May 29, 2020
Technology-based industries have been driving fundamental value-chain shifts and disrupting established businesses on a global scale. While the long-term impact of the SARS-CoV-2 corona virus and the Covid-19 pandemic remains uncertain, it seems likely to hugely accelerate this change. Companies need to rethink the way they do business in what will become the ‘new normal’ in technology-based industries. Our Partners undertook a study to develop potential scenarios to help tech companies and their suppliers navigate this new landscape.
Roland Berger sees three key themes in the technology industry that were pre-existing but will now be amplified by the crisis.
The first theme considers how the short-term economic impact and the type of recovery will drive investment in innovation, which determines the speed of technological change. The crisis will result in falling GDPs, reducing demand and forcing technology industries to cut R&D investment. The duration and type of economic recovery, whether fast or slow, will be a decisive factor in the depth of these cuts. We predict that a short-term GDP impact will drive a reduction of technology / innovation investments of around USD 80 billion in the US alone over the next two years. This is equivalent to the amount Intel, Microsoft and Google spend on innovation in two years. But companies can still succeed if they manage R&D cuts while maintaining their critical technology and product roadmaps.
The second theme looks at how the crisis has accelerated the pre-existing shift towards a digital world, creating new opportunities. Almost overnight, the coronavirus has accomplished a rapid digital transformation. Many businesses will prosper from this, including cloud-based services, online entertainment, digital infrastructure, industrial automation, pharma and medtech, fintech, mass surveillance and ID and tracking industries. In addition, semiconductors and software will play a growing role. However, the speed of technological progress can only be maintained if technology-based industries' critical need for scale, partnerships and global networks can be sustained.
The third theme examines how the crisis and its effects on global trade will force a rethink of localization of value chains and innovation in different regions. In the US, limitations on international travel are likely to hinder global collaboration, and national economic and security concerns have led to a ban on the purchase of some Chinese-made telecoms equipment, and export limitations on US-made semiconductor equipment. In the EU, after the Brexit drama, concerns over closed borders, distorted supply chains and the Euro remain unresolved. Meanwhile, China has announced its own technology funding programs and continues building strategic domestic technology-based industries, including executing a National Semiconductor Plan.
Roland Berger conducted an assessment of possible scenarios based on two key dimensions. The first dimension considers the type of global economic recovery after
the crisis, measured in terms of GDP. Only two types seem credible at this point: a fast, relatively full recovery by the end of 2020 ("Delayed Cure") or a prolonged recession
well into 2021 ("Profound Recession").
The second dimension considers the degree of future free trade. It ranges from a reversion to globalized markets as we knew them before the coronavirus outbreak to a significant localization of labor resulting in restricted innovation and technology exchange.
Our assessment gave rise to the four distinct scenarios:
- Back to business
- New winners
- Deferred innovation
- War for technology
All have significant implications for technology-based players when considering their business model, strategy and operational setup.
Download the full publication to read how our scenarios affect key technology-based industries!
Michael Alexander (Partner, Munich Office)
Falk Meissner (Partner, Chicago Office)
Wolfgang Bernhart (Senior Partner, Stuttgart Office)