Digital Connectivity

Digitalisation is transforming the global economy. Various factors have laid a solid foundation for economic digitalisation, such as high-speed Internet, the use of smartphones, the facilitation of online payments, changes in consumer behaviour, and service sector liberalisation. Digitalisation is disruptive to the traditional ways of doing business by introducing new digital tools, such as artificial intelligence (AI), cloud computing, big data, and machine learning, to the market (Chen and Kimura, 2019). For instance, digitalisation tends to lower market entry barriers and enable companies to tap into foreign markets that would otherwise be too difficult or too costly to access. This could be realised not only by reducing transaction and delivery costs, but more importantly, through greater international diffusion of information that allows firms to explore new markets globally. In the literature, Baldwin (2016) has explained the economic logic of the way digitalisation – the development of information and communication technology (ICT) – could lead to a new pattern of globalisation (the ‘third unbundling’) characterised by a new type of international division of labour, which would create strategies for national development. Therefore, digital connectivity will significantly affect a nation’s overall economic performance. Based on this, Kimura (2018) proposed a policy framework mapping the stages of technological progress and the possible choices of development strategies. Kimura and Chen (2018) applied this policy framework to an analysis of the development strategy of Indonesia’s economy. Their findings show that for large countries such as Indonesia, given the existence of development gaps within the country, digitalisation could expand the policy space and allow policymakers to adopt diversified strategies to promote economic development. For regions with significant diversity, this sheds lights on regional development patterns. In this regard, digitalisation will have important implications for Asia’s development. The next Asian growth miracle could be born with the region’s transformation to the new digital era, whose new ideas, technologies, mindset, tools, and businesses are changing the way people live, work, and study. For instance, the Association of Southeast Asian Nations (ASEAN) and East Asia has the world’s fastest-growing online market, with an internet user base of more than 350 million and an overall market size of $72 billion in 2018. Google and Temasek (2019) projected that the regional e-commerce market would keep growing at an average rate of 25%–35% per year in the next 5–10 years. From 2017 to 2025, the market size of online business will increase by a factor of five (Statista, 2019). In ASEAN, the annual growth of e-commerce revenue relative to regional gross domestic product (GDP) growth is projected to be twice as much as the ratio of global e-commerce revenue growth to world GDP growth. The ASEAN Economic Community (AEC) Blueprint 2025 (ASEAN, 2015) and ASEAN Socio-Cultural Community Blueprint 2025 (ASEAN, 2016) highlighted the importance of incorporating economic digitalisation in ASEAN’s development. To realise the potential of fast growth, many tasks must be completed. A fundamental task for ASEAN is to improve digital connectivity, which, as the International Telecommunication Union (ITU) and the United Nations Educational, Scientific and Cultural Organization (UNESCO) (2019) argued, requires ‘efforts to promote the benefits of online participation while mitigating the potential downsides’ (ITU and UNESCO, 2019: ix). For many developing countries, infrastructure remains one of the main barriers to the development of the digital economy. During the coronavirus disease (COVID-19) pandemic, when many countries implemented social distancing or lockdown measures to limit mobility and prevent the spread of the virus, digital solutions provided an effective backup to government policies and actions. In many areas, online solutions proved to be an efficient substitute for offline practices – from doing business online to working and studying from home. Let us take the growth of e-commerce as an example. Since 2015, e-commerce markets in ASEAN have grown at a compound annual growth rate of 20%. During the COVID-19 pandemic, the world’s total e-commerce revenue was estimated to have increased 25% from 2019 to 2020, while that of ASEAN increased by more than 40%. In ASEAN, nearly 40 million new e-commerce users entered the market in 2020. Online services boomed quickly in the region. The online food delivery market was estimated to grow by more than one-third from 2019 to 2020, driven mainly by the Platform-to-Customer commerce. As more offline activities switched online, the importance of digital connectivity was highlighted. For that reason, digital connectivity is a vital element of the Comprehensive Asia Development Plan 3.0. This chapter provides insights into digital connectivity by (i) examining the general development status of digital connectivity in the region, showing both the progress and the weaknesses; and (ii) discussing the importance of rules and regulations in facilitating digital connectivity, especially the vitality of free flow of data with trust within the region.