Address at the World Trade Center of New Orleans

Essentially, the new Internet-driven business model is one in which businesses are customer-focused, virtually integrated, highly collaborative, and extremely agile. In this new model, physical inventory and hard assets may actually represent a liability relative to information and intellectual assets. The following trends characterize global eBusiness:

• Geographic location is declining in importance; 
• Traditional barriers to entry/exit are disappearing; 
• New sales and distribution channels are being created; 
• Customers are becoming more sophisticated and demanding; 
• Businesses are extending beyond the four walls of the traditional enterprise to form a "virtual value chain" with suppliers and customers; 
• Products and services are becoming increasingly intertwined.

The United States is leading this eBusiness revolution. According to my former employer, the US Commerce Department, over $100 billion was transacted over the Internet last year in the United States alone, and that number is conservatively expected to grow to $650 billion over the next four years². As an example, Dell Computer’s online sales now average more than $18 million per day, accounting for a third of their total revenues.

We may be ahead of the rest of the world in eCommerce, but true globalization of the Digital Economy has begun. By 2003, 60% of global Internet users will live outside the United States, and the non-US share of Internet commerce will reach 46%. Thus far, a variety of factors have impeded the growth of web-enabled transactions in most of the world’s major markets. Government ownership of utilities, unreliable technological infrastructure, and the expense and inaccessibility of appropriate technologies have hindered online growth.

But with increasing deregulation and privatization of telecoms, deployment of broadband and midband solutions, and the commoditization of computers and related technologies, the Internet is becoming accessible even in some of the world’s remotest areas. A few years ago, I was in Moscow advising Baskin-Robbins on its Russian business strategy. I was impressed by the young Russian staff toiling late into the night on the company’s desktop computers. When I asked one young woman what she was working on, she admitted that she and her colleagues were teaching themselves programming language so they could write their own software, and were using Baskin-Robbins’ computers because they could not afford their own! It struck me that if this drive and technological prowess could be unleashed, Russia could supplant its former military rivalry with the United States with a commercial one.

The fuse has been lit for an explosion in global eCommerce. Thirty-five million people worldwide will come online over 1999, bringing the total number of active Internet users to 130.6 million -- greater than the entire population of Japan. And by 2003, that number is expected to be 350 million, with global eCommerce dollars reaching $1.2 trillion³. By 2002, the North American Net population will only represent one third of the world’s total, at 98 million. Europe will be home to 170 million Net users, Asia will boast over 60 million, Latin America will hold 27 million (a 550% increase from 1999), and the rest of the world will have another 12 million⁴.

Statistics like these indicate a tangible, global migration to the Internet. And while impediments remain, the opportunities presented by burgeoning populations, growing economies, and an increasing understanding that an Internet presence is fundamental to competitive survival, are finally allowing the Internet to take hold as a vital and influential business channel in foreign markets.

Historically, international trade flows have primarily consisted of goods. However, the Internet enables a variety of services – financial, retailing, education and gambling – to name just a few – to be provided via globally accessible Web sites. According to Morgan Stanley Dean Witter, "The Internet is the backbone of greater service trade"⁵.

Because of the business process efficiencies generated by eCommerce its value can be quantified in more than cash flows. One recent study projects that the global cost savings created by global Internet business will rise from $17 billion last year to one-and-a-quarter trillion by 2002, with American firms accruing half the long-term benefits⁶.

I would like to review how eCommerce is affecting the most important global markets, and explore with you how American businesses can remain competitive in the new Digital Economy by maximizing the emerging global potential of the World Wide Web.

Europe

Western European eCommerce is growing at the phenomenal rate of 138% annually, surging from just $5.6 billion last year to an estimated $430 billion by the end of the year 2003. By that time, the European Union will rival the United States with more than 170 million Internet users. Major European companies – including TotalFina, Lloyds, Cable & Wireless and the Swiss-based Migrosbank – have begun embedding eCommerce into their corporate strategies⁷.

In fact, while the "Net-centric" U.S. has traditionally considered itself a good two to five years ahead of Europe in its embrace of the New Digital Economy, European executives have recently begun to launch their own Digital Revolution.

