DIGITAL ECONOMICS

Done By Muhammad Uzair

Roll No # 260

Submitted To Sir Zia Ullah

Department IBMS

Discipline BS (CS)

Section “E”

Session 2020

Institution
AGRICULTURE
UNIVERSITY PESHAWAR

DIGITAL ECONOMY OR DIGITAL ECONOMICS

Digital economy has a significant implication in business transformation and
creation of new digital businesses. Moreover digital economy offers great
opportunities for small and medium enterprisess. However, this does not
mean that they will definitely have success in the new conditions and
electronic market. We should emphases that the growth of the digital
economy means that computers operate in conditions of constant and global
competition. The best way to be safe and to avoid possible errors in this
direction is to understand the interrelationship between business risks and
opportunities that information technology offers. An example is Amazon.com's
digital company which in 1996 brought business in computer networks or the
Net, where companies presenting catalogs as brochures, orders received,
make payments, accept returns of assist the customers to process business
transactions through the Internet. In other words, Amazon provides an
example of an electronic market to a private enterprise. Therefore,
economically can be explained that the investment in information technology
infrastructure almost always turn to increased productivity and profitability of
the enterprise. Using information and communication technology (ICT)
contributes significantly to the growth and development, because it raises
productivity and work efficiency by enabling creativity and stimulate
innovation, and most importantly helps the penetration and the existence in
global markets. ICT enables the participation of all stakeholders in the
programs and projects regardless of their location and physical distance, if
available and have access to the network infrastructure of ICT. Enterprises are
often motivated to apply IT in business processes, if it is necessary in internal
business processes for better quality information or even the impact on
competition. Business processes are a series of activities that transform inputs
into outputs, goods, and services. Enterprises are required to improve business
processes to stay competitive in today’s market. During the last 10- 15 years,
companies have been forced to improve their business processes, because we,
as clients are demanding products and services better. And if we do not get
what we want from a supplier, we have many to choose from other business
competitors. Therefore, many companies begin the process of improving
business performance with a continuous improvement model. This model
made efforts to understand and measure the actual business process and its
performance accordingly. This method for improving business processes is
effective. However, during the last 10 years, several factors have accelerated
the need to improve business processes with the most appropriate method.
Internet technology and its use of which has rapidly increased competition, the
opening of global markets and creating opportunities for free trade has
extended enterprises make changes in performance and speed of introduction
in the market with products and services. The aim of this paper is to present
the importance of electronic business, computerization trends which has
changed the economy, society and politics. This is the main reason why
enterprises today in tighter competition are orientated towards the market
and to fill up the requirements of the buyers. So, the aim is to describe digital
economy, opportunities of Internet usage for business to achieve strategic
advantages compared to their competition and how can facilitate the
movement of goods and services from producers to customers.

DIGITAL ECONOMY: Refers to an economy that is based on

digital computing technologies, although we increasingly perceive this as
conducting business through markets based on the internet and the World
Wide Web. The digital economy is also referred to as the Internet
Economy, New Economy, or Web Economy. Increasingly, the digital economy is
intertwined with the traditional economy, making a clear delineation harder. It
results from billions of everyday online connections among people, businesses,
devices, data, and processes. It is based on the interconnectedness of people,
organizations, and machines that results from the Internet, mobile technology
and the internet of things .
Digital economy is underpinned by the spread of Information and
Communication Technologies (ICT) across all business sectors to enhance its
productivity. Digital transformation of the economy is undermining
conventional notions about how businesses are structured, how consumers
obtain services, information’s and goods and how states need to adapt to
these new regulatory challenges
According to Thomas Mesenbourg (2001) three main components of the
Digital Economy concept can be identified:

 E-business infrastructure (hardware, software, telecom, networks,

human capital, etc.
 E-business (how business is conducted, any process that an
organization conducts over computer-mediated networks),
 E-commerce (transfer of goods, for example when a book is sold
online.
1 The global digital economy comes of age. The internet has set in
motion a third wave of capitalism that will transform many aspects of
the global marketplace—from consumer behavior to new business
models. Mobility, cloud computing, business intelligence and social
media underpin this shift, which is taking place in both developed and
developing economies.

2 Industries undergo digital transformation. As a result of the maturing

digital economy, companies across a range of industries have seen their
business models upended as they contend with the twin forces of
technology and globalization. Over the next five years, many sectors,
including technology, telecommunications, entertainment, media,
banking, retail and healthcare, will continue to be reshaped through the
application of information technology.

3 The digital divide reverses. With economic power shifting to the East,
cash-rich companies in the developing world are now investing heavily in
technology—often outpacing their counterparts in developed markets.
CEOs in advanced economies will need to deal with a new competitive
challenge— aggressive technology-charged firms from emerging
countries.

