The importance of the digital economy

The importance of the digital economy

The digital economy is developing rapidly worldwide. It is the single most important driver of innovation, competitiveness and growth, and it holds huge potential for European entrepreneurs and small and medium-sized enterprises (SMEs). Unfortunately, only two percent of European enterprises are currently taking full advantage of new digital opportunities. How European businesses adopt digital technologies will be a key determinant of their future growth.

New digital trends such as cloud computing, mobile web services, smart grids, and social media, are radically changing the business landscape, reshaping the nature of work, the boundaries of enterprises and the responsibilities of business leaders.

These trends enable more than just technological innovation. They spur innovation in business models, business networking and the transfer of knowledge and access to international markets.

Challenges for the sector in the EU

Two billion people are currently connected to the internet and by 2016, this number will exceed 3 billion – almost half of the world’s population.

Businesses that fail to get digitally connected will become excluded from the global market.

The huge potential of the digital economy is underexploited in Europe, with 41% of enterprises being non-digital, and only two percent taking full advantage of digital opportunities.

New digital opportunities create new business opportunities. Now that youth unemployment has risen to over 20% in the EU (and to over 55% in Spain and Greece), the growth prospects offered by the digital economy in Europe are promising.

Other regions of the world are already ahead of the game. The digital economy now contributes up to eight percent of the GDP of the G-20 major economies, powering growth and creating jobs.

Over the last five years, the development of mobile applications alone has created nearly 500 000 new jobs in the US, implying strong employment growth prospects. That type of growth is not seen across the EU. It is estimated that 1.5 million additional jobs could be created in the EU digital economy if it mirrors the performance of the US or Sweden. 

Although many EU entrepreneurs are already leveraging digital technologies to create successful businesses and significant economic impact, that number could be increased. This is especially true given that European small businesses grow two to three times faster, and create new jobs when they embrace digital technologies. With the aid of technology, small businesses can also go global from day one, reaching overseas markets and talented potential employees.

Just engaging with customers online seems to create growth: figures have shown that SMEs from many countries that have actively engaged with consumers on the internet have experienced sales growth rates that are up to 22 percentage points higher over three years than those companies in countries with low or no internet presence. By not taking full advantage of digital technologies, EU businesses miss out on the chance to expand and create jobs. It is estimated that if all EU countries mirrored the performance of the USA or the best-performing EU countries, 400,000 to 1.5 million new jobs could be created in the EU internet economy.

New technologies also hold potential for the manufacturing industries. The digitisation of manufacturing can transform the entire industry, offering prospects for the re-location of industry in Europe. The digital economy will reach EUR 3.2 trillion in the G-20 economies and already contributes up to eight per cent of GDP, powering growth and creating jobs. In addition, over 75% of the value added created by the Internet is in traditional industries, due to higher productivity gains.

The European Commission works in many areas to help Digital entrepreneurship in the EU.

The Commission also works on other issues related to the competitiveness of the digital economy in Europe such as: