16 factors to determine pace of digitalization after Covid-19

The 16 factors – from the regulatory environment to infrastructure – that will determine the pace of digitalization in different economies over the next five years were outlined in a report by The Economist Intelligence Unit, the research and analysis division of The Economist Group.

The effect of the coronavirus (Covid-19) pandemic is already causing market disruption that will only be amplified as the global economy recovers. Areas of opportunity will open up for companies that move quickly to develop new digital products and services, but there are also some serious risks that could undermine companies’ ability to grasp those opportunities.

The report titled Digital disruption: risks and opportunities in the shift to online stated that the acceleration in digitalization over the past year has been caused by lockdowns, which have forced both consumers and businesses online. Over the next two to three years, the rollout of vaccines protecting from coronavirus (Covid-19) pandemic will (if all goes well) make stay-at-home policies less necessary as the threat from the coronavirus fades. However, the digital economy will carry on expanding.

From the start of the Covid-19, it was clear that digital businesses would be among the few winners. And so it has proved. Lockdowns have encouraged a remarkable acceleration in digitalization across many sectors, from online retail and digital finance to online entertainment and telehealth. The report looks at how companies and countries can thrive amid the resulting market disruption.

The 16 Factors are discussed below

Online retail

Using data from Edge by Ascential, it is estimated that online retail sales in the 60 biggest economies surged by over 30% in 2020. In 2021 we expect further growth of 18% in online sales, and by 2025 they are likely to account for nearly 20% of total retail sales, up from 10% in 2019. Even sectors that have traditionally been less reliant on digital sales, such as automotive, will change. We expect online sales to account for nearly one-quarter of new car sales by 2025, from less than 5% before the pandemic.

Digital finance

Digital payments will soar in tandem with the rise in online retailing, but will also penetrate further into real-world retailing as customers and sellers seek to avoid contact with cash and cards. Regions with low levels of banking or card penetration, but high smartphone penetration, will make a particularly rapid switch to digital payments systems, as companies such as WhatsApp Pay (US) and Ant Group (China) roll out new services.

Read Also  Fact Check: Was Coronavirus Predicted in a 1981 Dean Koontz Novel?
Remote working

Lockdowns have seen companies such as Zoom, Okta and Slack (US) and TikTok (China; also known as Douyin) become household names, and in the process change the way that teams operate. If remote-working remains commonplace, the implications could be farreaching, affecting everything from customer management to recruitment.

Telehealth

In the US, Medicare, a government health fund, went from reimbursing 11,000 virtual visits a week pre-pandemic to 1.3m visits a week during the March-May lockdowns. Several countries have adopted new regulations and reimbursement rules that will support future growth in telehealth.
Healthcare providers and patients are also becoming more adept at using remote technology, and identifying gaps in its ability to meet clinical goals.

Online entertainment and gaming

Microsoft’s online and Xbox gaming revenue rose by 64% year on year between April and June 2020, while Sony saw 50% growth in-game and network services over the same period. However, gaming and entertainment are shifting away from devices towards the cloud, opening up opportunities.

Education

Schools and universities have been forced to adopt remote-learning policies that could ultimately disrupt their business model, giving them an opportunity to reach a broader customer base but probably at lower fees. Fixed costs will remain high unless the campus model also changes. This
shift will open up the sector to digital-only providers, with only the most prestigious institutions likely to retain market share.

Data analytics

Underpinning the new digital economy will be the crucial role of data, as companies use it to yield new customer insights, enhance productivity, or deliver efficiency gains. This prospect has driven consolidation in the data market this year, including S&P Global’s acquisition of IHS Markit,
the London Stock Exchange’s purchase of Refinitiv, and Intercontinental Exchange’s deal to buy Ellie Mae. The data market will also be disrupted by new regulations on data localization being introduced by countries such as China, India, Indonesia, Vietnam, Russia and Brazil. This trend will drive growth in edge computing, which allows data to be stored and analyzed locally.

Telecoms infrastructure

The sudden surge in demand has, on occasion, overwhelmed servers during 2020, including (most recently) those used by Google and Amazon Web Services. If demand remains high, telecom companies will need to invest heavily to shore up existing telecoms infrastructure, at a time when revenue has been dented by the pandemic. However, only a comprehensive fifth-generation (5G) network can offer the bandwidth and data
transmission speed to support a more digitized world.

Read Also  LNSC arrests gang of 'pickpockets'
US-China tech wars

The rollout of 5G is being hampered by the sanctions imposed by the US against Huawei, a Chinese telecoms equipment manufacturer. This has forced many countries to abandon Huawei hardware to buy 5G equipment from (often more expensive) competitors such as Samsung (South Korea), Ericsson (Sweden) and Nokia (Finland). However, poorer countries will need to explore cheaper ways of maintaining network speeds.

Digital taxes

International e-commerce giants (such as Amazon of the US and Flipkart of India) face a renewed crackdown, as governments try to support domestic players or rescue bricks-and-mortar companies. India, Indonesia, Singapore and Malaysia have already launched digital service taxes. The EU is likely to roll out its own digital tax regulations by the end of 2020 if the OECD fails to arrive at a consensus under its Base Erosion and Profit Shifting (BEPS) project. Some governments, such as the UK, will consider a levy on all online retailers to level the playing field.

Regulatory risks

One dilemma governments will face is how to regulate technology companies that are expanding in areas such as fintech or healthcare, but refuse to be regulated like organizations from these industries. Competition regulations, data privacy, consumer trading standards and (perhaps) solvency regulations are all under review, as well as data localization laws.

Digital security

The acceleration in digitalization has brought an inevitable acceleration in cyberattacks, forcing companies to invest more in cybersecurity. Phishing, scams, and malware attacks are getting more sophisticated and more targeted, as recent efforts to derail AstraZeneca’s vaccine programme show.

The four other factors that are expected to drive digital growth are Market environment, Government, Regulation and policy, and  Workforce.

Despite these risks, digitalization is likely to be one of the prime drivers of economic recovery. A recent EU report claims that, by 2030, digital technologies will contribute a cumulative €2.2trn (US$2.5trn) to the EU economy, a projection that will underpin the EU’s pro-digital policies. The
information and communication industries alone now account for 8% of the EU’s GDP (see chart), while Accenture estimates the whole digital economy at around 22% of global GDP

Leave a Reply

This site uses Akismet to reduce spam. Learn how your comment data is processed.

WP2Social Auto Publish Powered By : XYZScripts.com