Digital flows are now responsible for more GDP growth globally than trade in traditional goods. Automation, AI, the internet of things or business models such as the ‘sharing economy’ are changing how we conduct business and our lives. In this context, a new piece of research maps the digital competitiveness of 60 countries, in the ‘Digital Evolution Index 2017’ (DEI).
The DEI framework segments the 60 countries into ‘stand outs’, ‘stall outs’, ‘break outs’ and ‘watch outs’. Three countries are notable as standouts even within the stand out segment: Singapore, New Zealand, and the UAE. Each has a unique policy-led digital strategy and a narrative that may be considered by other nations as worthy of emulation or adoption. The Nordic countries and Switzerland are at the top of the DEI 2017 rankings. China tops the list of countries in terms of the pace of change in its digital evolution, or momentum.
With nearly half of the world’s population online, the research maps the 60 countries’ development, demonstrating their competitiveness and market potential for further digital economic growth. The index measures four key drivers and 170 unique indicators to chart each country’s respective course:
- Supply (or internet access and infrastructure)
- Consumer demand for digital technologies
- Institutional environment (government policies/laws and resources)
- Innovation (investments into R&D and digital start-ups etc.)
Businesses, governments and civil society are working to bring everyone online, while also ensuring the security of the digital infrastructure. The research provides a way to assess digital ‘trust’ as well as the state and rate of digital evolution with examples from around the world, giving countries the opportunity to learn from each other to further their advancement.
“Adoption, the quality of digital infrastructure and institutions, and innovation collectively shape a country’s digital competitiveness, but governments also play a key role. The report also found that consumers’ trust in digital technologies correlates with digital competitiveness,” said Bhaskar Chakravorti, senior associate dean of international business & finance at The Fletcher School at Tufts University, and founding executive director of Fletcher’s Institute for Business in the Global Context.
- According to their overall digital evolution scores, Norway, Sweden, Switzerland, Denmark, Finland, Singapore, South Korea, the United Kingdom, Hong Kong, and the United States make the top ten list of advanced digital economies, but given the current pace of innovation and change, being an advanced digital economy today doesn’t guarantee that status tomorrow. How open and supportive they are to innovation help determine their future growth potential.
- Combining the pace and state of digital advancement, the research puts markets into four distinct categories:
Stand out – Singapore, the United Kingdom, New Zealand, the United Arab Emirates, Estonia, Hong Kong, Japan, and Israel demonstrate high levels of digital development while continuing to lead in innovation and new growth.
Stall out – many developed countries such as in Western Europe, the Nordics, Australia and South Korea have a history of strong growth, but their momentum is slowing. Without further innovation, they are at risk of falling behind.
Break out – though still at relatively lower absolute levels of digital advancement, these countries demonstrate the fastest momentum, are poised for growth and are attractive to investors. China, Kenya, Russia, India, Malaysia, Philippines, Indonesia, Brazil, Colombia, Chile and Mexico exhibit this breakout potential.
Watch out – Countries such as South Africa, Peru, Egypt, Greece and Pakistan face significant challenges, constrained both by low levels of digital advancement and a slow pace of growth.
Context: the progress of the digital economy since 2008
The research maps the progress of digital economy since 2008, and says the rise of digitalization has continued unabated and has become more central to the global economy. Cross border flows of technology, ideas, news, entertainment, and data have grown manifold, accounting for more than a third of the increase in global GDP in 2014 (US$2.8 trillion).
With the digital economy now firmly in the driver’s seat of globalization, the notion of “digital competitiveness” has become front and center for countries, their policymakers, businesses, and indeed their citizens — to whom digital platforms are a ticket to inclusion into the global marketplace.
Some countries and corporations are embracing digitalization and upending traditional sources of competitive advantage. In some instances, even small countries discovered that their digital prowess gives them an ability to punch above their weight in having an impact, often leapfrogging more established countries in finding creative solutions around constraints; this would not have been possible in the traditional, physical economy.
Tiny Estonia, for example, a country constrained in its ability to attract global talent owing to its physical size, innovated its way out of the problem through its e-Residency initiative. New Zealand, another small but digitally highly evolved country, is attracting resources and technology talent by showcasing its physical distance from the rest of the world as a plus. Malaysia signed an unusual bilateral trade deal not with another country, but with a company, Alibaba, to establish a partnership for fostering frontier-free digital commerce.
- Use public policy as key to the success of the digital economy Highly evolved countries typically have had strong government/policy involvement in shaping their digital economies. High momentum countries typically also have strong government/policy involvement. A sophisticated understanding of the state and drivers of the digital economy and its impact on the overall economy are essential for the success of a wide range of prominent policy imperatives such as: how Brexit negotiations are conducted; how India nudges its society towards a ‘less cash’ future; and how the US and China compete for economic dominance.
- identify and amplify drivers of digital momentum Digital momentum is powered by different drivers depending on a country’s level of digital evolution and economic advancement. This has different implications for what advanced economies and developing economies ought to prioritize: innovation and institutions, respectively.
- Organize digital entrepôts as linchpins of the digital planet Smaller countries with strong institutions can create high value as early adopters and create a demonstration effect for the world by assembling the right ecosystem.
- Reinvent the digital stalwarts through re-focusing on innovation The digitally most advanced countries can put their maturity, scale and network effects to use to reinvent themselves and grow.
- Play digital catch-up by closing the mobile internet gap The digitally least advanced countries must allocate limited resources wisely. Enabling internet access on the mobile phone provides the highest bang for the buck.
- Work harder to earn users’ trust in more digitally evolved countries Technology providers and policymakers offering privacy, security, and accountability may need to prioritize their marginal resources towards the more evolved countries with slowing momentum, where they risk losing users experiencing a ‘trust deficit’.
Writing in the Harvard Business Review, the authors of the research comment, “Our analysis of digital evolutions yields several implications for both public- and private-sector leaders as they explore ways to enhance the state of the digital economies across the world.”
They suggest for example that the US is at risk of falling into the ‘stall out’ zone since there is a missing political debate in the US over the digital economy, despite the fact that American digital companies and innovations are pre-dominant worldwide.
They add, “Smaller countries with strong institutions can create high value as early adopters and create a demonstration effect for the world by assembling the right ecosystem. Traditional trading hubs (such as Hong Kong, Singapore, and the UK) and emerging digital hubs (such as New Zealand and Estonia) can take the lead in creating such ‘smart’ digitally enabled ecosystems.”
The report is authored by Bhaskar Chakravorti and Ravi Shankar Chaturvedi of The Fletcher School at Tufts University, in partnership with Mastercard, and can be downloaded here.