Countries which removed barriers to business activity on the internet had expanded the reach of SMEs to sell and source products and services, a global study has found. But countries which failed to reduce “friction” for e-commerce were in danger of missing out on a high-impact propellant of growth and job creation.  

Digitally driven economic growth was one of the few bright sides in the global economy, found a recent  study conducted by the Boston Consulting Group. The study examined the extent to which countries had greater or less friction in the internet economy.

“E-friction” factors restricted consumers, businesses and others from full participation in the internet economy. SMEs performed better when e-friction was reduced, the study found. SMBs that were heavy web users were 50 percent more likely to sell products and services outside of their immediate region and 63 percent more likely to source products and services from farther afield than medium or light web users.

Small and midsized enterprises needed to understand these “e-frictions” and how they slowed down Internet economic activity, the study said.

The BCG e-Friction Index identified 55 e-frictions categorised in four components that prevented consumers, companies and countries from realising the internet’s full benefits.

1. Infrastructure-related friction. Limitations to basic access to online activity.

2. Industry-related sources of friction. Shortages of capital, skilled labor held back successful online business operations and the development of digital businesses.

3. Individual friction. Payment systems and data security were two examples which affected the degree to which citizens and consumers engage in online activities.

4. Information-related friction. This included volume of content available in local languages, a country’s commitment to internet openness and obstacles to accessing certain types of content.

Infrastructure was the most significant friction related to the hindrance of the internet economy. Sources of friction included ready accessibility to the internet such as fixed and mobile broadband connections, bandwidth speeds, and the number of networks and internet service providers.

Sweden’s internet economy had less e-friction than any other country with a score of 14; Nigeria, at 82, had the most of the 65 countries covered. Australia had low e-friction with a score of just over 25, in 14th place, ahead of New Zealand ranked at 17 and Japan at 21.

The internet environment accounted for a larger share of the overall economy in low-friction countries, such as Australia and the United States than it did in high-friction countries, such as China and India. Greater use of the internet potentially boosted growth and employment.

Key points to be considered for small and midsized enterprises to further productivity:

• Because the digital economy grew quickly, high e-friction countries were in danger of missing out on a high-impact propellant of growth and job creation.

• High-friction countries that addressed their sources of e-friction have the potential to add significant value to their economies.

• Countries with low e-friction scored well in all four components, with strong infrastructure, supportive business and regulatory environments created vibrant Internet economies.

• Problems related to basic access, price and speed were widespread, as were shortcomings related to capital, labor and consumers’ ability to conduct business online.

Policies that promoted investment, especially in infrastructure, were essential to speeding up internet usage. Personal data was another area of concern. A lack of trust of internet-based companies inhibited online interaction in many markets.