Mar 25, 2016

China’s dramatic shift to a digital economy

China is already the world’s largest e-commerce market and now the government is encouraging a fresh generation of digital natives to push the technology into new territory.
Online shopping carts are transforming the face of China’s economy, changing supply chains and putting pricing power in the hands of its 1.37 billion consumers.
China’s policymakers have promoted their policy of ‘internet-Plus’ to spearhead economic reform and foster the development of a consumption-led economy over the export-led growth of the past.
The country’s shoppers, already among the most internet savvy in the world, are using new shopping and payment gateways via Wechat, Alibaba and Taobao. This is levelling the playing field for suppliers, who now meet buyers online in an e-commerce market that has been growing rapidly.
For decades, mainland China’s economic expansion was powered by low-value-added manufacturing: cheap toys, shoes and textiles that were exported to the rest of the world. Those days are increasingly fading into the past and the focus now is on making the country’s giant economy more productive, innovative and market-oriented.
Chinese consumers have adapted to the digital world with lightning speed.
Just a decade ago, there were fewer than 100 million internet users in mainland China, and the penetration rate was just 7 per cent. Now, the penetration rate has reached nearly 50 per cent, with some 667 million internet users as of June 2015. These consumers are highly connected, mobile, digitally savvy and globally minded.
The country is now the world’s largest e-commerce market: online retail sales in mainland China totalled 3.877 trillion yuan ($US590bn) in 2015, up 33.3 per cent from a year earlier, according to official data.
On November 11, 2015, during the annual shopping bonanza on “Singles Day”, Alibaba’s online sales soared to a record 91bn yuan ($US14bn), beating expectations and easily topping the amount shoppers in the US spent during the multi-day sales spike around the thanksgiving holiday.
The shift to a digital economy is also changing customers’ use of financial tools like e-wallets, e-payment and touch-pay systems. This enhances the digital ecosystem and helps it to reach the consumer masses.
Private-sector companies have also embraced the digital age. Companies like Alibaba, Tencent, Baidu, e-tailer JD.com and travel websites Ctrip and Qunar have given rise to thriving social networks and transformed the way Chinese buy movie tickets and book hotels, exchange shopping tips and compare prices.
They have also enabled Chinese shoppers — be they in Beijing, Shanghai or rural Inner Mongolia — to spend, by putting them within a mouse-click or phone-swipe of goods from all over the world.
Crucially, this eager embrace of the internet has injected more market forces, transparency and competition into the mainland Chinese economy, ensuring that quality, price, efficiency and service are rewarded more highly than ever before.
In other words, it is helping to make China’s economy become more “digital”.
The real impact will come if these market forces take root across all parts of the economy — in particular, the massive state-owned sector.
Mainland China’s roughly 150,000 state-owned enterprises (SOEs) employ more than 30 million people, and contribute nearly a third of China’s GDP. Their actions have a big impact on the speed and direction of the economic rebalancing and upgrading that Beijing is aiming to bring about.
Not all SOEs have been quick to harness the power of the internet. However, those that do — perhaps by partnering with existing internet companies — can reap substantial benefits. Digital tools can help them improve their sourcing, sales and logistics systems; streamline their often inefficient operations; engage with customers via social media; identify and track market trends and boost their marketing, research and innovation capabilities.
China e-commerce sales are expected to top $US1.5 trillion by 2018, by which time nearly 30 per cent of all retail sales in the country will be done online, according to a recent study by eMarketer. Reaching these shoppers, and getting them to click “buy now”, will be increasingly important for private-sector and state-owned enterprises alike.
Chinese authorities have seen the successes in the private sector and are now actively encouraging change in the state-owned sector.
In March last year, Premier Li Keqiang announced the “internet Plus” initiative. This aims to encourage China’s manufacturers to deploy mobile internet, cloud computing, “Big Data” analysis and other tools, and to promote the development of internet banking, mass entrepreneurship and innovation. It also aims to support higher-tech manufacturing in agriculture, energy, finance, public services, logistics, e-commerce, traffic, biology and artificial intelligence.
China spent 430bn yuan in 2015 to beef up the nationwide internet system. Another 700bn yuan will be spent on this effort in 2016 and 2017, and an additional 140bn yuan will be invested in improving rural internet connectivity until 2020.
Putting these policies in place could help provide momentum for China in the years ahead. The internet and its related technologies will change the nature of growth, particularly as labour costs increase and the country’s population ages. They will create new markets for innovative products and services. And they will generate jobs for workers with digital and hi-tech skills.
In the long term, China’s digital economy will help its international ambitions. Some of its technology companies are now among the largest in the world. They can leverage their experiences from the dynamic home market and export their technological successes to the rest of the world.
The heavy capital investment and labour force expansion that fuelled China’s rise over the past three decades cannot be sustained indefinitely. The economy’s embrace of the internet can ultimately support China’s goal of creating a more sustainable “digital economy”. China’s policymakers, and the country’s mouse-clicking and phone-swiping shoppers, are helping to bring that change about.

