Digitization Increases Efficiency and Creates Opportunities for New Players
Digitization also opens up global trade possibilities to a whole new array of actors, including smaller businesses and individuals, and people in parts of the developing world where mobile phone use is widespread.
With the spread of Internet and mobile access to almost every corner of the world, barriers to selling goods and services in global markets have fallen dramatically. In theory, nearly anyone can now go global instantly without first selling in local markets. Traditionally, business literature and Canadian government programs have emphasized succeeding locally as a precursor to trading in global markets, followed by succeeding in the U.S. market and then, finally, succeeding globally. However, as more recent business literature recognizes, it is increasingly possible—and, in fact, can be advantageous—to be “born global.” One example of such a firm is Canada’s Sound Selecta, which makes applications (including Nursery Jam, aimed at toddlers) that allow non-musicians to easily make music. The company aimed its apps at the global market from the start. The rationale is that margins on digital products are relatively low, so the company needs access to a much larger market to succeed. Sound Selecta sells its applications via Apple’s app store, which in turn sells them to customers in North America, Europe, Asia, and beyond.15
The ability of individuals or small businesses to access the larger global market from the start, either via an existing multinational or on their own, may be particularly significant for Canada, given the relative importance of smaller businesses in this economy. (A forthcoming Conference Board report will look specifically at best practices for small and medium-sized enterprises using digital technologies to sell in international markets.)
Canadian companies will need to re-examine the way they do business and even the structure of their company, if they want to keep pace with or surpass their competitors.
By using digital technologies, companies also can reap large efficiency gains, which will help them to sell in global markets. A survey by the Organisation for Economic Co-operation and Development (OECD) found that, overall, such technologies strongly boost productivity.16 Cheaper communications technologies cut costs and increase efficiency for companies selling services or digital video games. Cloud computing—in which people share software and collaborate on files through the Internet—makes it increasingly possible for large and small companies to employ efficiency-enhancing technologies. Digital technologies can also help companies track and transport physical and electronic goods more efficiently. Moreover, trading in digital technologies reduces costs. In turn, this makes digital tools even more affordable and, therefore, more available throughout the Canadian and global economies.
Digitization Also Means Intense Competition and Raises New Issues for Businesses
While digitization opens up greater trade possibilities and markets to a wider array of businesses, and boosts productivity, it also means competition for trade in both goods and services can now be fierce. Customers and businesses have cheap access to comparative information and are no longer confined to local options. They can instantly compare prices, and new technologies, products, and content can “go viral.” The implications for business strategy are enormous. Companies will need to figure out how to be agile enough to respond to the speed of change.
Canadian companies that intend to compete globally—or even locally—now need to think about a host of new or intensified issues. These issues could include establishing and protecting their digital identities and reputations, safeguarding their private information (as discussed in a recent article in The Economist17), and protecting their intellectual property. Leaders will need to consider whether traditional forms of organization are agile enough to allow them to compete effectively in a more digitized world. They will also need to think carefully about how they can best use digital technologies, including electronic payment systems, to become more efficient and to keep pace with—or surpass—their competitors.
In addition, leaders should re-examine their economic assumptions. For example, as The Economist noted in February 2011, 3D printing makes it as cheap to create single items as to produce thousands, undermining assumptions regarding economies of scale in manufactured goods.18 As they determine how best to position themselves, companies also need to determine how digitization will change the locations where value is added in global value chains, as well as where power and control lie in those value chains.
Companies should also ensure their strategies reflect what has not changed. For example, physical social networks continue to influence how companies and individuals choose both physical and digital goods and services, as the Martin Prosperity Institute study showed.19
So, has digitization changed the nature of Canada’s global trade? Technological advances are unlikely to ever erase national borders completely. Culture and in-person networks mean that the world will never be completely flat, but distance matters less than it once did. And, over time, it may matter even less, as governments establish greater confidence in the digital marketplace and reduce barriers to digital trade, and as more consumers and businesses open their eyes to new possibilities. The result will be many more opportunities and many more challenges for Canadian businesses and individuals in the global marketplace.