The world has jettisoned one ugly abbreviation – Y2K, the year 2000 computer bug that proved to be far less of a threat than feared – only to embrace another equally numbing formula. This is B2B, meaning ‘business-to-business transactions conducted on the internet’. However, this particular abbreviation looks set to be with us for much longer than the ephemeral symbol for millennial computer bug worries.

According to some estimates, the value of worldwide internet transactions – or e-commerce – is set to rise almost tenfold in the next few years, to around $1 trillion. As much as three-quarters of this growth is expected to come from business-to-business revenues. Other forecasts put B2B turnover at twice that by 2004.

Such predictions have been reinforced by the February announcement that Sears of the US and Carrefour of France, two of the world’s largest retailers, are setting up Global netXchange, which will enable them to purchase online much of their combined $80 billion in annual goods and services, from 50,000 suppliers. The exchange will be open to all retailers – a $5 trillion global market. This news followed hard on the heels of the formation of a large-scale online procurement exchange for the motor industry, led by Ford, General Motors and DaimlerChrysler.

Melvyn Westlake,
editor-in-chief

So far Europe has lagged behind the US in e-commerce. As much as 80% of global e-commerce is accounted for by the US, while western Europe (chiefly the UK and the Nordic countries) is reckoned to represent 10% and Asia 5%. But Europe is starting to catch up, with the US share of the total internet business likely to shrink to perhaps two-thirds quite quickly.
The importance of e-commerce extends beyond the greater efficiency and convenience that it brings to business and retail transactions, and the concomitant cost savings and lower prices. Some economists argue that it is also a major contributor to the “new economy” or “new paradigm” in the US. These phrases refer to the improvement in productivity and economic growth brought about by the computer and the information technology revolution.

But the extent to which this technological change has increased productivity and growth (or even whether anything like a “new paradigm” exists at all) remains a controversial question. In particular, it is difficult to isolate the impact of information technology on the US economy. Other important factors include the deregulation of key industries, especially financial services, as well as structural changes in the labour market and production efficiencies caused by globalisation.Anyway, innovation and improving technology have been essential parts of economic growth for two hundred years. So, the question is: will the spread of information technology and internet commerce have a significantly bigger economic impact than might be expected from the normal and continuous process of technological advance.

Economists at investment bank Goldman Sachs, who have made a heroic attempt to measure the impact of B2B, say the answer is “yes”. They conclude that it will boost annual growth in the five leading industrialised countries (the US, Japan, UK, Germany and France) by 0.25% on average during the next ten years. Eventually, the level of GDP could be almost 5% higher than it would otherwise have been, on average.
The Goldman economists believe B2B transactions will take off faster in Europe and Japan than usually predicted. The evidence is that technological advances spread very rapidly. If so, this could prove another powerful contributor to what some economists are already calling the “new European economy”.

Melvyn Westlake, editor-in-chief