Digital Economy: The Impact on National Transformation and Businesses

Safder Nazir

SVP – Public Sector, Middle East & Central Asia

Rapid technological advancements have now made digital technologies an integral part of everyday life. Indeed, the impact of digital is visible everywhere, from accessing essential services and purchasing products through digital platforms, to the shift toward virtual methods of learning and working. Today, the digital economy is a major component of national transformation for many countries. Policymakers across the globe have recognized the impact of this new economic construct and introduced specific strategies, regulations, and initiatives to support its evolution. It is, therefore, now critical that public and private sector organizations, alike, understand the impact of the digital economy and evolve into truly digital enterprises.

Digital Economy: Four Key Areas of Impact

Economic Growth

In the digital age, all producers and consumers use digital inputs — from digital technologies and infrastructure to digital services and data — in all activities, to create value. As a result, digital economies have become key contributors to Gross Domestic Product (GDP), significantly impacting economic growth. China's digital economy, for example, has been growing rapidly in recent years and has become a vital driver of the country's GDP. Standing at US$5.4 trillion in size, China's digital economy generated 40% of its GDP in 2020 and helped the country overcome the challenges posed by the COVID-19 pandemic, with an overall growth rate of 9.6%.¹

As such, numerous countries have already recognized the significance of the digital economy and several have made it a cornerstone of their growth and recovery strategies. For example, China has made the digital economy a core component of its national strategy for 2021–25. Similarly, Australia's AU$800 million Digital Business Plan is a key part of its economic recovery strategy, aiming to become a leading digital economy by 2030. This plan is projected to increase Australia's annual GDP by AU$6.4 billion by 2024.²

Employment Creation

Creating jobs and involving the labor force in nation-building has long been the focus of governments across the world. In the digitally dominated post-COVID-19 economy, the fundamental shift in the ways work is done will create new challenges for the development of skills. However, this shift will also present opportunities for job creation. The rise of the sharing economy is an excellent example in this respect. Almost nonexistent a decade ago, this sharing economy today provides millions with viable livelihoods. For example, China's sharing economy grew 1.3% year-on-year in 2020 and presently has an estimated labor pool of 6.31 million.³ Elsewhere, it's estimated that American technology company, Uber, employs 3–4 million drivers worldwide.⁴ The rise of the sharing economy has far-reaching effects in tackling global unemployment, which has risen to 6.5% in 2020, up from 5.4% in 2019, caused by the COVID-19 pandemic.⁵

Reaching the Underserved

Rapid economic growth and urbanization have created economic divides within national boundaries, giving rise to unequal wealth distribution and underserved, remote communities. For decades, global organizations and governments have tried to address this divide through diverse means. While technology has always been a vital tool, the rise of the digital economy has revitalized efforts to bridge the gap. Indeed, in the digital economy, people can more cheaply access products and services from any location.

Today, 93% of the world's population has access to a mobile broadband network, with 4G networks covering 85% of people. At the same time, access to data is becoming more and more affordable. In 2019, the cost of mobile broadband services in 95 countries was less than 2% of monthly gross national income per capita, the standard set by the United Nations (UN). Another 48 other countries are close to achieving this standard, with local mobile broadband packages presently costing 2ؘ–5% of monthly gross national income per capita.⁶

Moreover, many leading global organizations are addressing the digital divide through specific initiatives. For example, Huawei has partnered with the United Nations Educational, Scientific, and Cultural Organization (UNESCO) and the Global System for Mobile Communications Association (GSMA) for its TECH4ALL digital inclusion initiative, with four key areas of focus: education, environmental protection, healthcare, and balanced development. These initiatives strive to make digital technologies more affordable, improve wider society's digital skillset, and create digital ecosystems that help developers build applications for different communities.

SME Development

Small and Medium-Sized Enterprises (SMEs) are significant parts of the global economy, accounting for 90% of all businesses and generating more than 50% of all jobs worldwide.⁷ Most of these businesses operate in select sectors, including retail and wholesale, travel and tourism, and manufacturing. It's precisely these sectors that have been heavily disrupted by the advent of the digital economy. For example, digital commerce is shaking up retail, the sharing economy is disrupting travel and tourism, and the Fourth Industrial Revolution (Industry 4.0) is impacting the manufacturing industry.

