- The Enabling Digitalization Index (EDI) measures how countries help digital companies and support traditional ones harness the digital dividend. Digital agility is a key element of non-payment risk by companies: Both countries that transform too fast, and those that go too slow, are at-risk of more insolvencies.
- The U.S., Germany and Denmark successfully made the top three of the 2019 EDI ranking. Denmark in particular moved up 9 ranks. China entered the top 10 for the first time after rising 8 ranks. This breakthrough adds to the worry of a digital cold war, on top of a US-China trade feud.
- In spite of their high potential, several advanced economies exhibit lower digital adoption: Austria, France, Spain, South Korea, Switzerland, Germany, Luxembourg, New Zealand, Norway, Sweden and the UK. By not realizing their potential, companies in these countries are at risk of becoming “digital zombies”.
Paris, September 11th 2019 – Euler Hermes presents the third edition of its Enabling Digitalization Index (EDI) (read the study), which analyzes a country’s ability to provide an environment where companies can digitally transform successfully. The score is based on 5 components: regulation, knowledge, connectivity, infrastructure and size.
Leaders of the digital world: US vs China
Once again, the United States tops the list with a score of 87 out of 100. The country’s knowledge ecosystem, its competitive market size and favorable regulation help U.S. companies digitalize quickly. Nevertheless, the U.S.’s infrastructure score has slightly declined from last year.
Denmark is a newcomer to the top 10, and a particularly interesting case, climbing up nine ranks to 3rd position this year. The country seems to have benefited from a unique connectivity improvement and enhanced infrastructure. Overall, Western Europe stands out from other continents with 19 countries ranked in the top 30 and 4 out of 5 spots in the top 5.
“China boomed into the top 10 at 9th place, up from 17th place in 2018. How? Thanks to regulation, such as shortening lengthy procedures to open a business. China’s breakthrough is a wake-up call: It partly explains the escalation of the U.S.-China trade feud into a digital cold war and the geo-politicization of the 5G technology race,” explains Georges Dib, Economist at Euler Hermes.
Enabling digitalization index 2019
Beware of untapped potential
Though our index focuses on each country’s environment, this year we decided to provide a reality check by comparing the EDI to seven existing digital adoption indicators, highlighting the gap between countries’ potential for digitalization and the realized stage of digitalization.
While Germany managed to maintain its 2nd place in the EDI (10 points below the U.S.), it lags behind when it comes to digital adoption indicators such as cloud computing and the number of ICT specialists.
Another example is the UK (5th in the EDI 2019, for the second year in a row), where user penetration in the mobile point-of-sale segment, and tech companies’ market share as a proportion of GDP are particularly low.
“Germany, the UK, France, Spain, Austria and Switzerland show a high potential for digitalization but adoption is still too low. They could see a rise of digital zombies among their worst-performing firms, thereby amplifying insolvency risk”, adds Ludovic Subran, Chief Economist at Euler Hermes.
Looking at 115 countries, we identified that the optimal strategy is focusing on knowledge to close the digital gap (tech market capitalization, cloud computing, big data and e-orders) between potential and reality. This includes investing in skills (higher education and training, digital competences) and innovation capabilities (R&D spending, scientific publications).
The EDI measured the conditions for companies to transform and thrive digitally. The score is made of 5 components:
- Regulation. A conducive business environment is a strong driver for financing, investment and entrepreneurship. We use the Distance To Frontier indicator from the World Bank Doing Business survey. The indicator is a proxy of regulation aspects, which matter for digitagility (ease of getting credit, minority investor’s protection).
- Knowledge. Developing, sharing and using knowledge is pivotal in the digital era. Clear knowledge drivers are human capital building and innovation potential. We use the Skills score developed by the World Economic Forum (secondary and tertiary enrollment rates, quality of the education system, the extent of employees’ training, digital competences) and the Innovation score (R&D by corporates, collaboration between universities and the private sector, intellectual property laws).
- Connectivity. This relates to secure and accessible networks for digital transformation. It is assessed using four indicators: the internet user ratio (the number of people using the internet as a percentage of the population), mobile phone and fixed phone lines subscriptions per 100 people and the number of secure servers per 100 people.
- Infrastructure. Good logistics is an enabler for digital attractiveness. We use the Logistic Performance Index (Doing Business) as a proxy of soft and hard logistic infrastructure.
- Size. A large and digital savvy customer base is essential for businesses. We measure it using the number of internet users and their incomes (captured by nominal GDP).