The Growing Digital Economy in a COVID-19 World: Opportunities, Challenges and Solutions
The COVID-19 pandemic has accelerated the rise of the digital economy, creating a multitude of challenges and opportunities for businesses across the world.
In a new op-ed, Senior Manager, Cheng Wei Swee, and Manager, Megan Lim provide four key insights to help businesses navigate this era of digital transformation effectively.
Recently, technology buzzwords such as the metaverse, autonomous vehicles, and e-commerce are gaining traction as businesses and governments digitalize. Technology has played a big part in our lives, and it is likely to present greater opportunities moving forward, especially with the COVID-19 pandemic. For instance, a survey has found that the pandemic has accelerated the pace of digital adoption by four years.[1]
However, the adoption of emerging technologies comes with challenges such as inequality concerns and cyberattacks. For example, research has shown that the introduction of broadband technology has led to income inequality in Brazil growing worse as the technology has allowed high-skilled workers to be even more productive, thereby widening the wage gap between high-skilled and low-skilled workers.[2]
Additionally, the costs of having to manage cybercrimes globally are estimated to grow at 15% annually to reach $10.5 trillion by 2025, up from $3 trillion in 2015.[3] These challenges should be addressed to ensure everyone can reap the benefits of the growing digital economy. AlphaBeta has extensive expertise working on emerging digital issues, quantifying the impacts on countries, and developing recommendations for governments and tech companies. Based on our work, we have highlighted four key insights to guide stakeholders on their digital transformation journeys.
INSIGHT 1: DIGITAL TRANSFORMATION IS CRUCIAL FOR ECONOMIC RECOVERY FROM COVID-19
Beyond its immediate economic impacts, the pandemic is likely to have long-term implications such as severe disruptions to business operations and tourism-related industries. Technologies can help mitigate these economic impacts by allowing businesses to engage customers digitally, resume operations amid remote working arrangements, and address logistical bottlenecks caused by disruptions to global supply chains. Evidently,, in Malaysia it is estimated that a substantial 72% of the economic value achievable from adopting emerging digital technologies could be derived from technological applications that mitigate business risks posed by COVID-19.[4] In the post-pandemic era, digital technologies will continue playing an instrumental role in boosting the competitiveness and resilience of businesses. To accelerate digital transformation efforts, governments can step up on regulatory, financial, and advisory support to businesses, especially micro, small, and medium-sized enterprises (MSMEs) lacking digital expertise. This can include providing digitalization grants and advisory support for businesses, as well as improving access to broadband infrastructure and high-speed Internet.
INSIGHT 2: E-COMMERCE WILL BROADEN MSMES’ REACH TO INTERNATIONAL MARKETS
With COVID-19 restrictions affecting footfall in traditional brick-and-mortar retail stores, the pandemic has significantly altered consumer behavior and generated more online sales globally. Cross-border business-to-consumer (B2C) sales in the Asia-Pacific region was valued at $476 billion in 2020, accounting for 31% of total B2C e-commerce sales in the region.[5] This serves as a significant opportunity for MSMEs as international trade can be conducted at considerably lower costs than before. However, businesses face several barriers to adopting e-commerce. Based on an AlphaBeta survey conducted with over 900 MSMEs in Singapore, Thailand, and Vietnam in 2021, the most common barriers faced by MSMEs are regulatory and cost barriers. These include the high cross-border logistics costs, stringent consumer protection laws in foreign countries, and high customs duties charged on online foreign trades. To help MSMEs tackle these challenges, several policy actions can be adopted by governments, including the provision of e-commerce and export grants and training on foreign regulations.
INSIGHT 3: THERE WILL NEED TO BE A QUANTUM LEAP IN WORKFORCE DIGITAL SKILLS TRAINING
According to a global survey of over 3,700 senior business leaders conducted by AlphaBeta in 2021, 87% of respondents indicated that the pandemic has accelerated the pace of digital adoption in their organizations.[6] A digital skills gap has emerged, and current training efforts are not able to keep pace with the increasing demand for digital skills. According to a 2021 AlphaBeta survey, although 97% of organizations see a need to train their workers on digital skills, only 30% have implemented a plan to do so. Another AlphaBeta survey of over 12,000 workers globally reflected that 85% of them feel unconfident about having the right level of digital skills to cope with changes in their jobs due to the pandemic.[7] The digital skills gap is a critical problem that needs to be addressed promptly. Even as the world emerges from the pandemic, the strong demand for digital talent is likely to remain. Based on a World Economic Forum report, developments in artificial intelligence and other emerging technologies are occurring in shorter cycles, changing the nature of jobs faster than before.[8] As new roles emerge and skill requirements evolve rapidly, employees will need to undertake digital skills training more regularly to keep up with evolving job needs. Therefore, it is crucial that governments and businesses overcome these training barriers to unlock their future workforce potential. Some possible actions they can adopt are providing financial support for digital skills training in the workplace, increasing the awareness of training benefits, and developing public-private partnerships to deliver industry-led training efforts.
