RESULTS FROM THE STUDY ON THE IMPACT OF ELECTRONIC

COMMERCE ON THE SPANISH AUTOMOBILE INDUSTRY.

Publication subsidized by
 ÍNDEX

1. INTRODUCTION

2. THE AUTOMOBILE INDUSTRY

2.1. The automobile industry in Spain.

2.2. The automobile industry in the world.

3. DESCRIPTION OF THE ADDED VALUE CHAIN OBJECTIVE OF

THE STUDY

4. CONCLUSIONS OF THE SURVEY ON THE IMPACT OF

ELECTRONIC COMMERCE ON THE AUTOMOBILE INDUSTRY

4.1. INDUSTRIAL AND ECONOMIC CHARACTERISTICS OF

THE AUTOMOBILE INDUSTRY.

4.2. TECHNOLOGICAL CHARACTERISTICS OF THE

SURVEY IN CONNECTION WITH THE BUSINESS ACTIVITIES.

4.3. MOTIVATIONS, OBSTACLES, AND INCENTIVES IN THE

IMPLEMENTATION OF ELECTRONIC COMMERCE.

4.4. IMPACT OF ELECTRONIC COMMERCE IN THE

GENERAL BUSINESS FUNCTIONS.

5. THE AUTOMOBILE AND ELECTRONIC COMMERCE: FUTURE

TRENDS

1
1. INTRODUCTION

2
 1. INTRODUCTION

This study is part of a joint project for the Study of Electronic Commerce
in the Spanish Textile, Tourism and Automobile Sectors (CELTTA Project). It is,
therefore, a project carried out on a “co-operative” basis, according to what is
established by article 3, section 3, letter b) of the Orden de 7 de marzo de 2.000
law, which regulates the bases, the aid scheme and the management of the
PROFIT, and, to this purpose, it has received support from the Spanish Ministry
of Science and Technology. This study is carried out under the sponsorship of
the OCDE, simultaneously in other European countries.
By means of this co-operative process, each one of the organizations taking
part in this study, has carried out the part corresponding to the sector it
represents, in this way ANFAC has taken care of the Study on the Impact of
Electronic Commerce in the Spanish Automobile Sector.
The remaining participants in this project, IBIT and CETEMMSA, have carried
out the studies on the Tourism and the Textile industries, respectively.
The co-ordination task between the different projects has been assumed by
FUNDACION CETEMSA.

With regard to the Spanish Automobile Industry, the objective or main aim of the
study has been to identify the impact of electronic commerce on the businesses
that manufacture cars and on various of their production parts suppliers. We
consider this objective to be completely fulfilled.

In connection with the technology objectives, the types of technologies being

used by the manufacturers and suppliers when carrying out the different
business transactions, from offer to payment, going through the whole supplying
process have been determined.

With regard to the socio-economic objectives, this project has identified the
reasons why electronic commerce was introduced in each one of the
businesses and in the sector, which obstacles and incentives this new channel

3
found, what factors encouraged the business decision, what internal and
external support and opposition factors were found and how the company’s
business strategy policies influenced the decision.

The study also takes into account the effects of electronic commerce on these
companies and on the automobile sector, both at the cost level and regarding
management procedures.

There have been greater difficulties when trying to obtain an insight into the
future of electronic commerce, and it is only possible to, in a limited way, point
at the likely future trends. As for the reasons why obtaining a more conclusive
answer regarding the future of electronic commerce has not been possible, they
should be found maybe in the dependency on external decisions, since all of
the companies are multinational businesses, so the technological policies are
determined for the whole business group by the respective head companies.

DESCRIPTION OF THE STUDY

The study has been developed for a total number of fifteen companies, from
which five are car manufacturers and the remaining ten are spare parts
suppliers, all of them established in Spain.
The participant businesses have been the following:

Car manufacturers:

OPEL ESPAÑA
NISSAN MOTOR IBERICA
CITROEN HISPANIA
PEUGEOT ESPAÑA
FORD ESPAÑA

First level supplying companies:

ACERALIA CORPORACION SIDERURGICA

4
LEAR CORPORATION
FAURECIA ASIENTOS PARA EL AUTOMÓVIL ESPAÑA, S.A.
NEUMÁTICOS MICHELIN, S.A.
GESTAMP TOLEDO
VALEO CLIMATIZACIÓN
VALEO ESPAÑA
INSONORIZANTES PELZER, S.A.
CEFA
DELPHI AUTOMOTIVE SYSTEMS
ROBERT BOSCH

The questionnaire used when carrying out the study was a translation done by
CETEMMSA of the model provided by the OCDE.

The filled in questionnaires are attached as annexes, as requested by the

OCDE through the co-ordinator of the co-operative project, though without
making the name of the interviewed company available, in order to ensure
confidentiality.

