Synopsis: Entrepreneurship:


E-commerce, omni-channel retail and EU policy.pdf.txt

It offers major new opportunities in many sorts of ways for businesses which serve consumers.

offers new ways to interact with their customers and to serve them through different channels

Although each channel retains the unique characteristics that compel customers to engage with it †be specialized that a or expanded merchandise assortment, a compelling and

services were bought by consumers online, an 18%growth over the year before. These numbers represent a small percentage (3. 5%)of all B2c sales,

By 2020 retail will have changed dramatically †driven by consumer demand and by technological advances †irrespective of any policy direction.

increasingly, services ï Significant development of digital commerce, including multi-channel and mobile ï More sophisticated and personalised communication with the consumer

ï Greater accessing of international markets by consumers and by businesses to source products, particularly facilitated by e-commerce

digital environment and with distance selling, establishing trust can be more difficult than in a

physical environment where there is more direct person-to-person interaction between buyer and seller. This poses a challenge for consumers in determining whether the e-commerce

ï with easy access to an opportunity for mediation, arbitration, and redress ï in a language they understand

or services offered are in compliance with EU-law to make available information requirements in an understandable and sensible way;

and consumers live in an environment where the diversity of culture, tradition, lifestyle, and language is a source of richness.

for the diversity of commerce business models in the digital age Infrastructure and skills For e-commerce and omni-channel retail to flourish throughout the EU, improving mutual

ensure that every European citizen is comfortable in the digital environment and businesses find the right talents easily

business environment and the digital economy. Or it creates a bias and competitive advantage for one channel over another.

1. 7. Freedom for a business to trade or not †Art. 20 (2) Services Directive

provide the necessary talents for e-businesses (jobs and enterprise creation 7 of 16 3. 3. Push for more use of digital processes in regional, national and EU government

-Create legal certainty on the freedom to trade or not to trade †Art 20.2 of Services

-Help deliver affordable and reliable parcel delivery services(#2. 3 2. MID-TERM ACTIONS (2016-2019

shape the right policy and legislative environment for the future of commerce, for the benefit

and in all institutions to help shape this environment 8 of 16 ANNEX: EU POLICY CONTEXT AND SPECIFIC RECOMMENDATIONS

This includes information about their customers. To deliver good services and meet consumers†expectations, retailers need to know their customers and their preferences

To ensure delivery of the right product at the right time and avoiding waste, retailers and

wholesalers have, over the years, developed very sophisticated systems to manage data about products, stocks, logistics, and consumers.

Therefore, retailers and wholesalers pay attention to satisfy their customers all the time. In the rare cases where customers are satisfied not

and a dispute arises, these are resolved mostly between retailers and consumers bilaterally. For the very few cases where they do not

With the digitisation of the economy and the gathering of data, a number of online-specific

the products and services they want to buy, their comparative prices and qualities, the merchants that are offering them,

and the opinion of customers who have bought them. These instruments are known as: comparison websites/tools, trustmarks, review tools

1 Also see the Commissions communication on the proposed Data protection Package: http://ec. europa. eu/justice/newsroom/data protection/news/120125 en. htm

different VAT-levels, different levels of guarantees, services, delivery, payments (costs), etc. On the other hand, comparison websites should be clear about

potential consumers that they deliver high quality products and services. But it is important to protect brands or businesses against non-genuine reviews (good or bad) by businesses or their

The market must change to allow more competition, innovation and the emergence of up-to-date digital models.

the revisions to the Payment Services Directive must achieve three main goals in terms of promoting e-commerce:(

and flexible enough to embrace the new business models that the e-commerce market requires Harmonisation and standardisation:

their customers can use. All payment channels must operate with equal ease and security Therefore a coherent set of standards for SEPA payments must be devised which strikes a

payments, which promotes competition and innovation and makes full use of emerging technologies. It should therefore adopt the Payments Services Directive II and the MIF

Regulation to provide 1) easier market entry for new providers through access to banking infrastructures, 2) cross-border acquiring, 3) elimination of other anti-competitive rules by

to population data, address verification services, 3dsecure, and better security education of consumers 1. 7. FREEDOM TO TRADE (OR NOT

-discrimination†principle in the Services Directive does not oblige businesses to deliver everywhere in the EU. To push for more cross-border sales, the European union should

and business models of commerce; this means avoiding exclusive rights or obligations, and therefore a competitive (dis) advantage to one or the other retailer

in a way that they can easily benefit from cross-border business opportunities Digital Single Market Test

hampered business opportunities, or created an unlevel playing field for any channel/form of commerce 2. 2. LACK OF HARMONISATION OF PRODUCT REQUIREMENTS †LACK OF MUTUAL

opportunities Recommendation 10: The harmonisation of product requirements should be tighten up-The EU must strengthen the application of the principle of mutual recognition of product testing

should encourage vigorous competition and innovation in the postal market and tackle cross-border barriers by pursuing a sensible approach on parcel delivery.

