WHAT DEFINES THE DIGITAL DIVIDE? - skolkovo iems
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D I G I T A L THE S S I A N F E O F R U LI 2 0 G I O N S 20 E R ES THE DIGITA L D I V I D E? H A T D E FIN W SKOLKOVO Institute for Emerging Market Studies (IEMS) 2020
Ruben VARDANYAN, Impact Investor and Venture Philanthropist «The world has never been as dynamic as it is today: technological disruptions, demographic shifts, economic turbulence, and political unrest bring challenges on an unprecedented scale. Twenty years ago nobody could have imagined that the combined GDP of the top seven emerging markets could exceed that of the G7 countries. These markets offer both a great opportunity and a major challenge for any business. By establishing IEMS we wanted to contribute our views and insights to the dialog of business with policy-makers and NGOs in all emerging markets. We believe that open multi-stakeholder dialog will eventually help businesses and politicians come up with better-informed decisions that make a positive impact and drive change for better.» Karl JOHANSSON, former Managing Partner, EY Russia & CIS, Chairman of the Analytical Credit Agency of Russia (ACRA) «Studying emerging markets from within – that is the idea behind bringing together the research teams in Moscow, Hong Kong, and Hyderabad into the international and interdisciplinary research network. These are the most effective means to deal with the dynamics and complexity of the changing nature of emerging markets. Assisting international businesses better understand emerging markets and operating businesses in emerging markets expand globally – those are the strategic aims of the research initiatives at IEMS.» FOUNDING PARTNERS RESEARCH PARTNERS MOSCOW | HONG KONG | HYDERABAD
RESEARCH AREAS Contents Summary 6 The Digital Divide as the Key Challenge of the Vladimir Digital Age. KOROVKIN 10 Head of Digital and Innovations Components of Digital Life digital@skolkovo.ru 22 Leading Cities in Terms of Digital Life 26 DIGITAL Digital Divide TRANSFORMATION Determinants 30 How to Bridge the Digital — Digital Divide? transformation of the living environment, of business 34 models and of consumer behavior Appendix 1. Digital Life Index Metrics 38 Appendix 2.—Leading Innovations for, in, Cities and Lagging and from the emerging in Terms economies of the Supply and Demand Ratio per Digital Life Dimensions 41 — Management, governance, and policy in the digital age Notes 54 READ AGENDA N HOW TO L OF RUSSIA AL OFFICERS TA D IG IT THE DIGI MATION? F R TRANSFO CH IE 2 formation stitu te ital Trans ad the Dig OLKOVO In How to Re m the SK MS) paper fro (IE A working g Market Studies for Emergin S LIFE LATFORM DIGITAL DIGITAL P SYSTEMS ECO AN AND THE L OF RUSSI S OF FIN A N C IA ISE MEGAPOL CASES INCLU S IO N . THE CE YNAMICS. EXPERIEN MODEL. D RUSSIAN SKOLKOVO Institute for Emerging Market Studies (IEMS) 2016 The Moscow School of Management SKOLKOVO 2015 1
Dear friends, Digitalisation of all areas of life is becoming this report is not so much to rank the country’s an increasingly vital requirement in the mod- regions in terms of their digital maturity as ern age. It is an imperative for any country to provide scientifically-grounded suggestions that wishes to solidify its position in our ever- for the direction and nature of actions to be changing world. It is no coincidence that the undertaken by regional administrations, busi- Digital Economy has become one of the key nesses and opinion leaders in order to acceler- national programmes intended to shape the ate digital transformation. future of Russia. It is safe to say that the digi- The results of this study encourage opti- tal transformation of the economy is not just mism—they show that the quality of a region’s a fad or a way to spend more budget money digitalisation is determined not by its resource but a key tool for improving the quality of life capability but by the quality of the regional that should focus on the needs of the general policies and human capital. The digital era public. can open up new opportunities for small and But is it possible to achieve nation-wide dig- medium-sized cities, provided they set clear ital transformation without digitalisation at priorities and make efficient use of available the regional level? The obvious answer is no, resources, no matter how limited. This report since a country’s economy can only be as digi- does not just acknowledge the current situa- tal as its constituent parts. It is critical to un- tion but also shows how to design an effec- derstand the regions’ relative progress with tive digital acceleration programme that could the digitalisation of economic and social life create new social and economic opportunities in order to properly assess the current situa- and what relevant competencies should be de- tion across Russia and make realistic plans for veloped by regional administrations, entrepre- the future. neurs and opinion leaders.. The Moscow School of Management SKOLKOVO has been studying regional digi- Andrei Sharonov tal development for over five years now, noting both a general positive trend and the areas re- President of the Moscow School quiring accelerated development. The goal of of Management SKOLKOVO 3
Dear colleagues, The issue of digital inequality grows increas- digitalisation become attractive platforms for ingly relevant as economic success in the con- developing local management hubs, research temporary world is becoming more and more and innovation centres, venture projects, etc. dependent on the use of modern digital tech- This new study by the Moscow School of Man- nologies. For more than two decades, it has agement SKOLKOVO describing the digital life been attracting the interest of researchers and of Russian regions provides ample food for politicians, but we believe that business lead- thought for entrepreneurs looking for ways ers should devote their full attention to it as to expand their presence in the Russian mar- well. There are two aspects of digital inequal- ket. Its conclusion is of particular interest as ity and the digital divide that both global and it debunks a popular belief that state-of-the- local businesses need to consider—that of the art technological development can only be market and of resources. achieved in the capital regions of Russia. The On the one hand, the local market’s satura- numbers presented in the study prove that tion with digital technologies leads to an in- businesses should start paying closer attention crease the scale and variety of opportunities to small and medium-sized cities with consid- for businesses. On the other hand, since the de- erable potential for development. velopment of digital technologies is closely re- lated to the quality of human capital and the business environment, regions with advanced Alexander Ivlev CIS Managing Partner at EY 5
