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The Global Connectivity Index– Benchmarking a Better Connected World

By William Xu, Strategy Marketing President of Huawei

At Huawei Cloud Congress (HCC) 2014 on September 16, 2014, Huawei released the Global Connectivity Index (GCI) — the first quantitative assessment that comprehensively and objectively evaluates connectivity from both national and industrial perspectives. Drawing on the economic supply and demand theory and the value creation system of enterprises, the Index presents the value of connectivity based on findings from 10 industries and 25 countries, including both developed economies (e.g., Germany, the UK, and the US) and emerging economies (e.g., Chile, Brazil, and Kenya). The surveyed countries account for 78% of global GDP and 68% of the global population. Industries covered in the Index include finance, manufacturing, education, and transport and logistics.

Global Connectivity Index by Country

Connectivity is pivotal to national competitiveness.

Figure 1: National rankings in connectivity

GCI reveals that connectivity is pivotal to national competitiveness. The Index examines the connectivity of countries based on 16 indicators across two dimensions (Current Connectivity and Growth Momentum). The Current Connectivity dimension assesses connectivity in terms of penetration, bandwidth, and affordability. The Growth Momentum dimension assesses connectivity from a future perspective, emphasizing national broadband planning, mobile app downloads by users, and ICT activity per person. By analyzing the 16 indicators across two dimensions, the Index has concluded that for every 1% increase in connectivity, per capita GDP will grow by 1.4% to 1.9%, with the growth rate higher in developing countries than in developed economies. Such analysis provides markets with guidance on how to leverage connectivity to achieve social transformation, bridge the digital divide, and foster innovation and national competitiveness.

Among the 25 countries surveyed, Germany took the top spot in connectivity, followed by the US and the UK. This indicates that developed economies are investing in ICT to maintain their competitive vitality.

Germany ranked third in Current Connectivity globally, and second in Growth Momentum among developed countries. This is the result of the country’s advanced broadband infrastructure that delivers an average bandwidth of 24 Mbit/s at a highly affordable price. According to the Index, Germany ranked first in Fixed Broadband (FBB) affordability among all developed countries surveyed. The average broadband service expenditure in Germany accounts for a mere 1.16% of income per capita. In addition, Germany has formulated positive policies to encourage and protect ICT innovation. This in turn positioned Germany as one of the top three developed countries with the highest growth rates of mobile devices and IP addresses. A growing number of enterprises and individuals are joining a Better Connected World.

In the manufacturing field, Germany is capitalizing on its established advantages in ICT to drive Industry 4.0, which is widely regarded as the fourth industrial revolution. The first industrial revolution was driven by steam engines, which led to the mechanization of production. In the second industrial revolution, electricity made mass production possible. In the third industrial revolution, electrification and IT turned manufacturing automation into a reality. Industry 4.0 empowers “Smart Factory” on cyber-physical systems, which employ the Internet of Things (IoT) to integrate physical equipment and the Internet. As a result, smart manufacturing is taking shape. The German Electrical and Electronic Manufacturers’ Association projects a 30% increase in productivity thanks to Industry 4.0.

Positive ICT policies are also accelerating growth in developing countries, with Chile, Kenya, and Egypt taking the top three spots in Growth Momentum.

With the highest growth momentum the world over, Chile ranked first among developing countries and fourth globally in the GCI Country study. Government investment in communications equates to 0.9% of GDP, which is the fourth highest among all 25 countries surveyed. Chile enjoys an average FBB download speed of 14 Mbit/s, compared to Mexico’s 11 Mbit/s and Brazil’s 9 Mbit/s. Chile’s FBB download speed, FBB affordability, and MBB affordability are rather impressive, ranking top three among developing countries.

Chile is continuously investing in ICT to drive economic growth. With the Chilecon Valley program, Chile is rapidly building broadband infrastructure, encouraging innovation, and pooling a diverse array of talent, technology, and business resources. By 2018, the number of mobile apps per user is expected to grow at a compound annual growth rate of 60%. High-quality broadband services are spawning innovations. Today, Chile is progressing by leaps and bounds to become the tech hub in Latin America.

The good news is that a majority of countries have added ICT investment-driven development to their national strategy. Through centralized planning, these countries are unleashing the potential of ICT to support robust economic growth.

Global Connectivity Index by Industry

ICT is transforming the end-to-end value creation process. Industries are unlocking the potential of ICT to foster innovation.

Figure 2: 65% of enterprises surveyed plan to increase their ICT investment over the next two years

How can an enterprise create value? Traditionally, land, labor, and capital determined the ability to create value. ICT has changed this. In addition to defining new product types, the ICT industry has torn down physical boundaries between enterprises and their customers and has energized innovation, entrepreneurship, and new business models. A growing number of industries are taking advantage of ICT to transform their end-to-end value creation process, covering such key links as product development, production, supply, sales, and service.

GCI uses the Global Connectivity Index-Industry (GCI-Industry) to fully assess the ICT-driven digital reformation of selected industries based on eight indicators across the two dimensions (ICT Intensity and ICT Value). ICT Intensity measures the ICT strategy and the ICT investment. ICT Value assesses efficiency (in production and supply chain), innovation (in product development), and engagement (in customer service). This index system can also be used to evaluate the degree of digital reformation in an enterprise.

The Index shows that 65% of enterprises surveyed plan to increase their ICT investment over the next two years. Among the 10 industries surveyed, the finance industry has the highest score in ICT Intensity and ranks first in the GCI-Industry study. Up to 71% of financial enterprises responded that they would increase their ICT investment by more than 5% in the coming two years.