Also included as annexes, there are, on one hand, the presentation in Spain of
the Portal Covisint, from January 16, 2001 in Barcelona, an event organized by
ANFAC- Odette España with the co-operation of the Spanish Ministry of
Science and Technology and, on the other hand, the CEAGA Proyecto de
Portal.

5
2. THE AUTOMOBILE INDUSTRY

6
 2. THE AUTOMOBILE INDUSTRY

2.1. THE AUTOMOBILE INDUSTRY IN SPAIN

BASIC DATA

The greatest contribution to the GDP in the Spanish economy, aside from the
building industry, is made by the automobile industry, with 6.5 trillion pesetas in
the year 2000 (6.23 trillion in 1999). Likewise, the extraordinary contribution
to the balance of trade, with 4.2 thousand million pesetas in exports,
which represents more than one fourth of the total amount of export trade
in Spain must be stressed.

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From the data contained in the table above, the following are worth highlighting:
- 75,000 people employed directly in the sector in Spain.
- Approximately 2,000,000 people employed indirectly.
- An annual turnover of 6.5 trillion pesetas.
- An annual investment of 219 billion pesetas.
- 3,032,874 vehicles produced.
- 12 companies established with 12 factories.
- 1,718,215 registered vehicles.

7
TAX CONTRIBUTION OF THE AUTOMOBILE INDUSTRY

The Spanish automobile industry generates, as can be seen in the table below,
a yearly 2.8 trillion pesetas in taxes, all concepts included and the Plan Prever
bonuses deducted.

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The total production of vehicles in Spain (year 2000) reached 3,032,874 units,
from which 2,366,359 were private cars. The rest is as itemized in the following
table.

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As it can be observed, the production of private cars in Spain increased

significantly in the year 2000, with a considerable growth of 7.14%, due mainly
to the great success of the new car models launched in 1999. Spain still is
among the main producing countries, the third in rank within the UE and the
sixth on a world-wide level.

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Although the study of the impact of electronic commerce does not tackle the
issue of commercialization, we deem it interesting to give an insight into the
reality of this sector in this field. So, the sales to domestic economies and to
non-renting companies have been the most dynamic and the ones which have
given the domestic demand a more intense push.

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DIAGRAM: REGISTRATION OF PRIVATE CARS BY SEGMENTS

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Taking the private cars as the most significant sub-sector in this section, from its
distribution by segments, we can observe how the mono-volume vehicles have
undergone an increase, achieving a percentage from a little over 1% in 1996 to
7.1% in the year 2000, the group of more compact mono-volume vehicles
growing most significantly. Nevertheless, the greatest number of units still
belongs to the low and medium segments, which together make up almost 60%
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10
tendency to decrease in the smallest segment (from 36.5% in 1997 to 30.8% in
2000) favoring the medium segment.

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FOREIGN TRADE

In the year 2000, 82.6% of the Spanish production of vehicles was exported,
amounting to up to 2.5 million units (8.7% more than the previous year), the
United Kingdom and France being the main destination markets.
In the following diagram, we can see the main countries of destination for these
exports.

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With regard to exports by vehicle types, private cars remain the most important
group of exports with 1,951,932 sold units. Industrial vehicles as a whole have
reached the number of 551,992 sold units.

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12
2.2. THE AUTOMOBILE INDUSTRY IN THE WORLD

PRODUCTION AND DEMAND OF VEHICLES

The world production of vehicles, both private and industrial, reached 57 million
units produced in the year 2000 (14% more than the previous year). With this
figure, the crisis experienced in 1998 due to the financial and economic
disruption in some producing countries seems to have come to an end. Like in
previous years, the European Union is the first vehicle producer with 17.2
million vehicles and a variation 00/99 of –1.15%. Production in the USA,
including Canada, was of 17.075 million vehicles, followed by Japan in the third
position, with 10.144 million vehicles manufactured in 2000.

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Dividing world production into large geographical areas, regarding private cars
specifically, the world production has been 40.5 million units (a year-to-year
increase of 12.5%). This rate is fundamentally due to the steady pace of
production of the North American industry (United States and Canada), which
produced almost 8 million vehicles in 2000 (an increase of 14.3% in comparison
with 1999). The EU produced 14,916,000 vehicles (-2.6%), while Japan
manufactured 8,363,000 units (3.2%), keeping, however, their first and second
places, respectively, as world-wide producers. South Korea, for its part,
produced 2,602,008 private cars.

13
As for the production of industrial vehicles, the North American industry
maintains the first position with 9 million manufactured units. Far behind, there
is the European industry, with 2,246,000 units, and the Japanese with
1,782,000 vehicles. South Korea produced 512,990 units.

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Looking at the production by countries and segments, Germany was the first
private car producing country in the year 2000, followed by France and Spain.
However, with regard to industrial vehicles, Spain was the first European
producer, followed by France and Germany.

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The private cars market in the EU reached 14,314,575 registered units, 2.2%
less than in the previous year. Even so, the EU places itself above Japan, with
4,154,000 units and North America, with 10,024,000 registered vehicles, thus
keeping its position as main world market.