Now that digital technologies have become a key driver of social and economic development of com- panies, regions and countries, the problem of the so-called digital divide, or the gap between the lev- els of technological capabilities, is growing increasingly acute. This divide can be observed within each country, and between regions or social and demographic groups. Some degree of digital divide objectively exists at all times, but beyond a certain level it becomes socially and politically unaccept- able—when people from information-deprived regions or social groups find themselves in “another universe” in terms of their economic and social opportunities. It is critical to answer two questions: does the degree of digital divide increase or decrease over time in “natural” conditions, and are there scenarios for independent bridging of the digital divide by underperformers? The majority of the world has moved beyond the “primary” digitalisation—creating the necessary Internet access infrastructure—to the “secondary” stage, i.e. creating as many individual digital solu- tions as possible that unite into comprehensive multidimensional systems. Such systems generate a network effect where the value to users grows faster than the number of system participants. To evaluate the processes of secondary digitalisation, the Moscow School of Management SKOLKOVO developed a seven-dimensional model of “digital life” back in 2014, and then proceeded to test it on Russian million-plus cities. In the new wave of the study, the sample included all the capitals of the constituent entities of the Russian Federation, as well as a number of major non-capital regional cen- tres—91 cities in total. The expanded analysis scope made it possible to compare cities that differ greatly in terms of their size, income level, economic structure, and history. The second-tier digital divide between Russian regions is considerable: the final Digital Life Index score of the leading cities (Krasnodar and Ekaterinburg) is almost 5 times higher than that of the trailing city (Magas-Nazran). At the same time, supply is distributed much more evenly, with only a three times difference between the leading and the trailing city; the resulting digital divide has more to do with gaps in digital demand determined by the population’s digital skills. The correlation between the city’s size and the vibrancy of its digital life is not linear: small cities (with less than 100,000 people) have a higher scores than cities with a population of 100–200,000. In terms of demand, they even surpass cities in the 500,000 to 1 million people range, being second only to the million-plus cities. At the federal district level, the Ural Federal District and the Central Federal District take the lead. Despite Krasnodar’s leadership among cities, the Southern District is in the middle of the list, while the North Caucasian District is at the bottom. S u m m ar y 7
Statistical analysis of the contributory factors revealed a picture similar to the well-researched digi- tal divide between countries: human capital and expansionary policies play the key role, while the resource capability factor is not so significant. The results inspire a certain amount of optimism, since the digital divide can be bridged through purposeful strategic actions rather than by pouring resources into the regions. Each region can and should aim to develop its digital life to the fullest to experience significant results, such as: • Acceleration of social and economic development and improvement of the quality of eco- nomic growth (fixing the existing structural imbalances in the well-resourced primary pro- ducing regions); • Fair access to social and economic resources, reduction of inequality, and provision of in- clusive opportunities; •D ecent quality of life with opportunities for self-fulfilment; • Development of the region’s soft power and competitiveness both on the national and the global scale. What are the benefits of a well-developed digital life for a region? What can be gained from secondary digitalisation? A previous study by the Moscow School of Management SKOLKOVO demonstrated that digital technologies matter a lot when it comes to the general perceived quality of urban envi- ronment. They are turning into key competitive tools for cities and regions in the national and global human capital markets, helping them to attract, develop and retain successful, ambitious and inno- vative people who can give a fresh impetus to the regional social and economic development. Thus, bridging digital divide must be an integral part of any answer to the challenges faced by all Russian regions. 8 T H E D I G I TA L L I F E O F R U S S I A N R E G I O N S 2 0 2 0
S u m m ar y 9
Digital Divide as the Key Challenge of the Digital Age. 10 T H E D I G I TA L L I F E O F R U S S I A N R E G I O N S 2 0 2 0
Penetration by digital technologies into all as- countries, regions and social groups in terms pects of daily life is becoming an increasing- of “information wealth”. However, a number of ly important factor in the social and economic recent studies in the U.S. have shown that the development of countries and regions. While county-level digital divide is still almost hun- creating new opportunities for growth accel- dredfold.ii eration, this integration also exposes risks of Some degree of digital divide must exist the so-called digital divide—countries and re- in all numerate societies, but beyond a cer- gions without sufficient resources for effec- tain level it becomes socially and politically tive digitalisation increasingly lagging behind unacceptable. It is difficult to pinpoint where the leaders. The digital divide between coun- this critical threshold lies, but it is intuitively tries is becoming a progressively more urgent clear that situations in which people from in- global problem,1 but it can also be observed formation-deprived regions or social groups within countries, between regions or social can find themselves in “another universe” in and demographic groups. terms of their economic and social opportu- In 1998, the U.S. National Telecommunica- nities should not be tolerated. For regions, tions and Information Administration pointed this can accelerate human capital outflow and out that the gap between some social groups make it irreversible. The Moscow School of in terms of Internet access could be as large Management SKOLKOVO’s 2016 study Digi- as twentyfold.i The increasing importance of tal Life of Russian Megapolises has shown the Internet as a means of obtaining informa- that the quality of the digital environment tion, as an economic tool and as a socialisation in a city correlates closely with the perceived facility meant that, with the status quo pre- quality of life, i.e. access to digital informa- served, society faced a real danger of division tion is becoming a key factor in general well- into the “information rich” and the “informa- being. With a wide digital life development tion poor”. Subsequent studies on the differ- gap, a city risks losing its most innovative, ences in Internet access levels between differ- dynamic and mobile residents—those who ent countries revealed an even more troubling can develop its digital environment effective- picture: in 2000, the disparity between OECD ly. Such trends can become a vicious circle, and non-OECD countries was almost a hun- where greater human capital losses mean dredfold, and within the OECD itself, the gap fewer