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Partner, Leader Asia Business Group, Assurance
China is the pioneering force driving economic and social developments in Asia. The clocks tick at a different rate than in the West: a year in China corresponds to around four years in Europe. In the last decade, major growth in China has had a big impact on society. The country has become more international, and people have a much better understanding of Western corporate culture and business etiquette, and better language skills.
Digital transformation is also a hot megatrend in Asia; it’s amplifying the time-lapse effect and having a major impact on the continent’s development. Wages in China have risen 15% on average in recent years. This increased pay is slowly making it unrealistic to continue producing goods at competitive prices in China. Unlike Europe, where many manufacturing processes are already highly automated, China still relies too much on manual labour, and has enormous potential for automation. Added to this, as a result of social policy a growing number of people have been going into retirement since 2012. With the huge pool of labour shrinking, in the future there will be fewer hands to do the work.
Traditional Western companies experience digital transformation as an evolutionary process consisting of different steps over a certain period of time. Not Chinese companies. Here digitisation can happen in one great leap, with production facilities replanned and rebuilt from the ground up, all the way to digital, fully automated manufacturing. This is creating immense opportunities for Swiss companies in the plant and equipment industry, particularly those specialising in machines or designing production processes. They can more or less design a factory on the drawing board that’s then built and commissioned in China. This way a Chinese company can massively boost its productive efficiency at one fell swoop and manufacture end-products at a much higher level of quality.
This is where Europe’s innovatory prowess – and Switzerland’s in particular – comes in. In Asian education, innovation is defined and weighted quite differently than in Switzerland. In this country innovation is part of our DNA, and has helped shape our history and economic system. This is the background to the impressive wave of mergers and acquisitions currently sweeping sections of the Swiss economy: China has realised that Switzerland makes an interesting supplier that offers a great deal of innovatory and engineering potential. Asia’s hunger for innovation looks set to lead to the following development:
In Switzerland and Europe we’ll see the emergence of research and development centres initiated by Chinese companies. These centres will design production facilities and machinery for the Chinese market or adapt existing offerings for use in China. This R&D activity will be funded by Chinese investors. This way, Chinese companies will be able to invest in extending the workbench. Thanks to digital technology, it’ll be possible to deploy these new R&D centres in two time zones, harnessing the West’s innovation potential and creating more productive development time.
Twenty-four hours a day: time has become a key success factor in digitised business exchange with Asia. Companies used to roll out new products in different development zones on a staggered basis, starting in North America and then waiting two years before launching the product in Asia and the rest of the world, if necessary with slight adaptations. In the digital world, consumers expect the same availability and simultaneous launch of products and services around the clock, all over the world. It’s no longer possible to exploit the time advantage or high margins in different regions.
The internet has evolved into an intranet in China, and the Chinese workforce is digitally literate. It’s no accident that these days the leading digital platforms – names like Alibaba, Taobao, Tencent and WeChat – are all made in China. WeChat’s functionality, for example, is years ahead of WhatsApp. Asian countries also lead the way in terms of payment systems. If you want to pay for parking in Singapore or Malaysia you don’t need small change; instead you use a debit card behind your windscreen. A scanner at the entrance to the car park automatically captures all the necessary payment data; that’s it: you’ve paid for your parking. When you buy a newspaper at the kiosk you rummage for your smartphone, not loose change, in your pocket. This transformation in Asia over the last ten years proves that the continent has long since left the Dark Ages in digital terms.
Platforms such as the online payment solution AliPay and the Taobao virtual marketplace have been implemented across the board throughout Asia. But the continent lags behind in other areas of digital, especially process efficiency. Processes that can be taken care of in a couple of hours in Europe sometimes take a whole day in China. One of the reasons for this is that different processes, departments and companies aren’t sufficiently connected and don’t interact. Most companies in Europe have to a large extent automated interfaces to suppliers and business partners right along the horizontal value chain, and ensure they’re optimally aligned. A good example is the interlinking of POS, warehousing and logistics. There are also cultural reasons for Asia’s relative lack of process efficiency. Unlike in Europe, trust has to be earned, and Asians don’t necessarily trust other people straight away. Digitisation is opening up attractive opportunities for players in the Asian economy to optimise in this area.
Some of the biggest challenges facing China include an ageing population, the necessity of opening up to the rest of the world, and education. For example, there are pension reforms in the pipeline designed to deal with the effects of the one-child policy. But changes in society will also be driven by digitisation, as it erodes class differences and cultural barriers and reduces the effects of geographic distance. Parents in China and other parts of Asia will focus even more closely, and invest even more in, their children’s education. Only the best qualified young people will have any prospects of a job that will enable them to start a family or even a career. Those that fail to find their feet in the digital world will be forced to take jobs in lower-pay areas such as delivery. This is likely to result in an even wider income gap and secondary social problems. Down the road this development will also impact the West, because children and young people just out of education will face increasing competition from Asia. In this respect Asia holds an unbeatable trump card: its sheer size.
If you do business in Asia you should check to see where you and your business partners stand in terms of digitisation. Digital maturity – and the unharnessed business potential – can vary widely depending on the industry. As much as digital transformation is also accelerating economic developments and shaping the future, business dialogue with Asia still requires old-fashioned skills in understanding the industry, risks and opportunities. Only one factor has changed fundamentally and shifted dimension: time. Digitisation has virtually eradicated the West’s time advantage when it comes to developing and launching new products and services.