14
The figures regarding registrations in Europe are shown in the following table:

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As can be observed in the table, in the year 2000 the European private car
market produced up to 14,314,575 registered units, with a decrease of 2.2%.
This variation is due to the negative growth of some of the main markets--
France, -0.7%, Spain, -1.8%--and to the fall of the most important one, the
German market, which suffered a decrease of 11.1% compared to 1999. In the
industrial vehicle market within the European Union, it is worth mentioning that
there has been a backward movement of 3.10% in the case of Germany, with a
total amount of 314,817 units sold, in contrast with the dynamism of other great
markets like Italy or France, who sold 226,500 and 447,204 units, respectively.

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3,745,065 units exported. In the industrial vehicles market, Spain appears as
the main exporting country with 551,992 units.

15
 • Summary of the most relevant data of
the Automobile Industry in Spain

- Third European producing country and sixth

worldwide (3,032,874).
2- 6.5% participation in GDP income.
3- Around 24% of the total Spanish exports of goods
belong to the sector, and 16% to vehicles.
4- 82.6% of the vehicle production is exported.
5- The income in the year 2000 was 6.5 trillion
pesetas.
6- The sector employs approximately 75,000 people
directly.
7- The sector employs up to 2 million people
indirectly.

16
3. THE ADDED VALUE CHAIN OBJECTIVE
OF THE STUDY

17
 3. THE ADDED VALUE CHAIN OBJECT OF THE STUDY

A) Description of the general added value chain of the automobile

industry (including non-objective phases of this study).

The general added value chain for the automobile industry is as follows:

FINAL CUSTOMER

DEALERS

AUTOMOBILE MANUFACTURER

FIRST LEVEL SUPPLIER

SECOND LEVEL SUPPLIER

N LEVEL SUPPLIER

That is, the general value chain of the automobile industry ranges from the
supply of raw materials used in the manufacturing process to the semi-finished
products--like metal sheet--that will later be transformed, and finished spare
parts and pieces--like wheels--which may in turn be supplied directly to the
manufacturer or to another first level supplier who will be able to assemble a
complex structure--like the front wheel assembly--later integrated with the
remaining elements and used in the vehicle assembly by the builder. The
vehicle is then supplied to the dealer, who makes it available to the final
customer.

18
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B) Description of the value chain in the automobile industry for the

objectives of this study.

The added value chain of the automobile industry for the objectives of this study
is as follows:

AUTOMOBILE MANUFACTURER

FIRST LEVEL SUPPLIER

The added value chain under study here is the one belonging to the production
supplies, more precisely, the necessary relations in order to guarantee the
supply of first level spare parts and pieces to the automobile manufacturer. We
consider first level supplier the one that supplies the manufacturer directly.

19
Limiting the study to this scope is mainly due to the fact that the systems used
in the automobile sector are the standardized Odette for the electronic data
transmission, and these systems are used exclusively in production supply
logistics. The standardized Odette systems do not reach the finished vehicle
distribution, since each dealer has exclusive business relations with its own
brand and each one has, therefore, its own internal electronic communication
system for its sales network.

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20
4. CONCLUSIONS OF THE SURVEY ON
THE IMPACT OF ELECTRONIC
COMMERCE ON THE AUTOMOBILE
INDUSTRY

21
 INDEX

4. CONCLUSIONS OF THE SURVEY ON THE IMPACT OF ELECTRONIC

COMMERCE ON THE AUTOMOBILE INDUSTRY

4.1. INDUSTRIAL AND ECONOMIC CHARACTERISTICS OF

THE SURVEYED COMPANIES.

4.2. TECHNOLOGICAL CHARACTERISTICS OF THE

SURVEYED COMPANIES WITH REGARD TO THEIR
BUSINESS ACTIVITIES.

4.3. MOTIVATION, OBSTACLES, AND INCENTIVES IN THE

IMPLEMENTATION OF ELECTRONIC COMMERCE.

4.4. IMPACT OF ELECTRONIC COMMERCE IN THE

GENERAL BUSINESS FUNCTIONS.

22
4. CONCLUSIONS OF THE SURVEY ON THE IMPACT OF
ELECTRONIC COMMERCE ON THE AUTOMOBILE
INDUSTRY

4. 1. INDUSTRIAL AND ECONOMIC CHARACTERISTICS OF THE

SURVEYED COMPANIES

MAIN PRODUCT OR RANGE OF PRODUCTS OF THE COMPANIES

(Question 1):

As for the providers, their main activity is the supplying of pieces and
components, which are in most cases finished products incorporated directly on
the product in the production chain.
As for the manufacturers, they manufacture (assemble) vehicles for their
commercialization.

STATUS OF THE COMPANIES (Question 2):

Regarding the manufacturers, 100% of the companies contacted are

multinational companies. As for the suppliers, virtually all of them are also
multinational businesses.

