Mainland enterprises face a number of challenges on their digital journey, says Philip Tsai, Chairman of Deloitte China
The “digital age” is upon us, where smart, connected technology has become an integral part of businesses, governments and communities. This continuing wave of technological transformation creates abundant opportunities, but also considerable challenges that must be overcome throughout the process. As we come to accept that digitalization will permeate every facet of business and life, corporate and public leaders of today should make it a priority to reflect on how they can best ride this wave to realize the maximum potential for all of us. And yet, as leaders, are we ready to?
According to a recent Deloitte Global Survey measuring corporate and government readiness for “Industry 4.0,” the answer is one of ambivalence, mixed with equal doses of hope and hesitation. In Mainland China, enterprises appear to be positive about digitalization on the whole, with the country’s digital economy reaching US$3.8 trillion – approximately 30 percent of its gross domestic product and just behind the United States. As of 2016, China surpassed Europe to become the world’s second-largest venture capital market, with a total market value of RMB15.5 billion (US$2.3 billion).
Adapting to technology
The Mainland’s rapid embrace of technological change is not surprising, given the myriad of opportunities that digitalization is expected to bring to different sectors. For businesses, adopting technological tools to track consumer behaviour will enable them to uncover new sources of revenue and, at the same time, optimize the flow in production management to achieve cost reduction. This need to acquire cutting-edge technology is demonstrated by active global acquisitions of foreign high-tech companies by Chinese enteprises, including the United Kingdom-based travel website Skyscanner by Ctrip, and the German robotics giant KUKA by Midea Global, respectively, in 2016.
For consumers, the advent of mobile technology and e-commerce have spawned the rise of cashless transactions, online shopping and the “shared economy,” all of which have not only become an inseparable fixture in our daily lives, but are also continually affecting our purchase decisions. As a case in point, the convenience of bikes from ofo, the Beijing-based bike-rental company, has in many ways solved “the last mile” issue for commuters, and the gradual spread of bike-sharing could even help mitigate urban pollution.
Digitalization of goverment
For the government, digitalization can drive the development of public infrastructure, especially in the areas of smart cities and Internet of Things. By making use of digital technology such as artificial intelligence (AI), city planners can improve urban road traffic and public security systems. In the 13th five-year plan, Mainland China’s government has earmarked RMB500 billion (US$75.3 billion) for the implementation of smart city plans in 100 cities.
In Shenzhen, one of the well-developed technological hubs in the country, a City Operations Management Centre was set up two years ago as a smart city lab to collect, analyse and utilize data related to urban systems and administration. In addition, the Shenzhen municipal government has also actively promoted the use of mobile apps and e-platforms to streamline the provision of medical services, as well as incorporated the widespread use of biometric authentication in public security measures.
Despite the many benefits of embracing digitalization, there remains a host of challenges specific to technological innovation in the Mainland economy.
First, while Mainland China is relatively strong in areas such as mobile payment, it still lacks many core technologies in sectors such as semiconductor chips. For example, the majority of the US$25.3 billion that Chinese mobile companies paid to Qualcomm in 2016 was patent fees. While some may argue that China is merely a successful importer and popularizer of technologies from abroad, the country has evolved over the years into an innovation and technology powerhouse. The question that remains now is how can the country build an ecosystem conducive to sustainable innovation?
Second, there is currently a dearth of digital talent in Mainland China. As of 2017, there is an estimated shortage of approximately 10 million technical talents and five million AI-related talents in the China market. As a result, enterprises should make a greater effort to invest in the digital literacy of their employees through training, as this is crucial to boosting the global competitiveness of Chinese companies in the long run.
Third, the overall culture is still rather intolerant of failure. Given the uncertainty surrounding bankruptcy protection laws in the Mainland, entrepreneurs tend to be less incentivized to have another go if their businesses go bust. To prevent the dampening of the innovative spirit, more efforts should be made to protect entrepreneurial interests by refining intellectual property laws and by paying greater attention to research and development in the science, technology, engineering and mathematics (STEM) sectors.
In light of the vast opportunities and considerable roadblocks ahead, corporations, communities and the government should work collaboratively on supporting innovation, entrepreneurship and technological development. While the path to becoming a digitally mature economy will be long and fraught with challenges, there is no doubt that we should be excited about the new avenues and horizons that the digital age will unfold for our future.