opportunities to attract, develop and between the leader, the U.S., and Mexico and retain such capital. Turkey was almost as great. In this context, it is critical to answer two For some time, the digital divide seemed questions: (1) does the degree of digital divide like an inevitable side effect of the early stages increase or decrease over time in “natural” of the brave new wired world. The explosive conditions (i.e. without significant efforts to growth of the global Internet, with numer- accelerate the development of underperform- ous access channels (particularly various mo- ing countries and regions), and (2) are there bile technologies), provided an illusory solu- scenarios in which independent bridging of tion to the problem, with the convergence of the digital divide by underperformers can 1 This problem started gaining attention at the turn of the century, prompted by the publication of such influential books as Digital Divide: Civic Engagement, Information Poverty, and the Internet Worldwide (Pippa Norris, 2001) and Technology and Social Inclusion: Rethinking the Digital Divide (Mark Warschauer, 2004). The more recent important publications on this topic include the chapter The Digital Reproduction of In- equality in (Eszter Hargittai, 2018) D igital D i v ide as the K e y C hallenge of the D igital A ge . 11
happen, or does that require a considerable healthcare, education, media, and state ad- amount of external resources? The answers to ministration.iv Supply and demand are evalu- these questions can define the processes of na- ated for each aspect individually, and analysis tional digital strategising that is gaining mo- of gaps between them provides concrete ideas mentum throughout the world.iii for managerial actions (See the insert How to By definition, such answers require quan- Measure a City’s Digital Life?). This model titative study, but that presents serious meth- was tested on Russian million-plus cities as odological challenges. In general, it seems part of the two studies (2014 and 2015), which evident enough that digital transformation generated interesting comparison data, both processes should be evaluated on the basis of static and dynamic. their outputs rather than inputs—otherwise, In the second wave of the study, the sam- the less well-off countries and regions would ple was greatly expanded to include all the indeed be destined forever to lag behind to an capitals of the constituent entities of the Rus- ever-increasing extent. However, even simply sian Federation, as well as a number of ma- identifying the number of outputs subject to jor non-capital regional centres2—91 cities in evaluation can, and does, cause heated debate. total. The expanded analysis scope made it In general, researchers agree that the first- possible to compare cities that differ greatly tier digital divide (inequality in terms of ac- in terms of their size, income level, econom- cess to digital networks) decreases while the ic structure, and history. The comparison data second-tier digital divide (inequality in terms allowed researchers to analyse digitalisation of digital competencies and ways to use tech- across Russia, the results of which can be used nologies) increases. This poses the threat of a as a basis for strategic decisions in both busi- catastrophically increasing third-tier divide in ness and state administration. terms of the social and economic effects of a digital transformation, which can lead to a vi- cious circle where “the rich get richer and the poor get poorer”. The majority of the world has already moved beyond “primary” digitalisation—cre- ating the necessary Internet access infra- structure—to the “secondary” stage, i.e. cre- ating as many individual digital solutions as possible that unite into comprehensive mul- tidimensional systems. Such systems gener- ate a network effect where the value to the user grows faster than the number of system participants. To evaluate the processes of sec- ondary digitalisation, the Moscow School of Management SKOLKOVO developed a model of “digital life” in 2014 that included seven dimensions: transportation, finance, retail, 2 Volzhsky, Naberezhnye Chelny, Nizhny Tagil, Novokuznetsk, Sochi, Surgut, Tolyatti, Cherepovets 12 T H E D I G I TA L L I F E O F R U S S I A N R E G I O N S 2 0 2 0
How to Measure the Digital Divide? The concept of the digital divide was formulated in the late 1990s and at first applied to the inequality of access to digital information channels between various social groups.v Early studies focused on the “knowledge divide” and “information poverty” which had crystallised in the mid-1970s, in large part due to the influence of Thomas Childer’s book The Information Poor in America.vi At first, researchers considered Internet access as just another channel for obtaining information, with no fundamental difference from other channels, which was the approach that the early critique of the digital divide concept was based on.vii In the early 2000s, researchers turned their attention to the topic of digital divide between countries and regions within a given country viii and attempted some of the first quantitative comparisons based on the Internet availability data. That was when the key questions that have shaped subsequent research were first raised: “Will the gap in Internet access gradually decrease over time, as new technologies spread further throughout the world? Or will this gap remain, or even increase? How can government, corporate and non-profit investments [into access tools] ... expand access for groups that are limited in that regard?”ix The search for the answers to those questions is still relevant today, except that studies on the first-tier digital divide (in digital network access options) have given way to studies on the second-tier digital divide (in network utilisation skills and subsequent creation of various applications). The idea for this differentiation was suggested in 2006 by a group of researchers from the University of Ljubljana, Slovenia, who used the integrated Digital Divide Index to evaluate the depth of the second-tier digital divide. x A similar index was later used to study the county-level digital divide in the U.S. xi, but the potential for using integrated metrics to describe the effects of digitalisation and for studying the second-tier digital divide has clearly not been exhausted yet. The modelling of factors that determine the depth of digital divide has become one of the key areas of digital divide studies, as such models can directly inform both national and regional strategies and policies. The first model of this sort was suggested in 2001 xii and included the following factors: income level, infrastructure, human capital, D igital D i v ide as the K e y C hallenge of the D igital A ge . 13
