Digital Fragmentation: Adapt To Succeed In A Fragmented World

WHAT’S ON DECK TODAY?
A new landscape: how increasing barriers to globalization are
RESHAPING GLOBAL STRATEGIES
Copyright © 2017 Accenture. All rights reserved.
1
What does it mean for international business?
COST, COMPLEXITY AND COMPROMISE2
Anticipating and investing
FOR A NEW REALITY3
Four steps
TOWARD DIGITAL RESILIENCE4

GLOBAL
BUSINESS IS
WAKING UP
TO A NEWLY
FRAGMENTED
WORLD

MOVING PEOPLE, PRODUCTS, SERVICESAND
EVEN DATAACROSS BORDERS IS
INCREASINGLY DIFFICULT
Source: Greenleaf, Graham, Global Tables of Data Privacy
Laws and Bills (4th Ed, January 2015) (January 30, 2015).
(2015) 133 Privacy Laws & Business International Report, 18-
28; UNSW Law Research Paper No. 2015-28
More than 1,200 trade-restrictive measures
were adopted by G20 members since
October 2008
and remained in force in 2016
The number of countries with
data privacy laws more than
tripled in the last two
decades
Global foreign direct investment
inflows remain below their 2007
pre-crisis peak (trillions of
dollars)
Source: World Trade Organization Secretariat
Note: Breakdown for 2008 and 2009 remain unpublished
Source: UNCTAD

MEDIASENTIMENT TOWARD
MULTINATIONALS IS WORSE THAN
DURING THE FINANCIAL CRISIS
Text analysis of the evolving media sentiment toward multinationals, 2006-2016
Balance of positive
and negative
terminology
associated with
multinationals in
media articles
Positive
Sentiment
Negative
Sentiment
Source: Accenture analysis of more than 45,000 articles from tier-1 global media sources, 2016

… AMIDASURGE IN NEGATIVE SENTIMENT FOR
GLOBALIZATION AND GROWING POSITIVE
FEELINGS FOR NATIONALISM
Source: Accenture analysis of more than 45,000 articles from tier-1 global media sources, 2016
Balance of positive
and negative
terminology
associated with
globalization in
media articles
Balance of positive
and negative
terminology
associated with
nationalism in
media articles
Global Financial Crisis
Global Financial Crisis
Text analysis of the evolving media sentiment toward globalization and nationalism, 2006-2016
Positive
Sentiment
Negative
Sentiment

SECTOR SIZE, ANNUAL
REVENUE
COUNTRY, HQ
ACCENTURE SURVEYED CIOS
AND CTOS GLOBALLY

AN OVERWHELMING MAJORITY OF DIGITAL
DECISION-MAKERSARE CONCERNED
86 percent believe their IT functions are vulnerable to increasing barriers
to globalization. 88 percent see it as a problem for the company as a whole.
Increasing barriers to globalization are a
problem for my IT function
Increasing barriers to globalization are a
problem for my company as a whole
Copyright © 2017 Accenture. All rights reserved. Source: Accenture/Roubini Thought Lab survey of CIOs and CTOs, 2016

GLOBAL IT STRATEGIESARE
INCREASINGLYAT RISK
86 percent of CIOs and CTOs say their IT strategies and systems are vulnerable.
How vulnerable are your
company’s IT strategies and
systems to the increasing
barriers to globalization?

MANY COMPANIESAREALREADY
CONSIDERING EXITING MARKETS
Copyright © 2017 Accenture. All rights reserved.Copyright © 2017 Accenture. All rights reserved. Source: Accenture/Roubini Thought Lab survey of CIOs and CTOs, 2016
74 percent of CIOs and CTOs say they are likely to exit markets, or delay or abandon market-
entry plans, over the next three years due to restricted flows of data, people, products, and
services.
How likely is it that your
company will exit a market,
delay market-entry plans or
abandon market-entry plans
as a result of increasing
barriers to globalization?

IT COSTS HAVEALREADY RISEN,
AND WILL CONTINUE TO CLIMB
Have/will rising barriers to
globalization increase(d) IT
costs?
Key drivers are (1) increasing input costs, such as IT talent, and (2) meeting requirements to
duplicate or multiply IT infrastructures (e.g. data centers).

DIGITAL CAPABILITIES WILL BE
COMPROMISED
Increasing barriers to globalization compromise abilities in…
Source: Accenture Digital Fragmentation Survey 2016
Cloud services Cross-border analytics Operations across
national IT standards

Copyright © 2017 Accenture. All rights reserved. Source: Accenture Digital Fragmentation Survey 2016
STRATEGIC AND OPERATIONAL PLANS
ARE BEING FUNDAMENTALLY REVISED
Global IT architectures Physical IT location strategy Cybersecurity
strategy/capabilities
Increasing barriers to globalization are making CIOs and CTOs rethink...

