This past weekend’s rainfall has brought a huge relief to residents and reservoirs in what has been another dry start to Cape Town’s winter….
As weak growth dogs the world economy, there’s a tendency to turn to multinational companies to drive a recovery of trade and investment. But the roles of small and medium-sized enterprises (SMEs) are often overlooked. New digital technologies now make it easier for small businesses to expand and export. And the emergence of digitally-enabled platforms, in particular, offers one of the fastest routes to export-led growth.
It may seem counter-intuitive that SMEs can compete alongside the leading platform brands we know so well today: Uber, Airbnb, Tencent, Alibaba and others. These powerhouses have reshaped entire industry sectors. Indeed, some fear that they have snagged too much market power to the disadvantage of small companies. But SMEs can only benefit from platforms. After all, most of the major platform players were, themselves, start-ups little more than five years ago.
We’ve been here before. At the turn of the 20th century, industrial economies were transformed by platforms that we called factories. Powered by the innovation of electricity, factories brought together workers, raw materials and distribution channels for the first time, enabling large-scale, efficient manufacturing. Today, digital technology is creating platforms that unite vast numbers of customers and providers to form large-scale, efficient markets.
Digital networks create a self-propelling virtuous circle, with more customers attracting more suppliers and vice versa — what is known as network effects. Other platforms focus less on market making and more on innovation, but driven by similar principles, bringing together specialists from different sectors to create entirely new products and services.
The opportunity for small businesses is threefold. First, platforms help them gain access to large-scale and increasingly global markets, transforming export-led expansion. Research from Alibaba and Accenture suggests that, by 2020, 45 percent of online consumers will buy from overseas.
Second, SMEs can create their own platforms. It used to take Fortune 500 companies an average of 20 years to reach a billion-dollar valuation. Today, companies are becoming unicorns in just four years, thanks largely to this new business model. Consider the success of DHgate.com, a Chinese business-to-business e-commerce website that facilitates the sale of manufactured products from SMEs.
Third, small businesses can provide services to platforms to enrich their functionality. They can meet the need for analytics-based pricing techniques, for example, or fulfilment and payment services, without which platforms cannot survive. SMEs can also join the platforms established by traditional industry incumbents seeking their specialist expertise. For example, Philips is reinventing itself as a health technology company, delivering improved outcomes by bringing together medical providers and digital pioneers to provide consumers with better healthcare experiences. Similar models are being replicated by GE, Siemens, ABB and others, making it easier for small businesses to join advanced supply chains.
Despite the opportunity, analysis by Accenture for the G20 Young Global Entrepreneurs Alliance (G20 YEA) suggests that the vast majority of new platforms will fail. This partly reflects the extraordinary proliferation of platform businesses which is, in itself, a positive sign. To succeed, however, SMEs will have to adopt radical new ways of doing business. They will have to deliver far more personalised services, and implement dynamic pricing models to react in real time to changes in market demand.
Perhaps the greatest challenge lies with the national constraints some entrepreneurs face as they struggle to establish or participate in platforms. The Accenture Platform Readiness Index shows that the US, China, India, Germany and the UK lead the league table today.
SMEs in France, Italy and other advanced economies could struggle to win the global competition for platform success unless their governments invest further in digital talent and entrepreneurship. Policymakers will also have to boost technology infrastructure to reduce the patchy adoption of digital technologies by both businesses and consumers. They will have to modify regulation so as not to protect incumbent service providers to the detriment of digital innovation and productivity growth. And they will have to encourage companies to share their data with partners in order to support the cross-sector innovation that platforms are ideally placed to enable.
In just a handful of years, a group of startups have used platform business models to create more than US$4-trillion of market capital between them. They are pioneers of what is set to become the new way of doing business. It’s time to support SMEs and entrepreneurs to accelerate the creation of platform business models that can help economies enjoy enormous efficiency and recapture high rates of growth.