PEOPLE EMPLOYED (Question 3):

A) Manufacturers:

At national level, from the five manufacturers surveyed, one has a staff of 5,000
employees, three have an average of 5,700 workers, and the fifth company has
more than 6,000 employees.
At international level, a manufacturer has 70,000 employees, two have an
average of approximately 120,000 and another has a staff of over 165,000
workers.

23
B) Suppliers:

Four of them work with less than 1,000 employees (an average of 300), another
four have staffs with an average of 4,500 employees, and another two have an
average of over 12,000 workers.
At the international level, three of the suppliers have an average staff of 3,200
workers; two an average of 65,000 and three have a staff of over 140,000
employees. Two of the suppliers would not provide data in this area.

BUSINESS FIGURES (Question 4)

A) Manufacturers:

They have an income of 19,000, 95,000, 250,000 and 297,000 million pesetas,
respectively.

B) Suppliers:

Two of the suppliers have an income of less than 10,000 million pesetas. Three
of them fluctuate between 10,000 and 100,000 million, another three between
100,000 and 500,000 million. The remaining two have not contributed with any
data.

SUBSIDIARY OFFICES (Question 5)

A) Manufacturers:

Three have less than ten subsidiary offices and two would not answer this
question.

B) Suppliers:

Eight have less than ten subsidiary offices and two between 10 and 100.

24
SUPPLIERS AND CUSTOMERS DEALT WITH (Question 7):

A) Manufacturers:

Two of the polled companies make business with between 100 and 1,000 and
three with more than 1,000 suppliers.

B) Suppliers:

Six of the surveyed companies deal with between 10 and 100 suppliers, two
with between 100 and 1,000 companies, and two with more than 1,000
suppliers.

SIZE OF THE COMPANIES THEY DEAL WITH (Question 9)

A) Manufacturers:

Five of them deal with small and medium sized companies and with big
companies. Besides, from the five automobile manufacturers, four also have
business relations with very big companies.

B) Suppliers:

From the ten surveyed suppliers, two deal with very small companies; all ten, in
turn, deal with small and medium sized businesses; at the same time, nine of
them deal with big companies; and nine of the ten suppliers have business
relations with very big companies.

MARKET SITUATION AND INFLUENCE OF THE PLAYERS (Questions 12

and 13):

25
The automobile sector is a stable market, formed by the usual manufacturers
and suppliers, where, with a few exceptions, there are no new companies
entering it or existing companies leaving.
We are, all in all, in a market with little mobility, where important movements in
or out are rare, even more so on the part of its main players--namely suppliers
and competitors. This fact illustrates the high competitiveness within the sector.
The automobile manufacturers deem the role of the suppliers decisive in the
sector, as well as the competitors’ role, considering the influence of the
intermediaries of a moderate to high importance.

The suppliers' opinion is that they are in a market where remarkable

movements are rare, mostly regarding customers and competitors. There is a
strong--but not generalized--tendency to believe that suppliers sometimes enter
and leave the market. The suppliers, when deciding on their strategies, take into
consideration the fact that the main players in the automobile market are the
competitors and the customers, by which it is understood that the competition is
fierce.

BUSINESS PROFILE (Questions 14,15,16 and 17):

A) Manufacturers:

 Transaction structure: Negotiation, proximity, flexibility, and availability of

reliable and safe logistics and telecommunications systems are features worth
mentioning.

- Business structure: The most relevant actions are the purchase of raw
materials and components, the transformation, assembly distribution, and sale.

- Production inputs: The sector is characterized by frequent and merely

sufficient supplies in order to minimize stock transit (just in time).

26
 B) Suppliers:

- Product: The components provided range from tyres, sheetmetal, seat

frameworks, soundproofing pieces, and clutches to valve-operating gears, air
conditioning devices, etc.

- Transaction structure: A significant feature is the partnership at work between

manufacturers and suppliers. And the programming of sequenced deliveries
and JIT supplies. Another remarkable factor is the proximity to the customer.

- Business structure: This is a fundamentally manufacturing activity. Certain raw

materials are purchased from the suppliers in order to transform them in to
finished or semi-finished products. Shared design is also worth mentioning.

- Production inputs: Adjustment to the customers’ demands.

4. 2. TECHNOLOGICAL CHARACTERISTICS OF THE

SURVEYED COMPANIES WITH REGARD TO THEIR BUSINESS
ACTIVITIES

TECHNOLOGY OF THE MANUFACTURERS

• Transaction preparation activities:

1-Advertising: The www is the preferred means, although other traditional

means are still in use.

2-Product and stock lists: The manufacturers use the www, electronic mail,
and the EDI as the main technological means to send their catalogues.

27
3-Information services: All five manufacturers opt absolutely for the use of
electronic mail in this respect. Even so, four of them alternatively use other
technologies like the fax, the telephone, etc.

