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"Boosting SMEs trough Internet"
8 &t 9 february  1999 Paris
Keynote address: the general issue 
Francis LORENTZ, 
Chairman, E-Commerce Taskforce
 
Ladies and gentlemen,.
One year of electronic commerce in France A year ago, the Minister of the Economy, Finance and Industry asked me — or rather asked us, since I was part of a team — to take stock of electronic commerce for French companies. The aim was to try to define the issues involved in the development of electronic commerce and the obstacles that might be encountered by electronic commerce in France. A few days ago — about a year after he had made his request — we presented him with our report on what had happened in one year, both in France and internationally. Were our forecasts right? Had public authorities generally kept to their commitments?
An extraordinary opportunity  Since we are talking primarily about small and medium enterprises and small industries, I shall not go over what you all know already — namely, that for SMEs the Internet clearly offers an extraordinary opportunity, both because it gives them a global presence and because it offers a premium to new entrants. Big, established companies, with their distribution networks already set up, their marketing techniques, and their organisations, are at a disadvantage when it comes to these new markets, while younger and smaller companies are less burdened by history and, in a certain sense, enjoy a premium when entering these new markets. I think that everything has already been said about these general topics, and I have no intention of going over it all again. I should like, however, to share with you some of the more specific conclusions arising from our observations over the past year in the world of electronic commerce.
From the Minitel... What we have seen, first of all, has undoubtedly been the birth of a new awareness of what was happening. You will remember that until just over a year ago, there was a general feeling that France was hopelessly behind in this area, having failed to grasp the fact that a revolution was under way — because the French, who were rightly proud of, and pleased with, the performance of Minitel, had not understood that we were now entering into a new universe, which — unlike Minitel — was not limited to our own borders. This revolution would offer tools that were infinitely more impressive. That, in my view, was the prevailing sentiment in the autumn of 1997. Things have changed very quickly since then, and in a generally positive fashion. One statistic — and I’ll return in a moment to the value of statistics — the number of SMEs with 10 to 500 employees linked to the Internet doubled, from 24% to 48%. That is excellent, of course, but what interests me more than statistics is the more tangible reality, as we were able to discern it during our visits to various local and regional business events. Here, I would like to make two observations: 
...to the Internet  First, we witnessed the growth of a considerable, broad-based interest in the Internet, which was more than just curiosity. We came across a certain number of small firms, but also their representative bodies, at local business events, and wherever we went we were able to talk with SME owners who had effectively taken it upon themselves to grasp the future. They had understood that a change was happening and they had decided to become part of it. What is very interesting, and new for France, is that this movement struck me as more active and more dynamic in the provinces than in Paris. And after all, if one thinks about it, this makes sense, because it is the businesses based in the provinces, those that are most isolated and farthest from the centre, which will profit most from this tool, which overnight can put them on level terms with any company in the world. So there is a regional aspect at work today, which — and this is another interesting factor — very often combines the strengths of the private sector and public authorities, especially officials of the Ministry of the Economy, Finance and Industry, the Ministry of State for Industry, and elected officials.
... especially among regional bodies... I was very impressed by the number of local initiatives that combined the efforts of local authorities (local communities, regions and administrative départements), chambers of commerce and private companies. There are a number of well-known examples in northern France, the Grenoble region and Brittany. But it is a movement that tends to spread easily and quickly. The Internet has brought a sort of realisation that at the local level everybody’s interests coincide. The Internet can provide support for local development and growth, since the one network provides users with a meeting-place for all kinds of information and all manners of utilisation concerning the individual citizen, the business world and government alike. This locally based synergy is thus being expressed and organised in France in a very broad manner, and I believe that for small businesses, this is a very significant and important phenomenon.
...who combine forces... Obviously, the first obstacle for SMEs starting up on the Internet is their small size, their isolation and their difficulty in finding their way around in this new world, this global jungle. Hence, anything that situates them within a collective movement must be considered extremely positive. For small business, it is obviously easier to establish a presence on the Internet together with others, rather than alone. And this is the second observation I’d make. Of course it is a little superficial. It is an observation based not on statistics or on detailed analysis, but rather on this sense of the emergence of a deeply rooted, dynamic approach built around the combined efforts of all those involved.
