THE RISE OF DIGITAL CHALLENGERS - HOW DIGITIZATION CAN BECOME THE NEXT GROWTH ENGINE FOR CENTRAL AND EASTERN EUROPE - MCKINSEY
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The rise
of Digital
Challengers
How digitization
can become the next
growth engine for Central
and Eastern Europe
The rise of Digital Challengers 1
The rise of Digital Challengers How digitization can become the next growth engine for Central and Eastern Europe Jurica Novak Marcin Purta Tomasz Marciniak Karol Ignatowicz Kacper Rozenbaum Kasper Yearwood
About McKinsey & Company
We are a global management consulting firm that serves a broad mix
of private, public, and social sector institutions. We help our clients
About McKinsey
make significant and lasting improvements to their performance
and realize their most important goals. We have built on nearly
in Central Europe
a century of experience and added a wide range of new skills
and capabilities to create a firm that is uniquely equipped McKinsey & Company opened its first
to this task. For example, our colleagues in McKinsey offices in Central and Eastern Europe in
Digital & Analytics work together with clients to drive the early 1990s, soon after the momentous
technology-enabled transformations. By combining democratic changes in the region. McKinsey
the latest innovations with deep industry, functional, played an active role in the region’s economic
and technological expertise, we help clients cap- rebirth, working with leading business organiza-
ture value from data and succeed in the digital tions, governments, and nonprofits. With offices in
age. We are home to thousands of the world’s Belgrade, Bucharest, Budapest, Kyiv, Prague, Warsaw,
most talented professionals across the fields and Zagreb, we serve clients across a wide range of
of digital, analytics, and design. Our cross- industries, including banking and insurance, retail, heavy
functional teams enable clients to rein- industry, and high tech, media, and telecom.
vent themselves through technology.
From optimizing core technology and In addition, McKinsey’s Central European Office provides
automating operations to building advanced capabilities built around a Digital Lab and an Agile Hub,
entirely new digital businesses, hosted in Warsaw and Budapest, respectively. Those capabilities are
we work side-by-side with our geared not only toward client counseling but also toward building and
clients to prepare them to transferring capabilities into client organizations. Our Digital and Agile
survive and thrive in a rap- squads are involved in all areas of digital transformation – including organi-
idly changing world. zational and cultural change, user experience, business applications, big data
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About the Digital Challengers research
This report is part of a wider research into the potential of
the digital economy in Central and Eastern Europe. In our
November 2018 report, “The rise of Digital Challengers: How
digitization can become the next growth engine for Cen-
tral and Eastern Europe” we cover the regional perspective,
joined by additional country reports for the Czech Republic,
Hungary, Poland, Romania, and Slovakia.
Czech Republic Hungary Poland Romania Slovakia
The rise of Digital Challengers 1Contents Preface
EXECUTIVE Our objective in writing this report was to analyze In the final chapters of our study, we look at the
the opportunities presented by the digital economy vital role of collaboration in CEE, emphasizing the
SUMMARY INTRODUCTION in Central and Eastern Europe (CEE). Using new importance of capturing regional scale effects,
research of our own and an examination of pub- tackling common challengers and sharing best
PAGE 4 PAGE 10 lished sources, we define the economic potential practices (Chapter 4), and examine the implica-
from accelerated digitization in ten countries in tions for policy makers, companies, and individu-
the region: Bulgaria, Croatia, the Czech Republic, als (Chapter 5). This final section contains a list of
Hungary, Latvia, Lithuania, Poland, Romania, actions for these stakeholders to capture the digital
CHAPTER 1 CHAPTER 2 Slovakia, and Slovenia. We consider these coun- opportunity.
tries “Digital Challengers,” as they demonstrate
strong potential for growth in the “digital economy,” The ideas we present build on those outlined in
Digitizing the Impact on the labor
emulating the group of relatively small countries the previous reports Digital Europe: Pushing the
economy market with very high digitization rates that we call “Digital frontier, capturing the benefits; A future that works:
Frontrunners,” namely Belgium, Denmark, Estonia, Automation, employment, and productivity; as well
PAGE 12 PAGE 22 Finland, Ireland, Luxembourg, the Netherlands, as A new dawn: Reigniting growth in Central and
Norway, and Sweden. Eastern Europe. We would like to take this oppor-
tunity to thank the McKinsey Global Institute, as
Discussion about the opportunities and challenges well as the authors of the above publications –
CHAPTER 3 CHAPTER 4 of digitization has been ongoing for many years. in particular Jacques Bughin, Senior Partner in
We aim to provide a fresh and unique perspec- Brussels, and James Manyika, Senior Partner in
Key enablers of Collaboration across tive: a comprehensive, fact-based analysis that San Francisco, for their expertise, insights, inspira-
digitization CEE is key attempts to quantify the size and growth rates of tion and guidance.
digital economies on a national and regional level
PAGE 34 PAGE 56 in CEE and provides realistic scenarios for the eco- The work on this report was led by Jurica Novak,
nomic impact of digitization through 2025. McKinsey’s Managing Partner in Central Europe,
Marcin Purta, Managing Partner in Poland,
Also for the first time in this report, we offer a com- Tomasz Marciniak, Partner, and Karol Ignatowicz,
CLOSING
bined perspective, looking at both individual coun- Local Partner, with significant contributions by
CHAPTER 5 REMARKS
tries and the CEE region as a whole from a digital McKinsey Partners across CEE: Dan Svoboda,
Implications for policy PAGE 88 economy perspective. This approach enables us to Tomas Karakolev and Michal Skalsky in the
understand in a quantifiable and comparable way Czech Republic and Slovakia, Levente Janoskuti
makers, business
how the digital economy is evolving across coun- and Andras Havas in Hungary, Daniel Spiridon in
leaders. and individuals
tries and compared to the most relevant bench- Romania and Tomislav Brezinscak in Croatia.
marks. Furthermore, we provide primary insights on
PAGE 62
the level of digitization in individual sectors across These individuals worked together with a team
all ten CEE countries (Chapter 1). A core part of comprising Consultants Kacper Rozenbaum,
the study is our investigation of the impact of digi- Kasper Yearwood and Arkadiusz Żarowski,
tal transformation on the labor market (Chapter 2). Communications Experts Joanna Iszkowska and
APPENDIX Our discussion here covers both the shifts in society Milena Tkaczyk, Graphic Designer Małgorzata
caused by the new technology and the increasingly Leśniewska and many others.