and regulation quality. A study of 53 countries showed that regulation quality—national telecommunications market policy and its level of competitiveness in particular—is a key digital divide factor, second only to the level of income. The Income—Infrastructure—Human Capital—Policy model was generally accepted by researchers as fundamental, though sometimes with reservations. xiii However, the importance of regulation quality was repeatedly confirmed. xiv A number of authors studying the impact of cultural factors on the digital divide found out that cultural differences (measured based on, for instance, the Hofstede model) played a certain role at the early development stages of digital networks but had lost their significance by the late 2000s. xv In 2014, the Moscow School of Management SKOLKOVO developed a methodology for describing the second-tier digital divide between citiesxvi and for examining its determinant factors. This addressed a key methodological challenge—finding a proper way to describe secondary digitalisation, i.e. the use of digital systems in daily life. It applied the Digital Life Index3 to comparison of secondary digitalisation in 15 Russian cities with a population of over a million people as of 2014: Moscow, St. Petersburg, Kazan, Volgograd, Novosibirsk, Ekaterinburg, Nizhny Novgorod, Samara, Chelyabinsk, Omsk, Rostov-on-Don, Ufa, Krasnoyarsk, Perm, and Voronezh. Each city was evaluated on seven digital technology criteria: transportation, finance, retail, healthcare, education, media, and state administration. For each, specific metrics were selected that indicated the integration of digital services into the city’s daily life. The evaluation used some existing metrics from other studies and new empirical data collected specifically for this research. All metrics were divided into two types: the first dealt with the demand for digital solutions, and the second with their supply. This approach made it possible to separate two fundamentally different issues of the digital divide: the lack of technological capability and its poor utilisation due to the undeveloped digital skills. In particular, the 2014 and 2015 studies showed little correlation between supply and demand, indicating that market factors played a minor role in the formation of regional digital ecosystems. 3 The Index methodology was developed under the guidance of Prof. Evgeny Kaganer (IESE Business School, Spain) 14 T H E D I G I TA L L I F E O F R U S S I A N R E G I O N S 2 0 2 0
Daily Urban Life Model SUPPLY Media Transportation DEMAN ND D A DEM AND DEM DEM Retail Finance ND ND A DEMA Education Healthcare Administration D igital D i v ide as the K e y C hallenge of the D igital A ge . 15
How Large Is the Digital Divide? systemic digitalisation problems in the lag- ging group. The second-tier digital divide between Rus- It should also be noted that digital sup- sian regions is considerable: the final Digi- ply and demand indices show significantly tal Life Index of the leading cities (Krasnodar different dynamics. The supply is distribut- and Ekaterinburg) is almost 5 times higher ed more evenly, with the difference between than that of the trailing city (Magas-Nazran the leading and the trailing cities reduced to as a single entity). The trajectory of the Index three times. Therefore, it is the divide in digi- across regions makes it possible to identify tal demand that drives the overall digital di- three groups: leaders—the first 19 cities (with vide, which is fully consistent with the idea two “super leaders”, Krasnodar and Ekaterin- of the second-tier divide being determined burg, far ahead of the others), the average per- by the difference in the population’s digital formers, and the laggards—a clearly identifi- skills and competencies. able group of 9 cities with its own “super lag- Despite what intuition might suggest, gard” (see Chart 1). The Index drops faster near the correlation between a city’s size and the end of the distribution, which indicates the vibrancy of its digital life is not fully Fig. 1. Digital Life Index Overall Distribution Overall Digital Divide 0.70 0.60 0.50 0.40 y = –0.0032x + 0.5617 0.30 0.20 0.10 0.00 Belgorod Cherepovets Maykop Kostroma Tula Perm Kazan Ulan-Ude Stavropol Barnaul Kaluga Kyzyl Oryol Kemerovo Salekhard Sevastopol Volgograd Yoshkar-Ola Ufa Ivanovo Simferopol Tolyatti Astrakhan Nizhny Tagil Petropavlovsk-Kamchatsky Grozny Moscow Novosibirsk Khanty-Mansiysk Vladivostok Chelyabinsk Izhevsk Saransk Smolensk Lipetsk Kursk Tomsk Bryansk Blagoveshchensk Petrozavodsk Saratov Magnitogorsk Nalchik Krasnodar Syktyvkar Anadyr 16 T H E D I G I TA L L I F E O F R U S S I A N R E G I O N S 2 0 2 0
0.00 0.10 0.20 0.30 0.40 0.50 0.60 0.70 0.80 0.00 0.10 0.20 0.30 0.40 0.50 0.60 0.70 0.80 Krasnodar Belgorod Moscow Vladivostok Samara Murmansk Novosibirsk Novosibirsk Belgorod Kazan Stavropol Arkhangelsk Salekhard Penza Kostroma Elista Chelyabinsk St. Petersburg Voronezh Tambov Yaroslavl Moscow Kirov Oryol Sochi Khanty-Mansiysk Ufa Kaliningrad Krasnoyarsk Yuzhno-Sakhalinsk Kursk Cherkessk Kaliningrad Yaroslavl Barnaul Orenburg Oryol Kurgan Petrozavodsk Kemerovo Bryansk Blagoveshchensk Fig 2. Digital Supply Index Distribution Fig 3. Digital Demand Index Distribution Kurgan Vologda Ivanovo Krasnoyarsk Ulyanovsk Saratov Birobidzhan Abakan Tomsk Anadyr Maykop Naryan-Mar Nalchik Magadan Vladikavkaz Cherepovets Magnitogorsk Makhachkala Grozny Magas+Nazryn D igital D i v ide as the K e y C hallenge of the D igital A ge . y = – 0.0035x + 0.6752 y = – 0.0043x + 0.5101 17
linear:4 the-smaller-the-city-the-weaker-the- accelerate digital technology penetration and digitalisation tendency does not apply to demand. In terms of demand, smaller towns small cities (with less than 100,000 people) surpass even the cities in the 500,000 to within the sample. They have a higher index 1 million people range, being second only to than cities with a population of 100–200,000 the million-plus cities. Having said that, digi- (see Chart 4). This can be partially explained tal demand does gradually decrease in pro- by the fact that smaller capital cities are of- portion with city size, though two Russian ten located in resource-producing regions megapolises (Moscow and St. Petersburg) fail with high GRP (Khanty-Mansiysk, Sale- to show any difference from other million- khard, Naryan-Mar, Anadyr, Magadan). How- plus cities in this respect (see Chart 5). ever, even the relatively poor Gorno-Altaysk At the federal district level, the Ural Fed- and Birobidzhan show reasonable results. It eral District and the Central Federal District seems that compactness of the urban envi- take the lead. Despite Krasnodar’s leadership ronment, including the community, tends to among cities, the Southern District is only in Fig. 4. Digital Life Index Distribution by City Size Digital Divide by City Population 0.60 0.50 0.40 0.30 0.20 0.10 0.00
Fig. 5. Digital Supply and Demand Distribution by City Size Divide in Digital Supply and Demand by City Population 0.70 0.60 0.50 0.40 0.30 0.20 0.10 0.00
