(Contribution to the meeting of 26 March 1998)
The provision of Teleservices to SMEs
1. Background
The Internet development is accelerating the introduction of new methods of doing business and the first and most obvious change is the way small businesses can have access to business information.
More and more, business information is a basic need for increasing productivity, finding added-value to a basic profession, developing national and international partnerships, exporting, having a better knowledge of ones business environment, training company personnel, having access to expertise etc.
In in the space of a few years, a world of data exchange opportunities and a new breed of service companies and information experts have been created. These companies and experts deal with new forms of information and can reach new dimensions in information processing and usage.
This opens up new opportunities for small businesses who can, with the support of these service companies and experts and through private and cooperative information and service networks, reach new levels of efficiency in their organisation and business activities.
Most small businesses will be attracted to the use of new technologies through the Internet " gateway ". The phenomenon is very similar to the success of the French Minitel (6 million terminals in use and thousands of value-added services). Both owe their success to a " common language " and to an extreme " capillarity ", due to simplicity and low costs.
But this is not the only communication network that can be used to transfer business data and information.
Telecommunications operators and the European Commission have put considerable investments in recent years to make X.25 packet switching (a basis for EDI) available all over the European Union. This suite of standards offers guarantees of communication that are much higher than those possibly offered by the TCP/IP (Internet) protocol and de-facto standard.
Should the global environment thus be studied only from an Internet scenario ?
Both scenarios are used in different environments.
The implementation of EDI in small businesses only occurs if an important volume of transactions exists with a major client, who usually determines the type of equipment to be used (supply chain).
The greater part of European enterprises (of 20 employees or less, i.e. some 90% of all businesses !) are not in that situation and are therefore neither equipped for EDI nor won't be for the coming years. Yet the number of businesses using the Internet for communication purposes is ever increasing.
Clearly there is a need to merge EDI developments with those of the Internet : trusted electronic transactions on one side and " capillarity " of the information service on the other. This is what Electronic Commerce will be in the future : a mix of EDI and Web services.
However, the majority of small businesses will only use Internet–based telecommunication services for many years to come. This will be their first approach to IT awareness.
Unfortunately, adequate simple and low-cost Internet-based E-Com solutions are not available to this important market segment.
3. SME needs
Suppliers of teleservices, who do not currently have an adapted offer, view the several million SMEs of Europe as an interesting potential market, though a difficult commercial target group to reach because of its wide distribution, diversity and its weak capacity to invest. Not to mention the fact that the concept of " SME " can, in this instance, be extended to a large number of other small organisations (SMOs) : handicrafts, farmers, independent professions, non-profit associations, small regional communities, local administrative bodies etc.
Experience gained in the networking of SME " resource centres " shows that it is now possible to bridge the gap between the supply and the demand of teleservices for small businesses. (Some partial solutions can be found in the AGORA Network Services : www.agora.org).
The business information needs that have been identified as potentially marketable through the Internet, are diverse. The following list gives an idea of this incredible variety of simple, concrete services that are currently provided in a traditional mode :
Such services are often offered to a small firm by another small firm. They are also offered by large companies, as the on-line information providers or the traditional third-party service providers (SVP 11 11, Dunn and Bradstreet etc.) who have now started to communicate with their clients via the Internet.
4. The Internet-based " business information service " offer for small firms
Given the now-recognized role of small businesses in driving growth and creating jobs, a wealth of publicly and privately funded initiatives have been initiated.
Four types of small business Internet-based service offers can be identified in terms of market : regional, horizontal, vertical and sectorial.
In terms of organisation, these initiatives are distributed in 2 main categories : one level networks, where the services are provided directly to the SME managers and two-level networks where the services are provided to intermediaries having the SMEs as clients.
As most SMO managers have learned that the Internet is the best way to waste business time, business information on the Internet certainly needs to be now offered through such two-shots Networks. Small business managers require a structured access to identified information with human intermediation at all levels of the service provision
5. Obstacles to the implementation of Internet service opportunities for small businesses
Regardless of the quality and adequacy of the service offer itself, SME service provision networks have been faced with 4 principal obstacles in the development of business to business service transactions,
It is evident that we are talking here about a considerable diversity and quantity of services, whose costs can vary from 50 to 500 ECUs, with an average value of about 200 ECUs per service transaction. The service has to be invoiced and the invoice processed at both ends : it is prepared and filed by the sender, registered by his accountant and sent by mail to the client, who will in turn go through the same process. The global cost for the supplier and the client is roughly estimated at around 50 ECUs in total per invoice. Such a fixed price is unacceptable regarding the average value of the transactions.
As we are refering here to international networks, in many instances the client and the supplier may use different currencies. This implies further costs in currency exchange. Our experience is that currently, for transactions in ECUs (a bank transfer made from one XEU account in one bank to another XEU account in another bank), a minimum charge of approximately 15 ECUs is applied (the so-called " frais de rapatriement " in France). Such a fixed price is also unacceptable regarding the average value of the transactions.