Mar 24, 2016

Where jobs face biggest threat from digital disruption

Where jobs face biggest threat from digital disruption

Imagine if in 1966 someone had said agriculture was about to be subjected to disruptive forces that would reshape both the industry and regional Australia.
The forces that would achieve this outcome within a generation are globalisation, mechanisation and farm aggregation: farms ­became bigger; efficiencies were imposed by global pricing; villages shrunk as agricultural labour was shed. Even if someone did predict this transformation, they would not have used today’s most fashionable term — “disruption”.
What will be the transformative and disruptive forces to reshape labour markets, business and Australian society over the next generation?
Perhaps the answer lies in ­Oxford in Britain. Carl Benedict Frey and Michael A Osborne are young academics who published groundbreaking research three years ago on the future of employment. They considered the structure of the US labour market to determine which jobs might be impacted by computerisation.
Frey and Osborne concluded that 47 per cent of the US workforce was at risk from computerisation. Jobs considered safe from digital disruption require pers­onal interaction, judgment and sometimes fine hand-eye co-­ordination. Such jobs include ­surgeons, dentists, childcare workers, chief executives, fashion designers, concierges, athletes, waiters and economists.
Jobs considered to be most at risk from digital disruption include insurance underwriters, mail carriers, data-entry operators, loan officers, cashiers, file clerks, taxi drivers, truck drivers, accountants and auditors and meter readers.
So impactful was this research that Citigroup commissioned the authors to extend their analysis to a fuller review of the US workforce on a city-by-city basis.
The Citigroup report Technology at Work lists which US cities are most at risk and least at risk from digital disruption based on workforce composition.
It concluded that the modestly scaled Californian city Fresno was most at risk, with 54 per cent of jobs likely to be displaced by digital disruption. High-risk cities are dominated by manufacturing, gaming and low-level white and blue-collar work.
On the other hand, knowledge centres such as Boston and Washington are considered to be less exposed. In knowledge cities, less than 40 per cent of local jobs are considered to be replaceable by computerisation and automation.
The Frey & Osborne and Citigroup work has not been transferred to Australia. Until now.
I have had one of my team painstakingly align the US labour market classification of jobs ranked by Frey & Osborne on the likelihood of digital disruption with the Australian labour market by occupation.
The alignment is not perfect due to classification differences at the margins, but it is sufficiently close to give meaningful results. New data from the 2016 census available next year will deliver ­updated results.
Whereas 47 per cent of jobs in the US are considered to be at risk from digital disruption, the proportion for Australia is 49 per cent. The capital city range for the proportion of the workforce most at risk extends from 46 per cent in Canberra to 50 per cent in Perth. Public servants are less likely to be displaced by disruption than fly-in fly-out miners, it would seem.
Australian cities most at risk ranges from about 45 per cent in the case of Ocean Grove, Alice Springs, Torquay and Gisborne to about 59 per cent at Kurri Kurri, Murray Bridge, Cessnock and Melton. Towns most at risk from digital disruption are dominated by mining and agriculture activities or are blue-collar commuter towns where there is a poorly ­developed local job market.
The same analysis can be ­applied on a suburb-by-suburb basis, where the digital disruption risk factor ranges from less than 25 per cent to more than 60 per cent. The communities most ­immune to digital disruption are the knowledge-worker ghettos of Garran, Aranda, Giralang and Pearce in Canberra, of genteel Bellevue Heights in Adelaide’s south, of Melbourne University’s Parkville in Melbourne, of Kelvin Grove in Brisbane, of acreage’s Bedfordale in Perth’s south and of university-shaped Newtown and Camperdown in Sydney.
It is instructive that there are no “immune” suburbs in Australia’s top 50 in Tasmania.
Suburbs where most of the workforce is expected to be subjected to digital disruption include Crace, Bonner and Casey on the newer edges of Canberra, Broadbeach Waters on the Gold Coast, carmaking Elizabeth in Adelaide, Kings Meadows outside Launceston, Taylors Lakes in Melbourne, Tuggerah on the Central Coast and Hillarys in Perth.
These communities are dominated by low-level white-collar and some blue-collar jobs that are deemed replaceable by artificial intelligence, digital connectivity and automation.
The difference between largely immune and largely exposed communities is highlighted in a spot comparison of the workforce in Melton and Ocean Grove.
At the 2011 census, 5.7 per cent of the Ocean Grove workforce ­described their occupation as schoolteacher (which ranks as low-risk on the Frey & Osborne digital disruption measure). In Melton, on the other, hand just 2.5 per cent of the workforce is comprised of school teachers. The Australian average is 3.2 per cent.
On the other hand, some 3.7 per cent of Melton’s workforce described their occupation at the last census as truck driver (ranks high for digital disruption). This proportion of truck drivers in Ocean Grove is 0.8 per cent. The Australian average is 1.5 per cent.
The conclusion is that the ­digital disruption revolution will impact some communities more powerfully than others. Cities, towns and suburbs will be differentially challenged as workers lose their jobs to artificial intelligence, to automation and to digital connectivity.
If the truck drivers of Melton lose their jobs to driverless vehicles, what will be the impact in that town on property values, on social cohesion, the demand for support and retraining services? Could the struggling edges of our biggest cities become the battleground of the new economy’s digital disruption?
What can communities, governments and workers do now to mitigate the risk and the impacts of change? Stand fast and resist like the Luddites? Lower expectations of remuneration, since only knowledge workers, surgeons and athletes will be generously remunerated in the skilled and digital workforce of the future?
Or should we as a nation cultivate a culture of innovation, of adaptability, of continual learning, of fluidity and of mobility in the workforce?
We might not be able to save your job, but we can equip you to adapt to a new job.
Bernard Salt is a KPMG Partner and is an adjunct professor at Curtin University Business School. Research by James Webster. See bernardsalt.com.au; bsalt@kpmg.com.au