Table 1. Digital Life Index Comparison for Regional Centres and Second Cities Regional centre General index Second city General index Volgograd 0.40 Volzhsky 0.31 Vologda 0.45 Cherepovets 0.28 Ekaterinburg 0.64 Nizhny Tagil 0.31 Kazan 0.46 Naberezhnye Chelny 0.26 Kemerovo 0.41 Novokuznetsk 0.40 Krasnodar 0.64 Sochi 0.49 Samara 0.55 Tolyatti 0.33 Khanty-Mansiysk 0.52 Surgut 0.41 Chelyabinsk 0.49 Magnitogorsk 0.37 Table 2. Digital Supply and Demand Comparison for Regional Centres and Second Cities SUPPLY DEMAND SUPPLY DEMAND Regional centre Second city (avg) (avg) (avg) (avg) Volgograd 0.54 0.25 Volzhsky 0.54 0.09 Vologda 0.48 0.43 Cherepovets 0.37 0.17 Ekaterinburg 0.61 0.67 Nizhny Tagil 0.42 0.20 Kazan 0.61 0.32 Naberezhnye Chelny 0.40 0.12 Kemerovo 0.49 0.33 Novokuznetsk 0.57 0.24 Krasnodar 0.58 0.71 Sochi 0.65 0.34 Samara 0.63 0.46 Tolyatti 0.51 0.13 Khanty-Mansiysk 0.54 0.50 Surgut 0.53 0.29 Chelyabinsk 0.60 0.37 Magnitogorsk 0.61 0.12 20 T H E D I G I TA L L I F E O F R U S S I A N R E G I O N S 2 0 2 0
the middle of the list,5 while the North Cau- a given region. In some cases, it is the “sec- casian District is far behind, at the very bot- ond” cities that function as major industrial tom (see Fig. 6). Interestingly, the situation centres, sometimes surpassing the “first” cit- changes when analysing supply and demand ies in terms of population: Cherepovets and separately: the Southern District—along with Vologda, Surgut and Khanty-Mansiysk, No- the Siberian and Ural Districts—takes the vokuznetsk and Kemerovo. However, in al- lead in terms of supply, while the Ural, Cen- most every case the second cities have a sig- tral and Northwestern Districts lead in terms nificantly lower digital life index. The only of demand. As in the case of distribution by exception, where the values are almost equal, city size, the difference in demand is signifi- is the pair Kemerovo-Novokuznetsk (see Ta- cantly more pronounced than the difference ble 1). The difference is largely determined by in supply. demand: in terms of supply, some of the sec- Another important aspect of digital di- ond cities even surpass their regional centres vide is the difference in digital life maturi- (Novokuznetsk, Sochi, Magnitogorsk), but all ty between capitals of the Russian Federa- pairs are far from equal in terms of digital tion’s constituent entities and other cities in demand. Fig. 7. Digital Supply and Demand per Federal Districts Divide in Digital Supply and Demand per Federal Districts 0.60 0.50 0.40 0.30 0.20 0.10 0.00 al t lga ria l lga st us sia ra as Ur we as be nt us Vo Vo rE uc Ce r th Si lR Fa Ca ta No To N. SUPPLY (avg) DEMAND (avg) 5 A similar pattern was observed in the 2014 and 2015 studies where Volgograd and Rostov-on-Don were among the lagging million-plus cities. D igital D i v ide as the K e y C hallenge of the D igital A ge . 21
Components of Digital Life 22 T H E D I G I TA L L I F E O F R U S S I A N R E G I O N S 2 0 2 0
The analysis of individual dimensions of digi- very small. They are twofold in healthcare tal life suggests two important observations: (probably as a result of the national project very large gaps in demand; and a lack of cor- implementation), and fourfold in transporta- relation between supply and demand for most tion and administration. The largest divide in dimensions. supply is in the media. As Table 3 shows, the difference in digital Only three out of seven dimensions show demand between the leading and the lagging noticeable positive correlation between sup- city can be 160-fold! There are only two dimen- ply and demand: transportation, retail, and sions of digital life—education and administra- administration. The area of digital adminis- tion—where the divide is relatively small. In- tration demonstrates considerable progress terestingly, both dimensions function primarily compared to the results of the 2014 and 2015 as domains of government agencies. However, studies, when the correlation was almost zero. in two other dimensions with significant state On the one hand, that can be explained by the participation—transportation and healthcare— population’s growing competencies in using the gap in digital demand between regions is electronic platforms of regional administra- considerably higher. The media sphere, which tions and, on the other hand, by the improved is under strong administrative influence in quality of these platforms, especially when it many regions, shows the largest divide. comes to user experience. That being said, the gaps in digital supply However, such dimensions as education are significantly smaller, and in some cases and media show almost zero correlation, i.e. Table 3. Difference Between Leading and Lagging Cities, and Supply and Demand Ratios for Digital Life Dimensions Supply, difference Demand, difference between leader between leader Correlation and laggard, times and laggard, times Transportation 4.00 129.59 0.36 Finance 8.04 90.95 -0.36 Retail 10.36 144.95 0.37 Healthcare 2.00 58.98 -0.10 Education 9.50 15.94 -0.01 Media 47.77 159.15 -0.01 Administration 4.00 15.54 0.29 C o m ponents of D igital L ife 23
Table 4. Supply Correlations for Digital Life Dimensions. Significant Correlations Singled Out Transpor- Health- Educa- Adminis- Finance Retail Media tation care tion tration Transportation 0.02 0.05 -0.24 0.08 -0.01 0.23 Finance 0.02 1.00 0.32 -0.01 0.07 0.08 0.12 Retail 0.05 0.32 1.00 -0.28 0.15 0.27 -0.06 Healthcare -0.24 0.07 0.15 0.10 1.00 -0.05 0.01 Education 0.08 -0.01 -0.28 1.00 0.10 -0.29 -0.07 Media -0.01 0.08 0.27 -0.29 -0.05 1.00 0.24 Administration 0.23 0.12 -0.06 -0.07 0.01 0.24 1.00 Table 5. Demand Correlations for Digital Life Dimensions. Significant Correlations Singled Out Transpor- Health- Educa- Adminis- Finance Retail Media tation care tion tration Transportation 1.00 0.21 0.54 0.62 0.30 0.40 -0.13 Finance 0.21 1.00 0.27 0.22 0.19 0.40 -0.09 Retail 0.54 0.27 1.00 0.65 0.49 0.40 0.04 Healthcare 0.62 0.22 0.65 1.00 0.41 0.56 -0.11 Education 0.30 0.19 0.49 0.41 1.00 0.30 0.27 Media 0.40 0.40 0.40 0.56 0.30 1.00 -0.18 Administration -0.13 -0.09 0.04 -0.11 0.27 -0.18 1.00 24 T H E D I G I TA L L I F E O F R U S S I A N R E G I O N S 2 0 2 0
supply and demand are not interlinked in any basically determine supply) follows complete- way. There is a weak negative correlation in ly independent parallel paths (see Table 4). healthcare, i.e. demand is significantly high- When it comes to digital demand, we see er than supply, and a strong negative corre- a reverse situation, with significant positive lation in finance where there seems to be a correlations between almost all dimensions: very large reserve of digital technology with transportation and retail (0.54), transporta- low demand.6 tion and healthcare (0.62), retail and health- Characteristically, digital demand shows care (0.65), healthcare and media (0.56). It is little coordination between various dimen- unlikely that the identified pairs are directly sions. There are only a few cases with signif- related; high correlations probably indicate icant correlations, including transportation that digital demand is systemic in nature, and and administration, media and administration, the growth of skills and competencies in using and finance and retail. In some cases, there one type of system can be easily translated to are counter-intuitive negative correlations7 other systems. The only exception is the ad- (e.g., transportation and healthcare, or educa- ministration dimension that has only one sig- tion and media). However, those could be ran- nificant positive correlation, with education, dom fluctuations. For most dimensions, cor- with no other correlations between demand relations are close to zero, which means that for digital regional government and demand creation of various digital platforms (which for other digital life dimensions (see Table 5). 6 Diagrams showing leading and lagging cities in terms of the supply and demand ratio for each dimension are provided in Appendix 2 7 That is, the more developed one dimension is, the weaker the other is C o m ponents of D igital L ife 25
