I’ve previously written about the enormous 95% growth the Chinese e-commerce market has had in the last eighteen months, but online shopping aside, I feel that this will extend further into advertising and marketing, as well as the associated technologies.
The best place to start is to define the term “digital economy”. Wikipedia succinctly explains it to be an economy - the wealth and resources of a region in relation to the production and consumption of goods or services –based upon electronic business and commerce:
Business with electronic production and management processes [which] interacts with its partners and customers and conducts transactions through Internet and Web technologies.
I’m certainly not an economist and although I’m basing this on various personal observations and research, I think it’s fairly reasonable to suggest that digital economies develop based upon financial ones.
This is not to say that established digital environments falter and decline when physical economic frameworks do: If anything, the recent global credit crunch showed us that the current digital economy is recession-resilient, although not recession-proof. The past few years saw consumers turning to online channels to save money, alongside marketers increasing budgets and placing greater emphasis upon the medium.
It seems to me that until relatively recently, the digital economy that we know and love is very much a Western phenomena - or certainly one that is primarily found within developed countries. This is due to all kinds of factors, such as infrastructure, business development, Government investment and cultural and social element.
However, without dwelling too much on these aspects, the economies of developing -or emerging - nations are growing at an enormous rate and it follows that this will support the growth of their digital economies.
In fact, it’s now being widely suggested by analysts that the current G7 (the top industrialised nations) will be replaced by the “E7”, the top emerging nations, as projected PwC. Of these, five are in the Eastern markets, with the exception of Brazil and Mexico:
By 2025, China is expected to be the world’s largest economy and India the third largest. Expectations are that E7 will be 25% larger than the G7 (US dollars) and 75% larger overall in terms of purchasing power parity. In fact, China will have surpassed the US in purchasing power parity by 2050.
This is level of growth is actually reflected in one of my favourite stats-related videos where Hans Rosling uses augmented reality to demonstrate just how fast these countries are developing.
Focus more on the financial aspects the video – especially for the last fifty years of the 1810 – 2009 quantitative data that’s presented.
The huge historical gap between the west and the rest is now closing.
I’m very inclined to agree with Rosling’s closing remarks, especially in the context of digital economies. Western markets appear to now be saturated, with growth rates of e-commerce and online marketing and advertising spend slowing down.
This is not to say it is not growing, merely, that it is doing so at a rate that is less than has been previously experienced.
I believe that a major factor in this is the uptake amongst users being enabled to connect to the internet, something that is practically universal within developed countries, but an emerging investment within those that we're seeing to be currently developing: chiefly the E7.
A recent report, The New Digital Economy: How it will transform business, from Oxford Economics, explores this in more depth.
OE says that some 1.8 billion (nearly 27%) of the world population currently use the internet, but this number will grow to around 2.8bn (about 38%) by 2015.
In support of my belief that the digital economy is going to shift Eastwards, the biggest expected area of growth is in Asia, which will account for more than half of world’s internet users within the next three years.
Source: Oxford Economics
The study also identified six trends that will drastically transform the digital environment as we know it within the next five years - and already, it appears that Asia - and the E7 countries overall - is in a strengthened position to see the regional digital economies grow, in line with the continued uptake of internet connectivity:
The global digital economy comes of age.
The latest advances in technology are boosting the digital economy and powering a third wave of capitalism that will lead to extraordinary wealth creation. OE forecasts that the global digital economy, including all forms of e-commerce and the total market for digital products and services, will reach $20.4 trillion by 2013, roughly 13.8% of total worldwide sales.
Industries will undergo digital transformations.
Global market shifts and technology advances will upend most aspects of business. The industries that will see the greatest transformation include technology, telecommunications, entertainment, media and publishing, retail and banking. Executives say this transformation will help them provide more responsive customer care, reduce time to complete tasks and improve productivity.
The digital divide reverses.
About twice as many companies in the developing world than advanced markets will increase investments by 20% or more in mobile devices, social media, business intelligence and collaborative technologies.
Emerging markets already account for about 73% of the world's mobile use—and with E7 population growing twice as fast as the G7, that percentage will increase.
The emerging-market customer takes centre stage.
Rising income levels in emerging markets are creating huge opportunities for firms. In markets like China and India, disposable income is increasing at 8% annually, versus 2% in the US and 1% in Japan.
