“Technology can save the global economy”. That was one of the claims being made by several speakers last week at the World Economic Forum’s Industrial Council meeting in Abu Dhabi. It was based on the concept of the Fourth Industrial Revolution – and its supporters argue that it will deliver fast-paced technological change to power major productivity improvements and so boost economic growth.
The issue that surfaced during our discussions was whether this potential Fourth Revolution really has the ability to deliver profound change in ways of working. One debate was around the concept of Artificial Intelligence (AI), as its supporters claimed this could indeed mean computers replacing humans. One cited example was IBM’s Watson computer’s potential ability to diagnose cancer:
- It was claimed Watson could do this better and faster than a human doctor
- But in debate, it emerged that the doctor still does the diagnosis: Watson’s role is to shorten research time
- In other words, AI at the moment is really Accessible Intelligence rather than Artificial Intelligence
Watson-type computing power is therefore not currently the growth-enabler that its supporters would like to claim.
4.1bn PEOPLE CAN’T AFFORD TO BUY SMARTPHONES
Smartphones also have vast computing power. As NASA have confirmed, a modern “cell phone has more computing power than the computers used during the Apollo era“. But while very useful, a smartphone does not provide us with any new functions – it is simply a better and more convenient way of doing the same things as in the past. And the issue of affordability means the smartphone market is now becoming saturated, as the chart shows:
- Sales were growing at up to 50% in 2013, but this slowed to 30% in 2014
- Q3 data shows growth of just 9.5% according to Strategy Analytics, who note that
“Smartphone growth is slowing due to increasing penetration maturity in major markets of the US, Europe and China”
In turn, this presents major challenges for the leading players:
- Apple’s market share peaked last year at 20% with the iPhone 6 launch and is now declining as Forrester note
- “Many users are reluctant to replace their devices for a device that lacks in innovation“
- Samsung has had to abandon its mid-market positioning and is now cutting prices to defend market share
- Low-cost Chinese manufacturers will soon dominate – Huawei/Lenovo/Xiaomi now have 18% market share and
- Total Chinese sales were 150m in Q3, up 16% versus Q2, and they will soon supply half of the global market
This debate between the role of Watson-type computers and the smartphone-type highlights a critical question for many industries. Can a high-cost Watson-type business sustain profit growth over a long period? The answer is probably not, with today’s business model. The problem it faces is one of affordability. It is high-cost, and global healthcare budgets are close to collapsing, due to our ageing society.
Smartphone manufacturers face a similar challenge of affordability if they want to grow beyond the 3.1bn people in the world who are now connected to the internet. Their challenge is that the remaining 4.1bn people have incomes of less than $5/day, as the 3rd chart shows – and 1bn have incomes of less than $1/day.
The computing market is thus an excellent example of the chaos that is now impacting demand patterns around the world. And it highlights the critical issue now facing many companies – how can they sustain growth and profits into the future? This is why 2 of the 5 Critical Questions to be discussed in the new joint Study with ICIS are:
- Will today’s globally ageing population maintain the same levels of demand for autos, housing, electronics etc as in the past?
- Should companies focus on new growth areas for demand, in potential megatrend areas such as water, food, shelter, health, mobility and the environment?
The Study is titled How to survive and prosper in today’s chaotic petrochemical markets: 5 Critical Questions every company and investor needs to answer.
Please click here to download a copy of the Prospectus. And please click here to see an interview with Will Beacham, deputy editor of ICIS Chemical Business, where we discuss the key issues covered in the Study.