Macroeconomic Uncertainties Will Provide a Boost to Enterprise Digitization and ICT Transformation

Enterprises—both in the telecoms industry and in industrial end markets—around the world are currently faced with a number of impactful geopolitical events with certain macroeconomic consequences. The ongoing war in Ukraine and somewhat related soaring energy prices have put a price tag on sustainability issues and are pushing manufacturers and other industrial enterprises to retain profitability of their operations in the short and medium term, given the sudden hike in production costs. This will manifest in two different considerations: 1) enterprises will increase their energy efficiency by increasing their output per energy consumed; and 2) enterprises will seek to reduce adjacent production costs (e.g., manual labor and streamlining processes) through enhanced automation.

In addition, industrial enterprises are still grappling with a highly volatile supply chain. North America and Europe are currently coming out of restrictions related to the COVID-19 pandemic and, therefore, have to adjust to increasing levels of economic activity. Meanwhile, countries in the Asia-Pacific region are continuously entering into new lockdowns, which continues to disrupt the chipset industry in particular, but also the industrial hardware industry.

These geopolitical events and their macroeconomic impacts profoundly change enterprises’ investment priorities, as considerations on how to secure business continuity will become even more important. Furthermore, concerns around energy efficiency and supply chain visibility are emerging as top decision forming factors for enterprise digitization investments. Illustrating these short-term benefits of enterprise digitization, ABI Research expects that an electronic goods manufacturer, for example, will save more than US$1 billion in operational costs over 5 years by using cellular Industry 4.0 solutions. Similarly, Tier One Third-Party Logistics (3PL) warehouse operators could see up to a 12% increase in gross profit over 5 years from the adoption of Industry 4.0 cellular-based solutions.

Without a question, cellular connectivity, and 5G specifically, can play an important role in this enterprise digitization journey. Not only will this increase quantity and quality of output, but also increase efficiency and, therefore, help enterprises tackle the increasing costs of production. In a recent 5G Sustainability whitepaper, ABI Research found that 5G deployments in manufacturing, logistics, transportation, and consumer verticals can increase energy efficiency and reduce Carbon Dioxide (CO2) emissions by 20 gigatons by 2030. In manufacturing, for example, a single smart factory using 5G for predictive, preventative, and remote maintenance, as well as the deployment of Automated Guided Vehicles (AGVs) is expected to save energy in the range of 103 tons of CO2 emissions by 2030. Furthermore, an AGV running over a 5G network is expected to be 45% more productive than other AGVs, thanks to the robust handover of signal between different access points.

Similarly, 5G connectivity can mitigate the very same supply chain problems that enterprises are facing now, particularly because the proper integration of public and private cellular network infrastructure and roaming agreements can give enterprises access to nearly global connectivity. Especially by combining this with large-scale adoption of Artificial Intelligence (AI) and Machine Learning (ML) technologies, this will enable the detection of supply chain anomalies and disruptions, and allow enterprises to adjust their workflows as early as possible.

Now, more than ever, enterprises need a reliable digitization partner to guide them through these times of economic uncertainty and provide reliable solutions for enterprise Information and Communications Technology (ICT) transformation.

While 5G connectivity could be well equipped to assist in this holistic enterprise digitization journey, it is still perceived as a somewhat immature technology, as most of the industrial features (first and foremost, time-sensitive networking and ultra-reliable low latency) are standardized in The 3rd Generation Partnership Project’s (3GPP) Release 16. Even though this was already frozen in June 2020, the ecosystem around industrial-grade Release 16-capable devices is still very immature. Consequently, investment in enterprise 5G is perceived as rather risky, as there is no clear perception of the returns. In times of economic uncertainties, however, enterprises become more risk-averse, as they need to justify any investment. While the previous section showed how enterprise digitization can yield benefits even in the short and medium term, this puts additional responsibilities on potential digitization partners to drive these projects.

Looking at the current technology landscape, any potential partner will need to provide a plethora of different connectivity technologies, as enterprise 5G on its own will be unlikely to generate enough traction. Furthermore, any supplier of a full digitization solution should look at a Business Outcome-as-a-Service model, as enterprises will very carefully assess any investment to be extra sure that it will produce the desired outcome and create monetizable returns. This requires close collaboration between service providers, application developers, and vertical-specific experts.

In addition, technology providers should carefully reassess their go-to-market strategies, as the macroeconomic conditions are expected to mostly hamper the investment readiness of Small and Medium Enterprises (SMEs), while investment levels of large multinational corporations will, by and large, remain the same. From an enterprise vertical perspective, targeting non-carpeted verticals will become even more important, as prospective use cases are more critical to business continuity than “carpeted” verticals, which are mostly dependent on customer spending (e.g., retail and media & entertainment), which is expected to decline in response to increases in energy prices and the general cost of living.

While the current situation presents a sizable challenge for enterprises, it is an important opportunity for technology providers to accelerate enterprise digitization efforts. To be able to profit from this, technology providers need to carefully reassess and adjust their current strategy.