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Monday, June 22, 2015

Internet Economy: a Revolutionary Manufacturing Paradigm

Wayne Chen


        China proposed to list the Internet Economy as a new priority in APEC under the New Economy annual priority in 2014 and was endorsed by APEC Leaders and Ministers by the end of the year. In 2015, an Ad Hoc Steering Group was established in February to carry forward the Chinese APEC Initiative of Cooperation to Promote Internet Economy. According to the conclusion of the Second APEC Senior Officials Meeting, a Chair and a Vice Chair will be selected to lead the Steering Group and its first meeting will be held before the Third APEC Senior Officials Meeting in September.

        The Steering Group will be focused on advancing the growth of the Internet Economy by strengthening cooperation on 1) regulatory environment and 2) innovation and entrepreneurship. The former includes utilizing and securing data in cross-border flows, promoting SME-friendly e-commerce policies, facilitating the cross border flow of ICT-enabled services and achieving universal access to broadband. The latter is more related to holding skill training activities, establishing enabling environment to enhance inclusive economic participation by using ICT, and promoting internet finance and internet of things.

        One major reason why China is so enthusiastic about Internet Economy was that the internet is a powerful tool to stimulate its economy for big, for long and highly likely will reinforce its leading role in the world economy. The initial public offering (IPO) of the Alibaba Group Holding, worth of US$25 billion, was not only the largest IPO ever, but revealing a new era of internet economy to the world leaders. The e-commerce is only part of the new economy but has already been a significant driver of economic activities. The market scale of e-commerce is enormous and growing significantly in recent years. In 2013, the turnover of global e-commerce grew by 17% and the market of e-commerce in China came to US$248 billion and received 11.3 billion orders. The internet substantially increases market access by linking individual consumers to retailers or even wholesalers, improves communication with providers of logistic services, financial services and customer management, as well as facilitates SMMEs to enjoy more public media exposure, all these were beyond imagination before and the future even looks more promising.

        According to the World Bank, more than 60% enterprises in high income countries used internet for business operations in 2003, but in 2012 mostly enterprises used the internet in daily operations. In middle and low income countries, the figure is 35% for 2003 and 70% in 2012. Developing countries have higher growth rate, and the market prospectus is commonly bigger due to their population base.

        A wide range of innovative business models are emerging and performing creative destruction in practice, sometimes industries not merely companies were wiped out in the new chapter of internet economy. Kodak, for example marked the rise and fall of the photographic film industry. Founded in 1888, Kodak had focused on photographic film products, and had a 90% market share in 1970s in the US. Its workforce peaked at 145,300 in 1988, but reduced to 13,100 in 2012 due to the severe competition in the digital photography market. In January 2012, Kodak filed for bankruptcy protection and in December sold its imaging patent for over $500 million. On the other hand, Instagram, the photo-sharing phone app which employed 13 people, was acquired by Facebook for $1 billion. In other words, the value of individual employee created by Instagram reached $77 million, 15 times more than Apple of Google.

        Internet economy has also become a hot issue in APEC where China, Russia and the United State are competing to lead in the discourse, although China proposed the Internet Economy Initiative first back in 2014. At the 2015 APEC Second Senior Officials Meeting, the US tabled the initiative of "Enabling Inclusive Growth Through the Digital Economy", and proposed 4 deliverables for APEC 2015, namely: 1) conduct an APEC Digital Economy Agenda to be endorsed by AELM; 2) conduct a Digital Economy Action Plan for connecting MSMEs into global and regional markets; 3) conduct an independent Digital Economy assessment in 2016, and; 4) identify 'facilitating Digital Trade for Inclusive Growth' as a Next Generation Trade and Investment issue.

        Different from the Chinese Internet Economy initiative, the US Digital Economy is more related to the MSMEs and trade. The Statement to Implement APEC Policies on Trade and the Digital Economy, for example, is listed as an important APEC reference documents by the Digital Economy Initiative which urges APEC economies "take a collective leadership role in the WTO negotiations to pursue market openness in areas related to trade in the digital economy".

        I argue that US attempted to redirect discussion on Internet/Digital Economy towards the Trade and Investment Liberalization and Facilitation (TILF) pillar while China has been addressing related issues in the domain of Economic and Technical Cooperation (ECOTECH). In this context, related deliberation was linked and shadowed by the disagreement on ITA2 between big powers. Not surprisingly, hot debates occurred at SOM2 where China and Russia emphasized that "Digital Economy" has no clear definition and the objective to identify it as the next generation issue requires further discussion for consensus. After informal discussion facilitated by the host economy, China, Russia and US agreed to return the Digital Economy Initiative back to the Committee of Trade and Investment (CTI) and incorporate the actions proposed by US into mandate of the Steering Group. In return, China invited US to join the leadership of the Ad Hoc Steering Group but not yet received positive response at the place. Taiwan has been long known as a high tech island and its industrial development is greatly related to the Internet Economy. However, considering the contest between China and US, Taiwan needs to be careful and elaborate while speak up for the interests of the private sector, and meanwhile avoid involving the political disagreement between China and US.

References:


1.APEC (2015), "Draft Terms of Reference on the Ad Hoc Steering Group on the Internet Economy", 2015/S OM2/021_rev1 
2.APEC (2015), "Enabling Inclusive Growth Through the Digital Economy", 2015/ SOM2/028 
3.Associate Press (2012), ""Kodak Sells Digital Imaging Patents For $525m", http://bigstory.ap.org/article/kodak-receive-525m-patent-sale, 19 Dec 
4.Atlantic (2012), "Instagram Is Now Worth $77 Million Per Employee", http://www. theatlantic.com/business/archive/2012/04/instagram-is-now-worth-77-millionperemployee/255640/, 9 April 
5.OECD (2014), "Skills and Jobs in the Internet Economy", http://dx.doi.org/ 10.1787/5jxvbrjm9bns-en 
6.OECD (2012), "OECD Internet Economy Outlook 2012", http://www.oecd-ilibrary.org/science-and-technology/oecd-inte rnet-economy-outlook- 2012_9789264086463-en 
7.Norbhu, T. (2014), "Internet and Business Model Innovation", World Bank, October. 
8.Koske, I. et al. (2014), "The Internet Economy - Regulatory Challenges and Practices", http://dx.doi.org/10.1787/5jxszm7x2qmr-en 
9.Nam, S. (2014), "Promoting Innovative Development in the Asia-Pacific Region throughout the Internet Economy", KIEP, APEC Study Series 14-02.

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