Individual European nations are racing each other to become eBusiness hubs. Over the next two years, the British government is committed to making the UK "the best location for eCommerce" by implementing an ambitious program of business incentives and providing Internet access to a majority of the population. Consequently, British web-based business is expected to grow 100 per cent per annum, representing 4% of the country’s GDP by the year 2003.⁸

Over the past twelve months, British shoppers spent $3.2 billion online – ten times more than in the previous year! Just in the past four months, the number of Britons using credit cards for online buying grew from 35 to 48 percent, and in the past six months, the overall number shopping online increased by a third, to 2.5 million!⁹

The German government has announced a plan to provide at least 40 percent of Germany's population with easy Internet access by 2005. Of Germany's roughly 80 million citizens, only 9 percent currently have Net access. Quadrupling the Internet penetration rate is one goal among many in an ambitious plan that could put Germany in the technological forefront of Europe. The action plan is also designed to ease Germany's high unemployment rate, which remains above 10 per cent. The plan seeks to bring the latest technology and Internet connections to Germany's schools by 2001, train 40,000 new Information Technology (IT) employees by 2003 and increase the number of women employed in the IT industry by 40 percent during the next five years.

Germany also plans to develop a Digital strategy for government departments by the second half of 2000 and to introduce electronic tax statements in the Finance Ministry.

During the first half of this year, the number of European companies allowing online transactions tripled. In fact, Europe is well ahead of the U.S. in the number and popularity of cyberbanks and online banking services.¹⁰ Despite relatively low Internet penetration rates, which are hampered by telecommunications costs, many European companies are migrating to the Web just as fast as their US counterparts.

The European Internet scene is also beginning to mimic the "dot com" frenzy spawned by our own Silicon Valley. I got my MBA at Scotland’s University of Edinburgh business school, and while there I was impressed by the thriving growth of Information Technology companies in the region between Edinburgh and Glasgow – an area called "Silicon Glen".

From Latvia to Ireland, thousands of energetic young entrepreneurs are brashly overturning established business rules to create new Web technologies and services. They are funded by a venture capital industry eager to back a European Amazon.com or eBay. Established companies are scrambling to keep pace, fueling skyrocketing initial public offerings, and half a dozen new stock markets. For example, 155 European technology companies went public on Europe’s stock markets last year, compared with 147 American companies on US markets.¹¹

By 2004, more than 75% of European online spending will be generated by only five European nations (Germany, UK, France, Italy, Spain), with half of total revenues concentrated in Germany and the UK. These statistics indicate the best near-term markets for American goods and services.

How can US businesses profit from the phenomenal growth in the new European digital marketplace? Books, computer software and compact disks are currently the most popular items purchased online, but airline tickets, and vacations, electrical goods and cars are gaining virtual market share. The digital economy now allows a business man or woman in New Orleans to sell a Mississippi River cruise, a commercial office building or a box of pralines to a buyer in London at any time of the day or night.

Success story: eToys

EToys, Inc., the fast-growing children’s Internet company, is a terrific example of how an American retailer is using eCommerce to penetrate the European market. EToys will launch a retail Web site in the United Kingdom in time for this year’s holiday season, establishing an early international beachhead in the highly competitive, $23 billion European toy market. EToys will customize a site for the UK and ship from a 25,000-square-foot warehouse outside London, to better cater to the local market. Additionally, they will Anglicize the site’s existing language to fit British tastes, and buy products from local manufacturers and local representatives of global manufacturers. EToys is expected to leverage off of its British presence over the next few years, targeting the expanding markets of Germany and France.¹²

European governments’ plans to "digitize" their economies offer significant opportunities for US firms to provide eCommerce services, training, hardware and software. The market for American Web or "eRetailed" products will expand as more Europeans go online.¹³

Latin America

Latin America has an expanding population of more than 435 million people, and its business and political leaders are aware that that the region’s 21st century economic growth is tied to rapid adoption of Internet Business. However, this vast emerging market has many barriers and local problems which make eCommerce development difficult, including low per capita income, prohibitive internet access costs, poor consumer confidence in online payment methods and unreliable delivery systems. A telecommunications infrastructure must be established (in many cases phone lines must be put in place), providers must make access affordable and these efforts must be backed by enlightened public policy.¹⁴ This crucial demand for telecom infrastructure is itself a major opportunity for US suppliers, construction companies and engineers.

Nonetheless, conditions are already present for creative online retailers to establish a significant business and take advantage of the 27 million Latin Americans who will have Internet access within two years. The challenge for retailers is to move fast to establish an early and dominant market presence. Surveys indicate that Latin Americans prefer to purchase US origin goods via Internet. For example, while US Internet users do 90% of their buying inside the country, South Americans spend 74% outside their countries when buying online – mainly from American retailers.¹⁵

Latin American eCommerce will grow slowly through 2000, then accelerate after that. From online revenues of $167 million this year, it is predicted to surge to $37.4 billion in 2002 and $84.2 billion a year after that – phenomenal growth by any standards!