impede a trader†s ability to comply with consumer demand, and prevent retailers to offer

channel supply constraints are in line with EU competition law, and that exclusive/selective distribution is allowed only under strictly limited and legally explicit conditions

For a digital environment to be effective for e-commerce across the EU, ICT systems need to

and sell products and services for granted. A consumer walks into a store, can touch and feel what he/she wants,

or services you can ask the merchant. We immediately understand how to pay and what to do if the product or service does not meet expectations.

mobility, the internet is provided a blessing they have the opportunity to learn how to use it


Economist Intelligence Unit_Reaping the benefits of ICT_2004.pdf.txt

the Economist Intelligence Unit sponsored by Microsoft  The Economist Intelligence Unit 2004 1 Reaping the benefits of ICT

Europe†s productivity challenge Acknowledgements 3 Executive Summary 4 Introduction 7 Part I The economic impact of ICT 8

2 Â The Economist Intelligence Unit 2004 Â The Economist Intelligence Unit 2004 3 Reaping the benefits of ICT

Europe†s productivity challenge Reaping the benefits of ICT: Europe's productivity challenge is an Economist Intelligence Unit white

paper, sponsored by Microsoft The Economist Intelligence Unit bears sole editorial responsibility for the content of the report.

The findings and views expressed in this white paper do not necessarily reflect the views of the sponsor

strength of ICT's impact on economic growth based on a cross-section model of 60 countries â We ran a survey of 100 senior executives on the

Economist Intelligence Unit produced the cross -section model that underpins some of the key findings

4  The Economist Intelligence Unit 2004 Reaping the benefits of ICT Europe†s productivity challenge

its substantial investment in information and communication technology (ICT) into greater economic gain ICT has played a central role in helping the United

States to achieve remarkable productivity gains since the 1990s. Sadly, this success in harnessing ICT has

behind on key measures of economic growth and productivity. This leaves Europe†s policymakers and business leaders wrestling with two puzzles.

hasn†t heavy investment in ICT delivered the economic growth and acceleration in productivity experienced in

ICT investment translated into faster growth and productivity This report explores why Europe struggles to

â First, the Economist Intelligence Unit conducted empirical research to investigate the strength of ICT€ s impact on economic growth, based on a

cross-section model of 60 countries. The report also makes extensive use of the Economist Intelligence Unit†s international business

environment rankings â Second, we conducted a survey of 100 senior executives on the commercial challenges of

harnessing ICT to deliver increased productivity and growth. The survey participants include a mix of small and large organisations drawn from 18

developed economies. The Economist Intelligence Unit†s cross-section analysis of 60 countries confirms the general view that ICT is linked strongly to

economic growth in developed countries. At the same time, the impact of ICT is weak in emerging markets

and our analysis suggests this may be because ICT begins to deliver GDP per head growth only after a

 The Economist Intelligence Unit 2004 5 Reaping the benefits of ICT Europe†s productivity challenge

and competition The Nordic countries and Ireland are the most ICT -savvy. These countries compare well with the US in

favourable business environment are grounds for optimism about the future. The performance of other European economies is mixed, with The netherlands

and Austria performing well in some areas, while the south European countries fare worst Skills, innovation and competition are crucial to

making technology work. The productivity growth gap between the US and Europe is partly down to differences

enterprises to use technology to the fullest. Alarmingly one-third of companies surveyed for this report admit

hamstring European enterprises in their attempts to put ICT to productive use Europe†s weaknesses are most acute among small

and medium-sized enterprises (SMES. SMES fare poorly compared with large firms in access to capital

economic growth and productivity gains. Big firms have no reason to be complacent, however; ICT -related management skills are lacking here too, and

6  The Economist Intelligence Unit 2004 Reaping the benefits of ICT Europe†s productivity challenge

â Competition. Governments must maintain the assault on barriers to competition, particularly in telecommunications markets.

This is particularly critical for the growth of broadband access Moreover, the benefits of enhanced telecoms

competition must be extended to businesses and consumers in the EU accession countries â ICT in the public sector. The executives we

can do much to stimulate demand for (and demonstrate the benefits of) ICT through initiatives to bring public services online.

deliver improved services and better value for money â Invigorating R&d. Nurturing R&d centres of

to enterprises Progress in each of the above areas will create a more conducive environment for innovation in Europe.

It will not be easy, particularly for organisations with an ingrained aversion to risk and change.