Leading Cities in Terms of Digital Life 26 T H E D I G I TA L L I F E O F R U S S I A N R E G I O N S 2 0 2 0
The level of digital life maturity varies sig- Population of Over 1 Million People nificantly even between leading cities not so much quantitatively as qualitatively. In most This category, as well as the overall ranking, cases, a city has a clear “profile” both in terms is topped by Krasnodar and Ekaterinburg with of demand and supply, with only a handful equal index values but noticeable differences of cities showing strong correlation between when it comes to their digital profiles. Krasno- them. Below are the digital profiles of cities dar shows high demand in transportation, me- that lead in four population-based categories: dia, healthcare and retail, and high supply in over 1 million people, 500,000 to 1 million healthcare, retail and administration. Ekaterin- people, 100,000 to 500,000 people, and less burg shows high demand in retail, transporta- than 100,000 people. tion and healthcare, and high supply in trans- portation, healthcare, retail and administration. 1.00 Transportation 0.90 0.80 0.70 Administration Finance 0.60 0.50 0.40 0.30 0.20 Krasnodar 0.10 Supply 0.00 Demand Media Retail Education Healthcare 1.00 Transportation 0.90 0.80 0.70 Administration Finance 0.60 0.50 0.40 0.30 0.20 0.10 0.00 Ekaterinburg Media Retail Supply Demand Education Healthcare L eading Cities in T er m s of D igital L ife 27
Population of 500,000 to 1 Million all digital life dimensions, save for a dip in fi- People nance. The supply is strong in healthcare, ad- ministration and transportation, and weak in The leaders in this category are Vladivostok media and finance. and Tyumen. Both are not so high in the over- Tyumen has a more developed overall all ranking, sharing the 17th and the 18th posi- demand, especially strong in the areas of fi- tion (and yielding to many of the smaller cit- nance, media and administration. The supply ies). This example clearly shows how different is strong in administration, less so in finance some cities’ digital profiles can be despite sim- and education, and weak in transportation and ilarities in digital life maturity. media. Vladivostok has an average demand that is more or less evenly distributed between 1.00 Transportation 0.90 0.80 0.70 Administration Finance 0.60 0.50 0.40 0.30 0.20 Vladivostok 0.10 Supply 0.00 Demand Media Retail Education Healthcare 1.00 Transportation 0.90 0.80 0.70 Administration Finance 0.60 0.50 0.40 0.30 0.20 0.10 0.00 Tyumen Media Retail Supply Demand Education Healthcare 28 T H E D I G I TA L L I F E O F R U S S I A N R E G I O N S 2 0 2 0
Population of 100,000 to 500,000 Population of Less Than 100,000 People People Belgorod, in 3rd position in the overall rank- This group is topped by the resource-rich ing (higher than both capitals), is a rare ex- Khanty-Mansiysk, which is in 9th position in ample of a balanced supply-and-demand situ- the overall ranking. It is characterised by a very ation (which is clearly demonstrated in the uneven digital development with high supply chart). Both supply and demand are well-de- in administration, media, transportation and veloped in administration, healthcare and re- retail, and very weak supply in healthcare and tail, with high demand also observed in edu- education. The supply is strong in administra- cation. The supply takes a rather large dip in tion, education and retail, and weak in finance, finance. media and healthcare. 1.00 Transportation 0.90 0.80 0.70 Administration Finance 0.60 0.50 0.40 0.30 0.20 Belgorod 0.10 Supply 0.00 Demand Media Retail Education Healthcare 1.00 Transportation 0.90 0.80 0.70 Administration Finance 0.60 0.50 0.40 0.30 0.20 0.10 0.00 Khanty-Mansiysk Media Retail Supply Demand Education Healthcare L eading Cities in T er m s of D igital L ife 29
Digital Divide Determinants 30 T H E D I G I TA L L I F E O F R U S S I A N R E G I O N S 2 0 2 0
A key question regarding the digital divide is regions is more than tenfold. The analysis of whether it is possible to bridge it. To answer digitalisation distribution per Russian region this question, it is necessary to identify the de- according to their level of income shows no terminant factors. The first models attempting linear correlation. The overall index value is to explain the first-tier digital divide appeared the highest for cities with average income. in 2001.8 The researchers tried to establish the When it comes to “rich” cities with average extent to which it was determined by the level monthly incomes of over RUB 50,000 per per- of wealth—in the form of GDP per capita. If it son, the index value is the same as for the cit- had turned out to be the key factor, the only vi- ies with income of RUB 20,000 to RUB 29,000, able bridging strategy would have been a gen- while their digital demand development is the eral economic catch-up, which is inevitably a weakest among all groups (see Figs. 8 and 9). slow process.9 If the level of economic resources is not This question is just as relevant for Rus- the primary determinant, what is it for the de- sian regions as it is in the international con- velopment of secondary digitalisation in a re- text: the gap in the gross regional product per gion? To answer this question, a regression capita between the richest and the poorest analysis was performed based on the model Fig. 8. Overall Digital Life Index According to a City’s Average Monthly Income (RUB Thousand) Digital Divide per Regions with Different Levels of Income 0.60 0.50 0.40 0.30 0.20 0.10 0.00 50 Total Russia 8 See section Brief History of Digital Divide Studies below 9 Some of the early critics of the digital divide concept like Mark Warschauer thought that it posed the wrong question: according to their thinking, the digital divide was just an isolated case of a general social and economic divide that could not be bridged separately (Warschau- er, M. (2002). Reconceptualizing the Digital Divide. First Monday, 7(7)), D igital D i v ide D eter m inants 31
Fig. 9. Digital Supply and Demand According to a City’s Average Monthly Income (RUB Thousand) Divide in Digital Supply and Demand per Regions with Different Levels of Income 0.60 0.50 0.40 0.30 0.20 0.10 0.00 50 Total Russia SUPPLY (avg) DEMAND (avg) suggested in 2001 by Dasgupta et al. (see sec- key role was played by human capital and ex- tion How to Measure the Digital Life? for pansionary policies. That being said, the role more details) with three groups of determi- of human capital for Russia is much more sig- nants: income, human capital, and expansion- nificant, especially when it comes to demand. ary policies. That makes sense, since policies applied with- This analysis showed that, in general, the in the same country are as a rule more homo- digital divide between Russian regions was geneous in nature. As should be expected, the determined by the same factors as the well-re- policy factor plays a much bigger role in terms searched digital divide between countries: the of supply. 32 T H E D I G I TA L L I F E O F R U S S I A N R E G I O N S 2 0 2 0
