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From ships to clicks - regional differences in British electronic commerce - Statistical Data Included

Marcus Austin

In c-commerce, they said, the old-school network wouldn't matter. But Marcus Austin finds you're still better off in South Ken than South Shields

The e-commerce revolution will change the way we work, the way we use our leisure time and our society. Harold Wilson's "white heat of the technological revolution" is finally with us; technology has come of age and is starting to be useful to everyone. Or is it? What most people fail to mention is that, although thee-commerce revolution is based on the World Wide Web, that revolution won't necessarily happen worldwide at the same time. The unfortunate truth is that e-commerce is happening at different rates in different areas of the UK, and this is creating a divided nation. The successful regions are getting more successful, and the poorer regions are getting poorer.

So far, the full force of the "white heat" has concentrated on the southeast and, in particular, it has warmed the cockles of east London. One of the hotbeds of digital design is London's Hoxton Square and the surrounding areas of Shoreditch -- now known as "the digital ditch" -- where rents are now so expensive that fledgling e-commerce companies can no longer afford to get a foothold there. The area even has its own local e-paper, the Hoxton Hub, which describes "the ditch" as one of the e-commerce centres of the world.

Although London might well be classified as one of the e-commerce centres of the world, the story around the UK is very different. "Mapping the e-economy in Britain", a report produced for the government-backed Digital Futures Project last October, included some sobering figures. When the internet recruitment company Boldly-go (www.boldly-go.com) reported on research into the location of dotcom companies in the UK, almost 80 per cent were based in the south-east, with London accounting for almost 60 per cent. Outside London, Silicon Fen (Cambridge) and Silicon Glen (Edinburgh/Glasgow) accounted for just 3 per cent and 4 per cent respectively.

Take a look at the regions in more detail, and the results are even more depressing. Out of the 11 local regions looked at by the report, only London and the south-east reached the European average for economic prosperity measured by GDP per capita. However, there is good news: the speed of take-up by those regions is increasing dramatically. Scotland is fast catching up with the south-east and, if it carries on at the current rate, could soon be on par with London. Wales is one of the least performing areas; it is the only region to fall below the 70 per cent connectivity figure hit by the other regions. "Mapping the e-economy" also points out that the developers of 39 houses in Crickhowell, Powys, designed to become a sustainable telecommuting community centred on the internet, had to call in the liquidators in October, with a third of the houses remaining unsold.

When we look at e-commerce, we shouldn't forget that the market is still very small. Business-to-business (B2B) is the largest sector -- and accounts for between 70 and 85 per cent of all electronic sales -- with business-to-consumer (B2C) trailing a long way behind. In the US, where most internet transactions take place, sales in the final quarter of 1999 were equivalent to about 0.6 per cent of retail sales. In Europe, overall B2C penetration is just 0.2 per cent of retail sales, although in some countries, including Sweden, the Netherlands and the UK, it is similar to the US rate. However, not included in these statistics are offline sales where the internet has been used for price comparisons and has influenced purchases. These figures can be especially important for expensive items such as cars or houses.

New-boy network?

The first w in www stands for world, but what a small world it describes. The web was supposed to let someone in South Shields have as much chance of gaining a foothold as someone in South Kensington. And, in the early years, this was true. The famous cartoon of two dogs sitting at a computer, with the caption "On the net, nobody knows you're a dog", did, and still does, to an extent reflect reality. But as bigger businesses, particularly the corporate giants, enter the web, the cost of entry is rising exponentially. To compete, you now need more than just a website; you also need a multimillion-pound promotional budget and a PR company to get your name shouted above the rest of the din. Suddenly, it becomes obvious that you are not only a dog, but a dog of unknown parentage. To compete, you need finance, and the only way to raise the sort of capital required to build and get a start on the net -- which could be as much as [pound]100m--is to go to the City and head for a stock-market flotation. In this respect, the new economy is starting to look and sound suspiciously like the old economy.

To prove how old-school the internet is, look no further than clickmango. In 2000, Toby Rowland -- the son of Tiny -- took just eight days to raise [pound]3m for his fledgling health products e-tail company. His personal network and his closeness to the City worked in his favour. A dotcom entrepreneur was quoted in the Daily Telegraph last September as saying: "If venture capitalists can't drive to it, they don't invest in it. Start-ups go where investors are. That's why there is this concentration in London."

Fast access?

