Google report: How does e-commerce affect developing countries?
How does e-commerce affect developing countries? Google was curious about that question and others when the company commissioned the Boston Consulting Group (BCG) to analyze the “nature and size of commercial activity on the Internet” and its overall impact on Russia’s economy. “Russia Online: How Internet is Transforming the Russian Economy” was released this month and indicates, among other things, the tremendous potential for growth in Russia’s Internet economy.
Besides asking how does e-commerce affect developing countries, the report addresses these primary topics:
- The size of the Internet economy in Russia and its growth prospects;
- The impact of the Internet on the development of industries and companies; and
- How businesses and individuals benefit from the Internet.
Top 5 points from the report:
1. The Internet has a direct impact on Russia’s GDP: In 2009, the estimated contribution of the Internet to Russia’s GDP was $19 billion (or 1.6 percent of its overall GDP). The report notes that although the figure may seem small compared to the revenue of other larger Russian brick-and-mortar companies, that value was reached despite low broadband penetration and underdeveloped e-commerce. The Internet’s potential to drive future growth then is vast and stretches across all sectors, including consumption, private investment, government spending and net exports.
2. The Internet’s impact in Russia extends far beyond GDP alone: Consumer economic impact (e.g. e-commerce), business economic impact (e.g. business-to-business sales over the Internet) and broader social impact (e.g. social media sites) are all key drivers in Russia’s nascent Internet economy and vital measures of growth even though they may not be reflected in overall GDP.
3. Russia’s major barrier to Internet growth lies in its “digital divide”: Inconsistencies in Russia’s regional infrastructure hinder its overall growth. The report fleshes out the vast differences in Internet penetration around the country.
4. The Internet in Russia has “reshaped” industries: The report outlines how the retail and the public service industries have shifted dramatically as a result of the Internet, offering examples such as OZON.ru, Russia’s version of Amazon.com; the food retail sector’s 7th Continent and e-government initiatives across Russia. The report also discusses the potential for growth in the travel and tourism industries.
5. The Internet will continue to greatly impact small and medium-sized enterprises (SMEs), which are vital to Russia’s economic growth: The report notes a “diversified and well-balanced economy cannot survive without SMEs.” In recent years, many SMEs in Russia have developed as a result of the Internet. The Internet provides SMEs with key tools larger companies have always had access to, including sales and marketing channels, ways to expand global reach and ways to “automate” company processes. In Russia, SMEs comprise 25 percent of total corporate revenues per year. The report carries several compelling examples of SMEs in Russia that have flourished as a result of the Internet include:
- Ecwid: Founded in 2010, Ecwid is a software solution for online retail development. With Ecwid’s software, a company can upload a store Website onto a Webpage or social media site in a short period of time. Ecwid can be used by both new and existing businesses, which drives online sales as well as the development of smaller retailers.
- Avito: Founded in 2007, Avito is Russia’s largest platform for free classified advertising. In 2010, the estimated value of goods sold with Avito’s help exceeded $3 billion.
- Wikimart: Founded in 2009, Wikimart is a site hosting more than 2,000 stores that together offer 555,000 products and attract more than 100,000 visitors daily.
In conclusion, the report offers a bullish outlook for the “rapid future growth” of Russia’s Internet economy, stating it could potentially account for up to 3.7 percent of GDP by 2015. The report also outlines specific policy recommendations to maximize the Internet economy’s growth, including updating Internet infrastructure, introducing legislation to foster Internet use by individuals and businesses and improving overall e-commerce in Russia.
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