D igital D i v ide D eter m inants 33
How to Bridge the Digital Divide? 34 T H E D I G I TA L L I F E O F R U S S I A N R E G I O N S 2 0 2 0
The results inspire a certain amount of opti- most significant determinants of digital mism, since it appears that the digital divide life quality in a given region. can be bridged through purposeful strategic 3. It is also vital not to lose sight of the actions rather than by pouring in resources. digital supply creation agenda. How- Each region can and should aim to develop its ever, rather than one-off super projects, digital life to the fullest to experience signifi- the most effective measure in this re- cant results. These should include: gard would be a large number of ex- • Acceleration of social and economic de- periments offering various business velopment and improvement of the qual- models to consumers. As foreign stud- ity of economic growth (correcting ex- ies show,xvii one of the most important isting structural imbalances in the well- determinants of the digitalisation qual- resourced primary producing regions); ity is the market’s competitiveness, as • Fair access to social and economic re- well as the competitiveness of products sources, reduction of inequality, and offered on the market. In this respect, provision of inclusive opportunities; regional administrations and leading • Decent quality of life with opportunities regional enterprises from “traditional” for self-fulfilment; industries must become competent cus- • Development of the region’s soft power tomers of digital systems and create op- and competitiveness both on the nation- portunities for the development of prod- al and a global scale. ucts with the potential to enter national and global markets, rather than just ad- This study by the Moscow School of Man- dressing individual local problems. agement SKOLKOVO and others published in international research journals make it pos- As clear as this programme architecture sible to define key areas of a potential action is, it is difficult to implement, since it does plan for the administration, business leaders not entail direct administrative actions bring- and opinion leaders in each region. These are: ing immediate results. This is what makes the 1. Development of digital demand and secondary digitalisation stage different from creation of skills and competencies for earlier stages that required investment in in- effective use of digital platforms and frastructure to provide access to the Internet systems. As noted earlier, it is the dif- and, as such, brought quick and easily mea- ference in the levels of demand that sured results. The current tasks faced by re- determines much of the digital divide gional politicians aiming to bridge the digital between regions. divide are much harder: they have to provide 2. To develop digital competencies, it is fertile ground for numerous individual ac- necessary to increase a region’s human tors to create successful projects on the side capital quality and to cultivate a cre- of supply, while stimulating the growth of de- ative environment that facilitates in- mand for these projects. Areas of action for re- novation. The statistical analysis shows gional project administrations might include that human capital components are the creating effective open digital technology 10 Unfortunately, a quantitative assessment of this aspect as related to Russian regions was not possible due to the absence of relevant data 11 In many respects, this is what complicates the implementation of the Digital Economy National Project (it was in last place among all national projects in 2019 in terms of budget performance) https://www.cnews.ru/news/top/2020-01-13_tsifrovaya_ekonomika_provalila H o w to B ridge the D igital D i v ide ? 35
platforms in the region, switching the region- long-term they will ensure integration of the al administration into “digital government” regional social and economic ecosystem at mode, creating a regulatory environment to the national and global levels (see Fig. 9). support the digital transformation of business To achieve that, regional elites (including and digital entrepreneurship, or developing administration, businesspeople, public figures and implementing educational initiatives to and political activists) should build a “digital facilitate the transition to a digital economy. consensus” of sorts—a shared understanding It should all lead to an accelerated devel- of goals, approaches and tools for digital life opment of the region in four areas: quality development based on well-developed compe- of life, business environment (ease and effi- tencies in the following four areas: ciency of doing business), quality of manage- 1. Strategic thinking in the age of digital ment, and infrastructure (including increased transformation. How to develop realistic benefits from traditional types of infrastruc- and effective long-term plans in an age ture assets). If these are sustained over the of “constant change”?12 What new value Fig. 9. Areas for Acceleration as a Result of a Region’s Digital Transformation N T P ME LO VE DE QUALITY BUSINESS OF LIFE ENVIRONMENT MANAGEMENT INFRA- STRUCTURE N IO AT GR TE IN 12 For more details, see Orlovsky, V., Korovkin, V. From a Rhinoceros to a Unicorn. How to Lead a Large Company Through Transformation in the Digital Age and Avoid Deadly Traps. M., Bombara, 2020 (in print) 36 T H E D I G I TA L L I F E O F R U S S I A N R E G I O N S 2 0 2 0
could be created for “digital residents” markets or business models, but also requires of a city/region? How to set priorities in deep personal change. The great yachtsman the face of limited resources and a large Bruno Peyron used to say that one cannot go number of unresolved social and eco- through a storm and come out of it unchanged, nomic problems? which could also be applied to the “storms” of 2. Understanding of the technological ba- the digital age. sis of digital transformation. What tech- What are the benefits the accrue to a re- nologies could be used to effective- gion from a well-developed digital life? What ly solve already established strategic can be gained from secondary digitalisation? tasks? How to distinguish truly promis- The previous study by the Moscow School ing innovations from endless dead-end of Management SKOLKOVO already demon- ideas hiding behind fancy names? strated that digital technologies matter a lot 3. Digital project management. How to set when it comes to the general perceived qual- tasks for developers and accept work ity of the urban environment. They are turn- when creating novel systems that have ing into key competitive tools for cities and no comparable counterparts in the world? regions in national and global human capi- 4. Leadership and communications. How tal markets, helping them to attract, develop to manage the public agenda effectively and retain successful, ambitious and innova- in the age of a fragmented media land- tive people who can give a fresh impetus to scape, the erosion of credibility, “infor- a region’s social and economic development. mation bubbles” and “fake news”? How Therefore, the bridging of the digital divide to achieve leadership in a continuous is not the proverbial “icing on the cake”, open discussion with no formal hierar- something you could deal with after solving chies and constant interaction with nu- pressing social and economic issues, but an merous equal stakeholders? integral part of the comprehensive answer to the challenges faced by every region in This list shows that digital transformation Russia. is not limited to changes in environments, H o w to B ridge the D igital D i v ide ? 37