Grant Thornton’s eCommerce practice recently sponsored a conference in Buenos Aires, Argentina, in partnership with Microsoft, using the Spanish translation of the title of Bill Gate’s latest book, Negocios a la Velocidad del Pensamiento -- Business at the Speed of Thought, as the theme. The response was overwhelming, with a standing room only crowd and eager businessmen turned away at the door for lack of space within the conference center. This event was yet another concrete example of Latin American’s recognition of the Internet’s future as an engine of economic growth.

Largest market: Brazil

Brazil currently represents 88% of all Latin American-based online sales, with Mexico -- second largest market -- accounting for 6% of revenues and Argentina producing 2%. As the dominant Latin American economy, Brazil accounts for over half of the Internet users in the region. Nonetheless, Brazilian eCommerce still remains restricted to the wealthier portions of society. And like other countries in the region, Brazil is handicapped by very low teledensity rates.

In 1998, only 60% of the Brazilian equivalent of the Fortune 500 top companies had web sites and out of those, only 17 were fully capable of being able to complete an online transaction. In the last year, Internet usage in Brazil has climbed from just under 1 million to 2.2 million users.¹⁶

In search of cash and clients, Brazil’s giant Bovespa stock exchange is targeting investors with a new after-hours trading system – the first of its kind in the Americas. Bovespa will be the first stock exchange in the region to provide after-hours trading, and hopes to capture a new but growing group of middle-income Latin American investors that are entering the stock market for the first time with the help of the Internet.¹⁷

Indicative of Brazil’s growth in the Internet sector is the rash of mergers and acquisitions among Brazilian Internet companies, banding together against the invasion of North American behemoths like StarMedia and Yahoo! A trend that began in the US as many Internet companies came of age, has moved south of the border.¹⁸

Internet retailing is currently dependent on consumer credit cards. By 2003, one out of every six credit cards in North America will be obtained online, and Net-sourced credit lines will approach $22 billion. The Internet’s ability to provide instant approval of credit card applications will be key in the expected growth of that lending sector. In fact, in less than three years, the Internet will fully replace direct mail as the leading form of credit card distribution in most developed countries.¹⁹ Auto loans, home equity, and student loans will also begin to make more meaningful appearances on the Web.

Some credit card companies in Brazil foresee a potential market of 65 million Internet users in Brazil. That number would represent 38.2% of the country’s population. If correct, the number of users would be the same as the entire population of the United Kingdom with credit cards.

As Brazilian telecommunications improve – with investments made by the winners of the privatization auction last year – the main structural problem left is the low penetration of credit cards. As this improves, business-to-consumer eBusiness will grow exponentially.

As Latin America’s economic powerhouse of the future, Brazil offers a vast untapped market for online business.²⁰

Mexico

Even Mexico – where 60% of the population lives on less than $700 a month, and only 10% of the population have telephones – is on the threshold of a Digital Revolution. Mexico is the second largest online market after Brazil, registering $22 million in eCommerce last year, a number expected to grow to $2 billion within three years.

Over 80% of Mexican eCommerce is derived from business-to-business transactions. Major US corporations such as Microsoft and Citibank are already using Mexico as a digital hub to provide software programs for online financial transactions on behalf of regional multinationals.

Telecommunications companies are spending billions of dollars laying high-speed "broadband" telephone lines. These same companies have forged joint ventures with computer companies to launch low-cost financing packages combining Internet access with the purchase of a new computer. Mexican Internet accounts are predicted to surge from about half a million at the beginning of 1999 to 3.5 million by 2003.²¹

Asia 

The Asia-Pacific region is second to Europe in Internet growth, with users expected to quadruple from 21 million in 1998 to 81 million by 2003. Like other parts of the world Internet access in Asia is restricted by high telecommunications costs. For example, Japan’s relatively low Internet user rate of 10 percent of the population is expected to improve dramatically as soon as a deal is concluded between the Tokyo-based venture firm Softbank, Microsoft and Tokyo Electric Power Company to provide flat-rate connectivity. Analysts predict that within a year this will boost Japanese Internet access to 25% -- about the same rate as found in the United States.

By the end of this year, about 9 percent of the Taiwanese population will have online access. Almost a fifth of Australian households now have Internet access, and this is growing by more than 50% per year. Over the past twelve months, Australians made over a million purchases online, including retail goods from American ‘eMerchants".

The Chinese government’s declaration of 1999 as "the year of getting on the Internet" is clearly supported by the numbers, as the nation’s online population has more than doubled from 2.1 million to 5 million over the past twelve months.²² But skeptics point to China’s low per capita income as a barrier to domestic eCommerce business. At the current growth rate, within three years the value of China’s eBusiness will total just $4 billion – by comparison, Australia – which has a fraction of China’s population, will reach $9 billion in Internet transactions over the same period.