Methodology
accessible nature of the labor market as a result of
PAGE 90 the digital transformation. Following this, we turn to At the same time, we would also like to thank the
consider a comprehensive yet prioritized list of digi- many area experts from the public, private, and
tization enablers, including the relative strengths of social sectors who provided insights, source data
the region and key areas on which the region should and helped advance our thinking. In particular, we
focus going forward (Chapter 3). Our insights in this would like to acknowledge the collaboration with
chapter are based on quantitative analysis and dis- Google on this research, including contribution of
cussions with numerous market experts. analytical inputs and insights leveraged in this report.
2 Digital Challengers The rise of Digital Challengers 3Executive
1 THE CURRENT GROWTH ENGINE OF decades to come. Our analysis shows that devel-
CENTRAL AND EASTERN EUROPE IS oping the region’s digital economy across all sectors
LOSING MOMENTUM would bring significant economic benefits, primarily
Summary
Since the transition to a market economy almost due to the resulting productivity gains. By closing
three decades ago, CEE has enjoyed a golden age the digital gap to Western and Northern Europe,
of growth. The ten CEE countries examined in this CEE could earn up to €200 billion in additional GDP
report – Bulgaria, Croatia, the Czech Republic, by 2025 – a gain almost the size of Portugal’s entire
Hungary, Latvia, Lithuania, Poland, Romania, economy in 2017.7 In this aspirational scenario, the
Slovakia, and Slovenia – recorded on average a region’s digital economy would grow to represent
114 percent increase in GDP per capita between 16 percent of GDP by 2025. That would mean up to
1996 and 2017, compared to an increase of just 30 percent additional GDP growth, the equivalent
27 percent in the European Union’s “Big 5” econo- of one extra percentage point on GDP growth each
mies: France, Germany, Italy, Spain, and the United year over the period.
Kingdom.1 The CEE region has become one of the
most attractive places to invest in globally.2 This How would digitization secure this ambitious
fact has enabled CEE countries to partially close goal for CEE? Primarily by improving the region’s
the economic gap to Western Europe, and their productivity through a digital transformation of
populations to enjoy a significant rise in living the public and private sectors, and by boosting
standards.3 e-commerce and offline consumer spending on
digital equipment.
AFTER THE SUCCESSFUL Growth in CEE has been driven by a number of
TRANSITION AND DEVELOPMENT factors, including traditional industries, dynamic The alternative “business as usual” scenario is one
OF A MARKET ECONOMY: exports, investments from abroad, labor-cost in which the digital economy in CEE maintains its
1 The current growth engine of Central and Eastern Europe advantages and funding from the European Union. historical growth rate, expanding by just €60 bil-
is losing momentum. But now these drivers are beginning to weaken. lion and representing 8.7 percent of GDP in 2025.
CEE economies are generally undercapitalized In this scenario, CEE countries would miss out on
2 Digitization can be the next driver of sustained growth for the
compared to their more advanced European the additional one percentage point of annual GDP
region, with €200 billion of additional GDP by 2025 at stake. peers. The capital stock, measured as total gross growth and remain a long way from the “digital
3 The countries of CEE are uniquely positioned to fixed assets per employee, is 60 percent lower frontier” represented by the countries of Northern
capture this opportunity. than the average for the EU Big 5.4 Workforce Europe, for example.
4 The business world, governments, and For the countries of costs are also rising and there are limited labor
individuals all need to act in order for Central and Eastern Europe reserves left to plug into the economy, with unem- 3 THE COUNTRIES OF CEE ARE UNIQUELY
the transition to be successful. (CEE), the potential economic ployment at record low levels – on average 6.5 POSITIONED TO CAPTURE THIS
benefits of digitization are great: up to percent in 2017, compared to 7.6 percent in the OPPORTUNITY
5 Collaboration between EU.5 Labor productivity still lags behind Western Looking at Europe from the perspective of digi-
€200 billion in additional GDP by 2025.
CEE countries as Digital Europe6. And on top of it all, the inflow of EU funds tization, we distinguish three broad groups of
This economic boost would lead to greater
Challengers is key. to CEE countries is likely to slow down after 2020. countries. The first are the ten countries of CEE
global competitiveness and prosperity for
6 The time to act is now, the region’s 100 million people. While the
listed above that form the core of this study. We
otherwise the region digital transition also harbors potential
What does that mean for the countries of CEE? In call these countries “Digital Challengers” as they
may miss the digital a nutshell, if they hope to continue on their path demonstrate strong potential for growth in the
risks in the form of shifts in society, public
to general prosperity, they need to redefine their area of “digital” and can emulate the second
opportunity. and private-sector leaders can take
growth strategies as a matter of urgency. group, consisting of relatively small countries with
effective actions to mitigate them very high digitization rates, which we call “Digital
whilst pursuing the digital 2 DIGITIZATION CAN BE THE NEXT DRIVER OF Frontrunners”: Belgium, Denmark, Estonia, Finland,
opportunity. SUSTAINED GROWTH FOR THE REGION Ireland, Luxembourg, the Netherlands, Norway
Today, CEE has the chance to make a strate- ,and Sweden.8 Finally, there is the EU Big 5, which
gic choice that will determine its growth path for typically rely more on their large internal markets
4 The rise of Digital Challengers The rise of Digital Challengers 5for economic growth. These five countries have digi- straight to payment cards. Today, the region has of technology by both public and private sectors. 6 THE TIME TO ACT IS NOW, OTHERWISE THE
tization rates that are relatively high but not as high one of the highest contactless payment adoption They can improve the ecosystem for startups REGION MAY MISS THE DIGITAL OPPORTUNITY
as the Digital Frontrunners. rates in the world.10 So, while it may be more dif- and the opportunities for digital innovation – for We believe that in order to benefit fully from the digital
ficult for Digital Challengers to compete in the tra- example, by creating regulatory sandboxes. They transformation, the time for CEE to act is now. Our
In 2016, the digital economy of Digital Challengers ditional economy, they enjoy a level playing field in can also support workers by setting in motion sense of urgency is based on three factors.
accounted for 6.5 percent of their GDP.9 This is almost the digital economy programs aimed at “reskilling” and “upskilling”
on a par with the EU Big 5 (6.9 percent) but well behind workers. First, Digital Challengers are currently booming eco-
Digital Frontrunners such as Sweden (9.0 percent). • A vibrant emerging digital ecosystem. We have nomically, with thriving private sectors. In 2017, Digital
already seen multiple digital success stories 5 COLLABORATION BETWEEN CEE COUNTRIES Challengers saw their highest levels of GDP growth in
Notably, Digital Challengers are enjoying great across the region, with a number of digital-native AS DIGITAL CHALLENGERS IS KEY more than a decade. This positive environment gives
momentum in their digital economies. Between companies achieving unicorn status (valuation of The countries of CEE will only be able to capture the new digital initiatives a head start. History shows,
2012 and 2016, the region’s combined digital econ- more than $1 billion). Thanks to its strong talent full potential of the digital transformation by coop- however, that booms do not last forever. Indeed,
omy grew by 6.2 percent a year, twice as fast as in base, CEE is becoming a hub for gaming devel- erating closely with each other, due to at least four there are already multiple signs that limitations on
the EU Big 5. The news for specific sectors of the opers and software development houses, many factors: growth will emerge in the region, such as negative
economy in CEE is also good. Although most indus- of which are among the fastest growing com- demographic trends limiting the positive effects from
tries in Digital Challenger countries lag behind their panies in the region. Moreover, incumbents in • Scale effects: Together, Digital Challengers a growing labor force.
