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Where the Digital Economy is Moving Fastest

A HArvArd Business review weBinAr feAturing

Bhaskar Chakravorti

MarCh 9, 2016

Sponsored by

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OVERVIEWWe are on a journey to become a digital planet, but every country is at a different stage in their efforts to create a digital economy. To better understand these dynamics, the Fletcher School at Tufts University has created a Digital Evolution Index (DEI). This index illustrates how countries compare in their readiness for becoming a digital economy. With different regions facing different challenges, benchmarking is a powerful tool for helping countries assess their situation and set and execute policy changes that facilitate digital advancement.

CONTEXTBhaskar Chakravorti shared insights about where the digital economy is moving fastest, which countries are poised for rapid changes, and where digital progress is slow or stalled.

KEY LEARNINGSSince 2000, the digital economy has steadily evolved, and experts wonder what the future holds.

Digital commerce had a shaky start but has been rapidly embraced worldwide. Stages in the evolu-tion of digital commerce are:

• The Denial Phase. In 2000, the Internet’s use in business was met with skepticism, but then suddenly it was everywhere.

• Global Adoption. In 2007, as the West grappled with an economic crisis, other countries were rapidly plugging into the global digital economy.

• Mobile Connectivity. In 2015 and beyond, the next billion people are going online world-wide thanks to mobile connectivity.

The percentage of retailing done online globally has grown steadily and that growth is expected to continue. As experts look ahead to 2030, they wonder what the digital planet will look like.

Figure 1 - Percentage of Retailing Done Online

CONTRIbuTORSBhaskar ChakravortiSenior Associate Dean of Interna-tional Business & Finance, Fletcher School at Tufts University

angelia herrin (Moderator) Editor, Special Projects and Research, Harvard Business Review

March 9, 2016

Where the Digital Economy is Moving Fastest

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March 9, 2016Where the Digital Economy is Moving Fastest

“Digital evolution is more than just e-commerce. Digital systems have facilitated social movements, government elections, and greater awareness of issues worldwide.”

– Bhaskar chakravorti

The Fletcher School’s Digital Evolution Index quantifies the level and pace of digital development of nations.

Digital evolution is more than just e-commerce. Digital systems have facilitated societal changes, have impacted election, and have increased awareness of key social issues. The Fletcher School’s Digital Evolution Index (DEI) is designed to explain the state and rate of digital change. It charts the progression of 50 countries’ digital past and present, and reveals patterns for the future. The Index is based on two dimensions: 1) a country’s absolute level of digital evolution; and 2) the momentum or pace of change of the country’s digital evolution.

Figure 2The Digital Evolution Index Plot of Countries’ Digital Trajectory

The DEI cluster plot shows that countries fall into four trajectory zones:

1. Stand Out. These nations have high digital evolution and strong momentum. Example: Singapore.

2. Stall Out. These nations have high digital evolution but weak momentum. Example: the Netherlands.

3. Break Out. These nations have low digital evolution but strong momentum. Examples: China and India.

4. Watch Out. These nations have low digital evolution and weak momentum. Examples: Egypt and Hungary.

When population data is overlaid on this cluster plot, promising regional demographics are evident in countries like China, India, Brazil, and others.

Figure 3DEI Plot of Countries’ Digital Trajectories with Population Data

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March 9, 2016Where the Digital Economy is Moving Fastest

To launch a digital restart, Europe must use several levers.

Many European countries fall into the Stall Out and Watch Out zones. To reverse course and engage in a digital restart, Europe must initiate a self-reinforcing cycle using four levers: innovation, investment, integration, and immigration. Unfortunately, the current European ecosystem is challenged by recurrent obstacles such as denial of problems, resistance to new innovation, regulatory hurdles, and “solutions” that create new problems.

Figure 4Digital Trajectories in Europe

The Break Out giants, China and India, are experiencing divergent digital development.

The global mobile Internet gap, which is measured by the gap between mobile cellular and mobile Internet subscriptions, is large in both China and India. Since these countries have rising levels of digital readiness, but low mobile Internet penetration, they are attracting private equity investments. The outcomes, however, have been different.

Figure 5Rate of Digital Evolution and Private Equity Investment

In India, Facebook tried unsuccessfully to offer free but limited Internet access. Facebook’s logic was that providing limited Internet service was preferable to having none at all. Oppo-nents suggested this would create inequity among citizens and limit entrepreneurship.

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March 9, 2016Where the Digital Economy is Moving Fastest

In China, systems work more seamlessly due to greater state coordination. For example, China leapfrogged from cash-on-delivery to mobile wallets thanks to intense competition between Baidu, Alibaba, and Tencent. India lags far behind in this area.

