Electronic Commerce, 2008

Defining the Electronic Commerce “Sector”

Electronic Commerce (e-commerce) is global in scope and is deployed in virtually all industry sectors. There are several sub-categories of e-commerce: business-to-consumer (B2C), business-to-business by manufacturers and merchant wholesalers (B2B), government-to-consumer (G2C), and government-to-business (G2B) types of activities. G2C and G2B, or e-government, focuses on delivering citizen-centric services via the Internet that enable the population to file income tax returns, renew automobile registrations, submit a request for a passport, and access and comment on proposed regulations that could affect their lives. For statistical purposes, the U.S. Census Bureau defines e-commerce as the value of goods and services sold online whether over open networks, such as the Internet, or over proprietary networks running systems, such as electronic data interchange (EDI).

E-commerce is widely viewed as having the potential to be a major economic force in driving growth for developed as well as developing countries. Its interrelationship with IT hardware, software, IT and telecom-related services, and the Internet is enabling small and medium-sized enterprises (SMEs) to engage in worldwide marketing and expand their outlook beyond their nations.

U.S. Market Overview

The United States has more than 215,088,545 internet users as of November 2007, which amounts to a 71% penetration rate, according to the Nielsen NetRatings. This is an increase of two percentage points from 2006. In addition, the number of broadband internet users in the United States is expected to surpass 100 million by the end of 2008.

The Census Bureau estimates that total e-commerce sales in 2007 were $127.2 billion, an increase of 17% from 2006. E-commerce sales accounted for 3.2% of total retail sales in 2007, rising from 2.8% in 2006. eMarketer continues to estimate that retail e-commerce sales will increase an average of 18.6% in 2008 and 2009. That is strong growth, but is still down from the annual growth rate of 20.6% experienced between 2001 and 2005. This is not a cause for concern, however, but a sign of a maturing e-commerce marketplace. The continued rise in the percentage of total retail sales occurring through e-commerce is one sign of buyers and sellers becoming more comfortable with e-commerce transactions, while the fact that only 3.2% of total retail sales take place through e-commerce reflects the significant potential remaining. Furthermore, efforts to improve e-confidence, underway in organizations such as the Organization for Economic Development (OECD) and the Association for Asia Pacific Cooperation (APEC) – as well as at local, state and federal levels of government – should promote additional growth in e-commerce.

The U.S. e-commerce marketplace is highly competitive and is open to foreign firms with very few exceptions. Foreign companies that wish to use e-commerce as a means to provide goods and services in the United States generally may do so on a cross-border basis, through inward investment, or through portfolio investment.