Monday, December 2, 2024

EU countries’ digital transformation, economic performance, and sustainability analysis – Humanities and Social Sciences Communications

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Digital technologies

In the last decades, the world has witnessed a radical transformation due to technological progress in the digital field. Regarding the economy, digital technologies have ushered in a new era of business (Ghobakhloo, 2020). E-commerce has become a significant force, disrupting traditional business models. Companies use data analysis to understand consumer behavior better and adapt their products and services. Innovation is accelerated, and start-ups can become market leaders in record time. However, this transformation also brings challenges like data security and privacy concerns (Bai et al., 2020).

Digital technologies have become an essential driver of change and progress in the economy. Cloud computing, Big Data, the Internet of Things (IoT), and artificial intelligence (AI) are several new digital technologies that have joined existing information and communication technologies (ICT) and e-commerce, revolutionizing the conduct of economic processes. Information and communication technologies (ICT) and e-commerce have contributed to the digitalization of society, facilitating online communication and transactions (Banerjee et al., 2020). This fact has significantly impacted the business environment and changed how we consume goods and services (Cheng et al., 2021).

Cloud computing (CC) has changed how data and applications are stored, managed, and accessed. Through cloud services, data can be stored in virtual data centers, easily accessible from anywhere and on any device connected to the Internet (Dilberoglu et al., 2017). Clouds have transformed work patterns, allowing access to information and resources regardless of location. Moreover, it has reduced IT infrastructure costs, facilitating development and innovation in both business and the public sector (Beier et al., 2020). Big data (BD) has enabled the management of vast amounts of data generated by internet users, IoT devices, and other digital sources (Flyverbom et al., 2019). The analysis of this data provides valuable information for businesses, research, and governance. BD has transformed the decision-making process by revealing hidden patterns and trends, contributing to improving products, services, and operational efficiency in various industries (Mosterman and Zander, 2016).

The Internet of Things (IoT) has created a global network of connected objects, from cars to household appliances and industrial sensors. These devices communicate and collect data, allowing remote monitoring and control (Meneghello et al., 2019). IoT brings significant benefits, such as more efficient resource management and increased comfort and security in homes and businesses. Artificial intelligence (AI) is a rapidly evolving technology that involves teaching machines to solve complex tasks, allowing for autonomous activity in various fields (Rufimann et al., 2015). However, this development also raises ethical and security challenges that require careful consideration (Rakowski et al., 2021; Polak, 2021).

Digital information plays an essential role in digital technology and serves as the foundation upon which it is built (Koh et al., 2019). In the digital era, all aspects of technology are closely tied to how information is collected, stored, processed, and transmitted in digital format. Digital technology enables the collection (through IoT and Big Data), storage (via Cloud Computing and Big Data), and processing (through Big Data and Artificial Intelligence) of vast quantities of data, which is crucial in the economic domain (Polak, 2021). Digital technology facilitates global communication. Email, instant messaging, social networks, and video conferences, among others, rely on transmitting and processing digital information. The speed and capacity of these communications would be impossible without digital technology. Digital information underpins discoveries and technological advancements (Lichtenthaler, 2021). However, it is also essential to mention the blindside of digital technologies (Rachinger et al., 2019; Rakowski et al., 2021). With increasing digital information, security and privacy become vulnerable to cyber threats. Unequal access to digital technologies leads to economic inequalities. Individuals can become overly dependent on their digital devices within economic processes and personal lives, resulting in mental health issues and social isolation.

Digital technologies have brought about a revolution in contemporary society (Yoo and Yi, 2022). They have improved efficiency, connectivity, and the quality of life but have also brought challenges, such as data security and their impact on employment. It is essential to approach these technologies wisely and manage the transformations they bring to ensure sustainable growth. Understanding and adapting to changes in digital transformation are crucial parts of the evolution of our society (Hanelt et al., 2020).

