Economic Growth

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ICTs and Economic Growth The Emergence of the
e-Economy
Economic and Social Implications of ICT WSIS
Thematic Meeting Antigua, Guatemala, January
18-19, 2005
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CONTENTS ICTs, Productivity and
Growth From Electronic Commerce to the
e-Economy Policy Challenges Building a
Safer, More Secure Internet Filling Broadband
Gaps Accelerating e-Business Diffusion
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ICTs, Productivity and Growth
Its not just about how the ICT sector has grown,
its about how ICTs have stimulated productivity,
trade and investment in all sectors.
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• Many countries that improved growth performance
  in the 1990s did so because they have been able
  to get fundamentals right they had created an
  environment that could take advantage of the new
  technologies and business opportunities when they
  emerged
• The New Economy Beyond the Hype,
• The OECD Growth Project, OECD, 2001

5
Multi-Factor Productivity Growth has produced
Source The Sources of Economic Growth in OECD
Countries, OECD, 2003
6
Improved Standards of Living
Source The Sources of Economic Growth in OECD
Countries, OECD, 2003
7
ICT Intensive Economies have led Economic Growth
Source The Sources of Economic Growth in OECD
Countries, OECD, 2003
8
Historically, Technological Innovation

• Steam Engine
• Started First industrial Revolution Mechanized
  factory-based mass production
• Railroad, Postal and Telegraph communications
• Changed the way goods and services were produced
  and distributed as well as the mobility of
  people, creating the first national economies
• Electricity
• Propelled the growth of industrialized economies
  by the enhancement of production capacities and
  productivities and the proliferation of a vast
  array of household goods and services
• Internet and ICT Networks
• Alters market structure and industrial
  organizations, similar to the previous impact of
  railways and electricity

has fuelled rapid economic growth
9

• a new wave of innovation, primarily based on
  information and communication technologies (ICT),
  is surging through the OECD
• A New Economy? The Changing Role of Innovation
  and Information Technology in Growth, OECD, 2000

10
ICT Sector contributed a great deal to Canadas
productivity growth
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ICT-using Services Sector is Main Contributor in
Many Countries
Contributions to aggregate labour productivity
growth
Acceleration 1990-1995 to 1996-2002
Contributions to value added per person
engaged, in percentage points
1.25
0.75
0.25
-0.25
Australia
Canada
Mexico
Ireland
US
UK
-0.75
Japan
Germany
-1.25
Total Change 0.04 0.40 0.41
0.62 1.31 1.37
-0.73 -1.12
ICT-producing (manufacturing services)
ICT-using (services)
Other activities
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ICT-based Innovation
Source The Sources of Economic Growth in OECD
Countries, OECD, 2003
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ICT drives productivity across all sectors of the
economy

• In the second half of the 1990s, ICT producing
  and ICT-intensive industries contributed a 62
  share towards aggregate labour productivity
  growth in Canada.

62
54
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From Electronic Commerce to the e-Economy
The use of ICT by businesses is directly linked
to innovation and the transformation of business
processes.
Technological innovations can disrupt not only
systems and business models, but also
organizational cultures. Creative destruction
indeed. Robert Bruner 2001
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E-Commerce Exceeding Expectations
Note Charts reflect "Internet Commerce", a
subset of electronic commerce that includes the
purchase or trade of goods and services via the
Internet / World Wide Web, but excludes financial
services' transactions Source International Data
Corporation, 1999 and 2002
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Dot-com Stars are Still Around
1998 net sales 609.8 million 2002 net sales
3.93 billion 1.5 million customers in 1997 300
Website associates
1998 revenues 86 million 2003 revenues 985.8
million 2003 net revenues 213.9 million 75
million users in 2003 22 local language sites
Jan. - July 2004 revenues 1.35
billion Jan. - July 2003 revenues 559.8

million Jan. - July 2004 net income 143
million
Jan. - July 2003 net income 58
million
2003 revenues 604 million 2003 net revenues
98 million 2002 net revenues 32 million Host
more than 20,000 small businesses
to capture new markets
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E-Business has Entered the Economic Mainstream
E-commerce will continue to change every kind of
business, offline as well as online
The Economist, May 15 2004
The Web players new assault should keep the
productivity gains coming. Business
Week, May 10 2004
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Larger Business and Economic Revolution

• Supply chain transformation (B2B)
• Virtual firms
• Reshaping of the consumer marketplace
• Impact on industry competition
• Development of new electronic marketplaces
• Renewal of Public Services

Source Restructuring value chains Impact of the
Internet, EBIP, WPIE 2002
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Organizational Change Sectoral Transformation
e-Business and GE's installed base are made for
each other. e-Business became part of the DNA of
the company because we eventually came to see it
as a way to reinvent and transform GE. Jack
Welch, Straight from the Gut

• Remodelling the Firm
• Transforming Industries
• Modernizing Service Delivery

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Firm-Level Benefits from e-Business