INSIGHT 4: THE GAINS FROM DIGITAL TRANSFORMATION WILL NOT BE EQUITABLE WITHOUT ADDRESSING THE WORSENING DIGITAL DIVIDE
While there is tremendous potential for digital transformation, the pandemic has also underscored the existing digital divide between countries. Many low-income countries were left behind while high-income countries ramp up on digital adoption as they lack the necessary enablers such as reliable and affordable Internet access.[9] With the COVID-induced digital transformation efforts, these low-income countries will be in a more disadvantaged position. They will not be able to access the benefits of technology as devices and systems are increasingly dependent on Internet connectivity, worsening the inequitable distribution of gains from the digital economy.[10] To ensure that developing countries can equitably benefit from the digital economy, greater investments in broadband infrastructure will be required to ensure that all citizens have access to digital technologies.
MOVING FORWARD
In order to seize these opportunities and mitigate the challenges, it is critical that governments and businesses work closely to create an enabling environment for the digital economy.
To provide deeper insights, we will be delving into the four topics covered in this article in the upcoming weeks. For more information and to work with us in this important area, please contact Swee Cheng Wei and Megan Lim.
Below are several resources related to our work in the digital space:
- Digital transformation and COVID-19 recovery reports can be accessed here.
- Digital skills report can be accessed here.
[1] McKinsey (2020), “How COVID-19 has pushed companies over the technology tipping point—and transformed business forever”. Available at: https://www.mckinsey.com/business-functions/strategy-and-corporate-finance/our-insights/how-covid-19-has-pushed-companies-over-the-technology-tipping-point-and-transformed-business-forever
[2] Forbes (2019), “Technology Isn’t Destroying Jobs, But Is Increasing Inequality”. Available at: https://www.forbes.com/sites/adigaskell/2019/05/03/technology-isnt-destroying-jobs-but-is-increasing-inequality/?sh=149e22955e78
[3] GlobeNewswire (2020), “Cybercrime To Cost The World $10.5 Trillion Annually By 2025”. Available at: https://www.globenewswire.com/news-release/2020/11/18/2129432/0/en/Cybercrime-To-Cost-The-World-10-5-Trillion-Annually-By-2025.html#:~:text=Every%20U.S.%20business%20is%20under%20cyberattack&text=18%2C%202020%20(GLOBE%20NEWSWIRE),%243%20trillion%20USD%20in%202015.
[4] AlphaBeta (2021), Positioning Malaysia as a Regional Leader in the Digital Economy: The Economic Opportunities of Digital Transformation and Google’s Contribution. Available at: Malaysia-Digital-Transformation
[5] B2C e-commerce refers to the online sale of products and/or services of businesses directly to the end-consumers. AliResearch and Accenture (2015), Global Cross-Border E-commerce Market 2020. Available at: https://unctad.org/system/files/non-official-document/dtl_eweek2016_AlibabaResearch_en.pdf
[6] AlphaBeta (2021), Building Skills for the Changing Workforce. Available at: building-skills-for-the-changing-workforce
[7] Employers and workers across 12 countries surveyed in this study include Australia, Brazil, Canada, Germany, India, Indonesia, Japan, New Zealand, Singapore, South Korea, the United Kingdom, the United States. AlphaBeta (2021), Building Skills for the Changing Workforce. Available at: building-skills-for-the-changing-workforce
[8] World Economic Forum (2019), “The digital skills gap is widening fast. Here’s how to bridge it”. Available at: https://www.weforum.org/agenda/2019/03/the-digital-skills-gap-is-widening-fast-heres-how-to-bridge-it/
[9] World Economic Forum (2021), “COVID-19 exposed the digital divide. Here’s how we can close it”. Available at: https://www.weforum.org/agenda/2021/01/covid-digital-divide-learning-education/
[10] World Economic Forum (2021), “COVID-19 exposed the digital divide. Here’s how we can close it”. Available at: https://www.weforum.org/agenda/2021/01/covid-digital-divide-learning-education/
