market size study for electronic commerce

Market Size Study for ElectronicCommerce

An Estimate of the amount for Internet

Electronic Commerce in Japan

Ministry of International Trade and Industry

Andersen Consulting

June 17,1999

Ministry of International Trade and Industry

1

Objectives and scope of the study

Coverage:

� Transaction amount generated by electronic commerce in Japan,

� By categories of products and services in both business toconsumer (B to C) and business to business (B to B) electroniccommerce

Forecast range:

� 1998a2003 (next five years)

� To estimate the current market size of electronic commerce inJapan

� To Estimate the future market size of electronic commerce inJapan

� To compare Japanese market size with US market size.

� To develop basic estimation model

Objectives

Scope

2

Definition of Electronic Commerce in This Study

Definition

Commercial transactions (that is exchange of merchandise, services, information, and/or

money between suppliers and receivers for the commercial transfer of goods/services

between economic actors

Through electronic mediation using Internet technology *

* “ Internet technology” refers to the use of TCP/IP protocol whetherthe network circuits are on public lines, dedicated IP networks,Internet VPNs, satellite circuits, or other similar media.

3

Scope of media for electronic commerce in this study

Public Internet ExtranetOn-line service

Satellite Broad casting

Media to be used for EC

• Include Web and non-Web•Include satellite Internet services, internetmenu on on-line service

• Include EDI over Internet/Extranet

Scope of this study

Conventional VAN

( EDI)

Satellite communication( non-TCP/IP)

4

After ordering

Procurement activities

• Access information• Search for and selectproducts

• Confirm estimates• Negotiate prices and termsetc.

• Finalize specifications• Finalize (customize) contentof orderetc.

• Provide information• Promote sales• Provide estimates• Negotiate prices and�termsetc.

• Issue purchasing order/contract• Indicate specifications andquantities ordered Processordering and contractinginvoices

• Proceed settlementetc.

• Arrange delivery conditionsetc.

• Process delivery andinspection invoices

• Settle etc.

• Finalize specifications(discuss specifications andexchange drawings)

etc.

• Issue orderacceptance/contract

• Ask for payment• Process order-booking andcontracting invoicesetc.

• Finalize delivery conditions• Transport goods and servicesto the purchaser (physically orelectronic)

• Process delivery andinspection invoices

• Receive payment (whenseparate from orderacceptance)��etc.

Development/design activities

Sales/marketing activities

At the time of orderingPrior to ordering

Scope of activities included in electronic commerce in this study

5

Flow of Goods/services and money in electronic commerce

Seller Mediator Purchaser(procuringcompany,consumer)

Advertising fee

System serviceprovider, Telecoms

carrier

Payment/verificationservice provider

Advertisingservice provider

Mediation fee

Payment fee Credit/verification fee

Physicaldistribution

service

Sale and supply of goods and services

Sale and supply of goods and services

Price of goods or service,mediation fee, service fee,membership fee, subscription fee,price of digital content

Transportation fee

Values not included in size of marketestimates in this study

Flow of money in the electronic commerce(values counted towards size of market)

Transportation fee

System constructionand management fee Telecoms charges

Systemconstruction andmanagement feeTelecomscharges

6

Analyze US forecasts

Analyzedrivers/barriers

Estimate market size by fact base

Computation of sizeof market forecast

Calibrate and fine tune parameters

- Determine a basic model structure and select parameters/

- Analyze and compensate forecasts for electronic commerce in theUS, considering current US situations and differences in definition.

- Select drivers/barriers and analyze them in the view point of thedifferences between Japan and the US for each drivers/barriers .

- Add up current and future market size related variables directly,using results of questionnaire surveys, interviews and publishedinformation.

- Adjust parameters with reference to findings for current size ofmarket and fine-tune parameters with references to futureprojection by fact base.

Description

Identify model parameters

Determine basic model structuresand model parameters

- Identify parameters using integrated US forecast and comparativeanalysis of drivers/barriers.

- Plug estimates for each parameter into the model to compute asize of market forecast.

