【COVID-19】疫情过后，哪些“互联网+”会迎来第二春？ - 2020-03-25

Ge Junjun, People’s Daily Online Shanghai
The COVID-19 epidemic not just casts a great impact on most industries in China, but also brings key opportunities to some sectors. As the epidemic is gradually being put under control in China, various industries have begun to recover. Shanghai has also introduced 28 comprehensive measures, such as tax concessions, rent reductions and financial support, to foster steady and healthy development of services companies.
After the epidemic, the country and local provinces will face huge challenges to revitalize the economy. How should we leverage the experience and takeaways from the epidemic to make forward-looking plans and to unleash the potential momentum and vitality in various industries?
The People’s Daily Shanghai Branch has had an exclusive interview with Chen Hongmin, deputy dean of the Industry Research Institute of Shanghai Jiao Tong University, professor of Antai College of Economics and Management, and counselor of the Shanghai Municipal People’s Government, on the hot topic of “the impact of the COVID-19 epidemic on industries.”
Q: The epidemic has greatly affected China’s economy and society. Some companies are facing operational difficulties, some are undergoing rapid transformation, and some industries are emerging. In your opinion, what impact has the epidemic brought to the industries? What are the biggest problems and challenges these industries face? Will it lead to a new layout adjustment in the industries?
Chen Hongmin: From a macro perspective, the epidemic has caused a considerable degree of negative impact on economic development in the short term. If the pandemic isn’t severe enough to result in a global economic recession, China’s economy is expected to return to the normal track by the end of this year; otherwise it will need a longer recovery period.
From an industry perspective, there are several reasons why the epidemic has caused the industries to face difficulties. First, overall demand has shrunk, such as that in accommodation, tourism, catering, etc. Secondly, production factors (e.g. labor resources) have been greatly reduced or costs have increased significantly, such as courier and domestic services. Thirdly, the supply chain is poor or even disrupted. Fourthly, there are policy restrictions.
The predicament in the manufacturing industry is gradually passed from downstream upward. For example, the epidemic has caused a decrease in domestic demand for clothing, so the clothing industry faced difficulties. And then it was passed on to the textile industry, and then to the textile machinery industry. The same is true with other industries. The epidemic also significantly affects China’s exports of goods, thereby further aggravating the difficulties in many downstream enterprises in China’s manufacturing industry, with the challenges being quickly passed on to midstream and upstream enterprises.
Uncertainty in future expectations and poor supply chains will have a great impact on the upcoming recovery period for the industries. In some industries where SMEs are concentrated, recovery is slow due to large differences in recovery capabilities. The effectiveness and speed of economic recovery hinge on whether the government’s rescue plans for SMEs are highly targeted and how efficiently they are implemented.
Undoubtedly, the epidemic has driven the restructuring of many industries, as it is accelerating digital transformation and increasing the proportion of online business.
Q: Some people believe that due to the uncertainty of the epidemic, the market has been weighed down; some people believe that as the epidemic is eased and eventually eliminated, demand in these industries will definitely rebound and gradually return to normal. What do you think?
Chen Hongmin: Of course, after the epidemic, demand will rebound by a certain degree, but usually it will not return to the previous level. From a historical perspective, each major epidemic has greatly altered people’s consumption habits, lifestyles, and even values and outlook on life. This kind of change tends to have a profound impact on the industrial structure, consumption structure and product structure after the epidemic, and even on the economic and social institutional mechanisms and operation models.
For example, the Black Death in Europe dating back more than 600 years led to a shock to people’s values at that time and disrupted their traditional beliefs, as the rise of humanism laid a key ideological foundation for the Renaissance. Although the SARS epidemic 17 years ago could not be compared with the Black Death and the current COVID-19, it has also greatly stimulated people’s demand for the Internet, thereby leading to the first boom of Internet +.
Therefore, after the COVID-19 epidemic, the economic rebound will not be realized proportionally, nor will it return to its original state. For example, people will pay greater attention to healthcare and public health, and public expenditure and commercial activities in this field will definitely exceed the previous levels.
