Policy Advisor Canadian Economic Analysis€¦ · Digital transformation: Implications for...
Transcript of Policy Advisor Canadian Economic Analysis€¦ · Digital transformation: Implications for...
Lena Suchanek
Policy AdvisorCanadian Economic Analysis
Digital Transformation in the Service Sector
Insights from consultations with firms in wholesale, retail and logistics
29 November 2017
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What is the digital economy?
E-COMMERCE
MOBILE TECHNOLOGIES
ROBOTICS
ARTIFICIAL INTELLIGENGE
CLOUD COMPUTING
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Why do we (=central bankers) care?
What does all this mean for inflation?
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?Inflation
Digital Transformation
Digital transformation: Implications for inflation
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Digital Transformation
Prices for ICT goods and
services
Inflation
E-commerce
Price transparency and comparability
Greater Competition
Improvements in operational
efficiencyPressure on
wages
Source: Adapted from Riskbank (2015) and Bank of Canada (2017)
Costs
Rise of superstar firms and market
concentration
Employment, skill mismatch
Automation?Big data analysis
Price discrimination Dynamic pricing
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Some clues from surveying firms
Sample: chosen to understand retail prices and supply chain effects
42 firms+ industry associations + consulting companies
Questionnaire: designed to learn about and understand impacts
– Based on: existing surveys, literature on digitalization
– Questions: broad, open ended; followed by specific, scales
Conduct of Survey: face-to-face to allow interaction
– 1h interviews
– 2017Q3
Survey results -A few general insights
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Survey results: Adoption of digital technologies
0
1
2
3
4
5
6
Adopting firms generally do betterSize of bubbles refers to number of firms
no
t at
all
← E
xte
nt
of
ado
pti
on
→ c
om
ple
tely
(1 =
no
ad
op
tio
n,5
= co
mp
lete
ad
op
tio
n)
negative ← past sales → strong
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Survey results: Type of technologies
0 10 20 30 40
Advanced automation
E-commerce
Digital platforms
Big data analytics
Customer interaction
Digital tracking
No plan to use Plan to use in 3 years Use somewhat Use extensively
Firms most often cite digital tracking and technologies to interact with customersNumber of firms
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Survey results: Impact on investment
15 5 5 15 25
Investment in digitaltechnologies will
be…
average share of ITin
overall investment
...same
…somewhat lower
…somewhat higher
…significantly higher
%
Firms plan to increase investment in IT
(number of firms)
24% : share of IT in investment
67% plan to increase IT spending
Spending on IT includes both
– Investment (capital): IT goods, such as hardware
– Expenses: IT services, such as cloud services, Software as a Service (SaaS), etc.
Tendency towards more expenses
Digital transformation: Implications for costs
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Digital Transformation Inflation
Improvements in operational
efficiencyPressure on
wages
Source: Adapted from Riskbank (2015) and Bank of Canada (2017)
Costs
Employment, skill mismatch
Automation
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Survey results: Impact on prices – costs
Increase in costs: firms still in installation phase, spending on IT outweigh gains
67% see a reduction in costs
(often modest)
26% pass on cost savings to
their clients (i.e. downward pressure on prices)
10
5
0
5
10
15
20
25
30
35
Decrease inoperational
costs
Lower pricesas a result
0 - Costsincreased
1 - Not at all
Firms saw a modest reduction in operational costsNumber of firms
On a scale from 1 to 5, by how much have costs been reduced?
2
3
45 - Very importantly
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Survey results: Impact on prices – returns to scale
69% operate an increasing
returns to scale (IRTS) business model
43% link IRTS to digital
technologies
0
5
10
15
20
25
30
35
40
45
Scalability of operational model
…less than proportionally
(share: related todigital)
… proportionally
… more than proportionally
Most firms would see a decrease incost per unit if volumes increasedNumber of firms
If sales volumes increased, the firms' costs would increase...
