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NASSCOM ILF 2013: Impact of Technology on India VF
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Transcript of NASSCOM ILF 2013: Impact of Technology on India VF
India’s next $200B in GDP
February, 2013
Document for discussion
CONFIDENTIAL AND PROPRIETARYAny use of this material without specific permission of McKinsey & Company is strictly prohibited
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Executive summary
Bulk of this opportunity will come from technology for society (e.g., water, smart meters) and technology for consumers (e.g., e-commerce)
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India domestic opportunity in technology (~$200B GDP incremental impact by 2017) as large as the technology export market ($225B revenue by 2020)
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4 opportunities highlight this potential – smart meters, e-commerce, digital cash transfer for subsidies and “Alibaba for SME”
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Technology investments can increase India’s GDP by USD 200 Bn
1 Expected growth rates projections ranged between 7- 8% by analysts. Downward revision done to 6-7% given recent macroeconomic circumstances.
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700
2017
2,600
Impact of technology
200
Normal growth1
2012
1,700
2% of additional GDP growth
Technology can add USD 200 Bn to India’s GDP (2017)
India nominal GDP US$ billion
Globalexamples
Macro economicregressionanalysis
Academicresearch
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There are four large areas of technology-led opportunities in India
BA
DC
USD 200 billion impact
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Increased consumer consumptionTechnology for society
Moving ‘unorganized’ to ‘organized’ in the economy
Improved efficiency and productivity for enterprises
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We have a set of 12 ideas with potential GDP impact of $90B+ billion
1 The theme ‘Global innovation and product development’ has been deprioritized
Technology for societyTechnology for society
Unorganized to organizedUnorganized to organized
▪ Mobile money5 99
▪ Smart Meter6 2323
▪ Education technology7 1111
▪ Remote healthcare8 0.50.5
9▪ SME B2B marketplaces 33
▪ SME Cloud solutions10 99
▪ Digital selling11 11
▪ Digital cash transfers1 44
▪ E-governance2 0.50.5
▪ Tech. for Agriculture3 44
Increasing consumptionIncreasing consumption ▪ E-commerce4 1414
Enterprise productivityEnterprise productivity
▪ Digital supply chain12 1212
GDP ImpactUSD billion
Idea Theme1 Examples
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4 high-impact ideas – quick snap-shot
Idea Examples Potential impact in 2017
Tech. for societyTech. for society33
▪ Smart meters ▪ $23B GDP impact
▪ 85 TWh power saving
▪ 50% reduction in accumulated losses of DISCOMs1
Enterprise productivityEnterprise productivity44
▪ SME B2B marketplaces
▪ $3B GDP impact
22Increasing consumptionIncreasing consumption
▪ E-commerce ▪ $22B GDP impact
▪ USD 80-100B industry
▪ 100-120 M e-commerce users
Unorganized to organizedUnorganized to organized11
▪ Digital cash transfers for subsidies
▪ $4B GDP3 impact
▪ USD 21 Bn lower leakage
▪ USD 1 Bn cost savings
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Why Now? Some of the fundamental enablers falling in place. . .
