How entrepreneurship and democracy affect Net development

The speed at which the Internet develops can vary from country to country, and this has serious implications for the way in which a company manages its e-commerce approach.

4 min read
Rarely has a technology had greater effect on the spread of the global marketplace than the emergence of the Internet.

Many businesses have recognized the potential of a globe-spanning connection and have adapted their marketing and distribution strategies to accommodate a world of commerce that is spelled with three W's. But doing business in other countries is not always as seamless as the click of a mouse might make it appear.

The speed at which the Internet develops can vary from country to country, and this has serious implications for the way in which a company manages its e-commerce approach.

Mauro F. Guillen of the Wharton School and Department of Sociology at the University of Pennsylvania and Sandra L. Suarez of Temple University's Department of Political Science explore the economic and structural factors that affect the growth of the Internet in different countries in their paper "Developing the Internet: Entrepreneurship and Public Policy in Comparative Perspective."

The professors analyze data on public policy as well as the conditions for entrepreneurship in 142 countries and then take a more in-depth look at these components in Singapore, Ireland, Spain and Argentina.

"The paper essentially argues that the Internet has not diffused throughout the world in a random way, but rather that there are systematic patterns to its spread," explains Guillen. "We found that those systematic patterns don't have to do with privatization or competition in the telecommunications sector, but they do have to do with entrepreneurship and with how democratic a country is. The better the conditions for entrepreneurship and the more democratic freedoms exist, the faster the Internet develops."

Guillen and Suarez start with the numbers. According to their research, the percentage of the population that regularly uses the Internet ranges from more than 50 percent in Scandinavia to less than 1 percent in many underdeveloped African, Central American and South Asian countries. The number of computers linked to the Internet is also uneven, ranging from more than one for every 10 people to fewer than one for every 10,000.

From Singapore to Argentina
Through detailed analysis of four countries, ranging from Singapore as the most successfully wired to Ireland, Spain and finally Argentina, where the Internet is the least developed, Guillen and Suarez's paper, in part, confirms conventional wisdom.

"We found that the richer the country, the greater the accessibility of the Internet," explains Guillen. "And the more developed the telecommunications infrastructure, the more developed the Internet."

But the authors' conclusions regarding public policy are more surprising. Most people would likely argue that the more competitive the telecommunications environment, the lower the prices would be, leading to more widespread Internet use. Guillen and Suarez discover, however, that is not necessarily true.

The four countries studied differ in terms of the nature of public policy toward telecommunications and the Internet. Ireland and Argentina, for example, are liberal and pro-competition, while Singapore and Spain have been more interventionist. Even so, Argentina is the least Internet-savvy and Singapore is the most.

Internet development in Singapore, states the paper, has been rapid even though the government has implemented less-than-ideal policies. "For example, state intervention in the forms of regulation and content censorship has had detrimental effects on Internet use." Argentina, on the other hand, has full privatization and government deregulation.

But while the systematic patterns of public policy don't always matter in the development of the Internet, Guillen and Suarez discover that conditions for entrepreneurship, such as the ability to raise capital and whether or not the environment is risk-free, do have a consistent effect. The country comparisons reveal that Singapore and Ireland have strong conditions for entrepreneurs, even though, especially in the case of Singapore, the state has assumed the role of leading entrepreneur.

Meanwhile, the conditions for entrepreneurship in Spain and Argentina are weak. Telecom companies and other large domestic businesses play a prominent role there. Guillen and Suarez conclude, "Internet development benefits from institutional and legal conditions favoring entrepreneurship." Adds Guillen: "I think this confirms conventional wisdom, but it's still useful because nobody has demonstrated this before for a large number of countries."

Guillen and Suarez argue that the statistical and comparative analyses reported in their paper indicate that Internet development is "a complex phenomenon shaped not only by public policy and conditions for entrepreneurship but also by specific contingencies in each country." More research is needed, they say, to document and interpret how the Internet has developed in different countries.

Guillen says he is already moving ahead with further research on Internet development and related issues. To start with, he is building a better database of information on the 142 countries over several years as a way to capture change in their circumstances.

"I'm also looking at how specific companies go about selling their products in other countries," Guillen explains. "I want to understand how Internet markets develop in different parts of the world and then see how companies should react in order to be profitable."

To read more articles like this one, visit Knowledge@Wharton.

All materials copyright © 2000 of the Wharton School of the University of Pennsylvania.