findings
• Other relevant data and information

Ratio of electronic commerce to total
transactions
US forecasts

• Interview/survey findings
• Other relevant data and information

Independent analysis

Independent analysis

• Existing US forecasts by overseas research
  institutions
• Other relevant data and information

Ratio of electronic commerce to total spending
US forecasts


Independent analysis
Comparative coefficients of factors that
encourage and impede in Japan and the US

• Existing US forecasts by overseas research
  institutions
• Other relevant data and information

????


Independent analysis
Comparative coefficients of factors that
encourage and impede in Japan and the US

• Interview/survey findings
• Other relevant data and information

• Macro statistical data (computed from
  input-output tables)

Per capita spending
9
Scope of electronic commerce transactions covered
in this study

• This study does not limit the activities covered
  by the term electronic commerce transactions to
  order booking and payment. Instead, it uses a
  wider scope that includes order booking and
  related business activities in the transaction
  process.

Scope of electronic commerce transactions in
this study
After booking
At time of booking
Prior to booking

• Finalize delivery conditions etc.
• Process delivery and inspection invoices
• Pay (when separate from order booking) Etc.

Procurement work (purchaser side)

• Access information
• Search for and select products
• Confirm estimates
• Negotiate prices and terms Etc.

• Issue purchasing order/contract
• Pay (when settled simultaneous to order)
• Indicate specifications and quantities ordered
  Process ordering and contracting invoices
  Etc.

Development/design work

• Finalize specifications
• Finalize (customize) content of order
• 
  Etc.

• Finalize specifications (discuss approved
  specifications and approved drawings) Etc.

• Finalize delivery conditions etc.
• Transport goods and services to the purchaser
  (physical distribution, content transmission)
• Process delivery and inspection invoices
• Settle (when separate from order acceptance)
  Etc.

• Provide information
• Promote sales
• Provide estimates
• Negotiate prices and terms Etc.

• Issue order acceptance/contract
• Settle (when simultaneous to order)
• Process order-booking and contracting invoices
  Etc.

Sales/marketing work

• Activities engaged in before and after order
  booking are included in the electronic commerce
  transactions as long as they have a clear
  relationship to order booking.
• If any part of the commercial transaction
  depicted above is electronically mediated, it is
  considered an electronic commerce transaction
  for the purposes of this study. (We do not
  require that settlement or order booking be
  electronically mediated.)

10
Types of payments counted towards size of market
for electronic commerce transactions

• The value of electronic commerce transactions is
  the amount paid by the purchaser as a
  countervalue for the goods and services traded.
  It includes the price of goods and services, the
  price of digital content, and any mediation fees
  paid by the purchaser.

Flow of funds in electronic commerce transactions
(B to B and B to C)
System service provider, telecoms carrier
Payment/verification service provider
Advertising service provider
System construction and management fee Telecoms
charges
System construction and management fee Telecoms
charges
Advertising fee
Payment fee Credit/verification fee
Price of goods or service, mediation fee, service
fee, membership fee, subscription fee, price of
digital content
Sale and supply of goods and services
Mediation fee
Purchaser (procuring company, consumer)
Mediator
Seller
Price of goods or service, mediation fee,
volume-based service fee, membership fee,
subscription fee, price of digital content
Sale and supply of goods and services
Transportation fee
Flow of funds in the electronic commerce market
(values counted towards size of market)
Transportation fee
Physical distribution service
Values not included in size of market estimates
in this study
11
Purpose and Scope/Summary of Forecasts Approach
to Estimating the Size of the Market for
Electronic Commerce Size of Business - Consumer
(B to C) Electronic Commerce Market Size of
Business - Business (B to B) Electronic Commerce
Market Comparison with Other Forecasts Conclusion
s Supplementary Materials (Excerpts from
Interviews and Surveys)
12
Size of Business - Consumer (B to C) Electronic
Commerce Market Current

• The size of the B to C electronic commerce market
  in Japan is currently estimated at about 65
  billion. Broken down by products and services,
  personal computers and related products are
  predominant at 25 billion, followed by travel
  and apparel/accessories.

