By 2025, 80% of all digital services to be delivered through a few core platforms, predicts global consultancy firm
British businesses are facing an existential crisis; business consulting firm, Virtusa, predicts that hundreds are at riskdue to the explosive growth of innovative tech giants led by Baidu, Alibaba, and Tencent (BAT), and Amazon. Virtusa warns that firms that deliver services, such as banks and telcos, are lagging behind in the digital economy compared to firms, such as those in China, that capitalize on emerging trends in other markets where those companies, like BAT, have perfected a new, horizontal business model. BAT has brought together products and services from a range of adjacent industries with one ultimate aim – the ability to own and monetise all facets of a consumer’s lifestyle choices.
BAT has taken this horizontal expansion model and used it to incubate hundreds of companies outside of China across a dozen sectors; all dedicated to meeting every need of a billion customers through a single platform.
Such acquisitions enable these businesses to build detailed digital personas through which they identify every customer touchpoint that can be monetised, providing a roadmap of new industries to enter. In this way, acquisitions are now becoming consumer-driven, creating a shift in strategic business thinking. Instead of choosing markets based on specific industry knowledge, BAT selects targets based on how they fit into the overall digital landscape to appeal to convenience-hungry millennials – examples are investments made by BAT in Snapchat, Farfetch, and Lyft. As a result, Virtusa predicts that digital platforms will become the primary provider for all our lifestyle needs, with consumers processing 80 percent of their purchases through a single provider by 2025.
“In the new digital economy, intuitiveness is king – something BAT does better than anyone,” said Raj Rajgopal, president of Virtusa’s Digital Strategy Group and head of Virtusa’s China Insights Group. “Customers – especially millennials – don’t care who fulfills their order or delivers them a service. They don’t need to have a dedicated banking or telco provider, they’re perfectly happy to bank via a social media app if it works intuitively. BAT has extended this logic across all industries, and the success of these firms has been demonstrated by an astonishing 50 percent growth rate year-on-year. Their platform users can now deal with one company that can facilitate all their needs, from transport, to entertainment, to financial services – and BAT is still moving into new sectors. Firms are waking up to a world where the economy is being built around platforms, where only the fulfillment of a product or service will matter, not who fulfills it – a realisation that should serve as a wake up to all specialist businesses in the UK.”
Virtusa predicts this shift will rock the foundations many UK businesses are built on. BAT, along with American giants like Amazon, Google and Facebook, will be the dominant force that channels all future sales – weakening the UK’s global presence unless they put in place strategies now to compete. As these platforms become the conduits through which all customer interactions take place – from cashier-less stores to magic mirrors, and even hybrid messaging/payment apps – we get closer to an age where brand, heritage, and expertise pale in importance when faced against convenience and intuitiveness. This will force UK businesses into adopting a supplier relationship with platform providers that would negatively impact profit margins – unless they take steps today to adapt.
“A lot of companies will struggle to survive in the new digital ecosystem,” said Rajgopal. “The ones that plan to do so successfully will have to work through three options. Lead in the creation of a platform through a set of strategic acquisitions to provide end-to-end lifestyle services such as those provided by Alibaba or Tencent, enter into a network of strategic partnerships as a peer similar to the alliances we see in the airline industry, or transition into selling via somebody else’s platform, as many traditional retailers have with Amazon. We have created the China Insights Group to help companies analyse the competitive playbook of BAT, understand the threat they pose if these practices are adopted, prepare early on a strategy to pursue, and how to go about it.”
Virtusa’s China Insights Group was set up four months ago to identify and define the strategies that companies like BAT employ to enter different markets. The group’s analysis has resulted in the creation of playbooks for Ali Baba, Tencent, Ping An Insurance, and ZhongAn. For each playbook, CIG has developed 20 detailed use cases that lay out each company’s strategy for expansion and the capabilities they plan to use to supplant the competition. These playbooks also include how these companies determine what types of services to provide and what customer journeys to support. The goal of CIG, in conjunction with Virtusa’s Digital Business Strategy team, is not to only to help clients battle the incoming threat of these Eastern tech giants. It is also to enable firms to emulate these strategies in order to build dominance in their own respective markets.
