- October 30, 2019
- Posted by: Ramkumar
- Category: Strategy
Moving towards platforms economy
It is not only the companies that are moving towards platforms. More countries are shifting towards the platform economy. The global trade, faced with two conflicting forces. On one side, there is a wave of protectionism mostly exemplified by moves like Brexit and US withdrawal from the Trans-Pacific Partnership, which is constraining the free movement of global value flows. On the other side, Digital technologies continue to blur local boundaries and fostering more significant cross-cultural exchanges.
Traditionally the world was following value creation and delivery models inherited from the industrial revolution. Now with the world getting more connected after the internet, platform business models have taken over.
Platform business models create a central infrastructure that enables connectivity and interactions between producers and consumers. This open network of free exchange of information is affecting globalization.
Globalization is changing to Platforms business models.
- Advanced digital manufacturing systems have reduced production costs, and this, in turn, is favoring locally concentrated supply chains. It is reshaping the existing trade flows between countries. Traditionally China used to be the global manufacturing hub, and India was the outsourcing destination for leading countries operating in developed western economies. Now there is a shift with Adidas announcing that it is moving its production back from China to Germany. The reason is owing to the lower costs of robotic manufacturing in Germany. It is indicating that firms around the world are considering multi-local building as an alternative to outsourcing.
- There is also an increased consumption in emerging markets, which further drives the need for regional manufacturing. The trade mix is also changing in the digital world. There is an increase in services trade and cross border data flows when compared to products. It is because Digital technologies are enabling product-based business models to morph into service-based ones. Companies like GE and Siemens have moved away from selling equipment to delivering data services, including predictive equipment maintenance and usage-based leasing.
- Platforms are also enabling smaller enterprises to participate in global trade without investing in their supply chains. For instance, Alibaba allows a significant portion of SME trade and is also financing these SMEs.Amazon and WeChat also look to follow the footsteps of Alibaba. When these platforms get more prominent and scale aggressively by benefiting from winner take all scenarios, we will then see the trade control shifting from political countries to digital platforms.
Shift to platforms economy
- Platforms are going to be the future and hence will become increasingly important. Platforms that control social or economic transactions capture data widely used for decision making. For instance, data obtained by e-commerce platforms like Flipkart gets used as a financial credit rating system in the future. Data captured by Facebook and other social networking platforms already provision identity verification and access management capabilities on third-party platforms. Supply chain companies are using the Salesforce Einstein platform to make increasingly sophisticated decisions. Hence platforms that facilitate interactions and capture data will play a crucial role in the future of global trade.
- Hence every company operating a global supply chain need to have a Platform strategy in place. They need to identify which parts of the supply chain can be automated and which ones will get opened up for external participation? With the rise of supplier management platforms, the costs of managing external suppliers are reduced, hence allowing firms to outsource more of their activities.
- Digitization allows firms to determine the quality and reputation of their suppliers. It is because Platforms managing supply chain transactions capture data about supplier reliability and performance. It will enable firms to make the right decision. These platforms can also track inputs across the supply chain to create more sustainable supply chains. All of the above factors could very well determine the competitiveness of companies in the digital economy.
- Platforms will also directly compete with countries. Platforms like Alibaba and now Reliance Jio in India can drive SME growth and financial inclusion for a third world country, which can be a huge factor in the development of that country. It gives these platforms a considerable negotiating power. It can also raise geopolitical concerns, mainly when the home country government closely monitors platforms.
- In the future, countries will start to think like platforms because any country that wishes to attract trade flows should have a platform to attract data flows. For instance, India has an Aadhar system, which is an identity system. India is looking to extend this platform to other countries to attract data flows. As countries build unique IPs, participating countries can share their data flows to benefit from these unique IPs that these countries have developed.
Future of platforms economy
Platforms are going to be the future and shall reshape not only business models but also how the global trade will take place in the future. Hence the rise of platforms economy is going to be one of the defining shifts of this era.