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Hu Yoshidas blog
Digitization and GDP per Capita are Strongly Correlated
Thu, 16 Aug 2018
Various world organizations and financial institutions have sought to develop a digitization index to evaluate a country’s ability to provide the necessary environment for business to succeed in an increasingly digitized global economy. The following study was done in 2016 and is interesting since it shows a strong correlation between digitization and GDP per capita. The most advanced digitization countries have a higher GDP per capita.
Where a country falls on the digitization index depends on how this index is defined. However, there have been several studies done using different digitization indices and in most cases the ranking of the countries were very similar. BBVA has developed a working paper to define a Digitization Index (DiGiX) which is widely accepted. This is a comparative index which rates the countries from zero to one. The BBVA study shows Luxemburg with the highest rating of 1.0. Although the GDP chart above uses a composite index, the digitization index on the x-axis ranks the countries in a similar manner to the BBVA DiGiX. The Y-axis is an assessment of GDP per capita without the impact of oil revenues. This may not be valid since digitization could influence oil revenues in a similar way that it impacts all revenues.
The following slide shows the types of indicators that were considered in BBVA’s DiGiX.
One anomaly on this chart is South Korea. South Korea is one the most technologically advanced countries, with technology leaders like Samsung. LG, and Hyundai. Korea Telecom dazzled everyone at the Winter Olympics with its display of 5G networks. 92.4% of the population use the internet and South Korea has consistently ranked first in the UN ICT Development Index. However, the GDP for South Korea, is below that of countries that are much lower on the digitization index. This shows that digitization is not the only factor in driving GDP.
The South Korean worker is the hardest worker in the world, logging some 300 work hours more per year than workers in most other countries, and yet productivity and prosperity is lagging behind less digitalized countries. One of the reasons given is that their retirement systems is not adequate to support retired workers and many of them have to find low paying jobs after retirement. Up until recently the retirement age was 55 and young workers had to look forward to supporting their parents and grandparents. According to the New York Times sky-rocketing household debt, high youth unemployment and stagnant wages are hobbling the economy. Young people have to scramble to compete for a small pool of jobs at large prestigious companies or accept lower paid work at smaller companies. Many cannot find work and the unemployment rate for young people is 10%. These are political and social issues that go beyond digitalization.
Lim Wonhyuk, professor of economic development at the KDI School of Public Policy and Management was quoted in the New York Times offering this suggestion: “The government needs to nurture a business ecosystem that is more ably disposed to start-ups protecting their intellectual property rights and giving them better financial access and incubating and supporting them.” What is needed is a way to spur innovation and disrupt the business models of established businesses.
Up until recently South Korea was not known as a tech startup hub. Very few “Unicorns”, (startup companies that achieve $1 billion in valuation) have come from South Korea. That may be about to change according to Crunchbase, an publisher of news covering the technology industry. Crunchbase has noted in a recent article, South Korea Aims for Startup Gold, that there is an increase in VC funding and a competitive lineup of potential Unicorns.
Another interesting country on the chart above is China. While this shows China to be very low on the digitization index, China leads the world in innovation when it comes to the number of Unicorns. According to Business Insider, Chinese retailers JD.com, Alibaba, and Moutai hold the top three spots on the list of top 20 fastest growing brands, while Amazon holds the thirteenth spot. That has a lot to do with the fact that China has the largest population in the world, close to 1.4 billion. That also lowers China’s GDP per capita to about 8600 USD. Consider what it would do to China’s GDP if the digitization rate were to increase by 10 points!
Digitization clearly shows a positive impact on GDP per capita. However, digitization does not occur without the focus of government since digitization has a lot to do with infrastructure, connectivity, and regulations. As a result, we are seeing government digitization initiatives around the world.
MyRepublic: How Telcotechs are disrupting the Telco Industry
Tue, 14 Aug 2018
On one of my trips to Singapore in June 2016, I was invited to meet with a new startup in the telco space. A company called MyRepublic. MyRepublic was started in 2011 to leverage Singapore’s exciting Next Gen NBN roll-out – the first of many National Broadband Networks (NBN) happening in the Asia Pacific region. By January 2014, this startup was able to launch the world’s first 1Gbps broadband plan in Singapore under S$50. The Telco industry is a well-established industry with many large players, with billions of dollars in revenue, so I was interested in knowing how a startup could possibly disrupt the telco industry and be the first to launch such a service. This disruption was on the scale of an Uber in the transportation business or Airbnb in the hospitality business! Startups like MyRepublic have become known as Telcotechs, a term that is being increasingly used in the telco industry and is similar to the use of Fintech in the financial industry to refer to technically innovative companies that are disrupting their industries.