4 The emerging-market customer takes center stage. Rapid economic

growth, along with rising populations and income levels, are putting
emerging markets at the center of corporate growth strategies.
Customers in emerging markets—including the consumer, business and
government sectors—offer huge opportunities for Western companies
that can adapt to their needs.

5 Business shifts into hyperdrive. The ever-changing global

marketplace, fuelled by fast-growth economies and new technology, has
accelerated the speed of most business activities, from product
development to customer response. Real-time business intelligence and
predictive analysis will be required not only for faster decision-making,
but to cope with unexpected market risks and opportunities.
 The economic impact of digital economy

The Digital Economy is worth three trillion dollars today. This is about 30% of
the S&P 500, six times the U.S.’ annual trade deficit or more than the GDP of
the United Kingdom. What is impressive is the fact that this entire value has
been generated in the past 20 years since the launch of the Internet.
It is widely accepted that the growth of the digital economy has widespread
impact on the whole economy. Various attempts at categorizing the size of the
impact on traditional sectors have been made
The Boston Consulting Group discussed “four waves of change sweeping over
consumer goods and retail, for instance.
In 2012, Deloitte ranked six industry sectors as having a “short fuse” and to
experience a "big bang” as a result of the digital economy.
Telstra, a leading Australian telecommunications provider, describes how
competition will become more global and more intense as a result of the
digital economy
In 2016, the Digital Economy represented $11.5 trillion, or 15.5 percent of
global GDP – 18.4 percent of GDP in developed economies and 10 per cent in
developing economies, on average. It found that the digital economy had
grown two and a half times faster than global GDP over the previous 15 years,
almost doubling in size since 2000. Most of the value in the digital economy
was produced in only a few economies: the United States (35 percent), China
(13 percent) and Japan (8 percent). The EU together with Iceland, Liechtenstein
and Norway accounted for another 25 percent

Impact on Retail:
The digital economy has had a substantial impact on retail sales of consumer
product goods. One effect has been the fast proliferation of retailers with no
physical presence, such as eBay or Amazon. Additionally, traditional retailers,
like WalMart and Macy's have restructured their businesses to adapt to a
digital economy. Some retailers, like Forever 21, have declared bankruptcy as a
result of their failure to anticipate and adapt to a digital economy. Others, such
as Bebe stores have worked with outside vendors to completely convert their
business one that is exclusively digital. These vendors, such
as IBM, Microsoft and Branded Online, have enabled smaller retailers to
compete with large, multi-national established brands

The importance of digital economics

The digital economy is developing rapidly worldwide. It is the single most
important driver of innovation, competitiveness and growth, and it holds huge
potential for entrepreneurs and small and medium-sized enterprises (SMEs).
Unfortunately, only two percent of European enterprises are currently taking
full advantage of new digital opportunities. How businesses adopt digital
technologies will be a key determinant of their future growth.

New digital trends such as cloud computing, mobile web services, smart grids,
and social media, are radically changing the business landscape, reshaping the
nature of work, the boundaries of enterprises and the responsibilities of
business leaders.

These trends enable more than just technological innovation. They spur
innovation in business models, business networking and the transfer of
knowledge and access to international markets.

Two billion people are currently connected to the internet and by 2016, this
number will exceed 3 billion – almost half of the world’s population.
Businesses that fail to get digitally connected will become excluded from the
global market.
The huge potential of the digital economy is underexploited in Europe, with
41% of enterprises being non-digital, and only two percent taking full
advantage of digital opportunities.

Just engaging with customers online seems to create growth: figures have
shown that SMEs from many countries that have actively engaged with
consumers on the internet have experienced sales growth rates that are up to
22 percentage points higher over three years than those companies in
countries with low or no internet presence. By not taking full advantage of
digital technologies, EU businesses miss out on the chance to expand and
create jobs. It is estimated that if all EU countries mirrored the performance of
the USA or the best-performing EU countries, 400,000 to 1.5 million new jobs
could be created in the EU internet economy.

Features of digital economy

The digital economy is unevenly distributed :
There is uneven distribution between global North and global South. For
example, McKinsey figures estimate the Internet economy in 2010 contributing
3.4% of developed country GDP but only 1.9% of “aspiring country”10 GDP,
with the former contributing 78% and the latter 22% of the overall Internet
economy (Manyika & Roxburgh 2011, Gnanasambandam et al. 2012). Figure 4
shows the data for 2012, with the GDP share of the Internet economy in Africa
well below that of other country groupings at just 1.1% (Manyika et al. 2013).
Likewise, three-quarters of global e-commerce was accounted for by the US,
UK, Japan and China (UNCTAD 2015).