Appendix 1. Digital Life Index Metrics 38 T H E D I G I TA L L I F E O F R U S S I A N R E G I O N S 2 0 2 0
To analyse demand, the researchers used data the top five online media outlets for each city, indicating the degree of activity and interest with the selection based on the regional me- of Internet users in the existing digital infra- dia citation index (http://www.mlg.ru/ratings/ structure. Firstly, they estimated the number regional_media/3745/0/0/2/). of search queries in Google and Yandex re- The obtained results were normalised garding the digital services that city residents based on populations of specific cities. The were interested in. The average number of city’s final score for 2014 was determined by queries per month over the year preceding the the average position in the rankings for each period of data collection was analysed taking dimension (based on the following calcula- into account the distribution of the audience tions: 1st place = 1 point, last place = 0 points), for specific cities. Secondly, city residents’ ac- and the score for 2015 was determined against tivity in social networks was evaluated. To do the 2014 ranks (thus, values of more than 1 and this, the total audience of social networks (VK, less than 0 were possible). Facebook, OK.ru and My World@Mail.Ru) was This methodology was adapted to the ob- analysed, broken down by city. jective of researching secondary digitalisation To analyse supply, the researchers used in all Russian regions. The list of metrics com- data indicating the presence and the degree prising the index was somewhat reduced due of development of digital services in the cit- to unavailability for certain small regional ies under consideration. In particular, they ex- centres. The sample included not only capital amined features of Internet resources related cities of federal constituent entities but also to the areas covered by the research, namely major second cities in some regions, namely: hospital web-sites and the official portals of lo- Volzhsky (Volgograd Region), Naberezhnye cal administrations. Portal usability and com- Chelny (Republic of Tatarstan), Nizhny Tagil pleteness of services provided were taken into (Sverdlovsk Region), Novokuznetsk (Kemero- consideration. The number of services offered vo Region), Sochi (Krasnodar Krai), Surgut by the regional portals of state and munici- (Khanty-Mansiysk Autonomous Okrug), Toly- pal services, as well as the number of massive atti (Samara Region), and Cherepovets (Volog- open online courses (MOOC) provided by lo- da Region). cal universities and other higher educational institutions located in the cities under analy- Description of Digital Divide sis, were considered separately. To assess the Determinants. development of digital infrastructure in fi- nance and retail, a number of bank branches The assessment of factors influencing the lev- with the highest quality digital offering (the el of secondary digitalisation and determin- top ten of the Internet Banking Rank—Mark- ing the digital divide was based on the model swebb Rank & Report) and the pick-up points by Dasgupta et al.: (1) income level, (2) human of online stores (the top five of the Forbes list capital, and (3) regional digitalisation policy. and the top ten stores according to http://www. The first factor is relatively easy to describe, as ruward.ru/ecommerce-index-2015/) were con- it uses objective metrics like GRP per capita13 sidered for each of the cities. Assessment of and its dynamics. The human capital factor can supply in media was carried out on a sample of be described from three perspectives: overall 13 Rosstat data used everywhere unless data source indicated specifically A ppendi x 1 . D igital L ife I nde x Metrics 39
Table. Primary Metrics Used in the Digital Life Index Supply Demand Search queries “transport timetable, bus timetable, bus/ 1. A vailability of Yandex.Transport or a trolleybus/tram/fixed-route taxi van/marshrutka route, similar service Transportation Yandex transport, Smart transport” and related variations— 2. A vailability of electronic timetables at Wordstat Yandex, number of queries for July 28–August 27, bus stops 2018 Number of bank branches from Search queries “online/internet/mobile banking/loan/credit” the 2018 Internet Banking Rank— and all queries containing these word combinations— Finance Markswebb Rank & Report (the top ten Wordstat Yandex, number of queries per 1,000 people for banks from the ranking) per 1,000,000 August 02–September 01, 2018 people Number of pick-up points of online Search query “online store” and all queries containing this stores from the Forbes list (Top 5) + a word combination excluding words “open, create”—Wordstat Retail network of parcel terminals* (2018) per Yandex, number of queries per 1,000 people for August 09– 1,000,000 people September 08, 2018 1. Search query “doctor appointment/make an appointment/ polyclinic” and related variations—Wordstat Yandex, number of queries per 1,000 people for August 10– September 09, 2018 1. A bility to make an appointment with 2. Search query “buy medicine, activated charcoal, a paediatrician on gosuslugi.ru Healthcare pancreatin, xylometazoline, chlorhexidine, fluconazole, 2. Ability to make an appointment with ibuprofen, omeprazole, hydrogen peroxide, bisoprolol, a general physician on gosuslugi.ru acetylsalicylic, aspirin, band aid, quamatel, paracetamol, nemozole” and related variations—Wordstat Yandex, number of queries per 1,000 people for August 10– September 09, 2018 1. N umber of universities offering distance education (DE) listed on http://vuz.edunetwork.ru/dist/?spec=0 Education per 1,000,000 people 2. N umber of universities listed on http://vuz.edunetwork.ru/ per 1,000,000 people 1. Activity on social networks—VK audience (statistics from Number of online media outlets in VK’s advertising campaign planner) per 1,000 people Media Yandex.News aggregator per 1,000,000 2. Activity on social networks—Facebook audience people (statistics from Facebook’s advertising campaign planner) per 1,000 people Region’s 14+ population connected to ESIA (Gosuslugi) as Features of city administrations’ web Administration of April 1, 2018 (per constituent entities of the Russian pages (per the check-list) Federation) 40 T H E D I G I TA L L I F E O F R U S S I A N R E G I O N S 2 0 2 0
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