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

BCG Research Shows That the Difference Between Countries With Low e-Friction and Those With High e-Friction Can Amount to 2.5 Percent of GDP

BOSTON, MA -- (Marketwired) -- 01/20/14 -- Easy access and use of the Internet can dramatically affect the growth of national economies, according to new research by The Boston Consulting Group. 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."

Country rankings can be found in Exhibit 1. Exhibit 2 shows how each country ranks on the four components of e-friction.

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."

A copy of the report can be downloaded at www.bcgperspectives.com.

To arrange an interview with one of the authors, please contact Claire Hopkins at +44 207 753 8334 or [email protected].

To arrange an interview with ICANN, please contact Andrew Robertson at +44 (0)20 3047 2302 or [email protected].

About The Boston Consulting Group
The Boston Consulting Group (BCG) is a global management consulting firm and the world's leading advisor on business strategy. We partner with clients from the private, public, and not-for-profit sectors in all regions to identify their highest-value opportunities, address their most critical challenges, and transform their enterprises. Our customized approach combines deep insight into the dynamics of companies and markets with close collaboration at all levels of the client organization. This ensures that our clients achieve sustainable competitive advantage, build more capable organizations, and secure lasting results. Founded in 1963, BCG is a private company with 81 offices in 45 countries. For more information, please visit bcg.com.

About bcgperspectives.com
Bcgperspectives.com features the latest thinking from BCG experts as well as from CEOs, academics, and other leaders. It covers issues at the top of senior management's agenda. It also provides unprecedented access to BCG's extensive archive of thought leadership stretching back 50 years to the days of Bruce Henderson, the firm's founder and one of the architects of modern management consulting. All of our content -- including videos, podcasts, commentaries, and reports -- can be accessed by PC, mobile, iPad, Facebook, Twitter, and LinkedIn.

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