“Our B2C business is ten times larger than our B2B component,” Ed Abrams, President of B2B Marketing at Samsung Group.
Globally, we see an increasing trend in the number of smart device manufacturers, as about three-fifths of the world’s population has access to the internet, and nearly half possess a smartphone, with Samsung, Apple, and others having penetrated the consumer space. With the Internet of Things (a digital transformation trend where devices are interconnected and exchange data through the internet) allowing for increased connectivity and control, the consumption of these smart devices (such as smartphones, smartwatches, or other wearables like fitness bands) has sky-rocketed. With increasing smart devices being connected to and owned by consumers, these businesses constantly innovate to stay ahead of the curve and achieve a better customer experience. That said, these organizations have mainly looked into B2C segments given the sheer potential to enter multiple markets across the globe as the products and solutions are consumer-centric.
COVID-19 has allowed firms to look at productivity in new dimensions and has thrown open new opportunities to innovate and excel. However, COVID-19 has also exposed some gaps in the infrastructure, which can be converted as opportunities by innovators. This is especially true in emerging markets as a more significant disruption had occurred in multiple sectors. Smart device manufacturers might also be able to tap into such opportunities and contribute towards building a more seamlessly connected, resilient future.
Digital transformation has had a significant impact on industries. Technologies are becoming more and more autonomous and intelligent. The extent of impact has, however, varied across different sectors. With COVID-19 intensifying the need to work remotely, digital transformation technologies see more use cases than ever before. To get an assessment of the size, we may consider the European Commission’s estimate that 1.5 trillion euros will be spent on green and digital transformation in the year 2020-2021.
This paper aims to match consumer offerings by smart device manufacturers to businesses embracing digital transformation strategies. We also suggest non-negotiable features of the offerings to increase market acceptability in the B2B marketplace. The paper builds on the latest reviews and trends and then dives into industry-specific impacts. This allows for establishing a B2B market outlook that could benefit from existing product offerings by smart device manufacturers in the B2C space. The authors provide suggestions for entry into key B2B industries such as healthcare, automotive, and mainland logistics for smart device manufacturers, supported by data on the impact of digitalization within the sectors. We also suggest the base requirements that these offerings should have while the smart device manufacturers enter B2B markets.
Digital Market Insights
The global digital market (encompassing Internet of Things, big data analytics, data security, robotic process automation, AR/VR, and others) is expected to grow at a compounded annual growth rate (CAGR) of 22.7 percent from 2019 to reach $3,294 billion USD by 2025. While North America had the largest market share in 2019, Asia Pacific stands out as the fastest-growing region. It is predicted that an additional $13 trillion could be added to the global GDP by 2030 compared to that of 2018 through digitalization through new business opportunities and productivity gains reinvested in economies. Also, sectors with a high level of digitization display higher productivity growth. For instance, Artificial Intelligence was found to have a positive impact on digital cashflow in sales (up to 32 percentage points in the retail sector), supply chain (up to 32 percentage points in the high tech sector), and other manufacturing activities (up to 48 percentage points in the high tech sector). A McKinsey survey where C-level executives evaluated their businesses found the average gap to digital transformation at 24.1 percent across industries like pharmaceuticals, professional business services, healthcare systems, media, consumer packaged goods, financial services, automotive assembly, retail, and travel. The key drivers contributing to this gap are low revenue generation, low automation, weak supply chain, and lack of digitally skilled workforce.
Global healthcare was a $462.5 billion USD business in 2019, with a CAGR of 5.7 percent from 2015-2019. This is expected to grow to $615 billion USD by 2024 (this is without considering COVID-19’s full impact, and the effect keeps increasing as we write this). The largest market, USA, accounts for 38.7 percent of the total value in 2019 and has a CAGR of 4.9 percent in 2015-2019. Europe and the Asia Pacific come next with market shares of 29.9 percent and 25.7 percent, respectively. However, the Asia Pacific has grown at the fastest rate at 9.6 percent CAGR throughout 2015-2019. The buyer power and supplier power are assessed to be moderate. The key players in this industry have been Abbott Laboratories; Johnson & Johnson; Medtronic, Inc.; and Siemens Healthineers. Smart device manufacturers might look to provide digital upgrades that are compatible with such large manufacturers and offer their solutions to hospitals to improve patient monitoring and overall patient experience while also being able to diagnose complex cases by collecting better data.
Points of Interest for Smart Device Manufacturers in Healthcare
Big data in healthcare is rooted in clinical research results, electronic health records, and personal data retrieved from self-tracking devices like wearables. When it comes to using wearables to track the activities of hospital staff and patients better, simulations show patients can spend 34 percent lesser time in hospitals (productivity improvement), as increased efficiencies for measuring heart rate and blood pressure can be achieved with the aid of wrist or eye-based devices.
Data collection plays a crucial role in providing efficient healthcare services. Large amounts of health-related information can be captured with individuals’ speed of motion (through GPS), health concerns (through web searches), and even diets based on food orders placed. These aspects are not explicitly covered by healthcare privacy in all geographies worldwide, and patients’ consent can improve the overall healthcare systems’ outlook in terms of increased effectiveness.