The rise of the digital economy provides SMEs with new opportunities for innovation and growth. However, differences in Information Technology (IT) maturity between small and large businesses need to be reduced if growth opportunities are to be fully grasped. For example, some large retail organizations provide e-commerce options for customers, something small retailers are often unable to do due to a low level of digital maturity. Many leading economies have placed focus on this issue. For example, Australia has earmarked AU$28 million in its 2021–22 budget to help small businesses digitally transition and better participate in the digital economy.

Digital Economy: Three Key Challenges and Their Solutions

To thrive in the digital economy, organizations need to transition into digital enterprises. Fueled by data, a digital enterprise provides personalized experiences to customers through digital platforms, backed by constantly evolving and expanding digital infrastructure. However, in the Middle East for example, 62% of enterprises have yet to reach sufficient digital transformation maturity to take advantage of the disruptive potential of digital initiatives.⁸ To get there, they must re-invent business models, create new customer experiences, reimagine work models, and innovate with partners. Such efforts often face significant internal challenges, which organizations must overcome through technology-based solutions. How precisely can technology be used to address three key challenges that organizations face in the digital economy?

Data Utilization and AI-Infused Analytics

Data is a strategic asset for organizations participating in the digital economy. The success of an organization in the new economic paradigm will depend on its capacity to collect, synthesize, and analyze data as well as its ability to apply resulting insights at scale. However, most organizations struggle to achieve such success due to the large volume and variety of available data. The amount of global data generated is expected to triple in the next five years, from 64 ZB in 2020 to 180 ZB in 2025, 80% of which will be unstructured.⁹ Research studies indicate that more than half of organizations in the Middle East have limited visibility into enterprise data and therefore cannot use data effectively.¹⁰

To make the best use of available data, enterprises need to deploy analytics solutions powered by Artificial Intelligence (AI). AI-based automation can enhance each step in the business intelligence and analytics process, from finding and preparing to exploring, analyzing, and acting on data. Such solutions can also help businesses re-architect into data-native enterprises, creating superior customer experiences and making more informed decisions.

Skills Availability and Process Automation

In the digital economy, organizations are grappling with skills issues as digital technologies in work environments become rapidly widespread. One survey revealed that over 50% of Chief Information Officers (CIOs) find it difficult to recruit top talent with sufficient digital skills.¹¹ In addition, the COVID-19 pandemic has moved many employees out of the office. Due to such fundamental changes, working models now foster human-machine collaboration and enable new employee experiences. New working environments are also not constrained by time or physical space.

To tackle the skills issue and improve organizational agility, digital enterprises are increasingly investing in technologies such as robotic process automation and AI and Machine Learning (ML). Currently, existing automation projects only focus on eliminating repetitive, low-value tasks and administrative processes. In addition, automation in most organizations is not augmented by AI. That said, some organizations are quickly adopting intelligent, AI-enabled process automation and shifting their focus from siloed tasks to End-to-End (E2E) processes. Organizations that effectively use intelligent automation to achieve efficiency and contain costs will gain significant competitive advantages as the digital economy evolves.

Infrastructure Buildouts and the Cloud

Organizations seeking to transform into digital enterprises, master their data, and use intelligent automation, often face challenges with their existing, legacy IT environments. Most have multiple, disconnected IT systems that hinder organization-wide change. Monolithic legacy applications also cannot keep pace with rapidly changing operational needs. In addition, digital enterprises require around-the-clock and scalable computing power and storage capabilities, which most organizations currently lack.

A digital enterprise's capacity to generate revenue depends on the responsiveness, scalability, and resiliency of its infrastructure, applications, and data resources. Accordingly, cloud-centric digital infrastructure and applications are essential for any organization's transition into a digital enterprise. The distributed nature of the cloud caters to Line of Business (LoB) requirements such as faster response times. At the same time, the Operational Expenditure (OPEX) model caters to IT objectives to control costs and provide scalability. Many features required for the digital economy are now only available in cloud-based applications, resulting in organizations rapidly modernizing and transforming legacy applications into cloud-native versions, to support new customer and operational use cases. They are also investing in scalable, resilient, and software-defined infrastructure to enhance agility and support the use of cloud platforms.

National and Business Prosperity: The Digital Way

The digital economy has grown rapidly throughout the world, becoming a cornerstone of national transformation and driving economic growth, employment creation, inclusiveness, and SME development. As this new economic paradigm evolves, businesses must transform into digital enterprises that see and use data as a strategic asset, embrace intelligent automation, and support cloud-native digital infrastructure and applications.

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