25 August 2020
Econ 4.0: What hath Covid-19 wrought?
This article first appeared in Enterprise, The Edge Malaysia Weekly, on August 10, 2020 – August 16, 2020.
Here is an atypical Covid-19 story. After finishing online classes for a bunch of business management students, the professor announced on the day of the exam: “Although I did not see you in person, I believe you attended my online classes regularly, took notes diligently and worked on projects honestly. In good faith, I would like to offer all of you a choice to opt out of the final exam today and still receive a ‘B’ grade for completing the course.”
The stunned students roared in delight and 95 out of the 100 students decided to accept the offer and logged out. “What about the rest of you?” the professor asked the remaining five.
“Do you want to go through the two-hour exam when you have an easy way out?” All five students confirmed that they wanted to be tested and certified. The professor smiled. “I am glad to see that you believe in yourselves and in getting an honest appraisal. You will all get an ‘A’.”
This story is atypical from many angles. One, the professor’s innovative approach to assessing the abilities and confidence levels of his students. Two, it is tough to measure online attention spans in the new ways that education is now delivered. Three, the very management of business has undergone a radical transformation. And four, the Covid-19 pandemic has upended the way we live, the way we work, the way we play and the way we learn.
Education is not the only vertical that has been turned upside down by the pandemic. A slew of sectors — from hospitality and hospital management to airlines and agriculture to education and entertainment — have undergone sudden radical transformations. Governments have already allocated more than US$13 trillion to stabilise economies in freefall and restart growth.
The remedial measures have succeeded in many ways. But as the crisis continues, new questions are being asked. Is the money going to the deserving? How much wastage — or pilferage — is going on? Who is auditing what, where and how? What will an economic recovery look like?
Global management consultancy McKinsey estimates that government deficits could reach US$30 trillion worldwide by 2023. “That is a sobering figure. If governments and the private sector work together, they can avoid the disastrous consequences of massive deficits, lay the foundations for a new social contract and begin to shape a post-crisis era of shared, sustainable prosperity,” says the firm.
Former US surgeon-general Dr Vivek Murthy notes that the pandemic has disconnected people from each other. “That may cause a social recession, with profound consequences for our health, our productivity in the workplace and how our kids do in school,” he was quoted as saying in a McKinsey paper.
“I think this could be an extraordinary opportunity for us to step back and ask ourselves if we are leading the kind of lives that we want to lead. This is our chance to ask ourselves where people fit in our priority list and whether there is a gap between our stated priorities and our lived priorities.”
Several countries have started the recovery process. However, until a vaccine is found, the strength of the recovery will be highly uncertain and the impact across sectors and countries highly uneven.
The International Monetary Fund (IMF) has projected a deeper recession in 2020 and a slower recovery in 2021 — compared with its World Economic Outlook report in April. The global output may decline 4.9% this year, which is 1.9 percentage points below its April forecast, followed by a partial recovery in 2021.
“These projections imply a cumulative loss to the global economy over two years of more than US$12 trillion from this crisis. The downgrade from April reflects worse-than-anticipated outcomes in 1H2020 and damage to supply potential. Geopolitical and trade tensions could damage fragile global relations at a time when global trade is projected to collapse by 12%,” the IMF’s economic counsellor and research director Gita Gopinath said at a media briefing on June 24.
The most significant transformation has been in the workplace. Forced to work from home, many people have had to adjust to the “new normal” with enhanced workplace services. International Data Corp (IDC) defines workplace services as a set of business and IT services to plan, build and run digital workspace tech solutions. More than 54% of companies in Asia-Pacific ex-Japan plan to boost spending on digital workplace-related services this year, illustrating how vital these services will be in the new normal.
“The unprecedented disruption caused by Covid-19 has thrust workplace services to the forefront as companies rush to enable and empower their workforce for remote work. The post-crisis world will look very different. Workplace services vendors who can combine technological innovation and human-centric elements of empathy, trust and superlative user experience will lead,” says Pushkaraksh Shanbhag, senior research manager for cloud and IT services at IDC Asia-Pacific.
The most prominent manifestation of change in the workplace is the use of cloud-based conferencing tools such as Zoom, Microsoft Teams, Cisco Webex and Google Meetings. Gartner Inc says worldwide spending on cloud-based web conferencing solutions will grow by 25% this year.
End-user spending on cloud-based conferencing tools may reach US$4.1 billion in 2020, up from US$3.3 billion in 2019. It is the second-fastest-growing category in the unified communications (UC) market, behind cloud-based telephony, which is forecast to reach US$16.8 billion in gross revenue this year.
