The Economist: Unplugged and unproductive

ATN-300InsightaaS: The Economist is one of the world’s most respected sources of insight into business and social issues, and often achieves the rare feat of connecting both perspectives into a single analysis. “Unplugged and unproductive” is one such piece. Based on a report by the McKinsey Global Institute, it looks at the gap between the public perception (fueled by successes like Alibaba) of China as an internet leader, and the on-the-ground reality of limited use of internet-delivered productivity technologies by the country’s SMBs, and by its publicly-owned businesses. The overall outlook is favourable – as the article says, “as Chinese firms of all sizes get themselves plugged in, as they are belatedly doing, there should be a burst of productivity gains, providing a sustained boost to GDP growth. The dwindling supply of cheap labour will be less of a worry for China, and its economy will be driven more by innovation and consumption.” However, there are hurdles between that vision of the future and today’s reality: 25% or less of Chinese small businesses are connected to the internet (vs. 75% in the US), labour productivity within the SMB community is low relative to both larger firms in China and to norms in other countries, and spending on automation is low even in large enterprises (the article mentions two state-owned oil companies as examples). The Economist notes that state-owned entities also suffer from cultural barriers, concluding that  despite the productivity gains that can be realized from increased use of internet technology, “the state firms’ problems will not be fixed without bolder reforms” that address management processes as well.

AT FIRST glance it would appear that China has gone online, and gone digital, with great gusto. The spectacular rise of internet stars such as Alibaba, Tencent and JD would certainly suggest so. The country now has more smartphone users and households with internet access than any other. Its e-commerce industry, which turned over $300 billion last year, is the world’s biggest. The forthcoming stockmarket flotation of Alibaba may be the largest yet seen.

So it is perhaps surprising to hear it argued that much of Chinese business has still not plugged in to the internet and to related trends such as cloud computing and “big data” analysis; and therefore that these technologies’ biggest impact on the country’s economy is still to come. That is the conclusion of a report published on July 24th by the McKinsey Global Institute (MGI), a think-tank run by the eponymous consulting firm. It finds that only one-fifth of Chinese firms are using cloud-based data storage and processing power, for example, compared with three-fifths of American ones. Chinese businesses spend only 2% of their revenues on information technology, half the global average. Even the biggest, most prestigious state enterprises, such as Sinopec and PetroChina, two oil giants, are skimping on IT. Much of the benefit that the internet can bring in such areas as marketing, managing supply chains and collaborative research is passing such firms by, the people from McKinsey conclude…

Read the entire article: ATNJuly30-link


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