Our monitoring tools are not yet adequate. A moment ago I mentioned the difficulties involved in collecting credible statistics. I’ve given one statistic, and I shall give no more. I know that you will be attending a workshop on economic research observatories. We too have done some work in this area as part of our project. Here, I would simply suggest that we not add another observatory to the list. There are already a great number of these busily engaged in collecting statistics and observations, particularly in France. What we, for our part, have tried to do (and we have also put forward a few proposals in this regard), is rather to set up a network of observatories — after all, we now live in a universe of networks — that is, to combine the activities of all of them without trying to merge or group them together, but by defining a common methodological basis. We selected a range of indicators that are recognised by all, and our hope is that over the months and years to come, all such observatories will work together, with some being engaged in statistics and others engaged in the analysis of examples. We have done this in a general fashion, in the context of the overall development of the Internet in France. It would doubtless be desirable to focus more precisely on the SME-SMI part of this network.
... B to B (Business to Business)... To go on with my review of the year 1998, I am struck by the fact that we continue far too often to omit a very important aspect of electronic commerce, if not to shoot for the wrong target entirely. Essentially, electronic commerce, in the minds of the private- and public-sector players I’ve met, is, and remains, retail commerce. But the economic stakes involved in business-to-business commerce are, in the short term, immensely greater than those of retail commerce. Let’s make no mistake about this — companies which do not engage in electronic interchange with their partners and suppliers will not be effective companies within the context of retail commerce, because they will not be able to structure their organisations and operations around information networks, and because they will not have achieved operating improvements, especially the necessary reductions in the value chain and production cycles.
A more demanding industrial climate Today, one of the great weaknesses, in a general sense, of the French economy — if we compare it to the current US economy — is still the excessive length of the procedural chains and cycles running from the consumer (or, to be more precise, from the order) to delivery. The example always given here is that quoted by Philippe Lemoine, Co-chairman of Galeries Lafayette, who, in comparing the American supermarket chain Woolmark with an average French supermarket of approximately the same size, notes that in the case of the former there are 7 or 8 days’ worth of inventory, and in the other 27 days’ worth. This is the case in many sectors. As you well know, DEC computers basically built its success, not on technology, but on this ability to cut down response times by reducing the manufacturing cycle and inventories. Today, DEC’s inventory stands at 7 days, compared with figures 10 times higher for its competitors Compaq and IBM. But what does this mean? It’s not simply a question of cutting financial costs (a phenomenon we know well ), it is also — in the context of the electronics sector — the chance for an immensely greater degree of flexibility. That is, the fact that product inventory needs to be sold does not prevent response to customer demand. Nor is there a risk of obsolescence. So we have this ability, very well illustrated again by the case of DEC, but also nowadays by a number of small businesses (and I shall come back to this point), to respond to customers by working "on demand" — that is, by adapting to the customised, personalised demands of the customer, instead of forcing the customer to buy a standard manufactured product. This represents nothing less than a reversal of the way industry has been run since the days of Henry Ford and his famous Model T, but I truly believe this is what’s basically involved here.
This means that the entire ordering, manufacturing and delivery chain will be integrated around the Internet, that all the computer resources will be interconnected, and that this will bring together, within a single professional community, the company itself, its suppliers, its sub-contractors and its customers. Small businesses need to realise that even if they have relatively few suppliers or sub-contractors, it is vital for many SMEs to join these networks to some extent. And those who haven’t absorbed this aspect of business-to-business commerce run the risk of being shut out, because they will not be able to take part in big companies’ invitations to tender, which are being made, and will increasingly be made, over the Internet.

And here’s the first point I wanted to make quite clearly: the necessity to communicate the message that the main task is to organise business-to-business exchanges via the Internet and that we must not cling to the media image (however compelling) of the miraculous growth achieved by a few companies selling books and CDs over the Internet. It is important, and we shall return to it, but it is perhaps not the main point.