Breakdown of B to C electronic commerce market by
product/service segment (1998 figures
parentheses ( ) indicate electronic commerce
penetration rate)
(x 100 million)
0
100
200
300
400
500
600
700
Personal computers
250(1.77)
80(0.06)
Travel
14(0.01)
Entertainment
Books/CDs
36(0.14)
5(0.01)
Gifts
73(0.05)
Apparel/accessories
41(0.01)
Food
34(0.03)
Hobbies, sundries, furniture
20(0.03)
Automobiles
57(0.03)
Miscellaneous goods
14(0.02)
Finance
Services
23(0.00)
646(0.02)
Total
13
Forecast of Size of Business - Consumer (B to C)
Electronic Commerce Market in Japan 1

• We forecast the size of the business-consumer (B
  to C) electronic commerce market in Japan to grow
  50-fold over the next five years, reaching 3,160
  billion. At that time, spending on electronic
  commerce transactions (the ratio of electronic
  commerce transactions to the total) will increase
  to nearly 1 of total household consumptive
  spending.

Forecasts of the size of the business-consumer (B
to C) electronic commerce market
Ratio of electronic commerce to total B to C
transactions 2
(x 100 million)
35,000
1.2
31,600
0.97
30,000
1.0
25,000
0.8
20,000
16,200
0.6
15,000
0.51
0.4
8,700
10,000
0.14
0.28
4,300
0.2
5,000
0.06
1,900
0.02
650
0
0.0
1999
2000
2001
2002
2003
1998
1999
2000
2001
2002
2003
1998
1 The forecasts shown in this study are the
neutral case. We also forecast an optimistic
case and a pessimistic case. 2 Ratio of size
of B to C electronic commerce market to total
private-sector consumptive spending (from the
input-output tables).
14
Forecast of Size of Business - Consumer (B to C)
Electronic Commerce Market in Japan By
Product/Service Segment

• Below is a breakdown of the estimated 3,160
  billion Japanese electronic commerce market in
  2003. Note that the largest segment will be
  travel at 910 billion, followed by automobiles
  and personal computers.

Estimated sizes of individual product/service
segments in the B to C electronic commerce market
(Parentheses ( ) indicate ratio of electronic
commerce transactions to total transactions)
(x 100 million)
Total 31,600(1.0)
35,000
Services 2,800(0.2)
30,000
Finance 1,500(1.8)
Other goods 1,600(0.7)
Automobiles 4,900(7.6)
25,000
Hobbies, sundries, furniture 1,200(0.9)
Foods 1,500(0.5)
20,000
Apparel/accessories 1,800(1.0)
Gifts 950(1.6)
15,000
Books/CDs 1,100(3.8)
Entertainment 1,400(0.8)
10,000
Travel 9,100(5.8)
5,000
personal computers 3,700(17.6)
0
1998
1999
2000
2001
2002
2003
15
Forecast of Size of Business - Consumer (B to C)
Electronic Commerce Market in Japan Image for
the travel and automobile sectors

• Our forecasts indicate that the travel and
  automobile sectors can expect large growth.
  Travel products are by nature information-intensiv
  e, and by about 2003 their potential should begin
  to be manifest. For automobiles, more consumers
  will begin negotiating with dealers and making
  purchases from terminals at home and in
  convenience stores.

Travel
Automobiles

• Consumers purchase airline tickets via the
  Internet, with ticket information transmitted to
  the consumer, who then stores the information in
  an IC card that is taken to the airport.
• Consumers will be able to reserve airline tickets
  using their cell phones while they are waiting
  for their trains.

• Consumers can access the web sites of automobile
  manufacturers from their home computers, browsing
  on-line catalogs, or answering questions that
  enable the system to select a recommended model.
• When the consumer finds a model he wishes to
  purchase, he can order it via the web site, or he
  can input a desired date, time, and location for
  a test drive so that a sales person is able to
  make appropriate arrangements.

Airline tickets
Purchase at home

• Terminals located in convenience stores will
  enable consumers to browse the on-line catalogs
  of travel agents. They will also be able to
  search information about recommended spots from
  these terminals.
• As soon as he finds one he likes, the consumer
  reserves the tour from the terminal. The terminal
  then issues the required tickets etc. so that all
  procedures are completed on the spot.

Tours

• Consumers can browse on-line automobile catalogs
  from the multimedia kiosks at convenience stores.
  They can order models or arrange for test drives
  from the terminal as well.

Purchase at convenience stores

• Consumers can search used car information from
  around Japan by registering their mail address,
  desired model, and other purchasing conditions
  with a specialized web site. The site
  automatically contacts the consumer when the
  desired model is found.
• Both purchases and arrangements for test drives
  can be made on-line.

