Illusion of digital development might cost us competition

Rinalds Sluckis, CEO, business technology enterprise “Digital Mind” for the portal ir.lv

We are often willing to think that we represent a digitally developed country. To some extent, it means living in the past and illusion. Living in the past, because we had one of the fastest internet connections in the world once, but this title has already been taken over by many countries. Living in an illusion, because there are sectors that have truly transformed, for example, widely accessible state and local government services in the digital environment, nevertheless the results are quite different in the private sector. One should admit that the available infrastructure in Latvia is still at an excellent level; however, it is just a tool to be applied, otherwise it does not matter.

Unfortunately, the Digital Economy and Society Index (DESI) of 2021 shows that, among the European Union (EU) member states, Latvia, in terms of integrating digital technologies in enterprises, is only ranked as the 23rd country, and is below the EU average indicator in almost all categories. The share of small and medium enterprises (SMEs) having at least a basic digital intensity level comprises 42%, while the EU average indicator is 60%. It is an immense gap, which has to be filled as soon as possible. Why? Because the digitalisation level directly influences the competition.

Taking data-based decisions

Enterprises quite often do not apply the available information in the decision-taking process, because the data volume is bulky, information analysis is complicated and time-consuming, and the staff lack adequate IT skills. Quite often each organisational unit of an enterprise has its own reports and results that differ considerably from the data disclosed in the financial and accounting systems.

Digitalisation enables an enterprise to use the entire available information more efficiently and to better organise the work of an enterprise. By analysing data, it is possible to determine the products with the best sales, not to form unnecessary stocks of less popular goods, observe the impact of seasonality and to prepare for it in a timely manner, etc. Therefore, a single data transmission system enables one to manage the enterprise in a more professional manner and to take precise business decisions, based on reliable data, thus ensuring competitive advantages for the enterprise.

Improved work efficiency

As evidenced by the study of the University of Latvia regarding the digitalisation potential of the SMEs, SMEs in Latvia still devote 64% of their activities to gathering analogue information, by calling and sending letters to their clients, as well as using a paper document exchange. Even if a significant part of documents is received in paper form, it is possible to digitise their contents so that such information could later be found in a few seconds and included in the fulfilment of business processes.

Digital tools also help improve HR and financial management, thus enhancing the performance and profitability of the enterprise, standardising and automating business processes and reducing dependency upon the availability of labor force. Besides, operational costs might decrease by about 5-10%.

No business can operate totally error-free. However, digital solutions simplify detection of inconsistencies and help avoiding errors, by improving overall service quality and client experience.

E-commerce possibilities

E-commerce is presently experiencing record-high growth, and, by using e-commerce, it is much simpler to attract new clients, outreach to market outlets outside Latvia and even compete with the branch giants. The Covid-19 pandemic made people get used to shopping online, saving client time and ensuring the possibility to receive the service in 24/7 mode, and this trend is likely to also persist in the future. E-commerce helps reduce the costs of the enterprise, without the need to lease store premises, hire salespersons or serve merely as a source of additional income along with the physical points of sale; however, the enterprises must be able to introduce significant changes in their business model. Data show that global e-commerce growth over the period of the previous year has doubled, and already next year the total e-commerce turnover might come close to 25% of the total retail trade volume.

Part of the resources of the EU Recovery Fund has been allocated to digital transformation, inter alia, digitalisation in commercial activity and promotion of digital transformation of merchants. Latvia will also already have the funds available this year; therefore, it is highly important for the entrepreneurs not to miss the chance to catch the digitalisation train, which is already speeding up its pace. Staying out might, unfortunately, pose a threat of a considerable loss of competitiveness.

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