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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  • From High-Web to No-Web: Opportunities for Small and Medium Enterprises

    Given their agility and ability to innovate, one would expect SMEs—long the engine of economic growth in many economies—to grasp the power of the Internet to build their businesses. Indeed, many have, and these companies have helped turned the Web into an important vehicle for revenue growth and job creation. But a surprising number have not—or have ventured online only to a limited extent. These companies are leaving an enormous opportunity untapped.

    In our view, every business needs to “go digital”—and fast. Policymakers, too, should pay heed. Given SMEs’ track record in job creation, policies that encourage more of these companies to develop an online presence could help address the lingering unemployment that currently characterizes the recovery in many countries.

    Over the last 18 months, BCG has surveyed workers at more than 15,000 companies that operate in the world’s biggest economies and that employ fewer than 250 people (in the U.S., the cutoff was 500). We grouped the companies into four categories: high-Web, medium-Web, low-Web, and no-Web.

    The results are compelling. Across 11 of the G-20 countries, high-Web SMEs have experienced revenue growth that was up to 22 percent higher than that achieved by SMEs with low or no use of the Web over the last three years. (See Exhibit 9). In the U.K., sales at high-Web companies increased six times as fast as revenues at firms with no Internet presence.


    Many U.S. SMEs have integrated the Internet into their businesses. They are much more aggressive online than low-Web companies, particularly in activities such as search engine optimization, social networking, buying from and paying suppliers. They are even managing their business finances and recruiting staff online.

    In many developed and developing markets, high-Web companies are twice as likely as their low- or no-Web counterparts to have a national and international customer base, as opposed to selling only locally. In the U.S., high- and medium-Web businesses expect to grow by 17 percent over the next three years, compared with 12 percent for low- and no-Web companies.

    High- and medium-Web SMEs generate more jobs. In Germany, 93 percent of high-Web and 82 percent of medium-Web companies increased employment over the past three years, compared with only 50 percent of the no-Web firms. Japan experienced similar results. In South Korea, employment increased at 94 percent of high-Web SMEs and at 60 percent of no-Web companies.

    We’ve identified five value levers that explain the “Internet advantage” of High-Web SMEs:

    • Geographic Expansion. The Internet creates a borderless world for many SMEs, enabling them to compete with much larger, multinational companies by accessing markets that were previously out of reach.

    • Enhanced Marketing. Online marketing delivers expanded reach and measurable returns. It also yields valuable data about consumers and their preferences, enabling expressly targeted advertising and offers.

    • Improved Customer Interactions. Social media make it possible for companies to engage in real-time dialog with customers not only to boost sales but also to build loyalty and even to help create, refine, and enhance products and services.

    • Leveraging the Cloud. SMEs can access sophisticated, often cloud-based, tools to enhance a wide range of functions, including customer relationship management, information management, and customer payments. As a result, these companies can grow quickly without requiring large investments in infrastructure.

    • Easier and Quicker Staff Recruitment. The recruiting options available today are more powerful and less expensive than ever before, and they enable SMEs to tap a global talent market.

    The most powerful lever may be improved customer interaction, which is achieved principally by exploiting the participatory nature of today’s Internet. Nearly two-thirds of high-Web SMEs are moving quickly to match their customers’ engagement in social networks. The impact can be seen in such developing markets as Brazil and China. (See Exhibit 10.) Despite high barriers impeding SME adoption of online activities (e.g., lack of infrastructure and computer penetration), these countries not only boast higher percentages of high-Web SMEs than their developed-market counterparts, but their SMEs are also substantially more adept at moving beyond Internet marketing to exploit the Web’s facility for driving sales through more intensive customer interaction.


    The barriers keeping SMEs from engaging more broadly or deeply online fall into five general categories: poor access to the requisite technology, lack of capabilities, lack of resources, doubt over the potential returns, and an unfavorable business environment. Not surprisingly, access problems and an unfavorable business environment were cited far more often by SMEs in developing markets than by their developed-market counterparts. Almost half of SMEs in India and Indonesia cited “local business culture” as a significant impediment; one-third of Chinese SMEs said that they are held back by lack of access to computers. Inadequate staff knowledge and time were named the biggest barriers in Japan, and about one-quarter of U.S. and U.K. firms reported a lack of necessary financial resources.

    Most of these barriers must be hurdled by the SMEs themselves. But policymakers should take note that access issues and government regulations were cited as impediments by one in five SMEs in developed markets—and by two in five in developing economies. These are areas where governments may have opportunities to lend a hand and can reap the benefits of increased economic growth and job creation.

    High-Web companies use a wide range of Internet tools to market, sell, and support customers, interact with suppliers, and empower employees; medium-Web businesses market or sell goods or services online; low-Web businesses have a website or a social networking site; no-Web businesses do not have a website.