Business brief: The ascendancy of digital trade: A new world order?
We are so used to all things digital that we can sometimes lose sight of just how enormous the phenomenon has become, and how disruptive it can be. The bit volume of cross-border digital flows has grown by 45 times in the past decade. An estimated 211 terabits of data, which is the equivalent of 8,500 entire Wikipedias, flow across borders every second. Approximately 12% of global consumer goods trade is now conducted via international e-commerce. Some 50 million small companies are now on Facebook alone, double the number in 2013.
This data torrent is changing the nature of globalisation–and may shift the balance of global economic power. Recent research from the McKinsey Global Institute (MGI) shows that the value of data flows has overtaken the value of global trade in physical goods. Together, global flows of goods, services, finance, people, and data have raised world GDP by at least 10% in the past decade, adding US$7.8 trillion in 2014 alone. Data flows accounted for $2.8 trillion of this value–and this is only the start of global digitisation.
Harnessing the power of digital should be a top priority for policy makers and business everywhere. One way to unlock more cross-border e-commerce is by addressing issues such as ease of single payments systems, co-ordination of tax issues, and integrated logistics. On the supply side, building local ecosystems between entrepreneurs, universities, and companies, and developing talent able to code or manage big data can give birth to a generation of “unicorns” in Stockholm, London, Berlin, or Paris. Meanwhile, the world’s biggest digital platforms such as Alibaba, Amazon, eBay, Flipkart and Rakuten, are turning millions of small enterprises around the world into “micro-multinational” exporters. Companies everywhere can overcome constraints in their local markets and connect with global customers, suppliers, financing and talent. These shifts are feeding back to the world of physical goods. Many firms are simplifying and shortening global supply chains where possible. For a range of goods, labour costs are no longer the biggest concern, as automation takes hold.
The transition from the physical to the virtual would seem to favour the United States, the world’s leading producer of digital platforms and content. The US accounts for more than 50% of online content consumed in every region of the world except Europe. China is not sitting still. Alibaba has built a global hold on B2B, spawning vast networks of small companies–and recording the largest stock market launch in history in the process.
Will other developing countries, which long vied for the world’s low-cost manufacturing business to climb the developmental ladder, lose out? What about Europe, especially countries like Germany that built their wealth on large physical export industries?
EU countries today occupy 19 of the top 25 slots in MGI’s global ranking of participation in cross-border data flows. The Netherlands tops the list, having made smart moves such as adding a virtual data leg to its harbour infrastructure. But a closer look shows three negatives: first, a steep drop-off in the MGI ranking scores for the majority of EU countries; second, Scandinavia, Belgium and southern European countries are slowly migrating to the periphery of those data flows; third, the size of all domestic data activity in the 28 EU countries is smaller than the total data flow import from the US.
The winners of this new era will be the well-connected and the digitally literate. That means investment in infrastructure, education, and skill training is more important than ever. For companies, countries and individuals everywhere, the opportunities created by digital flows beckon, waiting to be seized.
is a sponsor of OECD Forum