4-Negotiation: Fundamentally, the means preferred by the manufacturers when

carrying out negotiations is electronic mail. In spite of technological changes,
companies are reluctant to leave aside the traditional means of communication,
which they combine with the use of the new technologies.

For the transaction preparation activities, the technologies most widely

used by the manufacturers are the www and the electronic mail.

• Activities to end the transaction:

1-Orders: The manufacturers use standardized Odette (EDI) messages for

placing orders, given the great amount of information sent and received and too
the great number of interlocutors to be contacted. From the five producers, four
use additional technologies like the fax, the mail, the telephone, etc.

2-Invoicing and expenses: These areas are dealt with in the companies by
means of traditional technologies, due to the purely administrative nature of
these processes and to the distrust of the way of payment.

3-Deliveries: The five companies have incorporated the new technologies to

carry out this activity, EDI being the most commonly used (by all the
manufacturers).

4-Financial services: Three producers have taken on the new technologies in

this area--one of them uses the electronic mail--while the other two opted for
traditional communication means like the fax, the telephone, the mail, etc.

28
For the end of transaction activities, the manufacturers mostly use the EDI
system, although the use of more traditional technologies like the fax, the
mail, the telephone, etc., still have great importance in this context.

TECHNOLOGY OF THE SUPPLIERS

• Transaction preparation activities

1-Advertising and product and stock lists: 40% of the surveyed suppliers do
not use any application to carry out this activity, 40% of the suppliers use the
www as a means of advertising and the remaining 20% make use of electronic
mail.

As for the applications used by the suppliers when publishing their catalogues
and stock lists, we find that 50% of the polled companies use the electronic
mail; also 50% make use of the www, and 40% use other means of
communication.

2-Information services and negotiations: The technology used by the

suppliers for information services is mainly electronic mail, followed by the use
of the www.

As for negotiations, the suppliers largely prefer the use of electronic mail to any
other technology.

For the transaction preparation stage, the electronic mail is the

technology facility most widely used by the supplier companies.

• End of transaction activities:

1-Orders and invoicing and payment: With regards to ordering activities, the
main application that the suppliers prefer using is the EDI, in 100% of all cases,

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followed by the use of the electronic mail in 60% of cases, and 40% of the
suppliers prefer to keep using other traditional means. As a significant piece
of information, 20% of the surveyed suppliers are starting to use the EDI
on the internet, the www, and the extranet to place their orders.

For invoicing and payment procedures, 70% of the polled supplier companies
use the EDI system, 50% prefer to keep using other means, while 40% consider
electronic mail essential in these activities.

2-Financial services and deliveries: 50% of the suppliers did not contribute
any information about financial services, 30% use the EDI for these procedures,
and 40% opt for the use of electronic mail.
Deliveries still depend fully on the EDI system, as is the case for the
manufacturers. Here, 100% of the supplier companies use it as the main
application.

It is worth highlighting that the EDI system is the most used in the end of
the transaction stage.

TECHNOLOGY MIGRATION

A) Manufacturers:

There has been a migration towards the use of the EDI system by the
manufacturer companies that did not use it in the past, concerning the functions
of product and stock lists and deliveries, with a 20% increase in both, as well as
an increase in the use of EDI for the ordering and invoicing and payment
functions, both growing up to 40% of the total of cases.

The migration towards the use of EDI internet has increased for the functions of
ordering, invoicing, and payment and deliveries, 20% in all of the cases. This is
not surprising, since these are the areas that use EDI the most in the whole
automobile sector.

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Three of the manufacturing companies answered that with the migration
towards the use of EDI and EDI internet, they seek a greater profitability and
competitiveness, although the main reason is its lower operative cost and the
rapidity and flexibility of supply.

One of the surveyed manufacturers answered that they are trying to increase
the speed and the option to have access to new customers and suppliers with
the use of the www.

The extranet begins to be used in functions such as negotiations (40%), orders

(20%), deliveries (20%), and to send the product and stock lists (20%). Two of
the manufacturers argue that by making use of this technology they intend to
implement a standard technology and, thus, diminish the operational cost.

We may highlight, aside from the answers regarding the migration, the initiative
of the great European manufacturers to create a virtual private network
operated with internet technology (ENX Network), which, in the mid term, will be
used by the companies in the sector.

B) Suppliers:

The areas migrating to the EDI system are the orders and deliveries areas,
although it is starting to be used in invoicing and payment and, to a lesser
extent, in the information services and financial services areas.

The migration towards the use of EDI and EDI internet done by the supplier
companies in order to carry out the above applications, is basically attributable
to customer demand, in spite of the fact that the need to adapt to the market
should not be overlooked.

The increasing use of the www in the different activities of the process of
transaction is due to the fact that the internet makes available a cheap and
simple solution, accessible without need for great investments in applications. It

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is worth mentioning that two of the polled suppliers have their own provision
sites.

