scottish e-commerce study - digital six · section 4 summarises the main enablers and barriers to...

Scottish e-Commerce Study

Final Report to Scottish Enterprise

May 2012

Scottish e-Commerce Study Final Report to Scottish Enterprise

www.sqw.co.uk

Contents

1: Introduction .......................................................................................................................... 1

2: E-commerce in the UK......................................................................................................... 3

3: Scotland’s relative position in e-commerce ..................................................................... 9

4: Enablers and barriers in Scotland ................................................................................... 29

5: Quantifying e-commerce in Scotland .............................................................................. 33

6: Options for enhanced public sector support .................................................................. 40

7: Conclusions and recommendations ................................................................................ 44

Annex A: Consultees ........................................................................................................... A-1

Annex B: Data sources explored ........................................................................................ B-1

Annex C: Research documents .......................................................................................... C-1

Annex D: Sector definitions ................................................................................................ D-1

Annex E: Examples of online retail awards....................................................................... E-1

Contact: John Nolan Tel: 0131 225 4007 email: [email protected]

Approved by: David Mack-Smith Date: 31/05/12

Director


1

1: Introduction

1.1 In February 2012, SQW was commissioned by Scottish Enterprise (SE) to undertake a study

into Scotland’s competitive position in relation to the adoption of e-commerce by Scottish

based businesses. The aim of the research was to identify the value and potential impact on

the Scottish economy of current activity, to consider if businesses are using e-commerce to

maximise their efficiency and performance, and to consider ways in which public sector

support for e-commerce could be improved.

Definition

1.2 Defining the term ‘e-commerce’ is challenging, making benchmarking of performance

difficult. The OECD (2009) uses the following definition:

An e-commerce transaction is the sale or purchase of goods or services,

conducted over computer networks by methods specifically designed for

the purpose of receiving or placing of orders. The goods or services are

ordered by those methods, but the payment and the ultimate delivery of the

goods or services do not have to be conducted online. An e-commerce

transaction can be between enterprises, households, individuals,

governments, and other public or private organisations1.

1.3 According to this definition, e-commerce includes orders made though websites, extranets or

EDI (Electronic Data Exchange). It excludes orders made by telephone calls, facsimile, or

manually typed e-mail. On the basis of this widely accepted definition, e-commerce therefore

relates to all sectors, not solely online retail which is the most recognisable type of e-

commerce.

1.4 The brief for this commission defined e-commerce as follows:

E-commerce refers to the selling or trading of goods and services online

(through web or other ‘digital’ channels e.g. mobile apps) and related

digital marketing activities to drive traffic to the online presence e.g.

Search Engine Optimisation, web advertising etc. The focus should be on

businesses transacting B2B or B2C.

1.5 This latter definition was used during our consultations. However, when assessing statistics

on Scotland’s relative position, we have allowed flexibility in the definition to ensure that our

statistical analysis draws on a range of sources to inform the study.

Methodology

1.6 This research study has involved the following main tasks:

A review of available research on e-commerce – including publications by the Office

for National Statistics (ONS), Interactive Media in Retail Group (IMRG), Boston

1 OECD (2011), OECD Guide to Measuring the Information Society


2

Consulting Group and business surveys carried out by Department for Business

Innovation and Skills (BIS), Federation of Small Businesses (FSB) and Scottish

Government.

Contacting public and private sector organisations to ask about the availability of data

beneath the UK level, i.e. for Scotland and the other nations and regions. A list of the

different avenues of enquiry is provided in Annex B with information on the outcome

of our enquiry.

Consultations with industry stakeholders in the public sector and with businesses

involved in e-commerce both in terms of e-commerce suppliers and traders. A list of

consultees is attached as Annex A.

Structure of the report

1.7 The remainder of the report is structured as follows:

section 2 provides some context in terms of e-commerce activity in the UK

section 3 presents data on Scotland’s relative position in e-commerce activity

section 4 summarises the main enablers and barriers to e-commerce in Scotland

section 5 quantifies the economic impact of e-commerce in Scotland

section 6 assesses options for enhanced public sector support

section 7 summarises our conclusions and recommendations.

1.8 We have also included the following annexes:

Annex A provides a list of project consultees

Annex B summarises the different data sources that have been explored

Annex C provides a list of the main research documents used in this study

Annex D includes sector definitions

Annex E provides examples of online retail award winners.


3

2: E-commerce in the UK

E-commerce in the UK - summary

Based on the ONS E-commerce Survey, e-commerce sales as a proportion of total

sales among UK businesses increased to 17% in 2010 from 14.5% in 2008. The

estimated value of total e-commerce sales in the UK was £385.4bn in 2010. Just

over 40% (£156bn) of these sales came from the ‘wholesale’ sector, and 30%

(£114bn) from the ‘manufacturing’ sector. Sales over websites (as opposed

through other ICTs such as EDI and extranets) accounted for about 25% of all e-

commerce.

Research by the Boston Consulting Group (BCG) suggests that the UK is one of

the world’s leading economies for e-commerce with a higher proportion of online

retail transactions than any other major economy. BCG predicts that the UK’s

internet economy will continue to expand at a rate of 11% per year for the next four

years.

2.1 While the focus of our research has been on the position of Scotland in terms of e-commerce,

this section provides an overview of UK level statistics.

2.2 The ONS annual e-commerce survey2 estimates that e-commerce sales as a proportion of total

sales among UK businesses increased to 17% in 2010 from 14.5% in 2008. Sales through

websites represent about a quarter of e-commerce activity as defined by ONS: 4% of total

sales compared to 13% of total sales through ‘ICTs other than a website’ (Figure 2-1). This

second category mainly describes B2B transactions relates to orders placed through

mechanisms such as EDI (Electronic Data Interchange), which is described by the OECD as:

an e-business tool for exchanging different kinds of business messages.

EDI is..a generic term for sending or receiving business information in an

agreed format which allows its automatic processing (e.g. EDIFACT,

XML, etc.) and without the individual message being manually typed3.

2 ONS (2011) 2010 Annual E-commerce Survey (Note: this covers UK non-financial sector businesses with 10 or

more employees) 3 OECD (2011), OECD Guide to Measuring the Information Society


4

Figure 2-1: E-commerce sales as proportion of total sales (2010)

Source: ONS (2011) 2010 e-commerce Survey

2.3 The estimated value of total e-commerce sales in the UK was £385.4bn in 2010. Just over

40% (£156bn) of these sales came from the ‘wholesale’ sector4, 30% (£114bn) from the

‘manufacturing’ sector and only 4% from ‘retail’ (£16bn) as shown in Figure 2-2.

2.4 However, if we are to look at the value of website sales alone the ‘wholesale’ sector had the

strongest website sales with sales valued at £37.5bn and the ‘retail’ sector showed the second

highest website sales of £12.8bn in 2010.

Figure 2-2: Value of e-commerce sales by sector (2010)


4 The E-commerce survey provides data for groupings of SIC 07 divisions. For example, wholesale includes SIC

45 (Wholesale trade and retail trade; Repair of motor vehicles and motorcycles) and SIC 46 (Wholesale trade,

except of motor vehicles and motorcycles. The retail category includes SIC 47 (Retail trade, except of motor

vehicles and motorcycles. A full list is provided in Annex D


5

2.5 Over three quarters of UK businesses (79%) had a website in 2010 but a comparatively small

proportion of businesses used the website for selling (15%) as shown in Figure 2-3. The

proportion of businesses that sell over a website increases as the business size increases –

41% of businesses that employ over 1,000 people use a website for selling.

Figure 2-3: Proportion of businesses with e-commerce sales (2010)


2.6 When examined by sector, the ‘retail’ sector has the greatest proportion of businesses that sell

over a website (31%), followed by the ‘information and communication’ sector at 27%. As

shown in Figure 2-4, the ‘construction’ sector had the lowest number of businesses with

online sales at 4%.

Figure 2-4: Proportion of businesses with e-commerce sales by industrial sector (2010)


2.7 Table 2-1 shows the location of e-commerce customers for businesses with website sales and

non-website sales. Nearly all businesses who reported website sales had customers in the UK


6

(15% of all businesses); a little under half of these (6% of all businesses) reported also selling

to customers in other EU countries through website sales, and a third (5% of all businesses) to

customers in the rest of the world.

2.8 Nearly 7% of all businesses reported non-website e-commerce sales to UK customers.

Table 2-1: Location of e-commerce customers

10-49 employees

50-249 employees

250-99 employees

1000+ employees

All

Businesses with website sales to customers located

In UK 13.4 23.3 23 41.3 15.3

Other EU 5.5 10.4 9.4 17.2 6.4

Rest of World 4.3 8.2 7.5 13.4 5

Businesses with non-website sales to customers located

In UK 5.0 11.9 23.1 33.1 6.7

Other EU 1.2 4.2 8.6 15.2 1.9

Rest of World 0.7 2.1 5.3 10.4 1.1


2.9 The pace of growth in UK e-commerce activity has been significant. IMRG’s e-jobs Index5

estimates that there were 228,000 online retail businesses in the UK in 2010, an increase of

30% on the year previous. It estimated that 730,000 people work directly in or support the e-

commerce industry (note that this uses a different definition of e-commerce to ONS). The e-

jobs Index shows that just over 80% of e-commerce businesses and channels have been

established since 2000. However, the start-up rate has been stabilising, with growth levels

remaining at a constant rate of just over 7% in both 2009 and 2010.

2.10 The IMRG research highlights that for every person employed by an online retailer, another

works in support of the online industry - providing services such as distribution, delivery,

customer support, payments, marketing, security and administration. Distribution and delivery

are the most important supporting sector, and IMRG estimate that 115,700 workers delivered

approximately one billion parcels from online businesses to customers in 2011.

2.11 Research6 by the Boston Consulting Group (BCG) suggests that the "internet economy" was

worth £121bn to the UK in 2010 (note that this again uses a different definition to that of

ONS for e-commerce), equivalent to 8.3% of the UK economy, representing more than

£2,000 per person.

2.12 The UK is one of the world’s leading economies for e-commerce with a higher proportion of

online retail transactions than any other major economy (see Figure 2-5). Approximately

13.5% of all retail purchases were conducted over the internet in 2010 compared to 7% in

Germany (the country with the next highest level of retail sales).

5 IMRG (2011) e-Jobs Index 6 Boston Consulting Group (2012) The $4.2 Trillion Opportunity: The Internet Economy in the G-20


7

Figure 2-5: Online retail as a proportion of total retail 2010

Source: SQW analysis of Boston Consulting Group (2012) The $4.2 Trillion Opportunity: The Internet Economy in the G-20

2.13 In terms of employment, research by BCG specifically on the UK internet economy estimated

that it supported 250,000 jobs in the UK7. The BCG research further demonstrates the UK’s

position as a leader in e-commerce and reports that the UK is now a net exporter of e-

commerce goods and services, exporting £2.80 for every £1 imported. This is the opposite of

the trend seen in the offline economy, which exports 90p for every £1 imported.

Future trends in e-commerce

2.14 Overall the UK’s e-commerce activity is expected to continue to grow strongly. BCG8

predicts that the UK’s internet economy will continue to expand at a rate of 11% per year for

the next four years, reaching a total value of £221bn by 2016 representing 12.4% of GDP – an

increase of 4 percentage points on 2010. That compares with projected growth rates of 5.4%

in the US and 6.9% in China.

