The Economist Intelligence Unit (EIU) released its very first index rating the digital transformation readiness of APAC countries on Tuesday – and Singapore is at the top of it, thanks largely to its advanced digital infrastructure and partnership culture.
The Asian Digital Transformation Index – which was commissioned by Telstra and is included in the EIU’s latest Connecting Capabilities report – ranks 11 Asian markets, and three global comparators (the US, UK and Australia) using 20 indicators across three key categories relevant to business performance: digital infrastructure, human capital ((i.e. skillsets and talent investment) and industry connectedness (i.e. partnerships, collaboration, etc). The basic question the index seeks to answer is this: is Asia supporting the digital transformation efforts of businesses?
Singapore ranked No.1, boosted mainly by the strength of its digital infrastructure (which was also ranked the best of all 11 countries). It also placed second in industry connectedness and fourth in human capital.
Singapore was also the only market to rank higher than two of the three comparator markets, with only the US ranking slightly higher.
Charles Ross, senior editor, TL, Asia, for EIU, said that the rankings are based mainly on digital infrastructure, which was weighted at 55% in the overall ranking methodology (compared to 25% for human capital and 20% for industry connectedness). “So essentially the lower the ranking, the poorer the digital infrastructure in that market.”
Ross explained that digital infrastructure gets the heaviest weighting for a fairly obvious reason: nothing else digital can happen without it. “It’s really the first hurdle you have to get over before you can focus on the other elements.”
Ross also offered a caveat that Singapore has the advantage of being a small land mass with a small population. “So it’s relatively easy for them to do this compared to places like China, India, Indonesia and the Philippines, where in terms of land mass alone, it’s a challenge to have digital infrastructure connecting everyone everywhere.”
The index rates South Korea as the most advanced market in Asia in terms of developing the right skillsets for digital transformation. That said, it’s still a struggle to develop and acquire digital talent, and one that every country in the region has to deal with to one degree or another. According to a survey accompanying the index, only 16% of respondents said it was “very easy” to find employees with the required skillsets. Only 38% said it was “easy”.
“The countries that do well in human capital are the ones where there is a lot of collaboration on multiple levels between governments, businesses, NGOs and education systems,” observed Darrin Webb, chief operating officer global and managing director of North East Asia at Telstra.
Ross of EIU noted that even in Japan, which ranked second in the Human Capital pillar, there are other factors in play that make it hard to access talent despite having a solid education system building up digital talent.
“For example, work mobility in Japan is quite low – you don’t see a lot of people moving from company to company,” Ross said. “So you might be able to identify the talent, but it’s still hard to actually get them to come and work for you.”
And it’s only going to get more difficult from here, Ross said, citing a recent World Economic Forum report which said that 65% of children entering primary school this year will end up working in new job types that don’t exist today. “So you have a situation where companies are having to source employees with skillsets for jobs that don’t exist yet.”
The accompanying survey canvassed 870 executives in the same 14 countries across six industries – manufacturing, financial services, media, healthcare, professional services, and logistics. Select findings:
- 74% of respondents said digital transformation has already proved its value for them.
- 93% agreed that digital infrastructure was the most important element, but only 27% said their country was providing the right environment for it.
- 70% said that going it alone is going to be a thing of the past. 28% said that having digital partners helps speed time to market considerably, while 45% said that digital partnerships helps them develop more innovative ideas.
FinTech leads digital transformation (superficially)
The EIU index also looked at the difference between industries when it comes to their approach to digital transformation. Interestingly, across all countries the financial services industry led the way in their commitment to digital transformation, while logistics and transportation has the lowest results for taking responsibility for digital disruption.
Ross told Disruptive.Asia that financial services companies have been pretty aggressive in digital transformation partly because they have the deep pockets to attract talent, and partly because they’ve been sufficiently disrupted by digital players to have their hand forced.
“One of the drivers is that there’s a lot of money to be made in FinTech, which attracts people to come in and start disrupting the industry, and financial services have had to react to that,” he said. “A couple of years ago, financial services players were trying to fight off these disruptors and try to keep them out, but two years down the line, there’s been a shift in the cultural mindset where they’ve realized that they can’t stop them, so it’s better to work with them.”
By comparison, he continued, the transport and logistics sector has struggled to go fully digital because they don’t have enough support from their own ecosystem. “They don’t have suppliers giving them the products and services they need to be able to transform. You can’t just buy off-the-shelf apps – you have to develop it yourself. The technology doesn’t exist so you have to customize it internally – all these things, and the time and effort and money to do it.”
Ross did note that digital transformation for financial services companies has been largely superficial. “Digital transformation for them is about having a great app or opening themselves up for APIs with third-party suppliers, digital banking, that sort of thing. But their internal structure has barely changed at all – their core banking system is still many decades old. It’s still functioning, but for how long, and how long can they remain competitive with new ‘digital first’ banks?”
Telstra’s Darrin Webb added that digital superficiality will only get businesses so far, regardless of what industry they play in.
“One thing we see in Hong Kong is that the more advanced companies are the ones that don’t limit their thinking of digital transformation to the IT department,” Webb said. “They also have digital skills in their marketing department, their finance department, their sales departments – you get the message. They have digital skills across the entire value chain. And they invest in people to help them continue to keep their own skills relevant and digital-ready.”