equivalents in Digital Frontrunner countries in terms traditional industries are beginning to follow suit, represent €1.4 trillion in GDP, making them the
of digitization, some are almost level with EU Big 5 successfully adapting digital solutions both inter- equivalent of the twelfth-largest economy in the Second, we find ourselves on the cusp of a Fourth
benchmarks – for example, financial services and nally and in their client offerings world. Industrial Revolution, in which new technology will fun-
information and communication technology (ICT). damentally transform the economy and the labor mar-
4 THE BUSINESS WORLD, GOVERNMENTS, AND • Similar starting points: The countries of CEE ket. This seismic change will drive growth and create
Digital Challengers have the foundations for further INDIVIDUALS ALL NEED TO ACT IN ORDER FOR have high levels of market openness and similar many new professions – big data scientists, machine-
digitization. In particular, these include the following: THE TRANSITION TO BE SUCCESSFUL levels of digitization, besides their cultural and learning engineers, new technology designers to name
To realize the aspirational digitization scenario historic commonalities. just a few. But it will also create serious challenges.
• Good primary and secondary education in terms described above, all stakeholders in Digital Challenger Our analysis shows that up to 51 percent of workplace
of math and science literacy scores, according to countries need to be actively engaged in the digital • Common challenges: The region’s countries activities in CEE today – the equivalent of around 21
the international PISA ranking – almost on a par transformation. Businesses could increase their face many similar challenges, such as the “brain million jobs – could potentially be automated by 2030
with Digital Frontrunners adoption of digital tools, improving their productivity drain” and need to reskill the workforce. (depending on the economy, future regulation, and
and ultimately their bottom line. They would also be the labor market) using technology that already exists
• A large STEM (science, technology, engineering, well advised to take advantage of digital solutions for • Best practices: Each CEE country has devel- today. This creates both an opportunity for increased
and mathematics) and ICT talent pool, with over reaching new customers and expanding into regional oped different areas of digital specialization, each productivity and challenges for the labor market. To
230,000 graduates in these subjects in 2015 – and global markets. This export potential is especially with their own advantages. Sharing best practices avoid potential spikes in unemployment, immediate
more than any of the EU Big 5 markets and twice relevant in CEE, where the size of the domestic mar- can accelerate the process of transformation. action is needed, such as updating the education sys-
as many as the entire Digital Frontrunner region kets limits growth opportunities. tem to teach the skills that will be required in the future
In the future, Digital Challengers could work together and creating a support system for lifelong learning.
• High-quality digital infrastructure with excellent The public sector can play a role in the trans on digital policy solutions across the region. Efforts
4G coverage, some of the best coverage rates formation by using digital technology to achieve could include allowing access to standardized pub- Third, we are at a point in time where the rules of the
in the world for ultra-fast broadband and good faster, smoother processes and services for both lic datasets to fuel innovation and support the digi- digital game are crystallizing and new ecosystems
affordability for ordinary citizens companies and ordinary citizens. Individuals must tization of enterprises. Cross-border infrastructure emerging. This is the moment for drawing up digital
be active, too; investing in lifelong learning will enable projects would also be possible, such as the intro- strategies and developing toolkits for the digital trans-
• A legacy “technology lock-in” that is milder than them to take advantage of new opportunities on duction of fiber optics or 5G technology infrastruc- formation ahead. Many companies, countries and
in Western and Northern European countries. the labor market. Individuals also need to embrace ture. The countries of CEE, marching shoulder-to- regions have realized this and are busy developing
Having joined the digitization race rather late, CEE increasing flexibility in their career paths. shoulder with other countries interested in further- their long-term digital agenda. If the countries of CEE
economies are less tied up with older technol- ing digitization, could likewise form a coalition at a wish to compete and capture the €200 billion digital
ogy. For example, the CEE region almost entirely Policy makers can support the process on a wide European level to ensure that their digital interests opportunity, they need to come together urgently and
bypassed the use of payments by check, going range of fronts. They can promote the adoption are heard. devise a robust long-term digital strategy of their own.
6 The rise of Digital Challengers The rise of Digital Challengers 7WHY IS DIGITIZATION KEY FOR CEE? HOW TO CAPTURE THE POTENTIAL?