The wearables market is valued at $425.5 billion USD and is forecasted to grow to $612.7 billion USD in 2025. COVID-19 is likely to push these numbers up. Wearables are also widely used in both professional sports as well as recreational activities. Data collected from smartwatches and wristbands can be helpful in more ways than we know.
Previous studies on health-related data collected from smartphones used for consultations with doctors through the super-app (a single application used for most consumer needs), WeChat saw positive results in control groups on diabetes and coronary heart diseases. While the studies were done on sample sizes of about 60, the results look promising for a B2B venture with super-apps.
The automotive industry covers the production of trucks, passenger cars, and motorcycles. The industry is witnessing a decline in vehicle sales and volume and is expected to decrease even further, thanks to the COVID-19 impact. The global automotive manufacturing industry was a $1,064 billion USD industry in 2019 and has seen a CAGR of 1 percent between 2015-2019. Asia Pacific has witnessed a CAGR of 1 percent in the same period, compared to a negative 3.6 percent in the U.S. The Asia Pacific leads the markets with 55 percent industry value and over 69 percent of the production volume. China, in particular, takes up half of the Asia Pacific Industry. China has seen the emergence of bike-sharing start-ups like Ofo, Bluegogo, and Mobike. Teenagers in China are also looking at bicycles as eco-friendly alternatives. In 2019, car manufacturing held 43.4 percent of the market by volume, and motorcycle manufacturing was placed second at 39.3 percent. The remaining 17.2 percent was truck manufacturing. The market is expected to grow to a $1,733 billion USD industry by 2024. The buyer power is high as the end-users look for cost-effective purchases and tend not to be loyal. That said, the multi-brand retailers depend strongly on manufacturers as they cannot integrate backward. Supplier power is estimated to be moderate in this industry. Key players are Toyota, Volkswagen, Hyundai (and Kia), and GM.
Points of Interest for Smart Device Manufacturers in the Automotive Sector
Digitization, virtualization, connectedness, and autonomization will be the key trends moving forward in the automotive industry. There is an accredited belief in academia that Industry 4.0 (also referred to as the fourth industrial revolution, where manufacturing is further automated with smarter machines and processes) and Lean Production Systems are interrelated. This further extends our understanding that digital transformation helps improve cashflows to the automotive manufacturing sector. Trends suggest that digital technologies would comprise at least 50 percent of the vehicle’s total value.
Digital transformation (or digitization) will bring value by boosting efficiencies, reducing costs, generating greater collaboration and innovation. Digitization offers avenues to improve customer experience and satisfaction, which is measured by accessibility, connectivity, simplicity, cost, quality, real-time services, personalization, and deliverability. The point of customer experience and real-time connectivity is also very crucial. These are some areas where smart device manufacturers can leap into the B2B market in a prominent role with their existing technological competence. For example, Apple’s interest in autonomous cars is still speculated whether it involves B2C markets alone or B2B markets, or a combination of both. Smart device manufacturers can target automotive manufacturers and offer solutions that can improve operational efficiency in the assembly line. There are also possibilities of partnering with rental services such as Avis or Hertz, and aggregators such as Uber, Lyft, and Ola, as smart device manufacturers can significantly help these firms improve real-time connectivity solutions and save costs.
Logistics services include air, marine, rail, and road freight sectors. The performance of logistics services is correlated to fuel, labor, demand for services, geopolitical events, and local government regulations. The global logistics service industry was $2,208 million USD in 2019, with a CAGR of 4 percent from 2015-2019, and is expected to grow to $2,423 million USD market by 2024. We have also seen a significant growth in the share of e-commerce in total retail sales, the likes of Spain showing a 4.7x growth. The Asia Pacific once again jumps to the fore as the fastest-growing region with a CAGR of 4.7 percent. In Asia alone, the value of goods transported increased by over 30 percent, and the volume increased by 9 percent in the period, signifying the need for more logistics services. The Asia Pacific also happens to be the largest market, with a 39.5 percent share. Going by the segments in transportation services, the mainland logistics segment accounts for 73.8 percent of the total market value. Both the buyer and supplier power are assessed to be healthy. Key players include COSCO, Deutsche Post AG, FedEx Corp, and AP Moller-Maersk.
Points of Interest for Smart Device Manufacturers in Mainland Logistics
A study done in Russia from 2016 to 2019 for rail and road flatcar transportation services indicates that medium to long-term planning can help maintain assets to improve reliability and runtime. Global logistics needs highly efficient supply and transportation processes based on digital technologies and logistics engineering methodologies that ensure integrated management and growth of transportation and logistics systems productivity.
