The internet has helped Australian small businesses to be more efficient and expand, leading to increased variety, quality and lower prices in the economy.
In this November 2014 report, Nera investigates the ways in which the internet has increased the competitiveness of small and medium enterprises (SMEs). In particular the report focuses on the reduction in five traditional barriers to SMEs entering markets brought about by the internet: financing upfront and fixed costs; competing against firms enjoying economies of scale; establishing brand awareness; providing customers with information to switch; and obtaining access to distribution channels.
Nera note that the internet and mobile computing has removed entry barriers by turning some fixed costs into variable costs; reducing the need for physical space and economies of scale, reducing the cost of providing information, lowering search costs; creating new distribution channels; and allowing for disintermediation of sales. The internet has allowed SMEs to raise awareness of their brand, connect with customers in multiple locations and establish quality and reputation at a fraction of the historical cost of these objectives. The impact of this has helped Australian SMEs to be more efficient and expand leading to consumer surplus in the form of increased diversity, quality and lower prices.
Quoting a 2014 study by the Australian Communications and Media Authority (ACMA), Nera emphasise the increasing role of the digital economy for SMEs. In particular the report notes that 64% of SMEs now have their own website and the proportion with mobile-optimised websites is now 18%, twice the figure from 2012. In addition to their own websites, a survey by Sensis quoted in the report states that over one third of small businesses and around a half of medium sized enterprises have a social-media presence. These figures have approximately doubled since 2011. Nera states that this structural change in the way SMEs operate is driving the reduced entry barriers and expects this to continue over the coming years.