Old economy groups are making use of new technologies such as the internet to enhance their business...
Old economy groups are making use of new technologies such as the internet to enhance their businesses with companies such as Tesco leading the way.
Paul Cooper, head of technology and e-commerce at Sarasin Investment Management says: "We are firm believers in the potential of the internet and how it will effect companies and peoples lives. It does not matter whether companies are labelled old economy companies or traditional companies but whether they are correctly positioned for the new e-economy."
Some of the attractive opportunities available to more traditional companies using the internet is in increasing revenue growth dynamics or cost cutting. Cooper believes that most companies utilising the latest technology are deriving benefits from both areas.
Ashton Bradbury, head of UK equities at Old Mutual, points out that companies like Tesco are using the internet as a distribution channel.
It is perceived to have taken the lead in the UK food retail market by having a fully transactional website, he says.
"Eventually all of Tesco's competitors will have that functionality," he adds. "Therefore it will cease to be a competitive advantage but just become the norm."
Cooper says that he is looking for companies to have an e-commerce strategy that will have a positive effect on earnings but also to have them re-rated by the market, giving them a higher P/E ratio and valuation.
"Many traditional companies that discuss their e-commerce strategy with us say that the web is detracting from their valuations," he adds. "The market is looking at the cost incurred in building the website and not prepared to look beyond the initial investment. This is partly due to the collapse of the dot.coms but it is a big mistake because there will be significant value generated by the internet."
Cooper believes that the ability for traditional companies to benefit from the internet is greater than before.
This is because there is less online competition from pure virtual companies, with the capital markets showing a disinclination to finance them.
The ones that are remaining are proving less aggressive on pricing with the markets concentrating on profits.
Cooper points out that market sentiment on anything to do with the internet remains negative.
"Traditional companies will gain a larger share of the online pie than before," he says. "The market is not reflecting that yet but it will as e-commerce is still relatively small. When the results of a company are announced it is not so obvious how the internet portion has contributed, the initial figures tend to understate the benefits of the internet.
However, the costs of the internet as a proportion of revenues will decline once the infrastructure is built."
Bradbury notes that it is as yet too early for many companies to put tangible figures on the savings they have derived from the internet.
He believes that holiday company, First Choice has good plans to make use of interactive television to sell their products in the near future.
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