Step

Method of Approach

7

Outline of estimation model

B to C

Input data/information

Population

Percentage Internet users

Ratio of eC users

to internet

users

US forecasts

Comparative coefficientsJapan /US

Per capita spending

î

î

î�

Ratio of eC

spending to total

spending

US forecasts

Comparativecoefficients Japan/US

î�

î

î

• Macro statistical data (based onJapanese demographic estimates)

• Interview/survey findings

• Relevant data andinformation

Existing US forecasts• Relevant data and

information

• Interview/survey findings• Relevant data and

information fordrivers/barriers

• Existing US forecasts

• Relevant data andinformation

• Interview/survey findings• Relevant data and

information

• Macro statistical data (based oninput-output tables)

B to B

Ratio of eC

to totaltransactions

US forecasts

Comparative coefficientsJapan/ US

î�

î

• Macro statistical data (based oninput-output tables)

Total sales

Market size

�

analysis

analysis

analysis

Input data/informationmarket size

�

analysis

analysis

analysis

analysis

• Interview/questionnaire survey inJapan

• Existing eCforecasts in the US

• Interview/questionnaire survey inJapan

• Relevant data andinfomationregardingdrivers/barriers inJapan and the US

8

StatisticalData

qualitativeinformation

Evaluation by analyst

USSituation

Outline of estimation model (continued)US/JP

Gap indicatoron each drivers

through segment(0~1~)

Normalizedweighting

for each driversby segment

(0~1)

ComparativeCoefficientby segment

Gap indicatorcompensation

by segment(~0~)

Japanforecast

Drivers/Barriers

…

…

6

Japan

Situation

StatisticalData

Qualitativeinformation

Evaluation by analyst

…

+

×

+

×

+

×

+

×

+

×…

…

USforecast

×

Japan forecastby segment

Driver/barriers # 1

Calculated by segment

Driver/barriers # 2

Driver/barriers # 4

Driver/barriers # 3

Driver/barriers # x

…

9

Socialstructures

Infrastructure development

IT penetration

Industrialstructure

• Standardization• Strength of group/keiretsuties

• Extent of efforts to reformbusiness and industrialstructures

• Spread of supply chainmanagement

• Corporatecomputerization

–PC installation rate–LAN installation rate–EDI installation rate–ERP installation rate–Internet use rate–Investment in

computerization

• Telecomsinfrastructure

–Telecoms costs–Telecoms

capacity–Telecoms quality

• Social infrastructure–Security–Development of

verification systems–Compatibility of

hardware andsoftware

• Regulatoryenvironment

–Statutoryregulations

–Deregulation–Budget

allocations–Tax incentives

• Governmentleadership

–Formulation ofvision statement

–Incentives forindustrystandardization

–Computerizationof government

* 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 electroniccommerce transactions in goods and services. This diagram represents an average evaluation for all goods and services. In the actual model, we made more detailedevaluations of factors for specific goods and services segments.

B to B electronic commerce Drivers/Barriers

10

Gaps between Japan and the United States in 2003

Larg

e

Standardization

Strength ofgroup/keiretsuties Corporate computerization

Telecoms infrastructureSocial infrastructure

Regulatory environment

Government leadership

* 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 thedevelopment of electronic commerce transactions in goods and services. This diagram represents an average evaluation for all goodsand services. In the actual model, we made more detailed evaluations of factors by specific goods and services segments.

Extent of efforts toreform business andindustrial structures Spread supply chain

management

Drivers/Barriers : Gaps in Japan and the US and degrees ofinfluence

Nor

mal

ized

wei

ght

=D

egre

e of

influ

ence

on

elec

tron

ic c

omm

erce

pro

mot

ion

thro

ugh

segm

ents

Sm

all

Small Large

Most important factors will be: “extentof efforts to reform business andindustrial structures” and “spread ofsupply chain management.”