2.15 Estimates from Datamonitor forecast9 a similar rate of growth with the performance of the

online retail sector in the UK anticipated at a CAGR of 11.6% for the period 2010 - 2015,

resulting in a value of £42bn by the end of 2015 (note that the BCG and Datamonitor values

are not comparable as one measures the total Internet economy and the other the value of the

online retail sector).

m-Commerce

2.16 Mobile e-commerce, or ‘m-commerce’, is an area earmarked for significant growth in the

coming years. Recent research by Incentivated10

shows that the UK has the highest smart

phone ownership in Europe and 46% of internet users access the internet via their mobile in

the UK.

7 Boston Consulting Group (2010) The Connected Kingdom: How the Internet Is Transforming the U.K. Economy 8 Boston Consulting Group (2012) The $4.2 Trillion Opportunity: The Internet Economy in the G-20 9 Datamonitor (2011) Online Retail in the United Kingdome 10 Incentivated (2012) Mobile Data Summary


8

2.17 In 2011, approximately 7% of all e-commerce traffic was accounted for by mobile devices,

compared to 1.4% in 2010. According to Incentivated, just over 3% of e-commerce purchases

were made from mobile devices in 2011, up from 0.4% in 2010. These are significant growth

rates over a 12 month period. Total m-commerce spend is forecast to be £19.3bn for 2021,

and already over 10% of all e-Bay UK sales are accounted for by mobile: in 2010, global

eBay sales via a mobile device more than tripled, generating $2 billion in sales – up from

$600m in 2009.


9

3: Scotland’s relative position in e-commerce

Scotland’s relative position in e-commerce - summary

The ONS E-commerce Survey provides data at the UK level on the proportion of

businesses with e-commerce sales. Due to issues around its methodology, data is

not available for the UK nations and regions. In order to look at the relative

performance of Scotland to other parts of the UK, we have reviewed a number of

business surveys and proxy indicators of e-commerce activity.

There are various messages emerging from these data sources. Firstly, the

proportion of businesses in Scotland trading online (B2B and B2C) would appear

to be broadly in line with the UK, or in some cases marginally below (35% in

Scotland vs 36% for UK in the FSB survey; 36% in Scotland vs 39% for UK in the

BIS survey).

However, other indicators suggest that Scotland is way behind other parts of the

UK in terms of having “e-commerce people”. Our analysis of LinkedIn found that

about 1,200 members located in Scotland’s cities mentioned ‘e-commerce’ in their

profiles, compared with 13,000 members based in London. Data from

itjobswatch.co.uk found that Scotland had the lowest proportion of any

nation/region in terms of advertised IT jobs citing ‘e-commerce’ over the last 3

months: 2% in Scotland versus 11% in London and 10% in the East Midlands.

Data from Google Insights for Search suggests that the search intensity for certain

relevant terms was about 40% lower in Scotland than in England over the last 12

months.

Based on the ONS E-commerce Survey, a large proportion of e-commerce takes

place in the wholesale and retail sectors, and website-based sales are particularly

important for these sectors. Although data shows that the overall growth of

Scotland’s retail and wholesale sector has been broadly in line with that in other

parts of the UK, Scotland’s export performance in retail/wholesale appears to be

falling. This trend warrants further investigation; it could potentially point to some

weaknesses in the adoption of web-based e-commerce in these sectors in

Scotland, though we do not have sufficient evidence to confirm that hypothesis.

3.1 In this section we use a variety of data sources to compare e-commerce activities and

performance in Scotland to other regions and nations of the UK, and at the UK level more

generally.

Demand for e-commerce

3.2 In terms of consumer usage of e-commerce, Scotland appears to have fallen somewhat below

the UK average – perhaps reflecting the slower growth here of home internet access in the last

few years. The most recent data from Eurostat for 2010 highlights that 64% of adults in

Scotland have ordered goods and services online over the previous year, slightly lower than


10

the UK average of 67% (Figure 3-1). The highest consumer demand for purchasing online

would appear to be the East and South East of England.

Figure 3-1: Demand for online purchasing of goods and services

Source: Eurostat

3.3 As highlighted earlier, mobile e-commerce is likely to become a more important aspect of e-

commerce. Data produced by eBay shows that in 2010, 7% of eBay’s unique m-commerce

consumers lived in Scotland. Surprisingly, this is similar to the level of activity in London,

but substantially behind the relatively small North East region (Figure 3-2). The highest

proportion of users (22%) were based in the South East of England. Although this data on m-

commerce only relates to eBay, this nevertheless will account for a sizeable proportion of this

type of activity and is a useful barometer.

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Figure 3-2: eBay m-Commerce data (2010)

Source: eBay UK Mobile Commerce - 2011 research

Businesses trading online

3.4 A key aim of this research has been to assess to what extent Scottish businesses have adopted

e-commerce relative to other parts of the UK. As highlighted in the previous section, results

from the ONS e-commerce survey provides data on the proportion of businesses with e-

commerce sales, and the value of these sales broken down by different UK sectors. However,

unfortunately this data cannot be broken down by UK nations and regions including Scotland.

We understand from discussions with ONS that there are methodological issues around the

collection of the survey data which prevent this disaggregation (particularly in relation to

large retailers with multiple sites around the UK).

3.5 However, there are some other business surveys which provide useful data at the regional

level. The BIS Small Business Survey (2010) results show that 36% of SMEs in Scotland are

currently using the internet to sell goods and services through a website (Figure 3-3). This is

slightly lower than the UK average of 39%. These results should be caveated due to sample

sizes at the regional level, but nevertheless they do provide a useful comparison. Based on

these results, the areas with the highest proportion of businesses trading through a website are

the East Midlands and East of England.

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Figure 3-3: Proportion of small businesses selling online

Source: BIS Small Business Survey 2010 [Unweighted sample: 1901, of which 115 in Scotland]

3.6 A similar picture is presented by looking at the latest FSB members’ survey from 2011 which

asks how many (small) businesses are using the internet for online trading. The results show

that 35% of Scottish businesses are trading online compared to a UK average of 36% (Figure

3-4). In this survey, the highest performing region appeared to be the South West (40%)

followed by the West Midlands (38%).

Figure 3-4: Proportion of FSB members trading online

Source: FSB 2011 Members Survey [Unweighted sample: 10,698, of which 1,066 in Scotland]

3.7 In 2011, the FSB carried out some specific research on online trading using 1600 companies

that form the ‘Voice of Small Business’ Panel. Although this involved smaller sample sizes

than the annual members’ survey, it is interesting to note that in this case Scotland compared

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reasonably well with other parts of the UK, with an estimated 40% of businesses currently

selling goods and/or services online (Figure 3-5).

Figure 3-5: Proportion of FSB panel members trading online

Source: FSB ‘Voice of Small Business’Panel Survey 2011 [Sample: 1,626, of which 175 in Scotland]

3.8 The same survey asked about the proportion of sales that are generated online. Nearly half

(48%) of Scottish businesses stated that up to 20% of their sales are generated online (Figure

3-6). Just under a third of businesses with online sales (29%) stated that over 50% of their

sales are generated online. Overall, the scale of Scotland’s online sales is broadly in line with

the UK average, according to this FSB research.

Figure 3-6: Proportion of turnover generated online (of those businesses with online sales)

Source: FSB ‘Voice of Small Business’Panel Survey 2011 [Sample: 1,626, of which 175 in Scotland]

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3.9 The BCG research on the internet economy in the UK also found a relatively high proportion

of “high web” SMEs in Scotland (71%) compared to other regions and nations (Figure 3-7).

This put Scotland level second with London and behind only East of England in terms of the

proportion of “high web businesses”. It should be noted that the sample for this research was

900 businesses, a somewhat lower sample than the other surveys described above.

Figure 3-7: Levels of internet use amongst UK SMEs

Source: BCG (2010), The Connected Kingdom [Sample: 914 businesses]

3.10 Another proxy that we have considered for assessing the level of interest or demand for e-

commerce services in Scotland is to use Google Insights for Search to identify how popular

certain web searches are in different parts of the UK. Figure 3-8 shows the popularity of

searching for the term ‘e-commerce’ or ‘ecommerce’ and also for the names of leading e-

commerce platforms such as Magento and osCommerce. With these terms being

predominantly of relevance to businesses rather than consumers (and bearing in mind the

dominance of the Google search engine), we conclude that the intensity of business interest in

web-based e-commerce (which is what most people would be thinking of by the term ‘e-

commerce’ and the various platform names) appears to be far higher in England than in

Scotland.

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Figure 3-8: Google Insights for Search analysis – search popularity of key words (over last 12 months)

Source: Google Insights for Search, March 2012. Figures reflect the number of searches that have been done for a particular term, relative to the total number of searches done on Google over the last 12 months, normalised to 100 for the country with the

highest ratio. Note that + is the OR operation on Google Insights for Search

SIC 47.91

3.11 Employment and business activity for different sectors are typically defined using SIC codes.

However, since e-commerce is effectively a sales channel or way of doing business rather

than a sector in its own right, there are no SIC codes that can be used to define e-commerce

activity. In carrying out this research we did confirm that companies that compile business

databases such as Experian and Dun & Bradstreet do not collect information on e-commerce

based sales and/or employment.

3.12 The one SIC code which is perhaps the most useful and identifiable to e-commerce is SIC

47.91 (using SIC 2007) which covers ‘retail sales via mail orders and via the internet’11

. Data

drawn from SIC 47.91 is presented below to provide some comparisons of Scotland and other

parts of the UK. We accessed employment data through the Business Register and

Employment Survey (BRES) and also financial data through contact with the Scottish

Government and the ONS Annual Business Survey team.

3.13 In this SIC 47.91, there are just over 1700 employee jobs in Scotland with around 400

businesses generating annual sales of £514 million. Most of the employment in Scotland is

concentrated in Inverclyde, Glasgow, Edinburgh and North Lanarkshire. As is shown in Table

3-1, the highest level of employment is to be found in the North West of England with over

16,000 jobs, reflecting the traditional strength of the mail order sector in this part of the UK.

The East of England and the South East also have significant employment in this activity

relative to other regions.

11 This SIC code will only have a small fraction of the companies involved in e-commerce (with much of the

activity relating to mail order activity). Nevertheless, it provides information on some e-commerce activity which

can be analysed by region and nation

100

82

75

60

100

57 5760

0

10

20

30

40

50

60

70

80

90

100

England Northern Ireland Wales Scotland

Se

arc

h p

op

ula

rity

(n

orm

ali

se

d t

o 1

00

)

E-commerce +ecommerce

magento + oscommerce + volusion + "zen cart" + prestashop


16

Table 3-1: Employment in SIC 47.91 (2008-2010) by UK region and nation

2008 2009 2010

North West 13,700 12,100 16,100

East of England 7,400 9,000 9,400

South East 6,100 6,800 8,200

London 8,200 5,500 6,700

West Midlands 4,000 3,000 5,500

Yorkshire and The Humber

7,300 5,000 4,600

East Midlands 6,700 4,600 4,100

South West 5,300 6,000 3,600

Wales 1,700 2,200 2,300

Scotland 1,900 1,900 1,700

North East 700 2,400 900

Northern Ireland - 900 -

Source: BRES and Northern Ireland DETI (only 2009 data available for Northern Ireland)

3.14 Most sales from companies in this SIC code are also being generated in the North West of

England, with a total of nearly £2.4 billion in 2009 (Table 3-2). Next highest in terms of sales

are the East of England (£1.7 billion in sales) and London (£1.5 billion).

