20 August The Global Digital Transformation Trend & its Impact on Thai Business
Authors: Dr. Narain Chutijirawong (Director), Deloitte Touche Tohmatsu Jaiyos Co., Ltd; Piriya Ungsakul (Consultant), Deloitte Touche Tohmatsu Jaiyos Co., Ltd
Over the past few years, “Digital Transformation” has become a trending topic forcing businesses to question whether it is just a passing trend or a strategic topic worth the attention. We believe that business leaders should start by asking themselves “does it matter to my business?” and if it does “can we apply it successfully in these highly competitive markets?” In reality, various industries have been challenged by the emergence of disruptive technologies, which interrupt the way businesses operate. For Southeast Asia in particular, digital technology is rapidly expanding its contribution to the economy. By the year 2020, the ASEAN-6 (i.e. Malaysia, Indonesia, Philippines, Singapore, Thailand, and Vietnam) has estimated that the contribution of the digital economy will increase from 7% of a countries’ GDP in 2017 to around 13%, furthermore reflecting an overall CAGR of 22%.
While the revolution of digital technology is expected to impact the overall economic landscape, it is clear that these innovations are disrupting ecosystems in most of the industries. However, it may be more challenging for certain sectors than others.
Figure 1 – Digital disruption vortex by industries 2015-2017
As illustrated in Figure 1, businesses in industries placed closer to the center of the vortex experience more technological disruption. Compared with the past two years; there are only three industries which have been disrupted by technology. Furthermore, these industries share a few characteristics that make them particularly vulnerable to digital disruption. For example in the top five industries of the 2017 vortex, core products and services, such as music, communications, software, advertisement, and money can be digitized – Facebook & YouTube (Online advertisement), Netflix (Media & Entertainment), and PayPal (E-Wallet). The traditional way of offering products and services has started to become obsolete. The level of competition from newcomer businesses which adopt new technology has intensified significantly. Moreover, the pace of disruption is accelerating across industries through rapid changes in the technology lifecycle. This includes an explosion of well-funded start-ups and the emergence of Chinese giants such as Alibaba or other new disruptors that threaten the logistics and transportation business such as Grab, Uber, and Lineman. This also can prove that even though your business is set in the outer portion of the Vortex, you can quickly shift towards the center position. From the numbers shown in Figure 2, there is an increasing awareness of digital transformation which reflects the shift of business leader perspective. More than 30 percent of c-level executive respondents today believe that digital disruption will cause a transformative impact which has significantly changed compared with the 2015 result (0.4 percent).
Figure 2 – The awareness on the impact of Digital transformation to the business and industry
Shifting the perspective toward Thailand in Figures 3 and 4, Deloitte has conducted a survey in 2017 aimed to understand the businesses’ awareness, adaptive agility, and general perspectives towards disruptive technology. With more than 120 respondents from various industries, the results indicate that Thai companies are fully aware of the impact of digital transformation with the majority (76%) of respondents having been aware of disruptive technology. Moreover, 69% believe that disruptive technology is currently affecting their businesses, and 73% anticipate that it will keep going on throughout the next 3 to 5 years. While the majority believes that disruptive technology will create both opportunities and threats, surprisingly, 71% of the respondent’s companies say that they are well prepared for the transformation to digitalized business given that they are agile enough to embrace new technology to their businesses.
In addition, the majority of respondents agree that increased productivity, saving resources in executing routine tasks, and reliable data storage are the top three benefits which they can obtain from utilizing disruptive technology. Intense competition, new unknown competitors, and supply chain restructuring are seen as potential threats. The type of organization also an influences how complex the transformation would be for the company. Unsurprisingly, for small and medium-size businesses it is easier to embrace digital transformation than conglomerates due to less-complicated business procceses and diversification of subsidiary business. Moreover, successfully embracing digital transformation could lead to a competitive position in the market. It is easier said than done. For example, within the telecommunications industry in Thailand many players have tried to embrace digital technology to their business, but only a few have succeeded. One major telecommunications company in Thailand market share has been continuously declining over the last three consecutive years while other two competitors focus on introducing new services with higher quality using new technology. As a result, the two companies that adopt new technology to their organization can acquire more market share. This could be evidence to prove that struggle to embrace digital transformation could lead to the risk of a slump in sales and market share.
There are two international case studies that show a good example of how companies embraced digital transformation. The first case is from one of a well-known bank in the UK. In the past, Santander bank could not offer financial loan services to a high-risk client which caused them to lose many opportunities to serve more customers and businesses. Hence, the bank has formed a strategic partnership with an online funding circle, a Fintech start-up which creates an online marketplace allowing individual savers to act as an investor and lend their money directly to SMEs. Thus, Santander will refer SMEs that the bank is unwilling to finance through the app. In exchange, Funding Circle will signpost its customers to Santander for day to day banking support. Therefore, this Fintech partnership allows Santander to mitigate credit risk while efficiently utilizing their assets and liabilities for more profits. As a result, they can increase the overall Corporate Banking sentiment score by 121%.
Another case is from one of the largest coffee and beverage chains, Starbucks. Over the past few years, it has launched a mobile application for a loyalty program called “My Starbucks Rewards (MSR)”. Since then, the program has evolved from MSR to improving customer engagement using the digital ecosystem. Moreover, partnerships with many companies such as Apply Pay and Android Pay allow alternative payment experiences and increases customer satisfaction. The payment system also allows them to tap into the larger customer base, improve the quality of service and improve the brand image. Furthermore, Starbucks came up with features leveraging customer data and requirement which are “Mobile Order & Pay”. The new function provides online order and pick up services through Starbucks’s mobile application. This feature has improved the service of Starbucks and also adds a different channel to reach the customer as well as reducing the queues. Considering that Starbucks currently has roughly 10 million active MSR users, this gives them an enormous amount of data regarding customer preference and buying pattern. Starbucks can extract many benefits from this data such as deliver a more tailored and direct promotion to drive larger sales.
 Source: IMF World Economic Outlook; Deloitte Analysis on Multiple secondary sources.
 Source: Global Center for Digital Business Transformation, 2017
 Source: Global Center for Digital Business Transformation, 2017
 Source: How Disruptive Innovations Affect Your Competitive Landscape: Opportunity or Threat, 2017