2021 is when most businesses will implement key business models that will enable a true transition to the new normal. Unless, another crisis occurs, business and commerce can take the necessary steps that will determine their future. The new normal in a post-pandemic world is going to be very different from a pre-COVID 19 world. In that sense, it is quite similar to how the world was indelible changed by the world wars. We are at the inception of a new epoch and let’s understand the key trends that will shape our collective future, based on insights from McKinsey.
Consumer confidence returns: With economic recovery, consumer confidence too shall bounce back and in turn spending. In many ways, many sectors will experience pent-up demand being unleashed as consumer sentiment improves. The previous economic downturns too had similar such instances of consumers going on a buying spree, due to the pent-up demand. The biggest difference with the present downturn is that the services sector has been hit the hardest. Should the vaccine be effective and some semblance of normalcy returns, entertainment venues, shall experience an upheaval in demand.
However, consumer behaviour is going to be different in regions. As per McKinsey’s recent consumer survey, Japan, France, and Italy, which are countries with older demographics, are far less optimistic that countries with relatively young demographics, like Indonesia and India. However, China is an exception as it is overtly optimistic, despite having an older population.
China, being the first country to be affected by the COVID-19 crisis and to emerge from it, offers a glimpse into the future: Manufacturing and consumer spending has bounced back. Two of the country’s largest online retailers had record sales, due to the pent-up demand. Largely, the spending in China has returned to its pre-crisis levels.
Focus on innovation and entrepreneurship
From another perspective, a crisis is also an opportunity. Adapting to the crisis meant that there was an increased focus on innovation. The rising unemployment meant that many individuals turned to entrepreneurship for survival. In that sense, a new generation of entrepreneurs were spurred on by conditions induced by the COVID-19 pandemic. Like Plato said, necessity is the mother of invention. To survive in an era of social distancing, businesses have to focus on digitization. Trends like remote-working and consequently cloud adoption, online customer service, to the use of AI and machine learning to improve operations has brought about a paradigm shift in organizational structures. The value-chain for many industries has undergone a seismic shift.
The nature of these disruptive changes and an emphasis on digital transformation has created opportunities for entrepreneurs. This holds true for many major economies across the world. For instance, in the third quarter of 2020, there were more than 1.5 million new business applications in the US, twice that of the same period in the previous year. The new business formations in France was 84,000 in October 2020, the highest ever recorded in that country. Japan and Germany also saw an increase in new businesses compared to that of 2019.
The Fourth Industrial Revolution
There is no going back anymore. COVID-19 has accelerated technological adoption like never before. Today, many industry 4.0 technologies are no longer the staple of science of science fiction and have fast become a reality. Executives reported that when it came to working on things like reducing supply-chain redundancies, increasing the use of advanced technologies for business operations, and better data security, the pace of change was 20 to 25 times faster than expected.
However, the precise evaluation of the impact of these changes on overall productivity shall take several quarters. The early indications are promising as the third quarter of 2020 saw US productivity increase by 4.6 percent after a significant 10.6 percent increase in the second quarter of 2020. Since 1965, the 6-month improvement is the highest recorded in that country. In the past, it has taken the course of a decade for new technologies to act as productivity drivers.
A paradigm shift
Many companies were required to make drastic transformation, cut down on identified redundancies, and implement new technologies to enhance efficiency, reduce long-term costs, and improve the cost of production. This has for many industries led to more resilient value-chains, improved digital and omnichannel business models. These changes, a focus on digital transformation, and a focus on establishing virtual operations is expected to remain.