Business and the digital economy in the UK

By | September 3, 2013
As part of our work to help support the Connected Digital Economy Catapult (CDEC), we looked at a range of discussions about the digital economy in the UK, such as Neil Crockett’s recent blog on the CDEC site. There are four big issues we would like to touch on here.

1. How big is the UK digital economy? We found a fascinating range of estimates, if not always clearly documented, including the following:

  • £1 in every £10 the whole economy produces each year is digital (BIS, 2009, p. 8);
  • Internet economy to make up approximately 10% of GDP by 2015 – could reach 13 percent (BCG, 2010: 29);
  • 8.3% of GDP, largest Internet Economy relative to size of GDP of all G20 countries in 2012 (BBC 2012);
  • Ranked 14th in the 2010 Digital Economy Rankings with a score of 7.89 out of 10 according to the “Digital Economy rankings 2010, Beyond e-readiness, A report from the Economist Intelligence Unit;”
  • Internet contributed more to GDP than construction and education in 2010 (BCG 4.2 2012).
  • Comprises almost 270,000 active companies in the UK – 14.4% of all companies as of August 2012. (NIESR 2013)

2. How plugged into the digital economy are SMEs across the UK? Lloyds Banking group, in a 2012 study of digital maturity in UK businesses and charities, made the following observations about SMEs’ creation and integration of technology:

  • of the 4.7 million SMEs in 2012, 3.1 million increased their use of technology in some way from 2010-2012 (Lloyds 2012);
  • 20% of SMEs in UK are deliberately not online (Lloyds 2012);
  • Challenges include: personal comfort level with technology by owner, lack of evidence that it will be useful (Lloyds 2012).

A study commissioned by Lloyds Banking Group (2012) which examined the state of “digital maturity” within Britain’s businesses and charities, focussing on the SMEs’ types of use of digital technologies, found that 64% of British SMEs have a website, but that for 15% this was used for information only (more advanced websites might include interactive sections, the ability to purchase goods or services online).

3. What are the benefits to SMEs being engaged in the digital economy – taking up technology and networks as part of their operations and strategies? In many respects, it is hard to imagine how a business could be viable without being online in a digital economy, but among the key benefits noted by various consulting studies are:

  • Time savings (Lloyds 2012),
  • Broadening customer reach (Lloyds 2012),
  • Increased marketing effectiveness and cost savings (Lloyds 2012),
  • 51% of SMEs have reported an increase in sales as a result of their Internet use (Lloyds 2012),
  • Levelling the playing field (BCG, 2010: 24),
  • Giving access to larger markets through cost-effective online advertising and tools once available only to large companies (BCG, 2010: 24);
  • As reported by business owners: geographic expansion, access to online tools, easier recruitment of staff, simplified customer payments, increased feedback and interaction with customers, and more effective marketing (BCG, 2010: 26).

In a recent survey by the Boston Consulting Group (BCG, 2010), looking at more than 900 SMEs in the UK in order to understand their internet activities, they identified three groups of respondents:

  • “high-Web” businesses (66%of survey respondents) that market or sell goods or services online;
  • “low-Web” businesses (20% of respondents) that have a website or social-networking site; and
  • “no-Web” businesses (14% of respondents) that do not have a website.

The key finding was that high-Web businesses tended to experience more growth – overall sales of high-Web businesses grew by 4.1% annually over the past three years, while those of low- and no-Web businesses grew by 0.6% and 0.5% respectively (BCG, 2010: 24).

Respondents identified six primary benefits of the Internet to their business (BCG, 2010: 26):

  • Geographic expansion
  • access to online tools
  • easier recruitment of staff
  • simplified customer payments
  • increased feedback and interaction with customers
    more effective marketing

4. Who are the digital economy innovators? Innovators are not only the major Internet companies. Individuals or organizations who are attempting to introduce something new within the Digital Economy, can be found across sectors and as is the case in many aspects of life, digital technologies are being integrated into economic matters in a variety of ways, on multiple levels, with varying motives and outcomes. These actors could range from a major Internet firm, such as Google, to an individual user, such as a seller on eBay.

We hope this posting helps stimulate debate and engagement. It represents work in progress, and any feedback would be very welcome, by comment or email.

Bill Dutton and Bill Imlah

Thanks to our students Elizabeth Dubois, Gillian Bolsover and Heather Ford, who helped conduct, review and collate this research.

References

BBC. (18 March 2012). UK is the ‘most Internet-based major economy.
http://www.bbc.co.uk/news/business-17405016

BIS (2009) Digital Britain: Final Report
http://businesshelp.lloydstsbbusiness.com/assets/pdf/Britains-Digital-Opportunity.pdf

NIESR (2013). Measuring the UK’s Digital Economy With Big Data
http://niesr.ac.uk/sites/default/files/publications/SI024_GI_NIESR_Google_Report12.pdf