Automotive and electronics industries lead digital transformation in China

05 October 2018 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.”

Beijing and Tokyo emerge as serious tech hub rivals to Silicon Valley

12 April 2019 Consultancy.asia

As Silicon Valley struggles with a number of institutional issues, the location of the world’s top tech-hub may ultimately change – with Beijing and Tokyo emerging as serious contenders according to a survey conducted by KPMG.

Now into its seventh edition, KPMG’s Technology Industry Innovation Survey quizzed over 700 global tech executives on their thoughts on the future industry landscape – revealing that for the first time more than half of the respondents (58 percent) believe Silicon Valley will no longer be the technology innovation center of the world in just four years from now, with Beijing and Tokyo seen as two possible usurpers.

“Many factors affect a city’s perception as an innovation hub, including favorable government policies and incentives, accelerators, tech parks, corporate investment, state-of-the-art infrastructure and, in all cases, at least a few highly successful and wildly popular success stories,” said Peter Laco, an Executive Director at KPMG in Slovakia, of the previous survey.Top contenders for the next world-leading technology innovation hubWhile New York remains the most touted hot-spot among respondents, Beijing and Tokyo landed in the second and third spots as likely contenders for the global tech-hub crown, with seven Asian cities featuring among the top dozen; Shanghai (in equal 5th, but overtaken by Beijing), Taipei (in joint-5th as a notable riser), Singapore and Seoul (at 7th and 8th) and Hong Kong, which rounded out the top dozen. Shenzhen, meanwhile, has dropped outside the top 20.

With access to talent and quality infrastructure remaining key attributes for a successful hub, the report states that, despite all the positive business factors present in Silicon Valley, “an escalating cost of living, questions about diversity and corporate cultures, high business taxes, an overmatched infrastructure, and even increasing scrutiny into data privacy and other business practices are contributing to the perception that Silicon Valley may not continue to dominate.”

Still, the US (which also featured seven cities among the top 20) as a whole is still considered the country expected to produce the most disruptive technologies in the coming years, maintaining its top spot ahead of China despite a narrowing of the gap by two percentage points on last year (to 23 percent against 17 percent). The UK meanwhile has gained some separation on Japan in fourth, while Singapore, South Korea and India appear among the top ten.Countries that show the most promise for disruptive technologyTo gain further insight into the likelihood of a burgeoning tech-hub reaching the peak of the global pecking order, KPMG analysed the results of the survey against a range of other city indices, including A.T. Kearney’s 2018 Global Cities report and Mercer’s Quality of Living rankings – identifying Singapore as the most consistent Asia Pacific performer across the board, with Tokyo, Seoul, and Hong Kong lagging in a variety of areas.

“The belief that Silicon Valley will be displaced as the leading hub underscores the continuing decentralisation of technology innovation, spurred by investment in other cities and regions globally, as well as contributing factors in Silicon Valley,” says Tim Zanni, KPMG’s global technology sector leader. “Even when faced with pressing issues that call for funding, cities and countries are carving out significant investment to become a technology innovation hub due to an expected broad economic impact.”