Fannie Mae and Freddie Mac
In what will undoubtedly be recorded in history as one of the most important government interventions in history, the US Treasury seized control of Fannie Mae and Freddie Mac this past weekend. The Treasury’s move was, of course, designed to prevent further damage to the global economic climate which is still continuing to suffer from defaults on subprime mortgages. US Treasury Secretary Henry Paulson stated that "Failure of either of them would cause great turmoil in our financial markets here at home and around the globe." One of the key takeaways from the subprime mortgage crisis will surely be a heightened awareness of how the process of syndicating and packaging US mortgages impacts the global economy. Prior to the bursting of the housing bubble I think few people realized how widespread distribution of mortgage backed securities to hedge funds and other investors had become.
It always seems that until a catastrophe occurs
(or threatens to occur) most of us take for granted the many basic
processes that keep the global economy moving every day. For example,
B2B E-Commerce is one of those fundamental platforms that the world’s
largest companies depend upon every day to power their businesses. But
much like with Fannie and Freddie Mac, I think few people appreciate
how significant of an impact ANSI and Eddie Fact (EDIFACT) have on the
economy.
B2B Powers One Third of US GDP
With more than 20 million EDI transactions
conducted around the world every day, B2B accounts for a significant
amount of worldwide commercial activity. Forrester Research stated in
a July 2007 report that EDI transactions represent more than one third
of the US GDP. I would argue that the impact on GDP could be even
higher than Forrester’s estimate when you consider how critical B2B
technologies are to the routine operations of various industries:
- Automotive Manufacturing – Assembly
lines at automotive plants depend upon a continuous flow of logistics
information to process the incoming parts necessary for vehicle
production. Exchanges of inventory positions and materials management
data between OEMs and their suppliers are almost fully automated using
EDI and XML. When B2B communications are disrupted, the plants shut
down. - Health Care Supplies -
Hospitals and clinician offices depend upon B2B technologies for their
supply chains. Buyers such as group purchasing organizations utilize
EDI for the replenishment of critical medical & surgical and
pharmaceutical products from their suppliers. If errors occur or
communications are disrupted, critical supplies may be out-of-stock
putting lives at risk. - Consumer
Products – All major retailers utilize EDI to place orders with their
food, apparel and consumer products suppliers. When errors or failures
occur with EDI networks, grocery retailers, department stores and mass
merchandisers will experience out-of-stocks in necessities such as food
and clothing. - Financial
Services – Corporate payrolls and pensions; electronic funds transfers;
credit card settlement and securities trading all depend upon B2B
integration technologies to operate. B2B standards such as EDI, FIX,
SWIFT and ISO 20022 XML are utilized to process the hundreds of
billions of dollars worth of financial transactions that occur daily.
Government’s role in B2B E-Commerce
Given the criticality of B2B technologies to
the proper functioning of the economy, one might consider – what should
the government’s role be in EDI? If one third of US GDP depends,
should the government more tightly monitor, regulate or perhaps even
nationalize B2B providers. What level of oversight or intervention is
appropriate?
It is interesting to compare the role
government plays in B2B throughout different regions of the world. The
approach differs significantly between highly developed economies such
as Japan, Western Europe and the US and the emerging markets of Asia,
Latin America and Eastern Europe. In the more mature markets (US,
Germany, Japan), B2B E-Commerce is largely privatized with minimal
regulation and government oversight. By contrast, in many developing
economies (China, India, Philippines), B2B E-Commerce is viewed as a
strategic investment that can help to accelerate economic development
and improve national competitiveness. Consequently, government
ministries either subsidize or wholly own many of the B2B networks in
these emerging markets.
B2B service providers are certainly in no need
of a bailout from the US Treasury Department, but I do think a greater
awareness of the critical role these E-Commerce plays in the economy
would be valuable. I also think Western nations could benefit from
offering government based incentives for broader adoption of B2B
E-Commerce. I will offer more thoughts on both concepts in future
posts.
by Steve Keifer
© Copyright 2008 GXS, Inc. All Rights Reserved.