Used car purchases
Rail tickets

• Commuter passes will be in IC card format so that
  applications and renewals can made via the
  Internet. When the consumer inputs the required
  information to the railways web site, data for
  the pass is transmitted and can then be stored in
  an IC card for use as a pass.

16
Forecast of Size of Business - Consumer (B to C)
Electronic Commerce Market in Japan Changes in
Product/Service Segment Make-up

• Personal computers and related products currently
  accounted for about 40 of the total B to C
  electronic commerce market. By 2003, we expect
  travel to emerge at the top with nearly 30. We
  also expect significant increases in market share
  for automobiles and services. These changes will
  reduce some of the bias among segments.

Production/service segment make-up in the B to C
electronic commerce market
1998 (size of market 65 billion)
2003 (size of market 3,160 billion)
Services
Finance
4
2
Other sales
Personal computers
Services
Automobiles
Other sales
Finance
9
9
3
5
5
Personal computers
12
Hobbies, sundries, furniture
39
5
Travel
Automobiles
Foods
6
28
15
Apparel/accessories
Travel
5
11
12
Hobbies, sundries, furniture
Foods
4
Gifts
Entertainment
1
4
Apparel/accessories
Books/CDs
Entertainment
6
6
Books/CDs
2
Gifts
4
3
17
Japan-US Comparisons of Size of Business -
Consumer (B to C) Electronic Commerce Market
General

• Comparisons with the United States of the size of
  the B to C electronic commerce market show the
  Japanese market to currently be about 1/35th the
  US, or roughly 45 years behind it. The gaps will
  close somewhat by 2003, at which time we expect
  the Japanese market to be 1/7 the US, or a
  difference of about 3 years.

Size of B to C electronic commerce market in
Japan and USA
Ratio of B to C electronic commerce transactions
in Japan and USA
(x 100 million)
250,000
3.50
3.2
213,200
USA
3.00
USA
200,000
2.3
2.50
153,600
150,000
2.00
1.7
106,900
1.50
100,000
1.1
Japan
0.97
71,100
1.00
0.7
42,700
0.51
50,000
0.4
31,600
0.28
0.50
22,500
Japan
16,200
0.14
8,700
0.06
4,300
1,900
0.02
650
0
0.00
1998
1999
2000
2001
2002
2003
1998
1999
2000
2001
2002
2003
Private-sector consumptive spending (1 trillion)
Japan
297
301
307
313
320
326
USA
605
618
630
643
656
669
Calculated at US1 120.
Private-sector consumptive spending as
calculated from the input-output tables of Japan
and the United States.
18
Significance of Forecasts B to C

• The United States made the transition into the
  growth phase of the B to C electronic commerce
  market in 1998-1999 in Japan this will not occur
  until 2001 or thereafter. By this time Japan will
  need to have proper infrastructure and content in
  place. If it fails to do so, it will risk a
  slowdown of the B to C market.

Ratio of electronic commerce transactions to
total transactions
3.50
3.2
USA
3.00
2.50
2.00
1.50
0.97
About 3 years
Transition to growth phase
1.00
Japan
0.50
Transition to growth phase
0.00
1998
1999
2000
2002
2003
2001

• The question is how well the conditions are put
  in place by this time. Failure to prepare could
  result in a slowdown

19
Japan-US Comparisons of Size of Business -
Consumer (B to C) Electronic Commerce Market
Current

• Currently personal computers and related products
  account for nearly 40 of the Japanese market,
  while automobiles account for 40 of the US
  market. Another point of difference is the high
  ratio of travel and finance seen in the US market.

Production/service segment make-up in the B to C
electronic commerce market
Japan (Size of market 65 billion)
USA (Size of market 2,250 billion)
Services
Services
Finance
3
4
2
Personal computers
Other sales
9
Finance
Automobiles
Other sales
9
3
Personal computers
2
12
Travel
Hobbies, sundries, furniture
5
16
39
Entertainment
Foods
1
6
Books/CDs
6
Automobiles
Apparel/accessories
Gifts
Travel
3
43
11
2
12
Apparel/accessories
Gifts
Books/CDs
Foods
1
Entertainment
Hobbies, sundries, furniture
1
6
2
2
Calculated at US1 120.
20
Japan-US Comparisons of Size of Business -
Consumer (B to C) Electronic Commerce Market 2003

• In 2003, the relative share of the market
  accounted for by personal computers and related
  products will be declining in Japan, and the
  relative share of automobiles increasing. By
  contrast, in the US, the relative share of
  automobiles will be declining and the relative
  share of apparel/accessories, foods, and other
  more everyday product/service segments increasing.