Digital transformation

The term “digital transformation” refers to a fundamental change in activities, processes, competencies, and organizational models to fully leverage the opportunities and impacts of various digital technologies in a strategic and prioritized manner (Scoop.eu, 2021). Emerging digital technologies, such as cloud computing (CC), big data (BD), the Internet of Things (IoT), and artificial intelligence (AI), along with existing information and communication technologies (ICT), are reshaping how individuals and businesses operate (Meneghello et al., 2019; Rakowski et al., 2021; Polak, 2021). In addition, Industry 4.0 has ignited a digital transformation, allowing for the collection and processing of large amounts of data and facilitating access to information and services (Rufimann et al., 2015). Digital technologies, combined with a change in mindset, can provide new opportunities for planning, management, and sustainable development (Schieferdecker and Mattauch, 2014).

Industry 4.0 represents the integration of advanced information technologies based on integrated and increasingly intelligent software systems, enabling the interconnection of all production process units (Mosterman and Zander, 2016; Dilberoglu et al., 2017; Guoping et al., 2017; Polak, 2021). IoT, with its sensor-embedded assets, provides vast datasets. Information technologies supply increasingly enhanced IT solutions for efficient real-time data collection and analysis, supported by BD and analytics based on artificial intelligence systems (Brodny and Tutak, 2022). In addition, CC technologies enable remote solutions for those without access to advanced hardware or specialized IT solutions.

Although EU enterprises are gradually adopting new digital technologies, such as BD, CC, and IoT, the acceptance of advanced digital technologies remains low. Implementing AI-based technologies, in particular, is limited due to their complexity, which smaller enterprises may find challenging to manage (Hansen and Bogh, 2021). However, AI’s potential for transformation is considerable, with a wide range of applications in various economic and social fields, and is expected to play an increasingly significant role in finance (Polak et al., 2020; Guo and Polak, 2023) and the global economy (Conde and Twinn, 2019; Rakowski et al., 2021; Polak, 2021).

Digital transformation significantly impacts business models, enhancing the effectiveness of business operations (Ritter and Pedersen, 2020). The digital revolution also has an extraordinary effect on society, revolutionizing access to information, the way of interaction, and access to services (Zhao et al., 2015; Olczyk and Kuc-Czarnecka, 2022). It is also worth emphasizing the positive impact of computer and internet use in enterprises, such as the increase in the volume of e-commerce, on the digital transformation process of enterprises (Guandalini, 2022; Brodny and Tutak, 2022; Olczyk and Kuc-Czarnecka, 2022).

Relationships between digital transformation, sustainability, and economic growth

Del Rio Castro et al. (2021) and Brenner and Hartl (2021) state that two significant trends in society have become topics of debate at the political, social, and academic levels: sustainability and digital transformation. These concepts represent paradigmatic economic, social, and ecological changes (Caputo et al., 2021) and alter the game and strategic objectives of organizations, states, and supra-state institutions.

The holistic nature of the two concepts often leads to confusion regarding their definition (Guandalini, 2022). Sustainability is a transdisciplinary term that is difficult to define and influences organizations at all levels (individual, group, organizational, and in relations with the external environment) through actions, decisions, and behaviors (Del Rio Castro et al., 2021; Caputo et al., 2021). Furthermore, sustainability can be viewed differently from a multi-stakeholder perspective, with cultural biases and contrasting approaches (Cegarra-Navarro et al., 2019; Chaurasia et al., 2020). The different perspectives concerning the approach to sustainability can lead to an expansion of the debate (Ramsey, 2015; Ruggerio, 2021), tailoring it for different fields of activity or categories of stakeholders. However, the differing perspectives of stakeholders pose a significant disadvantage in implementing sustainability (Souza et al., 2015), and attempts to unify the theories regarding sustainability cause controversial debates (Del Rio Castro et al., 2021). Theories and perspectives on sustainability have approached the concept differently, emphasizing specific aspects (Kantabutra, 2022). Sustainable development theory, ecological theory, social sustainable development theory, economic sustainability theory, human development theory, and resilience theory are only a few of the sustainability theories that can be reconciled through the complex tools employed by digital transformation.

Sustainable development has become a central theme in the consciousness of humanity in the modern era, as humanity faces significant challenges related to natural resources and environmental protection, primarily concerning carbon emissions (Caglar and Mert, 2022; Caglar AE, 2023), environmental protection expenditures (Caglar and Yavuz, 2023), and the promotion of the green revolution (Caglar and Askin, 2023).

