The goal of promoting digital infrastructure is seeing economic and social progress. Peter Lovelock takes stock of Asian developments.
Asia is in transition – and when talk turns to the region's adoption of digital technologies, it is easy to be impressed by the numbers. Whether the number of mobile subscribers, the growth of broadband networks, or the use of social media, Asia consistently tops the list. But of far more interest is how such digital technologies contribute to economic and social development. In a recent study covering five Asian economies – India, Indonesia, Japan, Korea and Vietnam – we found much to learn from the approaches being adopted in both developed and emerging nations.
Countries here are moving from an internet economy towards a fully digital one, increasingly relying upon the internet as a core part of the infrastructure underlaying the economy. What this means is that, in addition to the exciting and disruptive developments within what we think of as the 'tech sector', many traditional sectors are in the midst of transformation and rejuvenation via the internet and, with it, are fostering economy-wide growth and innovation.
What we are seeing is that non-internet companies of all types are increasingly using the internet. As digital technologies become accessible and affordable to more people, it also means that more people can, and are, creating apps, platforms and networks. Some of these have been so successful they have gone global. Others are changing the digital landscape of their domestic markets.
Zomato, for example, is one of India's recent outstanding global success stories: an aggregator site that offers online access to many thousands of small restaurants that would otherwise not have the wherewithal to 'go tech'. It has created a digital ecosystem that empowers restaurants with a range of digital capabilities to enable greater reach and more effective interaction with customers. Zomato began its overseas expansion in 2012 and now covers 330,000 restaurants in 19 countries.
We find the same story playing out throughout other markets across the region, be they emerging or developed. In South Korea, one of the world's most connected economies, a similar aggregator, Baedal Minjok, is empowering local 'mom-and-pop' shops to go digital. In the past, these shops typically resorted to flyers, neighbourhood restaurant guides or ads in local newspapers for marketing. Now some shops are spending 25% or more of their original marketing budget on Baedal Minjok, and are seeing twice the benefits in revenue growth. Furthermore, shops are using Baedal Minjok for their day-to-day operations to monitor customer experience and adjust their business strategy.
Another trend is that e-commerce is leading the development of a digital economy ecosystem. For instance, PeaceSoft in Vietnam heads a group of companies, including eBay Vietnam, shipping and cash-on-delivery gateway ShipChung, warehousing and fulfilment agent BoxMe, and online payment system NganLuong. Given the low penetration rates of credit cards and debit cards in Vietnam, NganLuong designed a payment wallet solution, offering multiple types of settlement methods including credit and debit cards, bank transfers, mobile phone billing, ATM payments and others. Nowadays, only 30% of NganLuong's revenues come from within the PeaceSoft group, while some 70% is being generated from the 20,000 merchants that NganLuong is connected to. Innovators such as NganLuong are helping introduce sellers and consumers to new forms of payments, opening the doors to a range of online services.
Similarly in Indonesia, online retail innovator Doku is encouraging digital adoption by making it easy for businesses to process all types of payments online, and by doing so encourages merchants themselves to go online and invest in digital technologies. Although clients initially came from the insurance and airline sectors, Doku now has merchants in industries as varied as property, food and beverage, marketplaces and transport. In recent years in Indonesia, over 20 sizeable e-commerce companies have emerged either locally or as foreign ventures.
Transforming Traditional: Addressing the Gaps
A digital economy is essentially a knowledge-based economy that comes with specific skillsets that many economies do not yet have enough of. Organisations, both public and private, and often in collaboration, are stepping up to fill the skills gap with e-learning and massive open online courses (MOOCs). They offer solutions to challenges common to many countries such as a lack of qualified teachers, the high cost of training, and the lack of support and incentive for skills upgrading.
For instance, Vietnamese e-education platform GiapSchool is run as a social enterprise, offering courses free of charge. In comparison to other forms of e-learning in Vietnam, GiapSchool provides opportunities for students to interact with other students and lecturers, which has been missing in prior e-learning ventures. GiapSchool succeeds because it engages with specialists who can produce high quality course materials, and is accessible from multiple devices.
Similarly, on the other side of the spectrum, in highly developed Japan where the population is ageing and job markets are being restructured, there is a focus on the reskilling and continuous learning of older workers using MOOCs. Building on the lessons learned from existing MOOCs such as Coursera, edX and Udacity, JMOOC was created as a partnership among Japanese academia and corporations.