Production/service segment make-up in the B to C
electronic commerce market
Japan (Size of market 3,160 billion)
USA (Size of market 21,320 billion)
5
Services
Finance
Personal computers
Personal computers
5
Services
Other sales
Finance
9
12
10
5
10
Travel
10
17
Other sales
Travel
Automobiles
Entertainment
28
15
1
6
Automobiles
Books/CDs
Hobbies, sundries, furniture
22
5
6
4
1
Gifts
Foods
Foods
Apparel/accessories
Entertainment
4
8
6
Hobbies, sundries, furniture
Apparel/accessories
Books/CDs
4
Gifts
4
3
Calculated at US1 120.
21
Factors for B to C Market Expansion, as Seen from
the Corporate Survey

• About 70 of responding companies listed reduced
  telecommunications changes as a factor for the
  expansion of the electronic commerce market over
  the next five years. This was followed by
  environmental factors on the consumer side
  expanded Internet usage and spread of personal
  computers to the home.

Factors for electronic commerce market
expansion (Respondents 98 companies, multiple
response)
80
70
60
50
40
30
20
10
0
Reduced telecommunications charges
Expanded Internet usage (by housewives etc.)
Spread of personal computers to the home
Spread of non-PC Internet connections
Alleviation of anxieties over Internet
shopping (privacy, security etc.)
Improvements in the payment system
Expansion in transmission capacity
Improved transmission security (encryption
technology etc.)
Wider variety of products
Evolution of new Internet-based marketing methods
Improved verification systems
Increase in consumer Internet usage time
Easier user interfaces
Advances in user interface technology
More advanced information transmission
technology (video etc.)
Spread of electronic money
Improved credit system
Other factors
Other factors include improved IP content,
competition brought by split up of NTT,
easier-to-use computers, deregulation,
standardization of payment methods, reform of
distribution structures.
22
Background for B to C Forecasts Trends in
Internet Users

• The future can expect to see significant
  improvements in the consumer-side environment. As
  this happens, the absolute number of Internet
  users and the bias in Internet users will no
  longer be impediments to electronic commerce
  transactions. By 2001, Japan expect to have an
  Internet population of 30 million, and user
  demographicsthe percentage of the population
  using the Internet and the ratio of women to
  total userswill be more or less the same as in
  the United States.

Internet users in Japan
Used figures from the Internet White Paper for
1997 only. Figures for 1998 and beyond are from
original AC analyses.
23
Background for B to C Forecasts Internet
Connection Environment

• Personal computers have been slower to spread in
  Japan, but other terminals such as cellular
  phones and game machines are on the increase. In
  the transmission capacity of telecoms
  infrastructure, Japan has been slow to put in
  xDSL and cable television, but if plans to lay an
  optical fiber network (the FTTH 1 plan) go
  according to schedule, there should be no major
  caps.

Comparisons of Internet connection environments
in Japan and the USA 2
Connection terminal
Telecoms infrastructure (transmission capacity
1998
2003
1998
2003
Notes
Notes
? ? ? ?
? ? ?? ?? ?? ?
Japan

• Have not spread as much as in the US

Personal computer Cellular phone Information
terminal Game machine Multimedia kiosk Overall
ISDN xDSL Optical fibers Cable television Mobile
networks Overall
? ? ?
? ? ?? ? ? ??

• More than 10 of the population already has
  service

• Have already begun i-mode service

• FTTH Plan

• Segas DreamCast is able to connect

• Will be installed in convenience store, ATMs,
  train stations etc.

• Will introduce next-generation telecoms
  technologies like W-CDMA

? ? ?
? ?? ?? ? ?? ?
USA

• Already almost 50 household penetration rate

Personal computer Cellular phone Information
terminal Game machine Multimedia kiosk Overall
ISDN xDSL Optical fibers Cable television Mobile
networks Overall
? ? ? ?
? ? ?? ? ? ?

• ADSL has already begun service.

• High penetration rate nationwide

1 Stands for Fiber to the Home. Will use
optical fibers for ordinary subscriber lines. 2
? indicates high penetration rate, x indicates
almost no penetration. Overall grade was assigned
with reference to the weight of each item.
24
Background for B to C Forecasts Factors
Encouraging/Impeding Electronic Commerce
Transactions

• There are still large gaps between Japan and the
  United States, and it is factors on the suppliers
  side that will have a major impact on the
  development of electronic commerce in Japan. In
  our forecast model, we conducted a detailed
  quantification of each factor for each item
  before inputting these factors into the model.

