Authorized Authorized

74 WORLD DEVELOPMENT REPORT 2016
Table 1.1 The internet impact is highest for data-intensive activities that involve
easy-to-enforce contracts
Data-intensive activities More scalable Less scalable
Less complex products (contracts easier
to enforce)
More complex products (contracts more
difficult to enforce)
Retail and wholesale trade, transport,
insurance, banking
Agriculture, education, health care,
hotels and restaurants, manufacturing,
real estate, utilities
Legal services
Construction
Source: WDR 2016 team.
Note: The approximate grouping of sectors is based on the literature; among others, on Bloom, Sadun, and Van Reenen (2012).
market these products and match buyers and sellers
(table 1.1). 55
• Scale effects. The impact of the internet is larger if the
internet can help achieve scale effects. For instance,
longer value chains require more intensive realtime
communication or sharing of large amounts
of data between different stages of production or
with suppliers and clients. The internet reduces
these transaction costs, enabling scale effects and
increasing management efficiency. 56
Firms using digital technologies need to
invest in skills and reorganization
As for any new technology, integrating digital solutions
into firms’ business models can be risky and lead
to costly failures. Digital technologies have often been
called on to help meet supply chain needs, but not all
have brought the expected widespread benefits. Five
or ten years ago, radio frequency identification tags
for tracking individual goods were considered the
major source for efficiency gains. U.S. retailer Walmart
required its biggest suppliers to use the tags, but their
use has not taken off in the extended supply chain.
The successful use of digital technologies depends
on firms’ complementary investments in skills and
organizational restructuring. That more productive
firms use digital technologies (more intensively)
suggests that there are barriers to firms using them
more effectively. Two such barriers for firms are the
skills of the workforce and the ability to reorganize
management processes to make better use of the
efficiency gains that digital technologies can provide.
There is even evidence that investing in ICTs without
business process reorganization can reduce firms’
productivity growth. 57
The correlation between firm productivity and
ICT capital stocks among firms in India and Brazil
increases significantly after firms have reorganized
their production structures or hired more skilled
labor. Firms in Vietnam with a more educated workforce
or a higher share of managers relative to total
staff had a stronger correlation between firms’ use of
the internet (such as selling products online) and TFP
growth in subsequent years. 58
The majority of firms in Eastern Europe and Central
Asia that use broadband internet have not reorganized
their businesses, pointing to potential inefficiencies
in the way it is deployed. Only one-fourth of
firms using ICTs have adjusted their organizational
structures or management practices (table 1.2).
The differences in these complementary investments
help explain the heterogeneity in the use and
impact of digital technologies. For instance, firms’
investments in computerized information (digital
technologies) are comparable among firms in the
United States and Brazil (figure 1.18). But U.S. firms
Table 1.2 Many firms use the internet without changing their organizational
structures, limiting its impact, 2010–14
percentage of firms
Did your firm introduce new or
improved organizational structures
or management practices?
Firms that use
broadband
Firms that use
e-mail
Firms that have
a website
Yes No Yes No Yes No
Yes 23 10 22 7 26 12
No 77 90 78 93 74 88
Source: Hussain (2015) based on World Bank Enterprise Surveys, various years.