Easier and more open EDI Another thing that seems very positive to me about the past year, and of course goes beyond the case of France, is that technological change makes it possible, and will increasingly make it possible, for companies to switch over to the B-to-B Internet. Electronic business-to-business relations, as you are well aware, are an old story. They used to be carried out mainly through EDI; in France a little was done through Minitel as well. But EDI was a difficult computer resource, which could be understood only by the experts, and it was extremely expensive. This very often condemned small businesses to rather unequal relations with major customers who obliged them to use a particular EDI formula. The transition to the Internet, through various intermediaries and bridges — known as "EDI light" or other names, such as EDI Web — will make it considerably easier for small businesses to take part in electronic B-to-B trade. They will be looking at pages written in HTML. They will be looking at tools that will be easy to access, and infinitely less costly. This process began in earnest in 1998 and will continue to gather pace.
The key role of government The third point I would make, in the context of urging small businesses to switch to the Internet, especially in their professional relationships, is the major role to be played by government. Again, this is not a new observation. We made it a year ago, and everybody knows that government is a major economic player. In France, the value of public purchasing of goods and services at the national and local levels is some FFR 750 billion (EUR 115 billion). It is obvious that the day will come when all invitations to tender will switch to the Internet, and when it will be possible to deal with public authorities only via the Internet, and all companies, including small businesses, will have converted to the Internet. Things will not, of course, happen in such a dramatic manner in all sectors, but it is true of public procurement. It is also true in the case of all those procedures linking the State with the corporate sector, such as the various forms used for declaring taxes, VAT, welfare benefits, etc.
Dematerialisation of trade Here is a way to encourage small businesses to switch rapidly to the Internet — provided, of course, that this dematerialisation of trade brings them genuine advantages. If it is going to constitute just one more restriction, then it won’t be accepted. So, we must not be content, as seems already to be the case, to dematerialise the various forms that have to be filled in and simply let people download them and print them out. This represents a rather modest advantage. We must rapidly reach the point where we can carry out all stages of a procedure electronically: VAT declarations, but also VAT payments. And the same goes for all other procedures — we need to be able to do it all electronically, and from only one workstation. This will bring small businesses significant savings in terms of time and efficiency.
We have made a lot of progress in this area since 1998, and I am glad to say so here today, because the tasks involved are somewhat thankless, and their results not always very tangible. And yet, as difficult and complex as they are, generally speaking — and especially at the Ministry of the Economy, Finance and Industry — we have seen considerable progress. But we must clearly move faster. This is especially the case for public procurement, where we are still hampered by the need to reform the very regulations that govern public procurement contracts — and there, the issue is a legislative one. This is an extremely complex field, and one that right now is holding us back somewhat. But I believe that all the elements needed to move the process forward, and indeed accelerate it, are in place.

So, there you have a few remarks about the general problem for small businesses and their entry into the world of the Internet — especially their entry into the professional Internet of business-to-business relations and relations between business and administration.
Retail commerce: a few flash-in-the-pan successes? Now let us turn to the retail sector itself. Here, too, we have seen an increasing number of initiatives, which have often been very attractive and original. They have been encouraged by numerous prizes, challenges, competitions of all kinds, and also by the press, which of course has focused on the most visible and, as it were, the most eye-catching aspects of electronic commerce. Hence, there have been countless initiatives. It is too early to judge how long they’ll last, because very often these days — and it’s as true in France as elsewhere — they are still losing money. There is an initial investment to be made, and that’s the first point I should like to make here: nobody should have any illusions about entering the world of electronic commerce in the retail sector. There is a heavy investment to be made. I sometimes hear people quote marvellous statistics about opening a site on Geocities, Wanadoo or other platforms offering to host your electronic commerce site for a few thousand francs. People tell themselves that this is all they have to do to gain a foothold in the world of electronic commerce. This is an illusion, of course, and it is of paramount importance that companies do not embark on the adventure of electronic retail commerce on the basis of totally illusory statistics. What companies must do, of course, is learn to adapt to the sort of demands that customers will be making of them, in terms of efficiency. These customers, who will be able to find their suppliers in the space of a few seconds or minutes on the Internet, and perhaps at two o’clock in the morning, will of course expect the same level of efficiency and availability from the subsequent logistics, delivery, billing, after-sales service and returns service. All these stages are very often difficult for a small business to implement, especially if it is expanding its field of operations to a much larger geographical area. It is easy enough to start up a business selling foie gras from the Gers département to New Zealand, but one must also be able to deliver it according to prevailing standards of freshness, complying with health regulations, local tax regulations, local customs practices, etc. Small businesses need to think about all these aspects before they launch themselves into the adventure of electronic commerce. Hence we see a proliferation of support organisations and consultants, who will be making this sort of recommendation, and making them think about the connections between their Web sites, their internal operations, their logistics, etc. But in this context, allow me simply to note that we have witnessed a proliferation of such organisations, both public and private, and that consultants of all kinds are springing up all around us.