Japan-US gaps and degrees of influence for
encouragement/impediment factors 1
Factors encouraging/impeding B to C electronic
commerce transactions
Large
Factors on the users side
Whether electronic commerce transactions will
bring any new benefits

• Lack of women users
• Shopping styles
• Awareness of security

Line-up, comprehensiveness of products and
services sold
Magnitude of impact on overall development of
electronic commerce transactions
Lack of women users
Awareness of security
Industrial structures, business practices
Absolute number and percentage of venture
companies

• Whether electronic commerce transactions will
  bring any new benefits
• Absolute number and percentage of venture
  companies
• Industrial structures, business practices
• Line-up, comprehensiveness of products and
  services sold

Factors on the store side
Efforts of government
Home connection environments (access speeds)
Internet connection costs
Security
Tenor of public opinion
Development of payment systems

• Internet connection costs
• Home connection environments (access speeds)
• Security
• Development of payment systems

Infrastructure factors
Shopping styles 2 (penetration of catalog
shopping)
Small
Social structure factors

• Tenor of public opinion
• Efforts of government

Gaps between Japan and USA in 2003
Large
Small
Gaps will be particularly large for whether
electronic commerce transactions will bring any
new benefits, line-up, comprehensiveness of
products and services sold, and absolute number
and percentage of venture companies.
1 The closer to the top right of the diagram,
the larger the gaps between Japan and the US and
the more influence a factor has on the
development of electronic commerce transactions
in goods and services. We have eliminated factors
that have little influence on the development of
electronic commerce transactions and for which
there is little difference between Japan and the
US, so there are no items listed in the bottom
left quadrant. This diagram represents an average
evaluation for all goods and services. In the
actual model, we made more detailed evaluations
of factors for specific goods and services
segments. 2 This factor only has a major
influence for apparel and similar goods, so its
influence on the whole is lower.
25
Grouping of Forecasts and New Benefits from
Electronic Commerce Transactions

• We divided B to C goods and services into five
  groups based on our forecasts of the rate of
  electronic commerce penetration and the unit
  prices of the goods and services. Whether
  electronic commerce brings any new benefits
  being the most important encouragement/impediment
  factor, it will be necessary to provide new
  benefits as appropriate for the nature of each
  group.

Group
New benefits from electronic commerce
transactions
Category of goods and services
Improved convenience
Lower prices
Customization
Assembly/ combination products
Durable consumer goods
?
?
High
Assembly/ combination products

• Cheaper than other channels

• One-stop shopping

? ? ? ? ?

• Automobiles
• Personal computers and accessories
• Travel

Unit price of goods and services

• Other items (real estate, consumer electronics
  etc.)

• Can customize based on purchasing history and
  information on interests

• Provides means of searching and comparing, vastly
  wider range of options

• Hard to provide any greater price savings than at
  present

Search-type products
Impulse/ fashion products

• Provides otherwise hard-to-get items,
  cross-selling

• Recommendations tailored to customer tastes will
  be effective to some extent

Search-type products
Daily consumables
Impulse/fashion products
?
?
?

• Financial services
• Books/CDs
• Gifts
• Some foods (luxury foods, specialty foods)

• Can be customized from the perspective of
  life-cycle management

• Entertainment
• Apparel
• Hobbies, sundries, furniture

• Hard to providetoo many retailers in Japan

Durable consumer goods

• Services
• Food (ordinary food)

• Can be customized based on the consumers
  life-style

• Has potential if price benefits are emphasized

Daily consumables
Low
0.51.0
1.5
Less than 0.5
High
Low
Forecast of electronic commerce penetration rate
in 2003
Note The unit prices for goods and services are
conceptual prices based upon representative items
in the category.
26
Efforts in Japan to Enhance B to C Electronic
Commerce Functions

• The web sites of B to C providers are currently
  emphasizing enhancements to basic functions such
  as improvement of user interface and better
  search functions. In the future, they will need
  to move more in the direction of one-to-one
  marketing by customizing how the page looks and
  customizing product and information content.

