The ascendancy of digital trade: A new world order?

Director, McKinsey Global Institute

©McKinsey

We are so used to all things digital that we can sometimes lose sight of just how enormous the phenomenon has become, and how disruptive it can be. The bit volume of cross-border digital flows has grown by 45 times in the past decade. An estimated 211 terabits of data, which is the equivalent of 8,500 entire Wikipedias, flow across borders every second. Approximately 12% of global consumer goods trade is now conducted via international e-commerce. Some 50 million small companies are now on Facebook alone, double the number in 2013.

This data torrent is changing the nature of globalisation–and may shift the balance of global economic power. Recent research from the McKinsey Global Institute (MGI) shows that the value of data flows has overtaken the value of global trade in physical goods. Together, global flows of goods, services, finance, people, and data have raised world GDP by at least 10% in the past decade, adding US$7.8 trillion in 2014 alone. Data flows accounted for $2.8 trillion of this value–and this is only the start of global digitisation.

Harnessing the power of digital should be a top priority for policy makers and business everywhere. One way to unlock more cross-border e-commerce is by addressing issues such as ease of single payments systems, co-ordination of tax issues, and integrated logistics. On the supply side, building local ecosystems between entrepreneurs, universities, and companies, and developing talent able to code or manage big data can give birth to a generation of “unicorns” in Stockholm, London, Berlin, or Paris. Meanwhile, the world’s biggest digital platforms such as Alibaba, Amazon, eBay, Flipkart and Rakuten, are turning millions of small enterprises around the world into “micro-multinational” exporters. Companies everywhere can overcome constraints in their local markets and connect with global customers, suppliers, financing and talent. These shifts are feeding back to the world of physical goods. Many firms are simplifying and shortening global supply chains where possible. For a range of goods, labour costs are no longer the biggest concern, as automation takes hold.

The transition from the physical to the virtual would seem to favour the United States, the world’s leading producer of digital platforms and content. The US accounts for more than 50% of online content consumed in every region of the world except Europe. China is not sitting still. Alibaba has built a global hold on B2B, spawning vast networks of small companies–and recording the largest stock market launch in history in the process.

Will other developing countries, which long vied for the world’s low-cost manufacturing business to climb the developmental ladder, lose out? What about Europe, especially countries like Germany that built their wealth on large physical export industries?

EU countries today occupy 19 of the top 25 slots in MGI’s global ranking of participation in cross-border data flows. The Netherlands tops the list, having made smart moves such as adding a virtual data leg to its harbour infrastructure. But a closer look shows three negatives: first, a steep drop-off in the MGI ranking scores for the majority of EU countries; second, Scandinavia, Belgium and southern European countries are slowly migrating to the periphery of those data flows; third, the size of all domestic data activity in the 28 EU countries is smaller than the total data flow import from the US.

The winners of this new era will be the well-connected and the digitally literate. That means investment in infrastructure, education, and skill training is more important than ever. For companies, countries and individuals everywhere, the opportunities created by digital flows beckon, waiting to be seized.

Digital globalisation: The new era of data flows, McKinsey Global Institute, March 2016

is a sponsor of the OECD Forum 2016

Visit www.mckinsey.com

©OECD Yearbook 2016

Innovation and the digital economy at the OECD Forum 2016

Other OECD Forum 2016 issues

OECD work on the Internet economy

OECD Ministerial Meeting on the Digital Economy

OECD work on trade

OECD work on innovation

OECD Yearbook 2016




Economic data

GDP growth: +0.6% Q2 2018 year-on-year
Consumer price inflation: 2.9% Aug 2018 annual
Trade: +2.7% exp, +3.0% imp, Q4 2017
Unemployment: 5.3% Aug 2018
Last update: 10 Oct 2018

E-Newsletter

Stay up-to-date with the latest news from the OECD by signing up for our e-newsletter :

Twitter feed

Suscribe now

<b>Subscribe now!</b>

To receive your exclusive paper editions delivered to you directly


Online edition
Previous editions

Don't miss

  • Globalisation will continue and get stronger, and how to harness it is the great challenge, says OECD Secretary-General Gurría on Bloomberg TV. Watch the interview here.
  • OECD Secretary-General Angel Gurría with UN Secretary-General António Guterres at the 73rd Session of the UN General Assembly, in New York City.
  • The new OECD Observer Crossword, with Myles Mellor. Try it online!
  • Watch the webcast of the final press conference of the OECD annual ministerial meeting 2018.
  • Listen to the "Robots are coming for our jobs" episode of The Guardian's "Chips with Everything podcast", in which The Guardian’s economics editor, Larry Elliott, and Jeremy Wyatt, a professor of robotics and artificial intelligence at the University of Birmingham, and Jordan Erica Webber, freelance journalist, discuss the findings of the new OECD report "Automation, skills use and training". Listen here.
  • Do we really know the difference between right and wrong? Alison Taylor of BSR and Susan Hawley of Corruption Watch tell us why it matters to play by the rules. Watch the recording of our Facebook live interview here.
  • Has public decision-making been hijacked by a privileged few? Watch the recording of our Facebook live interview with Stav Shaffir, MK (Zionist Union) Chair of the Knesset Committee on Transparency here.
  • Can a nudge help us make more ethical decisions? Watch the recording of our Facebook live interview with Saugatto Datta, managing director at ideas42 here.
  • The fight against tax evasion is gaining further momentum as Barbados, Côte d’Ivoire, Jamaica, Malaysia, Panama and Tunisia signed the BEPS Multilateral Convention on 24 January, bringing the total number of signatories to 78. The Convention strengthens existing tax treaties and reduces opportunities for tax avoidance by multinational enterprises.
  • Rousseau
  • Do you trust your government? The OECD’s How's life 2017 report finds that only 38% of people in OECD countries trust their government. How can we improve our old "Social contract?" Read more.
  • Globalisation’s many benefits have been unequally shared, and public policy has struggled to keep up with a rapidly-shifting world. The OECD is working alongside governments and international organisations to help improve and harness the gains while tackling the root causes of inequality, and ensuring a level playing field globally. Please watch.
  • Checking out the job situation with the OECD scoreboard of labour market performances: do you want to know how your country compares with neighbours and competitors on income levels or employment?
  • Trade is an important point of focus in today’s international economy. This video presents facts and statistics from OECD’s most recent publications on this topic.
  • The OECD Gender Initiative examines existing barriers to gender equality in education, employment, and entrepreneurship. The gender portal monitors the progress made by governments to promote gender equality in both OECD and non-OECD countries and provides good practices based on analytical tools and reliable data.
  • Interested in a career in Paris at the OECD? The OECD is a major international organisation, with a mission to build better policies for better lives. With our hub based in one of the world's global cities and offices across continents, find out more at www.oecd.org/careers .
  • Visit the OECD Gender Data Portal. Selected indicators shedding light on gender inequalities in education, employment and entrepreneurship.

Most Popular Articles

OECD Insights Blog

NOTE: All signed articles in the OECD Observer express the opinions of the authors
and do not necessarily represent the official views of OECD member countries.

All rights reserved. OECD 2018