11

Summary of Forecasts of Electronic Commerce in Japan andUS

�-�

�-�

��

�65 billion ��.��

�

� 8,620 billion

��.��

��

� 3,160 billion

��

� 68,000 billion

��.��

��

� 2,250 billion

��.��

�19,500 billion

��.��

��

� 21,300 billion

��.��

� 165,300 billion

��.��

� 1) US$1 = "120� Numbers in parentheses ( ) indicate percentage of commercial transactions conducted electronically.

Comparison of scale of electronic commerce in Japan and USA

Japan ��USA

12

Amount and penetration rates of Business to Consumer (B to C)Electronic Commerce in Japan and US

0

50,000

100,000

150,000

200,000

250,000

1998 1999 2000 2001 2002 2003

Amount of B to C electronic commercein Japan and US

0.00%

0.50%

1.00%

1.50%

2.00%

2.50%

3.00%

3.50%

1998 1999 2000 2001 2002 2003

Penetration Rates of B to C electroniccommerce in Japan and US

650 1,900 4,300 8,70016,200

31,60022,500

42,700

71,100

106,900

153,600

213,200

0.02% 0.06% 0.14%0.28%

0.51%

0.97%

0.4%

0.7%

1.1%

1.7%

2.3%

3.2%

Japan

USA

Japan

USA

* Calculated at US$1 = ¥120.

Private-sector

consumptive

spending* (¥1trillion)

Japan

(x ¥100 million)

USA

297 301 307 313 320 326

605 618 630 643 656 669

* Private-sector consumptive spending as calculated from the input-output tables of Japan and the United States.

13

Amount and penetration rates of B to B Electronic Commerce inJapan and US

* US$1 = ¥120

Amount of Japanese and USB to B electronic commerce

B to B electronic commercepenetration rates in Japan and US

0%

5%

10%

15%

20%

25%

1998 1999 2000 2001 2002 2003

Japan

USA

1.5% 2.2%3.3%

5.0%

7.4%

11.2%

2.5%3.7%

6.1%

9.6%

13.8%

19.1%

0

20

40

60

80

100

120

140

160

180

1998 1999 2000 2001 2002 2003

Japan

USA

9 1219

29

45

68

2030

50

79

117

165

(x ¥1 trillion)

Total B to Bsales value

(x ¥1trillion)*

Japan

USA

559 566 578 589 601 613

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 includeany services except information services and transportation and physical distribution services (for example, does not include health care,education, or telecommunications services).

14

Amount of Business to Business (B to B) Electronic Commerceby segment

0 1 2 3 4 5 6 7 8 9 10

Electronics and information products

Automobiles and autoparts

Chemical products

Utilities

Paper and office products

Transportation and physical distribution

Food

Textiles, consumer electronics, consumergoods

Construction

Industrial equipment

Steel, nonferrous metals, raw materials

Total

(x ¥1 trillion)

amount of electronic commerce by specific B to B product/service segments * 2

4.3

3.3

0.01

0

0.01

0.03

0.4

0.3

0.01

0.06

0.2

8.6

* 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.

15

Amount of B to B Electronic Commerce in Japan: Breakdown byProduct/Service Segments

Electronics and information products �41.9��

Automobiles and autoparts 17.5�39.0��

Chemical products 2.2�3.5��

Utilities 0.7�2.3��

Paper and office supplies1.5�8.0��

Transportation and physicaldistribution 3.4�12.0��

Food 4.6�6.3��

Textiles, consumer electronics,consumer goods 3.3�5.3��

Construction 10.5�9.0��

Industrial equipment 1.1�2.6��

Total 68.4�11.2��

• 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.