Table 3-2: Business base and turnover in SIC 47.91 (2009)

Business units Turnover (£m)

North West 1,008 2,393.7

East of England 948 1,682.2

London 1,489 1,525.0

Yorkshire and The Humber 657 945.0

South East 1,564 863.5

Wales 298 519.9

West Midlands 776 516.9

Scotland 401 514.5

South West 903 504.6

East Midlands 678 483.9

North East 214 249.6

Northern Ireland 101 36.6

Source: BRES, ONS Annual Business Survey, and Scottish Government

3.15 Although the total level of activity in this specific SIC code in Scotland is relatively small, it

should be noted that this sector is likely to be dominated by established mail order businesses,


17

rather than internet sales. The annual change in turnover figures for the UK nations and

regions is shown in Figure 3-9, and it is interesting to note that between 2008 and 2009, there

was an increase of £157 million in business turnover (44%) in Scotland: it is not unreasonable

to assume that much of this increase in Scotland will have been down to increased online

sales, counteracting a negative trend in mail order business (which, as illustrated below,

appears to have had a particularly adverse effect on regions with more established mail order

operations, such as the North West).

Figure 3-9: Change in business turnover for SIC 47.91 (retail sales via mail orders and via the internet), 2008 to 2009

Source: ONS and Scottish Government

Online retailers

3.16 From a review of recent online retail rankings, it is clear to see that most of the leading UK

online retailers are based outside Scotland. IMRG, the industry body for online retail

regularly produces rankings of the top online retailers in the UK. In Table 3-3 we have

presented the top 30 and identified the location of their head office in UK (with the exception

of Ryanair, based in Ireland), working on the assumption that this is where most of the e-

commerce related development activity will take place.12

It is notable that the majority are

based in London or the South East of England. Based on this list there are no headquarters in

the North East, North West, West Midlands, South West, Wales, Northern Ireland or

Scotland.

Table 3-3: IMRG Experian Hitwise Hot Shops List and HQ location in the UK

Rank Company UK region Rank Company UK region

1 Amazon UK SE 16 Tesco Direct SE

2 Argos SE 17 Thomas Cook East

12 However, it must be noted operations, customer services and fulfilment services (part of which will relate to e-

commerce) will be located in various parts of the UK

347.4 336.5

184.2 171.5156.8

83.2

28.72.6

-6.3

-59.9

-337.8

-454.6-500.0

-400.0

-300.0

-200.0

-100.0

0.0

100.0

200.0

300.0

400.0

Ch

an

ge

in

tu

rno

ve

r 2

00

8-0

9 (

£m

)


18

Rank Company UK region Rank Company UK region

3 Apple London 18 LoveFilm.com London

4 Amazon.com SE 19 Topshop.com London

5 Tesco SE 20 B&Q SE

6 Next East Mids 21 New Look London

7 Play.com East 22 ASDA Yorkshire

8 Your M&S London 23 The Train Line London

9 John Lewis London 24 Sainsbury’s London

10 ASOS London 25 Ryanair Ireland

11 Debenhams London 26 IKEA London

12 Thomson East 27 River Island London

13 Expedia.co.uk London 28 Lastminute.com London

14 easyJet East 29 British Airways London

15 Currys East 30 Comet East

Source: SQW analysis of IMRG Experian Hitwise Hot Shops List – February 2012

3.17 We have also considered other examples of online retail awards13

. The IMRG annual awards

for 2010 and 2011 have more of a geographic spread across the UK in terms of company

headquarter locations but do not feature any companies based in Yorkshire, North East,

Wales, Northern Ireland or Scotland. However, the 2011 winners Online Retail Awards do

include one company from Scotland, Labels4Kids, which won independent online retail site

of the year. Full details of these award winners are included in Annex E.

3.18 Some other Scottish based online retailers were acknowledged in the 2010 Scottish Retail

Awards with the relevant awards shown in Table 3-4.

Table 3-4: Scottish Retail Excellence Awards 2010

Large on-line retailer of the year

Location Small/Medium on-line retailer of the year

Location

M&Co - WINNER Renfrew ROX Diamond & Watch Specialist - WINNER

Glasgow

Advanced MP3 Players.co.uk Edinburgh Blackcircles.com Ltd Peebles

Toolstop.com Uddingston Demijohn Glasgow

Source: Scottish Retail Excellence Awards 2010

Online banking

3.19 Another example of e-commerce is online banking (though note that the financial sector is

excluded from ONS’s e-commerce survey). Even after the financial crisis of 2008, Scotland

13 Although we have presented data for various UK online retail awards, it is not possible to know the extent to

which these awards have been promoted in the various nations/regions of the UK which would likely have a

bearing on where nominees are drawn from.


19

continues to have a strong financial services sector and is home to a number of major banks

such as RBS, Bank of Scotland, Clydesdale Bank and the Scottish Widows Bank. In Table 3-

5 and Table 3-6 we show the recent award winners for online banking, many of which are

headquartered in Scotland (the table shows NatWest as headquartered in Scotland, as it is part

of the RBS Group).

3.20 Feedback from our discussions with e-commerce suppliers highlighted the increasing demand

from financial services for web and e-commerce development support. Edinburgh’s financial

services sector has been boosted recently by the decision of Swiss banking software company

Avaloq to create 500 jobs in the city over the next five years.

Table 3-5: Best Online Banking Provider – Money facts Awards

2009 HQ 2010 HQ 2011 HQ

Winner Bank of Scotland Corporate

Scotland NatWest Scotland HSBC London

Highly commended

NatWest Scotland HSBC London Bank of Scotland Corporate

Scotland

Commended The Co-operative North West

Santander London NatWest Scotland

Source: SQW analysis of http://www.moneyfactsgroup.co.uk/awards/

Table 3-6: Best Internet account provider – Money facts Awards

2009 HQ 2010 HQ 2011 HQ

Winner ICICI Bank London Intelligent Finance

Scotland AA Banking South East

Highly commended

Principality BS Cardiff ICICI Bank UK London Scottish Widows Bank

Scotland

Commended Yorkshire BS Yorkshire Yorkshire BS Yorkshire Tesco Bank Scotland

Source: SQW analysis of http://www.moneyfactsgroup.co.uk/awards/

E-commerce jobs

3.21 One proxy indicator for the scale of e-commerce related employment in Scotland compared to

other parts of the UK is the number of advertised e-commerce jobs. One of the top UK jobs

websites is Reed.co.uk. In Figure 3-10 we have extracted data for most parts of the UK on the

number of IT jobs14

being advertised in that area and identifying the proportion that relate to

e-commerce compared to software development and web development. This data (basically a

snapshot from early March 2012) shows around 250 IT jobs being advertised in Scotland,

with a small number relating to e-commerce (7). In fact, only the North East of England had

fewer e-commerce jobs advertised. In percentage terms, for most areas around 2-3% of IT

jobs advertised related to e-commerce (including Scotland where 2.8% of IT jobs related to e-

commerce). Since these percentages are based on the number of IT jobs advertised, it is

noticeable that the number of IT jobs in Scotland is substantially lower than some of the

English regions that have similar populations such as the West and East Midlands.

14 We recognise that IT jobs in e-commerce are only a sub-set of total e-commerce jobs, but the comparison

remains useful

http://www.moneyfactsgroup.co.uk/awards/

http://www.moneyfactsgroup.co.uk/awards/


20

Figure 3-10: E-commerce jobs as a proportion of all advertised IT jobs (by region)

Source: Analysis of reed.co.uk (1/3/12)* no replies for East of England

3.22 The website itjobswatch.co.uk arguably provides a more comprehensive picture of the UK’s

overall IT jobs market, with information on demand for particular skills and salary levels that

can be expected for different jobs. In Table 3-7 we present data on e-commerce jobs as a

proportion of all ‘process and methodologies’ positions for the different parts of the UK,

clearly showing the higher proportions of e-commerce employment in areas such as London

and the East Midlands, with Scotland at the bottom of the table. The data also shows the

significant differences in salaries for e-commerce positions.

Table 3-7: Listing of e-commerce jobs in IT Jobs Watch (March 2012)

E-commerce jobs as % of the

Processes & Methodologies category E-commerce average salary

London 11.04% £50,000

East Midlands 9.60% £31,000

Yorkshire 9.38% £35,000

England 9.01% £45,000

East 8.89% £47,000

North West 7.25% £30,500

South East 5.90% £40,000

South West 5.06% £35,000

West Midlands 4.80% £35,000

North East 3.77% £26,500

Scotland 1.94% £34,000

Source: itjobswatch (March 2012)

249

748

154464

2,619

6,067

386 488 649

0

1,000

2,000

3,000

4,000

5,000

6,000

7,000

0%

5%

10%

15%

20%

25%

Scotland NorthWest

NorthEast

WestMidlands

London SouthEast

Yorkshire& Humber

EastMidlands

SouthWest

% E-commerce % Software development

% Web development Total IT Jobs


21

3.23 The information shown below, again from itjobswatch.co.uk, for the share of ‘processes and

methodologies’ permanent IT jobs citing e-commerce does appear to suggest that the growing

importance of e-commerce within the UK’s IT job market may not have been matched in

Scotland over the last few years.

Figure 3-11: 3-month moving total of permanent IT jobs citing E-Commerce within Scotland, and within the UK, as a proportion of the total demand within the Processes & Methodologies category

Source: itjobswatch.co.uk

3.24 Another interesting ‘unofficial’ source of data on e-commerce activity can be found using a

search of the LinkedIn network, of the term ‘e-commerce’ (we also searched on ‘ecommerce’,

but this spelling returned many fewer members, so we report our analysis of the former here).

Using this search, nearly 44,000 members are to be found in the UK, with London

representing just under a third with around 13,000 network members. Figure 3-12 shows the

numbers based in the largest 50 cities and towns in the UK (excluding London). With 714 e-

commerce members, Edinburgh is currently ranked fifth. Glasgow has 369 members which

puts it 17th in the list of UK cities.

3.25 Drilling down into the companies of these LinkedIn members located in Scottish cities, we

note the prominence of the financial services sector – especially in Edinburgh, with Royal

Bank of Scotland (33), Standard Life (28), Lloyds Banking Group (18), and Tesco Bank (13)

being the four companies with the largest numbers of employees located in Scottish cities

returned through this search.

Scotland

UK


22

Figure 3-12: Number of LinkedIn members in the UK’s largest 50 cities and towns found through a search for ‘e-commerce’

Source: SQW analysis of Linkedin, March 2012. Note that London, with 13,000, is excluded from this chart

3.26 Aggregating the top 50 cities into UK nations and regions results in the figures in the chart

below. Scotland (based on the four cities of Glasgow, Edinburgh, Aberdeen and Dundee) is

around half the way down, on this measure, with about 1200 members mentioning the term

‘e-commerce’ in their LinkedIn profiles.

