‘Digitalisation will force Asian firms to face unexpected newcomers’

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KUALA LUMPUR: The advent of digitalisation in business may soon force companies in Asia to compete against players from beyond their vertical market, said Gartner Inc, an American information technology (IT) research firm.

Even companies which continue to spend on IT, including those in the Asia-Pacific and Japan who have expanded their IT budgets this year by about 0.9%, according to a recent survey by Gartner, which is higher than the global average increase of 0.2%, will not be spared.

They may still find themselves surprised by new start-ups, which are not limited by barriers to entry faced by its traditional rivals, said Gartner’s senior research vice-president Dale Kutnick.

“If you look at the history of companies which have gone out of business, they were out-manoeuvred by companies with new business models born from technology and information. It hasn’t happened yet in every industry, but it will at different speeds,” said Kutnick.

He said that these companies — which he calls “the digital threat” — will be from outside the industry.

“Nobody saw Apple coming. Sony didn’t see Apple coming. Most retailers pooh-poohed Amazon, and the banks have been pooh-poohing the payment companies, whether it’s PayPal or Google Wallet. And they do so at their own peril,” warned Kutnick.

“I think probably, the bigger and most significant change is the notion that somebody from outside your industry, using digital forces, can totally change the business model,” he said.

In Kutnick’s opinion, information has significantly changed the way companies operate. “Information is the most valuable resource that companies can have today. Unlike IT, which is merely the vessel that channels information, information has no borders.”

The best business operations, he said, stretches the importance of information across departments. “One of the lessons to really exploit this, is to bring together the best and brightest across finance, engineering and marketing, with technology to really harness these things.”

He cited the example of retailers using phone applications to enhance the shopping experience, which helps them save on marketing and cultivates customer loyalty at the same time.

However, the challenge to innovate — especially for larger companies — may require a change in traditional business models altogether. “The one-size-fits-all approach, will not work,” said Kutnick.

According to the Gartner report, some local companies have led the way in pioneering technology in their daily operations, with Petroliam Nasional Berhad among those pushing hard to innovate digitally.

Meanwhile, healthcare companies in Malaysia and Thailand are benefitting from medical tourism, with foreigners finding healthcare to be cheaper and of better quality, than those available in their countries.

The challenge for companies is to be “digital-ready” and develop digital leadership, it said.  

This article first appeared in The Edge Financial Daily, on Sept 02, 2014.