The challenge of natural resources has become a significant concern in the context of sustainable development (Caglar et al., 2022a). Natural resources are limited, and their excessive and unprotected use can severely affect the environment (Caglar et al., 2022b). European countries have committed to efficiently managing natural resources and reducing excessive consumption (Guloglu et al., 2023). Through legislation and regulations, stricter standards for natural resource utilization have been imposed, and more sustainable production practices have been promoted (Ruggerio, 2021).

In the EU, there is a transition towards cleaner sources of energy to reduce dependence on fossil fuels and contribute to a reduction in carbon emissions (Caglar and Askin, 2023) in line with the sustainable development goals (SDG) established by the UN. Renewable energy consumption has significantly increased in recent years and continues to grow, demonstrating nations’ commitment to sustainable development. Nations are making critical efforts to ensure a better future for future generations and protect the environment (Del Rio Castro et al., 2021; Biloslavo et al., 2020).

The recognition of the close relationship between the two concepts (sustainability and digital transformation) also emerges from the concept that combines the two: digital sustainability. Many studies explicitly focused on the pivotal role of digital transformation in ensuring sustainability (PWC, 2018; Di Vaio et al., 2020; George et al., 2020; Polak, 2021; Brenner and Hartl, 2021; Mondejar et al., 2021; Guandalini, 2022). Other studies have drawn attention to the fact that the profound impact of digital transformation on sustainability has not been comprehensively examined (Esses et al., 2021; Del Rio Castro et al., 2021). George et al. (2020) assert that digital sustainability represents an organization’s actions that promote sustainability objectives through the implementation of digital technology. The literature recognizes the potential of information and new digital technologies in sustainable development (Guandalini, 2022; Di Vaio et al., 2020; Mondejar et al., 2021). Del Rio Castro et al. (2021) and Paiola et al. (2021) demonstrate that information and communication technologies, Big Data, and the Internet of Things play a crucial role in implementing a sustainable perspective and economic growth (Gebhardt, 2017; Del Rio Castro et al., 2021; Paiola et al., 2021).

The potential of digital technologies facilitates the building of sustainable business models that rely on social, environmental, and economic performance (Benites and Polo, 2013; Hsu et al., 2018; Biloslavo et al., 2020; Imran et al., 2022). Implementing digital technologies provides one of the main benefits of sustainability (Costa et al., 2022), as information and communication technologies and new digital technologies enable economic, social, and environmental performance (Ordieres-Mere et al., 2020). Beier et al. (2020) conducted a literature review on aligning digital technologies with sustainable development, concluding that researchers must study technologies in an integrated manner. Systemic studies are necessary to assess digital transformation’s real implications on sustainability reliably. The first research hypothesis based on the literature review is:

Hypothesis H1. Digital transformation exerts significant positive direct influences on economic sustainability and performance.

Implementing digital technologies creates new opportunities for value creation and facilitates transitioning from a traditional organization to a digital business model (Mergel et al., 2019), the most significant driver of entrepreneurship and innovation (Berger et al., 2021). Hanelt et al. (2020) view digital transformation as the organizational change triggered and shaped by the extensive diffusion of digital technologies. Bai et al. (2020) argue that enterprises need to consider the contribution of digital technologies to sustainability, and there is a need to rank the influences of various digital technologies on sustainability.

Digital transformation supports economic growth, and its influence depends on the research context (Molinari and Torres, 2018; Solomon and van Klyton, 2020). Another effect of digital transformation is the structural change of the labor market, reducing the demand for low-skilled employees and increasing the demand for employees with IT skills, which complement the skills specific to the field in which they operate. Digital resources are limited only by internet access. Therefore, access to a computer connected to the Internet is the fundamental dimension of the digitization process. An internet connection that provides broadband and high data transmission speed is again the fundamental element of digital transformation, requiring ever-faster data transfer rates. As a result of the expansion of ICT technologies and driven by the COVID-19 pandemic, the evolution of e-commerce experienced an unprecedented expansion. This commerce model based on digital technologies tends to be increasingly present in the contemporary economy. The second research hypothesis based on the literature review is:

Hypothesis H2. Among information and digital technologies, access to a computer with the Internet and the volume of e-commerce in European countries exert the most critical influences on sustainability and economic performance.

