Scottish e-commerce Study

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Scottish e-Commerce Study

Final Report to Scottish Enterprise

May 2012

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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

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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

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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.

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

more employees)

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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)

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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

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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

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(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 commerce industry (note that this uses a different definition of 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).

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IMRG (2011) e-Jobs Index

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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 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.

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Boston Consulting Group (2010) The Connected Kingdom: How the Internet Is Transforming the U.K. Economy

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

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Datamonitor (2011) Online Retail in the United Kingdome

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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.

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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

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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 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.

62 69 53 63 53 61 57 47 47 53 58 55 46 68 73 ₇₂ 71 63 65 66 60 56 69 61 67 63 75 73 ₇₂ 71 68 68 ₆₇ ₆₇ 64 64 64 61 53 0 10 20 30 40 50 60 70 80 Ea s t o f En g la n d So u th Ea s t Ea s t M id la n d s So u th W e s t We s t M id la n d s L o n d o n UK Nort h e rn I re la n d Nort h W e s t Wa le s Sc o tl a n d Yo rk s h ire a n d Th e Hu m b e r No rt h Ea s t % of in di v id ua ls w ho orde red go od s & s e rv ic e s ov e r the in te rne t for p riv a te u s e 2008 2009 2010

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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 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.

22% 14% 13% 11% 8% _8% 7% _7% 6% 3% 2% 0% 5% 10% 15% 20% 25% So u th Ea s t Nort h Ea s t Nort h W e s t Ea s t An g lia So u th W e s t We s t M id la n d s L o n d o n Sc o tl a n d Ea s t M id la n d s Wa le s Nort h e rn Ire la n d Sh a re o f u n iq u e UK e Ba y m -c o m m e rc e c o n s u m e rs

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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

44% _43% 42% 39% 39% 39% 39% _38% _38% 37% _36% 33% 22% 0% 5% 10% 15% 20% 25% 30% 35% 40% 45% 50% Ea s t M id s Ea s t o f En g la n d L o n d o n UK Nort h W e s t Sou th We s t Nort h e rn Ire la n d We s t M id s Yo rk s h ire a n d Hum b e r So u th Ea s t Sc o tl a n d W a le s No rth Ea s t % of bus ine ss es se lli ng goos an d se rv ic es throu gh a w e bs ite 40% 38% _38% _38% 37% _36% 36% 35% 35% 35% 35% 32% 32% 0% 5% 10% 15% 20% 25% 30% 35% 40% 45% So u th W e s t We s t M id la n d s W a le s Ea s t M id la n d s Nort h W e s t UK Nort h Ea s t So u th E a s t Sc o tl a n d Ea s t o f En g la n d Yo rk s h ire a n d T h e Hu m b e r Nort h e rn I re la n d L o n d o n % o f b u s in e s s e s u s in g th e i n te rn e t fo r o n li n e tr a d in g

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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]

44% 44% 40% _39% 34% 34% 33% _32% 30% 30% 27% 24% 19% 0% 5% 10% 15% 20% 25% 30% 35% 40% 45% 50% Nort h Ea s t Wa le s Sc o tl a n d L o n d o n W e s t M id la n d s So u th W e s t UK No rth W e s t So u th Ea s t Ea s t M id la n d s Ea s t o f En g la n d Yo rk s h ire a n d T h e Hum b e r Nort h e rn I re la n d % of bu s in e s s e s c urren tly s e ll in g go od s / s e rv ic e s on li ne 38% 15% 9% 5% 8% 5% 4% 5% 4% 5% 2% 31% 17% 9% 6% 9% 6% 6% 6% 6% 4% 1% 0% 5% 10% 15% 20% 25% 30% 35% 40% L e s s t h a n 1 0 % 1 1 - 2 0 % 2 1 - 3 0 % 3 1 - 4 0 % 4 1 - 5 0 % 5 1 - 6 0 % 6 1 - 7 0 % 7 1 - 8 0 % 8 1 - 9 0 % 9 1 - 9 9 % 1 0 0 % - Al l t u rn o v e r is g e n e ra te d t h ro u g h o n lin e t ra d in g % of tot a l turno v e r ge ne rate d on li ne UK 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 ‘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. 11 ₈ ₈ 12 15 17 14 19 25 26 ₂₂ 17 22 ₂₀ 21 19 17 22 19 17 18 31 72 71 71 67 66 66 63 62 58 56 47 0 10 20 30 40 50 60 70 80 90 100 Ea s t o f En g la n d L o n d o n Sc o tl a n d So u th W e s t M id la n d s Nort h W e s t So u th Ea s t Yo rk s h ire Wa le s No rth E a s t Nort h e rn I re la n d % of SM Es

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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.