Largest # of incremental internet users added by 2015: 350M-450M
Sub-$100 smart devices in 1-2 yrs
50M incremental digital literates by 2020
30%+ of Internet users will be online shoppers in 2-3 yrs
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E-commerce in India could be upto ~$100 billion in 5 years
SOURCE: Expert interviews, team analysis
1 E-commerce penetration taken as 20% among all internet users; current penetration in India is 8% with China at 24%
TECH FOR INCREASED CONSUMPTION
FROM (2012) TO (2017)
$10 billion $80- 100 billion
100- 120 million1
0.2 billion 1.9- 2 billion
17 million
Size of industry
Social impact
Mobile as enabler
Users
Transaction volume
50-60% of internet users to access internet through mobile phones
xx Numbers in 2017
xx Numbers in 2012
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Overview of different e-commerce modelsGlobal examples
Developing country examples
SOURCE: Expert interviews, team analysis, company websites
Detailed later
1 ‘Mobile only’ models include specific applications on mobile/tablets or optimized websites for mobiles (such as Landmark)
Definition of E-commerce
B2C C2C
Mobile only1
Mobile only1
PC/ web based
Mobile & PC/ web based
PC/ web based
Mobile & PC/ web based
1
2
6
Pure online player
Brick & mortar players’ online stores
5
TECH. FOR INCREASED CONSUMPTION
3
4
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Amazon has contributed USD ~17 bn to the US GDP by offering pioneering e-commerce services
SOURCE: Amazon reports, press releases, team analysis, expert interviews
TECH. FOR INCREASED CONSUMPTION
1 10% of sales contributes to additional consumption in the economy; based on internal survey (100+ participants) & expert interviews2 Marginal propensity to consume (mpc) taken as 70%; marginal product of capital is 20%3 15 minutes saved on average when transacting online primarily with reduction in transit time; Value of time saved taken with GDP/capita of $41, 673
Consumption (2nd order
effect2)
Increased productivity of end users3 (1st order effect)
Increased productivity of end users (2nd order effect)
+USD1.6 Bn+USD
11 Bn +USD5.1 Bn
Total positive impact of USD 16.7 Bn on US GDP
Key drivers
▪ Increased convenience offered bye-retailing
▪ Reduced transaction and search costs
▪ Pricing dis-counts offered by e-retail
▪ Productivity release into the economy from the additional man hrs
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Taobao has increased rural consumption in China and impacted the GDP by ~ USD 10 Bn
SOURCE: Amazon reports, press releases, team analysis, expert interviews
TECH. FOR INCREASED CONSUMPTION
1 10% of sales contributes to additional consumption in the economy; based on internal survey (100+ participants) & expert interviews2 Marginal propensity to consume (mpc) taken as 70%; marginal product of capital is 20%3 30 minutes saved on average when transacting online primarily with reduction in transit time; Value of time saved taken with GDP/capita of $5, 450
Consumption (2nd order
effect2)
Increased productivity of end users3 (1st order effect)
Increased productivity of end users (2nd order effect)
+USD1.1 Bn+USD
8 Bn + USD1.1 Bn
Total positive impact of USD 10.2 Bn on China GDP
Description
▪ China’s largest online retailer (~400 mn users in 2012)
▪ 78% revenue growth in last 3 years
▪ Over 65% of users located in Tier 3 cities or lower
Key drivers
▪ Increased convenience offered by e-retailing
▪ Reduced transaction and search costs
▪ Pricing discounts offered bye-retail
▪ Productivity release into the economy from the additional man hrs
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Scale up of e-commerce in India is expected to increase India’s GDP by ~US$ 22 billion
Tech for increased consumption
UrbanRural
SOURCE: Expert interviews; industry reports; team analysis
TECH FOR INCREASED CONSUMPTION
120-130
80-9040-5017
15 2
80-100
65-8015-208
8 1
1,330
2017
2,000670
2012
170150 20
Key figures – accelerated case
No. of E-commerce users in IndiaMillion
E-commerce revenues in IndiaUS$ billion
Number of E-commerce transactionsMillion
USD billion
Impact on GDP
Levers Overall
▪ Increase in consumption through the online channel
19-20
▪ Increased productivity of end-customers3
1.9-2.5
Total 20.9-22.5
Industry reports predict e commerce revenues in the range of US$50-60 billion
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Key actions suggested for scaling up E-commerce ventures in India
TECH FOR INCREASED CONSUMPTION
SOURCE: Expert interviews, team analysis
Payments ▪ Provide low cost payment gateways exclusively for SMEs3
▪ RBI to create robust system to allow recurring purchases without need for OTP
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Logistics ▪ Affordable options for shipping goods to tier 3 cities (only Blue Dart serves 8K+ postal codes in India)
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▪ Indian postal service to improve service quality (currently 20 30% leakage)
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Interventions
Government
▪ Improve internet connectivity (currently 10%) in semi-urban and rural areas
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▪ Financial and regulatory support to flourish in India1