For US companies, the immediate opportunity in China is in business-to-business eCommerce as an export enabler. The Internet is already being used for delivery of photos and designs to support the vast Chinese garment, toy and electrical appliance industries. Longer term, Chinese consumers will also be able to buy US goods and services online – not only via personal computers (which currently number just 12 million), but through television! A Hong Kong company is developing a satellite system to provide high-speed Internet access via China’s half a billion TV sets.

Opportunities for US Firms

Eventually, the forces of the Internet Revolution will impact every conceivable product and service. Global demand for US manufactured goods and commodities will remain strong, but we will have to utilize new digital methods for marketing, sales distribution and customer service. Opportunities for American businesses in this increasingly borderless market are virtually unlimited (no pun intended!).

In summation, I see the following near-term opportunities for US firms competing in the global Digital Marketplace:

• Computing and Electronics. The international market for the hardware and software that are the building blocks of the Internet will grow from around $50 billion this year to over $400 billion within three years. US firms can remain the dominant providers of the "picks and shovels" for the international eCommerce "gold rush". By 2003, for example, the eCommerce software applications market in Asia will top $1.3 billion – registering a sales growth of 104% per year.²³
• Telecommunications. As I said earlier, the growth of eBusiness is dependent on a reliable telecom infrastructure. Global engineering projects in this sector are costing hundreds of billions of dollars, with revenues in the telecom services segment alone projected to rise from $1.5 billion this year to $15 billion by 2003.
• Financial Services. The low-cost and efficiency of Web-based financial transactions is still hampered by a snarl of international regulations as well as concern about security. Theoretically, a company can just as easily sell financial products or services from Timbuktu as from Hartford, Connecticut. The day is fast approaching when a person in Argentina will be able to get a loan from a bank in New Orleans in a matter of minutes.
• Online Retail. I have friends in Eastern Europe who regularly order books from the Amazon.com web site and have them delivered to their homes in Prague and Budapest by Federal Express – and the books are still less expensive than imported editions in local bookstores! This demonstrates the power of using the Internet to sell retail goods anywhere in the world twenty-four hours a day, seven days a week. And books are just the beginning. For example, the third largest American office supply superstore, OfficeMax, recently launched International Web sites in Japan and Mexico, and will soon launch a site in Brazil. These sites will offer more than 4,000 products targeted towards small-to-medium sized businesses.
• Travel. How many of you are aware that international travel and tourism is the largest industry in the world, worth an estimated $3 trillion annually? Today, only $8 billion (less than 2.5%) in travel business is written online. Over $80 billion of airline tickets are sold each year, of which $2 billion were sold online in 1998. Online ticket sales are growing by 25% each year, which is a good indicator of the overall growth rate of eCommerce within the industry. Delta Airlines spends $1 billion annually on ticket distribution, and has announced plans to use eCommerce to reduce that cost by 50%. As the rest of the world gains Web access, foreign tourists will book more US tours, learn about Louisiana tourist attractions and make reservations at fine New Orleans restaurants like Commander’s Palace!

As foreign companies feverishly construct their eCommerce systems and strategies, we can take advantage of our pioneering expertise in services and technologies and build lucrative businesses supplying the "picks and shovels" to this virtual gold rush. Our first mover advantage will allow us to benchmark success for other global enterprises as we continue to raise the bar for technological innovations and their myriad functions. As an example, leading web strategists consider European eCommerce sites to be a good value and easy to use, but US sites still remain the international benchmark of excellence.

Secondly, we have the opportunity to expand existing businesses overseas. But we must not become complacent in thinking that worldwide access equals global eBusiness success. In fact, the same adages that hold true for traditional international trade are particularly pertinent for success in global eCommerce. You will have to think locally in each of the national markets. There are the obvious hurdles, for which most businesses are more or less prepared: different currencies, tax regimes and trade regulations. But there are also profound national characteristics, both cultural and practical, that are too often overlooked.

We must also be vigilant about the political forces within our own country that view Internet Commerce as a font of new tax dollars. The virtual nature of the Internet would allow US-based Web businesses to quickly locate offshore to escape taxation.

Although we may marvel at the leading edge technologies and business solutions that make global eCommerce a reality, we’re in the Model T era of Internet business relative to what we can only imagine will be possible a decade from now. I predict that we’ll take for granted automated, simultaneous voice translation when conducting international business, or hold real-time video-conferences with holograms of our sales reps on the other side of the globe. A completely new type of digital "cybercash" may take the place of national currencies, revolutionizing the payments system. And barriers in culture, time and geographic location will be "virtually" eliminated, facilitating better relations of all kind and making the term "global community" a reality.

As my old boss Ronald Reagan would say, "You Ain’t Seen Nothing Yet".

Thank you.