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Monday, April 3, 2017, 10:48

Digital trade could help reverse slump

By MARK PURDY and SUNING AN

Shift to technology-enabled services is an opportunity for Asian economies to reestablish their growth trajectory.

Digital trade could help reverse slump
Global trade has been the driving force behind the Asian economic miracle for the last half century. It has enabled countries such as China and Singapore to become global manufacturing powerhouses, bringing investment, technologies and jobs to their nations.

That growth model is now in jeopardy. The growth rate of global trade in goods has dramatically slowed, from around 7 percent annually a decade ago to an average of 3 percent. Asian trade growth slumped even more.

Behind this headline picture of stalling global trade in goods, however, is the growing role of digitally enabled trade in services. The share of global service trade in industries such as banking, media and consulting grew from 42 percent in 2001 to nearly 50 percent in 2015.

But trade in services has yet to take off in Asia. In the past 15 years, the share of services trade as a percentage of total trade hovered around 39 percent in Asia. In China, it was even lower — 31 percent.

The global shift to digitally enabled trade presents a great opportunity for Asian economies to reestablish their growth trajectory in four important ways.

First, Asian economies are beginning to gain new competitive advantages in export after years of heavy investment in digital. In the financial industry, for example, the BAT giants in China — Baidu, Alibaba and Tencent — are expanding their mobile payment offerings to Southeast Asia, Europe and North America.

In additive manufacturing, Matsuura Machinery and Koiwai Co, two Japanese companies, are delivering their world-class 3D printers and systems to Germany and India.

Second, rising domestic demand for digital products and services can drive growth in imports for Asian economies. Take telemedicine — the use of telecoms for remote diagnosis of patients. Asia’s aging population, large geography and fast income growth have seen a strong demand for better healthcare services provided by doctors from more advanced regions.

Making use of this opportunity, an American hospital in Kansas now uses a cloud-based platform to provide imaging consultation services for a hospital in South China’s Guangdong province.

Third, small and medium-size enterprises (SMEs), the backbone of many Asian economies, can use digital technologies to easily reach into international markets.

For example, musical.ly, an app for music videos built by a Shanghai-based startup, targeted the teenage market in the United States from day one. Now it is one of the most popular apps among Western youngsters in 30 countries. CleverAds, a Vietnam-based online advertising platform, expanded operations to Indonesia and the Philippines four years after its launch.

Fourth, and perhaps most important, digital technologies can assist Asian companies in managing their global supply chains and workforce more efficiently as they seek to internationalize.

Technologies such as the Internet of Things — smart connected devices that can “talk” to each other — allow companies to track, manage and optimize product design, manufacturing, inventory and logistics to factories and consumers across the world.

But making this happen quickly will not be easy. Concerted action is needed by policymakers, businesses and individuals.

Policymakers should adopt new regulations for new types of digital trade and emerging issues of data security. They should also build out infrastructure to close the digital divide. And they should work together to navigate the rising levels of economic nationalism. During his keynote speech at the World Economic Forum in Davos, Chinese President Xi Jinping issued a strong defense of globalization.

Companies that are looking to make the jump to international markets should fully embrace digital technologies, forge the right partnerships, and stay alert for possible digital disruptions along supply chains.

Individuals — as consumers, entrepreneurs and employees — can help shape the global flows of ideas, information and labor.

Acting together, major obstacles around technology, investment and policies can be overcome to unleash the potential of digital and drive growth in global trade.

Mark Purdy is a managing director and chief economist, and Suning An is a specialist, at Accenture Research, the research institute for global consultancy Accenture.

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