30

32

43

51

52

57

61

63

71

91

106

108

114

121

125

128

132

140

165

167

170

183

186

193

226

241

249

296

299

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301

324

333

369

377

396

407

431

442

450

450

452

525

637

660

714

719

852

1130

0 200 400 600 800 1000 1200

AberdeenBelfast

SunderlandBlackpool

DundeeNewport

TelfordHull

WiganHuddersfield

PlymouthDoncaster

BoltonWakefield

Southend on SeaSwanseaBradford

BlackburnIpswichCardiff

LiverpoolLutonYork

PrestonStoke-on-Trent

SwindonDerby

SheffieldPeterborough

NorwichBournemouth

PortsmouthWarrington

GlasgowNewcastle upon Tyne

Milton KeynesNorthampton

OxfordSouthampton

BristolLeicesterCoventry

NottinghamLeeds

BirminghamEdinburgh

BrightonManchester

Reading

No. of LinkedIn members


23

Figure 3-13: LinkedIn members found through a search on ‘e-commerce’ – those located in UK’s largest 50 cities and towns, grouped by region

Source: SQW analysis of LinkedIn, March 2012

3.27 Another picture of the relative performance of e-commerce in Scotland can be seen from the

members of Econsultancy (econsultancy.com). Globally, they have a membership of 115,000

digital marketers. They advise us that currently around 3% of the UK membership

(individuals) are based in Scotland, significantly lower than would be expected based on

population and overall business base within the UK.

Trends in wholesale and retail activity

3.28 As highlighted earlier in the discussion about the ONS E-commerce Survey, a large

proportion of web-based e-commerce takes place in the wholesale and retail sectors. It is

therefore interesting to examine overall trends in these sectors in Scotland, relative to other

parts of the UK, in order to see whether there is any notable under- or over-performance in

recent years.

3.29 Figure 3-14 shows how GVA generated by Scotland’s wholesale and retail sectors has

increased between 2003 and 2009 compared to other parts of the UK. Based on the most

recent 2009 GVA data, Scotland is generating around £10 billion p.a. in these sectors, broadly

similar to regions such as East Midlands, Yorkshire and the South West.

12876

3442

19241634 1631 1399 1165 1098 1072

420 35232

0

2000

4000

6000

8000

10000

12000

14000

Lon

do

n

SE

NW

Yo

rkshir

e

Ea

st

Mid

s

We

st

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s

Scotlan

d

SW

Ea

st

NE

Wa

les

N Ire

lan

d

Nu

mb

er

of

Lin

ke

dIn

me

mb

ers


24

Figure 3-14: Headline workplace based GVA in the ‘Wholesale and retail trade, repair of motor vehicles’ industry sector at current basic prices, by region – 2003 and 2009

Source: ONS Regional Accounts

3.30 Between 2003 and 2009, Scotland’s retail and wholesale sector grew by 18% in GVA terms

which compares reasonably well with other UK regions and nations: 5th highest GVA growth

over that period out of 12 nations and regions.

Figure 3-15: Growth in headline workplace based GVA in the ‘Wholesale and retail trade, repair of motor vehicles’ industry sector at current basic prices, by region, between 2003 and 2009

Source: SQW analysis of ONS Regional Accounts

3.31 Looking at the retail sales index for Scotland, this data suggests that Scotland’s indexed value

of retail sales has grown somewhat faster than the Great Britain average between 2007 and

2011, as shown in Figure 3-16.

0

5000

10000

15000

20000

25000

So

uth

Ea

st

Lon

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(£

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2003 2009

23%22%

19%18% 18% 18%

16%

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10%9%

0%

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20%

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ale

&

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tc. G

VA

20

03

-20

09


25

Figure 3-16: Indexed retail sales value at current prices (2007=100)

Source: Retail Sales Index for Scotland - 2011 Q4 Data Tables, Scottish Government

Trends in exports

3.32 E-commerce could be a major opportunity for increasing Scotland’s exports. The annual

Global Connections Survey produced by the Scottish Government shows the value of exports

from different broad industry groupings. Unfortunately there is nothing currently in the

survey asking about e-commerce sales. However, it is interesting to look at the performance

of the wholesale, retail and hospitality sectors compared with other industry groupings.

3.33 Figure 3-17 shows that in 2010, the wholesale, retail and hospitality sectors generated around

£1.4 billion in international exports and £5.8 billion in exports to the rest of the UK, which

combined resulted in total exports of £7.2 billion. By way of context, the overall value is

broadly similar to food and drink manufacturing (£7.8 billion) and business services (£7.3

billion) but these other industry groups export a higher proportion outside of the UK. Total

exports from Scotland in 2010 were £67 billion (£22 billion in international exports and £45

billion in sales to other parts of the UK).

80

85

90

95

100

105

110

115

120

2002 2003 2004 2005 2006 2007 2008 2009 2010 2011

Re

tail

sa

les

va

lue

at

cu

rre

nt

pri

ce

s

(20

07

=1

00

)

Scotland GB


26

Figure 3-17: Value of exports to rest of UK and international, by broad industry group (2010)

Source: Scottish Government Global Connections Survey 2010

3.34 At the Scotland level it is possible to identify the performance of the wholesale, retail and

hospitality sectors compared with other industry groupings. Starting with international exports

between 2002 and 2005, the value of international exports from wholesale, retail and

hospitality averaged at around £1 billion. Between 2005 and 2008, it then saw a steep increase

to around £1.7 billion, but then fell to £1.4 billion in 2010. The indexed change since 2002

compared to selected other sectors and Scotland’s economy as a whole is shown in Figure 3-

18.

0 2,000 4,000 6,000 8,000 10,000 12,000

Other Services

Post & Telecommunication

Manufacture of Textiles, Footwear, Leather &…

Real Estate & Renting of Equipment

Education

Agriculture, Forestry & Fishing

Manufacture of Metals and Metal Products

Construction

Manufacture of Paper, Print and Publishing

Other Manufacturing Industries

Mechanical Engineering

Land, Water & Air Transport & Auxiliary Transport…

Electrical and Instrument Engineering

Manufacture of Transport Equipment

Electricity, Gas & Water Supply

Mining, Quarrying & Extraction of Petroleum

Manufacture of Coke, Refined Petroleum Products &…

Wholesale, Retail & Repairs, Hotels & Restaurants

Business Services

Manufacture of Food Products and Beverages

Financial Intermediation

Value of export (£'000s)International Rest of UK


27

Figure 3-18: Indexed Scottish international exports for selected industry groups (2002 =100)


3.35 In terms of exports to other parts of the UK, the value of exports from wholesale, retail and

hospitality increased significantly from £4.6 billion in 2002 to £6.5 billion in 2004 (Figure 3-

19), but has since reduced to £5.8 billion in 2010.

Figure 3-19: Indexed Scottish exports to the rest of the UK for selected industry groups (2002 = 100)


3.36 The scatter diagram below (Figure 3-20) uses data from the Global Connections Survey for

different industry groupings and shows the change in Scottish exports to the rest of the UK

(on the Y-axis) and change in international exports (on the X-axis). The diagram shows that

over the last three years the value of both types of exports from the wholesale, retail and

80

100

120

140

160

180

200

2002 2003 2004 2005 2006 2007 2008 2009 2010

Ch

an

ge

in

in

tern

ati

on

al e

xp

ort

s (

20

02

le

ve

ls =

10

0)



Business Services

Total International Exports

80

90

100

110

120

130

140

150

160

170

2002 2003 2004 2005 2006 2007 2008 2009 2010

Ch

an

ge

in

Res

t o

f U

k e

xp

ort

s (

20

02

le

ve

ls =

10

0)



Business Services

Total Rest of UK Exports


28

hospitality sector has decreased whilst most of the other sector groupings have either

remained the same or in some cases grown in value, notwithstanding the difficult economic

conditions (in particular, exports from food and drink manufacturing have grown by around

£1 billion p.a., both to other parts of the UK and internationally).

Figure 3-20: Change in value of exports to Rest of UK and international by industry grouping (2007-10)


-1,000

-500

0

500

1,000

1,500

2,000

-500 0 500 1000Ch

an

ge

in

Re

st

of

UK

ex

po

rts

2

00

7-2

01

0 £

m

Change in international exports 2007-2010 £m

Wholesale, retail & repairs, hotels & restaurants

Manufacture of food products & beverages

Construction

Financial intermediation

Electrical and instrument engineering


29

4: Enablers and barriers in Scotland

Enablers and barriers in Scotland - summary

Through consultations with stakeholders and desk based research we have

highlighted what we believe to be some of the main enablers and barriers for e-

commerce in Scotland.

The main enablers include the availability of digital agencies (particularly in the

Glasgow and Edinburgh areas) that can provide a range of e-commerce related

services to traders looking to develop their online sales channels. There are also

some good examples of e-commerce traders based in Scotland which can act as

exemplars for others to follow including Schuh, Toolstop, Black Circles, Donald

Russell and Skyscanner. Stakeholders generally thought that Scotland was

comparing well to other parts of the UK in terms of broadband infrastructure with

perhaps the exception of the more rural areas.

Most consultees believed that due to the mix of technical, design and marketing

skills required for e-commerce jobs it is generally quite difficult to recruit for

positions that combine these skills sets. The feedback also suggested many

Scottish companies currently do not fully understand the potential of online sales

channels and the work and investment that is required to become a successful e-

commerce trader (i.e. management of their supply chain and fulfilment processes).

Finally, there was also a general sense that Scotland does not currently have the

same critical mass of e-commerce activity compared to London, the South East,

parts of the Midlands and North West and has some scope to increase the levels

of e-commerce activity.

4.1 In this section we summarise our view of the main enablers and barriers to developing e-

commerce in Scotland. This is based on our review of secondary sources and consultations

with industry stakeholders.

Enablers

Availability of e-commerce suppliers

4.2 Most of the consultees believed that Scotland had a reasonably good supply of e-commerce

suppliers, particularly based around the two main cities of Glasgow and Edinburgh. This

includes a range of digital agencies that focus on e-commerce to varying levels. The types of

services offered include Search Engine Optimisation, web analytics, advice on the use of

social media, digital marketing, and the development of the e-commerce website. According

to recent research carried out for e-Skills UK, there are over 60 IT service companies offering

a wide range of IT services and support that includes e-commerce.


30

4.3 Some examples of e-commerce players in Scotland are listed in Table 4-1 below. Although

many such companies are relatively small, the general feedback was that they are doing well

in terms of winning work in Scotland and the rest of the UK (with some also working in

international markets). These agencies will clearly have an important role in supporting other

sectors to embrace e-commerce.

Table 4-1: Examples of e-commerce suppliers

Company name Location Website

Alienation Design Glasgow http://www.alienationdigital.co.uk/

Bigmouthmedia Edinburgh http://www.bigmouthmedia.com/

Digital Six Edinburgh http://www.digitalsix.co.uk/

Dog Digital Glasgow http://www.dogdigital.com/

Indez Glasgow http://www.indez.com/

Lynchpin Edinburgh http://www.lynchpin.com/

Radiator Glasgow http://www.the-radiator.com/

User Vision Edinburgh http://www.uservision.co.uk/

Whitespace Edinburgh http://www.whitespacers.com/

Source: Company websites

Some high profile examples of e-commerce traders

4.4 Notwithstanding the point being made in the previous section about the tendency of large UK

retailers to be headquartered in the South East of England, there are some good examples of

e-commerce traders based in Scotland which can act as exemplars for others to follow.

4.5 Amazon, generally regarded as one of the most successful e-commerce traders, has its main

UK headquarters in Slough near London. However over the last year, Amazon has increased

its presence in Scotland opening its largest UK fulfilment centre in Dunfermline (creating 750

jobs) and a Customer Services Centre in Edinburgh (creating 900 jobs over the next five

years), alongside the Amazon Development Centre at Waverley Gate. These facilities will

require a range of high and lower skilled employees. However, stakeholders highlighted that

the setting up of the Development Centre demonstrates the confidence that a company such as

Amazon has in being able to recruit the right technical skills.