CEE DIGITAL CHALLENGERS
KEY FINDINGS
1 THE GROWTH ENGINE OF CENTRAL AND EASTERN EUROPE IS LOSING MOMENTUM ALL STAKEHOLDERS NEED TO ACT FOR A SUCCESSFUL TRANSITION 4
Productivity CEE has historically low Economy in CEE is under-
Implications for policy makers Implications for business leaders Implications for individuals
lags behind unemployment and working capitalized and the gap is
Europe hours above EU average closing very slowly Build skills sets for the future, Adapt business models to meet the Individuals can
including updating youth edu- demands of the digital economy, prepare for the
CEE Digital cation for the future, promoting including leveraging digital tools in advent of the digital
Challengers
31 6.5 1,791 5.4 0.8 lifelong learning, and counter- revenue and cost management economy by invest-
acting brain drain ing in lifelong learning
Prepare talent strategies for the fu- to improve their
Support technology adoption ture, including an update approach skills sets and taking
by the public sector to recruiting and actively driving advantage of digital
EU Big 5 53 9.2 1,592 13.0 0.7 reskilling and upskilling tools in all aspects of
Support technology adoption their lives
by companies Leverage contractors or freelanc-
ers to fill talent gaps using digital
Digital Strengthen regional cross- platforms
Frontrunners 64 6.1 1,573 22.6 1.7 border digital collaboration
Form strong digital collaborations
Improve the ecosystem for within industry associations
Productivity, GDP Unemployment, Hours worked Capital stock Gross capital startups
per hour worked, 2017, % per year per per employee, formation, average Embrace a pro-digital organizational
2017, € employee, 2017 2016, € million % growth 2012–16 culture
2 DIGITIZATION CAN BE THE ANSWER TO THIS CHALLENGE COLLABORATION BETWEEN CEE DIGITAL CHALLENGERS IS KEY 5
Realizing the aspirational scenario would translate There are four reasons why cooperation is necessary to capture the full potential of digitization
into an extra 1 percentage point on GDP growth in the CEE region
Aspirational
each year through 2025 in CEE
276 The countries of CEE have high levels of
Digital economy growth scenarios +200 16% of GDP
market openness and similar levels of
for Digital Challengers, € billion Similar digitization
starting
Each CEE country has develo
ped digitally in different areas,
points
Business as usual sharing best practices can
Digital economy accelerate digitization
in 2016 +60 13 Best Scale
practices effects
76 9% of GDP Together, Digital Challengers
represent €1.4 trillion in GDP,
6% of GDP 2016 2025 making them the equivalent of the
12th largest economy in the world
Common
challenges
3
The region’s countries face a number
THE COUNTRIES IN CEE ARE UNIQUELY POSITIONED TO CAPTURE THIS OPPORTUNITY of challenges, importantly the “brain
drain” and the need to reskill the workforce
Despite a lower size of the digital economy, Digital Challengers Digital Challengers have the necessary fun-
can build on a strong historical growth momentum damentals in place for further digitization:
Digital economy Digital GDP Growth of digital
THE TIME TO ACT IS NOW – OTHERWISE THE REGION MAY MISS THE DIGITAL
OPPORTUNITY
6
as a share of per capita, economy, Good primary and secondary education
GDP, 2016, % 2016, € 2012–16, %
CEE Digital A large STEM and ICT graduate talent pool
Challengers 6.5 746 6.2
High-quality, affordable digital infrastructure
Digital Challengers are en- The Fourth Industrial Revolution The global rules of the digital
EU Big 5 6.9 2,264 3.1 joying an economic boom will transform the economy and game are crystallizing – to com-
A milder legacy technology lock-in – this could give new digital labor market – an immediate pete, Digital Challengers need to
initiatives a headstart response is needed develop a clear digital agenda
Sweden 9.0 4,152 9.9 An already emerging, vibrant digital ecosystem
SOURCES: McKInsey Global Institute; Eurostat; McKinsey analysis
8 The rise of Digital Challengers The rise of Digital Challengers 9REGIONAL POPULATION IN TOTAL
Introduction
VS. COUNTRY AVERAGE, 2017, MILLIONS
62
Digital
Frontrunners 7
Digital Challengers
(avg.)
EU Big 5
at a glance 323
65
(avg.)
The year 1989 was a very special date in the history 114 percent between 1996 and 2017. The main growth
of Central and Eastern Europe (CEE). It has now been drivers during this period were traditional industries, MARKET
OPENNESS,
almost three decades since momentous changes in dynamic exports, investments from abroad, labor-cost
2017,
101
the countries of the region resulted in political trans- advantages, and funding from the EU. But now these
TRADE AS
formation and the introduction of market-based drivers are beginning to weaken. The economies of % OF GDP 137
Digital
economies. Coincidentally, it was about 1989 that CEE are generally undercapitalized compared to more Challengers 10
128 67
British physicist Timothy Barnes-Lee was putting the advanced European economies. The capital stock, (avg.)
finishing touches to a new system designed to help measured as total gross fixed assets per employee,
scientists share data across a then little-known plat- is on average 60 percent lower here than for the EU
form. That platform – known today as the World Wide Big 5.13 Workforce costs are also rising and there are
GDP PER
Web – has since been central to the development of limited labor reserves left to plug into the economy, GDP COUNTRY TOTAL GDP, CAPITA
the internet and the dawning of the digital age. with unemployment in CEE at record low levels – on AVERAGE, 2017 2017 GROWTH
average 6.5 percent in 2017, compared to 7.6 percent € € 1996–2017,
trillion 0.1 trillion 1.4 % 114
From the perspective of digitization, we can distin- in the EU as a whole.14 Working hours in the region are
guish three broad groups of countries in Europe. The above the EU average,15 while productivity lags behind 0.4 2.6 3.3 13.2 58 27
first are the ten countries of CEE that form the core Western Europe.16 Moreover, the inflow of EU funds to
of this study: Bulgaria, Croatia, the Czech Republic, CEE countries is likely to weaken after 2020. Clearly,
Hungar y, Latvia, Lithuania, Poland, Romania, CEE needs a new engine to drive its future economic
Slovakia, and Slovenia. We call these countries growth.
“Digital Challengers” as they demonstrate strong
potential for growth in the area of “digital” and emu- Based on our research, we believe that digitization
late the second group, which consists of relatively can be the answer to this challenge, becoming the
small countries with very high digitization rates. We region’s new growth engine. The current level of CAPITAL STOCK
call this second group “Digital Frontrunners”: Belgium, digitization in CEE is almost on a par with the larg- UNEMPLOYMENT, PER EMPLOYEE,
2017, % 6.5 9.2 6.1 2016, € million 5.4 12.9 22.6
Denmark, Estonia, Finland, Ireland, Luxembourg, the est EU countries.17 The pace of development of the
Netherlands, Norway and Sweden.11 Finally, there is digital economy and the existence of key enablers
the EU Big 5 – France, Germany, Italy, Spain, and the of digitization, such as high-quality primary, sec-
United Kingdom – which typically rely more on their ondary, and higher education, digital infrastructure
large internal markets. These five countries have digi- almost as good as in Digital Frontrunner countries, PRODUCTIVITY,
tization rates that are relatively high, but not as high a milder “technology lock-in” than in Western and WORKING HOURS 2017, GDP per
PER YEAR, 2017 hour worked, €
as the Digital Frontrunners. Northern Europe and a vibrant digital ecosystem,
mean that CEE countries are well positioned to take 1,778 1,592 1,573 31 53 64
Since the early 1990s, our group of Digital Challengers advantage of the potential of digitization to boost Digital EU Digital Digital EU Digital
have enjoyed significant economic growth. Gross their productivity – and, in so doing, increase the Challengers Big 5 Frontrunners Challengers Big 5 Frontrunners
domestic product (GDP) per capita12 grew by prosperity of their populations.
EU BIG 5: France, Germany, Italy, Spain, United Kingdom
Digital Frontrunners: Belgium, Denmark, Estonia, Finland, Ireland, Luxembourg, the Netherlands, Norway, Sweden
Digital Challengers: Bulgaria, Croatia, the Czech Republic, Hungary, Latvia, Lithuania, Poland, Romania, Slovakia, Slovenia
10 The rise of Digital Challengers The rise of Digital Challengers 11Chapter 1
Digitizing
the economy
The digital economy of Digital
Challengers accounts for 6.5 percent
of GDP. While this is almost the EU Big 5
markets (6.9 percent), it lags behind Europe’s
Digital Frontrunners such as Sweden (9.0 percent).