• Reduce costs
• Increase transaction speed and reliability
• Improve management capabilities
• Develop or improve collaborative capabilities
• Create interdependencies
• Manage customer relations better
• Create more added value

Source Restructuring value chains Impact of the
Internet, EBIP, WPIE 2002
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Remodelling the Firm

• Companies must redesign their business processes
  to take advantage of new capabilities
• 
  Business Week, May 12, 2003
• Organisational changes
• US1 investment in ICT require US9 of
  complementary investment
• Upskilling of workers
• Successful applications and use are embedded in
  broader business strategies with emphasis on ICT
  skills
• Culture of innovation
• Products, process and business relationships

Source ICT Business Performance, OECD
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Innovation in Business Products, Process and
Relationships
Actual e-Commerce Process Impacts
by Business Area
Relational Innovation
Product Innovation
Process Innovation
Source Restructuring value chains Impact of the
Internet, EBIP, WPIE 2002
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Creating the Virtual Firm

• More profitable now for outsourcing partners
• Larger variety of activities outsourced
• Human resources, payroll, product research,
  manufacturing, distribution
• Networked supply chains more fluid
• Organisational form represents highest level of
  flexibility and responsiveness
• Partnering firms globally dispersed

Virtual firms look for ways to control an
industry network by placing themselves centrally
in the value chain and coordinating the
activities of buyers and suppliers. Kathryn
Rudie Harrigan, Columbia University
Source Choi Whinston, Effects of IT Revolution
on Firms and the Global Economy, 2001
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Dell Building a World-Class Supply Chain Solution

• Dells e-business supply chain solutions enable
  Dell to pull materials into its factories every
  two hours base on real-time customer orders
• Dell has reduced inventory levels from days to
  hours minimizing risk while increasing efficiency
• Dell has transformed its supply chain process,
  purchasing most of its components and materials
  online

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Wal-Mart Managing Technical Transitions

• Wal-Mart established a network of innovative hubs
  to minimize distribution center inventory and to
  facilitate the need-based inventory delivery
  system enabled by the satellite network
• Wal-Marts high degree of connectivity allows
  rapid response to inventory needs, and reduces
  dramatically the amount of inventory required
• Wal-Marts e-business solution allows rapid
  feedback on product demand for suppliers and a
  wide variety of consumer goods in a single
  location, at a low price, to customers

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Sun Microsystems A Virtual Firm

• Global demand for innovative products in a highly
  competitive industry forced Sun to help pioneer
  an organisational model focused on core
  competencies
• Suns critical core activities hardware and
  software design
• Outsource everything else in the value chain
• Heavy reliance on external manufacturers and
  distributors
• After vendor assembles machine, another contract
  supplier delivers it to the customer
• Sun employees dont touch own products
• Sun has become an intelligent holding company
  with a high degree of flexibility in a
  competitive global market

Source Detmar W. Straub, 2002
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Policy Challenges
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The Network Effects of ICTs Drive Productivity

• The productivity derived from Metcalfes law is
  inherent in the economics of networks, meaning
  that value gained from the operation of such
  networks exceeds the sum total of utility to the
  individual participants
• Moores law, combined with the networking of
  computers, produces a further range of benefits
  as a result of the convergence of network
  externalities with the massive growth of computer
  processing power
• Consequently, as networks spread and as computers
  and artificial
• intelligence becomes more and more pervasive in
  industrial processes of all kinds, these positive
  externalities can be captured throughout the
  economy.

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A Network Economy Externality

• Metcalfes Law Corollary 1
• The uneven diffusion of the Internet economy
  lessens productivity gains for the economy as a
  whole
• Limits the size of B2C consumer e-markets
• Slows sector-wide B2B deployment
• Distorts growth of global e-Business

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The Internet as a Network Platform
Everything we ever said about the Internet is
happening -Andrew S. Grove, Intel Corporation
In Millions of Users
Sources http//www.nua.com/surveys,
Computer Economics, June 2002
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People are Well Connected to the Internet
Source World Information Technology and Services
Alliance, Digital Planet 2002, February 2002
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Businesses Are Also Well Connected
Businesses with Internet Access and Web Site,
2001 (Percentage of businesses with ten or more
employees)
Source OECD, Measuring the Information Economy
2002
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Policy ChallengesA Safer, More Secure Internet
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Ongoing concerns about privacy and security
Business
Consumers
of businesses identifying barrier as "very
significant" to adoption of e-business
Not willing to give my credit card information
over the Internet to purchase from a well-known
store I mind companies using information
about me even if I know about it and can stop it.
Source Ekos, Nov/Dec 2003
Source Ekos, 2003
Everything on the Web is ultimately about
trust. Nicholas Negroponte
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Incidents Are Increasing
Incidents Reported to CanCERT
This graph depicts the number of incidents
reported to CanCERT, per month, during the period
1 April 2000 to 31 August 2003. The majority of
these incidents are reported to CanCERT by
international incident response teams who are
members of FIRST (Forum of Incident Response and
Security Teams), or by Canadian businesses and
schools.
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Resulting in Economic Losses
Total losses due to computer related crime
in the U.S. was over 200 billion.
70.2
Theft of proprietary Info
65.6
Denial of Service
27.4
Virus
11.8
Insider Net Abuse
10.2
Financial Fraud
5.1
Sabotage
2.8
System Penetration
0
10
20
30
40
50
60
70
80
Millions (US)
Source Computer Security Institute/FBI, Computer
Crime and Security Survey, July 2003. (n530
U.S. corporations, government agencies, financial
institutions, medical institutions, and
universities)
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Spam, The Internet "KILLER"
Percentages of Total Internet Email Identified as
Spam
AOL's Daily Spam Problems
65
900
Spam e-mails blocked daily
780 Million
800
E-mails delivered daily to subscribers
700
677 Million
600
Percent
500
400
300
200
Source AOL
100
0
2000
2001
2002
2003
Source Brightmail.com
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The costs of spam