4.6 A small growing company which has been successful in online retailing is Labels4Kids. It

won ‘independent online retail site of the year’ at the 2011 Online Retail Awards. Other

examples of successful Scottish-based e-commerce traders cited during our consultations

included Schuh, Toolstop, Black Circles, Donald Russell and Skyscanner. It was stated that

success of these e-commerce traders was mainly down to their ability to fully appreciate the

importance of e-commerce and make the appropriate investment in setting up and maintaining

e-commerce operations.

4.7 Stakeholders also pointed to the growing importance of e-commerce for sectors such as

tourism (with accommodation providers and visitor attractions increasingly providing


31

facilities for online booking) and also food and drink companies looking to sell into new

markets.

Broadband infrastructure

4.8 According to research commissioned by the Scottish Government in 2011, 94% of Scottish

businesses with ten or more employees (and excluding those with 250 or more employees)

use broadband (with 95% using internet, and 99% of these using broadband)15

. The same

research compares this figure of 94% to OECD research which indicated that, across the UK,

around 88% of businesses with ten or more employees use broadband16

.

4.9 Stakeholders generally thought that Scotland was comparing well to other parts of the UK in

terms of broadband infrastructure with perhaps the exception of the more rural parts of the

Highlands and Islands region and the south of Scotland (which are soon to receive significant

investment in broadband infrastructure).

Barriers

Some gaps in e-commerce skills base

4.10 Although there were some views that Scotland had no skills gaps in relation to e-commerce,

most consultees believed that due to the mix of technical, design and marketing skills required

for e-commerce jobs it is generally quite difficult to recruit for positions that combine these

skills sets.

4.11 For many, this simply reflected that scale of e-commerce activity in Scotland and would

probably be the same in most areas outside London and the South East of England where as

we have seen in the previous section there are concentrations of this type of employment.

4.12 Some also held the views that more could be done in the FE/HE sector so that graduates enter

the labour market with better (and more up-to-date) e-commerce skills (it was also pointed

out that there needs to be the demand for these courses before colleges and universities

provide the courses).

4.13 On a more positive note, it was also highlighted that Scotland has a strong supply of skills in

technical IT roles and businesses are attracted to investing in Scotland because of these skills

and more reasonable salary expectations than certain parts of England. However, for e-

commerce to further develop in Scotland, it was felt that there will be a need for more

graduates with both IT and digital marketing skills.

Limitations in business understanding of e-commerce

4.14 Our discussions with e-commerce suppliers highlighted that many companies (that they deal

with) do not fully understand the potential of online sales channels and the work and

investment that is required to become a successful e-commerce trader (i.e. management of

15 Scottish Government (2011), Research on Broadband and Business in Scotland 16 OECD Broadband Portal – Business use of broadband 2010


32

their supply chain and fulfilment processes). As a result, many e-commerce suppliers report

needing to provide a degree of ‘hand-holding’ with customers.

4.15 From the customer side there are also obviously benefits from greater understanding of e-

commerce so that they know exactly what services they require to buy in. It was suggested

that for some more traditional companies there remain some concerns about being ‘ripped-

off’ or mis-sold ICT products and services. One supplier also raised the point that for some

small businesses only wanting to serve local markets, e-commerce may actually not be

appropriate and should not be forced upon them.

4.16 It was also highlighted that many companies do not fully appreciate the on-going investment

that is required to not only develop e-commerce operations but to maintain and improve. One

e-commerce trader that we spoke to which has grown from 12 to 40 employees over the last

four years stated that many small companies were setting up an e-commerce website

assuming that is all that is required.

Lack of critical mass…in comparison to some parts of England

4.17 There was a general sense from most consultees that Scotland does not currently have the

same critical mass of e-commerce activity compared to London, the South East, parts of the

Midlands and North West. Whilst some stated that based on the location of the population and

business base this is not really surprising, others believed that because of the export potential

Scotland should be aspiring to be competing with some of these parts of England in e-

commerce. There was specific criticism about the quality of websites of some of Scotland’s

most well-known companies (e.g. in the food and drink sector) and suggestions that this

showed that much work has to be done to encourage Scottish firms to take e-commerce more

seriously.


33

5: Quantifying e-commerce in Scotland

Quantifying e-commerce in Scotland - summary

Using the ONS’s definition of e-commerce and UK data from the annual UK E-

commerce Survey, we have derived an indicative estimate of equivalent Scottish

e-commerce sales.

We estimate that about 200,000 direct jobs and £10 billion in direct GVA (c.

10% of Scotland’s GVA) are associated with Scotland’s £31 billion in e-

commerce sales p.a. (of which about £8 billion of sales are over websites).

It should be emphasised that these numbers are indicative estimates, to give an

idea of the scale of activity. They are based on UK-level data, adjusted for

Scotland’s share of UK employees in each sector, as there is no definitive source

for such data at the Scotland-level at present.

5.1 Quantifying the level of economic activity in Scotland associated with e-commerce is

challenging, due to:

the absence of any official Scotland-level statistics on e-commerce

the resulting uncertainty over Scotland’s relative position in e-commerce

different people meaning different things by ‘e-commerce’.

5.2 For the purposes of this study, we provide an indicative estimate of e-commerce activity in

Scotland, by:

drawing on the most definitive available information source on UK e-commerce sales

(the ONS’s e-commerce survey), using the ONS’s definitions of e-commerce

deriving an indicative estimate of equivalent Scottish e-commerce sales, by applying

Scotland’s overall share of employment in each of the industry sectors reported by the

ONS e-commerce survey

considering an adjustment for Scotland’s relative position in e-commerce versus the

UK average

in the light of the balance of evidence provided in this report, we have chosen

to assume that Scotland’s performance is currently in line with the UK

average in terms of e-commerce sales in each sector

converting sales into estimates of direct GVA and employment associated with the e-

commerce sales in the sectors reported by ONS


34

adjusting sales, GVA and employment estimates to account for the for e-commerce

activity of firms with fewer than 10 employees (not included in the ONS e-commerce

survey)

applying multipliers to estimate the indirect and induced GVA and employment

associated with Scottish e-commerce sales.

Estimate of direct turnover

5.3 According to the latest ONS e-commerce survey, the UK’s e-commerce sales amounted to

approximately £385 billion in 2010 – excluding the financial sector and excluding firms with

employment of less than ten. This consisted of £96 billion of sales through websites, and £289

billion through ICTs other than a website.

5.4 As shown in the table below, sales were highest in the ‘wholesale’ sector, for both website

sales and other ICT channels. In three sectors (retail; accommodation and food; and other

services) e-commerce sales through websites outstripped those through other ICTs.

Table 5-1: UK e-commerce sales, 2010

2010 sales over websites

(£bn)

2010 sales over ICT

other than websites

(£bn) Total e-commerce

sales 2010 (£bn)

Manufacturing 3.8 110.3 114.1

Utilities 6.8 7.9 14.7

Construction 0.3 4 4.3

Wholesale 37.5 118.3 155.8

Retail 12.8 3.1 15.9

Transport & storage 9.4 25.7 35.1

Accommodation & food services 4.2 0.7 4.9

Information & communication 10.3 11.1 21.4

Other services 10.8 8.4 19.2

Total 95.9 289.5 385.4

Source: ONS e-commerce survey

5.5 In terms of assessing Scotland’s share of economic activity, the most relevant proxy is the

number of employees in each of these sectors. As shown in the table below, Scotland’s share

of total UK employees varies from 6.3% in ‘Information & communication’ to 11.9% in

‘Utilities’.

Table 5-2: Employees in UK and Scotland for the sectors covered by the ONS e-commerce survey

UK employees 2010 Scotland employees

2010 Scotland share of

UK employees

Manufacturing 2,372,900 172,700 7.3%

Utilities 282,900 33,700 11.9%


35

UK employees 2010 Scotland employees

2010 Scotland share of

UK employees

Construction 1,183,500 121,400 10.3%

Wholesale 1,566,600 112,300 7.2%

Retail 2,780,600 235,800 8.5%

Transport & storage 1,212,400 92,300 7.6%

Accommodation & food services 1,790,800 165,100 9.2%

Information & communication 985,200 61,900 6.3%

Other services 4,284,900 327,500 7.6%

Total 16,459,700 1,322,600 8.0%

Source: SQW analysis of ONS Business Register and Employment Survey, 2010

5.6 Using Scotland’s share of UK employees per sector as an indicative estimate of Scotland’s

share of UK e-commerce sales would suggest that Scotland’s total e-commerce sales (in

sectors and firm sizes covered by the ONS e-commerce survey) were approximately £29

billion in 2010, of which £7.5 billion were through websites and £21.5 billion through other

ICTs, as shown in the table below.

Table 5-3: Implied e-commerce sales for Scotland, 2010 – before adjustments

Unadjusted implied Scotland sales over

websites (£bn)

Unadjusted implied Scotland sales

over ICT other than websites (£bn)

Unadjusted implied total ecommerce

sales for Scotland (£bn)


Utilities 0.81 0.94 1.75

Construction 0.03 0.41 0.44

Wholesale 2.69 8.48 11.16

Retail 1.09 0.26 1.35





Total 7.47 21.48 28.94

Source: SQW analysis

5.7 As discussed above, we do not have firm statistics as to whether Scotland’s current

performance in e-commerce sales is better or worse than the UK average – beyond

differences accounted for by Scotland’s industrial structure vs the UK average. For the

purposes of this analysis, therefore, we have chosen to not to apply any adjustment for

Scotland’s over/under-performance in e-commerce vs the UK average.

5.8 The ONS e-commerce survey report notes that it is not possible to estimate what the survey

results would be if business with less than ten employment were still covered by the survey.


36

However, it goes on to note that in 2004, the last year that these businesses were included,

ONS estimated that they accounted for 6.6% of total sales over the internet.

5.9 In the absence of any better data, we have therefore adjusted the above totals by a factor of

1.071 [= 1/(1-0.066)], which brings our estimate of Scotland’s total e-commerce sales in

2010 to £31 billion, consisting of about £8 billion over websites, and £23 billion through

other ICTs.

Estimate of direct Gross Value Added

5.10 In order to estimate the approximate GVA associated with these sales, we have used the GVA

to turnover ratios shown in the table below.

Table 5-4: GVA/turnover ratio per sector (uses most recent data, which is for 2009)

Total turnover in Scotland (2009)

£m GVA at basic

prices 2009 £m GVA/turnover ratio

Manufacturing 35,212 12,680 36%

Utilities17

N/A N/A 37%

Construction 14,820 5,825 39%

Wholesale 30,164 4,793 16%

Retail 23,468 6,426 27%

Transport & storage 9,413 5,118 54%

Accommodation & food services 5,342 2,580 48%

Information & communication 6,417 3,200 50%

Other services 23,480 12,139 52%

Source: SQW analysis of Scottish Government Annual Business Statistics for 2009, and ONS Annual Business Survey

5.11 Applying these ratios to Scotland’s e-commerce sales per sector, we estimate that the direct

GVA for Scotland associated with e-commerce (in the sectors and business sizes covered by

the ONS e-commerce survey) was approximately £9 billion in 2010, consisting of £2.5 billion

through websites and £6.6 billion through other ICTs.

