How to maximise the benefits of a digitally driven economic recovery
In association with Huawei Technologies
Most people would agree that digital technologies have played a crucial role in keeping society functioning during the Covid-19 pandemic. Moreover, the ICT sector has been one of the few financial success stories of 2020, as the surging share prices of its largest companies can attest. Satya Nadella, CEO of Microsoft remarked that his company had supported its customers through “two years’ worth of digital transformation in just two months”. This trend across the ICT sector and the wider economy appears to be pervasive. A greatly enhanced digital acceleration of our societies is clearly underway, quicker even than the most optimistic of pre-crisis forecasts.
This increased use of digital solutions by both businesses and consumers has seemingly brought society to the threshold of the ‘smart economy’. Recognising this new paradigm, several enlightened governments have put the digital sector at the core of their macroeconomic recovery plans. South Korea for example announced its Digital New-Deal in May – an ambitious plan to move the country from a follower digital nation to a pacesetter, through substantial investments in 5G, artificial intelligence, cloud computing and the internet of things.
Germany’s current fiscal stimulus plan proposes €4.4 billion to fund extra artificial intelligence investments and to invest more in quantum computing and 5G and 6G technologies. It also includes an additional €6.1 billion of proposed funding to promote the digitalisation of public services and smart city innovations. Japan’s government has provided a raft of initiatives to provide tax cuts and tax credits to support 5G roll-out and associated applications such as smart manufacturing. Other countries have pledged similar priorities or are swiftly realizing the benefits of doing so.
These national investments in digital infrastructure and digital ecosystems will undoubtedly help foster these countries’ resilience to Covid-19 and boost their economic recoveries. But in order for governments to maximise digital dividends for their societies, ensure that taxpayers’ money is well spent and provide first-mover advantage to their national digital ecosystems, the supporting policy environment will also play a critical role.
With this in mind, Huawei Technologies has partnered with the research and management consultancy firm Arthur D. Little to appraise the best policy approaches for nurturing the strongest digital economies and help boost the economic recovery.
A digital economy consists of many aspects. Certain parts of the global digital value chain are currently dominated by a few countries – for example, software services in Ireland and the Philippines, and hardware manufacturing in China and south-east Asia. These look ripe for new entrants.
Contrastingly, other elements of the digital economy are intrinsically local – for example, e-government, e-health, e-education, support services and connectivity.
As policy makers consider different options and practices aimed at maximizing benefits from the digital economy, we suggest the need to acknowledge that one size does not fit all. To date, most digital economy policy prescriptions have tended to be the same for all countries, regardless of their stage of national economic development and national priorities. Should policy makers working in the least-developed countries also aim to invest their limited resources in cutting-edge AI and expect the same returns? We believe the obvious answer is no.
Every country is unique or can be characterised by a distinct set of national digital traits. All can benefit from comparative advantages in the global digital economy. The challenge is to identify what individual governments should focus their national digital policy efforts on and how they should do this.
To support policy makers in their thinking and help develop their strategic focus, we have identified a number of different digital economy archetypes. This enables governments to take a better tailored and distinct approach to enhancing their digital economy policies and objectives. Only in so doing can digital dividends be maximised.
Our analysis of the ICT value chain globally includes detailed benchmarking of beneficial policies and capabilities. Our research conclusions have resulted from numerous discussions with ICT sector experts in national digital transformation and an extensive literature review.
The research also benefits from Arthur D. Little’s leading global project repository of national ICT strategies and industry experience. Through this, we have identified seven digital economy archetypes that all countries can identify with: Innovation Hubs (IH), Efficient Prosumers (EP), Service Powerhouses (SP), Global Factories (GF), Business Hubs (BH), ICT Patrons (IP), and ICT Novices (IN).
The seven digital economy archetypes with example countries
Mapping countries onto archetypes has resulted in two key insights. Firstly, archetypes are not mutually exclusive, and a country may also present (some) characteristics of a second archetype. Secondly, transition to a higher-value-adding archetype is possible and even desirable, but takes concerted effort. For example, Romania has transitioned from an ICT Patron to a Service Powerhouse (especially in cybersecurity services). Finland from a Global Factory to an Innovation Hub. Mexico has transitioned from ICT Novice to Global Factory in a short space of time.
Our research also suggests that countries need to develop digital value creation paths that align with their most suitable archetypes, leveraging their inherent strengths, but anchored by their economic and technological realities which are often unique.
Based on archetype, the research goes further to provide policymakers with detailed policy priorities across 23 policy areas of great relevance to the digital economy across four thematic categories. It also provides best practice examples from around the world scored by our research team on the basis of efficacy and end results. The four interrelated thematic topics are technology, capabilities, ecosystem and industry. Top-level, summary recommendations follow.
Technology
Most countries need better connectivity. Irrespective of the national archetype, governments must address policy and regulatory issues relating to broadband, spectrum, cybersecurity, data protection & privacy, and cloud computing.
A best-practice 5G strategy is essential to support the introduction of new applications and services that need higher communication speeds and lower latencies. This is critical for all archetypes except for ICT Novices, whose primary focus should be on deploying mature communication infrastructure (4G, fibre) before investing in 5G.
Capability
For Innovation Hubs, Efficient Prosumers and Service Powerhouses, the focus should be on developing wider digital foundational skills, ICT dedicated higher education and specialised skills.
On the other hand, ICT workforce development policies are critical for Global Factories and Business Hubs, as they need to access a broader pool of talent to sustain their digital economy models.
ICT Patrons and Novices should first focus their resources on improving general digital awareness among both individuals and businesses.
Ecosystem
Digital business funding and support policies and ease-of-doing-business (EoDB) reforms are critical for Innovation Hubs, Efficient Prosumers, Service Powerhouses, Global Factories and Business Hubs because they need to attract private sector investments, particularly in domains that support their archetype strategies.
Emerging technology regulation is critical for Innovation Hubs, Efficient Prosumers, Service Powerhouses and Business Hubs, as they need to offer conducive environments for digital businesses to test new technologies and innovate.
Industry
ICT Patrons have used e-government strategies to kick-start digital-capability building and increase awareness and digitalization of other sectors in these economies. This is also critical for ICT Novices to stimulate digital services demand in their economies. Typically, other archetypes have implemented e-government strategies in the past and do not necessarily need to focus on this.
Industry 4.0 policy is critical for Global Factories and Efficient Prosumers in order to maintain manufacturing competitiveness in the digitalised world, as well as in traditional manufacturing.
The incentive for digital transformation is clear – and the need to embrace change has never been greater. However, nations will only realise the full benefits of this transformation if their digital strategies are built on their own strengths, and their digital policies are prioritised, targeted and efficient.
Andrew Williamson is vice president government affairs & economic adviser, Huawei Technologies
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