In an interview in 2014, their founder Malcolm Rodrigues attributed MyRepublic’s strong growth to what he called the “thin operator model” “We think we’ve re-engineered the economics of a telco,” said Rodrigues. “Today we bill and invoice about 25,000 customers. All the invoicing and the CRM system are in the cloud. When I was at a telco before MyRepublic, we spent about $300 million dollars on an IT platform. [At MyRepublic] we built a cloud-based CRM and accounting system using the best stuff available and stitching it together through open APIs. I’d say we spent about 80,000 bucks to do that, and our running cost is around 3,000 dollars a month”.
When asked how he expected to make money with such a small number of customers, he said “The telecom is a beautiful business. It’s all recurring revenue. When you’re selling software packages, you have to find new customers every month.” By offering a utility, customers tend to switch providers only after a long period of time. At that time in 2014, MyRepublic occupied about 1% of the internet service provider market with hopes to reaching 5% in a few years. While that is a small slice of the pie, they were able to triple their revenue that year from S$5M to S$15M. Rodrigues also believes that traditional telcos create a walled garden to discourage users from going to other services like WhatsApp or Skype. There is a new way of life that is coming that will require telcos to work closely with the content providers. He believes that MyRepublic must be committed to user experience and maintain credibility in the eyes of the public.
When I met with MyRepublic in 2016 they were providing ultra-fast internet service to over 30,000 homes and businesses in Singapore. Since they were cloud native they were not interested in Hitachi’s IT infrastructure solutions. Their interest was in the trends and directions in the industry and Hitachi’s IoT initiatives. Last week I participated in Hitachi Vantara’s Southeast Asia CIO and Partner conference where we were fortunate to have Eugene Yeo, Group CIO, for MyRepublic, as a main speaker. He provided an update and shared his experiences on driving business agility and transformation across their footprint which now includes Singapore, Australia, New Zealand and Indonesia, with plans for Cambodia, Myanmar, Malaysia, Philippines, Vietnam, and Thailand. Today, MyRepublic has a customer base reaching over 200,000 households.
This summer MyRepublic moved into the telco space as a mobile virtual network operator (MVNO) by partnering with StarHub in Singapore and Tata Communications across Singapore, New Zealand, Australia, and Indonesia. An MVNO is a wireless communications services provider that does not own the wireless network infrastructure over which it provides services to its customers. It obtains bulk access to network services at wholesale rates, then sets retail prices independently, using its own customer services, and billing support systems. This enables MyRepublic’s telcotech platform expansion into home broadband and mobile services without having to make any capital investment into its own mobile network infrastructure or services management. MyRepublic is able to provide the most competitive pricing across all its many services.
Eugene is a firm believer of using IT as a strategic tool to ensure that MyRepublic remains innovative and ahead of the competition. The tech innovations at MyRepublic include embracing the cloud, open source, and a whole slew of disruptive technologies to grow the business. They developed their own business support systems (BSS) and operations support systems (OSS) and adopted public cloud for the BSS and OSS stack. Yeo is also a staunch supporter of open source. The company has partnered with RedHat to deploy OpenStack in early 2017. With a team of 70 to 80 engineers they use open source - from open source data base, to open source libraries, and workflow engines to get to the next level faster. They can deploy to new markets in less than 60 days!
Recently, MyRepublic engaged Hitachi to help accelerate the company’s telecommunications technology strategy and enhance business operations across their customer base. They selected the Hitachi Vantara’s Pentaho Data Integration and Business Analytics platform to help it expand further into the region and to launch mobile services on top of existing broadband services. MyRepublic is using the Pentaho platform to improve productivity around data storage and operational efficiency, and to provide enterprise-grade scalability. With the Pentaho platform, MyRepublic was able to integrate and blend data from disparate sources and then create the necessary dashboards with just two software engineers. Pentaho also allows MyRepublic to easily embed dashboards within its BSS, CRM and back-office systems so that users can access insights while working within the operational systems.
Eugene Yeo said. “While we have made significant manpower savings, the bigger benefit is the robust data pipeline we’ve been able to build. Pentaho allows us to add data to this pipeline rapidly, which is important to this vision. Similar to what fintech players achieved with the financial services industry, it paves the way for us to create new data monetization models that will lead to further innovation in the industry.”
MyRepublic has plans to IPO within 24 months. We are very proud to be a partner with them and pleased to be able to support them with our products and services.