The extranet is starting to be used by suppliers, mainly in the activities that

involve sending product and stock lists, information services, negotiation, orders
and invoicing, and payment, in 20% of the cases.

4. 3. MOTIVATIONS, OBSTACLES, AND INCENTIVES IN THE

IMPLEMENTATION OF THE ELECTRONIC COMMERCE

MOTIVATIONS:

Expectations in the business functions (Question 30)

The main expectations the companies had regarding electronic commerce were
related to activities like ordering (80%), deliveries (73%), negotiation (60%),
invoicing and payment (53%), and information management (47%). On the
other hand, they did not expect to obtain great results from the application of
electronic commerce to activities like finance (67%), advertising (60%), market
research (60%), market development (60%), or information research (53%).
There is disparity of expectations for activities such as information services and
product and stock lists, where half the companies expected the introduction of
electronic commerce to boost their use, the rest did not expect any
improvement.

Expectations of the e-commerce in the business in general (Question 31):

Of the surveyed companies, virtually all of them, did not expect any innovations
to occur with regard to the product.

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The expectations of the companies from the application of the electronic
commerce were high concerning innovation in the processes, because the
electronic commerce needs to be able to count on logistics. It is essential to
develop a correct strategy regarding the cost generated for the company by the
distribution of products, since one of the main factors that deters the customer
from purchasing a product is the shipping cost.

Innovation in relations is not an area where improvements were expected with

the initiation of electronic commerce.

OBSTACLES AND INCENTIVES

Question 33:

1- Telecommunication infrastructures:

With regard to telecommunication infrastructures, six of the surveyed

companies positively assess the telecommunication cost, which means a
successful factor in the initiation of electronic commerce. As for network
reliability, seven of the companies stated that it had not been a problem for the
implantation of electronic commerce. The network flexibility was an incentive for
most companies, as confirmed by eight of them.

2-Legal factors:

With regard to legal factors, the answers from the companies are not sufficiently
conclusive, since the number of companies that consider these factors as a
neutral force in relation with electronic commerce initiation is approximately the
same as those who consider it a favorable factor or, at the other end, with those
who see it as being unfavorable. This almost proportional disparity of criteria
prevents the drawing a clear conclusion.

3-Internal factors:

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Internal factors are seen as probably the most influential element in the
implementation of electronic commerce by 93.4% of the companies.

4-External factors:

External factors, in general, understood as the relations with other companies,

were considered favorable in order to potentiate the implementation of
electronic commerce. Among the answers given, it is worth mentioning that the
presence of other transaction systems did not pose an obstacle towards the
implementation of electronic commerce in any of the companies surveyed. The
business relations and the brand image (53%) were considered the most
favorable external factors to the mentioned implementation.

5-Strategy factors:

The only element deemed as a relevant strategy factor deriving from electronic
commerce is the fact that it makes the business relations management easier.

6-Government policies:

The policy followed by the Spanish government was, in most cases, considered
at the most as having "no effect" on the implementation of electronic commerce.
The reasons for this opinion may be found in the fact that the people in the
companies responsible for answering the questions of the survey are not the
people responsible for taking the decision of implementing the new systems in
the company.

USEFUL MEASURES FOR THE GOVERNMENT TO ENCOURAGE THE

ACCEPTANCE OF ELECTRONIC COMMERCE (Question 34):

A) Manufacturers:

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The measures suggested by the manufacturers to be put into practice by the
government with the aim to encourage the use of electronic commerce are the
following:

- Improve the legal/tax framework to further favor development.

- Increase in grants and subsidies in order to favor the implementation
of the new technologies and the improvement of systems.
- Cost reduction and improvements in the telecommunication service
via competitors.
- Promoting the use of the new information technologies in the
government administration in a wide sense, in the administration of
relations with its suppliers, tax payers, and "customer" citizens.
- Guarantee security and confidentiality.
- Giving incentives for the mentioned implementation by means of
training programs.

B) Suppliers:

The measures suggested by the suppliers for the government to be taken into
consideration are the following:

- Circulation of grants and incentives for the introduction of electronic

commerce.
- Simplification of procedures by the public administration.
- Make competition easier in the field of communication.
- Training programs on new technologies and training grants.
- Investment in infrastructures needed to make electronic commerce
possible.
- Subsidies for companies which develop electronic commerce
programs as a business management tool, increase competitiveness
by reducing costs, and increasing customer service.
- Reinforce the legal/tax framework favoring development.

4. 4. IMPACT OF ELECTRONIC COMMERCE IN THE BUSINESS

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FUNCTIONS AND IN THE BUSINESS IN GENERAL

IMPACT

Impact on business functions (Question 35):

The areas that have felt the greatest impact from the application of electronic
commerce are, basically, the orders (53%), deliveries (47%), negotiations
(40%), and invoicing and payment (33%). On the other hand, the activities that
have shown little or no improvement with electronic commerce are advertising,
market analysis and development--where in 53% of the cases there has been
no such impact, finance--where 47% of the companies state that there has not
been any improvement, and information management, according to 40% of the
companies. Other activities like catalogue and stock lists management,
information services, information research, have, according to half the
companies surveyed in this study, experienced some improvement after the
implementation of the electronic commerce, while the other half of the
companies have not deemed this impact to be relevant.