Digital Challengers can build on the historical growth of
their digital economies (6.2 percent a year from 2012 to 2016),
which outstripped both Digital Frontrunners (5.9 percent) and
the EU Big 5 (3.1 percent).
The development of the digital economy in CEE is having a
significant economic impact – indeed, digitization could become
the next major growth driver for the region. Digital Challengers
could even close the gap to Digital Frontrunners, growing the
region’s digital economy by as much as €200 billion so that it
represents 16.2 percent of GDP.
This could potentially deliver up to 30 percent
additional GDP growth, the equivalent of an extra
one percentage point GDP growth each year
through 2025.
12 The rise of Digital Challengers The rise of Digital Challengers 13The term “digitization” is widely used by economists. per capita in CEE, at €746, is more than four times Box 1.
Yet its precise meaning is a topic of much discussion, lower than the average for Digital Frontrunners and The McKinsey Digitization Index Digital asset spending
particularly when it comes to measuring the impact almost six times lower than in Sweden. – drivers of digitization at sector
of digitization on economies.18 Consequently, uncer- The digital economy of Digital Challengers accounts level (referenced on the
for a smaller
Exhibit 1. share of GDP than in EU countries, the
tainty reigns about the scale of the digital economy next page) Hardware spending
EU Big 5 and Digital Frontrunners – but it is growing
in CEE. The digital economy of Digital Challengers Share of total expenditure spent on ICT
faster
accounts for a smaller share of GDP than that of hardware (e.g., computers, servers)
In this report we shed light on just how big the digital the EU Big 5 and Digital Frontrunners – but it is
economy is in CEE. We strike a balance between the also growing faster.19 Software and IT services spending
various definitions of “digitization.” For us, it repre- Share of total expenditure spent on software and IT
Share Digital Growth Growth of
sents the sum of three components: of digital GDP per of digital nondigital services (e.g., enterprise resource planning software)
economy, capita, economy, economy
2016, % GDP 2016, € 2012–16, % 2012–16,%
• The value of the information and communication Telecommunications spending
technology (ICT) sector Digital Share of total expenditure spent on telecommunications
Chal- 6.5 746 6.2 2.6 (e.g., broadband access, mobile data services)
lengers
• The value of the e-commerce market, measured
as online sales of goods
• The value of offline consumer spending on digital EU Big 5 6.9 2,264 3.1 1.2
equipment Digital asset spending per worker
We choose this definition for two main reasons. First,
Digital
it is relatively comprehensive – broader than just the Front- 7.3 3,276 5.9 2.0 Hardware spending on workers
runners
ICT sector, yet more concrete than, say, “all activi- ICT hardware (e.g., computers, servers) expenditure per full-time-equivalent
ties related to digital data.” Second, reliable data is employee (FTE)
available for each of the three areas it covers and
so its total value can be calculated (see Appendix Software and IT services spending per worker
Sweden 9.0 4,152 9.9 2.2
for details). This enables us to use a bottom-up Software (e.g., enterprise software licenses) and IT services expenditure per FTE
modeling approach, drawing on data collected at a
SOURCE: Eurostat; local institutes of statistics; McKinsey Global Telecommunications spending per worker
national level. Institute analysis; McKinsey analysis Telecommunications (e.g., broadband access, mobile data services) expenditure per FTE
SIZE AND GROWTH OF THE DIGITAL
ECONOMY IN CEE However, the digital economy in CEE is growing
As mentioned in the Introduction traditional growth faster (6.2 percent a year between 2012 and 2016)
drivers in CEE are facing increasing limitations, such than in the EU Big 5 (3.1 percent) and even Digital Digital capital deepening
as a finite labor supply, undercapitalized econo- Frontrunners (5.9 percent). While this is a positive
mies, and productivity levels that lag behind more indicator, room for improvement remains. Despite
advanced economies. The question we ask in this starting from a larger basis, Sweden was able to Hardware assets per worker
study is: Could digitization become the new growth grow its digital economy by 9.9 percent a year ICT hardware assets (e.g., servers, computers) per FTE
driver for the region in the years to come? between 2012 and 2016, for example. In terms of
growth rates, CEE countries – most of which are Software assets per worker
To answer this question, we must first identify where still classified as “developing countries” – also Software assets (e.g., workers’ software licenses) per FTE
the digital economies of CEE are today. According to appear to be benefiting from the general momen-
our analysis (Exhibit 1), the digital economy accounted tum in their economies. With a little extra effort,
for 6.5 percent of total GDP in the region in 2016. Digital Challengers could accelerate the
While this is almost with the EU Big 5, it lags behind pace of growth of their digital economies
Digital Frontrunners, where its share of GDP is almost and close the gap to, or even overtake,
40 percent higher. In per capita terms, the differ- some of the more digitally advanced
ences are even more pronounced. The digital GDP economies.
14 The rise of Digital Challengers The rise of Digital Challengers 15SECTOR-LEVEL DIGITIZATION the workforce by incorporating per-employee spend- Going forward, the priority for each sector will DIGITAL POTENTIAL IN CEE TO 2025
Before identifying potential levers for accelerating the ing. In addition, digital capital deepening is measured be to catch up with their counterparts in more As we have seen, Digital Challengers lag behind
digital transformation in CEE, we should look at how by comparing total hardware and software stock in digitally advanced countries. In Exhibit 3 we com- Digital Frontrunners in terms of the overall size of their
digitization has taken place around the world. It would a per-worker perspective. The results at sector level pare the digitization level of the biggest sectors in digital economy, with clear gaps at a sector level.
appear that no standard route exists to achieving high are weighted for the economic size of the sector and Digital Challenger markets with their counterparts The size of these gaps has slowly been decreasing
rates of digitization. Most markets, including Digital compared to the global “digital frontier,” which we in Sweden (taken as a benchmark for Digital in recent years, but CEE has not yet entered the fast
Frontrunners, have digitized unevenly, showing large take to be the ICT sector in the United States.21 Frontrunners) and other selected Western Europe lane. Looking ahead, we see two potential trajecto-
“
variations between different sectors and individual countries.22 The biggest gap is found for utilities, ries for further digitization in CEE (Exhibit 4).
companies. The McKinsey Digitization Index shows us that manufacturing, government, and professional
the digital economy of CEE has developed unevenly, and business services. The finance and insur- In the first, “business as usual” scenario, the region’s
The digital economy in CEE is with three distinct industr y groups emerging ance sector exhibits the smallest gap. Notably, countries maintain their historical growth rates for the
growing faster than in the EU Big 5 (Exhibit 2). The first group of sectors, exhibiting the almost no gap exists between CEE and selected digital economy. The digital economy expands by
and even Digital Frontrunners highest digitization rates, can be considered “digital countries in Western Europe in government. €60 billion to reach nine percent of GDP by 2025.
leaders.” This group comprises two medium-sized The gap to Digital Frontrunners (measured as the
To understand which sectors drive digitization at a industries: ICT and finance and insurance. The sec- Support from the government can play a signifi- digital economy’s share of GDP) remains almost
“macro” level, we need a multidimensional view. The ond group, which we call “digital followers,” includes cant role in the development of the digital econ- unchanged, while the gap to the most dynamic mar-
McKinsey Global Institute (MGI) Industry Digitization large sectors such as manufacturing and wholesale omy. Several CEE countries have national digiti- kets, such as Sweden, widens.
