Gaining a competitive advantage within the digital economy

Competition assumes new meaning within such a global business environment, where discontinuous, innovative change becomes the order of the day. Within such a context it is the creative potential of the institution that makes the difference in meetings the challenges presented by the limited time frames of window of opportunity. Many corporate companies are tweaking their strategies and the rules of the game to gain a competitive advantage within the digital economy.

Take the case of Li & Fung, considered a poster child for this new retail business paradigm. The way the firm works is by establishing close relationships with its customers, dedicating a team and package for each order Rather than owning manufacturing facilities, the firm orchestrates a network of suppliers, dispersing the supply chain so that each product line has its own set of factories. The end result the firm doubles its profits every three years.

Closer home, take the inner confidence of Indian companies to compete with the best. A survey conducted amongst 100 CEOs across medium and large Indian companies showed how going global has become an integral part of their strategy. More than 30% of the companies surveyed have exports /turnover ratios of 50% or more.

Indian businesses are also more aggressive in their acquisition strategy. The country’s current success in overseas acquisitions is fuelled by a new class of business leaders. The confidence within the Indian business community combined with its natural entrepreneurial zeal and intuitive ease with global business models has created a formidable force.

From 1995 to August 2006, 29% of Indian cross border M&As occurred in the European Union and 12% in North America. These developed economies are attractive because of their large consumer markets, transparent business processes, rule of law advanced technologies, skills and knowledge capital.

Moreover, as the markets in these economies tend to be mature and saturated. It often proves difficult for Indian companies to gain market share without acquisitions. In line with this trend, the more developed economies of Singapore, Hong Kong and South Korea together account for 40% of the cross border acquisitions conducted by India with Asia in the first half of 2006.

A research paper by Accenture found that 76% of Indian companies that expanded abroad did so in order to operate more closely to global customers. Targeting established firms, particularly in developed economies, is an effective way to gain market share as well as provide a platform for regional growth. Further, it is usually easier to access other resources and benefits once a company is established in a foreign market. Once companies have a foothold in a market, they can explore further acquisition opportunities to consolidate their local presence reach new customers, and acquire new sources of supply and further assets and capabilities.

What these companies have initiated is operational flexibility to deal with the volatile world environment, where just as it appeared that size is all that matters, small and medium sized companies continue to be back in the reckoning, thanks to the niche and specialized nature of their work.

Clearly there is a shift in strategic thinking from products or service centricity to customer centricity in the digital economy, with the client and the changing needs of the client increasingly at the center of the strategy formulation paradigm of equal significance with the birth of the digital economy, is the recognition that intellectual capital will in future gain in prominence as a strategic determinant, and this in turn place renewed emphasis on the human dimensions as a factor of consideration in formulating and implementing strategy.

The new global challengers are initiating much needed change. The trend is only beginning. Ultimately, its implications will affect every industry and market. The future course of global trade and development are being shaped now. Its final contours are being drawn out. Every aspect of organization, incentive and operating style is undergoing a transformation and the quicker they embrace the change the better will be their performance.