Steel, nonferrous metals, rawmaterials 2.5�3.9��

0

10

20

30

40

50

60

70

80

1998 1999 2000 2001 2002 2003

Amount of electronic commerce broken down by B to Bproduct/service segments

(Figures in parentheses ( ) indicate the electronic commerce penetration rate)

(x ¥1 trillion)

16

Penetration rates of B to B Electronic Commerce Market in Japan:by Product/Service Segments

Electronic commerce penetration rates for individual product/service segments

Steel, nonferrous metals,raw materials

9%

8%

��

��

0%

1%

1%

��

0%

0%

2%

42%

39%

4%

8%

12%

6%

5%

9%

3%

4%

11%

0% 20% 40% 60% 80% 100%

Electronics andinformation products


Chemical products

Utilities

Paper and office supplies

Transportation andphysical distribution

FoodTextiles, consumer

electronics, consumer goods

Construction


Total

2003

1998

There is a high need for electronic commerce transactions in construction because of the large amount of drawings that need tobe 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-up—for example, construction CALS and the Outline of General Distribution Policy—would beeffective.

2%��

17

Current Penetration rates of B to B Electronic Commerce bySegments in Japan and US

9.5%

8.0%

0%

0%

0.1%

0.1%

0.6%

0.5%

0%

0.2%

0.4%

1.5%

0% 5% 10%Electronics and

information products


Chemical products

Utilities



Food

Textiles, consumerelectronics, consumer goods

Construction



Total

The gaps between Japan and the US in the chemical products and electric power and gas segments areprobably due to differences in industrial structures (differences in regulatory environments, differences in degreeof competition).

11.3%

10.5%

1.1%

2.5%

0.9%

0.5%

0.6%

0.6%

0.1%

0.2%

0.5%

2.5%

0% 5% 10%

Electronic commerce penetration rates for individualB to B product/service segments

* Calculated at US$1 = ¥120



Chemical products

Utilities



Food

Textiles, consumer electronics,consumer goods

Construction



Total

1998 Japan (¥8.6 trillion) 1998 USA (¥19.5 trillion)

18

2003 Penetration rates of B to B Electronic Commerce bySegments in Japan and US

* US$1 = ¥120

54.0%

41.1%

28.7%

38.8%

29.1%

16.5%

7.4%

6.9%

2.8%

3.6%

3.9%

19.1%

0% 10% 20% 30% 40% 50% 60%

41.9%

39.0%

3.5%

2.3%

8.0%

12.0%

6.3%

5.3%

9.0%

2.6%

3.9%

11.2%

0% 10% 20% 30% 40%Electronics and

information products


Chemical products

Utilities



Food


Construction



Total



Chemical products

Utilities



Food


Construction



Total

Electronic commerce penetration rates for individualB to B product/service segments

2003 Japan (¥68.3 trillion) 2003 USA (¥165.3 trillion)

19

Grouping of B to B Electronic Commerce Segments

Note: The degree of standardization for goods and services is a conceptual degree based upon representative items in the category.

Category of goods and services

��Commodities Global assemblyproductsUtilities�Electronics and

information products�Steel, nonferrous

metals, rawmaterials �Automobiles and

autoparts��Chemical products

��Domesticmarket products

Paper and office suppliesTransportation and physicaldistributionTextiles, consumer electronics,consumer goods�FoodConstruction

��

��Custom-builtproducts

��Industrial equipment

��Services�

High

Low

Deg

ree

of s

tand

ardi

zatio

n of

goo

ds a

nd s

ervi

ces

Low HighLess than 5% 5�15� 15��

�

Forecast electronic commerce penetration rate in 2003

20

Conclusions

� The B to B electronic commerce market in Japan is currently worth about ¥8.6 trillion;electronic commerce has spread much farther in this market than in the B to C market.The gaps with the US are surprisingly small here: by value, it is about half the US’s size,and about 1 year behind.

� In 2003, the Japanese B to B electronic commerce market will expand about 8-fold toaround ¥68 trillion. The gaps with the US will be at about the same levels as currentlyseen.

� However, there will be differences in the product segments for which electroniccommerce spreads due to differences in the industrial structures of Japan and the US.

� In the future, Japan will need to be concerned with the quality of electronic commerceactivities rather than just the size of the transactions involved. Electronic commercetransactions should be used in a variety of settings—for example, expansion to smallercompanies and integration of transaction infrastructure—to provide impetus to efforts toreform business and industrial structures.

market size study for electronic commerce

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