Digital Economy and the Potential Multiplier Effect: Can India enable this?
Companies adopting digital platform business model have demonstrated an exponential growth to reach the trillion-dollar club, having just about 10% of the work force of their peers in the brick-and-mortar space, explain Asit K Barma & Mafruza Sultana, Jagdish Sheth School of Management.
The world is experiencing a new economic revolution influenced by technological innovations, increasing processing power, availability of bandwidth, and rising internet penetration. The digital platforms have become integral to our lives, right from today’s marketplace, online payment, streaming content for entertainment to tele health, collaborative work from home or learn from home and many more. Covid-19 has further reinforced the importance of digital platforms. Welcome to Digital Economy!
Companies adopting digital platform business model have demonstrated an exponential growth to reach the trillion-dollar club, having just about 10% of the work force of their peers in the brick-and-mortar space. Just look at the market cap in $billion and the inception of these six of world’s top seven companies that operate on digital platform business model: Apple (1,876, 1976); Microsoft (1,614, 1972); Amazon (1,572, 1994); Alphabet (999, 1997); Facebook (712, 2004); Alibaba (709, 1999).
Starting at 1927, Marriott hotel had an inventory of 760,000 rooms globally as in 2015. Now compare this with Airbnb’s more than 2 million rooms listed in 2016, a feat achieved in just eight years. Tesla has a market cap of 578 $b as on Dec 11, 2020, which is more than the collective market cap of age-old giants like Ford, GM, Honda, Toyota, BMW. The magic lies in the way value is created in digital economy. Traditional economy companies show linear pipeline model of value creation, optimizing resource within, whereas the new age platform companies exhibit non-linear value creation with an exponential growth with their mantra being orchestrating resources outside of the system. We term this phenomenon ‘potential multiplier effect’. No wonder, today, the present collective valuation of three companies, Apple, Microsoft, and Amazon exceed the GDP of India itself. A new form of cold war is evolving fast, perhaps sooner that what we can even comprehend, between the US and China. Google, Amazon, Facebook, Apple, Microsoft leading the pack in the US with their rivals Baidu, Tencent, Alibaba, Huawei, and Xiaomi leading from the Chinese side. Irony is that the distribution of digital platform driven valuation globally is highly skewed to these two nations only, leaving a very insignificant share for the rest of the world. This is contrary to the way global nominal GDP is distributed across all the continents in a somewhat balanced way.
Can it be India’s turn now to show the magic of ‘potential multiplier’ in Digital Economy where the focus is on the impact of digital technology on dimensions of production and consumption, including marketing and trading of goods and services and how the transaction is made.
If harnessed well, Digital Economy has the potential to bring in social and economic development, ensure inclusive growth, and result in a cascading multiplier effect in value creation. According to Rob Kling and Roberta Lamb, digital economy focuses on goods or services whose production, sale, or provision is critically dependent upon digital technologies. According to Tapscott and Drucker, the key resource of this economy is ‘knowledge’ that has become a key economic resource, replacing traditional competitive advantage of labor, land, and capital. In automotive and manufacturing, industry products are getting increasingly more knowledge intensive. Ninety percent of new features in a modern car has significant embedded software. No wonder Tesla has chosen Bangalore to be its base in India due to access to software and technology talent pool and not just availability of land, labour and power that used to be in the usual wish list of the investors a few years ago. FMCG 2.0 entails omnichannel retailing that saw 40% of FMCG sales online in 2020. Algorithmic and high frequency trading make trading services cheaper and simple. Remote course delivery and learning from home enable a superior level of scaling up in education sector, enabling inclusive growth and quick reskilling in a much more affordable way. Application of vehicle telemetry and efficient use of transportation route planning result in considerable fuel and time saving in transport and logistics sector. Electronic Health Records and Tele-health enable remote diagnosis and improved patient experience, a new normal today in healthcare delivery. Direct to home content delivery, and viewership data driven target programming have transformed the way broadcasting and media industry operates today.
But there too exists a danger of digital divide in terms of ability of a firm or an individual to process data and make use of the insights. While the progressive initiatives of the present Government like ‘Make in India’, ‘Smart City Mission’ and ‘Digital India’ gave a good start, we look towards specific encouragements from the upcoming 2021 union budget to enable a digital eco-system in the country and jettison the inhibitors to its adoption. Incentivising cyber security; data analytics and AI projects; encouraging start-ups; introducing technology-friendly policies and a favourable tax structures for the industry can propel India to a new high riding the digital economy. The resultant scale, speed and scope can enable a multiplier effect in human potential, business value creation and societal development.
(The article is contributed by Asit K Barma & Mafruza Sultana, Jagdish Sheth School of Management)
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