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Page updated:
26 January 2000

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European Telework Development (ETD)

A New Geography of Trade:
Implications of Networked Economy Distances

This free of charge service is made possible by our sponsors:

These notes accompany the table of Networked Economy Distances at the European Telework Online website: http://www.eto.org.uk/eustats/netdist.htm.

A New Geography of Trade

Economic growth will now be "online" or "driven online"

The world continues to produce, sell and consume physical goods and services, and this activity will - at least in the medium term - continue to increase, especially in less-developed economies. However the greatest economic growth today and in future decades will be in "networked and networkable" products and services. This effect is sometimes called "the Information Society", our preferred term at European Telework Online is "The Networked Economy".

Alongside the growth in networkable goods and services, trade in physical goods and services will increasingly be conducted and facilitated by the use of electronic networks. A much-reported example of this is the emergence of the online bookseller Amazon and the impact of this on leading conventional booksellers, who quickly responded by establishing their own online marketing and selling activities. Similar examples abound in fields as diverse as cars, electronic components and luxury food and drink.

Three characteristics dominate this transition:
  1. Greatly reduced start up and running costs for online as opposed to conventional marketing and sales methods.

    A new venture that fully understands the new economy and consumer behaviours can achieve and impressive "net presence" in a few weeks and at a very low cost. Physical costs are indeed marginal, with many offers of "free web space". Human costs may be higher, specially for a presence that wants to be robust, up-to-date and reasonably proof against unexpected new developments. But compared with the effort and costs of starting a physical presence business from scratch the costs are very small.

  2. Global reach without the need for a local presence in distant markets

    Most people using a particular website don't know (and don't bother to find out) the geographic location of the site or its ownership. It trades on reputation and on the value of what it offers. Consumers world wide are getting into the habit of downloading and paying for informational products from trusted sources without concerning themselves with issues such as country of origin. Becoming a world presence is about effective "online marketing". Becoming and remaining a trusted source requires that the product be of real value and is properly supported. Neither of these requires local presence in multiple regions or countries.

  3. Easy and competitively priced access to global delivery services

    This ease of establishment and ease of presence is increasingly supported by companies competiting to offer global distribution services, so that many kinds of physical goods can also be sold online across national boundaries and global distances. In some cases these services are backed by distributed warehousing. Once the product and its marketing are proven, fast delivery can be provided in delivery-sensitive markets, again with a minimum of investment in both physical resources and management capacity.

New growth markets - including health and education

Of course, new skills and know how are required for success. There are at present more unsuccessful ventures into online marketing than success stories. In some cases the failures are new starts that are under-funded and don't make it. In others they are misguided or misdirected ventures by wealthy "old economy" multinationals. But the underlying trend is clear: growth in the future will depend on success in the networked economy. We are at the very beginning of this trend but already we can see the opening of quite new global trade activities in fields that were protected local markets, or - like telecommunications - state monopolies. The most obvious (and among the largest) new tradeable sectors are health and education.

A new analysis

Much of our work at European Telework Online and in the European Telework Development programme is focused on understanding the success factors for enterprises and for national and regional economies. In this we have looked for ways to explain the impact of the networked economy to decision makers. Our new analysis has explored the "new geography" which is making close "network neighbours" of countries and places that may be on opposite sides of the physical world, and increasing the network distance between countries and places that are right next to each other physically.

Death of Distance means New Neighbours

The new geography of the networked economy places Germany closer to USA than to France, UK closer to Australia and Hong Kong than Spain

This analysis by European Telework Development is creating a world map that will puzzle both airline pilots and school children. On this new map, the Netherlands has Canada and the Virgin Islands as near neighbours, closer in fact than its neighbours in the old geography, such as Germany and Belgium. The first stage of the analysis, part of an effort to understand the geography of the new networked economy, measures distance in terms of relative cost of a telephone call. According to this assessment, UK and Sweden have placed themselves next to the USA and Canada at the centre of the networked world. They have achieved this through early and progressive liberalisation of telecommunications, resulting in hot competition for customers' business and subsequent decline in the cost of International calls. Taking the cost of calls between USA and UK as a distance of one "new mile", countries get further from world centre as their international calling costs increase. This means that some European Union countries are close to centre, some much further from centre. Greece and Portugal are twice as far from world centre as Hong Kong, four times as far as Sweden and further "out" in networked economy terms than Malaysia. The table lists "distances" EU countries and other selected countries.

Eastern Europe on the Fast Track

The analysis shows that some countries of central and eastern Europe are on a fast track to the centre. Slovenia, the Czech Republic and Poland are already closer than either Portugal or Greece, with Estonia and Slovakia right alongside. From the Mediterannean region Israel is closer to the centre than Spain. Among Asian and Pacific economies, China at 8.1 new miles appears much closer than India (12.4), while the main "hi tech" economies such as Japan, South Korea, Taiwan. Singapore are as close as some European countries, with Australia and New Zealand both very close to the centre.