 The Economist Intelligence Unit 2004 7 Reaping the benefits of ICT Europe†s productivity challenge

innovation, liberalisation, entrepreneurship employment and (this being Europe) social inclusion as well as sustainable development. Yet the backdrop

part of policymakers and economists that the EU as a whole was falling behind the United states in key

measures of economic growth, most crucially that of labour productivity growth. The transatlantic productivity gap has diminished not since the Lisbon

The EU sank nearly â 1. 9 trillion into ICT capital in 1995-2001, an average growth rate of over 19%per

The optimists believe that this heavy investment in ICT will soon pay off in higher productivity and

economic growth. Our own analysis, presented later in the report, supports the hypothesis of a time lag:

business environment This report has three purposes: to assess the impact of ICT on productivity in Europe;

ICT is defined as IT hardware, software and services, and telecommunications equipment and services Part I of the report assesses the economic impact of

ICT, and is primarily based on empirical research conducted by the Economist Intelligence Unit. It includes the results of a cross-section examination of

60 countries, covering the 1995-2002 period, which attempts not only to measure the link between ICT and

from the Economist Intelligence Unit†s survey of 100 senior business executives, as well as interviews with a

8  The Economist Intelligence Unit 2004 Reaping the benefits of ICT Europe†s productivity challenge

economic growth and productivity has fascinated and perplexed governments academics and business leaders since the ICT â€oerevolution†began.

subsequent slowdown in ICT investment may have tempered wilder claims about the economic benefits of ICT, but interest in the subject remains high

The role of technology in the economy is now a subject of government policy across the globe, and

economic growth look to the example of the United States. America†s formidable growth since 1995 appears to explode the â€oeproductivity paradoxâ€, the

*Most economists believe this productivity surge can be traced in part to the benefits of ICT

economy, leading to a permanent improvement in its growth prospects. The fact that productivity growth

Some economists believe the traditional growth-accounting studies that paint ICT in such a positive light are flawed.

A new empirical study conducted by the Economist Intelligence Unit takes a different approach to the

quality of the business environment To investigate these issues, we estimated a cross -section growth model for 60 countries including 26

the business environment, or ICT and skills levels Finally, the model takes into account ICT use as well as

models that focus primarily on ICT investment indicators Using this model, together with a variety of indices

such as the Economist Intelligence Unit†s business environment rankings, it is possible to draw a number

of conclusions about the economic impact of ICT Technology does drive growth†but only after a

significant positive impact on a country†s economy Once countries reach the threshold (indicated by a

score highest in the Economist Intelligence Unit†s index of ICT enablers (see p. 11, and Appendix A

explosive broadband and mobile communications growth of the Nordic countries; Ireland†s economic miracle†has thus far been a unique story of FDI-fuelled

 The Economist Intelligence Unit 2004 9 Reaping the benefits of ICT Europe†s productivity challenge

10  The Economist Intelligence Unit 2004 Reaping the benefits of ICT Europe†s productivity challenge

time-lag between ICT investment and returns representing the time it takes for organisations to assimilate and adjust to new technology.

economies such as Europe and the US, the cross -section model suggests ICT is the main factor behind

The Economist Intelligence Unit†s forecasts of GDP growth indicate that Europe is unlikely to close this gap

Education and the business environment are crucial to making technology work ICT development is only one of the important factors

that the quality of a country†s business environment as well as its attention to specific ICT enablers such as

enablers such as skills, R&d and access to venture capital. Our research suggests that countries that have

to deliver faster economic growth European effectiveness in harnessing ICT The Economist Intelligence Unit†s research confirms

that most European countries lag significantly behind the US in key measures of ICT investment, use and

productivity growth. But figures for the EU as a whole mask stark differences among the 25 members of the

 The Economist Intelligence Unit 2004 11 Reaping the benefits of ICT Europe†s productivity challenge

several economists believe the UK is on the cusp of an acceleration in productivity growth on the strength of

business environment, is burdened by a relatively poor performance (by EU standards) in skills training and

competition, security of the Internet infrastructure, government support for ICT development, laws governing the Internet, ICT skills of the workforce and quality of ICT supporting services.

When combined, these indices provide a good measure of a country†s readiness to reap the benefits of technology

12  The Economist Intelligence Unit 2004 Reaping the benefits of ICT Europe†s productivity challenge

Three ways ICT can boost the economy 1. ICT investment. Investing in ICT goods and services

leads to capital deepening, which in turn leads to increases in labour productivity. Economists believe ICT

capital investment has made a sizeable contribution to GDP growth in many developed countries in the past decade, accounting for between 0. 3 and 0. 8 percentage

points of GDP per head growth in the OECD in the 1995 -2001 period1 Across the OECD, the share of ICT investment in total

investment has expanded over the past decade, especially in the US, Australia, Canada and the Nordic countries

Other European countries are also investing large amounts of capital in ICT goods and services. 2 ICT gross fixed capital

formation in the EU totalled nearly â 1. 9 trillion in 1995 -2001, and expanded at an average rate of 19.5%over the

period. However, Europe continues to lag behind in terms of the share of ICT investment in GDP:

in the EU in 2001 it accounted for 2. 6%of GDP compared with 4. 2%in the US

Will the high levels of ICT investment that have produced this effect be sustained in the future? Despite a dip since

2000, many economists see ICT investment growth in both the US and Europe remaining buoyant in the medium

saying they plan to increase investment in the next two years. One notable sceptic is Robert Gordon, an economist

who argues that the 1990s boom owed much to transitory factors and that the drivers of demand for ICT goods will be

weaker over the next half-decade3. On this view, ICT investment growth should still continue, but at a much

more moderate pace than in the second half of the 1990s What are your plans for investment in ICT in the next 2 years

%respondents Over 100%increase in investment 6 50-100%increase in investment 11 25-50%increase in investment 10

10-25%increase in investment 21 Up to 10%increase in investment 22 Same level of investment 25

Up to 10%decrease in investment 3 10-25%decrease in investment 2 25-50%decrease in investment 0

50-100%decrease in investment 0 ICT investment in the European union, 1995-2001 Gross fixed capital formation in 14 EU countries

in constant 1995 prices, billions of Euros Source: Marcel Timmer, Gerard Ypma and Bart van Ark, â€oeit in the European union

Driving Productivity Divergence? â€, Groningen Growth and Development Centre, 2003 0 100 200 300 400

1995 1996 1997 1998 1999 2000 2001 Software Communication equipment IT equipment  The Economist Intelligence Unit 2004 13

Reaping the benefits of ICT Europe†s productivity challenge 2. The impact of ICT production.

For the handful of countries with a big ICT-producing sector, production of ICT manufactured goods and services has made a large

contribution to GDP growth, according to most studies. The European countries that have benefited most from ICT production are Finland, Ireland and Sweden, which

manufacture large quantities of ICT hardware and software Total factor productivity (TFP) growth, an important

measure of ICT€ s impact on productivity, has also accelerated in each of these countries4

ICT-producing firms are believed to provide additional impetus to productivity growth in other sectors through the

transfer of knowledge to customers and suppliers, although this has yet to be proven. Despite this, few economists or

policymakers believe governments should intervene to create or boost an ICT-producing sector artificially. Dirk

Pilat, an economist at the OECD, argues that only a few firms can compete in this area5.

Besides, the absence of a strong ICT-producing sector is thought not to be a hindrance to reaping the productivity benefits of ICT

Contribution of ICT-using services to aggregate labour productivity growth -0. 50 -0. 25 0. 00

throughout the rest of the economy in the ICT-using sectors. This requires greater improvements in workplace

Economists studying TFP growth in Europe†s ICT-using industries have seen little (if any) sign of an acceleration

Many economists conclude that this is because of the time-lag between the point where countries invest heavily

14  The Economist Intelligence Unit 2004 Reaping the benefits of ICT Europe†s productivity challenge

largest and richest economies inevitably lead the way in harnessing ICT. Germany, for example†long the

in creating an environment fostering technology -industry expansion is a major factor in its remarkable growth story

The Economist Intelligence Unit†s forecasts suggest that, on current trend, most European countries show no sign of closing the gap in

ICT investment since the technology boom began in the early 1990s. By 2000, it accounted for about 14%of

total nonresidential capital investment in the US, and nearly 40%of overall ICT investment growth1

ICT investment in the EU as a whole has been more heavily weighted towards IT and communications infrastructure, where price declines have been

steepest. Software nonetheless accounted for one -third or more of ICT investment in the UK, France and

The netherlands in 2000, and substantially more in the Nordic countries2 Software investment tends to lag purchases of

hardware. This may explain the more rapid growth of software investment relative to total investment in the

US, where firms made an early start in deploying IT and networking infrastructure. Assuming that Europe is

playing catch up to the US in overall ICT investment and has invested heavily in hardware since the late 1990s

software vendors can probably look to good times ahead in their European markets. Software markets in western

 The Economist Intelligence Unit 2004 15 Reaping the benefits of ICT Europe†s productivity challenge

Erkki Liikanen, EU commissioner for enterprise and the information society T he empirical studies suggest that ICT has

levels of ICT investment and adoption do not, in themselves, guarantee faster growth and productivity

With the exception of a dip in 2000-02, ICT investment has grown impressively on both sides of the Atlantic

by the US economy The rewards of ICT depend on a complex interaction between technology and a range of other

environment. To help identify and understand which of these factors are most important, the Economist

Intelligence Unit conducted a survey of 100 senior business executives, as well as in depth interviews with a range of European policymakers and business

venture capital; and, more contentiously, the creation of open and competitive markets. In most of these

environment where innovation can flourish and where the benefits of ICT can be realised fully There is no reason for European countries to miss

for Mobile Communications (GSM) standard, a breakthrough that enabled the growth of the region†s

highly competitive mobile services and equipment industry. Europe†s liberalisation of its telecoms markets, although patchily implemented, has also

encouraged competition and made voice, Internet and data communications more affordable to many businesses and households.

embark on new ventures. According to Tarek Ghouri director of government practice for Nokia Enterprise Solutions, â€oethe technology is available today to create

compelling solutions that grow productivity; the main ingredient lacking is imagination at the enterprise levelâ€

That European business suffers from an entrepreneurial deficit and ingrained risk aversion compared to the US is a relatively noncontroversial

16  The Economist Intelligence Unit 2004 Reaping the benefits of ICT Europe†s productivity challenge

entrepreneurial ventures. The Commission, OECD and others also worry that new European ventures grow too slowly

