E-commerce across Australia

Current Issues

E-commerce across Australia

E-Brief: Online Only issued Date September 2001

Michael Priestley, Analysis and Policy
Marilyn Stretton Information/E-links
Economics, Commerce and Industrial Relations Group


Electronic commerce refers to the buying and selling of goods and services over the Internet. The definition also includes other aspects of e-business, for example 'the transmission or receipt of information to improve the convenience and lower the cost of payment systems and tax compliance, and direct consumer marketing'.1

More generally, e-commerce is a new way of doing business and it already affects such large sectors of the economy as business services, communications, finance and retail trade (altogether over 25 per cent of Australia’s GDP). Currently around 80 per cent of total e-commerce activity is between or among businesses.

The emerging importance of e-commerce

The information economy, of which e-commerce is a fundamental part, offers enormous potential benefits to all Australians. It has the potential to improve the way in which Australians shop, access government services, maintain social relationships, conduct business, influence government policy and participate in the parliamentary process. It will also change the organisation of work.

Doing business on line will assist Australian businesses in capturing efficiencies and increasing their competitiveness. It will:

  • facilitate the development of new products, processes and services
  • establish electronic links between businesses or electronic data interchange (EDI) systems
  • increase productivity through cost reductions
  • assist businesses to develop new markets

It is estimated that for major developed economies like the US and Japan, the total economy-wide cost savings due to business-to-business e-commerce will be of the order of one-half to two thirds of a percentage point, which is equivalent to annual productivity gains of 0.8 per cent. (See the OECD report, The Economic and Social Impacts of Electronic Commerce, Chapter 2: The Impact of Electronic Commerce on the Efficiency of the Economy.)

While e-commerce is still in an embryonic stage, the Commonwealth Government has put in place the Strategic Framework for the Information Economy, which identifies the development of e-commerce and its infrastructure, ensuring that the benefits are accessible to all Australians. State and Territory Governments have also responded with programs to improve infrastructure and business capability with an emphasis on improving accessibility in regional areas.

Economic effects of e-commerce

The benefits of e-commerce to the economy in terms of reduced costs, higher quality, new products and larger markets are significant.

The recent E-commerce Beyond 2000 report estimated a number of specific macroeconomic effects of e-commerce over the next decade, including:

  • an increase in national output of 2.7 per cent
  • an increase in real investment of 4 per cent
  • an increase in consumption of 3 per cent
  • an increase in real wages of 3.5 per cent
  • an increase in employment of 0.5 per cent
  • an increase in the real exchange rate of 2 per cent

Current usage

The National Office for the Information Economy (NOIE) publication, The Current State of Play, reports on Australia’s on line performance in the context of the global information economy. It also presents a statistical overview of Australia’s readiness to participate in the information economy and the intensity and impact of this participation. According to the publication:

  • Australia is one of the most connected nations in the world, with 46 per cent of the population and 37 per cent of households accessing the Internet as at November 2000.
  • The estimated revenues of business-to-business e-commerce in Australia for 2000 was over US$2.3 billion, ranking higher than Taiwan, South Korea, Hong Kong and Singapore.
  • Small businesses are going on line at an increasing rate. In the period from June 1998 to June 2000, the percentage of small businesses on line increased from 32 per cent to 65 per cent.

The most recent Australian Bureau of Statistics quarterly survey of Internet activity (March 2001), provides an indication of the number of Australian households and Australian businesses connected to the Internet. The results from the survey show that there are close to 4 million Internet subscribers in Australia, downloading more than one billion megabytes of data over the previous three months (see table below). Of these subscribers, 482 000 are registered as business or government subscribers and these account for 41 per cent of the total data downloaded.

