June 23, 1999

NOTE TO EDITORS

The latest edition of the New York Fed’s Current Issues in Economics and Finance, entitled Business-to-Business Electronic Commerce, is available for your review.

Economist John Wenninger reports that business-to-business electronic commerce -- the movement of information electronically between businesses over computer networks -- may give companies the added advantage they need to achieve measurable productivity gains.

By communicating quickly and accurately at all stages, companies can better manage inventories, keep close track of goods in transit, and provide superior customer service, says Wenninger.

Despite these advantages, the technical expertise needed to transfer data from stored files to computer networks and the high costs involved in this conversion have limited the use of business-to-business electronic commerce, according to Wenninger.

The Internet--by serving as a low-cost, universal network--could help eliminate these problems. Before the Internet can fully support business-to-business transactions, however, companies must overcome a different set of obstacles, including:

  • Support of multiple technologies. Unless a dominant provider of Internet-based business-to-business commerce emerges or companies establish common standards, suppliers and retailers could find themselves supporting several types of systems.
  • Security maintenance and coordination. Because electronic messages flowing over the Internet are not as secure as messages transmitted within a proprietary network, companies will need to evaluate their security needs and employ security tools to protect confidential data.
  • Operational responsibility. In an Internet-based system, assigning clear responsibility for serious problems -- such as lost or late messages -- may not be easy to trace to a particular source.

Contact: Douglas Tillett