As a bigger change brought by the epidemic, various industries will embrace deeper and wider integration with the Internet. By using the Internet as a more basic facility, and with the help of big data, cloud computing, artificial intelligence and other technologies, companies will undergo transformation from operation and management to product services in an all-round way. You can call it “information-based upgrade” or “digital transformation” or “intelligent services.”
Q: Compared with the situation after the SARS epidemic 17 years ago, what is different in terms of the impact of the COVID-19?
Chen Hongmin: According to my projection, there will be a new boom of Internet + after this epidemic. I call it the “second spring” of Internet +. This corresponds to the first Internet + boom that arose after the SARS epidemic in 2003.
Compared with the scenario 17 years ago, there are currently four advantages: First, it’s social understanding. Whether it is consumers or enterprises, they all have better habits and capabilities in using digital and information technologies. The second is the maturity of enterprises. After the first round of practice and trials, companies have richer experience in developing online products and businesses, and building Internet platforms. They also have much more externally available resources to leverage now. The third is government support. Authorities now have stronger capabilities in supervising Internet platforms and digital businesses. The last is technological progress, as the technology environment for Internet use is much better than the SARS period.
Ten years ago, we were still in the 3G era, and now we are entering the 5G era. All these have created good conditions for the arrival of the “second spring” of Internet +. Of course, there are also headwinds, such as the current global economic turmoil and the continuing downward pressure on China’s economy.
Q: At present, the government has continually issued some policies, such as the 28-point circular to support enterprises to overcome difficulties. In your opinion, how can companies leverage this opportunity to adjust and quickly adapt to business changes brought about by the epidemic? Will the epidemic spur businesses to turn to online endeavors and save for a rainy day?
Chen Hongmin: In face of the epidemic, enterprises should uphold survival as the footing and learn to explore the future. “Survival as footing” means that “survival is the ultimate principle”. Enterprises, especially small and medium-sized enterprises, should reduce costs and control cashflow to the best they could. They should make full use of all kinds of government aid policies. And they should strengthen cooperation and weather the storm in unity. Exploring the future stands for the awareness that after the epidemic ends, many industries will embark on transformation and upgrade, and competition among enterprises is set to move into new tracks. We should strengthen relevant researches and pay extra attention, actively adapt to the new environment, and avoid starting the race from behind the starting line.
Many industries have seen a rapid surge in online business during the recent outbreak. But after the epidemic, will this trend continue to explode, or will it gradually decline? Given the varying conditions and capabilities of different industries embracing the digital transformation, it remains to be seen which sectors manage to seize the opportunity for timely transformation and secure a leading position in the new track. This is the very question, on top of survival, that the vast majority of enterprises should and need to pay attention to. 
Q: After the epidemic, which sectors featuring Internet + will usher in a “second spring?”
Chen Hongmin: We know there is this famous “Porter's Five Forces” analytical tool that can be used to assess the average profitability capability of an industry. Michael Porter, the famous American management scholar, has put forward five forces affecting the above-mentioned capability: threat of substitution, threat of new entry, competitive rivalry, supply power and buyer power.
However, the external environment is fast-changing in the Internet era. Only by accelerating digital transformation can enterprises gain an early foothold in future competitions. In order to analyze and evaluate an industry’s ability of embracing digital transformation and embarking on the second spring of Internet +, I hereby put forward a “New Five Forces” model.
I believe an industry’s ability of digital transformation is mainly shaped by five forces: policies and regulations, technological environment, user preferences, level of acceptance from mainstream enterprises and its own profit model. Below are some detailed elaborations.
The first force is the role of the government, i.e. the support or restrictions of relevant policies and regulations. The experience from the first phase of the Internet + boom suggests that government is the most important factor in the process of digital transformation. The extent of government support is reflected in three aspects: entry permits, professional requirements and tax incentives.
