Older Koreans value cyber space the most
By the Boston Consulting Group
The South Korean Internet economy contributed 86 trillion won to the overall economy in 2010, representing 7.3 percent of the GDP, and is projected to rise to 132 trillion won by 2016, according to a new report of The Boston Consulting Group titled “The $4.2 Trillion Opportunity: The Internet Economy in the G-20.”
The report found that by 2016 the total size of the G-20 Internet economy will be $4.2 trillion, equivalent to 5.3 percent of the GDP, up from $2.3 trillion or 4.1 percent in 2010. It also found that if the Internet were a sector, it would be the fifth largest in South Korea ― larger than finance, construction and agriculture.
South Korea's Internet economy growth rate of 7.4 percent compares favorably to other developed nations in the G-20 which are growing at an average of 8.1 percent. Projected growth rates elsewhere are 10.9 percent in the U.K., 7.8 percent in Germany, 6.5 percent in the U.S. and 17.4 percent in China. In 2016, South Korea will remain in the number two position and its Internet economy contribution to the GDP will grow to 8.0 percent.
Impressive as these growth rates in developed countries like South Korea are, the Internet economies of developing markets in the G-20 are expected to grow at an average of 17.8 percent through 2016 led by Argentina at 24.3 percent and India at 23.0 percent. In 2010 developing markets contributed 24 percent of the G-20's Internet economy; by 2016 that will rise to 34 percent.
The $4.2 Trillion Opportunity report builds on three years of research conducted by BCG and is the most comprehensive report published on the impact of the Internet globally. This study is the first to examine the Internet's economic impact across so much of the world's economy ― 90 percent of global GDP ― and highlights how this increases as mobile devices and social networks become more prevalent.
The Internet's economic impact
The economic impact of the Internet is getting bigger ― just about everywhere ― and it already has an enormous base. In the U.K., for example, the Internet’s contribution to 2010 GDP is more than that of construction and education. In the U.S., it exceeds the federal government’s percentage of GDP. The Internet economy would rank among the top six industry sectors in China and South Korea.
Consumption is the principal driver of Internet GDP in most countries, typically representing more than 50 percent of the total in 2010. It will remain the largest single driver through 2016. Investment, mainly in infrastructure, accounts for a higher portion of the total in “aspirant” nations as they are in the earlier stages of development.
Several “natives” on BCG’s e-Intensity Index ― the U.K., South Korea, and Japan ― are among those nations with the largest Internet contributions to the GDP. China and India stand out for their enormous Internet-related exports ― China in goods, India in services ― which propel their Internet-economy rankings toward the top of the chart. Mexico and South Korea have also developed significant Internet export sectors.
Older Koreans value the Internet the most
Connected consumers place a considerable value on the Internet. In the G-20 economies, this “consumer surplus” ― the perceived value that consumers themselves believe they receive, over and above what they pay for devices, applications, services, and access ― amounts to $1,430 a person. Consumer surplus varies vastly across countries, depending in part on the impact of the drivers shaping each nation’s Internet economy. For example, it’s $323 per person in Turkey, $1,215 in South Africa, $1,287 in Brazil, and $4,453 in France. The aggregate consumer surplus across 13 of the G-20 countries is $1.9 trillion, or about 4.4 percent of the GDP.
It is interesting to note that in countries such as France and Germany, which have relatively low levels of Internet GDP, consumers’ perceived value of the Internet is very high. Furthermore, although the consumer surplus figures are lower for many developing markets, they are actually quite high relative to local incomes ― lower-income people get relatively more benefit from the Internet than wealthier people do. Closing the digital divide can have a meaningful impact for the less well-off.
Consumer surplus has multiple drivers, among them the quality of online content, the number of devices in use, the ease and frequency of access, and the number of people online. Demographics play a role in the last factor: in many markets, the heaviest users of the Internet are the young ― no surprise there ― and those over 55, whose ranks will swell as the population ages. Koreans have an average perceived internet value of $824, although it is actually $372. However, for those aged 18 to 24, it is almost $1,600 and for Koreans above the age of 55 it is about $1,900. All these factors are on the rise, which points to continued growth in the consumer surplus.
Chocolate, fast food, navigation: what Koreans could give up for the Internet
This report also shows the Internet’s impact on GDP and on the retail market in Korea. Most significantly, they highlight how deeply the Internet has ingrained itself in daily life, by showing what consumers are willing to give up ― from satellite navigation to sex ― in order to keep their Internet access.
In 2010, the share of total retail carried out online in South Korea was 6.6 percent and is projected to reach 8.1 percent by 2016. What's more, the Internet influences an additional 13.0 percent of total retail from connected consumers researching online and purchasing offline (ROPO). These numbers compare to 13.5 percent for online sales and 11.5 percent for ROPO in the U.K. 7.1 percent and 16.2 percent in Germany, and 5.0 percent and 9.6 percent in the U.S.
Consumers are the big winners of the Internet economy and BCG's study highlights just how essential it has become to everyday life and the value which consumers attach to it. Asked how much they would have to be paid to live without Internet access, South Korean respondents said an average of 503,000 won per year.
When asked whether they would forgo showering for a year in order to keep Internet access, 25 percent of South Korean online consumers said they would; 84 percent said they would forgo chocolate; 70 percent coffee, and 69 percent would give up alcohol. Korean consumers evaluate searching function the most. They value general search at $96, e-mail at $87 and online banking at $74 each.
The Internet will change even more in the next five years than it has in its first twenty-five. It will have more users (especially in developing markets), more mobile users, more users using various devices throughout the day, and many more people engaged in an increasingly participatory medium.
Businesses in particular need to make a choice. They can rise to the challenge of a new Internet-driven marketplace ― and benefit from the expanded capabilities and higher growth rates that high-Web SMEs are already achieving throughout the G-20 nations. Companies that have not yet developed an online strategy for themselves need to build their digital assets while reducing digital liabilities (which are often organizational) that might prevent them from tapping opportunities.
Governments also face challenges and opportunities ― and many of these are increasingly complex. On a national level, policies that promote investment ― especially in the infrastructure in the developing world ― and emphasize education, training, and skills-building everywhere are essential. Perhaps even more than the industrial era and information age, the Internet economy requires a well-educated and skilled workforce. Countries that fall behind in providing educational opportunity are also likely to lose out to others in Internet-driven economic growth.
Different countries will take different approaches, but the overarching challenge facing those empowered to do the people’s business is the same ― ensure ready and affordable access, a level playing field, and an open competitive environment that enables everyone to tap the economic benefits of the Internet.
This article was provided by the Boston Consulting Group.