Enhancements to electronic commerce functions
(Responses 94 companies multiple response)
70
60
50
40
30
20
0
10
80
Easier to use sites
Better product/information search functions
Recommendation of products and services based on
consumer tastes
Improvement in payment security
Customizing product and information content for
the wants and characteristics of the consumer
Introduction of products sold only over the
Internet
Customizing how the page looks according to the
wants and characteristics of the consumer
Improvement in verification security
Formation of community for repeaters
Clarification of relationship with existing
channels, roles to be played by each
Setting of prices that reflect Internet
technology
Improvement in the reliability (speed, certainty)
of shipping services
Current
Future
Display of shipping progress on the site
Other efforts
Other efforts include seeking synergy between
communities and commerce, developing media mix,
creating operations standards, responding to
mail, and developing Internet-based acceptance
systems.
27
Purpose and Scope/Summary of Forecasts Approach
to Estimating the Size of the Market for
Electronic Commerce Size of Business - Consumer
(B to C) Electronic Commerce Market Size of
Business - Business (B to B) Electronic Commerce
Market Comparison with Other Forecasts Conclusion
s Supplementary Materials (Excerpts from
Interviews and Surveys)
28
Size of Business - Business (B to B) Electronic
Commerce Market Current

• The Japanese electronic commerce market was worth
  approximately 8,620 billion in 1998. By
  product/service segment 1, electronic commerce
  has spread most extensively to the electronics
  and information products, and automobiles and
  autoparts segments.

Size of electronic commerce market for specific B
to B product/service segments 2
(x 1 trillion)
0
1
2
3
4
5
6
7
8
9
10
4.3
Electronics and information products
3.3
Automobiles and autoparts
0.01
Chemical products
0
Electric power and gas
0.01
Paper and office products
0.03
Transportation and physical distribution
0.4
Food
Textiles, consumer electronics, consumer goods
0.3
0.01
Construction
0.06
Industrial equipment
0.2
Steel, nonferrous metals, raw materials
8.6
Total
1 For this study, services in the B to B market
include only information processing and allied
services, and transportation and physical
distribution services. Other services (health
care, education, telecommunications etc.) are not
included. 2 For the size of the B to B market,
we count sales values of merchandise by an
industry rather than procurement by an industry.
29
B to B Electronic Commerce Today Electronics and
Information Products/Automobiles and Autoparts

• In the electronics and information products and
  automobiles and autoparts segments, a small
  number of large companies conduct virtually all
  of their procurement over the extra-net. There
  are also many companies that conduct part of
  their procurement over the extra-net.

Electronic commerce in the electronics and
information products and automobiles and
autoparts segments today (figures from 1998)
(x 1 trillion)
5.0

• Company C uses the extra-net to exchange graphic
  data for between 50 and 100 billion in
  procurement.
• Transactions by other medium-sized companies,
  initial efforts by other large companies

Total 4.3 trillion
4.5
4.0
Large Electrical Equipment Company C and others
1.3 trillion
Total 3.3 trillion
3.5

• Transactions by other large parts companies and
  initial efforts by some large automakers

3.0
Large Electrical Equipment Company B 1 trillion
0.9 trillion

• Procures approximately 1 trillion in electronic
  components over the extra-net.

• Stationary Supplier F has about 3.0 billion in
  annual turnover, while Large Brewer G purchases
  approximately 60.0 billion in aluminum can
  materials over the extra-net.
• Transactions by medium-sized companies, and
  initial efforts by other large companies.

2.5
Large Automaker D 2.4 trillion
2.0
Large Electrical Equipment Company A 2 trillion
1.5
Total 1.0 trillion

• Procures approximately 2.4 trillion in autoparts
  over the extra-net

• Procures approximately 2 trillion in electronic
  components over the extra-net.

Others 300 billion
1.0
Large Retailer E About 700 billion

• Uses OBN-based web EDI to negotiate approximately
  700 billion of procurement.

0.5
0
Electronics and information products
Automobiles and autoparts
Others goods and services
30
B to B Electronic Commerce Today Comparisons of
the Chemicals Industries in Japan and the US

• Compared to other countries, the Japanese
  chemicals industry is small in size and has been
  slow to computerize. For example, some large US
  petrochemicals manufacturers conduct about 320
  billion in procurement over the extra-net and are
  actively involved in supply chain management. In
  Japan, by contrast, efforts have just begun on
  the development of standardized EDI formats.

Examples from large US petrochemicals
manufacturers
Examples from large Japanese petrochemicals
manufacturers
Company C (excerpts from interview)
Company A
We use faxes for our procurement because most of
the companies we purchase from are small. For
sales, we use more or less conventional
EDI. Unlike the sundries industry, the
chemicals industry has seen little impetus for
companies to cooperate and standardize EDI.