Index offers such a perspective, assessing digitiza- and retail trade, alongside medium-to-small sectors zation strategies in place. However, they are not
tion at the level of individual sectors (Box 1 on page such as mining and transportation and warehous- consistent across the region, which may also con- The second scenario is an aspirational one. If Digital
15).20 It uses eight indicators to capture different ways ing. The final group are “digital novice” sectors such tribute to differences in digitization between coun- Challengers closed the gap to Digital Frontrunners,
in which companies are digitizing. For instance, digi- as the arts and entertainment, accommodation tries. We explore examples of national strategies they would see their digital economy grow by
tal assets include spending on computers, software and food services, and agriculture. This group also supporting the digitization process in Chapters 4 €200 billion to reach 16 percent of GDP by 2025.
and telecommunications equipment, and the stock of includes medium-to-large public sectors such as and 5. This translates into an extra one percentage point
ICT assets. The Index also includes the perspective of healthcare, education, and government services.
Exhibit 3.
Exhibit 3
In terms2.of digitization, the CEE economy has developed at different speeds, with digital leaders, digital
Exhibit Large gaps in the digitization level of sectors exist between the CEE region, Western Europe, and Digital
followers and digitally less advanced sectors emerging Large gaps in the digitization level of certain sectors exist between CEE and Western EU countries/Digital
CEE has digitized unevenly in terms of sectors – with leaders, followers, and novices emerging. Frontrunners.
Frontrunners
Industry sectors in CEE, by degree of digitization and % of GDP Government Low: 10%
Healthcare
Finance and
Education insurance
22
Agriculture
Manufacturing
14
Arts & entertainment
12 Services
Accommodation and food
10 Manufacturing
Utilities
8 Trade (retail and wholesale)
6
Transportation
Trade
Share of GDP, %
Professional services
4
Utilities Transport
2
Mining
0 Government
ICT sector
CEE Selected countries from Western Sweden as a Digital
Digital novices Digital followers Digital leaders Finance and insurance
Europe (France, Germany, UK) Frontrunner benchmark
SOURCE: Eurostat; local institutes of statistics SOURCE: Eurostat; local institutes of statistics
1 Average of digitization score for all industries excluding digital leaders (ICT and FIG sectors) - 2.73%
16 The rise of Digital Challengers The rise of Digital Challengers 17GDP growth each year, or a one-third increase in Exhibit 4. We see two trajectories for CEE to grow
the projected growth rate.23 The additional €140 bil- Scenarios for digital its digital economy: a business-as-usual
lion – on top of the €60 billion impact of maintaining economy growth in CEE.24
scenario bringing an additional €60
the historical growth rate – breaks down as follows:
billion of GDP, or an aspirational scenario
• An extra €120 billion from the increased pro- with €200 billion of GDP at stake
ductivity achieved by closing the gap to Digital € billion
Frontrunners in the digitization of the public and
private sectors Share of GDP, %
• An extra €20 billion from additional growth in
Aspirational
276
e-commerce and offline consumer spending on
digital equipment
16%
+200
The first of these amounts – the extra €120 billion
– comes from Digital Challengers increasing their
ICT spending as a share of sector GDP to the level
of Digital Frontrunners. To achieve this, they must
speed up the digital transformation in their econo-
mies, especially in the sectors that lag farthest
behind their Digital Frontrunner benchmarks and at
the same time account for a significant share of the
total national output. This includes asset-heavy sec-
tors such as manufacturing, public sectors such as
healthcare and education, and localized industries
such as agriculture. The second amount – the extra
€20 billion – comes from faster growth in e-com-
Business as usual
“
136
merce and offline consumer spending on digital
equipment (see Appendix for details).
If Digital Challengers closed the gap
NEW DIGITAL INDUSTRIES – THE NEXT
GROWTH HORIZON
But it doesn’t stop there. While accelerating the
+60 9%
to Digital Frontrunners, they would digitization of CEE’s current industries promises sig-
see their digital economy grow by nificant economic gains, a whole new wave of digi-
€200 billion to reach 16 percent of tization could be triggered by new digital industries
76
based on the Internet of Things (IoT), big data and
GDP by 2025.
artificial intelligence (AI). These innovative fields rep- Digital economy
6%
Capturing this potential will depend on all stake- resent a substantial economic opportunity, poten- in 2016
holders embracing digital technology in the coming tially over and above even our aspirational sce-
years. For companies, it will mean taking advantage nario. While the full size of the opportunity in CEE
of solutions enabling growing sales through digital is still unknown, solutions that already exist today
channels, including boosting their export capabili- based on the IoT, for example, have the poten-
ties. For both public and private organizations, it will tial to boost the digital economy by €160 billion.25
mean improving operating efficiency by integrating
automation and streamlining solutions. For individu- In the vast majority of cases, the additional eco- 2016 2025
als, it will mean investing in developing the skills nomic value generated by these solutions stems
needed in the digital economy. We explore these from their use of data for improved decision-making,
aspects in more detail in Chapters 2, 3, and 5. product and service innovation, and the exchange of
18 The rise of Digital Challengers The rise of Digital Challengers 19Examples of how the Internet of Things creates value
information between vehicles, home appliances and Box 2. Human health Devices (wearables and ingestibles) to monitor and maintain
the like, leading to increased operating efficiency.26 Examples of how IoT Devices attached to or health and well-being, disease management, increased
We explore a number of use cases in different IoT creates value. inside the body fitness, higher productivity
verticals in Box 2.
