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Digital disruption refers to the transformation that is caused by emerging digital technologies and business models. The emergence of these innovative new technologies and models is impacting the value of existing products and services offered in the industry and is disrupting the current market calling for reevaluation.
Businesses need to embrace digital disruption and plan for it. It has become imperative to catch on the signs of digital disruption emerging in industries which can lead to further growth and new opportunities for the business.
With ever evolving consumer needs, making the necessary changes can go a long way to keep customers happy and open up opportunities for new customers.
As per capita income rises in Asia, the consumption power of Asia’s mass affluent and middle class population is a force to be reckoned with. Asians are now spending more on things they desire and less added to things they need. The consumer patterns of Asia’s middle class will drive demand for many industries including education, infrastructure, and luxury goods.
It thus becomes necessary for western technology firms to keep their feet on ground in these rapidly emerging economies and stay relevant. In these developing economies, there are a lot of institutional voids.
The poor legacy of IT or digital penetration, or the traditional retail and banking infrastructure, often means that digital is a great opportunity for the country to leapfrog. These markets are really pushing the boundary and the companies are innovating the most for example in China, India and Indonesia.
In these markets, social network penetration is quite high even though e-commerce or Internet-banking penetration might be low. It’s much higher than in some of the developed markets, thus giving way to unique business systems and ecosystems.
Due to lack of traditional infrastructure and the novelty, people in these countries, are open to new technology and mobile Internet which makes it much easier for businesses to capture the opportunities.Few factors like these make the impact of digital more pronounced in Asia than in other markets. Riding the wave of digital disruption , Asia has seen a tremendous rise of new innovative companies in the recent years making Asia arguably the hottest region in the world for e-commerce, search, social networking, gaming, and ride sharing, just to name a few. The western technology firms are facing tough competition from these new comers’.This wave of digital disruption has surely shrugged the western technology giants jeopardizing their dominance.
The western business ardently need to address key issues to hold their position in the market. They face the challenge of coming up with products tailored for the emerging markets that provide 80% of the value at 30% of the price. The local companies are more adept at this with their deep understanding of consumers need. Value Innovation is the key, companies need to think beyond features and focus on customer benefits and value, making innovation from scratch to suit the needs the customer.
The second challenge is how to scale up value innovation by reconfiguring the way value is delivered? An innovative business system will help understand the real customer intention. Both product and business system innovation have to go hand in hand.Building an effective ecosystem working closely with regulators, rivals, NGOs, and other stakeholders remains to be another challenge.These new comers are certainly climbing up the list of great businesses.
However, reverse innovation”developing ideas in an emerging market and coaxing them to flow uphill to Western markets”poses immense challenges. It would require these companies to overcome its dominant logic, the institutionalized thinking that guides its actions. Typically that involves major changes: throwing out old organizational structures to create new ones from scratch, revamping product-development and manufacturing methods, reorienting the sales force.2nd part Emerging economies have gained ground in wealth, influence and innovation over the past two decades, bringing about radical changes in the global economic landscape. The rise of their frugally innovative firms multinationals and the emerging market multinationals (eMNCs), are an illustration of this phenomenon.
The overseas expansion of eMNCs has indeed been remarkable: for instance, about 20% of global outward investment flows today are accounted for by a group of 20 top emerging economies, the E20; who’s share was 2% at the turn of the century. Not only have emerging market multinationals significantly increased their investment abroad; but they have also made significant inroads in the global corporate world.
Figure 1.2 provides a more comprehensive picture of the 36 countries included in the ranking. G-7 economies continue to lead relative to E20 countries, with the significant exception of China (2nd) and, to a lesser extent, Korea (7th with 16 companies). Nearly a third (155 firms) of the Fortune Global 500 are E20 firms, and about 20% are Chinese. More than half of the E20 are home to companies in the Fortune Global 500 although most of them (Turkey, Thailand, Saudi Arabia, Poland, Malaysia and Indonesia) have just one company. As Figure 1.1. and 1.2 show, China continues its growth. Indeed, is the only E20 country that increased its number of companies in the Global 500: from 98 in 2015, to 103 in 2016, 108 in 2017 and 111 in 2018. Relative to the size of their Gross Domestic Product (GDP), China and Korea both have more than the average number of companies in the Fortune Global 500 that would correspond to the size of their economies.
As these emerging firms in Asia make game changing moves, they’re winning with a broad range of strategies and capabilities, and they’re growing more quickly than comparable companies.But this doesn’t mean these and other emerging-market-based businesses aren’t experiencing growing pains. They have a long way to go and plenty of hard work to do as home markets become increasingly challenging and multinationals improve their performance in emerging markets.
The current infrastructure ( transportation, telecommunications, and energy networks) although massively developed in the past few years have struggled to keep pace with massive urbanization, industrial investment, and companies’ needs for faster, more efficient supply chains.For example it is estimated that power shortages in India reduce manufacturing revenue in India by approximately 6 to 9 percent a year. Asian governments need to redouble their efforts to upgrade infrastructure finding a way to support the big infrastructure-funding gaps.
Inconsistent governance and complex regulatory environments remain significant obstacles to capturing business opportunities across emerging Asia. With few exceptions, the region’s developing economies rate low in both the World Bank’s ease-of-doing-business rankings and the Economist Intelligence Unit’s ratings for legal and regulatory risk.Asian nations are facing difficult regulatory environments of corruption, political interference, and local protectionism.