But is it really just a matter of closeness to money that is holding the regions back? Sam Paltridge, a communications analyst in the division of information, computer and communications policy at the Organisation for Economic Co-operation and Development, believes that the take-up of e-commerce is linked to telecoms pricing and availability. "The price of access to the internet and the structure of this pricing are key factors in explaining the relative development of electronic commerce." According to Jonathan Coppel, in his June 2000 OECD paper "E-commerce: impacts and policy challenges": "Investment in information and communications technologies has risen strongly in virtually all OECD countries, and is believed to be one of the main drivers under-pinning the remarkable performance of the US economy."

To do serious e-commerce, a company needs to have a fast, always-on dedicated internet connection and, until recently, the only way of doing this was via a leased line. Unfortunately, leased lines are expensive and pretty much limited to London and the main metropolitan areas. Leased lines are cheapest in the capital because of their proximity to the main international internet centres such as Telehouse in London's Docklands. A quick check through the price lists of some of the internet hosting companies shows a distinct London bias.

A cheaper alternative to leased lines is the fast internet access service ADSL (asymmetric digital subscriber line), which BT is currently rolling out across the UK. But, once again, it is starting in the south-east and only gradually spreading to the major cities and then to the rest of the country. But because of the way ADSL works, there are parts of the UK that will never be able to take advantage of this technology.

Government policy

The 1998 competitiveness white paper contained a government commitment "to make the UK the best environment in the world for e-commerce". The government set itself the target of ensuring that 1.5 million businesses are wired to the digital market place by 2002. With 1.7 million businesses connected -- 600,000 of those last year -- the target has already been exceeded. Of those connected, 110,000 are in Scotland, which performs consistently well in the more sophisticated e-commerce applications, with 29 per cent of Scottish businesses trading online compared with 27 per cent across the UK as a whole.

Regional policy

Regionally, the main impetus to get into e-commerce seems to come either from local business entrepreneurs or as an offshoot of a local university or via a local development agency. In Wales, the e-Commerce Innovation Centre at Cardiff University hosts the Wirecom e-commerce project, funded by the European Commission's Interreg programme and run in conjunction with partners in west Wales and south-east Ireland. In the north-east of England, the Centre for Electronic Commerce at the University of Sunderland held the "Ships to Clicks 2000" exhibition to bring together businesses and e-business solution providers. Also in the north-east, the Bridge Club, whose mission statement includes the aim "to champion, foster and accelerate entrepreneurship", sets up meetings between dotcom entrepreneurs and funding organisations to encourage the mixing of ideas and money. In Scotland, the Scottish Enterprise Network (scottish-enterprise.com) researches, organises and develops e-commerce companies.

However, there are signs that the digital divide is a short-term trend. For the consumer, the cocktail of wireless internet access and payment cards is enabling the credit-card-challenged to get access to the internet and to buy online. For businesses, the declining cost of the enabling technology, the improved usability of much of the software and the drop in telecoms costs have meant that e-commerce is within the reach of even the smallest shop. But if the education system continues to fail to teach internet basics, and the government fails to reward entrepreneurial spirit, then we may be heading for a digital canyon, rather than a digital ditch.

Marcus Austin is the editor of Business 2.0 magazine

                 DTI BUSINESS IN THE INFORMATION AGE 2000
                     Connectivity indicator 1999-2000
                       1999 2000
East Midlands          54%  76%
East of England        58%  78%
London                 74%  88%
Northern Ireland       43%  75%
North East             51%  74%
North West             59%  75%
South East             62%  84%
South West             53%  74%
Wales                  48%  69%
West Midlands          65%  83%
Yorkshire & Humberside 54%  76%
Scotland               54%  76%
The proportion of businesses getting has gone up substantially in all
regions. NI has performed most strongly with an increase of 74% only
Wales has a connectivity figure below 70%
                     BUSINESS IN THE UK TRADING ONLINE
Online trading data
Wales                    22%
Scotland                 27%
N Ireland                23%
North East               23%
North West               24%
Greater London           33%
Yorkshire and Humberside 30%
East Midlands            24%
West Midlands            23%
East of England          28%
South East               27%
South West               24%
Wales has the smallest proportion of the businesses trading online,
at 22%, whereas the proportion in London in 50% higher, at 33%

COPYRIGHT 2001 New Statesman, Ltd.
COPYRIGHT 2001 Gale Group





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