Greasing the Wheels of the Internet Economy

Greasing the Wheels of the Internet Economy

          
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Greasing the Wheels of the Internet Economy

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  • The Impact of e-Friction on SMEs

    BCG research over the last several years has shown repeatedly that SMEs benefit from the adoption and use of Internet and online tools, especially in terms of revenue growth. SMEs that are heavy Web users grow faster than their counterparts. The research we conducted with 3,250 SMEs in 11 countries for this report showed once again that the Internet is a high-impact technology for SMEs. (See Exhibit 7.)

    exhibit

    The Internet helps SMEs both sell and buy goods and services more widely, furthering SMEs’ integration into their national and the global economies. Any business that goes online has immediate access to a nearly limitless universe of customers (and potential suppliers) domestically and around the world. SMEs that are heavy Web users are almost 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 farther afield than are medium or light Web users. (See Exhibit 8.)

    exhibit

    However, SMEs encounter a range of friction types 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 and one that needs to be addressed on a global basis. (This topic is addressed in the next chapter, “Smart Policy (and Policymakers) Can Reduce e-Friction.”) Furthermore, many SMEs are concerned about the process of starting a new business, trust in online payment systems, and regulations that affect online sales. Structural issues, such as cost and connection quality, are also of concern in some markets. (See Exhibit 9.)

    exhibit

    SMEs in high-friction countries generally lag behind SMEs in low-friction countries in their level of Internet adoption and use. But once online, SMEs in high-friction countries are enthusiastic about the benefits and seem as quick as SMEs in low-friction countries to adopt even sophisticated online tools. Online SMEs in all countries report major benefits from the Internet in distribution, marketing, and the range of products they are able to stock and sell. They also place a high value on websites. (See “SMEs Ramp Up Online.”)

    For this report, BCG surveyed Internet use by SMEs in Brazil, China, France, India, Kenya, Mexico, South Africa, South Korea, Sweden, Turkey, and Ukraine.

    SMES RAMP UP ONLINE

    In our conversations with SME owners and executives, we are repeatedly struck by how innovative businesspeople who are dealing with limited financial and human resources, especially in emerging markets, find solutions to all manner of problems to keep their companies growing and moving forward. More and more, these solutions are Internet based. Here are three examples.

    Dowhile. A South African graphics and Web design firm, Dowhile started in a Soweto shack with no Internet connection. The company’s work was done offline and uploaded using a connection at a Web café, says owner and founder Dennis Ngwepe. The young startup marketed its services through pamphlets and word of mouth.

    Having moved to an office in Johannesburg, the company now has a low-speed Internet connection that enables it to maintain a website and conduct online marketing. It also uses the Internet for training. “Having an Internet connection also means learning on demand and for free with tutorials, as opposed to paying for offline classes as we did every week before,” Ngwepe says.

    He attributes 100 percent of the company’s recent growth to being online, but he thinks that the company has not achieved its full potential because of prohibitive costs. Dowhile can’t afford a high-speed broadband connection, and the slow speed of its connection means that it cannot make use of applications such as remote working, cloud sourcing, real-time video conferencing, and Internet telephony. Ngwepe is hoping that the cost of broadband will drop so that he can continue to expand his business online.

    Sonitus Engenharia. This Brazilian automotive-engineering company attributes about 30 percent of its growth to modernization and organization that have resulted from the implementation of online tools. A customer-relationship-management program, as well as related tools to increase the quality and efficiency of processes and communications, has facilitated negotiations and transactions with both clients and suppliers. The full impact of these tools, however, relies on overcoming some staff skepticism—an inevitable challenge when some employees have been with the company for its full 27-year history. Training is essential to support the transition but is constrained by a lack of budget and by competing priorities. The company also needs to invest in online data security. Currently, to avoid unauthorized access, Sonitus Engenharia keeps sensitive client data on local computers with no Internet connection. The establishment of a new U.S. office may lead to further investment in online tools.

    The main issue is cost. “We are definitely willing to increase the use of online tools,” says Flavio Quintela, sales and management director, “but there’s not enough budget now to invest.”

    Systronic. A French supplier to the aviation and space industry, Systronic depends on the Internet to interact with its customers, particularly to exchange product design and development data. Owing to the size and type of files, it is difficult to work with the data offline, but security concerns limit what the company can do and impose complex and strict processes for sending and receiving information. “We would like to give our suppliers access to our stock levels and have access to our clients’ stock levels to create a more efficient supply chain, but for data security reasons, our clients would never give us such access,” Philippe Pernot, the company’s CEO, says. “The capability to share information securely would help us to run a better business.”