Figure 6Payment for Digital Commerce in China and India

Benchmarking provides useful data for countries to use in setting digital evolution goals.

When it comes to digital evolution, an open question is how Break Out countries can move into theStandOutzone.Toexplorethis,theFletcherSchoolexaminedthetopfiveASEANcoun-tries and what it would take to emulate their Stand Out neighbor Singapore.

The conclusion: With no changes in policy or innovation, it would take many years for ASEAN nations to catch up to Singapore’s current level of digital development.

Figure 7Catching Up with Singapore’s Digital Development

Eightspecificbenchmarkswereidentifiedrelatedtoaccessandtransactioncapabilities.ThesequantifiedthechangesneededtocatchuptoSingaporein10years.

Figure 8Benchmarks for Digital Development

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March 9, 2016Where the Digital Economy is Moving Fastest

Using these benchmarks enables countries to set policy goals and coordinate among policy makers.

Cyber vulnerability is an inescapable aspect of digital evolution.

Whiledigitalevolutionhasmanybenefits,itisalsosaddledwithcybervulnerabilityconcerns.Threats include thieves, hackers, and political activists, as well as foreign and domestic governments.

Figure 9Digital Vulnerabilities

An analysis estimated that trillions of dollars are trapped or lost due to cyber-insecurity. Measuring digital trust and vulnerability tracking are emerging as key topics.

Tracking vulnerability means understanding the interconnected nature of technologies. In the past, organizations worried about social media, mobile, e-commerce, and privacy. Today, the challenges have expanded to include big data, personalization, and the cloud. Looking ahead, new concerns are on the horizon with biometrics, the Internet of Things, bring your own device initiatives, self-driving cars, next-gen genomics, machine learning, and more.

OThER ImpORTANT pOINTS � How Benchmarking Can Help Countries Become More Digital. This article in

Harvard Business Review elaborates on concepts presented in the webinar.

“Setting benchmarks can help with coordination challenges. They clarify the different moves needed to reach the desired end game, who is responsible for those moves, and who has the leverage to make changes. benchmarks and transparent data are like a Fitbit for public/private collaboration.”

– Bhaskar chakravorti

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The information contained in this summary reflects BullsEye Resources, Inc.’s subjective condensed summarization of the applicable conference session. There may bematerial errors, omissions, or inaccuracies in the reporting of the substance of the session. In no way does BullsEye Resources or Harvard Business Review assume anyresponsibility for any information provided or any decisions made based upon the information provided in this document.

March 9, 2016Where the Digital Economy is Moving Fastest

bIOGRAphIESBhaskar Chakravorti

Senior Associate Dean of International Business & Finance, Fletcher School at

Tufts University

Bhaskar Chakravorti is Senior Associ-ate Dean of International Business and Finance, Executive Director, Fletcher’s Institute for Business in the Global Context/Council on Emerging Market Enterprises, and Professor of Practice in International Business. Prior to Fletcher, he was a Partner of McKinsey & Com-pany, a Distinguished Scholar at MIT’s Legatum Center for Development and Entrepreneurship, and on the faculty of the Harvard Business School and the Harvard University Center for the Envi-ronment. He was a leader of McKinsey’s Innovation and Global Forces practices and served on the Firm’s Knowledge Ser-vices Committee.

In a 20+ year career as consultant and educator, Chakravorti has advised over 30 companies in the Fortune 500 and worked across multiple geographies: the Americas, EU, Asia, and Africa. At Har-vard, he taught innovation and entrepre-neurship. His book, The Slow Pace of Fast Change: Bringing Innovations to Market in a Connected World, was selected as one of the Best Business Books of the year by multiple publications and an Amazon.com best-seller on Innovation, and has beeninfluentialinmanyclientandpolicy

recommendations. He has published widely in both academic and widely read publications and has been invited to speak before academic, executive, and policy audiences around the world.

Chakravorti’s economics PhD is from the University of Rochester where he was a University Fellow. He is a graduate of the Delhi School of Economics and in economics with honors from Delhi’s St. Stephen’s College.

angelia herrin (Moderator)

Editor, Special Projects and Research, harvard Business review

Angelia Herrin is the editor for special projects and research at HBR. Her jour-nalism experience spans 25 years, primar-ily with Knight-Ridder newspapers and USA TODAY, where she was the Washing-ton editor. She won the Knight Fellowship in Professional Journalism at Stanford University in 1990. She has taught jour-nalism at the University of Maryland and Harvard University.

Prior to coming to HBR, Angelia was the vice president for content at womenCon-nect.com, a website focused on women business owners and executives.