According to the Director and Chairman of McKinsey Asia, Gordon Orr, digital enterprises are on the rise in China. Orr predicts that these companies will increase productivity across industries, speed up the globalization processes of Chinese enterprises and usher in chief information officers into the strategic decision roles. They will also force shopping mall developers to go bankrupt and governments to counter new job losses.
Making such forecasts is not something that is new to Orr who has been publishing his predictions about China annually for the past six years. Backed by his 20 years of life and work experiences in China, especially with the role he played in creating McKinsey’s China practice – with the opening of offices in Shanghai and Beijing in 1993 and 1995 – his predictions do make sense in terms of where Chinese business and economy are heading.
In a recent interview with Fudan Business Knowledge about his acute predictions made in January 2014, Orr highlighted the rise of digital enterprises in China, as well as the social impact and governmental policies that happen in response to this trend.
What is digital enterprise?
“A digital enterprise is a company that understands the relevant technologies that are impacting the way business is done today and re-invents how it does business tomorrow.”
Is digital business a starting point for globalization?
Digital business means tremendous opportunities for Chinese local enterprises. If you create your business online from the beginning, you can operate nationwide and even become international because all of these enabling systems – payment and logistics systems – would support you in doing so.
“But the real challenge is not about going nationwide but about creating a business that you can run professionally once you get a little bit larger and having the skills and organizational processes in these systems to do that,” Mr. Orr explained.
Digital technology allows you to connect to people globally. “That is the most important thing, so it is an enabler to allow you to do that. But it is only the starting point. If you don’t understand the consumers in the United States, it doesn’t matter if you are connected to them because they are not going to buy your products. Also, you have to understand the specific regulations in your market.”
He said he would counsel Chinese enterprises to not entirely focus on digital business, but also create online and offline businesses in the targeted markets at the same time. For example, a lot of Chinese companies sell in Brazil. You need to have Brazilian people in your organization working in Brazil in addition to your online presence. The customer wants to talk to someone in his or her own language; someone who can explain the products or offer technical assistance for any problems.
Balancing digital growth with job losses
Orr predicts that we should expect the Chinese government’s rhetoric and focus to shift from economic growth to job creation. The paradox of rising input costs (including wages), the productivity push and technological disruption is that they collectively undermine job growth at the very time China needs more jobs.
He went on to talk about a recent forum in which he participated in Beijing on the development of China with Chinese leaders and global CEOs. “Technology is an inevitable force and these industries are going to be re-structured. The question is, what do businesses have to do, what does the government has to do, and have they collaborated with each other?
“This is a really tricky situation for the government. In many industries in China today, consumer behavior is driving the market. Let’s take the insurance industry as an example. State-owned and private companies, start-ups and giants alike, they all have access to digital technology; therefore, they are all going to offer their insurance products online. Consumers also have access to the same digital technology. If they find they can easily find the cheapest option, they are going to buy it themselves, cutting out the need for companies to have so many sales agents. That is going to happen and there is very little government can do at this point to prevent it,” explained Orr.
“What the government needs to do is recognize that technology is making this all happen, and they should intervene at two levels: one is helping people who come into the job market have the right kind of skills for the new jobs that are coming; the other is encouraging industries to re-organize and retrain people.”
More than just an annual forum, the Council on Business & Society Global Alliance is an ongoing international dialogue – The Council Community helps bring together business leaders, academics and journalists from around the world. #CouncilonBusinessandSociety