The Economic Importance Of The Home Based Business Industry

DEFINING THE HOME BASED BUSINESS

The home based business can be defined as a business whose primary office is in the owner’s home. The business can be any size or any type, as long as the office itself is located in a home.

In the USA, there are about 6.6 million home based businesses that generate at least 50% of the owner’s household income.(a)

“If one advances confidently in the direction of his dreams and endeavors to live the life he has imagined, he will meet with success unimagined in common hours.” – Thoreau

ESTIMATES OF THE TOTAL SIZE OF HOME BASED BUSINESS

“One study has estimated that the total number of people who run or are employed by home based businesses in South East England is in excess of 250,000 people, equivalent to 7% of the working population of the region.(c)

“While the average home entrepreneur business has two employees (including the owner), 39% have between two and five employees, and 10% have more than five. Using these average employment numbers, Emergent Research estimates that home entrepreneur businesses currently employ roughly 13.2 million Americans, including the owner.(a)

“To put these figures in perspective, let’s compare them to U.S. employment generated by two important industrial segments: venture-backed firms and the oil and gas industry. Analysis by the National Venture Capital Association shows that companies that received venture capital backing including such corporate giants as Intel, Microsoft, and Apple – employed 10.4 million in 2006.”(a)

THE IMPACT OF THE DEVELOPMENT OF THE INTERNET ON THE ECONOMY AND HOME BASED BUSINESS

The development of the internet has been and will be the big driving force in the development of the internet related home based business. Let us have a closer look at these developments. The following information is extracts from the McKinsey report.(b)

• Two billion people are connected to the internet. This number is increasing by about 200 million per annum.
• Almost $8 trillion exchange hands each year through e-commerce.
• About one-third of small and medium-sized businesses extensively use web technologies.
• The web has made possible new waves of business models and entrepreneurship. It has transformed industries.
• The internet accounts for 3.4% of the GDP of the 13 countries that was part of the study. These countries represent 70% of the world GDP. The total contribution of the internet to the world economy is $1 672 billion or 2.9% of the total GDP.
• The internet accounts for 6% of the GDP of countries like Sweden and the UK.
• Over the past 5 years, the internet has contributed 21% of the GDP growth of the 13 countries that were studied. These countries represent 70% of the total GDP of the world.
• This is a reflection of the small and medium-sized enterprises receiving a performance boost through the internet. These companies with a strong web presence grew more than twice as quickly than those with a minimal or no web presence.
• The internet has become a very significant factor in the world economy and the growth of the economy. More specifically in jobs and wealth creation.
• Online marketing represents 15% of total marketing worldwide.
• The search requests by individuals on hard-to-find items or information was a total of 1 trillion requests during 2009.
• In the USA, web surfers made purchases worth $250 billion in 2009; in the UK, it was $63 billion or 2.9% of the GDP. The average online shopper in the USA has spent $1 773 during the year. In the UK, $2 535 was spent on average.
• The study concludes that the influence of the internet on the economic growth in the world, on job creation and generating wealth, is becoming more important and stronger.
• For individual companies the internet lowers costs and increases revenue, productivity and profits. The internet helps these companies to accelerate growth in the export markets and to have access to new markets.
• The introduction of broadband stimulates the development of the internet in those countries where it is being introduced. The internet stimulates growth in GDP, in job creation, wealth, and increases productivity.
• In France, the internet has created a total of 700 000 jobs during the past 15 years.

The research of McKinsey indicates the growth in people connected to the internet, the importance of doing business via the internet, and the big influence that these new technologies have on the GDP of the world economies.

THE INFLUENCE THESE DEVELOPMENTS HAVE ON MY HOME BASED BUSINESS

Accurate research information is not available about the expected growth in the online home based business industry. I want to make some estimates based on the information discussed above:

• The annual growth in people connecting to the internet is growing with about 10%.
• The ability of the internet to:
• Create new jobs. Give people an extra income stream. Have their own home based business and being self-employed. These changes create many new business opportunity.
• The new technologies related to the internet will create new business models that will stimulate opportunities.
• More and more trading and marketing is being done via the internet due to the development of new systems and technologies.
• The improved communication systems and technology makes it cheaper, less risky, and more attractive to start a home based business.
• The influence of the development of the internet on the growth in the GDP of the countries in the McKinsey study has been higher during the last five years than during the previous fifteen years. The trend is upwards. Many of the conclusions in this study indicate that the influence on economic growth in the future will be higher than in the past. Some developed countries like the UK have a more people using the internet than others, for example the USA. That indicates growth in many of the developed countries.
• Due to the development and introduction of broadband in the less developed countries of the world, new trading and business opportunities will become available.

There is a trend that more people who want to work from home, as indicated by the following quote: “Nevertheless, home based business owners are much more satisfied with their quality of life than other small business owners. However, the majority of home based business owners do not appear to have made a financial trade-off in order to secure this quality of life.”(c)

These new technological developments, the changes in the economic environment and changes in the social needs of people will result in a higher growth rate in internet related businesses, as well as in online home based businesses, than the 10% annual increase in people becoming connected to the internet during the next few years. If one takes into consideration that the average growth in the GDP of the world is expected to be much less than 10% per annum during this period, then there has to be good business opportunities here.

This expected growth in GDP due to internet related business activities creates many online business opportunities for the online home based business owner.

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