In addition, 73% of respondents said that ICT accelerates product go-to-market; 81% of those surveyed launched new services or improved existing services with ICT investment; and 70% predicted that revenues from digital channels will grow sharply in the coming two years. These numbers and projections demonstrate that different industries are actively embracing ICT to streamline business processes, reduce costs, and improve efficiency. Industries are unlocking the potential of ICT to foster innovation. The transport and logistics industry took the first spot in ICT “Value;” it ranked second in “efficiency,” first in “innovation,” and third in “engagement.”

By studying the ICT “Intensity” and ICT “Value” dimensions of different industries, the GCI-Industry study adopts a Connectivity Quadrant to categorize ten industries into four quadrants: Transformers, Strategists, Tacticians, and Stragglers.

•Transformers: ICT is recognized as the core enabler of change across all business activities, including processes, production, and revenue generation. These enterprises are increasing their ICT investments and rethinking their business models. Enterprises in this grouping are most likely to initiate and implement a company-wide business transformation program.

•Strategists: These enterprises have high expectations for ICT and are willing to invest long term. However, value generated from ICT is limited due to modest competition, a late start, or lack of experience. These enterprises must continuously create more value from ICT.

•Tacticians: These enterprises are highly competitive, have abundant experience with ICT, and emphasize innovation. Yet, they are more likely to make highly selective investments in ICT, and prefer quick wins that are easy to explain.

•Stragglers: These enterprises usually invest in ICT as a means to solve immediate problems, with ICT primarily viewed as a means to cut costs and keep the lights on.

The Connectivity Quadrant presents the positions of different industries in terms of digital reformation. Standing at the forefront of ICT reformation, the finance, education, oil and gas, and manufacturing industries are in the Transformers quadrant. The Connectivity Quadrant helps enterprises understand the progress of ICT-driven digital reformation and future trends, which are essential for enterprises to effectively adjust their strategy.

Four Technological Engines behind ICT-enabled Industry Transformation

Huawei forecasts that by 2020, global ICT spending will increase to approximately US$5 trillion. Today, ICT has changed its role from a support system that improves efficiency into a production system that drives value creation. Connectivity has become a new factor in production in addition to land, labor, and capital. According to the study, mobile broadband, cloud computing, Big Data, and the IoT are the four technological engines that most enterprises aim to focus on when completing their ICT-enabled transformations.

Cloud computing is now the most important ICT resource, as its leverage enables enterprises and ICT service providers to deliver better services (through economies of scale) and reduce cost through centralized infrastructure. The supporting technologies that make cloud computing possible are advancing and creating new synergies. Software, storage, computation, and connectivity are interdependent and allow for a scalable, convergent platform. The value of the platform is greater than the sum of its components. Because cloud computing is enabled in the data center through standard IT platforms, flexibility, scalability, and upgradeability are guaranteed.

The IoT will be a cornerstone of a Better Connected World. Intelligent, low-energy consumption modules connected through a ubiquitous network will be the cement. The prices of sensors, cameras, chipsets, and wireless transceivers are coming down. Once these modules become widely used, communications will do more than just connect people; it will connect people and things, and things to things. This will mean a new era of automation, efficiency, logistics, and feedback. All these improvements will create new value for users and enterprises.

Big Data is the oil of the 21st century. Its value in the business world will be immeasurable. Users and enterprises are constantly generating data — user location, application information, customer inquiries, user experience metrics, and sales figures, to name just a few. Massive amounts of data can lead to disastrous consequences if mismanaged or become a gold mine if tapped; the outcome depends on the ability to crunch data in an accurate, efficient, and timely manner. Big Data mining and data control capabilities are a core competence of enterprises.

Mobile Broadband (MBB) is critical for ubiquitous connectivity. The 4G era is here. According to GSA's report Evolution to LTE Report released on September 17, 2014, 331 carriers are rolling out commercial LTE services to serve 280 million users across 112 countries. Mobile bandwidth will grow eleven-fold over the next five years. The shipment of mobile smart devices is expected to be twenty times that of PCs in 2017, versus that of five times in 2012. 5G research is entering a new stage as connectivity speed, latency, and capacity are significantly improved. These improvements will breathe new life into innovation for the industrial Internet.

Huawei forecasts that by 2025, as many as 100 billion connections will be generated globally, 90% of which will come from intelligent sensors. This increase will be attributed to the growing number of enterprises becoming connected. By leveraging connectivity to streamline business processes, reduce costs, and improve efficiency, enterprises will unlock the potential of ICT to drive innovation and move the focus from a consumer-driven Internet to an industrial Internet. An industrial Internet of grand size is on the horizon.

Connectivity is pivotal to national competitiveness. ICT investment will help developed countries remain competitive and empower developing countries on their road to accelerated growth. The door to the industrial Internet is opening, with ICT transforming the end-to-end value creation process of enterprises.

[Link] Analysis of the Global Connectivity Index (GCI)

Over the past centuries, our society’s development depended heavily on the consumption of natural resources. In the future, the Earth will bear the burden of “more” — more people, more cities, and more consumption. This poses a tremendous challenge to traditional development models. If we do not change the way we produce and consume, sustainability will be impossible.

A pressing issue is figuring out how to do more with less. Connectivity-focused ICT technologies, such as cloud computing, 5G, and the Internet of Things, are engines that can drive global sustainability. Undoubtedly, ICT infrastructure and networks are now as vital to the prosperity and competitiveness of countries and industries as electricity and roads.

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