By Nikhil Surve
The Covid-19 pandemic has caused unforeseen disruption to virtually every market around the world—casting doubts on the viability of numerous products, businesses, and industries. Faced with market freefall and fiercer competition than ever before, business leaders are quickly realising that the old way of doing things is no longer feasible. With the global economy recovering—the limitations of traditional enterprise have been laid bare, as businesses seek to streamline their operations and establish business continuity plans. In order to do so, they are turning to new technologies as a solution—such as artificial intelligence, internet of things, and blockchain technology—nowhere more than the Asia-Pacific region.
Although these technologies are considered emerging, they are not necessarily new—nor is the rapid digitisation of business and enterprise. Already, businesses and governments have recognised the need to nurture technological solutions. Modi’s Digital India campaign, for example, dedicated the Indian government to “digitally empowering” citizens by developing digital infrastructures for public services.
However, as Covid-19 and shifting geopolitical realities create pressure for businesses to evolve as economies reopen, more will have to be done to reduce the inefficiency of traditional industry. Sticking with India, with many international actors considering moving supply chains from China viewing India as a potential business destination—national manufacturing and logistics sectors have been given a massive opportunity; to fully avail of it, however, digital adoption will have to be accelerated to ensure Indian businesses are competitive on a global level.
In addition to geopolitical pressure and increased international competition, business leaders are likely to face mounting pressure in coming months to increase efficiency and cut costs as a result of shrinking consumer demand. This is the result of societal lockdowns, increasing unemployment, and fears of recession.
For asset heavy industries, such as industrial manufacturing, energy, chemical, metal, and mining operations, the current drop in consumer demand has resulted in gross asset under-utilisation. In asset-light industries, such as rental and real estate markets or service industries, on the other hand, operational expenses are based on an “as-a-service” model. This means that consumers pay for a service, not an outcome—as many consumers and businesses seek to tighten their belts in the face of economic uncertainty, such expenditures become highly unattractive.
These challenges are driving interest in two transformational business models: asset fractionalisation, for asset heavy industries, and outcome-based pricing, for asset light ones. As both models are fundamentally based on data sharing and validation, blockchain technology can alleviate substantial complications in their implementation, easing the transition from traditional business models to ways of working suitable for a changing business landscape.
An asset heavy company, for example, may pursue asset fractionalisation as a way of increasing revenue streams while mitigating unnecessary risk. Asset fractionalisation means splitting an asset into multiple parts, which may be divided and distributed. The practice is widely practiced in financial markets, such as when a company sells shares to investors, entitling them to a small “piece” of the company. However, for physical assets, such as industrial machines, this practice model is uncommon. What have been viewed, to date, as illiquid assets have been under-utilised as a result.
However, blockchain can bring liquidity to the industrial sector—permitting asset heavy industries to convert their business models and generate new revenue streams. For example, a paints manufacturing factory could have the equipment needed to manufacture hand sanitizers. However, pivoting the entire business model for such a company is a risky proposition, despite the recent surge in demand for such products. Instead, it may be more prudent to fractionalise its assets, creating timeshares on its machines and allowing other companies to use them for allocated periods. To do so—it is important that both companies have access to all historical records for the machines.
Similarly, for asset light industries seeking to employ outcome-based pricing—blockchain can play a substantial role in making previously difficult-to-implement business models more feasible. Take the real estate industry as an example. Currently, a retail outlet rents commercial space from a property owner at a fixed rate per month, regardless of how well business is doing. In an outcome-based pricing model, rent would be based on actual footfall instead of the rented spact. If the footfall decreases, the retailer’s outgoing expense decreases; if footfall increases, payments increase and the property owner receives more money for the space as it is delivering on its value.
For both of these business models to succeed, there needs to be a way for both parties to an agreement to access data they can trust. Blockchain creates new means of “trustless” data sharing so that parties can ensure that the other contractor doesn’t have the means to manipulate or misrepresent data for their own benefit. By providing a shared ledger, blockchain brings a new level of transparency to transactions and agreements. Reducing requirements for independent data processing and reconciliation to zero, it permits new ways of engaging with partners and customers and provides the type of competitive advantage which businesses will need if they are to remain competitive on the global stage. For businesses dealing with sensitive or confidential information, meanwhile, a permissioned blockchain can limit data sharing to a need to know basis, with strict authentication requirements—providing both disintermediation and decentralisation without sacrificing privacy or security.
While the “agile revolution” took root within the technology sector and a limited number of enterprises within the service economy—such as ride sharing and delivery services—long ago, COVID-19 has had a profound effect on businesses of every ilk and size. What was previously permissible is no longer a viable way of doing business; what we have seen as a result of the current health pandemic is that no company or market is safe from disruption and devaluation. The future is undoubtedly digital—and it is emerging technologies, such as blockchain, which will separate the winners from the losers in an increasingly competitive landscape, solving problems of data localisation, asset illiquidity, and transparency between market participants.
In the new world order, the currency of business will be efficiency, expediency, and flexibility. To secure success, information sharing, collaboration, and a new way of operating across data silos and national boundaries will be necessary. For companies hoping to not only survive, but thrive, in this new world—blockchain will enable tomorrow’s industry leaders to make better decisions, collaborate across national and industry lines, reacting quicker to market turbulence and changing consumer attitudes.
Responsiveness and flexibility will be king. Blockchain enables both.
The author is Partnerships Lead, India and South Asia, R3
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