The Internet Economy in the G-20

The Internet Economy in the G-20

          
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The Internet Economy in the G-20

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  • The Internet's Economic Impact

    The economic impact of the Internet is getting bigger—just about everywhere—and it already has an enormous base. In the U.K., for example, the Internet’s contribution to 2010 GDP is more than that of construction and education. In the U.S., it exceeds the federal government’s percentage of GDP. The Internet economy would rank among the top six industry sectors in China and South Korea.

    Policymakers in developed countries cite with envy the GDP growth rates of 5 to 10 percent per year being achieved in China and India, particularly in today’s troubled economic environment. At the same time, they can often look past similar, or even higher, rates close to home.

    The Internet economy in the developed markets of the G-20 will grow at an annual rate of 8 percent over the next five years, far outpacing just about every traditional economic sector, producing both wealth and jobs. The contribution to GDP will rise to 5.7 percent in the EU and 5.3 percent for the G-20. Growth rates will be more than twice as fast—an average annual rate of 18 percent—in developing markets, some of which are banking on a digital future with big investments in broadband infrastructure. Overall, the Internet economy of the G-20 will nearly double between 2010 and 2016, when it will employ 32 million more people than it does today.

    The growth is being fueled in large part by two factors: more users and faster, more ubiquitous access. The number of users around the globe will rise to a projected 3 billion in 2016 from 1.9 billion in 2010. Broadening access, particularly via smartphones and other mobile devices, and the popularity of social media are further compounding the Internet’s impact. In the developing world in particular, many consumers are going “straight to social.” (See Exhibit 2.)

    exhibit


    National levels of Internet economic activity generally track the BCG e-Intensity Index, which measures each country’s level of enablement (the amount of Internet infrastructure that it has in place), expenditure (the amount of money spent on online retail and online advertising), and engagement (the degree to which businesses, governments, and consumers are involved with the Internet). Big differences are apparent among the 50 countries examined, with five clusters emerging according to their performance on the index in absolute terms and relative to per capita GDP. (See Exhibit 3.)

    exhibit

    Consumption is the principal driver of Internet GDP in most countries, typically representing more than 50 percent of the total in 2010. It will remain the largest single driver through 2016. Investment, mainly in infrastructure, accounts for a higher portion of the total in “aspirant” nations as they are in the earlier stages of development.

    Several “natives” on BCG’s e-Intensity Index—the U.K., South Korea, and Japan—are among those nations with the largest Internet contributions to GDP. China and India stand out for their enormous Internet-related exports—China in goods, India in services—which propel their Internet-economy rankings toward the top of the chart. Mexico and South Korea have also developed significant Internet export sectors.

    Among G-20 “players,” the United States benefits from a vibrant Internet economy, while Germany and France tend to lag. The picture will change by 2016 as, for example, the Internet economies of India and the EU-27 grow rapidly to move into the top five. (See Exhibits 4 and 5.)

    exhibit
    exhibit

    Retail represents almost one-third of total GDP in the G-20, and online retail contributes a significant and increasing share in many countries. (See Exhibit 6.) Nowhere is the impact more apparent than in the U.K. Thanks in part to high Internet penetration, efficient delivery infrastructure, a competitive retail market, and high credit-card usage, the U.K. has become a nation of digital shopkeepers, to paraphrase Adam Smith.

    exhibit

    Several European economies—Denmark, the Netherlands, Sweden, and the U.K.—to name but four—perform strongly on BCG’s e-Intensity Index. But various barriers hold back the EU as a whole, the world’s biggest single market, when it comes to cross-border e-commerce. In January, the European Commission announced plans to catch up, removing these impediments and creating a “digital single market.” The commission believes that e-commerce can double its share of overall retail sales by 2015.