The benefits of embracing digitalisation early

The spread of the coronavirus pandemic since the spring of 2020 has devastated the world economy, and left many companies in China and globally facing huge challenges. However, businesses that adopted a proper digital strategy in response to the crisis are able to reduce their exposure and, furthermore, capture opportunities presented by the special conditions arising from COVID-19. Industry expert Barbara Li tells us more.

Online business booming

In order to control the spread of coronavirus, governments across the world have imposed lockdowns and strict social distancing restrictions, which in turn has had a heavy impact on industries such as aviation, shopping, catering and entertainment. However, e-commerce, online gaming, telemedicine, online education and information technology (IT) services supporting remote working have increased exponentially. Even in sectors which traditionally rely on ‘brick-and-mortar’ models to deliver services, many businesses have shifted to online channels, using innovative ways to provide products and services and engaging with their customers. For example, in March, over thirty financial institutions in China worked with AliPay to roll out ‘contactless wealth management products’ for customers. Property companies also changed their approach by using artificial intelligence (AI), virtual reality (VR), live streaming and internet celebrities to sell apartments online.

Smart manufacturing enabled by digitalisation

The global outbreak of the coronavirus has led to a severe shortage of masks, gowns, gloves and other personal protective equipment (PPE). Many companies—including BYD, Gree and Foxconn—acted quickly to switch their production lines to manufacturing medical supplies and PPE. Such efficient transition cannot be achieved without digitalised management of inventories, manufacturing materials and the labour force, as well as a high level of industrial automation based on digital design, modelling and 3D printing. Moving forward, digital capabilities will become an increasingly important factor for manufacturers’ ability to respond to changing customer demands, better manage supply chains, build resilience and maintain sustainable growth.

Digital transformation by SMEs

In general, small and medium-sized enterprises (SMEs) lag behind large firms on digitalisation, due to the cost of revamping the IT and digital infrastructure and their lack of resources for addressing cybersecurity risks. SMEs are being hit worst by the pandemic, because they tend to lean heavily on a small number of suppliers and customers and do not have the cash reserves and funding support large companies do.

Research has shown that there is a clear connection between digital transformation and revenue growth.^[1] By leveraging modern technologies such as big data, cloud, AI, data analytics and blockchain, SMEs will be able to reduce operation costs, optimise the manufacturing process, provide better customer services, and unlock their maximum potential. We expect that SMEs will fast-track their digital transformation in the years to come.

Governments have used various data technologies to trace and contain the COVID-19 outbreak. For instance, China has encouraged the deployment of digital technologies for big data, AI and cloud computing to help in assessing the pandemic situation. These have been used for allocating resources, tracing the spread of the virus, preventing further infections and treating confirmed patients. SMEs are playing a significant role in this process, along with large companies.

New Infrastructure campaign and the digital economy

In February 2020, China launched a new campaign to offset the economic slowdown and boost sustainable growth. The focus of New Infrastructure is the digital economy and innovation, for example: 5G networks, big data centres, Internet of Things (IoT), blockchain, industrial automation, inter-city transit systems, high-voltage energy transmission, smart transportation and electric vehicle charging stations.

New Infrastructure is aimed at upgrading China’s existing key infrastructure and further boosting the data economy, which is already leading on many aspects. Take 5G as an example: with the accelerated construction of networks for the technology, China will become the largest 5G market in the world. The direct economic output arising from 5G between 2020 and 2025 is expected to reach Chinese yuan (CNY) 10.6 trillion, and the indirect economic output CNY 24.8 trillion.^[2] This will create tremendous opportunities for companies specialising in telecom, digital technologies, data analytics and integration, smart cities, autonomous driving, energy efficiency and smart manufacturing.

Cybersecurity and privacy concerns in digitalisation

In the era of digitalisation, cybersecurity and privacy risks are unavoidable. In recent years, many countries have passed laws and rules to regulate these areas. In Europe, the General Data Protection Regulation, implemented from May 2018 onwards, imposes comprehensive and strict requirements on businesses when collecting and processing of personal data. In China, the cybersecurity and data regime is based on the China Cybersecurity Law, supported by various administrative regulations, industry specifications and best practices. Non-compliance can lead to severe penalties and also cause reputational damage. It is extremely important that companies fully understand the relevant cybersecurity and data protection requirements, analyse the implications for their business operations and take proper action on compliance and risk management.

Conclusion

There is no doubt that the coronavirus has acceleration the process of digital transformation. With the easing of lockdowns in China and many other countries, it is anticipated that digitalisation will gain extra growth momentum post-COVID-19. Companies are advised to tap into the opportunities arising from the new wave of digitalisation and related schemes like New Infrastructure, while also building up a robust compliance mechanism in response to cybersecurity and privacy risks.

Barbara Li is a lawyer specialising in corporate and technology, media and telecom matters (TMT). Barbara has practised in the Beijing and London offices of leading international law firms for almost 20 years. She has counselled many multinational enterprises and major Chinese companies and financial institutions on cybersecurity, data protection and data privacy, big data and cloud computing. Barbara is regularly invited to industry platforms to speak on China regulatory and legal developments in the TMT sector because of her deep knowledge and expertise in China cybersecurity and data privacy matters.

^[1] 2019 Digital Business Research, IDG, 21^st May 2019, viewed <https://www.idg.com/tools-for-marketers/2019-digital-business-research/>

^[2] Estimates released by China Academy of Information and Communications Technology, <http://caiec.mofcom.gov.cn/article/g/202003/20200302943423.shtml>