Impact of e-commerce on the business in general (Question 36):

As for the innovation of the product, electronic commerce has not brought any
improvement concerning diversification, personalization, or packaging of the
products developed by the companies.

The innovation in the processes within the companies has indeed had the
expected effect, at least to a large extent. Hence, the effect has been
accentuated in areas such as logistics and co-ordination.

The innovation concerning relations has not undergone any significant effects
following the implementation and application of electronic commerce. Only in
matters concerning credibility and fidelity, a portion of the companies (20% and
27% respectively, on these questions) consider that there has been innovation
as a consequence of the introduction of electronic commerce.

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NOTE: The statistical data supporting these conclusions can be found in
detail in ANNEX 6.1. ANALYSIS OF THE ANSWERS OF THE COMPANIES
SURVEYED.

37
5. THE AUTOMOBILE AND ELECTRONIC
COMMERCE: FUTURE TRENDS

38
 5. THE AUTOMOBILE AND ELECTRONIC COMMERCE:
FUTURE TRENDS

The automobile industry, in spite of its secular nature and its apparent maturity
as an industrial activity, has always been characterized by its great dynamism
and innovation capacity in all its aspects, including, of course, the use of the
communication channels and what has more recently become Information
Technology.

Thus, taking up and propelling state of the art technology in every aspect,
makes the automobile industry different from any other sector related with
industrial activity. This sector has traditionally represented a reference point in
regards to quality, manufacturing and logistics systems efficiency, management
techniques and, of course, communication.

A clear example of the above stated is the OFTP (Odette File Transfer
Protocol), that appeared in the 80’s to offer a solid and international solution to
the communication needs within the automobile industry. Based on this
protocol, the EDI (Electronic Data Interchange) development came as a
revolution in the customer-supplier relations, enabling these players to have a
more fluent and efficient communication, which also entails costs cutting.

At that time, when the X-400 regulations were still under development, the
automobile industry outlined and started the OFTP, which is nowadays used
internationally and has been implemented in several countries of five
continents. In the case of Spain, it is additionally used by most of the EDI users,
not only within the automobile industry, but also from other sectors, including
transport, chemistry, electronics, information technology, etc.

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It was also the automobile industry that, for the first time, requested in Spain
and in the European market the VAN (Value Added Network) concept, which
brings together the concepts of network access, service center, user’s software,
and customer attention center. This model, which started at the end of the 80’s,
has been valid up to the present and its evolution is taking shape with the IP
network, the virtual private networks, and recently mostly sector-centered
initiatives like ANX/ENX have appeared.

ENX (European Network Exchange) is a network for information transport

based on the TCP/IP (Transmission Control Protocol/Internet Protocol) family of
protocols, which allows a secure and efficient way to exchange information
between business partners connected to certified service suppliers.

The main objective of the ENX Project, where lies its added value, is
substituting the expensive, complex, and multiple connections that the current
communication infrastructures of the automobile sector companies bear, for an
infrastructure adapted to the current times, secure and with high performance
qualities. A single connection which allows the companies connection with all
their business interlocutors, both internal and external.

Its favorable position in front of other networks like the internet, becomes clear
when noting that the internet, for example, even having broadened its use in the
past few years due to its low cost, worldwide nature, and easy use, is still not an
ideal place for certain types of business because of, among other aspects, its
lack of security and reliability.

On the other hand, the growth of the electronic commerce and businesses in
general in a virtual environment is a fact, and its consequences in the business
activities is being widely analyzed. The forecasts, as can be observed in the
diagram below, envisage a spectacular growth in the next years.

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 E-commerce forecasted income for 2003
Trillion $
OECD 1000
Intel 1000
Deloitte & 1100
Emarketer 1244
IDC 1317
Active 1324
Forrester (EDI excluded) 1800
Forrester (EDI included) 3200

Figure 1: Forecasted growth of the electronic commerce, according to various sources.

At the so-called business to business level, embracing initiatives concerning the

business relations between companies, and at the business to consumer level,
regarding initiatives with regards to the relations between businesses and their
customers, the automobile industry also shows its innovative and pioneer
character.

It can be said that in this sector, the traditional web page, as an instrument of
corporate communication, has become a partially updated element. The most
significant phenomenon taking place at the moment in the web is the
proliferation of the so-called sectorial portals. These are nothing but the web
pages natural evolution, and they include more information, applications, and
resources than the web pages did in the same virtual site, now without having to
leave the page by using links to other pages the way it used to be. Besides, the
portal offers other services integrated in the same site, like hosting personal
web pages for the users of the portal, electronic mail service, chat sites for
information exchange between users, software downloading, and even services
of business intermediaries between the users of the portal and the portal
managers, on behalf of oneself or others.