Innovation often stems from entrepreneurship and a willingness to take risks. Empirical research indicates that new firms tend to be the most innovative in their

markets, and often prod incumbents towards more innovative behaviour as well. However, even Europe†s more innovative countries tend to be risk-averse

initiatives in an attempt to boost entrepreneurship These are intended to reduce the regulatory and administrative burden for SMES, to simplify

struggle to turn technology investment into gains in productivity or revenue. The implication is that it is

not enough to deploy new enterprise software or a What proportion of your ICT projects meet their business objectives

 The Economist Intelligence Unit 2004 17 Reaping the benefits of ICT Europe†s productivity challenge

investments for commercial benefit. Tekes provides funding that enables SMES to receive ICT-related management training directly from Tekes itself or from

How important are the following aspects of the business environment in enabling your company to benefit from ICT

and new ventures 32 35 25 5 3 4. Robust legal framework and law enforcement to protect online trade 39 24 27 6 4

18  The Economist Intelligence Unit 2004 Reaping the benefits of ICT Europe†s productivity challenge

generating productivity gains from ICT investments Reorganising the workplace to adapt to new technology can involve anything from automating

ICT investments trigger a decision to spin off a new entity, or to leave and start a new firm themselves

Open markets, unfettered competition Our cross-section analysis of 60 countries appeared to confirm a strong link in developed economies between

the quality of the business environment and the economic impact of ICT. Generally speaking, the more

open and stable the business environment, the more likely that ICT use will make a contribution to growth

In addition, competition in ICT-producing markets drives advances in technology and also pushes prices down, encouraging the wider diffusion of technology

Strong competition in the economy as a whole encourages other companies to use technology to innovate with their products, services, work processes

and organisational structures A clear example of the benefits of open competition can be seen in Europe†s liberalisation of its telecoms

markets, initiated in the late 1990s across the EU and later in the accession countries.

Operating under European commission guidelines, European governments deregulated the long-distance and Which of the following government initiatives are most beneficial for fostering

Encouragement of foreign direct investment in ICT sector 23 Policies to promote competition in the ICT sector 35

Schemes to promote access to higher bandwidth services 34 Promotion of common technology standards 36

Availability of good ICT education in primary and secondary schools 33 Availability of specialist high tech qualifications in further and higher education 10

Financing schemes for ICT-related investment 22 Policies to promote labour mobility 9 Policies to attract ICT skilled immigrants 10

Policies to promote competition in the ICT sector 34 Regulation to protect consumer interests 19

Schemes to promote access to higher bandwidth services 36 Promotion of common technology standards 32

services for end-users, as well as wide-scale deployment of broadband access networks. •OECD, 2003  The Economist Intelligence Unit 2004 19

Reaping the benefits of ICT Europe†s productivity challenge Restrictive product-market regulation is another

commissioner for enterprise and the information society, believes that it is critical for member governments to review their product-market regimes

competition Bart van Ark, an economist from the University of Grã ningen, believes restrictive product markets

discourage innovation and ultimately the effective use of ICT. Although Mr Van Ark is sceptical about catch-all

competition and innovative behaviour in this intensive ICT-using sector A common thread running through the interviews is

of competition and other regulations in different member states are often counterproductive, claims Mr Weyns, partly because public officials†perspectives

Many economists argue that Europe†s labour market regulations are too restrictive and that they deter companies from reorganising the workplace

Policymakers and economists diverge, however, on the link between labour regulations and productivity growth, and on the desirability of policy initiatives to

competition is clearly a factor in encouraging successful innovation, but not everyone sees it as a

Innovative ventures need venture capital In the US, venture capital provides a valuable catalyst for the emergence of new, innovative businesses.

By contrast, Europe†s venture-capital industry remains small and underdeveloped. Although overall private equity investment levels in Europe approach those

across the Atlantic, the amount channelled into early -stage financing is substantially less in Europe than in

the US (in 2002,10. 6%in Europe compared with 21.1%in the US, according to Pwc

The lack of venture capital is a strong disincentive to innovation and enterprise. Germany, for example boasts some of Europe†s more prolific R&d

programmes with close ties to business (see below but limited access to venture capital can make it

difficult for technology start-ups to find funding. Eike RÃ hling, director-general of technology policy in the

federal Ministry of Economics and Labour, cites the shortage of venture capital as one of the key barriers

to innovation in his country Funding for university and research institute spin -offs is another area where Europe compares

20  The Economist Intelligence Unit 2004 Reaping the benefits of ICT Europe†s productivity challenge

the European Venture capital Association ranks the UK and Ireland as boasting the most conducive tax and legal system for private equity

The amount of equity capital available for new and early-stage ventures in Europe is beginning to

increase and, according to the European Venture Capital Association, expectations for 2004 are more optimistic than has been the case over the past two

years. Still, fundraising for venture capital remains difficult in Europe. Industry veterans point out that European venture-capital firms are extremely selective

in their investments, partly because they had their fingers burnt in the dot com crash, but also because

they have limited confidence in entrepreneurs†business models and management teams (back to the skills gap Reinvigorating R&d

The other major part of the innovation equation†for ICT-producing and-using firms alike†is research and

