Automotive and electronics industries lead digital transformation in China

05 October 2018 Authored by Consultancy.asia

Just a tiny fraction of Chinese companies have evolved to generate more than half their current revenues from new streams developed in the past three years according to a study by Accenture, with the local automotive sector leading the way for innovation.

According to the China Digital Transformation Index compiled by global professional services firm Accenture, only seven percent of the local companies researched could be considered what the firm terms ‘Rotation Champions’ – those which have accelerated their tech-enabled business investments and capacity to the extent that they now derive more than half of their revenues from fresh ventures started in the past three years.

Becoming a Rotation Champion (those companies which ‘rotate to the new’), Accenture contends, requires two critical digital skills which together form a feedback loop: one is in the building of intelligent operations – reducing costs, enhancing efficiency etc. – which creates a foundation for the second; driving digital innovation across products, services, and business models, which in turn creates new requirements in intelligent operations.

Altogether, the cross-sector study, which was conducted in collaboration with the China Service Alliance for the Integration of Information and Industrialization, looked into 450 Chinese enterprises operating in eight different industries – automotive, consumer electronics, logistics, retail, pharmaceutical, fast moving consumer goods (FMCG), chemicals, and metal – finding that the automotive and consumer electronics companies led the way in terms of digital innovation and intelligent operations. The metals and chemicals sectors, meanwhile, trailed well behind, with retail a middling performer. Digital transformation progress in China by sectorThe Rotation Champions across all sectors were however streets ahead in both digital innovation and intelligent operations, scoring an average of 66 out of 100 in each category compared to a sector-wide company average of just 37. Financial performance followed, with a three-year average CAGR of 14.3 percent for Rotation Champions against an average 2.6 percent, and sales margins of 12.7 percent compared to 5.2 percent for the rest.

These high-performing companies, the firm states, “succeeded in enhancing their digital capabilities by developing seamless digital and physical customer experiences, adopting smart manufacturing and creating intelligent functions on the operations side. At the same time, they drove digital innovation through product and service creation and established digital ventures to accelerate the creation of digital business models.”

The results as to leading and lagging sectors are perhaps then not surprising. With China’s automotive industry, for example, considered the world’s leader in electric vehicle sector development according to a recent study report by McKinsey, and the country’s citizens the most enthusiastic for the advent of automated driving, the technology-embracing consumer market creates its own virtuous circle with innovative manufacturers and industry. Ditto for the electronics sector, with Chinese consumers found to be the fastest adopters of home AI technology.

Yet, with another recent BCG report suggesting that digitally-influenced sales in emerging markets like China could reach as much as $4 trillion annually by just 2022, there’s certainly a lot at stake for businesses in any sector. “The Rotation Champions are well ahead of the rest,” Accenture Greater China chairman Wei Zhu warns. “To close the gap, companies should invest in and deploy digital technologies at scale and at speed, and they must seek to create an agile organisation with an innovation culture that will allow them to monetise new ideas.”

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