Besides this general concept of the so-called sectorial vertical portals, in the
current automobile sector there are some concrete initiatives.

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The creation and launching of new portals focused on business activity between
companies like Covisint, arising from the impetus of GM, Ford, and
DaimlerChrysler, and which already counts the participation of Renault, Nissan,
and Lear Co, or the initiatives of groups like VW or PSA, in addition to the
purchase platforms created with the association of several providers in the
sector, are good evidence of the innovative character of this industry.

These portals, the ideal complement of the projects for the development of new
communication infrastructures mentioned above, embrace in general all the
areas of the value generating chain in the Spanish automobile industry. They
give solutions to aspects related with design and conception of new products, to
the purchase processes and the relations with suppliers, to the logistics
management and the supply chain, and they even suggest alternatives to the
traditional sales channels, taking then the business to consumer character.

Covisint in particular, mainly focused on orchestrating the relationship between

the vehicle manufacturers and their first level business partners (suppliers of
level 1 spare parts and pieces, non productive suppliers, and subcontracted
services, management, etc), is directing its development towards three areas:

1. Procurement Area, where several applications and services will be included:

ΠCreation of global electronic markets

ΠAuctions and bidding on-line
ΠHosting products and services catalogues of the suppliers
ΠPlacing orders on-line from the catalogues and pre-established contracts
ΠBrowsers for specific products and services, specialized suppliers, etc.,
all over the portal
ΠAreas of specialized electronic markets: connecting specific suppliers
with buyers who have particular needs

2. Supply Chain Management Area, with a range of applications that would

include:

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 ΠApplications EDI, XML, and the electronic forms.
ΠPlanning and producing forecasts jointly:
ΠDifferent organizations belonging to the same supply chain will be
able to share information on their order forecasts, their capacities,
and their Lead Times.
ΠGuarantee the fulfilment of terms and requirements set by the final
customers, the manufacturers.
ΠMaterials influx management
ΠPublishing information on product demand, inventory levels and
capacity restrictions all along the supply chain.
ΠCo-ordination of transport and other logistics services.
ΠTransport contractors and operators will know what the customer
demand is and manufacturers will know what their real and updated
capacity is.

3. Product Development Area

ΠWill provide shared development services in real time:

ΠInformation services for the development of new products
ΠMarket, tendencies, quality of the products research projects
Œ Information (not restricted) on competitors’ products
ΠInteractive and co-operative development:
ΠProviding a single interface and common platforms to manufacturers
and suppliers.
ΠSharing with the suppliers:
− Product specifications
− Material lists

In view of the improvements in efficiency that may be introduced by Covisint

and other similar portals, some figures are already being mentioned in the
sector:

− Purchase channelling to the value of $750,000 Mill. Source: Expansion. 26

May 2000

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− Reduction in costs of up to 14%. Source: several publications.
− Different cost reductions by vehicle: USA ($1,200), EU ($640), Japan
($540). Source: Deutche Bank & Roland Berger.

In the Annex 6.2 there is more detailed information on Covisint from a

presentation carried out in Spain in January 2001. From this, the present
situation of Covisint and its development plans in the USA and Europe can be
drawn.

ΠUSA: The central office is located in Michigan, and 350 people work there as
an independent company. Pilot programs have already been developed for:

− Electronic auctions: 100 rehearsals since September 2000.

− Electronic catalogues.
− Offer management.
− Virtual area of products/projects development.

These are the first applications that will start functioning in the American
environment.

ΠEurope: The offices are temporarily located in Stuttgart, and 50 people work
there with the intention of becoming an independent company in the first
months of the year 2001, and starting to produce their applications in Europe
during the first four months of the same year. Pilot programs have been
testing:

− Electronic auction: 30 rehearsals since October 2000. Proving cost

reductions of between 15 and 20%.
It is expected to reach 1,000 transactions within the year 2001.
− Virtual area of products/projects development.

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On the other hand, there are in Spain a series of complementary initiatives
partially overlapping the field of action of this macro-portal. Among them, it is
worth mentioning the purchase portal opened by CEAGA, Cluster de Empresas
de Automoción de Galicia, that, even if it has very ambitious objectives--to
extend to all the value chain of the sector the EDI in its format closest to the
internet environment (EDIWeb/XML) and complement this with the creation of a
virtual multi-product market and other added value services--it still has a long
way to go. By personal communication of the author of the Project, we know
that it will limit itself to dealing with second level suppliers, those of non-
productive materials.

Insofar as these initiatives define their action field adequately--second level

suppliers and above or products not directly incorporated in the final vehicle--
their complementary character will allow them to implement themselves and
evolve towards a vertical integration. Otherwise, the possibilities of finding a
suitable response from the sector are reduced considerably.

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