 The Economist Intelligence Unit 2004 21 Reaping the benefits of ICT Europe†s productivity challenge

to offer ICT-enabled services, and to give users employees, suppliers and customers) the confidence

to use them. Elie Simon, president EMEA of Sun Microsystems, believes regulators must seek to

Information, Communications and Consumer Electronics Technology Industry Association (EICTA underscores the importance of industry and

integration at the enterprise level, but more importantly it will maximise end-users†access to the

22  The Economist Intelligence Unit 2004 Reaping the benefits of ICT Europe†s productivity challenge

environment, and Europe has compared generally favourably in this area with the US and other developed countries

 The Economist Intelligence Unit 2004 23 Reaping the benefits of ICT Europe†s productivity challenge

environment where innovation can thrive and where the benefits of ICT are readily available at all levels of the economy.

Creating that environment†and ultimately delivering increased productivity growth†requires coordinated action on the part of policymakers and business leaders.

economy in Europe) and other initiatives signify a desire in the EU to remove the barriers to innovation

which most economists believe is too restrictive in most of Europe. Despite this, many policymakers (as well as executives judging from our

24  The Economist Intelligence Unit 2004 Reaping the benefits of ICT Europe†s productivity challenge

aware of the potential benefits of an ICT investment as well as the specific workplace factors that may

ensure that customers are not only aware of the benefits of a newly deployed technology, but also of

2. Stimulating innovation and enterprise Policymakers are aware that restraints on entrepreneurship sap innovation and constrain

productivity growth. Progress in meeting the goals of the European Commission†s entrepreneurship plans would be a good step towards enhancing innovation

and productivity growth. The following areas in particular merit attention â Ensuring a greater flow of funding to SMES.

advantage of this more supportive environment to encourage risk-taking and innovation in their organisations.

create a more positive environment for innovation These include the creative use of teams, quality circles

3. Redouble the assault on barriers to competition We†ve highlighted the benefits that telecoms market

services. Connectivity is no longer a major barrier to effective ICT use, at least in Western europe. But policymakers must continue to promote competition

in the telecoms industry, for two main reasons â First, to prevent the rebuilding of virtual

 The Economist Intelligence Unit 2004 25 Reaping the benefits of ICT Europe†s productivity challenge

broadband networks and services, but they have simultaneously managed to restrict competitors†access to the last mile.

competition in the provision of broadband services must become entrenched to ensure that businesses and households gain

â Second, the benefits of competition must be extended to the EU€ s new members.

incentives for competition will provide a catalyst for broadband adoption 4. Practise what you preach.

innovative services and better value for money. By dint of its sheer weight in the economy, this type of

government procurement can help to aggregate demand for new products and services Patrick de Smedt, chairman of Microsoft EMEA, puts

â€oeleading by example†at the top of his prescriptions for policymakers. He argues that governments that

services, can do much to build awareness of ICT benefits among SMES and the broader public.

progress in bringing services online As the public sector transacts more of its business Having spent about 1%of the state budget on public

Integrating this and its various other services on one platform, in March 2003 the government launched the

-stop shop for existing and new services. The portal allows individuals and firms to complete and digitally sign

26  The Economist Intelligence Unit 2004 Reaping the benefits of ICT Europe†s productivity challenge

including venture capital, secure networks and skills training†in powerful demonstrations of the role that ICT can play in business and society.

environment for the efficient use of ICT. But ultimate responsibility for using ICT more effectively to improve

 The Economist Intelligence Unit 2004 27 Reaping the benefits of ICT Europe†s productivity challenge

The Economist Intelligence Unit conducted a cross -section empirical analysis of 60 countries covering the

and production of ICT goods and services. The year 1995 is also significant as the approximate time when

â A cross-section framework offers the opportunity of controlling for other factors that affect growth

â The Economist Intelligence Unit†s approach also has advantages over existing cross-section studies, in that most of these have focused on ICT

investment across countries. Despite the considerable work that has gone into making the ICT investment measures comparable across

countries, a number of question marks about the comparability of these investment figures remain We used instead a"physical"indicator of ICT

endowments (use and infrastructure), based on a composite index of various ICT indicators â The EIU model allows us to estimate the impact of

addition, the EIU€ s business environment model enables us to investigate the role of various policy

and business environment variables (measured by a synthetic index covering labour, product and financial markets) and their possible interaction

The Economist Intelligence Unit†s model is well -behaved in that in the full 60-country sample all the

28 Â The Economist Intelligence Unit 2004 Appendix A: Empirical analysis: background and explanation Reaping the benefits of ICT

table 1) include initial income levels, investment shares, demographic variables (rate of growth of total population and rate of growth of population aged 15

endowments/human capital. To increase the explanatory power of the framework†and also to have

measure of the openness of economies, a measure of real exchange-rate variability and our composite index

of the quality of the business environment and micro -economic policies. Further explanations of these variables are provided following table 1

Only one outlier is identified in the sample†Ireland for which we introduce a dummy variable) †that is the

quality of the business environment are interrelated though no evidence is found for any explicit interaction effect between ICT and policy variables or