Internet activity summary, Australia

    September Quarter 2000 December Quarter 2000 March Quarter 2001

Very small

no. 132 129 129


no. 377 359 330


no. 173 171 169


no. 28 31 31

Very large










Internet access

Points of Presence


2 244 2 394 2 310

Access lines


521 645

515 740

490 108


Business and government







3 417

3 410

3 486



3 849

3 921

3 968

Data downloaded

Business and government subscribers

million Mbs




Household subscribers

million Mbs





million Mbs

1 052

1 050

1 040

Web sites hosted

Business and government


101 235

97 165

88 722

Business and government with secure transaction capabilities

no. 3 710 4 233 3 966

Source: Internet Activity, Australia, ABS Cat. no. 8153.0, March Quarter 2001, Table 1.1

The largest impact of business-to-business e-commerce will be on small and medium-sized enterprises (SMEs). The accessibility of the Internet makes e-commerce a realistic possibility for most SMEs. The June 2000 business report Small Business Index Survey of computer technology and e-commerce in Australia examined the extent to which SMEs are using the Internet. The survey found a lower than expected uptake of e-commerce by SMEs. Among the factors which accounted for this were inadequate computer skills, security concerns and concerns about losing physical contact with customers. Fewer than half of the SMEs surveyed believed there was potential in using e-commerce in their business. The survey also found that:

  • 60 per cent of small businesses and 89 per cent of medium-sized businesses with PC’s are connected to the Internet
  • 54 per cent of small businesses and 94 per cent of medium businesses are using e-mail to communicate with customers and suppliers
  • more than 25 per cent of small businesses and more than 50 per cent of medium businesses have a home page or dedicated Internet site
  • 11 per cent of small businesses and 17 per cent or medium businesses used the Internet to buy goods and services in the past year, and only 7 per cent and 15 per cent respectively sold on the Internet

Regional impact

The NOIE also undertook a regional study E-commerce Across Australia. Using the Monash Multi-Regional Forecasting (MMRF) model, the study simulated the effects of e-commerce across Australia. It found that all States and Territories benefit from e-commerce.

The States and Territories are projected to have a higher level of output (up 0.8 to 3.6 per cent) by 2010 with national GDP rising by 2.9 per cent. However, the extent of the benefits depends on their industry structure and the extent to which they are suited to embrace e-commerce. South Australia and Victoria are among the leaders in terms of preparedness and economic outcomes, followed by New South Wales and the ACT.

The MMFR model also predicted that most regions in the study would experience an increase in output and employment as a result of e-commerce. In particular:

  • Output will increase, on average, by two per cent across all regions in the study.
  • The majority of regions will experience increased output, but will lose some employment.
  • Regions that are characterised by new service-based activities and those with a diversified economy will gain most, whereas regions more dependent on just a few activities are vulnerable to an overall contraction.
  • Only three regions in the study are expected to have a fall in output and employment. These are heavily reliant on mining.

However, a recent national survey found that many regions across Australia were not well prepared to meet the challenge of e-commerce. The Industry in the Regions 2001 survey, which covered 635 firms across 12 regions in Queensland, New South Wales and Victoria, was conducted on behalf of the Australian Industry Group and the Commonwealth Bank. It found that regional industry was generally committing less resources to their long term growth and future competitiveness than industry overall.

The survey showed use of e-commerce and information technology was significantly lower in regional areas than the national usage (2.5 per cent for the regional survey compared to 5.6 per cent for the National June 2000 Survey).

ecomaus2.gif (120137 bytes)
Source: Australian Industry Group and the Commonwealth Bank, Industry in the Regions 2001, p. 79.

 No business was conducted over the Internet in 48 per cent of companies, while approximately 2 per cent of businesses did about 20 per cent of their business this way.

ecomaus3.gif (112019 bytes)
Source: Australian Industry Group and the Commonwealth Bank, Industry in the Regions 2001, p. 80.

While just over half (52 per cent) of companies used the Internet for promotion, only 31.4 per cent used it to buy goods and services and fewer than a quarter (23.1 per cent) used it for selling.

ecomaus4.gif (38197 bytes)
Source: Australian Industry Group and the Commonwealth Bank, Industry in the Regions 2001, p. 81.

