"Engage With Digital And Invest In It"

BCG’s Rajah Augustinraj urges SMEs to look at digital technologies not as threats but opportunities  

Published 7 years ago on Aug 02, 2017 8 minutes Read

As I was reflecting on the topic given to me —‘Going global' — I realised that there are a lot of different opinions about globalisation. And despite that, everyone is fairly sure about one thing that uncertainty is the name of the game. Another thing you’ll notice if you step outside the confines of your own city, that our lives are increasingly integrated digitally. I want to show you how these two factors make a difference for businesses and entrepreneurs, not just in India but all over the world.

If you are one of those people who are concerned by the prevailing uncertainly in the global politicial and economic scenario, then I’d like to put you at ease by reminding you that this isn’t the first time we are dealing with this phase of globalisation. We've been here before. If you go back 150 years, since then we have witnessed three waves of globalisation. Starting way back in the 1800s, where much of globalisation was built around maritime powers such as France and England. Sourcing raw materials from around the world is what integrated the world. And then in the 1900s much of globalisation evolved around regional trade treaties that were being signed mainly in the western hemisphere and this drove a lot of integration in the world. Lastly, over the past 25-30 years, this phenomenon has evolved in the form that we know today.

I want you to recollect that at the end of each of these phases of globalisation, we have always experienced a period of uncertainty. There was always economic unrest, talk of strengthening trade barriers, people were concerned about nationalism and how they would support industry in their own countries. However, business always moved, innovation continued and new opportunities emerged out of this. It is the same place we find ourselves in today. Some of the megatrends we hear a lot about now-a-days can be summarised into the three distinct forces that are re-shaping global business. First is protectionism, we see it in some forms across India and I am sure you’ve heard a lot about it from what the Donald Trump administration is doing in the US. There is also talk about what Brexit means for the UK and the European Union. Protectionism increasingly seems to be re-shaping the way businesses function and there continues to be uncertainty around what that means for people whose source of revenue is the export market.

In addition to this, the multi-lateral consensus at global trade organisations that we once relied upon are now breaking down. And that is replaced with a preference for one-on-one country negotiations. The third element that is re-shaping globalisation or at least the geopolitical conversation around us is the rise of state capitalism. We see more and more state actors such as the Asian Development Bank and other sovereign wealth funds getting involved in decision making and all this affects the calculus. It affects not just the big companies, but also  small and medium enterprises' decision-making.

You may hear that the era of global integration is over and there is a fear of having to go back to a period when there were trade barriers. I wish to present two propositions that counter this geo-political narrative. Firstly, technology - particularly digital technology, which is truly re-shaping the way businesses develop and deliver products. And this is taking shape in different ways. One such way is via digital platforms. The most obvious examples, that most of you would be familiar with, are Amazon and Flipkart. These are e-commerce platforms but similar platforms are emerging in very transformative ways across all industries. Companies that are working in the industrial goods sector will be familiar with GE and its Predix platform. Google is also making significant progress with its AI platform. The other thing that that is happening quite rapidly is digital-enabled services that go beyond just delivering products. What is the digital-enabled service that you can provide to your customer? For instance, if you manufacture air conditioners that are connected to the Internet, can you now make a case for delivering cooling to a particular facility and charge on the basis of that, as opposed to just selling an air conditioner? This isn’t a business model that is set to evolve over the next five to 10 years, this change is happening in the industry as we speak.  

In addition to this, the next generation manufacturing such as additive manufacturing is still in flux. But, you need to keep in mind that it is revolutionising what we always thought of as cost advantages. For example, ThyssenKrupp, through its connected elevators is today able to monitor performance for elevators world over. It can conduct predictive analytics to ascertain which parts will fail over a certain period of time. And even before that happenes, it can dispatch a technician to resolve the issue, thereby reducing downtime for the installed elevators. I have worked with a client in Europe, who's doing the same thing with cranes at ports. They told me that a port authority no longer wants to just buy a crane, but he wants to ensure that the crane component works the way it is intended to. If you, as a company can deliver such a service, then clients would pay for it.

The addition of the service element to your product, is what differentiates it from the rest. And this is happening through digital interfaces today. I hope businesses, both small and large are thinking about how their products and services are being disrupted by digital technologies. For example, agriculture is considered to be one of the of the most labour-intensive segments that is immune to disruption. But we couldn’t be further from the truth. Have you heard of what US agri equipment manufacturer, John Deere is doing? The ability to monitor agricultural practices, farm yield and combining that with the power of the Internet to manage a field better, is what a farmer is looking for. And I've seen some estimates that range as high as 15% yield improvement in developed economies where the yield is already high from the advent of such technologies. So regardless of where you are in the value chain, whether you make a small or a big piece of equipment, the ability to be able to leverage technology is becoming increasingly important. I urge you to consider this as one of your top strategies when you do your product planning.

The second proposition that I want to switch to, is services and solutions. One of the things that many detractors of globalisation will point to is the fact that trade volumes are coming down. However, while that remains true, and trade volumes are declining, the trade in services has been growing at a much faster clip. Even the biggest companies in the world, several of whom we surveyed for this data, have indicated that the fastest growing piece of the pie is the services revenue. And this has to do not just with delivering services or the product that you sell but also combining the product and services together in more turnkey solutions that you deliver to your consumers, be it your end customer or the businesses who consume your products and services. For example, one of our clients is a mining explosives company. It supplies explosives to mines around the world. When it tried to enter the South African market, it faced stiff competition from local players. They realised that customers in that market didn’t value the product differentiation, despite the use of better quality of ingredients in its explosives. This might sound very familiar to some of you especially if you are in the commodities sector. So this particular company set up what it called a Centre for Excellence that collated all the data about blast effectiveness from all the other countries that it serviced. Then when it teamed up with a local player who supplied the actual explosive, this company provided the overarching service, and guaranteed a certain performance for blast effectiveness - it basically leveraged not only its global spread, but several years of experience.

As an SME, you may have been working in a particular space or providing products for a long period of time. That has given you a lot of technical expertise and a lot of insight about what works and what doesn't. That information is monetisable and an incredibly important value-added piece, when you enter global markets. For example, you’ve heard about Michelin Tyres. What could be more commoditised than tyres? But Michelin is actively putting sensors on its tyres today and helping truck companies manage its fleet operations by reducing the amount of fuel it consumes and also charging them on the basis of kilometres the tyres were used for. So the company is going beyond just selling a piece of rubber and looking at how it can best leverage the information it has, to make a much better win-win proposition for clients, whether it is a truck company or an individual truck operator.

As you can see, the world is changing and it does present a lot of threats but I urge you to consider that it also presents significant opportunities. All you need to do is be aware of your ecosystem. What we want to avoid is where Stephen Elop found himself. He he said he didn't do anything wrong and played by the rules but still lost. Nokia has always been presented as an example of a company that probably was too comfortable and didn't see the disruptions coming, in its own market segment. Being aware, getting ahead of some of these disruptions, will you make sure that you don't find yourself in such a situation. I’d like to conclude with two suggestions. First, engage in digital, this is not a passing phase, it is here to stay. It will fundamentally transform your business. Go ahead and invest in it, and see what value proposition it adds, not just to your end-customers but also to businesses that you might be supplying to. Secondly, re-define what your product is and you might end up coming out on the backend thinking that your product is no longer a widget you sell, but an outcome that you deliver for your end user. We have heard this from some of our largest clients that the continuum between product and service is increasingly getting blurred due to the advent of digital. Thus, you need to think about what actually defines the product and what is the best possible way for you to deliver maximum value for your clients.