The literature provides compelling evidence of the impact of digital transformation on economic growth (Olczyk and Kuc-Czarnecka, 2022; Minges, 2016; McKinsey, 2018; Park and Choi, 2019; Yoo and Yi, 2022). However, the positive effects of digital transformation on economic performance may not immediately diffuse throughout the economy. Despite this, the impact of digital transformation on economic performance remains a current and relevant aspect, constituting a research topic for many scholars. Due to the complexity of the digital transformation phenomenon, researchers have approached this theme differently, proposing research methodologies based on one, several, or composite indicators. Studies that identified a positive relationship between digital transformation and economic performance use different indicators to measure the level of digitization (Banerjee et al., 2020; Myovella et al., 2020; Deloitte, 2022) or a composite index, such as DESI—Digital Economy and Society Index (Olczyk and Kuc-Czarnecka, 2022; Stavytskyy et al., 2019; European Commission, 2020, 2022; Latisou et al., 2020). Digital technologies change the economic structure by increasing the ability to adapt quickly (Brodny and Tutak, 2022; Yoo and Yi, 2022).

Digital transformation is one of the most important vectors affecting economic development, as it enhances capital and labor productivity, reduces costs, and facilitates access to global markets (Dahlman et al., 2016). Numerous studies have shown a positive relationship between digital transformation and economic growth. For example, Billon et al. (2010) identified a significant impact of information and communication technologies on economic development in a study of 142 countries. Other authors (Myovella et al., 2020; Habibi and Zabardast, 2020) showed that digitization positively impacted economic growth in developing and developed countries. However, Niebel (2014) analyzed the impact of ITC on economic growth in emerging and developed countries, showing that emerging countries do not benefit more from ITC investments than developed economies.

Nevertheless, in the sustainability literature, a positive correlation between the concepts at the country level is not universally recognized. Smith et al. (2010) argue that innovation primarily aims at economic performance and addresses societal challenges. According to Cheng et al. (2021), digital transformation could have a positive or insignificant impact on economic growth, depending on a country’s level of development. In developed countries, the impact of digital transformation is high, while in low-income countries, this impact is small, even insignificant. The findings of Cheng et al. (2021) are supported by Kurniawati (2020), who concludes that countries registering a high level of digital transformation have a positive and significant economic development rate. Pradhan et al. (2020) showed that the development of digital transformation positively affects economic performance in their investigation of middle-income countries. As an essential vector of economic growth, digital transformation has become increasingly crucial for innovation-based sustainable development (Pavlovich et al., 2020; Aleksandrovna et al., 2020; Ardito et al., 2021). However, Ardito et al. (2021) found no evidence that integrating digital transformation and sustainability leads to increased economic performance. Although most researchers see a positive relationship between digital transformation, sustainability, and economic performance, there is a risk that digital transformation is a disruptive force that, if not optimally managed, can negatively affect sustainability (Brenner and Hartl, 2021; Flyverbom et al., 2019; Ghobakhloo, 2020).

At the macroeconomic level, digital transformation positively impacts economic growth, primarily by increasing labor productivity (Aly, 2020). Digital technologies have become the fourth factor of production, alongside capital, labor, and natural resources. Adopting digital transformation contributes to higher work productivity and increased capital efficiency by reducing the costs of organizational processes. Nevertheless, the impact of digital transformation varies across countries due to structural differences in their economies. Developed economies experience higher economic growth while emerging economies benefit from job creation resulting from investments in technology and reduced technological levels (Olczyk and Kuc-Czarnecka, 2022; Micic, 2017). The digital transformation process is closely linked to the macroeconomic concept of digital competitiveness, which refers to a country’s ability to implement and explore digital technology (Roszko-Wojtowicz and Grzelak, 2020; Malkowska et al., 2021). Digital competitiveness is a source of competitive advantage and a crucial element of national strategies to achieve economic growth and sustainable development (Latisou et al., 2020). Based on the literature review, the third research hypothesis is as follows:

Hypothesis H3. European countries with a high level of digitization exhibit robust economic performance and a solid commitment to sustainability.

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