There is also uneven inter-regional distribution. For example, the US

dominates the global North’s digital (IT/ICT) sector, taking around one quarter
of the global total (ITA 2017). Within the US, this contributes 7.1% of GDP11
which is well above the OECD average (ibid.). The same applies in the global
South. Using McKinsey’s figures (du Rausas et al. 2011), two-thirds of Internet
economy GDP in aspiring countries came from the four BRICs (see also Figure
4). Digital economy leaders include India (with more than 7% of GDP
estimated to come from the IT sector alone (Nasscom 2016)) and the
Philippines (with more than 7% of GDP estimated to come from the BPO sector
alone (Chang et al. 2016)).
The digital economy is growing faster than overall economies,
especially in the global South:
The greater size of the digital economy in the global North means its past
impact on overall economic growth has been larger there. For instance,
McKinsey data estimates that the Internet contributed more than 20% of GDP
growth in developed economies during the five years to 2011, more than 10%
in the large emerging BRICs economies, and more than 5% in other aspiring
countries (Manyika & Roxburgh 2011). Looking more broadly World Bank data
estimates that ICTs accounted for 17% of GDP growth in developing countries
in the previous ten years but that this impact was more constrained than in the
global North (World Bank 2016).

Digital economy growth rates everywhere are faster than the total economy
growth – so the digital economy is growing as a proportion of the overall
economy – with current growth rates particularly high in the global South. For
example, the Internet economy in the G20 is said to be “growing at 10% a year
– significantly faster than the overall G20 economy. The growth is even higher
in developing economies, at 15-25% annually” (WEF 2015). Looking at specific
or related elements, the fastest growth of e-commerce is in the global South
(UNCTAD 2015), the fastest growth of crossborder links is in emerging
economies (Manyika et al. 2016), and main growth in the mobile sector is
coming from the global South (GSMA 2016).

This pattern of greater-than-global-average growth in the global South looks

set to continue. For example, Accenture (2017) predicts 5% annual growth in
the global digital economy to 2020, lifting it to 25% of global GDP, but future
annual growth rates in developing countries are typically cited as double-digit
(e.g. Statista 2017a, Statista 2017b). Growth potential in developing countries
is identified as even greater, such as claims that growing the Internet to the
size of the mobile sector in Africa would lead the Internet economy to form
10% of African GDP by 2025 (Manyika et al. 2013), or the claim that doubling
adoption of ICTs at the base of the economic pyramid would lead to a net
global gain of US$6.3tn in GDPand create 77 million new jobs within a decade
(El-Darwiche et al.2012). Yet there are significant barriers to realising this
potential.
The digital economy contributes significantly to employment:
The digital economy contributes significantly to employment. The digital
(IT/ICT) sector is estimated to account for around 1% of the workforce in
developing countries, and nearly 4% in the global North; perhaps around 2.5%
of the global total (OECD 2014, World Bank 2016). This would suggest around
3% of the global workforce in the digital economy as per definition. there are
significant exceptions in the global South. For example, around 2m workers
(just under 5% of the workforce) in the Philippines are estimated to be working
online, with at least half of those working in call centres (Vidaurri 2015, Lund &
Manyika 2016). And there are estimated to be just over 3m workers directly
employed and a further 7-10m indirectly employed via the Indian IT sector in
2014 (Heeks 2015), while an estimated 6m in total are employed directly and
indirectly as a result of the Indian Internet economy (Gnanasambandam et al.
2012).

Despite future concerns about automation, the general narrative is of

employment creation via the digital economy. McKinsey data (Nottebohm et
al. 2012) claims that, globally, the Internet creates 3.1 jobs for every job that it
destroys, with this effect higher in aspiring economies (3.2 created) than in
developed economies (1.6 created); and with digitisation claimed to have
created 17m jobs in emerging economies just between 2009 and 2011 (El-
Darwiche et al. 2012). As with many other figures, there are suggestions that
employment statistics for the digital economy are underestimates. To offer
just one example, OECD figures put ICT sector employment at 4.5% of the UK
workforce but more direct estimates put the figure at 11% (House of Commons
2016).

Labour productivity in the digital economy is generally higher than that in the
overall economy. For example, labour productivity was US$90,000 per head in
the general economies of the OECD, and more than US$160,000 per head in
the ICT sector (OECD 2014), which fits roughly with the idea of nearly 4% of
employment but more like 6% contribution to GDP/value added. The specific
ratio will depend on the digital economy sub-sector: productivity levels were
160% above those of the total economy in telecommunications services but
only 21% higher in IT services The ratio may be higher in developing countries:
for example, in India average labour productivity per worker in the mid-2010s
was around US$10,000 but in the software industry was more than US$37,000
(Heeks 2015).