Another interesting case is the use of technology by Aeon Agri Create to boost the agriculture sector in Japan. Most of the farmers on Aeon farms are tech-savvy youngsters with little or no experience in agriculture. But Aeon Agri Create is using a network of smart devices and sensors – in the sprinkler systems, heating systems, fertilising and harvesting facilities – to collect data, which is then analysed and shared with the farmers, making crop production and management easier, smarter, and less-dependent on generation-steeped human knowledge and participation.
Going Digital: More than just Technology
Indeed, in all of the examples provided above from countries as varied as India, Indonesia, Japan, South Korea and Vietnam, going digital is not just defined by the hardware, software or network, but is more
often associated with connecting and reaching out to individuals and communities regardless of their location; a faster way to access information and services; and new and better ways to do business, learn and spend leisure time.
These examples all show that they are more service businesses than technology businesses. Ultimately, it is not about how 'high-tech' a business becomes but about using digital technologies to empower people by equipping them with the tools, knowledge and skills to leverage the opportunities that a digital economy offers.
Organisations able to leverage the data and interpret it intelligently will gain a competitive edge. Another motivation for establishing JMOOC in Japan, for example, was to enable the collection and analysis of educational data so that courses offered could be tailored to the individual needs of students and working professionals.
Of course, for this transition to a digital economy to be successful, business and regulatory environments are important. Possibly, the only thing worse than prohibitive regulations are uncertain regulations. Yet this is the position many start-ups face. In India, for example, although governments are encouraging start-ups through incubators, funding and tax relief, the paperwork required to obtain licences, certificates and permissions is often mountainous. This is set to change though, under the government's Digital India programme.
In Indonesia, regulatory uncertainty and lack of clarity has limited direct foreign investment in e-commerce. However, in 2014 there was a change in the regulatory environment to remove restrictions on e-commerce markets, including an amendment to banking regulations that has spurred the growth of mobile payments – a fundamentally important enablement given the relative lack of computers, credit cards and bank accounts, but the increasing ubiquity of smartphones.
Evidently, locally-based start-ups can innovate and disrupt by pushing boundaries, not only technology boundaries, but regulatory boundaries and business models as well – business models that not only value economic wealth creation, but also social benefits. As we transition to a digital economy, it will increasingly become the case that there is no longer an 'internet business', but instead business is the internet, as the internet increasingly underlies all sectors of the economy.
To be successful this transition calls for collaboration between many different players in different sectors, including in government and civil society.
- Have vision: A digital economy is a fully 'connected' economy, enabled by ubiquitous affordable internet access. Progress towards a digital economy therefore calls for governments to be able to state a clear vision for digital advancement, accompanied by equally clear priority areas for state action and enablement.
- Transparency: Government policies designed to create an environment that attracts investment and encourages entrepreneurship need to be transparent – regulations should be consistent and predictable, and they need to encourage appropriate approaches to technology-neutrality, safety and security.
- Regulatory alignment: Recognising that a key advantage of the digital economy is the access local SMEs have to global markets, governments need to ensure that local regulations in areas such as payments, security and consumer protection are compatible with other regional economies and trading partners. Alignment efforts not only enable local companies to scale but also facilitates inward investment into the local market.
- Build the digital ecosystem: Progress towards a fully developed digital economy also requires the emergence of a domestic digital ecosystem, including a focus on the creation or development of auxiliary sectors, such as distribution, and operational and design skills.
- Lifelong human capacity building: An adaptable focus on human resources is vital if the benefits of a digital economy are to be fully and continuously realised. Both fulltime education, and on-the-job skills and knowledge training. need to be reviewed regularly and promoted in light of what the internet can offer online and interactively.
- Simplify business processes: Reviewing and addressing procedures that keep business costs high is fundamentally important if the digital economy is to become pervasive, particularly for start-ups. The greater use of digital technologies and streamlining processes for business applications, approvals, payments and registrations should be priorities.
- Minimise unintended impacts: Regulatory overreach can have a chilling effect on investment and innovation in the digital economy. Where regulation is necessary, such as with national security or consumer protection, it should be 'smart' and not create uncertainty or negative unintended consequences.
