In today’s global economy, digital flows are commanding a rapidly increasing share of trade and economic development. While cross-border data flows were of little consequence as recently as 15 years ago, 2014 saw data flows directly account for $2.2 trillion in added value to the current global GDP. Today, about half of the world’s traded services are digitized. Roughly 12 percent of the global goods trade is conducted through international e-commerce, and these numbers are only going to increase.
For businesses whose operational models remain grounded in the principles of 20th-century globalization, this new era presents a clear challenge: figure out how to embrace digitization, or face almost certain obsolescence on the global scale. For executives and leadership teams struggling with this transition, here are five key questions to ask.
Do we understand the competitive landscape?
Thanks to digital platforms, companies of any size located anywhere in the world now have the ability to launch new products and deliver them to new markets quickly and efficiently. Unsurprisingly, this has led to a dramatic increase in competition, with digital competitors worldwide spurring pricing pressures and speeding up conventional product cycles. Amazon alone hosts roughly 2 million third-party sellers, while Alibaba is home to some 10 million small business merchants. The effect that this “micromultinational” trend has had on traditional trade and exporting can be seen most clearly in the US. In 1977 the export share of large multinational corporations was 84 percent; by 2013, it had dropped to just 50 percent.
Do we have the assets and capabilities we need to compete?
Internet giants are not the only ones building digital platforms, launching data centers, and fostering online customer relationships anymore. Businesses in all industries are getting on board with this new scope of activity by taking a fresh look at their current assets, including market data and customer relationships, and brainstorming new ways to make money with those assets. However, this does require advanced digital capabilities made possible by workers with cutting-edge skills—a competitive advantage that not all businesses currently possess. Fortunately, digitization itself can make the search for the necessary talent easier, as online talent platforms help companies access a broader global labor market to find the people they need.
Can our product strategy be simplified?
For companies that do business in multiple global markets, digitization has been key in helping simplify how products, brands, and pricing are tailored for each market. But many companies are taking this simplification one step further by reducing their entire global product portfolio and making trade-offs in customization. From automakers to tech companies, more and more businesses are moving in this direction, offering a limited number of products that feature consistent design and branding regardless of where they are eventually sold. Furthermore, given that digital platforms give consumers around the world instant access to what’s being offered in other countries, simultaneous global product launches are now the norm, a development that makes it possible for products to go viral on an extraordinary scale.
Do we need to re-examine our organization and supply chain?
Thanks to a plethora of digital tools for real-time communication and remote collaboration, many wide-scale functions can now be centralized, giving companies the option of forgoing one global headquarters location in favor of creating virtual teams all over the world. The supply chain side is ripe for reshaping as well, thanks to digital “control towers” that offer real-time visibility, enabling effective and instantaneous coordination of global vendors. In a digital world, speed to market is more important than ever, and companies are disbanding lengthy and complex supply chains to prioritize lead times, logistics costs, productivity, and proximity to other company operations. Currently, one-third of tech companies have moved their bases closer to end-user markets, and could change further still as the adoption of 3D-printing technologies grows.
What new risks do we need to be aware of?
The issue of data security affects companies in every industry, and must be a top priority regardless of company size. To combat hackers, businesses must adopt security techniques such as safeguarding important information, testing regularly, and training employees to undertake protective measures. In addition, companies must realize that their new products and services don’t retain an exclusive foothold in the market for long; digital tools and international competition now mean that imitators can hit almost immediately.