Second, the force of technologies, i.e. the technological environment. The advancement of Internet or digital transformation requires certain communication capabilities and terminal equipment, relevant tools for information collection and analysis, as well as opportune application scenarios.
The third force is the power of users. Whether or not users choose online services depends on both objective and subjective factors. The former includes whether offline businesses are easy to obtain, and how their performances and qualities are, compared with online services. Subjective factors include users’ learning costs and psychological conversion costs. For enterprise users, the cost of transformation for the entire organizational structure and management model should also be taken into account.
The fourth force is the obstruction from the tradition. This is primarily related to the level of acceptance by mainstream enterprises, such as the challenges and pressures brought by the traditional model of industry-leading enterprises and mainstream enterprises, as well as the costs of digital transformation.
The fifth force goes to capital. Only those who, upon digital transformation, stand to boast a clear and effective profitability model — including new pricing model, reasonable information disclosure model, and effective resource integration capability — are poised to gain support from the capital. 
The intensities of the five forces faced by different industries vary, and such intensities also remain in constant changes during different periods of time. In order to push forward companies’ digital transformation and the overall Internet upgrade of the industry, it is crucial for enterprises to make thorough assessment on the intensity of the five forces and their corresponding changes.
Banking on the analysis of the “New Five Forces” model, we believe that the industrial Internet segments such as online education, telemedicine, telecommuting, and industry-specific integrated service B2B platforms for SMEs stand to enjoy explosive growth on the digitalization front. 
Q: The epidemic has boosted online consumption. Will the so-called “stay-at-home economy” change the future of the consumer market?
Chen Hongmin: This epidemic has virtually turned the entire population into otaku (a Japanese term referring to people never leaving their houses). In the wake of three months’ home-staying, the “stay-at-home economy” is bound to usher in a new peak along with the Internet+ trend.
The “stay-at-home economy” isn’t as simple as express delivery that many people take for granted. It carries a much broader essence and exerts far-reaching impacts on the economy and the society. The concept largely covers two areas and three phases. The two areas refer to “stay-at-home lifestyle” and “work from home”, with the current epidemic notably catalyzing the rise of “home-based work.”
And its development can be divided into three phases: the first phase — online shopping — meets the demand for basic goods supplies critical to people’s very survival of staying at home. This segment, which originated from the SARS epidemic, has hit a climax following more than 10 years’ development, with the current epidemic giving the segment a further leg-up. Therefore, we are expected to see a quick rebound of the logistics industry after the epidemic, but the extent will be limited. 
The second phase refers to the rise of all types of online services to meet “stay-at-home” needs on the service end. Both online education and telemedicine fall into this category. This epidemic has witnessed a number of valuable attempts being made in the online service arena - from enterprise endeavors, user experience to government supervision, and there will be a lot of room for growth in the future. However, compared with online sales of goods, the standardization level remains low for online services and user experience varies greatly. The segment is not as well-developed as merchandise e-commerce.
The third phase is the development of the broad-sensed telecommuting to provide a compatible environment that supports “work from home.” If the “stay-at-home lifestyle” is a personal matter, home-based work is more of a collective matter that requires companies to make subversive adjustments to organizational structures, division of labor models, and performance evaluation systems. Therefore, this phase may take off at a slower speed, but it represents a mega trend. Accordingly, it will drive the development of many industries, from network infrastructure to terminal equipment, and even to real estate and interior decoration. This is a huge market. At the same time, it will greatly change people’s mindset and ideas.
Q: Will the recent global stock market shakeups affect the Chinese market?
Chen Hongmin: Of course, it will affect the Chinese market, and the impacts will be huge. This is true from the perspective of both trade and the global industrial chain. The pandemic is currently sweeping across the globe, a situation that is reminiscent of China during the Spring Festival. So, it’s difficult to estimate the impacts now.
From Sino-US trade frictions to the global pandemic, we should be aware of the substantial difference between economic globalization and global economic integration! It is also very important for a country as large as ours to form a relatively independent economic system while being actively engaged in economic globalization.