Table 5-5: Implied GVA associated with e-commerce sales for Scotland, 2010 – before adjustments

Unadjusted implied Scotland GVA over

websites (£bn)


ICT other than websites (£bn)


GVA for Scotland (£bn)


Utilities 0.30 0.35 0.65

Construction 0.01 0.16 0.17

Wholesale 0.43 1.35 1.77

17 Turnover and GVA are not available for Scotland’s utilities sector, due to disclosure issues. We have therefore

used the GVA/turnover ratio calculated from the UK-level statistics for this sector.


37


websites (£bn)


ICT other than websites (£bn)


GVA for Scotland (£bn)

Retail 0.30 0.07 0.37





Total 2.46 6.59 9.05

Source: SQW analysis

5.12 Adjusting by a factor of 1.071, again, to account for firms with employment of less than ten,

brings our estimate of the total direct GVA associated with Scotland’s e-commerce sales to

£9.7 billion in 2010, consisting of £2.6 billion over websites, and £7.1 billion through other

ICTs. It should be emphasised that these numbers are indicative estimates, to give an idea of

the scale of activity. They are based on UK-level data, adjusted for Scotland’s share of UK

employees in each sector, as there is no definitive source for such data at the Scotland-level at

present.

5.13 To put this into context, the estimate of direct GVA associated with Scotland’s total e-

commerce sales represents about 10% of Scotland’s total GVA (£102 billion). Although e-

commerce is not a sector as such, it is still interesting to note the value of e-commerce is now

much larger than the total economic contribution of Scotland’s retail sector (£6.4 billion GVA

in 2009 for ‘Retail trade, except of motor vehicles and motorcycles’). Within this, the direct

GVA associated with Scotland’s e-commerce sales over websites (as opposed to other ICTs)

is now similar to the contribution of Scotland’s total beverages industry (£2.7 billion GVA in

2009 for ‘Manufacture of beverages’).

5.14 The ONS E-commerce Survey report does not calculate a UK GVA figure from e-commerce

sales. However, using the same approach as described above (i.e. applying average

GVA/turnover ratios per sector) suggests that e-commerce activity in the UK (excluding the

financial sector) is associated with around £128 billion in GVA (10% of the UK’s GVA in

2010, which was £1.3 trillion).

Estimate of direct employment

5.15 In order to derive estimates for the direct employment associated with Scotland’s e-commerce

sales and GVA we apply average GVA per employee per sector. As shown in the table below,

this suggests a total of about 183,000 direct jobs associated with Scotland’s e-commerce

sales, of which 61,000 are associated with e-commerce over websites, and 122,000 associated

with e-commerce over other ICTs.


38

Table 5-6: Implied employment associated with e-commerce sales for Scotland, 2010 – before adjustments

Average GVA per employee

(2009) £

Unadjusted implied Scotland

employment associated with e-

commerce over websites

(thousands)

Unadjusted implied Scotland

employment associated with e-

commerce over ICT other than websites

(thousands)

Unadjusted implied

Scotland employment

associated with total e-commerce

(thousands)

Manufacturing 66,521 1.5 43.4 44.9

Utilities 176,729 1.7 2.0 3.7

Construction 48,655 0.2 3.3 3.6

Wholesale 39,122 10.9 34.4 45.3

Retail 27,598 10.8 2.6 13.4

Transport & storage 51,674 7.5 20.6 28.1

Accommodation & food services

15,320 12.2 2.0 14.2

Information & communication 54,759 5.9 6.4 12.3

Other services 42,438 10.1 7.8 17.9

Total 60.8 122.6 183.4

Source: SQW analysis of Scottish Government Annual Business Statistics for 2009, and ONS Annual Business Survey

5.16 Adjusting by a factor of 1.071, again, to account for firms with employment of less than ten,

brings our estimate of the total direct employment associated with Scotland’s e-commerce

sales to approximately 196,000 in 2010, consisting of 65,000 associated with e-commerce

over websites, and 131,000 associated with e-commerce through other ICTs.

Estimates of indirect & induced GVA and employment

5.17 The above estimates for direct GVA and employment do not tell the whole story, however.

There are ‘multiplier’ effects through the economy associated with those firms which are

selling products and services through e-commerce:

indirect effects, associated with the firms drawing on the products and services of

other employers in the Scottish economy (note that this includes products and

services to support the firms’ entire operations, not just for the website/other ICT

aspects)

induced effects, associated with employees spending their wages in the Scottish

economy.

5.18 These effects can be estimated through the use of ‘type II multipliers’, which reflect both the

indirect and induced effects associated with direct employment and direct GVA. The values

we assume, for the sectors covered by the ONS e-commerce survey, are shown in the table

below.


39

Table 5-7: Scotland-level type II multipliers per sector

Employment multiplier range

Assumed employment multiplier

GVA multiplier range Assumed GVA multiplier

Manufacturing 1.00 to 13.41, with a mean of 2.04

2.04 1.00 to 7.40, with a mean of 1.93

1.93

Utilities 1.77 to 4.15, with a mean of 3.37

3.37 1.31 to 2.83, with a mean of 2.17

2.17

Construction 2.19 2.19 2.14 2.14

Wholesale 1.28 to 1.65, with a mean of 1.47

1.47 1.42 to 1.63, with a mean of 1.53

1.53

Retail 1.31 1.31 1.52 1.52

Transport & storage 1.37 to 2.49, with a mean of 1.91

1.91 1.51 to 2.54, with a mean of 1.90

1.9

Accommodation & food services

1.24 1.24 1.5 1.5

Information & communication

1.64 to 2.02, with a mean of 1.83

1.83 1.41 to 1.61, with a mean of 1.51

1.51

Other services 1.33 to 2.70, with a mean of 1.66

1.66 1.13 to 1.77, with a mean of 1.50

1.5

Source; SQW analysis of Scottish Government Type II multipliers for 2007

5.19 Applying these multipliers to the employment and GVA per sector shown above, and

adjusting to account for firms with employment less than ten, we estimate that Scotland’s e-

commerce sales could be supporting an additional 146,000 jobs and £7.5 billion of GVA in

Scotland18

through indirect and induced multiplier effects.

18 These calculations make use of standard employment and GVA multipliers to calculate an estimate of the wider

economic impact of e-commerce in Scotland. In order to produce a more accurate figure, research would be

required to assess whether business output generated through e-commerce results in different multiplier effects.

We would suggest that overall the additional demand for suppliers and the local spending of business employees

are likely to be broadly similar and for that reason are satisfied that the available multipliers are appropriate to use.


40

6: Options for enhanced public sector support

6.1 In parallel with our desk research, our consultations tested a number of potential options for

improved public sector support of e-commerce in Scotland. As would be expected, there were

varying views on what should be done. In the sub-sections below, we present SQW’s view on

each type of support tested, in the light of our consultations, and our review of the relevant

literature and data for this study. Whilst the available evidence suggests that Scotland is

broadly in line with the UK average in terms of business adoption of e-commerce, the scale of

the potential opportunity, the recent performance in wholesale/retail exports and the views of

consultees suggest that a number of potential improvements in support for e-commerce could

be considered.

6.2 Consultees were asked to comment on how the current provision of e-commerce support in

Scotland compares to what is offered in other parts of the UK. However for most, this issue

proved difficult to answer. For some of the consultees, there was a perception that there are

more events are available in England specifically dealing with the topic of e-commerce. What

was not clear was whether these events were being delivered by the public or private sector.

Awareness-raising

6.3 Given our findings from our consultations and desk research, there appears to be considerable

scope for awareness-raising re e-commerce in Scotland. The issue is not now so much

introducing the concept to Scottish businesses, but rather to:

increase the profile of our e-commerce success stories – celebrating examples of

businesses achieving rapid growth through online exports to the rest of the UK and

overseas; this would help to attract recruits into Scottish e-commerce operations and

suppliers, stimulate potential entrepreneurs, and encourage established businesses

who have tried e-commerce, without great initial success, to re-engineer their

implementations/processes and make it work well

help to raise awareness of how to go about doing e-commerce well (as opposed to just

doing it)

establish a more consistent understanding and usage of the terminology –

distinguishing between the particular challenges of e-commerce (e.g. analytics,

design, payment systems, conversion rates, logistics, etc.) from the more general

issues around e-business

help to raise awareness of the e-commerce suppliers available in Scotland, making it

easier for potential e-commerce traders to know where to go for support and advice;

this could be the role of public sector organisations alongside relevant trade

organisations such as ScotlandIS.

6.4 Potential mechanisms for such awareness raising could include:


41

Scottish Government ministers making more frequent mention of Scottish e-

commerce success stories (from a wide variety of sectors) in their public speeches –

especially those managing to create substantial export growth; these would need to be

informed by concise, timely case study examples collated by Scottish Enterprise and

Highlands and Islands Enterprise (and not necessarily just those companies directly

supported by SE and HIE)

making frequent and consistent references to ‘e-commerce’ on SE’s, HIE’s and SDI’s

websites, supported by relevant and up-to-date information and examples: increasing

the ‘keyword frequency’ as one of our consultees put it

exploring the potential for major e-commerce events to be hosted in Scotland.

Development of official statistics on e-commerce in Scotland

6.5 The need for this study arose from the current lack of any official statistics on e-commerce

activity in Scotland. With e-commerce accounting for an increasingly important proportion of

Scotland’s GVA, and GVA growth, we would suggest that this is a serious gap in the current

official economic statistics for Scotland, and one that the Scottish Government should seek to

address with ONS.

Guides to help companies with e-commerce adoption

6.6 Some of our consultees were sceptical as to the extent to which SE could realistically develop

and maintain detailed practical guides to help companies with e-commerce adoption (e.g. on

the Business Gateway website). Given the pace of change in e-commerce, we share that

scepticism.

6.7 We suggest that SE, working alongside other public sector organisations, focuses on ensuring

that the basic advice on the Business Gateway website is up to date, in as far as it goes, with

links to other relevant sources of more detailed information and support, and ensuring that

this site is itself search engine optimised to be high on the rankings of results for companies

based in Scotland looking for help and information on e-commerce.

6.8 In addition, we understand that the new Scottish Business Portal is currently being developed

by SE and this would appear to be another vehicle for ensuring effective information and

advice on e-commerce for Scottish businesses.

Facilitating enhanced networking opportunities

6.9 The views of consultees were particularly varied with respect to the advisability of creating

new networking opportunities – with some suggesting that Scotland is already ‘awash’ with

such opportunities, while others were of the view that there were few opportunities for people

involved in e-commerce to come together and discuss issues of specific relevance to e-

commerce.

6.10 We consider that both perspectives are correct: there are many opportunities for networking

through channels such as the Chambers of Commerce, the FSB, ScotlandIS and other industry


42

associations; but few of these organisations’ events focus specifically on e-commerce. Given

the fast-moving nature of e-commerce, we agree with some of our consultees that there is a

case for there being more in the way of regular events in which established and potential e-

commerce traders can come together and share their experiences, exchanging ‘tips and tricks’,

and being able to engage in conversations with expert suppliers, on a commitment-free and

cost-free basis. We would suggest that SE engages with organisations such as those already

mentioned, to explore the potential for incorporating such events into their programmes.

Changes in education curricula (schools, FE, HE)

6.11 The availability of people skilled in e-commerce was variously described by our consultees as

‘abysmal’, ‘the main weakness’, and ‘not a problem’.

6.12 However, it appears to be clear (primarily from unofficial sources such as LinkedIn,

ITjobswatch, Econsultancy etc.) that Scotland is an order of magnitude behind the Greater

South East of England in terms of the numbers of people considering themselves to be ‘in e-

commerce’. This would suggest that ways of strengthening the supply of e-commerce skills in

Scotland should be assessed.

