Asia leads the world in digital transformation

7 min

Digital transformation, brought about by the advent of the Internet of Things, is quickly moving beyond the realm of forecasts and overhyped speculations to become a daily reality. We are seeing more brand-new business models appear every day as more and more companies make the big shift to completely new ways of generating revenue, and as billions of additional devices get connected.

What does this mean for Asia, and how is the region faring with this digital transformation? The Asia-Pacific region is home to some of the world’s fastest-growing economies, 60 percent of the world’s population, and, by 2019, a full 50 percent of the global internet user base. It is thus not surprising that Asia actually leads in digital innovation, ranking ahead of many other regions including Europe and the Americas.

Asian consumers are leapfrogging their peers when it comes to digital technology

According to the Economist Intelligence Unit (EIU), for companies in Asia, leadership in digital transformation is often the result of consumer pressure. In many ways, Asia is becoming the place where consumer companies are figuring out how to future-proof their businesses. And nowhere is this truer than in China. That’s because consumers in China are leapfrogging their peers elsewhere when it comes to digital technology.

People’s lives in Asia are strongly based on technology; it has penetrated all aspects of their daily activities far more deeply than in many other parts of the world. Take for example messenger applications. These are widely used across the globe, but China has taken the idea of a messenger app to a whole new level with its WeChat platform, which combines the capabilities of a classic website, a product catalog, an online ordering and payment system, a newsfeed, and a social network thanks to its unique app-within-an-app model. The WeChat platform helps people organize their entire life, and they spend hours every day consuming services through it. As a result of such a profound integration with technology, the boundary between people’s work lives and private lives has essentially disappeared.

Asia is also home to a growing number of technology giants. In 2014, Asia’s top ten smartphone brands – the likes of Samsung, LG, Xiaomi, and Sony – already accounted for 69 percent of global handset sales. And because of the associated ecosystem, a third of the world’s 2.3 million app developers are based in Asia.

Such companies are driving innovation in all facets of digital business, including the smart home – now a reality in Asia. In South Korea, SK Telecom has partnered with LG and Samsung, as well as construction firm Hyundai E&C, to build fully connected apartments, and market leader LG Uplus has also introduced a plethora of innovative services. This includes sometimes surprising but very popular new services such as connected rice cookers and even a connected pet feeder! There are now an estimated one million users of smart home services there, with the market volume in South Korea alone expected to grow to USD 19 billion in the next two years.

Asia-Pacific companies are embracing digital transformation

We are seeing, and are involved in, significant innovation drives in Asia in such sectors as manufacturing (a.k.a. Industry 4.0), transportation, energy, and logistics:

Infographic showing which sectors in Asia drive innovation. ©Frost & Sullivan White Paper on Asia Pacific Industrial IoT Market

And it isn’t just cost and efficiency pressures that are driving such developments. Companies are actually developing digital skills and capabilities to ensure they can stay ahead of the competition.

According to IDC, 60 percent of Asia’s top 1,000 enterprises will have placed digital transformation at the center of their corporate strategies by the end of 2017, with the majority creating an independent position (think Chief Digital Officer) to oversee the implementation of their digital transformation strategy.

The same can be seen on the infrastructure side: the Cloud Readiness Index (CRI) 2016 (including physical infrastructure, international connectivity, broadband quality, green and sustainable policies, and data center risk) put Asian countries ahead of their counterparts in other regions (1st Hong Kong, 2nd Singapore, 3rd U.K., 4th New Zealand, 5th Germany, 6th Australia, and 7th U.S.)

Infographic showing the revenue impact digital transformation has in Asia. ©Cognizant Center for the Future of Work, 2016

According to Cognizant’s survey of 300 companies in Asia-Pacific, digital transformation has the potential to double revenues by 2018. Asian firms therefore spend an average of 15 percent of their total revenues, higher than the global figure of 11 percent, on digital initiatives.

IDC estimates that, by 2020, enterprises pursuing digital transformation strategies will more than double their software development capabilities, and in 2018, 35 percent of IT resources will be spent on supporting the creation of new digital revenue streams. Organizations are expected to spend up to 30 percent of their IT budget on risk, security, and compliance by 2017.

Manufacturing and Industry 4.0

Manufacturing companies continue to invest in technologies that drive digital transformation. According to Future Market Insights, this made Asia-Pacific the largest revenue contributor to the global smart factory market, already accounting for USD 20.4 billion in 2014. This is attributed mainly to increasing investments in manufacturing plants in the region, but market penetration, expansion, product innovation, and operational efficiency also remain top business priorities in this area.

Governments in Asia that are very involved in helping new industries develop proactively support this development. For example, “Made in China 2025” is an initiative to comprehensively upgrade Chinese industry to enable the realization of Industry 4.0. The core of the plan is focused on developing leading-edge technologies through investments in R&D from state and industry sources, accumulating intellectual property, setting distinct technical standards, and leveraging access to the Chinese market in exchange for foreign technologies.

The role of IoT in Asia-Pacific governments’ push for digital

Equally, we see that Asia’s governments are making the push for digital. Singapore, China, South Korea, Japan, and even India have made extensive efforts to develop smart cities and smart economies. Singapore is also leading the Asian Digital Transformation Index, ahead of South Korea, Japan, and Hong Kong. Its open data portal, launched in 2011, has made more than 680 datasets from around 70 government agencies and ministries freely accessible to the public. Citizens and businesses have leveraged this data to develop more than 150 web and mobile apps.

The IoT is clearly being utilized as a catalyst to drive the digital transformation. The “smart” visions of governments entail the use of the cloud, big data, and billions of sensors (including cameras) monitoring and controlling nearly every detail of the environment. This will also enable citizens to be connected to every aspect of government services on demand. Eventually, IoT devices deployed in offices, transportation systems, and public housing will feed real-time information to governments to monitor, maintain, and improve the daily lives of their citizens.

A change in mindset is needed

Digital transformation requires change, and to a great extent, reinvention. Some of the key challenges to embracing digital include the need for new forms of investment and changes to organizational structures. Companies embarking on digital transformation need to focus on developing the right skills – not just in technology, but also softer skills. A digital world runs at a much faster pace; decisions are made in periods as short as three months rather than a year. As stated in the latest white paper on digital transformation and customer success compiled by Bosch.IO, “companies need to start experimenting either very early or very fast. Most people are uncomfortable doing it but they need to test new things on the market and, if they work, scale up quickly”.

The process of digital transformation has most certainly commenced in Asia and is steadily gaining momentum, putting the region at the forefront of the world’s digitalization trend. Organizations are embracing digital transformation and this has resulted in visible productivity improvements, greater cost savings, expanded reach into new markets, and the development of new customer segments. This is largely due to Asia’s willingness to “think big,” leverage technology innovation, experiment, and also cannibalize existing revenue streams. As a natural result, the IoT is huge in Asia and digital transformation has become truly alive here.

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