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Survey results: Impact on employment
Effect on employmentambiguous
– Automation, efficiency
+ Need for IT staff
More flexible types and arrangements
Labour costs effects ambiguous
– Automating low-skilled tasks
+ High wages for IT professionals20 0 20 40
Number of employees
Proportion of high-skilledworkers
Proportion of part-time workers
Proportion of subcontracting
Flexible work arrangement
Training and development
Labour costs
Decrease Increase
Digitalization transforms the workforceNumber of firms
Digital transformation: e-commerce and competition
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Digital Transformation Inflation
E-commerce
Price transparency and comparability
Greater Competition
Source: Adapted from Riskbank (2015) and Bank of Canada (2017)
Rise of superstar firms and market
concentration
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Survey results: Impact on prices – e-commerce
47% sell online
19% : average share of online
sales in total sales
Most firms charge the same price
online and in store30 10 10 30
If so, impacton average
prices
If so, average% of total
sales
Do yousell
online?
down up none
No Yes
%
Chart 9: About half of firms sell online, with small negative direct price impact (number of firms)
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Survey results: Impact on prices – competition
02468
101214161820
...from newfirms
...fromincumbents
General(offline)
competition
Online competition
Somewhat deflationaryVery deflationary
Disinflationary impact from online competition no stronger than from offlineNumber of firms
25% cite a downward impact on
prices from online competition
Impact from traditional (offline) competition is bigger
48% see downward pressure
due to increased price transparency and comparability online
= Amazon effect
Some mention price-matching and price-beating strategies
Digital transformation: big data and price strategies
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Digital Transformation Inflation
Source: Adapted from Riskbank (2015) and Bank of Canada (2017)
Big data analysis
Price discrimination Dynamic pricing
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Survey results: Impact on prices – big data analysis
52% : collect big data
Few use it in their pricing strategies:
– Dynamic pricing
– Price discrimination
25 15 5 5 15 25
Do you collectand use big
data?
…somewhat lower …somewhat higher
…significantly higher …the same
No Yes
Few firms use big data for pricestrategiesNumber of firms
Impact of dynamic pricing on average price level
Impact of price discrimination on average price level
Summary of results: Impact of digital transformation on prices
2030 25 20 15 10 5 0 5 10
Impact onoperational costs
Reduced prices becauseof cost savings
Increasing returns to scalerelated to digital
Dynamic pricing
Price discrimination
Firms' own online sales
...from new competitors
...from traditional competitors
Changing customer behaviour(price transparency/comparability)
Co
sts
Pri
cin
gst
rate
gyb
ased
on
big
dat
a
On
line
com
pe-
titi
on
DIR
ECT
IND
IREC
T
Summary of survey questions on how digital technologies may affect prices(Number of firms)
← Disinflationary vs. inflationary →
Overall impact of technologies on prices
very important reduction vs small vs. increase
Effect on average price ← significantly negative vs. significantly
positive →
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Key takeaways and areas for future research
Digital transformation puts some downward pressure on inflation via
1. Operational efficiency and productivity gains
2. Growing e-commerce and competition
Quantitative effect difficult to discern and to disentangle from other trends such as globalization
Policy implications: depends on whether impact is temporary, or structural. Question of “good disinflation”
Lots of interesting work in the area to be done: understanding the sharing economy, the gig economy, manufacturing 4.0, etc.
Thank you!
Additional Slides
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Survey results: why do firms invest in digital tech?
86% : increase operational
efficiency
64% : respond to external
forces (customer demands, competition, regulation, etc.)
69% : incrase revenue sources
20 10 0 10 20 30 40
Enhancingrevenue sources
Respondingto external
forces
Enhancingoperationalefficiencies
Not at all Somewhat Very
The main objective is to reduce costs(Number of firms, relevance of objectives)
Note: The main objectives are not mutually exclusive.
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Survey results: Conclusion: overall impact on prices
Firms judge the overall impact to be disinflationary, on balance
– Retail sector overwhelmingly cites downward pressure
– Most important factors: more-transparent pricing and increased competition
– cost savings, operational efficiencies
0
5
10
15
20
25
30
35
40
Impact on prices
...somewhat higher
…the same
...somewhat lower
...significantly lower
Overall impact of digital technologies is viewed as somewhat disinflationaryNumber of firms
Prices are overall...
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Key insights from the literature on digitalization and inflation
Direct impact: falling prices of information and communications technology (ICT) goods and services– Small downward impact in advanced counties, but almost nil in Canada
(limited competition in TelCo sector)– Prices fell earlier on this decade, not much recently
Reshaping traditional retail market structure and increasing (e-)competition – Evidence in advanced economies that digital superstar firms become
dominant– Amazon effect: increased competition, especially through e-commerce– limited empirical evidence; in Canada, e-commerce is small as of yet
Cost-efficient technologies should lead to increased productivity– Little evidence so far in the statistics– Some benefits may yet to be reaped, i.e. future productivity gains could
put downward pressure on prices