DBK twelve

The services sector in a global digital economy

By the nature of their business models, Professional Services firms tend to be at the forefront of understanding the impacts of global trends and influences on their clients. The Professional services industry requires constant update of skills and a need to keep a close eye on the transformational trends that are shaping organisations and how they conduct their business.

Part 1: Online services is the future

Clearly digital economy impacts are acting as a huge transformational change agent across many businesses.

The list of industries that have been totally transformed in recent years by the impacts of technology, including Media & Entertainment, Retailing and Publishing is constantly expanding.

There is also a further dimension to this whereby technology has underpinned fundamental transformation in how client services are delivered. If you look today at the primary service delivery approaches for organisations like banks, airlines and telecommunications companies, all of which have moved to online self-service models, it is obvious that online service provision has rapidly changed the way business relates to its clients.

Part 2: The internet economy

It is estimated that by 2016, there will be 3 billion Internet users globally—almost half the world’s population.

Boston Consulting Group have estimated that the Internet economy will reach $4.2 trillion in the world’s G-20 economies. If it were a national economy, the Internet economy would rank in the world’s top five, behind only the U.S., China, Japan, and India, and ahead of Germany. Across the G-20, in 2012 it amounted to 4.1 percent of GDP, or $2.3 trillion, in 2010—surpassing the economies of Italy and Brazil.

The Internet is contributing up to 8 percent of GDP in some economies, powering growth, and creating jobs.

The scale and pace of change is still accelerating, and the nature of the Internet—who uses it, how, and for what—is changing rapidly too. Developing G-20 countries already have 800 million Internet users, more than all the developed G-20 countries combined. Social networks reach about 80 percent of users in developed and developing economies alike. Mobile devices—smartphones and tablets—will account for four out of five broadband connections by 2016.

Part 3: SMEs and the internet economy

As an SME professional services provider, it can be easy to think that these huge global transformation effects are too remote to impact your business and that there is no need to consider change. Based on all of the analysis of digital technology experts however this would be a potentially dangerous strategy to adopt.

Purely on the basis of opportunity, to ignore the potential for your professional services to be exported into other countries could be a mistake. Australian professional services firms are very well regarded in the Asia/Pacific region, for example, for their leadership and differentiated capabilities. Increasingly trade in services is become all the more readily achievable with the rapid growth of Asian markets, the associated lowering of trade barriers, the enablement of Internet commerce and the leverage provided by free trade agreements such as those recently put in place between Australia and Korea and Japan.

There are many showcase SME professional services firms who are very successfully exporting their capabilities to overseas markets. A number of these organisations feature in our case studies section of this Digital Business Kits site.

On the more defensive side, SME professional services firms also need to be acutely aware of the potential for trade exposure of their sectors, again enabled by global digital economy internet connectivity. Whereas previously a domestic professional services provision might have been uniquely supported by geographical constraints, this is much less likely to be the case in the future.

To protect against the trade exposed nature of professional services, ASR strongly believes that firms have to work smart to move “up the value chain” with their services business models. It is more likely that lower value services will be the most directly impacted by trade exposure, whereas those firms that build higher levels of value into their client delivery models will be better able to resist international competition.

Part 4: Global value chains

Another increasing trend in the global digital economy which is having a direct impact on professional services firms is the development of Global Value Chains (GVCs).

GVCs initially were most prominent in goods based industries such as manufacturing, where parts of a production process could be more cost effectively and efficiently managed by outsourcing that process to another firm, often in a lower labour cost country.

The same phenomena is now rapidly changing services providers as well.  The growth of online e-marketplaces such as freelancer.com and others provides for components of a service delivery process (e.g. implementation of a website design or the development of a smartphone app) to be easily and cheaply sourced over the Internet. Smart professional services firms will be aware of this potential and fully understand its potential impact son their business.

In short, it’s never been a more exciting time to be in the business of professional services. By smart use of technologies such as cloud computing and social media you can develop a new business model very rapidly, promote it widely to a global audience and be part of a global customer success story in months. Our message is to embrace the potential that the global digital economy provides and make it work in your favour.

Further resources

These resources have been provided to assist with knowledge about this topic. All information was current at the time of writing.  You will be leaving the DBK site when you use these links.

Mckinsey.com – Sizing the internet economy

Dfat.gov.au – Services trade reform measuring the gains.pdf

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