Breaking into the circle

Telephone calling costs are just one measure of the new geography, but a very important one. Cheaper lines for consumers means cheaper bandwidth for industry and - with other factors - faster Internet performance for e-business sellers and buyers. Government policy and actions can have a big impact on these factors. For larger, stable, higher-performance economies, a progressive approach to telecom liberalisation has the most leverage, since consumer and business spending power will attract the necessary investment and competition. In smaller, lower-performance or less secure economies Governments need to take additional action to entice investment and competition. There is no shortage of finance for investment in telecommunications, indeed there is an intense search for investment opportunities; every national and regional government should be aware of its current "distance from the centre" and have a clear strategy to get closer. Proximity to the centre of the networked economy will increasingly determine economic growth.

More citizens "online": faster learning and better skills

Lower international calling costs and faster Internet connections generally reflect lower internal (local) call costs and greater competition to deliver Internet services at lower costs to the citizen. This is borne out by the emergence in the UK of many free-of-charge Internet access services; users now can choose to pay only the local call cost of the phone call, with no charge whatever for surfing the web, sending email or even running their own websites. In the USA it has led to bundled packaging of Internet service and a powerful PC - sign up for a minimum period of Internet use and the PC comes "free".

What this means to the national economy is more rapid take up of Internet use by citizens and lower barriers to frequent and intensive Internet use. Citizens (and that means everyone, including school children and parents, managers and employees, entrepreneurs and bankers, politicians and civil servants) are learning to use the new technologies and developing the skills for success in the networked economy.

More businesses online: a critical mass of local opportunities

More citizens online leads to more businesses online. For many companies, retaining and developing their local customer base is the right priority, not venturing into the global market. Such companies will not find success on the Internet unless a critical mass of their local customers and prospective customers are using the Internet. So more citizens online means greater motivation for businesses to get online and more feedback from their local customer base to help them prepare for the wider competitive environment which is - or soon will be - targeting their markets.

Room for all at the Centre

One oddity of the new geography is that everyone can - at least in theory - occupy the same space. There is no intrinsic reason why Greece, Turkey, Egypt and Ethiopia shouldn't be as close to the centre as Sweden and Canada. The actions to achieve this in China will be different from those needed in Brazil. Even in countries of the same region and with simuilar economies (for example France and Germany) the strategies are different. What we do in the future depends on where we are starting from and is deeply influenced by history. What is clear is that any Government - national, local or regional - that doesn't act to move closer to the centre of the new economy is sacrificing the future wealth and well being of all its citizens and enterprises.

Note on methodology:

The table is derived from international calling costs for private citizens (residential subscribers in telecom jargon) using discounted services commonly available in most countries world wide to creditworthy individuals. Actual average costs to typical users in a particular country depend on a number of factors, including:
The extent and nature of telecommunications liberalisation
Some countries that are technically "liberalised" still sustain strategies designed to defend the existing dominant supplier against competition. More progressive strategies seek to encourage competition by restricting the actions of dominant suppliers in favour of new investors and innovators.


Levels and intensity of commercial investment in infrastructure
A progressive liberalisation policy encourages this but it is also influenced by other factors. For example, the underlying size and relative wealth of the economy - a larger, wealthier economy will attract more investment and competition than a smaller, poorer one.


Political and social stability
International sources such as the Economist Intelligence Unit routinely publish "ratings" of the relative political and social stability of different countries. The higher the rating the more attractive to inward investment, leading to greater competition and lower prices.


General degree of economic freedom
This indicates the extent to which the economy and the actions of individuals and enterprises is controlled or influenced by Governments. The higher the degree of economic freedom, the higher the attractiveness to both inward investors and home grown innovators.
In compiling the table we looked at both lowest and actual average costs for a selection of countries. Although the costs uses for the table are genuinely available to credit-worthy citizens in most of the countries, there is very wide variation in the extent to which the average prices paid by consumers reflect this. In general, the further from the centre, the more likely it is that the average real price will higher than the costs we have used, and greater the likely factor of increase. So while we may (for example) quote a particular country as "ten times as far" from the centre as (say) Sweden, it is likely that an average citizen of that country pays a rate that equates to 15, 20 or even higher multiples of the Swedish rate.

A further consideration is the level of telephone access. Even within Europe, the availability of both landline and mobile phones varies widely. In 1996 Portugal had less than 40 main lines per 100 inhabitants, compared with nearly 70 in Sweden. A citizen who lacks exclusive use of a phone connection is effectively at an infinite distance from the centre of the new geography.

These considerations show the need for strongly differentiated strategies by both governments and enterprises, reflecting their current and likely (or intended) future position on the new map.

Link to the "New Geography" Distances Table

Comments and discussion on this topic are welcomed in the Telework Forum - http://webboard.eto.org.uk/~telework

Supporting notes: The implications of Networked Economy Distances.

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