6.13 Although SE could have an influencing role, we would anticipate the main organisations for

leading skills related support would be Skills Development Scotland and the Scottish Funding

Council19

. There may be a case, for example, for one of Scotland’s central belt universities

offering a one-year MSc course specialising in e-commerce, offered to students with a variety

of first degrees and developed and delivered in liaison with industry, in order to help

strengthen the supply of skills into the e-commerce market – both for traders and suppliers.

This would be analogous to the role that Abertay University has played in strengthening the

supply of skills into Scotland’s video games industry.

Grants

6.14 Most consultees agreed that grants would not be an appropriate form of public sector support,

in encouraging businesses to up their game in e-commerce. If carefully researched and done

correctly, there is a compelling Return on Investment for e-commerce operations, and this

should be one of the key messages from SE and HIE (an argument which would be made less

convincing if a grant was offered).

Better access to support in embracing e-commerce

6.15 We have uncovered various issues in terms of current or potential e-commerce operations

getting access to both public sector and private sector support:

some confusion over whether SE is currently ‘allowed’ to support retailers

19 It is worth highlighting that a related research study on the skills requirements for Scotland’s IT profession has

been commissioned by Skills Development Scotland and Scottish Enterprise. This considers wider issues around

promoting IT as a career with young people, including those at school, FE and HEIs.


43

lack of awareness amongst some e-commerce operations of the expertise available in

Scotland, and where to go for help.

6.16 In the light of these issues we suggest the following:

Ensure there is complete clarity internally, within SE and SDI, on the position re

support for retailers based in Scotland, and communicate this position externally; we

would suggest that it would be entirely appropriate to support retailers in developing

e-commerce operations focused on exports to the rest of the UK and overseas.

Consider developing some form of online resource listing Scottish suppliers of e-

commerce services in Scotland – preferably with some information on their areas of

expertise, the size of company, example clients, and location (similar to what has

been provided for priority sectors). In order to minimise administrative burden this

would need to incorporate a mechanism for member updating. Social media (such as

LinkedIn Groups) may be a useful vehicle for such a resource.

Ensure that publicly-funded ICT advisers and international trade advisers are kept

aware and up to date as to the expertise available in the e-commerce supplier base in

Scotland, possibly using the above online resource as a means of staying up to date.

Greater investment in /more intensive business support

6.17 In terms of the one-to-one support provided by the public sector, we suggest the following:

Recognising that e-commerce is a particularly fast-moving and wide-ranging area,

invest in regular training of SE’s ICT advisers on e-commerce as part of the

Continual Professional Development – perhaps delivered in partnership with some of

the leading Scottish suppliers. The aim would not be to position these advisers as e-

commerce implementation advisers, but to ensure that they are able to ask the right

questions of their clients, spot weaknesses in existing e-commerce set-ups, and know

where to point the client for more detailed advice and support.

Consider offering/facilitating e-commerce site reviews for large Scottish companies,

including retailers, and food and drink companies. Various consultees made the point

that there is a big difference between having an e-commerce website and doing e-

commerce really well. With much less critical mass of e-commerce activity in

Scotland than there is in the Greater South East, there is a risk that even our larger

companies are less ‘savvy’ than their counterparts in southern England in their e-

commerce implementations. The economic impact to Scotland from big

improvements to these companies’ e-commerce performance (in terms of exports to

the rest of the UK and overseas), could potentially be substantially greater than the

accumulated benefits from supporting many smaller companies.


44

7: Conclusions and recommendations

Summary of conclusions

E-commerce is large and important (obviously)

7.1 It hardly needs to be said that e-commerce is a critical aspect of modern business life. Using

the ONS’s definition of e-commerce, we estimate that about 200,000 direct jobs and £10

billion in direct GVA (c. 10% of Scotland’s GVA) are associated with Scotland’s £31 billion

in e-commerce sales p.a. (of which about £8 billion of sales are over websites). As previously

noted, it should be emphasised that these numbers are indicative estimates, to give an idea of

the scale of activity. They are based on UK-level data, adjusted for Scotland’s share of UK

employees in each sector, as there is no definitive source for such data at the Scotland-level at

present.

It offers substantial opportunities for Scotland

7.2 This is a rapidly growing area. According to ONS, the UK’s e-commerce sales increased by

19% over the period 2008 to 2010, notwithstanding the economic downturn.

7.3 The UK has a world-leading position in one important aspect of e-commerce: online retail.

Boston Consulting Group estimates that online retail accounted for 13.5% of all retail in the

UK in 2010, versus 7.1% in Germany (the next highest share amongst the major economies).

7.4 A high proportion of the e-commerce sales of Scottish businesses are exports – to the rest of

the UK or overseas. Statistics are not available on this, but our consultations suggested that

the large majority of sales (90% +) are typically to customers outwith Scotland. The ONS’s e-

commerce survey found that about 42% of UK business with online sales had online sales to

customers based in other parts of the EU, and 33% of UK businesses with online sales had

online sales to customers based outside the EU.

Scottish consumers are somewhat less likely than average to use e-commerce themselves…

7.5 Eurostat figures indicate that about 64% of adults in Scotland had ordered goods and services

online over the previous 12 months, in 2010 – below the UK average of 67%.

…but, on the face of it, various indicators point to Scotland’s businesses being broadly in line with the UK average in terms of online sales

7.6 Some regional breakdown information has been obtained from surveys of small businesses by

BIS and FSB; these appear to indicate that Scotland is broadly in line with the UK average in

terms of the proportions of businesses trading online (35% in Scotland vs 36% for UK in the

FSB survey; 36% in Scotland vs 39% for UK in the BIS survey).


45

7.7 Looking specifically at the wholesale and retail sector over the period 2003 to 2009 (in which

e-commerce was growing rapidly), we find that Scotland’s GVA in this sector increased by

18% over that period: the 5th highest growth rate out of 12 nations and regions.

However, other indicators suggest that Scotland is way behind other parts of the UK in terms of having “e-commerce people”…

7.8 Our analysis of LinkedIn found that about 1,200 members located in Scotland’s cities

mentioned ‘e-commerce’ in their profiles, compared with 13,000 members based in London.

7.9 Data from itjobswatch.co.uk found that Scotland had the lowest proportion of any

nation/region in terms of advertised IT jobs citing ‘e-commerce’ over the last 3 months: 2% in

Scotland versus 11% in London and 10% in the East Midlands. Looking at the time series

since 2004, there has been a clear growth in this ratio for the UK as a whole (c. 3% in 2004

rising to c. 9% in 2012), while the proportion for Scotland has oscillated around the 3% mark.

7.10 Statistics from Google Insights for Search suggest that the intensity of business interest in

searching for information on web-based e-commerce has been about 40% lower in Scotland

than in England over the last year.

…and it should be investigated whether this may have accounted for some of the reduction in Scotland’s wholesale and retail exports over the last few years

7.11 Of all the sectors covered by the Scottish Government’s Global Connections survey, the

‘wholesale, retail and repairs, hotels & restaurants’ sector posted the worst change in export

performance over the period 2007 to 2010: an £875 million reduction in exports (-11%)

between 2007 and 2010, compared with overall exports from Scotland increasing by £4.5

billion (+7%) over the same period, notwithstanding the economic downturn.

7.12 As found by the ONS e-commerce survey, these wholesale and retail sectors are the most

dependent on website sales. With e-commerce being a rapidly moving area, and with the

numbers of ‘e-commerce people’ being relatively few in Scotland (both in terms of suppliers

and in-house experts), it would seem to be entirely possible that Scotland’s wholesale and

retail sector’s export performance could be suffering from a relatively weak position in e-

commerce. However, this is a hypothesis that we are not able to prove with the available

data,20

and the factors behind the trends in Scotland’s wholesale/retail export performance

warrant further investigation.

There is scope for improvements to the public sector’s support for (web-based) e-commerce in Scotland, in order to help develop a critical mass of activity

7.13 Whilst the available evidence suggests that Scotland is broadly in line with the UK average in

terms of business adoption of e-commerce, the scale of the potential opportunity, the recent

performance in wholesale/retail exports and the views of consultees suggest that a number of

potential improvements in support for e-commerce could be considered. Our overall

20 An alternative hypothesis is that the growth in ‘manufacture of food & beverages’ exports has to some extent

been at the expense of exports previously allocated to the wholesale and retail sectors.


46

conclusion is that e-commerce – especially web-based e-commerce - is sufficiently large,

important, fast-moving and ‘easy-to-get-wrong’ that it warrants a refreshed approach by the

public sector. The relevant market failures are imperfect information (e.g. knowing who the

suppliers are, knowing ‘tips and tricks’ on how to do e-commerce well) and externalities

(with the numbers of e-commerce people heavily concentrated in the Greater South East, that

area benefits from a virtuous circle of people setting up e-commerce operations where there is

already a plentiful supply of skills and experience; our sense is that Scotland is still some way

off from having genuine critical mass of e-commerce expertise).

7.14 Our recommendations are presented below for the most important actions by public sector:

most of these are relatively straightforward, and none are particularly resource-intensive,

relative to other areas of investment. We think that some simple, smart changes in approach

can make quite a substantial difference in this area.

Summary of recommendations

7.15 In the light of our research and the above conclusions we offer the following

recommendations21

. Whilst we anticipate that in most cases SE should have a leading and

coordinating role, there are some recommendations that will require the involvement of other

public sector organisations (such as SDI, HIE, the Scottish Government, SFC and SDS) and

industry bodies such as ScotlandIS and eSkills UK.

Recommendation 1. Undertake re-vitalised awareness-raising activity on e-

commerce. Our suggested approach to this would include, for example: working with

the Scottish Government to increase the frequency of ministers referring to our e-

commerce success stories; making frequent, consistent references to e-commerce on

SE and SDI websites and in events/training for businesses; and exploring the

potential for major e-commerce events to be hosted in Scotland.

Recommendation 2. Seek to put in place the collection and analysis of regular

official statistics on e-commerce in Scotland, through official requests to ONS.

Recommendation 3. Explore the potential for more frequent and regular

networking opportunities specific to e-commerce, in discussion with organisations

such as Chambers of Commerce, FSB, ScotlandIS and other industry associations.

Recommendation 4. Assess ways of strengthening the supply of e-commerce

skills in Scotland. We suggest, for example, that it would be worth assessing the

feasibility of a Scottish university offering an MSc in e-commerce, in liaison with

HEI partners.

Recommendation 5. Enhance public sector support for e-commerce operations

in Scotland. We suggest that specific actions here could include:

21 The rationales for these recommendations are given in section 6, and not repeated in this summary.


47

ensuring that the e-commerce areas on the Business Gateway website and

new Scottish Business Portal are kept up to date and optimised for relevant

web searches by Scottish companies looking for help on e-commerce

ensuring there is complete clarity internally, within SE and SDI, on the

position re support for retailers based in Scotland, and communicating this

position externally

developing/ facilitating some form of online resource listing Scottish

suppliers of e-commerce services in Scotland

ensuring that publicly-funded ICT advisers and international trade advisers

are kept aware and up to date as to the expertise available in the e-commerce

supplier base in Scotland

investing in regular training of SE’s ICT advisers on e-commerce as part of

the Continual Professional Development – perhaps delivered in partnership

with some of the leading Scottish suppliers.

considering offering/facilitating e-commerce site reviews for large Scottish

companies, including retailers, and food and drink companies.


A-1

Annex A: Consultees

A.1 We are grateful to the following consultees who have participated in this study.

Table A-1: Consultees

Name Organisation

Finlay Carmichael C2 Software

John Cavanagh and Kate Little Digital Six

David Murdoch GSPC

Theresa Swayne Highlands and Islands Enterprise

Peter Mowforth Indez

Ann-Maree Morrison Labels4Kids

Steve Dalgleish Lynchpin

Andrew Cairns Murray Farm Care

Carolyn Burnett NN4M

Stephen Hunter Radiator

Polly Purvis ScotlandIS

Alex McGuire and Derek Dougall Scottish Development International

Jim Timmoney Scottish Enterprise

Trudy Nicolson Scottish Government

Marion Beattie Skills Development Scotland

Gerry Docherty Technology Advisory Group

Calum Kegg Toolstop

Chris Rourke User Vision


B-1

Annex B: Data sources explored

Table B-1: Potential data sources explored

Source Rationale Outcome

Akamai Enquire if any potential data on geographic analyses of e-commerce transactions/ traffic at a sub UK level

Data is collected at a national (UK) level only

BIS: Small Business Survey

To access a regional breakdown on the section on business capability and use of technology Regional breakdown provided

British Retail Consortium: Online retail stats

Enquire if any online retail statistics are collected at a regional level and if any data is collected on Scotland

No online retail statistics available for Scotland as the online retail monitor is based on number of retail searches through Google

Cisco Enquire if any potential data on geographic analyses of e-commerce transactions/ traffic at a sub UK level

Data is collected at a national level (UK) only

Dun & Bradstreet - business database

Enquire if information is collected on e-Commerce businesses.

No information on e-Commerce businesses is collected

eBay

Access breakdown of eBay traders by region and get a more detailed breakdown of available m-commerce data

Still waiting to hear back at time of finalising report

Experian - business database

Enquire if information is collected on e-Commerce businesses

No information on e-Commerce businesses is collected

FAME database Check if any data is collected on online sales No data is collected on online sales through company records

FSB: Member Survey 2010 and 2012 Voice of Small Business

To access a geographic breakdown (Scot vs. UK) of data in particular the sections on internet usage

Geographic breakdown of survey data provided

IMRG: e-Jobs index

Enquire if any of the data used to compile the e-Jobs index can be accessed at a regional geographic level and if IMRG collect any data on Scotland. Also enquire about accessing anonymous IMRG Membership data by geography

IMRG have not broken any of their research into a regional level in terms of e-commerce. However they hope to launch a delivery index that tracks the percentage of parcels to regions in Spring 2012. It was not possible to access IMRG membership data

Logistics sector bodies (Skills for Logistics, Freight Transport Association)

Enquire if any data on e-commerce related employment in the sector

Checked with both organisations – unfortunately could not provide any relevant data

ONS: BRES/ Annual Business Survey

To access employment and financial data for relevant SIC code 47.91 and access more detail from the Annual Business Survey question 754 on proportion of sales generated through mail order and website

Data provided re SIC 47.91 but they could not provide regional extracts of the data from question 754

ONS: e-Commerce and ICT survey

Enquire if the survey data can be accessed at a lower geographic level than the UK.

The e-Commerce and ICT Survey cannot be extrapolated to a Scotland level due to conceptual challenges with locational activity as it's possible that all the activity gets allocated to a single contact point where the finance HQ for the enterprise is based.

ONS: Retail Sales To access data on value of online retail sales as a Not possible to access this data at a


B-2

Source Rationale Outcome

Time Series percentage of all sales by region regional level.

Paypal To request information on accounts and transaction value in Scotland compared to other parts of the UK

No data available below the UK market

WorldPay To request information on accounts and transaction value in Scotland compared to other parts of the UK

Still waiting to hear back at time of finalising report

Post Office

Check if any data on e-commerce as a proportion of all business broken down to Scotland and UK regions. No data of this kind is collected.

Scottish Government: Global Connections Survey Enquire if data collected on online exports. No data collected on online exports

Scottish Government: Scottish Annual Business Statistics

To access employment and financial data for relevant SIC code 47.91 Data provided


C-1

Annex C: Research documents

C.1 The following documents helped to inform this study.

Table C-2: Relevant research documents

Title Author Year

“Economic and Social Impact of Ecommerce: Preliminary Findings and Research Agenda

OECD 1999

2010 annual survey into e-commerce and ICT – Statistical bulletin

ONS 2011

A Review of eBusiness in Scotland in Small and Medium Sized Businesses: Trends and Issues

Douglas Cruickshank (in ‘Scottish Affairs’)

2005

Assessing the contribution of retailing in Scotland

DTZ 2011

BIS Small Business Survey 2010 BIS 2011

BT Scotland Young E-ntrepreneurs Awards PYSTB 2012

Business Consumer Experience OFCOM 2009

Communications Market Report – Scotland OFCOM 2011

eCommerce in Europe: trends and outlook FactFinder 2011

FSB Scotland Members Survey 2010 FSB 2010

IMRG e-Jobs index 2011 IMRG and edigital research 2011

Information economy report UN 2011

Mobile Stata Summary Incentivated 2012

OECD Guide to Measuring Info Society OECD 2011

Online retail profile UK Datamonitor 2011

Online Retailing: Britain and Europe 2012 Centre for Retail Research 2011

Pick n Mix – meeting the demands of the new multi-channel shopper

PwC 2011

Research on Broadband and Business in Scotland

Scottish Government 2011

Scotland’s Digital Future a Strategy for Scotland Scottish Government 2011

Skills requirements for e-commerce and their provision in Scotland

e-Skills UK 2011

The Connected Kingdom Boston Consulting 2010

The State of the Internet Akamai 2012

VNI Index and forecast

CIISCO 2011


D-1

Annex D: Sector definitions

ONS E-commerce Survey

D.1 Table D-1 defines the industry groupings used in the ONS E-commerce Survey.

Table D-1: SIC codes used in ONS E-commerce Survey

Industry grouping SIC categories (2007)

Manufacturing Divisions 10-33

Utilities Divisions 35-39

Construction Divisions 41-43

Wholesale Divisions 45-46

Retail Division 47

Transport and Storage Divisions 49-53

Accommodation and Food Services Divisions 55-56

Information and Communication Divisions 58-63

Other Services Divisions 68-74, 77-82 and 95.1

Source: ONS E-commerce Survey 2010

D.2 The sectors not included are Section A (Agriculture, Forestry and Fishing), Section B (Mining

and Quarrying), Division 75 (Veterinary Activities), Section O (Public Administration and

Defence, Social Security), Section P (Education), Section Q (Health and Social Work),

Section R (Arts, Entertainment and Recreation) and Section S (Other Service Activities

except SIC 95.1 (Repair of computers)

Scottish Government Global Connections Survey

D.3 Table D-2 provides the SIC codes used in the Scottish Government Global Connections

Survey.

Table D-2: SIC codes used in Global Connections Survey


Agriculture, Forestry & Fishing 01, 02, 05

Mining, Quarrying & Extraction of Petroleum 10, 11, 13, 14

Manufacture of Food Products and Beverages 15

Of Which Manufacture of Distilled Potable Alcoholic Beverages 15.91

Manufacture of Textiles, Footwear, Leather & Clothing Products 17, 18, 19

Manufacture of Paper, Print and Publishing 21,22

Manufacture of Coke, Refined Petroleum Products & Nuclear Fuel, Manufacture of Chemicals & Chemical Products 23, 24

Manufacture of Metals and Metal Products 27, 28


D-2


Mechanical Engineering 29

Electrical and Instrument Engineering 30, 31,32,33

Manufacture of Transport Equipment 34, 35

Other Manufacturing Industries 20, 25,26,36,37

Electricity, Gas & Water Supply 40, 41

Construction 45

Wholesale1, Retail & Repairs, Hotels & Restaurants 50, 51, 52, 55

Land, Water & Air Transport & Auxiliary Transport Acitivities 60, 61, 62, 63

Post & Telecommunication 64

Financial Intermediation 65, 66, 67

Real Estate & Renting of Equipment 70, 71

Business Services2 72, 73, 74

Education 80

Other Services3 85, 90, 92, 93



E-1

Annex E: Examples of online retail awards

E.1 Table E-1 includes a list of IMRG’s annual awards for 2010 and 2011, indicating the location

of the companies’ headquarters.

Table E-1: IMRG annual award winners and HQ location in the UK 2010 and 2011

2010 Winners Region 2011 Winners Region

Online Gold Award (OLGA): Marks & Spencer London ASOS London

Best Multichannel Retailer: Marks & Spencer London John Lewis London

Best Large Online Retailer: ASOS London ASOS London

Best use of Online Content: Marks & Spencer London Kiddicare East

International e-Retail: Wiggle SE ASOS London

e-Commerce Site Innovation:

Payvment CA, USA PrismaStar Limited London

Re-design/Re-launch of the Year:

L.K. Bennett and Marks and Spencer (joint winners)

London Charles Tyrwhitt LLP London

Best e-commerce Marketing Agency:

Further Search Marketing

East

Innovation in Delivery: DPD UK West Mids Collect+ SE

Best Customer Service: Kiddicare East Lovehoney Ltd SW

Best e-Commerce Marketing Initiative:

eBay Fashion Outlet London RS Components East Mids

Best Small Online Retailer: Prezzybox.com West Mids Party Delights Ltd NW

Best e-Commerce Payment Innovation:

Oasis (Aurora Fashions) London App55 Ltd NW

Best Use of Social Media: ASOS London ASOS London

Best m-Commerce Retailer: Ocado East Jessops East Mids

Consumer Choice Award: Webtogs SW Tonergiant.co.uk NW

Source: IMRG, SQW analysis

E.2 Table E-2 includes details of the 2011 Online Retail Awards which includes one Scottish

based company, Labels4Kids.

Table E-2: 2011 Online Retail Awards

Award Company Region/ country

Online Retail Site of the Year: Ty Mawr (www.lime.org.uk) Wales

Multiple online retail site of the year Sears Holdings (www.sears.com) USA

Independent online retail site of the year Labels4Kids (www.labels4kids.com) Scotland

Online retail portal site of the year NotOnTheHighStreet (www.notonthehighstreet.com) London


E-2

Award Company Region/ country

Online retail marketing campaign of the year Dairy Crest Milk&More (www.milkandmore.co.uk) SE

Online retail mobile site of the year Kiddicare (www.kiddicare.com) East

Online retail launch site of the year Made.com (www.made.com) London

Babies & Children Twisted Twee (www.twistedtwee.co.uk) London

Beauty, perfumes & cosmetics Escentual (www.escentual.com) Wales

Books, magazines & newspapers Green Metropolis (www.greenmetropolis.com) NE

Cars and car accessories Halfords (www.halfords.com) West Mids

Computers and telecommunications (inc mobile/cell) MobileFun (www.mobilefun.co.uk) West Mids

Electrical Appliances Online (www.appliancesonline.co.uk) East Mids

Fashion & clothing Brand Alley (www.brandalley.co.uk) London

Finance & insurance Barclays Bank (www.barclays.co.uk/investments) London

Food, soft drinks and alcoholic drinks Dairy Crest (www.milkandmore.com) SE

Garden & gardening Worldstores – Gardening sites (www.worldstores.com) London

Source: onlineretailawards.com, SQW analysis

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