Even in closed user groups, an important issue is the identication of the client and of the supplier entering into a business transaction : are they really who they pretend to be and a member of our group ?
If both parties are identified, some minimal garantees will exist concerning :
Digital signature is expected to reach widespread use in all parts of business, but a number of uncertainties exist as to how business can use it. The computerisation of processes where no physical person is involved in the transaction may bring forward a need for signatures for legal entities. Will companies acquire certificates by Certification Authorities or will they prefer to issue certificates to their employees themselves ? Will the Network administrator be the Certification Authority of the closed user group ?
This issue is not a purely technical one. It has a very important organisational impact, i.e. the relation among the actors of business transactions both inside and outside of the company.
Currently no simple and economical solution is available.
Once the user and the supplier of teleservices have completed an electronic transaction, the issue of payment is another complicated matter, as the payment requirements of the client are often incompatible with those of the supplier (the client would like to send a check but the supplier does not accept them, same with a credit card,…).
A large variety of payment media are used by small businesses : several kinds of bank checks, bank transfer orders, postal payment, cards (Visa, Amex,…), etc. Some kind of a virtual clearing bank is needed to facilitate the interoperability of the various payment media available in Europe and abroad.
Another issue is : how is the payment processed at the client site ? Who validates the payment, the manager or another member of the staff ? Can the process of payment be partly electronic and partly manual (the personnel validates the transaction and the manager signs the check) or shared (the personnel validates the transaction and the manager enters the pin code) ? What is the impact of using a small payment system as Kleline/Klebox ?
What about smart cards ? They require an infrastructure of readers to be in place. Also : handling such cards is equivalent to handling cash money. It has high risks. The method may be well adapted to the Business-to-Consumers market, but it may not be easily acceptable for Business-to-Business transactions.
The obstacles pointed here are not the security of the payment, which is efficiently dealt with by the banking world (SSL protocol for example). The obstacles are the inter-operability of the methods of payment and the organisational impact of electronic transactions inside the SME.
Consensus building in this area has until now been difficult due to :
Other obstacles in Business transactions on the Internet exist, not the least being the issue of multilingualism, but are a matter for other initiatives.
6. The problems to solve
The management of barter transactions.
Enough experience has now been gained in Europe and abroad, to consider that the development of Business-to-Business teleservices for SMEs cannot be done without the introduction of some form of bartering. The exchange of services against a payment in tokens is the only possibility to solve the obstacle mentioned in 1 above, linked to the small financial value of most service transactions.
In a teleservices network using virtual and real money, only the monthly (or quarterly) balance of individual accounts needs to be invoiced in real money. The invoice can be issued by the operator of the network.
In Europe, the AGORA Network has started to develop teleservice transactions based on this principle. Complicated legal and regulatory problems are encountered, which may require that Indirect and Direct taxation Administrations modify existing legal requirements.
Digital signature for small businesses.
Current cryptography products and services have been inherited from the banking environment which, due to serious fraud possibilities requires high security (1024 bits keys and RSA algorithm). But the value of the disputed issues in teleservice transactions is in no way comparable. A new way of analysing the issues of digital signatures and certification should be taken leading to simplified products and services.
Evidence rules and formal requirements.
Some legal systems do not accept electronic documents as evidence in legal proceedings. Evidence rules have certainly to be improved for small businesses. New rules on electronic formalities need to be proposed to improve national laws.
Building Closed User Groups.
Teleservices can be proposed in a totally open environment or in a closed environment. Again, the influence of the banking experience and the first solutions implemented in B-to-C tend to emphasize the importance of open solutions.
But the Business-to-Business market is of a different nature. A business is not dealing with ANY other business. In current dealings one can clearly see that businesses are strongly related in regional and vertical activities (agriculture, manufacturing, fisheries, publications, lawyers, etc.).
The consequence is that B-to-B will develop more rapidly and more efficiently in networks operating as Closed User Groups and managed by an operator. The question then is to find out whether the functions of E-Commerce platforms for this type of market can be general or should be specific.
A better understanding of payment requirements and procedures.
Interoperability of the payment media should be made available and the functions of E-Commerce platforms adapted to the ways SME can handle payment procedures internally, for both national and international payments. The concept of a virtual clearing bank is well adapted to a central invoicing by the operator of barter transactions networks.
A significative scale of operations.
The fragmentation of the SME market could lead to the development of a number of closed ad-hoc solutions. Therefore a generalised specification and prototyping approach has to be undertaken by actors capable of developing products and integrating them in client applications at the European (if not the world) market level.
Involvement of users in the specification process.
No significative progress can be made in this area without the real participation and involvement of user organisations as the Chambers of Commerce and Professional Organisations. The proper conditions of participation are based on mutual benefits and awareness raising.
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