Korea still lags behind in terms of B2B

"Korea`s industrial structure and business-to-business (B2B) e-commerce are not well matched."

A researcher in the digital economic center at the Korea Institute for Industrial Economics and Trade (KIET) said he has often heard such remarks from people in the business world. He said the standard observation is that companies in advanced countries, including the United States, have successfully made the transition from off-line to on-line, but that the situation is different in Korea.

What are the reasons for this?

Differences in industrial structure:

In the past two years, as many as 200 B2B companies shut their doors. Of the total, however, just 24 had e-commerce capabilities.

"As the transaction formula, standardization of products and systems basis are not conducive to on-line B2B trading, B2B e-commerce has failed to take root in Korea," said the researcher.

U.S. manufacturers insisted on certain product standards and quality levels when they received parts from subcontractors even before on-line transactions began and selected successful subcontractors through open biddings. By putting these practices on-line, the number of subcontractors applying for open biddings is expected to increase, helping manufacturers lower the cost of parts purchases.

But major Korean manufacturers of automobiles, ships and steel products have a closed subcontract structure under which they use just one or two subcontractors for each part. Accordingly, subcontractors for Daewoo Motor cannot supply their products to Hyundai Motor. Some manufacturers have extended technical assistance to their subcontractors in recognition of their poor technological levels.

Meanwhile, affiliates of major conglomerates are accustomed to trading between sister companies. An official at a chemical B2B company said, "As on-line transactions are inconvenient and are of no help in efforts to slash prices, we trade using face-to-face meetings or by phone."

B2B is impossible without off-line reforms:

A section chief in the e-commerce support department at the Ministry of Commerce, Industry and Energy said, "Without a change in the Korean-style transaction formula and subcontracting structure before the full-fledged introduction of e-commerce, it will be difficult to activate B2B." He added that chief executive officers of large enterprises should come forward and transform the closed subcontracting structure into a more open one.

At the same time, chief executive officers (CEOs) of rival companies should conclude strategic agreements to activate B2B and derive the benefits of e-commerce, business experts argue.

They also stress that the government should extend tax support to B2B companies in such a way as to lower the cost of e-commerce. If they have to pay higher taxes when they engage in e-commerce, nobody will push for online B2B.