Policy by the Numbers: To grow the Internet economy, focus on small businesses

To grow the Internet economy, focus on small businesses

Friday, January 27, 2012

Over the past year and a half Google has invested significant resources in studying the impact of the Internet on economies around the world, the highlights of which are illustrated at www.valueoftheweb.com.

But we didn't have any insight into the Internet's impact on less developed economies. For example, how does the Internet’s impact on the economy in Turkey or Mexico compare with its impact in France? McKinsey & Company recently analyzed the economic impact of the Internet in 30 “aspiring” countries with both the scale and dynamism to be significant global players in the near future.

Roughly half the world’s Internet users are in aspiring countries according to McKinsey. But 64% of the people in these countries aren’t even online yet! That means there is enormous opportunity to increase Internet penetration in these markets, and in fact, penetration has been growing at 25% per year for the past five years. This growth potential is not limited to users, either—143,000 Internet-related businesses are created every year in these countries.

What should policymakers in these countries do to support the growth of the Internet economy? First and foremost, focus on getting small businesses online. 1.9 million jobs are already associated with the Internet in aspiring countries, but it’s astounding how quickly job growth occurs in comparison to more developed markets. Whereas in European countries we see 2.4 jobs created per job lost, this statistic jumps to 3.2 jobs created per job lost in the SME sector in aspiring countries. In a survey of SMEs across eight aspiring countries, McKinsey found that those spending the most on Web technologies have grown nine times as fast as those spending the least over the past three years.

A few minor policy changes would make it easier to get SMEs online in aspiring countries. First, governments should take steps to reduce the cost of doing business online. It cost $143 to register a domain in Malaysia, compared to $24 in the United States. In Nigeria, it takes 31 days to start a business, compared with seven days in Egypt. Making it more affordable for small businesses and entrepreneurs to get started and online quickly will have an immediate impact. Second, we need to encourage the development of human capital and improve access to financial capital. Digital literacy is low in countries like Morocco and Hungary, while Argentina lags behind its peers in access to loans and venture capital—barriers that lead to fewer people starting businesses online. Finally, access to the Internet in general needs to be more affordable and open. The baseline cost of access to the Internet in Turkey is almost twice the Central and Western European average, while half of Mexicans surveyed cite the cost of access and hardware as the primary barrier to getting online.

It’s clear that the Internet is quickly becoming a critical part of growing the economy for both developed or aspiring countries. Adopting the right policies to facilitate innovation should be top of mind for anyone considering Internet regulation.

posted by Betsy Masiello, Policy Manager at Google

Policy by the Numbers

To grow the Internet economy, focus on small businesses

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