A comparative study among 50 truck drivers over six years has identified that the rewards of digital transformation in transport and logistics services in the digitized group showed much greater productivity. The study found that while digital transformation initially reduces efficiency, these losses can be easily compensated at later stages. Simple solutions, like the provision of wearables or standard smartphones to the fleet drivers, can enable continuous vehicle tracking. This data can support optimizing delivery routes in real-time based on traffic, vehicle condition, and the priorities of delivery of the items that are being carried. This would result in better fleet and fleet condition monitoring, along with being able to track drivers’ health conditions. This brings in examples from rail and trucking industries, as road vehicle emissions alone contributed to 80 percent of the global rise of GHGs between 1970 and 2020. That said, the solutions can be extended to transport and logistics companies operating in the marine and air freight modes as well. As such, smart device manufacturers can approach key players in 3PL logistics, UPS, DHL, and other logistics providers that transport and store the goods from multiple manufacturers and take advantage of the economies of scale. Having a digital edge will allow these logistics service providers to improve customer experience through real-time data availability while optimizing their processes and routes. Data also will enable them to strategize more effectively and become consultants (with the right employee talent pool) for manufacturers who do not have an efficient supply chain as their core competency.
We suggest the following factors be treated as standard features in offerings of smart device manufacturers to increase market acceptability:
Compatibility to Industry CRM Software
Firms should look beyond serving a single customer and look beyond immediate profit when establishing a long-term relationship with their customers. Hence, compatibility with standard CRM software will reduce dependence on a few customers. Also, international SMEs (small and medium-sized enterprises) are increasing and are 35 percent more likely to use some form of CRM to maintain their records. It is essential that the offerings be scalable to address critical business requirements of all customers, including SMEs.
Real-time data availability
Businesses are looking for faster innovations, process changes, and working methods. This means that the solution offering must support real-time data generation and processing for faster, data-driven decisions. This can be achieved through intelligent physical assets
Data Security and Privacy
As internationalizing SMEs are 75 percent more likely to experience downtime due to security breaches, we understand that data security is a key deliverable. Data security and privacy are critical factors for any firm offering services in the domain.
Support in process improvement plans
Digital transformation supports organizations’ process improvement campaigns such as 5s, value stream mapping, and other lean management programs. The value addition should reflect on revenue generation. The offering might want to enable businesses to track activities from any location, especially as more people are willing to work remotely with the impact of COVID-19.
From the above discussions, we notice open spaces in the automotive, healthcare, and mainland logistics industries that smart device manufacturers can strategically target to provide newer value additive services. This can be primarily seen in the healthcare section discussion, where integration with super-apps seems like a potential entry mode. In addition, introduction of super-apps can also be a possibility in the transportation sectors, where the likes of Gojek can be partnered with.
Since the idea is for the smart device manufacturers to enter the B2B markets with existing product offerings, a market development strategy might have to be employed. This becomes easier when the product offering can offer utility and a few expectations customized and more stringent to the liking of B2B clients.
While moving to a B2B marketplace offers advantages such as a greater market reach, increased chances of cross-sales, and longer consumer lifetime durations, there would be a few challenges. Apart from adhering to stringent requirements for the solution to flourish, partnering with (or catering to) businesses would call for robust account and channel management capabilities. It would also call for partnership with additional players (like, say, network providers to offer connectivity). Smart device manufacturers might also have to support a greater scope of activities either directly or by having a service partner, indicating that sometimes revenue might be shared. This calls for managing projects with greater complexity and requires investments in training people, optimizing processes at scale, and investing in a bigger infrastructure.
Smart device manufacturers will also be exposed to a greater variety of risks while dealing with businesses, as work would shift to contractual agreements. In addition to the apparent dangers of commercial, financial, and legal risks, additional aspects of resources and capabilities, technological compatibility, managing sub-contractors, and customer satisfaction would rise. In healthcare, for example, the risk of safety takes paramount significance, and additional approvals have to be taken, which calls for more detailed paperwork and the presence of highly trained employees to handle these partnerships. These new risks could result in smart device manufacturers increasing allowances for contingencies as well.
Figure 1: Visualization of smart device manufacturers important features for markets
Drawing insights from the standard offerings we discussed, we are aware that compatibility with ERP’s, security and privacy, ability to monitor progress in real-time, and ability to support process improvement activities form the basic non-negotiable features of the offerings to B2B markets. Therefore, smart device manufacturers will have to focus on developing their ability to exploit and explore these features.
Industries such as mainland logistics services and automotive manufacturing could be approached by highlighting efficiency in the offerings. Aspects of being able to draw standard but actionable insights from large data could be highlighted as well. In addition to this, ease of collaboration and the ability to align to changes in the clients’ key performance indicators would go a long way in creating markets faster.
For healthcare, while efficiency is essential to optimize costs and time, effectivity is equally crucial. As a result, there should be a focus on supporting the client in an agile manner. Agility, coupled with seamless collaboration, could prove helpful in an ever-changing healthcare environment.
For all the industries mentioned above, there will most likely be an additional expectation of scaling up as these markets grow.
“The only wrong move when it comes to digital transformation is not to make any move at all,” Didier Bonnet, Senior VP, Head of Global Practices, CapGemini Consulting.