Although these are clearly problems in much of the region, a more basic challenge is that regulatory systems are unable to keep up with rapid changes in technology, business models, and international competition. While demand for licenses and approvals explodes, bureaucracies remain paperbound and inefficient. A number of Asian governments are making regulatory reform a top priority, however, Asia’s rapidly developing economies do not have the luxury of waiting for governments to clear away the region’s structural constraints or else these companies would lose the race to the region’s innovative first movers.
Despite emerging Asia’s enormous working-age population and great progress in basic education, the region’s educational systems have not been able to keep up with the explosive demand for skills at all levels.
As a result, multinational corporations and domestic companies compete aggressively for a limited pool of experienced talent.Although there have been dramatic gains in literacy and primary education, tertiary enrollment figures in rapidly growing Asian countries are still low by global standards. In the U.S., 94 percent of high school graduates enroll in some form of tertiary school, such as college or vocational school. In Thailand, by contrast, less than half of eligible students enroll in tertiary schools. Only about one-quarter do so in China, India, and Vietnam.The quality of education is also relatively weak in much of emerging Asia.
The quality of higher education is also inconsistent. In India, for example, the quality of colleges and universities drops off dramatically beyond a handful of elite institutions. There is also a mismatch in the education backgrounds of young workers and the skills that are in most demand by industry. The supply gap for experienced managers is reaching crisis levels.Many companies operating in these emerging economies therefore, are likely to lack the managerial and leadership experience they need.
Although there are a couple of initiatives to help emerging Asia meet its human resource needs in the decades ahead. They will do little, however, to alleviate the talent crunch in the short term.Protectionist Measures Over the past few years, protectionism has become a very visible reality. Since early 2018, trade tensions have markedly escalated, leading to a series of tariff announcements and retaliatory measures among trade partners. For instance, in addition to tariffs levied on all its steel and aluminum imports, the U.S. imposed tariffs on, first, $50 billion and, then, $200 billions of Chinese imports (respectively in April and September 2018).
China reacted immediately to each announcement by imposing tariffs first on $50- and then $60 billion of U.S. imports. The impact of these U.S.-imposed tariffs on the global economy is likely to be wide-ranging. The blow to Chinese exports could ripple through emerging economies, especially in ASEAN countries with a large number of enterprises and industries supplying the Chinese manufacturing sector. Cambodia, Korea, Malaysia, Thailand and Vietnam are especially vulnerable in that respect.
At the same time, the implications may not be wholly negative. If global value chains are disrupted, certain countries like Thailand may benefit from new market opportunities. Western firms (especially U.S. companies) may redesign their supply chains outside China around the U.S.-imposed tariffs. These companies will also start looking for alternative suppliers outside the U.S. Drastic changes in trade policy, erratic announcements, as well as tit-for-tat attitudes are dramatically disrupting the rule-based system of international trade. Founding principles”such as the World Trade Organization’s most favored nation principle, in which countries cannot normally discriminate between their trading partners”are seriously undermined.
Amidst a climate of proliferating uncertainty, protectionism and the escalating trade tensions have unleashed one of the most serious threats to the rule-based global trade system established over the past decades. For emerging economies in particular, this risk reshuffles the rules of the game, shifting the paradigm that helped them grow and develop.Diminishing gross margins These new comers’ profit margins are still lower than those of their developed market counterparts. The advantage of lower production costs, in many cases due to lower labor costs or the availability of natural resources is slowly eroding.
In the first wave of their lifecycles, these companies follow a strategy in which they maximize revenues but achieve growth at the expense of gross margins.And third, a majority of customers in emerging economies still have low purchasing power, and hence these companies tend to design products/services in the most cost-effective way which have proven fatal to many industry leaders who fail to resist the price competition. Trust Factor Digital risk and lack of trust can also prevent businesses and consumers from adopting digital technologies and applications.
By being shapers and first movers, the most dynamic companies in Asia’s rapidly growing economies are capturing the richest opportunities in the world’s greatest growth zone. In industries as diverse as transportation, consumer durables, and power-generation equipment, such companies are building grassroots support networks and regional footprints that will be difficult”and, in some cases, are already cost prohibitive”to replicate. In essence, emerging Asia’s first movers are not only disrupting industries but also building new barriers to entry for competitors.
A powerful set of forces is propelling this growth. One is demographics. The population of these Asian economies is projected to increase to 3.5 billion, over the next decade and a half. Even though the workforces of economies such as China are no longer growing, the combined working-age population of 2.2 billion of the region’s emerging markets is still expanding by nearly 1 percent a year. This population is also gaining wealth: by 2020, the number of middle-income and affluent households in emerging Asia is projected to more than double, to 630 million.Burnishing Their BrandsFew emerging-market consumer brands are well known outside their home country. Companies need to work hard to improve consumer engagement. These companies need to move from a mediocre OEM to form their own valuable brand and identity.
Another source of growth is regional integration. Intra-Asian trade”which increased 10 percent annually from 1990 through 2012”as well as investment and travel are rapidly binding these nations together into a giant regional economy. Southeast Asian governments are steadily implementing measures to help achieve the so-called ASEAN Economic Community 2015 goals of establishing a freer flow of goods, capital, and talent through the region.Two other initiatives, the Trans-Pacific Partnership and the Regional Comprehensive Economic Partnership, seek to strengthen trade ties within the region and with the rest of the world.
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