The Future of the Digital Economy

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China has rapidly evolved from a technologically backward country to one of the largest digital economies in the world. McKinsey experts studied the state and growth factors of the digital economy in China and came up with six big trends that will determine the future of digital innovation and ecosystems not only in China but throughout the world.

1. Integration of omnichannel retail, on-demand economy and retail supply chains. Social and online media will increasingly contribute to sales growth, including through better order fulfillment, increased convenience and speed, and the emergence of new sources of reliable product information. Content advertising and live streaming sales will gain momentum as 5G and the Internet of Things roll out. Supply chains will become even more agile and efficient, enabling faster order fulfillment and predicting changes in customer behavior.

2. Service virtualization. Digitalization gives citizens more equal access to education. Communication and collaboration platforms (such as Ding Talk), as well as hybrid models that combine online and offline learning, are becoming more commonplace. Now two-thirds of the parents of Chinese students prefer this hybrid format. And thanks to AI, learning is becoming more personalized and interactive.

Digitalization has also made healthcare more accessible, especially for those who live far from major cities. And even traditionally offline services like real estate shows are moving online thanks to virtual reality. Next in line are government and legal services.

3. Digitalization of public life. Social interaction and leisure activities of the Chinese are increasingly taking place online. Physical and virtual activities are gradually merging into one whole: offline communication is increasingly organized with the help of virtual communities of interest. For example, users of video game streaming sites agree to run and do yoga together.

4. Digital urbanization. China already has about 500 “smart cities” – almost half of the world’s number. Integrated digital platforms are gradually developing, where you can access education, healthcare, logistics services, omnichannel commerce, etc. For example, Tencent is building a new city where people and the environment come first, access to public places is planned with the help of AI, and green spaces will become part of a huge campus for employees.

5. Development of the industrial Internet of things and digitalization of supply chains. Above, we looked at how digital innovation is transforming retail distribution approaches. However, this is nothing compared to the potential of digital technologies in terms of streamlining operations and processes in the B2B segment. orders are processed and fulfilled online, such platforms are able to achieve true prosperity.

In particular, in 2020, there were 11 exemplary production bases (“beacons” according to McKinsey and the World Economic Forum) in China, where modern “Industry 4.0” processes were applied.

For example, large appliance maker Medea is using Industrial Internet of Things (IoT) technology to improve manufacturing processes and drive product innovation. SAIC, a leading automaker, is demonstrating how digitalization can help create completely new C2B experiences, where digital solutions allow customers to customize their orders using 3D digital vehicle models.

Vehicle configuration and production sequencing information is then shared with suppliers to start shipping on an “in-sequence” basis, reducing time-to-market by 35%. At the same time, AI tools constantly monitor the assembly process for errors, helping to increase the accuracy of order configuration compliance to 99.8%.

So far, most beacon businesses have emerged in consumer-facing industries such as automotive and consumer goods or home appliances. However, the next stage will be the spread of the digital revolution to traditional industrial sectors, including iron and steel, machine tool building and manufacturing.

6. Digital urbanization. Almost half of the smart cities in the world are located in China (there are about 500 of them).  However, the development of 5G networks and edge computing will obviously usher in a new era in which cities will become like integrated digital platforms. Imagine, for example.

that digital innovations—say, in education, healthcare, logistics, and omnichannel e-commerce—are applied on a massive scale in Chinese cities to improve the quality of public services. In particular, Tencent aims to reduce car use by using AI tools to improve the accessibility of public infrastructure. In addition, a huge complex is being created where the company’s employees will live and work, with green areas located on its territory.

For example, Doujin (Tikor) won second place in a test for detecting car accidents and detecting stalled cars by analyzing the video stream from the highway.

But the main beneficiary of digitalization is likely to be in the public service sector, as it addresses issues such as congestion and misallocation of resources.

Until recently, people did not know any other way to get information, except for watching TV and reading newspapers. Today, its presentation is constantly changing. We live in an era of transition to a new qualitative state.  The pace of change is truly rapid. New solutions are announced, anticipating the onset of the information age.

Trying to guess the future, people try to imagine it in the form of known models. This trend is popular, but the proposed article does not predict the future. Here, looking at the increasingly clear outlines of the direction and dynamics of moving forward, an attempt is made to determine with a sufficient degree of certainty what digital technologies of the future await us in the near future, limited to 2020-2025.