Posted On 2014/08/03 By In Business, Economics, News, Research With 575 Views

China’s Digital Transformation

As individual companies adopt web technologies, they gain the ability to streamline everything from product development and supply-chain management to sales, marketing, and customer interactions. For China’s small enterprises, greater digitization provides an opportunity to boost their labor productivity, collaborate in new ways, and expand their reach via e-commerce. In fact, new applications of the Internet could account for up to 22 percent of China’s labor-productivity growth by 2025, according to the McKinsey Global Institute (MGI).

Yet the Internet is not merely a tool for automation and efficiency; it also expands markets rapidly. Greater adoption of web technologies in China could lead to the introduction of entirely new products and services if government and industry take the right steps to maximize the potential (exhibit). A new report from the McKinsey Global Institute (MGI), China’s digital transformation: The Internet’s impact on productivity and growth, projects that new Internet applications could fuel some 7 to 22 percent of China’s incremental GDP growth through 2025, depending on the rate of adoption. That translates into 4 trillion to 14 trillion renminbi in annual GDP in 2025.

That 10 trillion renminbi gap between the two numbers represents the economic growth at stake. The low end of the projection assumes that the country’s current trajectory continues, with adoption of Internet applications increasing at a moderate pace, under existing constraints. The upper end assumes that China builds a supportive policy environment, individual companies move decisively, and workers adapt to the demands of a more digitized economy, according to MGI. The MGI report focuses on a set of Internet applications that could penetrate more deeply across key sectors of the country’s economy, including big data; improved demand forecasting, online sourcing, and marketing; Internet banking and payment systems; the Internet of Things; and e-commerce. The six sectors analyzed in the report are already beginning to undergo sweeping changes.

In consumer electronics, for example, the critical factors will be growth in connected devices (such as smart home appliances and Internet TVs) and online media content. China’s fledgling used-car market has enormous room for growth if powered by e-commerce. Chemical companies can use the Internet to enhance their R&D capabilities, enabling collaboration with customers and external experts. In financial services, online money-market funds, discount brokerages, and third-party online marketplaces have already begun to emerge. Chinese home buyers and renters increasingly search online to find the property that’s right for them. More broadly, the Internet is reshaping the market for commercial real estate as e-tailing decreases the need for retail space and increases demand for modern warehousing. And in healthcare, web-based tools such as electronic health records and clinical decision-support systems can elevate the quality of care and play a critical role in making the system more efficient and cost effective.

Increasing digitization is forcing companies across all industries to rethink their operations and become more customer-centric. Owners and CEOs will have to be deeply engaged as they make decisions that can radically affect how their companies do business. Industries will face increasing talent shortages, and larger companies may respond by making targeted acquisitions of tech firms, according to MGI.

From a policy perspective, China’s government faces multiple challenges in harnessing the Internet for economic growth. Building out networks is crucial to bringing more of the population online and facilitating the adoption of new Internet applications, while a balanced set of regulations for data sharing could remove constraints on the adoption of big data. Increased business usage of new Internet applications is likely to have a neutral or slightly positive impact on the total number of jobs—but a more striking effect on the composition of the labor market. The economy will need fewer workers for routine activities that can move online, while demand will increase for workers with digital skills. Government and industry can ease this dislocation by ensuring that training programs are available to help workers continually refresh their skills. China can also adapt school curricula to build digital literacy and create a true education-to-employment pipeline.

Beyond creating economic momentum for China, the Internet will enable growth based on productivity, innovation, and consumption. It will sharply intensify competition, allowing the most efficient enterprises to win out more quickly. The impending shift toward the Internet across key sectors of the economy will pose some risks and disruptions, but it can ultimately support China’s goal of creating a more sustainable model for growth, according to MGI.

 


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Sources:

Article: Financial Times

As individual companies adopt web technologies, they gain the ability to streamline everything from product development and supply-chain management to sales, marketing, and customer interactions. For China’s small enterprises, greater digitization provides an opportunity to boost their labor productivity, collaborate in new ways, and expand their reach via e-commerce. In fact, new applications of the Internet could account for up to 22 percent of China’s labor-productivity growth by 2025, according to the McKinsey Global Institute (MGI). Yet the Internet is not merely a tool for automation and efficiency; it also expands markets rapidly. Greater adoption of web technologies in China could lead to the introduction of entirely new products and services if government and industry take the right steps to maximize the potential (exhibit). A new report from the McKinsey Global Institute (MGI), China’s digital transformation: The Internet’s impact on productivity and growth, projects that new Internet applications could fuel some 7 to 22 percent of China’s incremental GDP growth through 2025, depending on the rate of adoption. That translates into 4 trillion to 14 trillion renminbi in annual GDP in 2025. That 10 trillion renminbi gap between the two numbers represents the economic growth at stake. The low end of the projection assumes that the country’s current trajectory continues, with adoption of Internet applications increasing at a moderate pace, under existing constraints. The upper end assumes that China builds a supportive policy environment, individual companies move decisively, and workers adapt to the demands of a more digitized economy, according to MGI. The MGI report focuses on a set of Internet applications that could penetrate more deeply across key sectors of the country’s economy, including big data; improved demand forecasting, online sourcing, and marketing; Internet banking and payment systems; the Internet of Things; and e-commerce. The six sectors analyzed in the report are already beginning to undergo sweeping changes. In consumer electronics, for example, the critical factors will be growth in connected devices (such as smart home appliances and Internet TVs) and online media content. China’s fledgling used-car market has enormous room for growth if powered by e-commerce. Chemical companies can use the Internet to enhance their R&D capabilities, enabling collaboration with customers and external experts. In financial services, online money-market funds, discount brokerages, and third-party online marketplaces have already begun to emerge. Chinese home buyers and renters increasingly search online to find the property that’s right for them. More broadly, the Internet is reshaping the market for commercial real estate as e-tailing decreases the need for retail space and increases demand for modern warehousing. And in healthcare, web-based tools such as electronic health records and clinical decision-support systems can elevate the quality of care and play a critical role in making the system more efficient and cost effective. Increasing digitization is forcing companies across all industries to rethink their operations and become more customer-centric. Owners and CEOs will have to be deeply engaged as they make decisions that can radically affect how their companies do business. Industries will face…

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About

Stefan

Stefan (from Austria, Europe) has been living, studying and working in China since 2010. Stefan has worked on several research, publication and consulting projects focusing on the China Travel Market. He holds three Masters degrees and is an expert on China Outbound Tourism, Marketing and Social Media in China. Stefan works with BMG on the Global Ready China Seminars as well as the Global Ready China News and related projects. He also has teaching engagements in the areas of eMarketing and Tourism Strategy.

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