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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 57 60 0 10 20 30 40 50 60 70 80 90 100

England Northern Ireland Wales Scotland

Se a rc h p o p u la ri ty (n o rm a li s e d to 1 0 0 ) E-commerce +ecommerce

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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,

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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

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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 _171.5 156.8 83.2 28.7 2.6 -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 C ha nge in tur nov er 20 08 -09 (£m )

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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.

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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 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

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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) 249 748 154 464 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 North West North East West Midlands London South East Yorkshire & Humber East Midlands South West

% E-commerce % Software development

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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

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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 91 106 108 114 121 125 128 132 140 165 167 170 183 186 193 226 241 249 296 299 300 301 324 333 369 377 396 407 431 442 450 450 452 525 637 660 714 719 852 1130 0 200 400 600 800 1000 1200 Aberdeen Belfast Sunderland Blackpool Dundee Newport Telford Hull Wigan Huddersfield Plymouth Doncaster Bolton Wakefield Southend on Sea Swansea Bradford Blackburn Ipswich Cardiff Liverpool Luton York Preston Stoke-on-Trent Swindon Derby Sheffield Peterborough Norwich Bournemouth Portsmouth Warrington Glasgow Newcastle upon Tyne Milton Keynes Northampton Oxford Southampton Bristol Leicester Coventry Nottingham Leeds Birmingham Edinburgh Brighton Manchester Reading

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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 1924 ₁₆₃₄ ₁₆₃₁ 1399 ₁₁₆₅ ₁₀₉₈ 1072 420 352 32 0 2000 4000 6000 8000 10000 12000 14000 L o n d o n SE _NW Yo rk s h ire Ea s t M id s We s t M id s Sc o tl a n d SW _Eas t NE Wa le s N Ire la n d Num be r of Li nk e dI n m e m be rs

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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 u th Ea s t L o n d o n Ea s t o f En g la n d Nort h W e s t We s t M id la n d s So u th W e s t Yo rk s h ire & H u m b e r Ea s t M id la n d s Sc o tl a n d Wa le s Nort h Ea s t No rt h e rn I re la n d H ea dli ne w orkpla ce G VA in w hole sa le a nd reta il e tc . a t c urren t ba s ic pric e s (£ m ) 2003 2009 23% 22% 19% 18% 18% 18% 16% 15% 12% _12% 10% 9% 0% 5% 10% 15% 20% 25% No rth e rn Ire la n d Ea s t M id la n d s Ea s t o f En g la n d So u th E a s t Sc o tl a n d W a le s L o n d o n So u th W e s t Yo rk s h ire & Hum b e r We s t M id la n d s No rt h Ea s t Nort h W e s t % grow th in h e a dl in e w ho le s a le & reta il e tc . G VA 2 0 0 3 -2009

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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 ta il s a le s v a lu e a t c u rre n t p ric e s (2 0 0 7 = 1 0 0 ) Scotland GB

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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)

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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 a n g e i n i n te rn a ti o n a l e x p o rt s (2 0 0 2 l e v e ls = 1 0 0 )

Manufacture of Food Products and Beverages Wholesale, Retail & Repairs, Hotels & Restaurants Business Services

Total International Exports

80 90 100 110 120 130 140 150 160 170 2002 2003 2004 2005 2006 2007 2008 2009 2010 Cha ng e in Res t o f Uk e x po rts (2 0 0 2 le v e ls = 1 0 0 )

Manufacture of Food Products and Beverages

Wholesale, Retail & Repairs, Hotels & Restaurants Business Services

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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 1000 Ch a n g e i n Re s t o f UK e x p o rt s 2007 -2 0 1 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

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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.

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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

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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

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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.

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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

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 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%

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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) Manufacturing 0.28 8.03 8.30 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

Transport & storage 0.72 1.96 2.67

Accommodation & food services 0.39 0.06 0.45

Information & communication 0.65 0.70 1.35

Other services 0.83 0.64 1.47

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.

Scottish e-commerce Study