In particular, it recommends that all firms:
- Analyse the biggest digital threats they face and ‘wargame’ a strategy ahead of a new tech giant entering their sector.
- Ensure they are tracking innovation in other markets, particularly China, to avoid falling behind the curve.
- Start building detailed and comprehensive digital personas for individual consumers.
Virtusa’s China Insights Group will continue to research and explore how Eastern innovators are achieving market dominance and will use those insights to help clients of Virtusa learn how to adopt similar strategies that will lead them to dominance in their own markets.
Regulation in western geographies will slow the expansion of these Chinese giants allowing “Facebook, Google, and Amazon to catch up and compete with them,” said Rajgopal. “But for most firms who are experts in just one industry, meeting this new challenge is going to be incredibly difficult and they need to decide on their strategy. Unfortunately there’s no magic bullet and each company has to figure out its own path – but the decision needs to be made now because in five years’ time when BAT is at the door, it’ll be too late to respond.”
An unprecedented Black Friday: How can retailers prepare?
Retailers must invest heavily in their online presence and fight hard to remain competitive as a second lockdown stirs greater uncertainty
With an unprecedented Black Friday and Cyber Monday weekend on the horizon (27th – 30th November), eCommerce hosting and consultancy expert, Sonassi, advises retailers to strengthen their online presence and make the necessary preparations for a fatigue in consumer spending.
James Allen-Lewis, Development Director at Sonassi, explains: “This year’s golden quarter has squeezed together three of the biggest sales periods like never before, meaning retailers will have to fight harder than usual to remain competitive this Black Friday. With greater discounts over a longer period of time, alongside the fact that a second lockdown has moved everyone and everything online, retailers will be battling it out for a share of decreasing consumer spending.
“However, this sense of uncertainty should not deter merchants from implementing their sales strategies this Black Friday and Cyber Monday weekend. Instead, they must go further than simply providing online discounts and tackle challenges head on by re-focusing their efforts on creating a highly competitive user experience. Successful merchants will make the necessary preparations for a change in consumer demand and invest more heavily in their eCommerce infrastructure.
“One way in which retailers can do this is by using last year’s Black Friday as a case study to inspire their future response. For example, retailers should take note of the key consumer behaviours that transpired throughout last year’s mega peak in discounting and plan accordingly for the upcoming Black Friday and Cyber-Monday weekend.
“Tactics such as providing the ultimate online delivery service and secure payment methods will also be pivotal for retailers looking to survive a fatigue in online spending. Consumers will look to retailers who do not overpromise on items like next-day delivery and ensure their checkout process is safe and frictionless for all. It is the retailers who embrace this fact and meet the needs of the conscious consumer that will win their share of consumers wallets.
Allen-Lewis concludes: “With Black Friday and the build-up to Christmas just around the corner, retailers must adapt to changing consumer demand, invest more heavily in their eCommerce infrastructure and focus their efforts on creating the ultimate online experience. The only way to plan ahead amid challenging times is to listen to the needs of the customer.”
Optimistic outlook for 2021 public M&A
Optimism is returning and the outlook is positive for the Australian M&A market in 2021 after a COVID-induced crash in deal activity in 2020, according to Corrs Chambers Westgarth’s tenth M&A 2021 Outlook report.
The special report reveals that an environment of historically low interest rates positions M&A as a significant means of achieving growth and generating returns, including for private equity firms looking to deploy capital and strategic buyers focused on complementary acquisitions.
With the unprecedented challenge of the COVID-19 pandemic, global political instability and arguably the greatest economic challenge since the Great Depression, M&A 2021 Outlook details somewhat surprising trends emerging for the next 12 months and analyses a number of common COVID-19 myths and their influence on future M&A deal making.
Corrs’ detailed examination of the Australian M&A market draws on data taken from the firm’s proprietary database of transactions combined with in-depth research for the 12-month period ending 30 September 2020.
Key trends identified in the report include a rapid escalation in M&A levels and an increase in creativity in pricing and speed in closing deals, while also highlighting the critical need for support from target shareholders. Conditions also appear to be set for a continued rise in equity prices as a result of the ongoing influx of capital into Australian equity markets, making it imperative that bidders employ strategies to move quickly on M&A transactions.