• Estimates of the annual cost of spam to the U.S.
  economy
• 10 billion (Ferris Research)
• 87 billion (Nucleus Research)
• Radicati Group and Message Labs estimate
  worldwide cost to businesses at 20.5 billion
• Loss of public confidence in Internet
  communications
• 25 of Internet users have curtailed their use of
  e-mail because of spam (Pew Foundation-2003)

ADM Public Safety Committee - 27.01.05 - 38
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Illegal and Offensive Content

• Child pornography, online luring, and other
  activities of growing concern
• Of Kids On Line
• 59 are prepared to give out their name
• 31 their school
• 22 their address
• 15 have met, in person, an individual they met
  on the Internet

Source Young Canadians in a Wired World, Media
Awareness Network, June 2001.
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Policy ChallengesBroadband Gaps
"The broadband problem is particularly
frustrating because it is the one piece of the
physical infrastructure of computing that is
limiting a 'miracle environment' of new
applications thanks to ever-increasing computer
speed, power and video-display capabilities." Bil
l Gates, September 2001
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The e-Economy Runs on Broadband
Investment in E-business
Development
Investment in Broadband
Infrastructure
The deployment of broadband services would help
spur the growth of e-commerce and vice versa.
The future is very bright for both. Bruce
Mehlman, U.S. Dept. of Commerce, Aspen Institute
Summit, August 2002 Several applications, such
as broadband and e-commerce are still in their
early stages and may have a large potential for
future growth. Meeting of the OECD Council at
Ministerial Level, Seizing the benefits of ICT in
a digital Economy, 2003

• Creating Economy-wide Platform fore-Business

• Access for SMEs

• Greater Availability, Affordability

• Sector-wide deployment

Virtuous Circle

• Increased Capability of Networks

• Profitability

• Increased Sustainability

• Generating Revenue Streams for Infrastructure
  Investment

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Worldwide Internet and Broadband Use Continues to
Grow
Broadband and Internet use, world, millions
700
10.7
Broadband as of Internet users
Internet
600
7.4
Broadband
500
4.0
400
1.4
300
0.3
200
0
0
0
100
0
1995
1996
1997
1998
1999
2000
2001
2002
Source ITU
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Canadian Businesses are Moving To Broadband
Canadian Businesses with Internet Access by Type
of Connection (Multiple Responses Allowed)
Source Survey of Electronic Commerce and
Technology, Statistics Canada, April 2003.
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However, Broadband Access Uneven
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Policy ChallengesUneven e-Business Diffusion
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E-Commerce Adoption Varies by Sector
Value of E-Commerce Sales by Industry Sector -
Private Sector Only, CDN Millions
Note .. Figures not available
Total gross sales conducted over the Internet
with or without online payment.
Source Survey of Electronic Commerce and
Technology 2003, Statistics Canada, April 2004
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Not All Sectors Are Capturing the Benefits

• Six leading sectors account for 80 of all
  Canadian Internet Sales
• Private firm sales were 18.6 billion in 2003
• Leading e-Commerce Sectors are Wholesale Trade,
  Transportation and Warehousing, Manufacturing and
  Retail Trade 67 of sales

e-Commerce Sales by Industries 2003
Source Survey of Electronic Commerce and
Technology 2003 Daily April 16, 2004, Statistics
Canada
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High Business Connectivity, but Low Adoption
Rates of Advanced Online Activities
Online Business Activities in Canada - 2000-2002
Percentage of firms
Source Survey of Electronic Commerce and
Technology, Statistics Canada, April 2003.
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Size of Firm Matters for E-Business Adoption
E-business Adoption in Canada, 2002 by Size of
Firm
Source Survey of Electronic Commerce and
Technology 2002, Statistics Canada, April 2003.
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Foundations of the e-Economy

• Connectivity
• Confidence and Trust
• Diffusion of e-Business, e-Solutions