Third-party role to expand rapidly

23 March 2000
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23 March 2000 | David Arminas

A third of all business-to-business e-commerce in Europe will take place through third parties by 2004, according to a specialist securities company.

A report by Durlacher Research forecasts that about 10 per cent - £5 billion - of this year's estimated £48 billion business-to-business e-commerce total will be conducted by commodity or service-specific Internet trading sites. It predicts that these intermediaries will account for 32 per cent - £260 billion - of a total of £775 billion by 2004.

The report, Business-to-business E-commerce: Investment Perspective, also stated that the initial opportunities for online trading communities, or portals, were spot buying (purchasing goods based on market prices, rather than long-term contracts) and strategic sourcing.

Durlacher expects the online buying of business services, such as recruitment and IT, to grow fast, as many intermediaries are looking to enter these areas.

"Most of Europe is at the stage-one development, where sites are content players, but not neccesarily trading," said Sarah Skinner, a European Internet analyst at Durlacher and author of the report. "Stage two is where the site offers buying, trading and communication exchanges."

Small and medium-sized enterprises (SMEs) in particular should be cautious about their choice of trading community if they are buying high-cost items and the number of suppliers is limited, Skinner said. "There will be a lot of casualties and restructuring among intermediaries in the next three years."

A vital factor in a site's success will be the expertise of its managers. "Unlike consumer-to-consumer e-commerce, business-to-business requires a specialist knowledge of the market, its inefficiencies and the major buyers and sellers," Skinner explained.

Market knowledge is essential, agreed John Beeson, formerly head of IT purchasing at Lloyds TSB and now head of supplier relations with business-to-business site GroupTrade, due to go live this summer.

GroupTrade will target and negotiate on behalf of SMEs, typically those that meet the Department of Trade and Industry's definition, with fewer than 250 employees. "We'll be offering advice - not just the cheapest price," Beeson said.

GroupTrade, which will also offer online conferences and utilities buying services, plans to target managing directors of new companies, and financial directors and office managers of older companies, he said.

The company believes that effective use of their site could reduce SMEs' operating costs by between 10 per cent and 25 per cent.

Professor Michael Quayle, Bosch chair in purchasing and supply at the University of Glamorgan, said that SMEs could benefit from e-commerce as a strategic tool, but there are few case studies to go on.

• The report can be downloaded for free at: www.durlacher.co.uk/fr-research-reps.htm

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