Economist Intelligence Unit 1 0. 5 0 -0. 5 -1 O 5 10 This chart relates ICT development to growth in GDP per head, after non-ICT growth determinants

of ICT in the economy and the experience derived from earlier ICT development mean that the

 The Economist Intelligence Unit 2004 29 Appendix A: Empirical analysis: background and explanation Reaping the benefits of ICT

INV€ average share of fixed investment in GDP (at current prices) in 1996-2002 POPG 15-65†average annual rate of growth of population aged 15-65

open economy according to the following four criteria:(1) average tariff rates below 40%;(%2) average quota and licensing coverage of imports of

BUSENV€ an index constructed by the Economist Intelligence Unit of the business environment (on a 1-10 scale) based on indicators grouped in

the following categories: policy toward private enterprise, financing con -ditions, the tax regime, the macroeconomic environment and labour

markets. The overall index is a simple average of the five category sub -indexes ICT1€ is a composite indicator of ICT for 1995-96, the start of the growth

period under investigation. It is constructed on the basis of data for 1. Fixed telephone lines penetration (lines per 100 population

30 Â The Economist Intelligence Unit 2004 Appendix A: Empirical analysis: background and explanation Reaping the benefits of ICT

zone economies had in terms of lower initial GDP per head (the catch up potential) and higher investment

rates is cancelled roughly out by the effects of the US's superior business environment and schooling.

This leaves the ICT variable accounting for the major part of the 0. 52 percentage point difference in average

we use the EIU€ s forecasts of investment shares in GDP in 2004-08, the starting level of GDP per head (in

 The Economist Intelligence Unit 2004 31 Appendix A: Empirical analysis: background and explanation Reaping the benefits of ICT

environment in 2004-08 from the EIU€ s business environment rankings model The ICT index that we use for the forecasts (ICT2) is

different from the ICT index used for estimating growth in 1995-2002. ICT variables are time-specific

as of national income â A qualitative indicator of competition in the telecoms market â A qualitative indicator of the security of the

Internet infrastructure â An indicator of the government's role government encouragement and financing for

â A measure of the quality of ICT supporting services Forecasts of average annual growth in GDP per head

slower-growing, major euro zone economies is again attributable to ICT. Although the forecast EU average

economies'performance †with some countries accelerating their growth, which in part is related to ICT developments

32 Â The Economist Intelligence Unit 2004 Appendix A: Empirical analysis: background and explanation Reaping the benefits of ICT

 The Economist Intelligence Unit 2004 33 Reaping the benefits of ICT Europe†s productivity challenge

Investment in OECD Countries and Its Economic Impactsâ€, Chapter 4 of Forthcoming OECD Report Bartelsman, Eric and Jeroen Hinloopen, 2002, â€oeunleashing Animal

Investment in ICT and Economic Growthâ€, mimeo Bartelsman, Eric, Andrea Bassanini, John Haltiwanger, Ron Jarmin

New Economy? â€, Fondazione Rodolfo Debenedetti, mimeo Basu, Susanto, John Fernald, Nicholas Oulton and Sylaja Srinivasan

Information and Communication Technologies to Economic growth in Nine OECD Countriesâ€, OECD Economic Studies, No. 34

Investment and Innovationâ€, Global Competitiveness Report 2003 -2004, World Economic Forum Gordon, Robert, 2002, â€oehigh-Tech Innovation and Future

Does Supply Create Its Own Demand? â€, Global Competitiveness Report 2002-2003, World Economic Forum

the U s. Growth Resurgenceâ€, CESIFO Economics Studies, Vol. 49 1/2003, pp 27-47 Kegels, Chantal, Mary van Overbeke and Willem Van Zandweghe

OECD, 2003, â€oeict and Economic growth: Evidence from OECD Countries, Industries and Firmsâ€, Paris: OECD Oulton, Nick, 2001, â€oeict and Productivity Growth in the United

Piatkowski, Marcin, 2003. â€oethe Contribution of ICT Investment to Economic growth and Labor Productivity in Poland 1995-2000â€

Warsaw: Tiger Working Paper Series No. 43 Solow, Robert, 1987, â€oewe†d Better Watch Outâ€, New york times Book

Economy: How New? How Resilient Van Ark, Bart and Mary O†Mahony, editors, 2003, â€oeeu Productivity

General Enterprise Van Ark, Bart, 2003, â€oethe Productivity Problem of the Dutch Economy: Implications for Economic and Social policies and

Business Strategyâ€, Research Memorandum GD-66, Groningen Groningen Growth and Development Centre Van Ark, Bart, Robert Inklaar and Robert Mcguckin, 2002, â€oechanging

Productivity, ICT and Services: Europe and the United States†Research Memorandum GD-60, Groningen: Groningen Growth and

â€oecontribution of Information Communication Technologies to Growthâ€, Washington, D c.:World bank Working Paper No. 24 Appendix B:

34  The Economist Intelligence Unit 2004 Reaping the benefits of ICT Europe†s productivity challenge

What role does information and communication technology (ICT) play in improving corporate productivity? How do European countries compare with other global markets in providing an attractive environment for ICT

investment and innovation? This survey, which is by the Economist Intelligence Unit and sponsored by

Microsoft, seeks to answer these crucial questions Demographics Which of the following job titles describes your role best

%respondents Chief executive, chairman, managing director 19 Chief finance officer, finance director 9 CIO, IT director 2

 The Economist Intelligence Unit 2004 35 Appendix C: Survey results Reaping the benefits of ICT

Telecoms, software and computer services 14 Professional services 12 Construction and real estate 8 Healthcare, pharmaceuticals and biotechnology 8

Automotive 4 Chemicals and textiles 3 Education and training 3 Electronic and electrical equipment, household goods and products 3

36 Â The Economist Intelligence Unit 2004 Appendix C: Survey results Reaping the benefits of ICT

The business environment How would you rate the overall sophistication of ICT infrastructure in the following countries

 The Economist Intelligence Unit 2004 37 Appendix C: Survey results Reaping the benefits of ICT

38 Â The Economist Intelligence Unit 2004 Appendix C: Survey results Reaping the benefits of ICT

How important are the following aspects of the business environment in enabling your company to benefit from ICT

and new ventures 32 35 25 5 3 4. Robust legal framework and law enforcement to protect online trade 39 24 27 6 4

Poor after-sales services from ICT vendors 16 Lack of incentives to foster innovation and ICT investment 14

Restrictive working practices 14 Publicity ramifications of automating jobs 5 Other 2 Â The Economist Intelligence Unit 2004 39

Appendix C: Survey results Reaping the benefits of ICT Europe†s productivity challenge Which of the following government initiatives are most beneficial for fostering a strong ICT-producing sector

Policies to promote competition in the ICT sector 35 Government leading the way in innovative use of ICT 35

Schemes to promote access to higher bandwidth services 34 Availability of good ICT education in primary and secondary schools 33

Encouragement of foreign direct investment in ICT sector 23 Financing schemes for ICT-related investment 22

Availability of specialist high tech qualifications in further and higher education 10 Policies to attract ICT skilled immigrants 10

Schemes to promote access to higher bandwidth services 36 Policies to promote competition in the ICT sector 34

Promotion of common technology standards 32 Development of e-democracy 15 Regulation to protect consumer interests 19

40 Â The Economist Intelligence Unit 2004 Appendix C: Survey results Reaping the benefits of ICT

What are your plans for investment in ICT in the next 2 years %respondents Over 100%increase in investment 6

50-100%increase in investment 11 25-50%increase in investment 10 10-25%increase in investment 21

Up to 10%increase in investment 22 Same level of investment 25 Up to 10%decrease in investment 3

10-25%decrease in investment 2 25-50%decrease in investment 0 50-100%decrease in investment 0

Harnessing ICT in business What proportion of your organisation†s overall budget did you invest in ICT in the last 12 months

%respondents Less than 5%28 5-10%34 11-15%19 16-20%9 21-30%4

31-40%5 41-50%1 Above 50%0 Â The Economist Intelligence Unit 2004 41

Appendix C: Survey results Reaping the benefits of ICT Europe†s productivity challenge What proportion of the following business processes are automated in your company

%respondents 1 2 3 4 5 Under 10%10-25%25-50%51-75%75-100

%1. Sales transactions 35 15 19 12 19 2. Back office 8 20 26 28 18

3. Supply chain processes 21 23 31 14 10 4. Customer servicing 24 22 23 21 9

5. Production 21 29 20 18 13 6. Procurement 20 25 29 14 12 7. Management reporting 6 7 39 24 24

or services are sold online %respondents 10-25%12 26-50%13 51-75%2 More than 75%4

42 Â The Economist Intelligence Unit 2004 Appendix C: Survey results Reaping the benefits of ICT

Communication and collaboration between employees 48 Customer relationship management 33 Integration of existing data/technologies 33

Outsourcing of IT services 20 Supply chain integration 19 Online sales and marketing channels 14

 The Economist Intelligence Unit 2004 43 Appendix C: Survey results Reaping the benefits of ICT

Which of the following offer the greatest opportunity for productivity gains in the next 3 years

Communication and collaboration between employees 32 Supply chain integration 31 Integration of existing data/technologies 29

Outsourcing of IT services 14 On average how long does it take your company to achieve return on investment from ICT projects

%respondents Less than 6 months 6 6-12 months 17 12-18 months 33 18 months to 2 years 30

and metrics to measure return on investment from ICT initiatives 40 We measure total cost of ownership for our key technology platforms 32

Return on investment models 32 Impact on customer retention 23 Speed to market 21 We don†t use measures to evaluate ICT benefits 15

44 Â The Economist Intelligence Unit 2004 Whilst every effort has been taken to verify the accuracy of this information, neither The Economist

Intelligence Unit Ltd. nor the sponsors of this report can accept any responsibility or liability for reliance by


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