World Economic Forum Warns of Business Digital Divide

By Michael Vizard

The World Economic Forum (WEF) has released a Global Information Technology 2013 Report that not only highlights the growing digital divide between advanced and emerging economies, but it also suggests where organizations should consider outsourcing certain business functions based on the sophistication of the network infrastructure available in a particular country.

While other factors, such as the availability of skills and vertical industry expertise are significant, Christopher Vollmer, a partner with the business consulting firm Booz Allen & Company,  which helped author the annual report, says the rankings within a certain context can serve as a guide toward identifying which countries have the best overall IT environment. For example, while India may be well known as an IT outsourcing destination, the report finds of the 144 countries ranked in terms of network readiness India ranked 68th.  China came in 58th, while the United States was ranked ninth overall.

The thing to remember, says Vollmer, is that many countries are at different stages in their journey to digitization. Finland, for example, may rank highest in terms of network readiness, but when selecting where to manage a particular business process, companies also need to consider factors such as labor arbitrage.

“Companies need to evaluate their options not only on a country versus country basis,” says Vollmer, “but also going one level deeper on a sector by sector basis.”

Nominally, that analysis would tend to favor emerging economic powerhouses like Brazil, Russia, India and China, which are known as the BRIC countries. But the WEF report also found that not only is the digital divide between advanced and emerging companies getting worse, economic growth in the BRIC countries could soon stagnate due to a lack of investment in IT infrastructure.

According to Benat Bilbao-Osorio, associate director and senior economist for the global competitiveness and benchmarking network at WEF, the economic benefits of IT investments become much higher once countries reach a certain threshold of IT maturity. The report suggests that all of the BRIC countries are approaching that threshold. However, Bilbao-Osorio says it’s not clear that they have the appropriate policies and levels of technology investments to move beyond those thresholds. In fact, Bilbao-Osorio says Russia (54), China (58), Brazil (60) and India (68) appear to be stagnating in terms of how they are leveraging IT to drive productivity.

“This raises some concerns about the potential growth of these countries going forward,” says Bilbao-Osorio. “These countries have pockets of excellence, but they are not spread evenly across the countries.”

In addition to the overall and widening digital divide between countries, there is no consistency in a particular geographic region, says Bilbao-Osorio. Chile, for example, ranks 39th, while Brazil comes in 60th, Mexico is 63rd and Peru, meanwhile, ranks a lowly 103rd.

“There are sharp intra-regional disparities,” Bilbao-Osorio notes.

As a result, IT leaders need to take into account how the overall IT maturity of any given country is likely to affect where a particular business process might be most effectively managed. In fact, Soumitra Dutta, a co-author of the report who is also the dean of the Samuel Curtis Johnson Graduate School of Management at Cornell University, says IT leaders might be better off comparing local regions within countries.

“It’s fairer to compare places like Singapore with centers of excellence such as Boston or San Francisco,” says Dutta.

Of course, these same questions should be applied to any outsourcing provider looking to take over the management of a business process. If those processes are being managed within a country that is facing systemic challenges in terms of its IT readiness, the odds are high that there will be issues with meeting service-level commitments.

For IT leaders there are a lot of nuances to consider with the context of any globalization strategy. However, one thing is certain: Regardless of location, it’s hard to successfully participate in a global IT economy when fundamental networking issues remain problematic.

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