Discussing the M&A 2021 Outlook, Corrs Head of Corporate, Sandy Mak, said “Despite a challenging year, our research indicates that 2021 could well see the volume and value of deals continue to grow. We are already witnessing this uptick in activity and while some industries and sectors are seeing a faster rebound than others, early indications are that the wider public M&A market will continue to strengthen over the coming months.”
Based on its detailed research, the M&A 2021 Outlook report discusses further key findings including:
- Deal volume and value is the lowest since 2016, however volumes have shown significant recovery since June 2020.
- More than 50% of deals in 2020 were ‘hostile’ and not recommended at the outset.
- 71% of deals over A$500 million were structured by way of a takeover – a significant increase from prior years – largely as a result of increased competition for assets through rival bids.
- Despite border closures and the tightening of foreign investment regimes, the percentage of deals with foreign bidders has increased materially since April 2020.
5 steps for SMEs to budget properly for the coming year
By Fabio Comminot, Head of Dealing, Switzerland at Ebury, one of Europe’s largest Fintechs, has provided a five-step guide to make sure budgeting is done on time.
During the challenging times of COVID-19, it is difficult to forecast orders and costs. This is especially true for SMEs that operate internationally and therefore are exposed to currency fluctuations and market movements. So budgeting is immensely important.
Autumn is budget season for most companies. Upcoming project costs, sales and fixed costs must be defined or forecasted. Budget planning should be as accurate as possible right from the start of the process to avoid unexpected consequences at the end of the year..
With the effects of the COVID pandemic it has become difficult for all companies, no matter their size or history, to plan and make sales forecasts. Early planning and hedging are especially important for companies that work internationally and are therefore particularly exposed to currency risk.
These five steps will help SMEs take the right measures for the coming financial year, in time for budget season:
Step 1: Estimate your costs or sales in foreign currencies
As difficult as it may seem, every company must estimate its expected fixed and variable costs for the coming year. Most companies can forecast their revenues based on experience or existing orders.
However, start-ups or young companies should also be able to at least estimate their costs including rents, insurance, wages and production costs. Special attention should be paid to costs or revenues that are spent or received in a foreign currency.
Step 2: Profit or cost assurance – define the strategy
As soon as an approximate plan for the coming year is in place, the company should consider the importance of currency management. Regular earnings or expenditures in foreign currencies are exposed to movements in exchange rates. If costs in a foreign currency are to be forecasted until the end of the year, the company needs to minimise volatility. This means that the exchange rate should be fixed so that there are no unexpected negative consequences at the end of the year.
Another option would be to protect the operating profit. Fluctuating exchange rates can rapidly ruin intended profit margins. In this case the company could aim to define the forecasted sales in the foreign currency and fix the margin based on this.
Step 3: Fix your budget rates
The budget is set, the currency management goals are defined, the major part is done. Now it is a matter of defining the budgeted rates for the various currencies based on the current exchange rate. A buffer of about 5% can be useful when doing this – for example. instead of fixing the exchange rate from US dollar to Swiss franc at the current 91 cent, a rate of 95 cent could be budgeted. In this way, the minimum budget rate is defined and any negative exchange rate movement can be at least partially compensated for.
Step 4: Define the hedging strategy
With the targets and the budget course set, the next questions are: What currency developments can be expected? What is the industry outlook? Is the order situation relatively secure? Or is there practically no empirical data?
This step is where Ebury can support the company. Our experts in FX markets help answer these questions and begin to define the individual hedging strategy.
Step 5: Ensure a flexible fit
It’s done: the measures have been defined, now it’s time for implementation.
Ebury will implement the previous steps and , so that the company focuses on its core business. In contrast to traditional financial services providers such as banks, Ebury constantly monitors international trade and political events in order to assist clients with strategy adjustments. The Ebury team is supported by state-of-the-art technology and international currency analysts. It makes no difference whether the changes are driven by the currency market or whether the company’s order situation itself is changing. This allows the SME to focus on its operational business, which is worth a lot in uncertain times like these.
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