Our small businesses pause to reflect I do ask myself, though, whether our poor small businesses feel a little helpless in the face of this awakening, this sudden proliferation of consultation services; whether, in short, they’d be better off leaving well enough alone. What we have seen during our own process of evaluation and assessment is that today our small businesses believe things are becoming more and more complex, rather than the reverse. Whereas the Internet should make things simpler, today it is very often seen by those trying to break into new markets as a tool of infinite complexity, because they do not really know to whom they should turn, and they don’t really know the best way to get started, because they receive so many different offers of help, all founded on the best intentions. There are so many sources of help, free assistance, subsidies, competitions, and so forth. But which path should they take? What is the best road? Today, I am a little fearful lest the efforts of those trying to break into the world of electronic commerce be increasingly frittered away in the pursuit of the best access point, a useful subsidy or a source of sound advice.
Make life simpler for small businesses Here, we would note — or rather recommend very strongly — that our priority for 1999 should be to resist the temptation to add new systems, to come up with more and more new initiatives (although such initiatives are undoubtedly welcome). Instead, we should simplify existing initiatives, to make life easier for small businesses. Usually, the owner of a small business works alone, and does not benefit from the heavy hierarchical structure of a big institution. This is an obvious fact, barely worth repeating. Such entrepreneurs have little time to spare, and even with the best intentions, making them run from one window or source of support to another is the worst thing you can do for them, because they will lose track of their true purpose, which is to satisfy their customers and earn money.
Simplicity, then. And in France, this will surely mean not spreading the old myth of the "one-stop shop". Here, too, technology can help us. Let’s learn from what’s happening in the market at a global level. To provide guidance to suppliers and customers in the global market, we must create electronic portals that offer market access. Of course, those portals will be motivated by profit — after all, these companies need to make money — but they will serve a very useful purpose, because they will take customers by the hand, lead them towards the sites, open up a certain number of services, place them within a community or — to put it more precisely — set up systems that bring customers together.
New ways to organise I think the exemplary nature of these market- organisation structures being set up in the global marketplace should make us re-define the way things are organised and administered at the local level, whether by establishing professional organisations or by establishing portals offering access to the network of support systems and to the assistance offered by consulting services.

So let’s not snuff them out or try to merge them together. Let’s set up efficient research tools through which we can find the appropriate mechanism. Having said that, tools alone are not enough, and in my view the combined efforts of human beings remain important. When I say the combined efforts of human beings, I don’t mean just specialised administrative services, but all the players involved. One of the major lessons we’ve learned during this year of looking at electronic commerce is the need for constant close co-operation and consultation among all participants. Of course, the first players to get involved in electronic commerce are companies, not government agencies. It is clearly not government that is going to drive electronic commerce. But conversely, it would also be wrong to deny that governments can play a beneficial, facilitating role when markets are starting up. 
The State must lead the way Thus, I think that we have invented (and as far our country is concerned, the process is already well under way) some new modes, or at any rate new developments, new forms of consultation, especially at the regional or local level among government players, professional organisations, companies, and often elected officials and local communities. I alluded to this at the beginning of my remarks, saying that I had seen more and more examples of this. But we must probably go further and be more proactive in this area. We recommended a year ago that each region should set up a project team grouping together regional Directorates for Industry and Foreign Trade, chambers of commerce, and trade organisations, and that this team should work on clearly identified projects, especially with regard to simplifying the interface with small businesses. After one year, we see that this recommendation has been followed in only a few cases. So perhaps it was not a pertinent recommendation, but at any rate it is worth thinking about. I think that we must have portals, but also, behind the electronic portals, men and women working together, who know how to deal quickly with the matter at hand and give a response to small businesses. In the age of instant interaction via networks, people must learn how to operate in the same fashion.