The disparity in Internet usage between metropolitan areas and regions is discussed in a Parliamentary Library Current Issues Brief, A Digital Divide in Rural and Regional Australia. It found that adults living in metropolitan areas were more likely to use the Internet than those living in other areas. The paper also reported anecdotal evidence that those without Internet access may pay more for their goods and services.

Policy implications

E-commerce cuts across most policy areas and will pose considerable challenges in the following areas:

  • Competition policy. The Internet and e-commerce has the potential to increase competition by expanding geographical markets and making it easier for new entrants to enter markets. However, the existence of increasing economies of scale and of 'network' externalities may deter competition and allow monopoly power to develop.2 A more detailed discussion of the problems involving e-commerce and competition law policy is contained in this OECD paper, Competition Issues in Electronic Commerce, 20 October 2000.
  • Consumer and privacy protection policy. In order to foster confidence in the use of e-commerce, it is important that consumer protection and privacy issues be addressed. The international nature of the Internet requires a global response to consumer protection. To this end the OECD has been working with member countries towards an internationally co-ordinated approach to consumer protection. The Australian Government, as a member of the OECD, will be seeking to implement these guidelines. Measures currently being implemented by the Commonwealth Government can be found on the Government's E-commerce Consumer Sovereignty Site. On 6 December 2000, the Australian Parliament passed an amendment to the Privacy Act to increase protection of consumers using the Internet.
  • Tax policy. E-commerce may undermine the ability of governments to raise the revenues required to finance public services, especially in the case of the GST.3 The OECD is currently considering recommendations on the tax treatment of e-commerce. Details of the Committee on Fiscal Affair's conclusions and recommendations are contained in the Annex to this press release: OECD Progress Towards Achieving an International Consensus on the Tax Treatment of E-commerce, 12 February 2001.
  • Trade policy. The ease of e-commerce across national borders makes it easier to evade tariffs and other trade policy measures. It also makes local enforcement of national laws more difficult (e.g. censorship, consumer protection and copyright). Consumers may be unaware that prices quoted on the Internet do not take account of tariffs, copyright laws and other regulations that apply when the products enter Australia.4
  • Labour market policy. The growth of e-commerce will lead to changes to the composition of jobs by transforming the organisation and the operation of value chains.5 E-commerce will also impact on employment at the micro, sectoral and aggregate level. (See again the OECD report, The Economic and Social Impacts of Electronic Commerce, Chapter 4: Electronic commerce, jobs and skills.)
  • Education and training policy. E-commerce changes the mix of skills required by people to perform economic and other activities on line thereby affecting the demand for skills. E-commerce will accelerate the existing multi-skilling trends in the workforce. The Department of Education Training and Youth Affairs (DETYA) and NOIE are together developing programs to widen the base of skills required for the further development of electronic-based systems. More details are provided in the discussion paper, Information and Communications Technology (ICT) Centre of Excellence, June 2001.
  • Regional development policy. Regions or regionally based businesses are more likely to succeed in the global market if they are major investors in new technology, export focussed and competent in the use of IT and e-commerce. The importance of e-commerce to regional businesses is highlighted in E-commerce in Rural Areas: Case Studies.

Current initiatives

Recent Commonwealth Government initiatives include; the Government Online Strategy to provide all appropriate government services on line by 2001; Networking the Nation, the Information Technology On Line Program, which provides funding for industry sectors to adopt e-business commerce solutions; the E-commerce and Telecommunications Advisory Group; and a guide to business Where to Go/How to Get There. For a complete list and description of the Government’s initiatives and the many State and Territory programs, see the report E-Commerce across Australia, Appendix B - Policies in the Commonwealth, States and Territories.

Information on developments in the area of e-commerce can be found on the NOIE web site: www.noie.gov.au. Information is also available on the Australian Information Industry Association website: www.aiia.com.au.

The OECD has provided strong leadership in the area of policy analysis and debate on the development of the information economy and e-commerce. It has undertaken a number of initiatives involving both member and non-member countries that are aimed at promoting a global approach to the provision of information and services through the Internet and the use of e-commerce. For further information here is a summary of the OECD’s work on e-commerce and its recent initiatives.




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