From São Paulo, Futurecom was the occasion for David Dean, senior advisor at the Boston Consulting Group, to present a report dealing with the factors accelerating or decelerating the digital economy.

Intitulated “Greasing the Wheels of the Internet Economy”, it analyzes how countries can benefit from identifying obstacles to digital driven growth, with special emphasis on the potential of the internet economy in emerging countries. Above all, it highlights the importance of Small and Medium-sized Enterprises (SMEs) as a leverage to boost the emerging digital economy.


The global digital economy is led by developed countries, but its true potential dwells in emerging markets

The G-20 internet economy is expected to reach $4.2 trillions in 2016, no less than 5.3% of the global GDP all sectors put together. As expected, a huge difference can be noted between the advanced and the emerging digital economy. A group of only 4 countries, including the UK, South Korea, Sweden and Denmark, counts for about 10% of the world’s digital economy. If considering a larger group, G-20 first quintile contributes twice more than the last quintile to global digital GDP!

Nonetheless, emerging countries are expected to have a substantial part of future digital growth. Brazil, for instance, should count for about 2.6% of the global digital growth by 2016. It’s quite a lot of a single country, and this share is likely to grow even more according to the BCG. The evaluation of its internet user should rise up to $1200 per user. Although it’s still under G-20’s average, which stands at $2000, have a glance at the size of the country and its demographic growth to have a better idea of the economic possibilities.


Internet Penetration Worldmap: percentage of the population using internet

And not only emerging countries are expected to have a bigger part of the digital cake, they might even get the lion’s share within the following year. Although they currently rank low as for the size of their digital economy as percentage of the GDP, many countries like Brazil, Mexico, or Indonesia might join the first class club quite soon if their respective governments do the necessary to significantly reduce e-friction sources. Considering the size of the population in emerging countries, the emerging digital economy would definitely represent the most important part of world’s digital growth.


The e-friction concept: a combination of alternative indicators to identify new sources of digital growth

If some government is to erase theses obstacle, it needs to understand what they are and how they restrain digital growth. According to David Dean, governments around the world haven’t quite understood yet what innovation is and how strong the potential of the digital economy can be. The report actually stems from the assessment that 2 issues are largely unaddressed: the economic potential of internet in term of growth and job creation on the one hand, and the impact of the digitalization of the economy in emerging countries on the other hand.

Even though it is still the main economic indicator, GDP is quite an incomplete measure, which is especially true when it comes to the digital economy. Looking for a way to help governments to conduct better public policies in digital matters, the BCG takes into consideration many alternative indicators, including some qualitative ones. This led to the identification of 4 sources of “e-friction”: industry, individuals, information, and infrastructures.


First, the infrastructure component takes into account how many people have access to the internet, or how fast is the access. It would explain around 3/6 of all e-frictions.

The industry component deals with issues such as how to get access to skilled labour or how to sustain the adoption of internet within the companies. It would be responsible for 1/6 of e-frictions.

The individual component consider features like personal skills, trust, consumption and liberties. It would be behind 1/6 of e-frictions as well.

At last, the information component measures issues such as availability of contents, existence of local contents, or press freedom. It explains the last 1/6 of e-frictions.

As expected, developed countries rank high in the e-friction index while emerging countries rank low. Indeed, the first quintile is almost exclusively occupied by Northern Europe and Anglo-saxon countries and the fourth and fifth quintile by emerging economies. “Brazil occupies the last position of the 4th quintile, but it could easily do better”, says David Dean, highlighting the South American country’s tremendous digital economic potential.


SMEs are key to the emerging digital economy

The idea that helping SMEs can substantially boost the domestic growth and create jobs is generally well accepted among economists. But as previously said, the impact of online technologies on the economy has been rather unaddressed. The survey showed the adoption of internet and online tools can significantly increase SMEs’ revenues, suggesting that the digitalization of the economy will have major impact on growth if it reaches Small and Mid-sized Enterprises (SMEs).


SME’s are 50% more likely to significantly extend their geographical reach if they are heavy internet users. Indeed, we can easily understand it’s easier to sell a product countrywide, or even worldwide, through internet communication and online purchasing. As David Dean suggested, it has never been so easy to go global, and even a tiny business has access to an infinite number of potential customers and suppliers.

To give an idea of the importance of the concept of e-friction, the BCG reckons that SMEs actually encounter a number of barriers that prevent them from fully exploiting Internet potential. Their main concern: the protection of consumer data online. But also, the trust in online payment system, or the lack of legislation which suggests that new laws, possibly unfavorable, are likely to be voted in times to come.

Regarding emerging markets however, the report suggests they can easily and considerably enhance the impact of interest on SMEs, as one the main issue seems to be related to the lack of infrastructure. Once again, the BCG reckons that emerging countries (high-friction countries) are the one that will benefit most from the use of Internet technologies: “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.


To build this report, BCG conducted a survey on 3250 SMEs in 11 countries. The rest of the information was obtained from combined research of various indexes such as GSMA.