• Company A has switched about 320 billion from
  its annual total of 1,200 billion in procurement
  to the Internet.
• The company has already introduced ERP and
  integrated its web-based procurement system to
  ERP.

Company B
Company D (excerpts from interview)

• Company B emphasizes value chain management in
  order to maximize profits from its entire supply
  chain.
• The company seeks to maximize its profits by
  giving priority allocation of limited managerial
  resources to those customers that are most
  profitable to it.

We use telephone and fax for our procurement. We
are considering introducing Internet EDI and web
EDI in the future, but at the present time do not
have any plans to do so. Weve been slow to
standardize company codes and telecoms
procedures, and that is why were behind on
introducing electronic commerce transactions and
supply chain management.

• Progress has been made in developing networks
  with suppliers and vendors, and electronic
  commerce transactions are coming into common use.

• The industry has been slow to computerize. Little
  has been done to standardize conventional EDI,
  and use of the Internet is something well in the
  future.

US1 120
31
Forecasts of Size of B to B Electronic Commerce
Market in Japan 1

• The B to B electronic commerce market in Japan
  will expand to 68 trillion over the next five
  years. The ratio of electronic commerce
  transactions to total B to B transactions
  (electronic commerce penetration rate) will rise
  to 11.2.

Size of B to B electronic commerce market
B to B electronic commerce penetration rate 2
(x 1 trillion)
80
12.0
68
70
11.2
10.0
60
8.0
45
50
7.4
40
6.0
29
30
5.0
4.0
19
20
12
3.3
9
2.0
2.2
10
1.5
0
0.0
1998
1999
2000
2001
2002
2003
1998
1999
2000
2001
2002
2003
1 The forecasts shown in this study are the
neutral case. We also forecast an optimistic
case and a pessimistic case. 2 Ratio of size
of B to B electronic commerce market to final
demand plus intermediate demand (from the
input-output tables).
32
Forecasts of Size of B to B Electronic Commerce
Market in Japan Breakdown by Product/Service
Segments

• The B to B market will be worth 68.4 trillion in
  2003. The breakdown by product/service segments
  indicates that the electronics and information
  products and automobiles and autoparts segments
  will account for large percentages of this. The
  construction segment will also see sharp growth.

Size of electronic commerce market broken down by
B to B product/service segments (Figures in
parentheses ( ) indicate the electronic commerce
penetration rate)
(x 1 trillion)
Total 68.4(11.2)
80
Steel, nonferrous metals, raw materials 2.5(3.9)
Industrial equipment 1.1(2.6)
70
Construction 10.5(9.0)
Textiles, consumer electronics, consumer goods
3.3(5.3)
60
Food 4.6(6.3)
Transportation and physical distribution
3.4(12.0)
50
Paper and office supplies1.5(8.0)
Electric power and gas 0.7(2.3)
40
Chemical products 2.2(3.5)
30
Automobiles and autoparts 17.5(39.0)
20
Electronics and information products (41.9)
10
0
1998
1999
2000
2001
2002
2003

• Intense global competition is the impetus for
  large companies in the electronics and
  information products and automobiles and
  autoparts segments to introduce electronic
  commerce transactions.
• Electronic commerce transactions will spread to
  the transportation and physical distribution
  management as part of the spread of supply chain
  management for other industrial sectors.
• In construction, large general contractors will
  introduce electronic commerce transactions as
  part of CALS.

33
Forecasts of Size of B to B Electronic Commerce
Market in Japan Electronic Commerce Penetration
Rates for Individual Product/Service Segments

• The electronic commerce penetration rates for
  individual product/service segments indicate that
  the electronics and information products and
  automobiles and autoparts segments have made some
  progress in developing electronic commerce
  transactions and will continue to see it spread.
  The spread of electronic commerce transactions
  will also accelerate in the construction and
  transportation/physical distribution segments,
  areas where it is still not widely used at
  present.

