Disruptive technologies expected to bring massive economic boost to Asia

Dominic Barton, Managing Director of McKinsey & Company, speaking at Asia's Digital Transformation conference

Dominic Barton, Global Managing Director of McKinsey & Company, speaking at Asia's Digital Transformation conference

Disruptive technologies expected to bring massive economic boost to Asia

30/01/15

By Naomi Canton

Disruptive technologies are one of the major forces transforming the world, particularly Asia, according to Dominic Barton, Global Managing Director McKinsey & Company.

He was speaking at the signature conference, Asia’s Digital Transformation, organised by Asia House in partnership with McKinsey.

Disruptive technologies are one of five major forces changing the world, that include the rise of emerging markets, the return of geopolitics, global shocks and the changing nature of capitalism, he said.

Mobile Internet, especially mobile commerce and location-based services, the Internet of Things (such as smart identity cards and Internet-connected TVs), cloud technology, 3D printing, renewable energy and advanced robotics could lead to 30 per cent GDP growth in ASEAN, 20 to 30 per cent GDP growth in India and up to 22 per cent GDP growth in China by 2025, he said.

“The GDP impact of disruptive technologies for some of Asia’s biggest economic zones will be huge, but each will develop differently,” he explained.

More than two billion new middle class consumers have appeared in emerging markets and millions of people have moved from rural areas to cities in Asia. With that and the rise of these technologies, countries such as China, Indonesia and India (as well as Africa) are all set to see experience massive changes, he said.

“Forty per cent of businesses will not be able to survive the next 10 years,” Barton predicted.

“This will affect every industry,” he warned. “No industry is not affected. We all underestimate the speed at which this is happening and larger organisations will find it much more challenging as often the disruptions come from outside your sector.”

This is because businesses are now cheaper to set up and run than ever before and easier to scale up than ever before, because of ecommerce, and there are lower barriers to entry, he said.

“Very small industries now have access to markets which is correcting the economy and financial services are reaching remote areas meaning that more people can participate in the economy,” he added.

The digital revolution is also creating new markets for new products and services and improving productivity within organisations, he said.

“We can gather more information in two days now than we did between 0AD and 2003 AD,” he added, referring to Big Data.

According to Barton, the world was reverting back to how it was until 1700 (around the time of the Industrial Revolution) when India and China were the dominant economies creating 50 per cent of global GDP. The old trade routes, such as the Silk Road, were now the trade routes of the future, he said.

“The most significant innovations are not happening in the USA, but rather in China when it comes to financial services  such as loans, payment systems and Internet businesses,” he said.

“China took over the US at the end of 2012 as the largest ecommerce market in the world. Internet companies there are very significant,” he said.

China is ahead of the West already in terms of mobile commerce, he said, comparing Jack Ma’s online marketplace Alibaba.com to Facebook – the latter did not go mobile until after its IPO.

Alibaba is worth 269 US$ billion, which is more than the value of Facebook.

“Rather than thinking of the Silicon Valley in the USA, we should think of Shenzhen, Hangzhou and Bangalore,” he said.

Alibaba, Tencent and Baidu are already among the top Internet companies in the world in terms of market capitalization and they are all Chinese.

The Chinese social network WeChat added 300 million users in just two years, which is more than the US adult population, he pointed out.

Another great example of a disruptive technology was the emergency of the Chinese mobile handset Xiaomi, which “threw all the rules about designing mobiles out of the window,” he said. It is now the third largest smartphone maker in the world.

China has twice as many Internet users as the USA, with India and ASEAN close behind. Alibaba’s Alipay is now the world’s largest mobile payments service in the world. In 2013 it had more than 190 million registered mobile users and processed nearly three billion transactions, nearly triple that of Paypal and Square combined. It was used at a higher rate in rural parts of China than in cities, as in the former people are more likely to have a smartphone than a computer.

“Someone that entered the system with no interest in banking is now doing it. If you are a large bank you should think about this,” he said.

“Connected devices, digital media content, consumer cloud services and ecommerce could add US$30 billion to US$90 billion to China’s economy by 2025,” he said.

Asia already has 1.4 billion internet users, which is nearly 50 per cent of the world’s total number of  netizens and the digital transformation of Asia could dramatically improve some of the Asia’s biggest social problems, particularly healthcare (via remote patient monitoring and smartphone diagnostic tools), particularly in India, which has a very low number of doctors per capita. Disruptive technologies could also significantly improve the education and agriculture systems in India, whilst ASEAN would see benefits in education, financial services and infrastructure.

By 2025, electronic payments could help 300 million Indians join the country’s financial system. Mobile money has the potential to help millions of rural people across the region.

Real-time information including local market price information, tailored weather forecasts, crop advisory and local and international commodity data, are already being delivered via mobile phones to many farmers in India.  A third of all ideas being brought to venture capitalists are already healthcare related, Barton said.

Barton admitted whilst disruptive technologies would improve the quality of life for millions of ordinary people and deliver tremendous GDP growth for Asia, as well as create millions of jobs, they would at the same time disrupt the labour force and reduce jobs for migrant workers.  But he said these problems could be solved if Asian Governments were to ensure that workers are educated to have relevant skills, if they promote innovation, expand Internet infrastructure (especially in India and parts of ASEAN), encourage startups and the development of venture finance, and develop clearer policies on the privacy and sharing of online data.

“We need more cooperation between the private and public sector. It was much easier to take people from agriculture to the assembly line than from the assembly line to coding,” he said.

He pointed out that Asian nations were at very different points in their Internet penetration so whilst South Korea had 92 per cent penetration and the fastest broadband speed in the world,  Pakistan and India were at just 15 per cent Internet penetration with much of rural India not connected at all.

“This will create major social tensions if it is not dealt with,” he said.

The automation of knowledge was another disruptive technology. “Machines already grade exam papers faster and with more accuracy than teachers,” he said . “Education is going to be disrupted significantly and I think in Asia we are going to see some really exciting things happening on that front.”

He said the digital revolution would bring the member countries of ASEAN closer together allowing the region to play a bigger role as a single economic entity in the future.

To survive these changes, businesses will have to build a broader and more diverse set of products to meet specific customer preferences; they will need to interact with customers via multiple channels at any time; they will need to keep watch for new entrants taking advantage of low-cost technology; become more open to partnerships and outside collaboration; change their structures and acquire the right capabilities, and integrate Internet technologies into back office functions, he said.

naomi.canton@asiahouse.co.uk
 

McKinsey Global Institute has produced a report, India’s technology opportunity: transforming work, empowering people, which details how technology can play an important role in enabling the growth that India needs.  The report identifies a dozen technologies, ranging from the mobile Internet to cloud computing to advanced genomics, which could have a combined economic impact of $550 billion to $1 trillion to India’s GDP a year by 2025. To read the report click here.

Our next signature conference is Access Asia – Making Connections, which takes place on 26 February.  This discussion will look at how how Asia’s infrastructure is changing trade connections and commerce across – and to – the region and how new infrastructure development across the region will open market opportunities for European businesses and further advance connectivity. For more information click here.