In his Budget last month, Chancellor Gordon Brown confirmed that electronic commerce was one of the main planks of the government’s “knowledge-driven” economic policy. Tax cuts and public investment will be targeted “to equip all our companies and all our people for the newest and most decisive economic challenge of the 21st century – mastering information technologies from the PC to the Internet, from e-mail to e-commerce. This industry is the great driver of world economic growth today,” the Chancellor intoned during his speech. Like so many New Labour policies, this one was long on rhetoric, but short on practical details. The government is obviously keen to grapple with the profound shift that is currently taking place in commercial relations, and it wants UK plc to be at the forefront of world e-commerce, but it is finding it hard to make a relevant contribution aside from the tax breaks mentioned and by throwing hardware at the population in the shape of a £1.7bn in a “computers for all” initiative. It seems fitting that these policies were announced in the Victorian edifice at Westminster. Legislators attempting to keep pace with a UK market projected to be worth £350m by 2002 are akin to policemen attempting to shepherd motorway traffic on horseback. When he was appointed at the beginning of the year, technology minister Michael Wills proclaimed his credentials for the post by explaining that he bought books and records on-line. Anyone else who has done so will understand intuitively the convenience and commercial potential of choosing a product from an on-line catalogue and placing an order by typing in address and credit card details. But he or she will probably also be aware that delivery times can range from one to six weeks. Nevertheless, the World Wide Web represents a global marketplace in which transaction volumes are expanding at 8% a month, according to consultant Robin Bloor. The Web’s convenience and growth rate are the obvious advantages for on-line consumers. The speed of communication and ability to transact across international time zones are even more useful for business-to-business traders, which can increase their access to new clients and raw material sources while simultaneously reducing their transactional costs. Sales costs can also be greatly reduced because on-line buyers are happy to do their own research and comparisons. They will even do that most tedious task – data entry – for you, and much more accurately than any sales clerk, too. The Web has already spawned a host of new consumer services and knowledge industries, ranging from pornography merchants, on-line casinos and Bahamas-based investment scams, to information brokerages, recruitment agencies and pay-as-you-use application software sites. For manufacturing and retail industries, integrating Web catalogues with inventory and even production systems promises the chance to create make-to-order and design-your-own business models. Regular trading partners can automate their purchasing and approval procedures for further efficiencies, while more with-it accounting software developers offer programs that will plop all the transactions straight into the appropriate ledgers. From the financial management point of view, it is already possible to monitor the on-line business in real time from a wide variety of statistical vantage points. “A Web-based version of your company will use the Internet to be faster and cheaper,” warns Bloor. “When that company takes off, if you are not participating at that time, then you are too late. You have one chance – if you miss it, you will be dead in the water.” The Web is having the biggest impact on distribution, where it is compressing supply chains. “Supplies move straight from the supplier to the store,” he says. “What you should be doing is Web-enabling everything your organisation does – the payback will be 3-1, 10-1, even 100-1.” While the legislators canter along and debate laws to protect on-line consumers, business-to-business vendors are racing ahead. Networking equipment supplier Cisco is reputed to have done $3bn on-line last year, saving itself $500,000 in the process. Just days before the Budget statement, trade secretary Stephen Byers followed up Peter Mandelson’s 1998 competitiveness white paper with an e-commerce consultation document of his own. Building Confidence in Electronic Commerce is intended to lay the foundation for a bill that was announced in January’s Queen’s Speech. The bill’s main planks will be a voluntary licensing scheme for on-line traders and the legal recognition of electronic signatures. The most controversial proposal, a scheme to administer the use of encryption keys, was bitterly opposed by Internet service providers and digital activists. Apart from privacy concerns – the government was proposing a key escrow store, which would have granted it access to individuals’ personal decrypting codes – on-line operators said it would have added to their costs and hindered the development of electronic commerce in the UK. In spite of home secretary