Electronic commerce penetration rates for
individual product/service segments
0
20
40
60
80
100
9
Electronics and information products
42
8
39
Automobiles and autoparts
2003
0
4
Chemical products
1998
0
Electric power and gas
2
0
8
Paper and office supplies
0
Transportation and physical distribution
12
1
6
Food
1
Textiles, consumer electronics, consumer goods
5
0
9
Construction
0
3
Industrial equipment
0
Steel, nonferrous metals, raw materials
4
2
11
Total
There is a high need for electronic commerce
transactions in construction because of the large
amount of drawings that need to be exchanged and
the large number of smaller-sized companies in
the industry. For transportation and physical
distribution, there will be an acceleration of
distribution EDI standardization as manufacturers
begin to introduce supply chain management. In
both cases, government follow-upfor example,
construction CALS and the Outline of General
Distribution Policywould be effective.
34
Japan-US Comparisons of Size of B to B Electronic
Commerce Market Overall

• A comparison of B to B electronic commerce in
  Japan and the United States shows Japan to be at
  a bit less than half the US size in terms of
  value, which translates into a gap of a little
  more than a year in time. This gap between Japan
  and the US will probably not change appreciably
  by 2003.

Size of Japanese and US B to B electronic
commerce markets
B to B electronic commerce penetration rates in
Japan and US
(x 1 trillion)
180
25
165
160
19.1
USA
20
140
117
120
13.8
USA
15
100
79
11.2
80
9.6
68
10
Japan
60
50
Japan
6.1
45
7.4
40
30
29
5
3.7
5.0
2.5
19
20
20
12
3.3
9
2.2
1.5
0
0
1998
1999
2000
2001
2002
2003
1998
1999
2000
2001
2002
2003
Total B to B sales value (x 1 trillion)
Japan
559
566
578
589
601
613
USA
783
799
815
832
848
865
Computed from final demand plus intermediate
demand as shown in the input-output tables of
Japanese and the United States. Does not include
any services except information services and
transportation and physical distribution services
(for example, does not include health care,
education, or telecommunications services).
US1 120
35
Japan-US Comparisons of Size of B to B Electronic
Commerce Market Current

• In both Japan and the United States, electronic
  commerce transactions have spread farthest in the
  electronics and information products and
  automobiles and autoparts segments. Unlike Japan,
  however, electronic commerce transactions have
  also spread to the electric power and gas and
  chemical products segments in the US.

Electronic commerce penetration rates for
individual B to B product/service segments
1998 USA (19.5 trillion)
1998 Japan (8.6 trillion)
Electronics and information products
Automobiles and autoparts
Chemical products
Electric power and gas
Paper and office supplies
Transportation and physical distribution
Food
Textiles, consumer electronics, consumer goods
Construction
Industrial equipment
Steel, nonferrous metals, raw materials
Total
The gaps between Japan and the US in the chemical
products and electric power and gas segments are
probably due to differences in industrial
structures (differences in regulatory
environments, differences in degree of
competition).
Calculated at US1 120
36
Japan-US Comparisons of Size of B to B Electronic
Commerce Market 2003

• In 2003, both Japan and the US will see large
  growth for the electronics and information
  products and automobiles and autoparts segments,
  but the US will see an acceleration of the flow
  of electronic commerce transactions in the
  chemical products and electric power and gas
  segments as well. In Japan, there will be
  significant progress in developing electronic
  commerce transactions for the construction
  segment.

Electronic commerce penetration rates for
individual B to B product/service segments
2003 USA (165.3 trillion)
2003 Japan (68.3 trillion)
0
10
20
30
40
41.9
39.0
3.5
2.3
8.0
12.0
6.3
5.3
9.0
2.6
3.9
11.2
US1 120
37
Factors for the Expansion of B to B Procurement
Transactions as Seen from the Survey

• In our survey, more than half of all responding
  companies indicated that telecoms costs and
  technology factors (lower telecoms charges and
  improved telecoms security) would be the
  largest factors contributing to an expansion in B
  to B procurement over the next five years.

Factors for expansion in the electronic commerce
market (procurement) (Responses 51 companies
multiple response)
60
50
30
0
40
20
10
Improved telecoms security (encryption technology
etc.)
Lower telecoms charges
Increase in number of companies involved in
Internet procurement
Increased B to B sales efforts by suppliers
Development of electronic verification
systems
Development of electronic payment systems
Increase in number of personal computers
connected to the Internet in supplier offices
Increase in number of production goods and
services available on the Internet
Expansion in telecoms capacity
Progress in technology to integrate host
computers and the Internet
Progress in new Internet-based corporate
marketing methods
Expansion in inter-corporate dealings with
non-keiretsu companies
Efforts to shorting the distribution chain in
the market (bypassing wholesalers etc.)
Spread of conventional EDI to suppliers
Development of credit systems
Progress in user interface technology
Spread of electronic money
Other factors
Other factors include customization and speed
of delivery services (1 company), standardization
of business protocols (1 company), and
elimin