Digital transformation won’t be deterred by trade war — IDC

ECONOMISTS and academicians have expressed their concerns about the US-China trade war and believe it will not only impact investments but also cause technology innovations and progress to slow down.

IDC agrees with that opinion to a certain extent, but believes that the need for digital transformation will, however, keep the innovation engines going despite the strain in the relationship between the two countries.

According to IDC, business spending on information and communication technologies will be caught in the crossfire of headwinds and tailwinds over the next five years as a softening global economy puts pressure on the ability of organizations to increase technology budgets.

Their team, however, is quick to point out that since the growth and competitiveness of these companies are increasingly dependent on digital transformation, artificial intelligence (AI), and data analytics, progress will not come to a standstill.

Analysts at IDC predict worldwide ICT spending on hardware, software, services, and telecommunications to reach US$4.6 trillion by 2022, representing average growth of 4 percent per year.

Commercial customers will represent around 63.5 percent of total spending by 2022 (US$2.9 trillion), while consumers will still account for 36.5 percent (US$1.7 trillion), according to forecasts.

“In the short term, the trade war between the U.S. and China continues to add volatility to the outlook,” said IDC Customer Insights & Analysis Group VP Stephen Minton.

“Some firms are also facing the double whammy of weaker sales in China, an increasingly important export market for the manufacturing industry. Meanwhile, the impact in China itself could persist over a longer period of time, with manufacturing and financial services firms being the most exposed.”

The fastest growth over the forecast period is expected to come from the professional services segment (7 percent), including cloud and digital service providers, which will account for a rapidly increasing share of overall tech spending thanks largely to the explosive growth of cloud infrastructure providers.

IDC believes that media (+6 percent), banking (+5 percent), retail (+5 percent), and manufacturing (+5 percent) will be among the top sectors pursuing digital projects, while the slowest growth in commercial technology budgets will come from federal government, followed by wholesale and construction firms.

“In Asia/Pacific, the U.S.-China trade war is a double-edged sword, which presents both challenges and opportunities. Many businesses are increasingly dependent on China for revenue and might be expected to continue their pivot away from the U.S. in trading relationships. On the other hand, the conflict opens up opportunities to increase exports to the U.S. market,” said IDC.

“The trade war undoubtedly presents opportunities for India’s manufacturing sector. Many firms in Asia, however, will be forced to try and balance their relationship with both the U.S. and China, and will mostly suffer negatively from any escalation,” said IDC Customer Insights & Analysis Group Senior Research Manager Ashutosh Bisht.

According to IDC, countering negative sentiment around the economy in China is increasing demand for ICT solutions related to digital transformation.

This is driving major investments by large enterprise and state-owned customers in industries such as retail, manufacturing, healthcare, and financial services, especially around cloud and AI.

“In the U.S., the professional services industry is expected to continue with strong technology growth and investments. The appetite for cloud-based delivery, new apps, and tech-fueled services show no signs of slowing, and thus we are optimistic about the growth opportunity for this industry,” said IDC Customer Insights & Analysis Group VP  Jessica Goepfert.

Over the next few months, investments and announcements will prove how much of IDC’s predictions are correct — although expecting investments to surge driven by a need for digital transformation is quite logical.

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