The Digital Evolution Index confirms the domination of developed economies when it comes to using digital technology. However, the situation is not totally clear-cut: some developing countries are out in front in terms of the speed of digital evolution over a number years.
Back in 2013, market research firm eMarketer was already predicting that Asia-Pacific would soon overtake the United States for online e-commerce sales and become the world's number one market for B2C sales. The region was even expected to account for around 40% of total worldwide B2C e-commerce sales by 2016. There is little doubt that the Internet and progress in information and communication technology are shaping economies and re-shuffling the cards. Now a team of faculty and researchers at the Fletcher School (Tufts University) in the United States have created the Digital Evolution Index (DEI) to identify how a group of countries compare with each other in terms of their readiness for a digital economy, based on four broad drivers: supply-side factors (including access to the Internet, fulfilment, and transactions infrastructure); demand-side factors (including consumer behaviours and trends, financial and Internet and social media savviness); innovations (including the entrepreneurial, technological and funding ecosystems, presence and extent of disruptive forces and the presence of a startup culture and mindset); and institutions (including government effectiveness and its role in supporting innovation in business, legislation and regulation and promoting the digital ecosystem). Based on their analysis they have drawn up a ranking for Digital Evolution in the 50 countries studied. It will come as no surprise to learn that the developed economies in the West and Asia are out in front. At the top we find Sweden, the UK, Hong Kong and South Korea. The speed of their digital evolution between 2008 and 2013 is indeed remarkable. But there are also some other interesting trends.
The Digital Evolution Index of 5O countries worldwide in terms of the speed at which they are changing
Developed countries have traditionally been leaders in digital evolution
The Netherlands and Singapore score more or less equal marks and both figure in the top ten of the leading countries in the DEI, but their respective speed of change between 2008 and 2013 showed marked differences, Singapore being way ahead of the Netherlands in this respect. The Dutch government’s austerity measures beginning in late 2010 reduced investment in some parts of the digital ecosystem, prompting investors to look elsewhere. In contrast, Singapore has always demonstrated a strong desire to be a digital hub in Asia-Pacific and has invested on an ongoing basis to ensure this continues to be the case. High quality IT infrastructure together with fruitful public-private partnerships mean that innovative startups and venture capital are very much part of the local scene.
India scores low on the DEI, i.e. in terms of its readiness for a digital economy. Nevertheless its e-commerce sector alone shows a level of dynamism that puts some of the more developed economies in the shade. In 2014, $3.5 billion poured into India’s e-commerce sector, where there are over 200 innovative startups, such as local companies Snapdeal and Flipkart, operating. IT research and advisory specialist Gartner Research is predicting 70% growth there, to $6 billion, in 2015. For a country where cash is still king, the digital marketplace is innovating at a remarkable pace, but its weak infrastructure – e.g. limited access to the Internet in some regions – puts the country into the ‘Break Out’ category (see below).
Developing countries still short on infrastructure
The researchers assigned the countries they analysed to one of four categories they call ‘trajectory zones: Stand Out, Stall Out, Break Out, and Watch Out. Break Out countries include economies such as Brazil, China, Vietnam and Malaysia. They are in the top 10 countries as regards the speed at which they have been moving towards a digital economy, but to date they lack the necessary infrastructure to support further transition. The BRICS in this category are faced with having a huge and diffuse internal market which has some difficulties keeping abreast of the changes being generated by digital technology. In these cases, educating domestic customers is a big part of the challenge. Next in line in terms of speed of change are the countries in the Watch Out zone. These currently have rather low digital development scores and have plenty of limitations to overcome, especially as regards political stability. Russia and Egypt fall into this category. Their commitment to reform is low, although their large populations make them highly attractive to investors.
Next there are the Stall Out countries, those which have achieved high levels of evolution in the past but are now losing momentum and risk falling behind. Among these we find France, Denmark and Belgium, i.e. developed economies where digital transformation seems to be running out of steam. Lastly the Stand Out countries do just that – they stand out. They have shown high levels of digital development in the past and continue to remain on an upward trajectory. The United States, Switzerland and the United Arab Emirates are in this category. In the future, countries in the Stand Out zone could well come from todays’ emerging economies but they will need first of all to meet the need for infrastructure and the challenge of educating their own consumers.