In COVID era, tech will transform businesses

From a short-term perspective, the COVID-19 pandemic may appear to have derailed the steady development of digital economy.

However, the longer-term perspective is one of demographic changes, post-pandemic landscape reshaping, and low-carbon development－all concepts that will likely drive innovation at a faster clip on the supply side.

Owing to the asymmetry in digital economy development between the production and consumption sides, the pandemic has had an asymmetrical impact on the supply side.

In this context, the digital transformation on the supply side will be different from the centralized model of the consumer internet, and the deep penetration of infrastructure will create opportunities of distributed commerce.

Fascinating cohort

The global population structure is quietly changing, and the Generation Z－they are the consumers born between 1995 and 2009－have strengthened the trend of on-demand services.

According to CBNData, the world's Gen Z, or the natives of digital economy, number 1.85 billion, with 260 million in China alone. They constitute an important part of mobile internet users.

According to Questmobile data, in November 2020, the number of active devices owned by the Gen Z in China's mobile internet space reached 325 million. They represent a new force in digital economy and are shaping its future development.

Different from other age groups, the Gen Z are "smart" but, in a curious, seeming contradiction, "impulsive" as well. This will continue to strengthen the trend of on-demand services.

On the one hand, the Gen Z focus on high-cost performance. Because they are proficient in searching for information online, the habit of shopping around has taken deep roots.

According to a McKinsey report, 50 percent of the Gen Z consumers in China look for a discount before buying, which is 10 percentage points higher than that of millennials.

According to Questmobile data, in November 2020, the penetration rate of the Gen Z on e-commerce platforms Pinduoduo and Xianyu ranked third and fourth respectively in the mobile shopping industry, which also reflects the consumption attitude of this humongous cohort who value practicality.

On the other hand, they are also prone to impulse consumption, willing to pay for niche interests and experiences. Growing up in a highly prosperous internet business environment, they have cultivated diverse consumer preferences and are more likely to be influenced by video content on social media when making consumer decisions.

The sudden popularity of products sold in the so-called blind box segment and the fashionable milk tea beverage brands shows the Gen Z's novel consumption attitude that lays accent on following trends and flaunting one's individuality.

Being an astute consumer and an impulsive buyer may appear contradictory, but the contradiction is seeming than real as it reflects the Gen Z's flexible on-demand consumption attitude.

The broad demand for personalized differentiation is transmitting to the production side now, as noted by a report titled Gen Z's Role in Shaping the Digital Economy, published by Oxford Economics last month.

It proposes that technological advancement will not only directly change the mode of production, but also the digital consumption model that it shapes. It will also indirectly affect the production side.

Therefore, in addition to using digital marketing methods such as video to reach the audience, manufacturers on the production side also need to grasp and perceive the long-tail demand at source in real time, and accelerate the update of iterative and demand-matching products.

Changing landscape

The pandemic, carbon neutrality goals and supply reshaping are accelerating the digital transformation of industry. The new landscape is also smoothing the rough edges of digital economy, so that its pivot will shift from the demand side to the supply side.

First, the pandemic has an asymmetrical impact on consumption and production, which increases the efficiency of digitization on the supply side.

With the physical barrier erected during the pandemic, digital economy is the least affected among many industries, and the imbalance in the development of digital economy is mapped to the asymmetry of the impact.

From a country perspective, digital economy has a "dual-core" in China and the United States, whether during pandemic prevention and control or during production recovery; they showed relatively resilient economic growth, and their responsive measures have been more effective than those taken elsewhere.

From an industry perspective, when the pandemic broke out, consumers were still able to use online channels to buy daily necessities and consume online entertainment. However, the relative backwardness of corporate digital transformation has delayed the resumption of work and production in some places, which to a certain extent has extended the reach and impact of the new supply shock.

According to a McKinsey report, before the outbreak of the pandemic, China was already a digital leader in the consumer sector. In 2018, China's e-commerce market accounted for approximately 45 percent of global e-commerce transactions.

The asymmetric impact of the pandemic has synced the pace of digitization on the demand side and the supply side. As enterprises follow a new development path, the industrial internet will become the long-term driver of digital economy.

The twin carbon goals dictate new requirements in industrial production, with an aim to use data and algorithms to increase the efficiency of economic activities.

Mobile internet

Infrastructure deployment in lower-tier cities leads to distributed commerce. In the era of mobile internet, business is about leveraging data, non-exclusivity and network effect to continuously expand and blur the boundaries of enterprises.

Internet-based companies are committed to expanding upstream and downstream businesses around their own products, and building an ecosystem with online traffic as a corporate moat.

Although e-commerce and other kinds of platforms promote the optimization of social welfare distribution, from the perspective of society as a whole, internet-based companies often mix up the functions of public infrastructure and core business models, expanding into every segment from scratch, which results in severe wastage of resources due to redundancy.

This move requires not only manpower and financial resources, but also additional technology and server support. However, from a social perspective, most of the payment services provided by internet companies are homogeneous, and repeated resource allocation is not economical. Therefore, digital economy presents an "inverted triangle" that is light in infrastructure but heavy in business models.

To realize the growth potential of the internet of everything, it is necessary to let the fair and open "new infrastructure", or digital tech-related installations and facilities, take its full effect.

We are also seeing more lightweight applications. As application technology continues to blend into base infrastructure, with the provision of multiple basic functions such as clearing and settlement, security, trust and transaction confirmation for free, low-code-developed distributed commerce will have new growth opportunities and redefine scale effect.

The infrastructure of the traditional economy is entirely provided by the public sector, represented by electricity, water power and natural gas. We believe that as we enter the digital age, public infrastructure will be transformed into a network for data flow.

The writer is the chief economist at ICBC International Holdings Ltd.

The views don't necessarily reflect those of China Daily.