Artificial intelligence (AI) is another new digital indus- Home Home controllers and security systems, household chore
try poised to contribute significantly to the next wave Buildings where automation
of digital disruption. Globally, we are already seeing people live
increased investment, job creation, and business
impact for early adopters. Funding for AI-based
services, software, and hardware are booming: Retail environment Stores, banks, restaurants, arenas, and anywhere else
the McKinsey Global Institute estimates that in Spaces where consumers consumers consider or make purchases: Self-checkout, layout
2017, €33 billion was invested in AI, three times the engage in commerce optimization, real-time and in-store personalized promotions,
smart CRM, inventory shrinkage prevention
amount for 2016. This was partly fueled by expec-
tations of an emerging AI market, predicted to be
worth more than ~€45 billion by 2020. 27 A push Offices Energy management and security in office buildings, improved
can also be seen in the labor market for AI-related Spaces where knowledge productivity, organizational redesign and worker monitoring,
jobs. Of the five fastest-growing job titles claimed by workers work augmented reality for training
LinkedIn members in the United States, three are
AI-related.28 Countries are also already busy shap-
ing their strategies on how to capture this value – we Factories Places with repetitive work routines: operating efficiencies,
explore examples of such initiatives in Chapter 5. Standardized production optimizing equipment use and inventory, health and safety,
environments predictive maintenance
AI can unlock value for different industries in the
future, but even now it is used in a number of appli-
cations across a range of sectors. The field is also Workplace Mining, oil and gas, construction, operations optimization,
starting to pick up in CEE. This can be seen already Custom production equipment maintenance, health and safety, IoT-enabled R&D
in the private sector, with many success stories of environments
enterprises specializing in AI and automation solu-
tions emerging across the region. For instance,
Romanian software provider UiPath is a global leader Vehicles Vehicles including cars, trucks, ships, aircraft, and trains:
in robotic process automation and a CEE “unicorn” Systems inside moving condition-based maintenance, usage-based design, pre-sale
vehicles analytics, after-sales improvements
– a company valued above $1 billion.29 Global giants
are also investing in AI development centers in the
region, for example Amazon30 and Chinese appli-
ance manufacturer TCL in Poland.31 Smart meters and demand management, distribution and
Cities
substation automation, congestion lanes, smart parking
Urban environments meters and pricing, centralized and adaptive traffic control
AI promises to have a positive impact on both busi-
ness, in the form of increased productivity, and con-
sumers, by providing more personalized and efficient
products and services. By contrast, its impact on the Outdoors Outdoor uses include railroad tracks, autonomous vehicles
labor market is a matter of ongoing debate, as we Between urban (outside urban locations), and flight navigation, real-time
environments (and outside routing, connected navigation, shipment tracking
explore in the next chapter.32
other settings)
20 The rise of Digital Challengers The rise of Digital Challengers 21Chapter 2
Impact on the labor
market
As employment growth in CEE slows
down, an increase in productivity levels is
needed. Due to negative demographic trends,
up to 21 percent of current GDP growth is at risk.
Digitization in the form of automation technology can help
relieve pressure on labor reserves in CEE .
We estimate that 49–51 percent of work activities could be
automated using technology available today, the equivalent of
approximately 21 million jobs.
Growing adoption of automation technology will drive a significant
shift in demand for skills, leading to a potential labor market
mismatch.
Sectors such as manufacturing, logistics, agriculture and
trade will experience the biggest need for workforce
reskilling.
Demand for technology skills, social skills,
and emotional skills will grow the most.
22 The rise of Digital Challengers The rise of Digital Challengers 23AUTOMATION 49–51%
POTENTIAL 20.8
of working time is spent
on activities that could
be automated
million
AMONG DIGITAL
Long-term historical GDP growth in CEE has been
driven by two factors: increasing employment and equivalent
CHALLENGERS
rising productivity. While the latter was the main con- number of jobs
tributor by far, growth of the working population was
still responsible for around 17 percent of GDP growth While few occupations are fully automatable,
between 2005 and 2017.33 However, a growing con- 60% of all occupations have at least 30%
technically automatable activities
sensus exists that the CEE region has now reached
“peak employment.” Negative demographic trends
such as declining birthrates, emigration, and aging SHARE OF OCCUPATION TYPES WITH GIVEN
could hinder the future development of the region. If % OF ACTIVITY THAT COULD BE AUTOMATION POTENTIAL
the negative employment projections of –0.1 percent AUTOMATED % of 820 occupation types
0% 100%
per year are correct and productivity growth rates
remain at historical levels, GDP growth could be up Predictable physical 75 100% 1
“
to 21 percent lower in the period to 2030 than over >90% 9
AUTOMATION POTENTIAL
Processing data 71 >80% 19
the past dozen years (see Exhibit 5).34
>70% 27
Collecting data 65 >60%
We are likely to see occupations
34
>50% 41
changing due to automation rather Unpredictable physical 39 >40% 50
than disappearing completely, and >30% 60
>20%
many employees will need to learn
Applying expertise 29 72
>10% 91
how to work more closely with Interacting with stakeholders 22 >0% 98
technology.
od d te ,
tio s, of
w od
rs
at a on
or ,
rs
io ta ,
or ,
rs
pr or s
tit rs,
rs
or ,
rs
pr pro sor ors
w ts
ct sis ns
w ts
w rs
e w le
Managing people 9
ke
ke
ke
ne
ke
n n
n n
ac ke
us to
uc uct rs
ar el ati
n fo
ar g sa
tru as ia
io ge
t
or
io
ra d ra
io sla
ns ve nic
ep av rt
hc tin s,
pr t po
tu an e
lig gi
alt rke er
co rati ech
ul rs op
s
re , le
he ma ach
od er n
Exhibit 5. THE POTENTIAL OF AUTOMATION IN CEE
ric de ne
ist l t
fo rk tra
s, ts
r
in a
d te
ag gra chi
er is
,
m mic
l
s
i
in atr
l
w Ra
,
a
an ers
GDP growth could be 21 percent lower in CEE
M
Given the trends outlined above, it is vital to under-
ad e
rta hi
Ch
ne
te yc
o
gi
en Ps
En
in the period to 2030 as a result of negative stand the likely future impact of digitization on the
demographic trends. labor market in CEE. One area of interest is the TOTAL AUTOMATION POTENTIAL
potential of automation technology to relieve pres- IN EQUIVALENT NUMBER OF JOBS
Simulated long-term impact of employment growth sure on labor reserves. A McKinsey Global Institute FTE million Automation potential, %
~70%
on GDP, compound annual growth rate, %
analysis studied around 800 professions, looking at 5.6–5.7 Manufacturing 64–66
the feasibility of automating the tasks that involve of all jobs
3.1–3.2 Trade (retail & wholesale) 50–53
0.5 −21% using technology already in existence today (see at risk (up to
14.7 million) 2.5–2.6 52–56
Appendix for details). By calculating the potential Agriculture
–0.1 for automating specific tasks and the share of those 1.5–1.6 Construction 47–54
tasks in the total working hours for each profession, 1.5–1.6 Transportation 59–66
Employment growth
Productivity growth
productivity growth
– projected growth
we are able to estimate the potential of automation
Assumed historic
1.4–1.5 Public administration 37-43
for each profession. The result? Up to 49–51 per-
Employment
GDP growth
GDP growth
0.8–0.9 Healthcare 33–38
cent of workplace activities in CEE – the equivalent
of approximately 21 million jobs – could potentially 0.7–0.8 Accommodation & food 49–64
be automated by 2030. 0.7–0.8 Education 23-30
0.6 Professional services 35–41
Historical growth, Simulated growth, The areas most susceptible to automation are physi-
2005–2017 2018–2030 0.3–04 Telecommunication 35–40
cal activities in highly structured and predictable envi-
ronments and tasks such as data collection and pro- 0.3 Finance & insurance 35–41
Note: Projection assuming historical productivity growth and
projected changes in employment growth cessing. These types of activities are most common in Below average Above average
SOURCE: McKinsey Global Institute analysis; McKinsey
analysis manufacturing, warehousing, and simple administrative
SOURCE: McKinsey Global Institute analysis
24 The rise of Digital Challengers The rise of Digital Challengers 25jobs. While less than two percent of all occupations speed and extent of their use will depend on a num- Exhibit 6.
