Countries that Expand Internet Access and Use Can Spur Digital-Economy Growth

BOSTON -  Easy access and use of the Internet can dramatically affect the growth of national economies, according to new research by The Boston Consulting Group (BCG), a global management consulting firm. The research, described in a new BCG report, measured the constraints on Internet use in 65 countries and found that those with fewer limitations on online activity can have larger digital economies. The difference can amount to 2.5 percent of GDP.

The new report, "Greasing the Wheels of the Internet Economy," introduces the BCG e-Friction Index, which ranks countries according to four types of e-friction: infrastructure-related frictions that limit basic access; industry and individual frictions that affect the ability of companies and consumers to engage in online transactions; and information frictions that involve availability of, and access to, online content.

“Because the digital economy is growing quickly, often outpacing the offline economy, high e-friction countries are in danger of missing out on a high-impact propellant of growth and job creation,” said Paul Zwillenberg, a BCG partner and a coauthor of the report. “On the other hand, high-friction countries that address their sources of e-friction have the potential to add significant value to their economies.”

Among the key findings in the report:

• The countries in the top quintile—those with the lowest e-friction—tend to score well across all four components: they have strong infrastructures and supportive business and regulatory environments.


• At the other end of the scale, issues of basic access, price, and speed—common problems in developing economies—are widespread, as are shortcomings related to capital, labor, and consumers’ ability to conduct business online.


•  Among small and midsize enterprises (SMEs), Web users are 50 percent more likely to sell products and services outside of their immediate region and 63 percent more likely to source products and services from outside of their region.


• SMEs encounter a range of frictions that slow or prevent them from fully exploiting the Internet’s potential. Their biggest single concern is the protection of consumer data online—a prevalent issue for consumers as well.

 
The report argues that good policy in a few key areas can have a significant impact on e-friction and speed the development of Internet use and individual countries’ Internet economies. Policies that promote investment, especially in infrastructure, are essential. Policy responses that fail to take into account how quickly technologies and the innovations they enable are evolving can cause more, rather than less, friction.

“The Internet has become a defining force in economic growth and job creation across the globe,” said Fadi Chehadé, president and CEO of the Internet Corporation for Assigned Names and Numbers (ICANN), which commissioned the report. “It’s important that this amazing information and communication resource be allowed to grow as it always has, with the input of diverse stakeholders from around the globe who value a single network that is open and available to as many as possible.”