What benefits can the digital economy bring?
Apr 14, 2022
The digital economy has already transformed the retail landscape with e-commerce. This shift to digital shopping which was already occurring before the pandemic began in 2020 is a major contributing factor in the continuing supply chain crisis and pressures on the logistics network. However, digital technologies can also offer solutions to these challenges, helping retailers to anticipate supply and demand and gain more insights from big data to avoid bottlenecks and delays.
The driving force behind products, services and information being made available online has been digital transformation (and to some extent, social media). Digital transformation within an organization is the streamlining and digitizing of manual processes and systems with the ultimate aim of a single platform providing an overview of all tasks and jobs. This means that any stakeholder in any team or department can get an instant, real-time view of what is happening in the business. Digital transformation at its most straightforward simply makes things easier with a more joined-up approach to tasks and visibility. For customers of retail businesses and service providers, the methodology is the same, except they have an overview of their purchases or interactions with the business making for better customer service.
It’s not just about creating apps and digital products though. Moving things online can have an economic impact as it lowers the need for leasing physical space. It can also support sustainable development as it helps companies run more efficiently, saving time and resources. As Tom Goodwin (who was Senior Vice President of Havas Media in 2015) observed in a TechCrunch article,
“Uber, the world’s largest taxi company, owns no vehicles. Facebook, the world’s most popular media owner, creates no content. Alibaba, the most valuable retailer, has no inventory. And Airbnb, the world’s largest accommodation provider, owns no real estate… Something interesting is happening.”
However, the introduction of new technologies and digital services assumes that everyone owns a mobile phone or a connected device and has access to broadband. This is not always the case in developing countries – or indeed in developed countries – and building digital infrastructures without understanding who can access them and how can increase the digital divide.
Creating global digital equity
One of the World Bank Group’s initiatives is the Digital Development Global Practice. Working with global governments, the aim is to provide the telecommunications infrastructure needed to facilitate a digital economy. Ensuring internet access and information and communication technologies (ICTs) for all can help reduce poverty and inequality by stimulating innovation and entrepreneurship. The statistics are compelling:
- At the end of 2019, half of the world population was still without internet access, predominantly in developing countries.
- At that time, 21 of the 25 least connected countries in the world were in Africa. However, the pace at which the internet was growing in Sub-Saharan Africa was also one of the fastest in the world.
- One billion people across the globe cannot prove their identity, which limits their access to digital services and opportunities.
- The gender gap in developing countries means that women are 33% less likely than men to use the internet. South Asia has the biggest gender gap with women being 51% less likely to use mobile internet than men.
- The digital economy is equivalent to 15.5% of global GDP, growing two and a half times faster than global GDP over the past 15 years.
- Research shows that a 10% increase in mobile broadband penetration in Africa would result in an increase of 2.5% of GDP per capita.
- Even though new technologies are spreading rapidly around the world, 4 billion people still lack access to the internet.
There is a huge international effort to bring universal digital equity into play. The Organization for Economic Co-operation and Development (OECD) is another organization working with governments and policymakers on international standards in economic, social, and environmental issues. Their areas of work in the digital realm include broadband and telecom, blockchain, artificial intelligence, and the digital economy.
In 2018, Microsoft and IDC conducted a study on the impact of digital transformation – specifically within the manufacturing sector – on the GDP of Asia Pacific (Unlocking the Economic Impact of Digital Transformation in Asia Pacific). For the study, they interviewed 1,560 leaders in the manufacturing industry in 15 markets across the territory amongst them China and Japan as well as Australia, India, and Malaysia.
Their research concluded that if the manufacturing sector adopted digital transformation as a development strategy, it could grow an extra 1% per annum. For this to happen, the sector needs to consider the use of data as an asset and invest in data collection, artificial intelligence, robotics, and IoT solutions. On a macro scale, 1% indicates considerable growth from digital development within the global economy as a whole.
What is the Internet of Things?
Connectivity is key to the digital economy, through mobile technology in the form of smartphones and tablets, and increasingly through the Internet of Things (IoT). The function of IoT is most commonly known to most people via virtual assistants like Alexa and Siri. These are physical objects fitted with sensors, and which have processing ability, meaning they can connect with other objects to exchange data.
Autonomous cars contain a multitude of sensors that help them navigate the road by “talking” to other sensors. This is particularly useful in “smart cities” where roads and traffic systems communicate with connected cars and buses to ease congestion and keep the city running smoothly. There is the potential for cars to communicate on other things too such as knowing when a part needs replacing. However, with more connectivity comes the possibility of more cybersecurity breaches that can make personal data public. This is currently one of the biggest challenges facing IoT, but blockchain is offering the possibility of tamper-resistant data exchange.
The nature of the pandemic meant that many companies tried to create or participate in digital ecosystems but were unprepared because they didn’t understand their value chain. Ecosystems are vast, complex networks involving billions of users, customers, devices, interactions and data points amassed over years, sometimes decades in the case of hyperscale businesses like Amazon and Apple. Out of all the business models, creating and analyzing a value chain is not one that a company can initiate overnight, which is why the pandemic led to many companies folding due to lack of adaptability. It takes time to hone inputs and algorithms that lead to process automation and efficiency. Start-ups that have been strategically built with digital ecosystems and value chains at their heart will be much more resilient in the future.
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The proliferation of digitally driven businesses is creating a competitive market across all economic activities. Whether a business operates via an app or is looking to design new products, there is always a way to digitize that will make a company more relevant. From healthcare to telecoms, retail to fintech, private sector to public sector, there are no boundaries to developing better services and products in the digital age.
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