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Economy 30 May 2015

Breaking economic boundaries with the Internet

Noelle Francesca De Guzman
By Noelle Francesca De GuzmanSenior Advisor, Policy and External Engagement

Things are looking up for the Internet economy in Asia-Pacific. The region, now the largest e-commerce market in the world, is also home to fast-rising, locally grown Internet firms like Alibaba, whose net value is now greater than Amazon’s and Ebay’s combined. These trends correlate with projections by research firms like the Boston Consulting Group, which predicted that by 2016, the Internet will account for 8% of South Korea’s GDP, nearly 7% of China’s GDP and over 5% of Japan’s.

Size-wise, the global Internet economy is said to have surpassed other key industries such as energy and agriculture. Most of its value, as McKinsey’s Sizing the Internet Economy report illustrates, falls out of the technology sector, with companies in more traditional industries capturing 75% of its benefits.

The scope and scale of this new frontier is not lost on the region’s governments. At the APEC Symposium on the Internet Economy, organised by the Pacific Economic Cooperation Council and held alongside the 2nd Senior Officials’  Meeting in Boracay, Philippines this month, leaders called attention to the Internet’s increasingly visible role in transforming business segments that were previously thought to have little to do with cyberspace.

This has several implications on policy. As the Internet economy extends its ambit to other economic areas, previously discreet spheres of regulation, such as transportation and trade, will to a greater extent affect and be affected by measures to limit or foster the Internet’s development. Policymaking in this progressively cross-cutting environment, even for issues such as radio spectrum allocation for smart cities, will need to involve not just the telecommunications sector but a wider variety of state agencies, commercial players, field specialists and other stakeholders.

The Internet economy presents an opportunity not only to breed new types of industry but also to revitalise old ones. In agriculture, for instance, connected sensors and applications not only can help farmers bump up their yields and reduce waste, but also allow them to explore and expand their market base. Congruently, strategies to encourage ICT use in different economic domains must be complemented by other ‘offline’ tools, such as capacity-building programmes to teach farmers how to properly package their goods, for the Internet to truly have a positive impact on these processes.

For many start-ups in the region, the Internet’s power lies in its ability to disintermediate—allowing producers to sell directly to consumers, and investors to finance creators at a global scale with minimal transaction and distribution costs, and less bureaucratic friction. But as it stands, the online environment is still very much an untapped jungle for many micro and small entrepreneurs.

While SMEs comprise some 99% of ventures in countries like Malaysia and the Philippines, less than 1% of SMEs worldwide have an online presence. And those who do continue to face a lot of hurdles. E-hailing mobile app GrabTaxi, which operates in six countries in Southeast Asia, stresses that the region’s disparate legal regimes creates uncertainties for businesses with cross-border operations. Meanwhile, retail facilitator We-shop Asia, which matches global e-commerce portals with local merchants, laments the persistence of outdated customs regulations, which include exacting wholesale duties for items bought by consumers for personal use.

Indeed, the lack of common and coordinated frameworks in Asia-Pacific could potentially negate the benefits of the Internet to enterprises by imposing additional compliance and operational costs, and causing unnecessary inefficiencies, making it unaffordable for startups—most of which have limited resources—to do business, but also deterring further economic innovation.

More fundamental issues need to be addressed. With opportunities for socio-economic and human development becoming more intricately tied with the digital world, access to the Internet becomes more integral to ensuring inclusivity, and preventing the emergence of a two-track economy. For many countries in the region, this means more investment in infrastructure—both in international bandwidth and domestic network coverage as a way to push Internet wholesale and retail prices down, and to reach out to unserved and underserved populations.

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Disclaimer: Viewpoints expressed in this post are those of the author and may or may not reflect official Internet Society positions.

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