“Cloud collaboration investments will buoy the UC market globally as remote work initiatives spurred by Covid-19 drive conferencing adoption. By 2024, in-person meetings will account for just 25% of enterprise meetings, down from 60% before the pandemic. There will be a high demand for access to videoconferencing and other collaboration tools,” says Megan Fernandez, senior principal analyst at Gartner.
In the last decade, the rise of Software as a Service (SaaS) has reshaped the software industry. Growth accelerated, but industry profitability tumbled. The next decade will be just as tumultuous. SaaS companies are at a crossroads as Covid-19 will accelerate the footprint of the sector, given the growth of remote working, rapid deployment of digital solutions and lower upfront costs.
One casualty could be small enterprises and start-ups. “While small business may not be an industry, it is a mighty economic sector that employs tens of millions of people in the US. Between 1.4 million and 2.1 million small businesses in the US could close permanently as a result of the first four months of the pandemic. Specific sectors — such as mining, oil and gas; transport and warehousing; arts, entertainment and recreation; and educational services — are especially at risk,” says McKinsey.
In early June, finance ministers from 13 countries (Asean, China, Japan and South Korea) issued a joint statement to support small and medium enterprises (SMEs), including micro-businesses. They urged the SMEs to use digital technologies to meet new market needs.
“The ministers underscore the importance of facilitating cross-border transfer of information and data by electronic means for the development of the digital economy, as well as to strengthen consumer and business trust in the digital economy,” says the statement.
Malaysia’s information and communications technology (ICT) spending may decline 8.3% this year, compared with the 8.2% growth estimated before the outbreak. While the country’s domestic ICT spending grew 8.5% in 2019, the pandemic will lead to a decrease in expenditure across almost all segments of the market, says London-based data analytics and consulting firm GlobalData.
“Spending on hardware may fall 9.1%, compared with a growth of 9% in 2019 and the projected growth of 7.3% before the outbreak. Malaysian enterprises are planning to contain costs and defer capital expenditure on upgrades, which will strongly impact the spending on hardware for the year. Travel and leisure will see the biggest declines at 21.9%, followed by transport and logistics at 18.7%, and manufacturing at 16.7%,” says GlobalData senior technology analyst Shamim Khan.
In 2018, the Asia Cloud Computing Association ranked Malaysia No 8 out of 14 Asia-Pacific countries in its Cloud Readiness Index (CRI). The CRI ranks the region’s economies across 10 parameters, including data centre risk, international connectivity, broadband quality, cybersecurity, privacy, intellectual property protection, freedom of information, business sophistication and sustainability.
One key sector to tilt the scales? SMEs. They are the backbone of Malaysia’s economy. There are about one million SMEs in Malaysia, according to SME Corp Malaysia, the central coordinating agency under the Ministry of International Trade and Industry.
Cloud adoption has enormous potential to grow if SMEs adopt cloud. That is one reason the market for cloud-related services may grow at 24% annually.
An overwhelming 77% of SMEs in Malaysia are micro-enterprises, or those with fewer than five employees and annual sales of less than RM300,000. A further 21% are small enterprises, with fewer than 75 staff and annual revenue of less than RM15 million. The final 2% are medium enterprises, which have employee strength of between 75 and 200 and yearly sales of between RM15 million and RM50 million.
Enterprises in Malaysia will continue to invest in cloud computing, with the public cloud market set to grow by 3.5% this year. “The pandemic is driving the demand for increased internet bandwidth, adoption of cloud-based services and increased usage of collaboration platforms, despite the overall ICT spend declining across all major verticals. Malaysian enterprises will need to adopt new technology, restructure their business and workforce and undertake a transformation of their digital infrastructure, all of which will be essential for the post-pandemic recovery,” says GlobalData’s Khan.
What is the ideal way to get employees back on track? “Connect people to something bigger than themselves and help them contribute,” advises McKinsey.
“The emergence of purpose as a driving force is particularly compelling, given its overarching impact on all aspects of work and business. A sense of purpose can help employees navigate high levels of uncertainty and change, and ensure that their efforts are aligned with the highest-value activities.”
The final point: “What hath God wrought” was the first official Morse code message transmitted in the US on May 24, 1844, to open the Baltimore-Washington telegraph line. “What hath Covid-19 wrought” will be something future generations will continue to study long after all of us have passed on.
Raju Chellam is vice-president of new technologies at Fusionex International, Asia’s leading big data analytics company