Online barriers faced by SME’s

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Posted by ChrisCorbin on 08 Jul 2010

London: 7 July 2010

The UK Office of Fair Trading (OFT) has announced the launch of a consultation on the online barriers faced by SME’s. The consultation opened on the 7th July 2010 and will close on 30th September 2010. A discussion paper titled: Online markets: discussion paper – A report for the Office of Fair Trading (50 pages dated July 2010) accompanies the consultation.

The press release 78/10 dated 7th July 2010 states:

“Small businesses increasingly rely on services such as search engines, online market places and payment service providers as essential gateways to trading over the internet. Some firms have complained to the OFT that certain practices of these large players can lead to barriers to entry or expansion.

In order to help build our understanding of the way these interdependencies work in the online environment, the OFT commissioned a short piece of independent research. This makes a basic assessment of the scale and nature of barriers faced by small or medium-sized businesses. The overall findings are positive about online markets, in particular:

Innovation, often by large players, has led to significant decreases in cost barriers to small businesses setting up online.
Reputational barriers have also decreased due to the ability of small firms to shelter under the brand of larger players.
However, the report recognizes some of the difficulties that small businesses can encounter online.

For instance:

Some small businesses depend on particular providers and are sensitive to system changes or loss of service.
The way that a platform responds to consumer complaints about a business can sometimes be disruptive to the business in question.
The levels of innovation and cost reductions that have taken place online, have not always been matched in those aspects of the valued chain that remain offline (such as supply of goods and delivery).

Though none of the initial findings suggests any immediate need for intervention, the OFT recognizes that online commerce is hugely diverse and that experiences will differ widely across sectors. The OFT wants to hear from small businesses about whether these findings fit with their experience of trading online, and whether they face additional obstacles to trading online that they think the OFT should be aware of. “

The Discussion paper Executive summary states:

“Online markets are a large and growing opportunity for SMEs

Online markets have introduced new opportunities that did not previously exist and expanded significantly over recent years, with online sales accounting for 8.1% of total UK retail sales in April 20102 and internet advertising making up 24% of all advertising spend in H1 20093. The majority of SMEs have internet access and a web presence. Their online sales approached £50 billion in 20084. Many online businesses also operate offline, for example 23% of top eBay sellers in the UK also have a physical shop5. Online markets have also created new markets (e.g. for software applications on the Apple app store) in which SMEs may participate.”

Table of Contents

Executive Summary

Introduction to this paper

Online markets are a large and growing opportunity for SMEs

Key findings by area of the value chain

Top level findings

1 Introduction

1.1 About this paper

1.2 Market background: SMEs and the internet

2 Analytical framework

2.1 Literature on online markets and SMEs

2.2 Dynamic character of online markets