Knowing how to be innovative I come now to my penultimate point. We stressed a year ago that in order to confront the world of electronic commerce, we needed to change the way we thought about public assistance in this field, and especially assistance for innovation. We have traditionally leaned very heavily towards providing assistance for technological innovation. Electronic commerce will primarily require people to change their traditional ways of doing things — we should all be aware of that. But this is true innovation. Very often, we’ll need to use components already lying on the shelf. These may be hardware or software components (more often the latter, I suspect). We’ll need to select the ones we want (because the level of supply in a global market is fantastic, and of course is growing at a phenomenal pace every day), then assemble them in a new order, in order to match (or rather imagine) a service, a product that brings value to clients, makes their lives easier, helps them in their daily activities in the electronic markets. And this is genuine innovation.
A new context Let us somehow accept the fact that innovation in commerce itself deserves to be supported to the same degree as innovation in technology. And I would say the same of certain services, which are indispensable and which must be developed alongside electronic commerce. I’m thinking of all the certification services, all the new intermediaries offering protection for the customer and the market, whether in terms of certification or labelling or other security-related matters, and which are essential to the process of producing change and progress in this market. And again, these are areas of innovation that we’ll very probably have to view in the same way as we view technology. They are just as important. 
Changing our way of thinking So let’s put an end, at least in France, to this compartmentalisation, to these administrative dividers between small business and small industries, between technological innovation and innovation in practices, services etc. People cannot change their way of thinking overnight, and of course I’m aware that there are a number of administrative constraints, but I think it is of paramount importance that we do away with them. 
Accepting change And finally, I would add that the pursuit of this particular kind of progress, which is well under way, can continue only if we put a great deal of effort into training. We need to do more than simply make people aware. It isn’t enough for us simply to show or present to all of France’s small businesses a few examples of existing operations. We need to train those who run these businesses, so that they are not discouraged in their efforts by a fear of being overtaken by those younger than themselves, the fear of being outshone by their Webmasters, or by the fear of not understanding what is going on. They must be given enough training to understand, first of all, that they don’t need to understand everything, that they don’t need to know how it works, but that they must learn how to determine what they can gain from these new tools. Even if they don’t know how these tools work, their value added will lie in their ability to extract all the benefits of such instruments, to understand that small companies can be the proper applications for such tools. And here we need to offer them reassurance, and bring them into this new world by supplying the necessary training.
But we must also train a certain number of people whose jobs will be called into question, perhaps because the requisite qualifications will change. I’m thinking of those who work in computers, of course, who will be switching from one computer universe to another. But it’s also true of staff involved in distribution or in logistics. The organisational changes to come will sometimes call their jobs, and more often their skills, into question.
Train people in the new professions It is therefore essential, if we want to avoid bottlenecks — and this of course goes for large companies as much as for small — that we be in a position to provide the necessary training, in a timely manner, to help these companies evolve.

Lastly, we must provide training in the new professions. Electronic commerce brings with it the emergence of a series of new professions. If we don’t have the necessary men and women in place, in time, we will be held back by lack of resources. The simplest and most typical example is that of the Webmaster who is neither a computer scientist, nor a communications or marketing expert, but who in fact has to be all three at once. And we could go on giving similar examples. The arrival of the Internet, especially for small businesses, will bring the emergence and the development of new professions. These new professions must be understood, analysed and planned for, and the relevant training provided. This of course means that in our schools and universities, as they exist today, we must make a significant effort to integrate electronic commerce, to get people to start thinking about these new tools and their consequences in terms of the way companies operate.

This has been a quick overview, which in many respects looked beyond the world of small businesses, but which I think concerned small businesses primarily. It is quite clear, then, that the Internet represents a tremendous opportunity for both small businesses and start-ups, offering a new space on a global scale. We must seize this opportunity. Governments have a crucial role to play, at the local, regional, national and Community levels. But they can make an intelligent contribution only if, once again, they work in close collaboration with market players on a daily basis. And they must refrain from acting in a spirit of wild enthusiasm, because this will simply increase the sense of confusion felt by companies, and particularly small businesses.
Let’s make life simpler for small businesses My final remark: let’s make life simpler for small businesses. 
  Thank you.