can be automated entirely, around 60 percent of all ber of factors, including technical feasibility, cost, Industries with the highest job vacancy rates could benefit from automation, unlocking economic growth
Industries with the highest job vacancy rates could benefit from automation, unlocking economic growth
occupations have at least 30 percent of their constitu- labor-market dynamics, social acceptance and the stifled
stifled by inadequate labor
by inadequate laborsupply
supply.39
ent activities that could be automated. That means regulatory environment. Industries with the highest job
vacancies and automation potential
that we are likely to see occupations changing due to
automation rather than disappearing completely, and Particularly in Digital Challenger markets, where Industries with highest job Job vacancy rate, Automation potential,
vacancy rate in CEE Q4 2017, % % of working hours
many employees will need to learn how to work more labor costs are still relatively low compared to
“
closely with technology than they do today. Western Europe, investments in technology may Construction 2.8 47–54
be delayed. However, Western companies with
Real estate 2.6 42–43
production plants in CEE may begin considering
Particularly in Digital Challenger the possibility of “reshoring” part of their value- 2.4
markets, where labor costs are still chain processes, most of which are manufac-
Agriculture 52–56
relatively low compared to Western turing-related, to automated plants in their home Accommodation and food service 2.4 49–64
Europe, investments in technology countries. The European Reshoring Monitor is
35–41
Professional services 2.2
may be delayed. a Eurofund initiative that aims to identify exam-
ples of this phenomenon. Based on these, we Manufacturing 2.2 64–66
This effect will be felt to a varying degree across all can see that this is already occurring in CEE. 35
sectors and occupations. For our Digital Challengers, Information and communication 2.2 35–40
automation could have the biggest impact on manu- Opportunities and challenges of automation
Transportation and storage 2.1 59–66
facturing, transportation and warehousing, where, Automation brings opportunities as well as challenges.
according to our estimates, up to 66 percent of all As we saw in Chapter 1, technology can contribute SOURCE: Eurostat; McKinsey Global Institute
activities performed today could be automated (see significantly to productivity, leading to stronger
page 25). The use of industrial and service robots, economic development. In the labor market, employees previous tasks now performed by technology. This people return to the labor market within a year of
3D printing, automated production lines, autonomous could be able to focus on more value-adding activities; may lead to a change in the requirements placed their jobs being automated: 25 percent, 50 percent,
vehicles and drones will lead to significant changes for example, doctors and nurses could spend more on them (for example, they will need to work more 66Minimum
percent, or 100 percent. If only 50 percent of the
estimation range
in these sectors. time with patients rather than performing administrative closely with technology), while in extreme cases people who
Maximum lose their
estimation rangejobs to automation manage to
tasks.36 Additionally, as the workforce transitions to workers may find themselves out of a job. For those find a new job within a year, the unemployment rate
Manufacturing, which is the biggest sector in CEE in new job pools, a positive effect may be seen on both affected, finding new positions may be challenging, may rise temporarily to ten percent (see Exhibit 13).
terms of the number of people employed, accounts job vacancy and unemployment rates. and they will have to acquire new skills. If just 25 percent manage to find a new job within a
for a significant number of jobs susceptible to auto- year – a pessimistic scenario – the unemployment
mation – around 5.7 million in total. Other sectors Industries with the highest job vacancy rates could To illustrate the risk of a “labor market mismatch,” rate may peak temporarily at almost 25 percent.
with high automation potential include mining, agri- benefit from automation, as it may solve the problem we estimate the potential impact of automation on
culture, accommodation and food services, trade of the inadequate labor supply. In recent years, rela- unemployment (Exhibit 7). Here, we assume that by In light of the above, it is important that CEE coun-
and utilities. Automation will have the least impact on tively low unemployment rates and a growing num- 2030 technologies that already exist today will have tries ensure the rapid reskilling of their workers to
education and healthcare, areas where human con- ber of job vacancies in Digital Challenger markets improved to such an extent that it will be cost-effec- prepare them for the changes ahead and to mitigate
tact and emotional skills play a key role. These skills have created a favorable labor market situation for tive to use them to replace humans for the activities the risk of spikes in unemployment. In Chapter 3,
are hard to replace by robots – at least, at present. employees, and challenges for employers.37 Sectors in question and introduce corresponding organiza- we identify the need for effective labor reskilling as a
such as manufacturing, transportation, agriculture tional solutions. We also assume that, by this point key enabler for digitization. Furthermore, we explore
Automation mainly affects low- to medium-skilled and construction – all areas with a high potential for in time, both managers and rank-and-file staff will a number of successful reskilling programs and ini-
jobs. Consequently, people with lower levels of edu- automation – have faced the biggest labor short- have gotten used to handing some tasks over to tiatives, including examples from the CEE region.
cation and low to medium wages are likely to be ages38 (Exhibit 6). Digitization and the implementa- machines. In many sectors, it is also likely to take Additional examples appear in Chapter 5.
more affected by having some aspects of their jobs tion of technology could help companies in these this long for appropriate legislation to come in.40
automated. sectors overcome workforce-related barriers and SHIFTS IN SOCIETY DRIVEN BY NEW
achieve growth. Based on the assumption that 49–51 percent of TECHNOLOGY
Speed and extent of automation workforce activities are automated by 2030 (the So far, automation has not caused a spike in unem-
Many of the technologies for automation are not yet At the same time, some employees will find that fastest adoption rate), we posit four reemployment ployment. However, it will be a driving force of
ready for broad application in the workplace. The their professions alter significantly, with many of their scenarios, in each of which different percentages of change in the labor market. Progressive digitization
26 The rise of Digital Challengers The rise of Digital Challengers 27You can also read