At the same time, private and public spending will increase twice as fast in the BRIC (Brazil, Russia,India and China) economies than the top four advanced economies (US, Japan, Germany and France). As a result, Western firms are turning to reverse innovation, creating products first for developing markets and then rolling them out to the industrial world.
Businesses shift into hyperdrive.
Business intelligence will be vital for reacting to events in real time in today's fast-moving marketplace. 70% of executives in the TICE (technology, information, communication and entertainment) arena cite business intelligence as very or extremely important to operating in real time, along with 64% in the retail and consumer sector.
While 83% of firms in emerging markets have proper BI strategies in place, 43% of companies in advanced economies are still operating without them.
Firms reorganize to embrace the digital economy.
Astute Western firms are moving to more flexible structures suited for a digital marketplace. Some are adopting globally integrated approaches that impose a consistent set of processes and create centres for decision-making. Others are developing organizations that push decisions to the edge, where executives interact with the market.
But these changes are not easy to make: 37% of firms are not willing to cannibalize existing business models, and 35% lack the vision and innovation skills required of such changes.
Source: Oxford Economics
Having read the report in some depth, I’m conscious that it especially highlights a shift of economic balance towards the Asian region (as per the graph above) which also supports the PwC forecasts I mentioned earlier. However, from these six trends, four main points are apparent to me, which relate to the development of the digital environment.
- The customers in emerging markets will have greater proportionate levels of disposable income. This is likely to help to drive e-commerce across the relevant regions, especially in view of the enormous increases in internet connectivity.
- The developing markets are investing far more into creating and enabling a digital infrastructure – including mobile and telecoms technologies. This loops back again onto an expected increase in the amount of people enabled online, although most likely via mobile devices.
- There’s a definite understanding within developing economies of the importance in having business intelligence operations - the computer-driven analysis of operational data – in comparison to more established economies. Arguably, this will likely become a competitive advantage in the long term, especially as it seems that data is the new oil.
- The killer point for me, is that more than a third of businesses in established economies lack the innovation skills required to change to more flexible business models... and a similar amount simply refuse to make changes.
This in itself is a separate issue around a number of elements and something I don’t want to cover off here, but I find these kinds of figures unsettling. I appreciate the challenges in altering company structures and operations, but that companies chose to ignore something that potentially poses a commercial threat baffles me. As the digital marketplace evolves and, as evidence suggests, shifts more towards developing economies, how will these organisations cope?
I think all this highlights something that anyone involved in the digital industry needs to be conscious of: the internet results in all commercial businesses having access to a level playing field in this specific environment.
There are intricacies within this, such as some organisations having greater advantages, such as larger investment into budgets and resources, or even further factors, such as regionally-enforced internet access restrictions. But, in a general sense, every company can now be a competitor and, as financial economies shift, so do the boundaries of the enabling digital economies.
I’m aware that there can are potential issues within any fast economic growth of a developing country, especially long term, where potential clashes, political and otherwise, may occur over resources and pressures will be placed upon commodity prices and the environment. That said, these don't particularly strike me as currently affecting the ongoing development of the digital economy.
With all this in mind, I strongly believe that the Asian markets will continue to grow and gain dominance within the global digital infrastructure and this is definitely something we all need to understand, as well as the impact it will have and how best we can use this to continue to support and develop the established digital economies that currently exist.
If you’re still not convinced that this is the case, this video might help sway you a little bit. Although it only focuses on the social media side of things, it still demonstrates the huge swell in the Asian digital economy, along with the associated financials.
Although this is a topic I could continue to discuss even further, overall, I think the best approach for anyone involved in the digital industry to take towards these materialising developments, to paraphrase the OE report, is to think of it in terms of preparing for the East, while simultaneously protecting the West.
This might seem like some sort of misguided way of segmenting markets in an arena that is clearly blossoming into one of universality, but I merely mean that within the digital economy that we currently know, there is still so much more room for development and a large proportion of this will be found inside growing economies.
By realising that there is a shift in markets towards emerging regions – and that digital is tied to this – both individuals and organisations in the established digital markets will be able to successfully be a part of future developments, especially within mobile and social technologies.
In an effort to understand digital as a theoretical and economical concept, those in a position of knowledge will be able to actively nurture and innovate within the newly-appearing areas.
Evidence points towards the fact that a shift in digital balance will happen, as dictated by external influences... The digital space continues to expand, but into the places that it does not already populate. A quote from SirTim Berners-Lee sums this up best for me:
The web as I envisaged it, we have not seen it yet. The future is still so much bigger than the past.