- Consult and engage with industry: By understanding the multisector impact of the internet, for example in areas such as agriculture, health and education services, government should engage with industry directly in two ways. First, to inform better the national policy planning process to strengthen a holistic approach to the creation of a digital society. Second, to encourage the widespread adoption of industry standards, of interoperability, safety and security, and codes of conduct for social media.
oecd weighs in on the issues
A biennial report from the OECD is a major review of global digital economy factors
The OECD Digital Economy Outlook report is certainly a comprehensive analysis of the building blocks of the digital ecosystem and emerging trends. In the latest 2015 edition, it is considered, not surprisingly, that the potential of the digital economy is a long way from being realised; that governments are waking up the fact that they need national digital agendas and that 'internet policymaking' depends on a 'set of coherent, whole-of-government policies'; and that internet governance and the preservation of an open internet is a vital.
In an overview of the digital economy, the report notes that the outlook for the ICT sector is positive, despite not being fully recovered from the recession. Evidence from OECD countries reveals 'significant potential' to improve coverage and quality of fixed and mobile broadband, and it is noted that the OECD has a new methodology for measuring fixed broadband speeds (it reveals a rate of only 7.3 subscriptions per 100 people for speeds more than 25/30 Mbps).
"Policymakers are testing innovative licensing schemes to increase efficiency in the use of spectrum. They also now recognise the role of fixed infrastructures as a critical building block for offloading and backhauling wireless traffic and to enable better use of available spectrum," the report says, which is why emerging economies, which lack fixed infrastructure, have more of a challenge. In OECD countries, about 75% of smartphone data takes place on fixed WiFi systems.
The digital economy has begun to transform industries such as banking and the media, while new business models are appearing in the sharing economy. Most companies with more than ten employees have broadband but still relatively few use enterprise resource planning software (31%), cloud computing (22%) or receive electronic orders (21%).
In 2014, 82% of the adult population used the internet and most do things such as email and social media, but there are wide variations in take up of activities such as e-government and e-banking.
Vigilance is essential to ensure competition and trust and governments must do much more than encourage broadband and uptake of ICTs and the internet. "They must also engage in further and renewed efforts to protect competition, lower artificial barriers to entry, strengthen regulatory coherence, improve user skills, and build trust in essential infrastructures and applications." That's partly because competition is being challenged by convergence in IP networks, and among telecoms operators and OTT players, and bundled offers. Issues to watch out for are zero-rated services, mobile consolidation and of course privacy and security. (It is reported that the growing profile of privacy and security issues "has not been matched by an equivalent acceleration in the development of metrics and other evidence needed by policymakers to evaluate the nature of the problem.")
On national digital economy strategies the report identifies a number of 'key pillars' and gives copious examples from various '2020' strategies around the OECD nations, with detailed attention to Brazil and Egypt. "Very few national digital strategies have an international dimension," it is noted. "Among those that do, key issues are internet governance, climate change and development cooperation." Germany and Sweden, in particular, emphasise global security and development.
The report places much importance on internet governance, with 2015/16 likely to be critical in shaping the landscape, and one of the many meetings that will weigh up the open internet will be the OECD ministerial meeting in 2016. The new sustainable development goals (SDGs) place a stronger emphasis on increased access to ICTs to create an inclusive and global digital economy, and will drive interest in internet governance.
There is a plethora of stats and commentary on ICT investment patterns and uptake (for example, the transition from copper and cable to fibre is occurring at only a gradual pace) and also on emerging areas such as the sharing economy and internet of things, where there is new regulation emerging in numbering and spectrum policy.
The report includes the OECD's broadband and mobile price 'baskets' in a section on digital economy foundations, and notes that another report, 'Triple and quadruple-play bundles of communication services', (OECD, 2015) puts forward, for the first time, benchmarks for these bundles.
Turning to the internet, there is a section that proposes that the number of routed autonomous systems in a country may be a proxy for market competition.
policy and regulation
A chapter on trends in policy and regulation covers:
- Industry consolidation – poor fixed competition is a feature of large countries such as the US and Canada, but in mobile there has been consolidation or market entry in various countries.
- Convergence, service bundles and OTT – authorities face increasing complexity in converged bundles, and there has been a 'dramatic increase' in partnership between operators and OTT players, some of which could have major market implications. Also analysed is the connected TV market, which some operators say could overwhelm the internet.
- Net neutrality – the report notes that the literature on net neutrality is recent but growing rapidly, and there is as yet no unified approach among OECD countries. Also discussed is internet traffic exchange and content distribution networks, which have become important in reducing traffic costs. Zero-rating is also examined.
- Advanced fixed networks – policies for fibre, vectoring and so on are discussed in detail.
- Wireless - not least, spectrum policy, white spaces, numbering etc get a thorough airing.