While researching my last blog post on the relationship between digitization and GDP per Capita,I came across some interesting articles.
One article was from the Harvard Business Review in July 2017. 60 Countries Digital Competitiveness Indexed.This article is based on a Digital Evolution Index which was developed by HBR to trace the emergence of digitalization; and identify hotspots around the world where digitalization is happening quickly and other spots where momentum has slowed.
In prior years digitalization of countries had demonstrated the Mathew Principle, which is a way of saying “the rich get richer”. (The Mathew principle is based on Jesus’ parable of the talents which is found in the book of Mathew 25:29: “For to everyone who has will more be given, and he will have abundance; but from him who has not, even what he has will be taken away.”) The countries which were on the road to digitization were advancing ever faster while countries which were not digitized were falling further behind. The consequences would be a wider and wider gap between the haves and have nots. Here is a chart that shows this in the U.S. economy from a McKinsey report in 2015.
Now that seems to be changing according to HBR. Here is a chart from that HBR article which shows the comparative degree of digitization from 0 to 100 on the Y axis and the rate of change of digital evolution on the X axis from 0% to 4%.
This shows that the rate of change of digitalization in the leading digitalized countries like Sweden, Switzerland, US, and Korea has slowed down to less than 2% while the rate of change of digitalization in countries like Malaysia, China, and Russia is approaching 4%. At this rate of change, these countries could catch up and may even surpass the current digitization leaders. What has changed?
If you look at the checkpoints on the McKinsey chart, 1997 – 2005 – 2013, these were the early phases of digitization. 1997 to 2005 was the modernization of the data center with virtualization, internet and broadband. 2005 to 2013 was the introduction of cloud. During these early adopter stages, the rich got richer because they could afford to invest in infrastructure, and the gap widened especially in countries where internet and broadband investments were lagging.
For instance, the little guys in the ISP business often did not have access to the state-of-the-art equipment or the financial resources of the big telco’s to build competitive low-cost products and services. However, that has changed due to innovative new business models based on cloud and open source. Please read my post on MyRepublic, how a small startup company was able to deliver the first 1Gb internet service in the world for $50 Singapore Dollars in 2014, before any of the established, multi-billion dollar telco’s.
Today the small countries can leapfrog many of the initial stages of digitization. Today they do not have to invest capital and build out expensive ICT infrastructure. They can buy that as a service. Also, countries, even small countries, have invested in broadband infrastructure and set national goals for digitization. In many countries more people have access to smart phones than indoor toilets. Many leading digitized countries like the U.S. are still tied to paper currencies and debit/credit cards. In China you can’t use a credit card in many places since most everyone uses WeChat or AliPay. In parts of Africa you better have M-Pesa on your phone if you want to pay a taxi driver or buy a souvenir at a street market. The next phase of digitization will help to level the playing field and open up opportunities for innovation.
Digitization is not just about the introduction of new technologies to make our existing businesses more efficient. It also provides the opportunity to use technologies in innovative new ways to create new revenue streams. Digitization is constantly evolving. Consider how we used to down load music to our Walkmans, then there was iTunes with digital music sales, and now Pandora with its deeper catalog of music with digital radio.
When I was in primary school, a missionary lady would come by on Wednesday afternoons to teach bible classes and encourage us to memorize bible verses. That’s where I was introduced to the Mathew principle. There was another verse which I think is relevant today.
Mark 2:21-22 – “No man also seweth a piece of new cloth on an old garment: else the new piece that filled it up taketh away from the old, and the rent is made worse”
This could be called the Mark Principle: Innovation is the use of new technology in new ways.