Report: Central European B2C Online Sales on Shaky Ground

According to a new IDC report, total e-commerce revenues for Central Europe barely broke the US$100 million mark in 2000.

That number is expected to grow to more than $650 million by the end of 2001, but B2C will reach only about $250 million, a relatively small total compared to other countries with similar levels of Internet penetration, the report said.

Portugal's Pitfalls

Scott Moore, European analyst for IDC, told the E-Commerce Times that to put the numbers into perspective, Portugal, which is about a third of the size of Central Europe, is predicted to reach almost $850 million in annual e-commerce revenues.

Part of the problem is that the region's regulations and administrative practices make electronic payment difficult, and few consumers or companies have credit or debit cards, Moore said.

"The growth rate is not so dramatic considering that the market is still relatively small," Moore said. "One of the major challenges is that most smaller companies, and consumers, still do not have access to the basic infrastructure which enables e-commerce, Internet access, or even PCs."

Web or the Mall?

E-business in Central Europe may face its stiffest competition in -- of all things -- real-world shopping malls. Moore said there has been a boom in shopping mall construction over the past several years, which are seen as complete entertainment centers with a much larger and more convenient selection of products than central Europeans can find online.

"In general, central Europeans are more reluctant to consider online purchasing because of social and cultural reasons," Moore said. "Localization is even more important in Central Europe than it is in Western Europe."

Back to Business

The news is much better on the B2B side, which IDC predicted will make up two-thirds of all e-commerce central European revenues next year. Online procurement as part of a supply chain will make up a fifth of that total.

According to the report, the high levels of recent foreign direct investment flowing into the region have laid the foundations for the adoption of electronic procurement systems, mainly in the rapidly expanding automotive and electronics sectors.

Moore said that the Central European economy has become increasingly driven by large multinationals, whose local subsidiaries are following in the steps of their international counterparts by investing in the necessary IT infrastructure and e-procurement.

"Opportunities are opening up now for U.S. and Western companies providing products and services which enable e-commerce," said Moore. "On the other hand, the majority of small/mid-sized companies in the region will only gradually adopt Internet technology and e-business. This makes addressing this market segment difficult even for local e-commerce players."

Tread Carefully

Ultimate success in the region depends on the type of business you have, Moore said.

"A company already focusing on say, the top 1,000 companies in Western Europe, should now look seriously at expanding their addressable market to include the largest companies in Central Europe," advised Moore.

However, the strategy for companies targeting small/medium-sized enterprises may be different.

"Such a company needs to carefully consider when to enter the market depending on expected timeframe for a return on investment," said Moore. "Depending on the type of product/service, it may make sense to set up a small local operation or direct presence, which over time gains experience and critical mass, or it may be more appropriate to acquire or partner with an existing local player."