Jack Straw’s concerns about drug traffickers, terrorists and paedophiles using encryption technology, the government dropped key escrow from the e-commerce bill. “Encryption is the buzz word, but the attention focused on encryption and key escrow is missing the real issues,” says Garry Bulmer, chief technology officer at software consultancy Parallax Solutions. “The government has already sampled the potential threat posed by e-commerce in the difficulty of how to charge VAT on goods purchased overseas via the Internet. This problem is just the tip of the iceberg. The government needs to be considering what role it will play in the world of electronic business.” Bulmer supports the government’s moves to establish a digital certification and signature infrastructure, but he would also like to see a fast, cheap, national communications network set up in this country. It is a view that gains support from other on-line pioneers. “Introducing free local phone calls – like they have in the US – would have far more impact on e-commerce than any law,” says David Pinches, marketing director of Gateshead-based QSP, which has set up NetConsulting, a subsidiary specifically aimed at helping companies implement Web-based financial processes. Pinches points out that in spite of the threat from hackers and terrorists, the risks of quoting your credit card details over the Internet are essentially the same as giving the information over the phone. But as one software vendor lamented at the recent Softworld Accountancy and Finance trade show in London, “Everybody’s talking about e-commerce, but no one is buying it.” KPMG’s 1998 European e-commerce survey found that just 10% of companies in the £100m-£200m turnover bracket made more than 1% of their turnover from on-line deals. These “pioneers” were realising the efficiencies of electronic commerce and stood to gain from a trillion-pound sales explosion that was likely in the next five years. Thanks to the US influence, managers in the UK are less cautious about e-commerce than their European counterparts. But according to KPMG electronic commerce group manager Bill Hutchison, the starting level for serious on-line commerce is close to £500,000. In spite of the potential gains, many companies are still reluctant to risk such sums. Decisions about risking such high stakes, or the commercial impact of missing out on what could be even bigger returns, are not usually left to politicians. The companies that will succeed in the emerging digital marketplace are already formulating their strategies, not waiting for their subsidy cheques. John Stokdyk is IT editor at Accountancy Age. ACCOUNTANTS OFFER THEIR ASSURANCE ON-LINE Demand for some kind of assurance that personal information will not be misused and that buyers are dealing with legitimate suppliers has attracted the interest of the accountancy profession. Even though the market is currently unregulated, there is considerable jockeying for position. Like its Big Five rivals, PricewaterhouseCoopers has established an e-commerce practice. PwC signed one of its first major commercial contracts with the European Commission in January. After a one-year pilot, PwC will partner two on-line organisations, Globalsign and Baltimore, to act as a trusted third party to hold the digital signatures of grant applicants who submit their proposals via the EC’s website. Payment will be based on the number of digital certificates issued and could reach several million euros. By getting its foot in the door in Brussels, PwC hopes the contract will be an important step towards becoming a certification service provider for wider electronic commerce transactions. KPMG, too, is considering setting up a trusted third-party service, according to Paul Barker, head of the firm’s electronic commerce practice. “But it’s early days and the risks and liabilities aren’t clear,” says Baker. Though KPMG is leaving the field open to PwC for the moment, he comments that potential rivals, such as banks and telecom companies, cannot match the Big Five for global credibility. If an initiative supported by the US, Canadian and British accountancy bodies is successful, even local sole practitioners could provide assurance. This month, the English and Welsh, Scots and Irish chartered accountancy institutes joined forces to bring WebTrust across the Atlantic. Around 35 accountancy firms, including KPMG and PwC, supported the initiative, which will accredit firms to grant WebTrust certificates to on-line sites. The scheme will involve a few days training in how to audit the security procedures, business viability and order/delivery procedures of Web suppliers. However, WebTrust has not been a spectacular success in the US, and some observers have questioned whether the initiative has adequately addressed training and liability issues. “If something goes wrong, will I be able to get my cash back?” asked Jonathan Fowler, a director of information security specialist JCP. Right now, the answer seems to be, “not likely”.
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