“Any restriction to
information adds to cost,
bureaucracy and slows
things down”
David Smoley
CIO, AstraZeneca

RISING COSTS WILL BE MATCHED BY RISING
OPERATIONAL COMPLEXITY AND RISK
Mandated data localization does
not allow sharding, whereby data
is split and stored in separate
locations for security.
GREATER SECURITY RISK
Additional data centers will require
additional coordination.
MORE INTEGRATION WORK
Data will have to comply at all
organizational levels and with all
suppliers, contractors,
collaborators, and customers.
CROSS-BORDER
COMMUNICATION
COMPLIANCE
Organizations will have greater
need to track new and upcoming
legislation, complete compliance
paperwork, and communicate
requirements to partners.
MORE RED TAPE
Localization rules will require
hiring local IT talent and vendors
to build and manage local data
centers.
FINDING MORE TALENT
IN MORE PLACES

DIGITAL PROSPECTS WILL DIM AS GROWTH-
DRIVING TOOLS ARE CONSTRAINED
BIG DATA &
ANALYTICS
CLOUD
CIOs and CTOs identify new digital business models
among their most vulnerable areas
INTERNET OF
THINGS
Digital tools and business models depend on rapid, unrestricted flows of data.

BROADER ECONOMIC GROWTH WILL
BE AFFECTED
Localization requirements risk
obstructing the online purchase
of travel products and services
that have traditionally been
housed on global systems.
RUSSIA
An impending ban on the
export of mapping data will make
services like driverless cars more
difficult to develop and grow.
SOUTH KOREA
Data localization requirements build
barriers for startups trying to access
international services, driving new
companies abroad.
INDONESIA
Localization requirements
obstruct startups from using
cheap, powerful platforms
abroad.
VIETNAM
Source: Bauer, M. et al, The Costs of Data Localisation: Friendly Fire on Economic Recovery,
European Centre for International Political Economy, Occasional Paper, No.3/2014
Brazil
EU-28
China
India
Indonesia
S. Korea
Vietnam
Simulated impact of economy-wide data localization requirements, percent of GDP

MOST CIOS AND CTOS ARE RESPONDING WITH
MORE INVESTMENT IN AUTOMATION AND NEW
IT ARCHITECTURE
Actions already being taken by firms today, in response to increasing barriers
Source: Accenture/Roubini Thought Lab survey of CIOs and CTOs, 2016
Increasing investment in automation to offset labor restrictions
Reorganizing global IT architectures and governance structures
Relocating IT investments from less to more open markets
Increasing use of local IT suppliers (versus regional or global suppliers)
Increasing investment in technologies that integrate systems operating under
different national standards
Relocating IT investments from more to less open markets
Increasing investment in local IT talent in targeted markets

THERE WILL BE WINNERSAND
LOSERS IN THIS NEW ERA
Acting on simple “dos and don’ts” today can boost a company’s fortunes tomorrow.
INFRASTRUCTURE
FOOTPRINT
Build data management capabilities and
redundancy in multiple locations
Depend on centralized
and rigid data structures
DIGITAL
VISION
Understand digital growth
as a complex journey
See digital growth
as a simple inevitability
GOVERNMENT
RELATIONS
Partner with policymakers and regulators to
help shape the rules
Assume that business priorities will
override national concerns
BRANDING
Invest in “looking local”
Rely solely on your
global reputation
OPERATING
MODEL
Prepare for new and changing regulations by
designing agility into your operations
Encumber yourself with technology,
processes and cultures that hinder change

FOUR STEPS FIRMS CAN TAKE TO
SUCCEED IN THE NEW,
FRAGMENTED GLOBAL REALITY
ADD A NEW LENS TO
STRATEGIC PLANNING
1
MAP AND DE-RISK
DATA FLOWS2
BUILD LOCAL ADVANTAGE
3
USE TECHNOLOGY
AS PART OF THE
SOLUTION
4

1:ADD ANEW LENS TO
STRATEGIC PLANNING
Boards must acknowledge the impact of an increasingly fragmented world by dedicating time to
discussing its implications across the business. Ask yourself:
Do we need to rethink our
geographic footprint or
reallocate investments
across markets?
Are we comfortable with
the distribution of key
global functions and IT
architecture?
Do we have the right
cybersecurity strategy
and capabilities?
Are we ready to change
our structure in response
to new legislation?

2: MAPAND DE-RISK DATAFLOWS
The flows of information needed for key management decisions and business operations—
particularly where digital technology is at the core of the business offering—must be protected.
Prepare for new risks by asking these questions:
Does our current IT
architecture jeopardize
crucial data flows?
What data regulations might
affect the
flow of information
needed for key management
decisions?
Does our data
architecture strike the
right balance between
security
and ease of use?
What systems
do we have to
identify, track, and
mitigate regulatory
threats to critical
data structures?

3: BUILD LOCALADVANTAGE
Growing barriers and rising skepticism of multinationals makes it more important than ever for
firms to be local in their key markets—and to be recognized as such. Important considerations
include:
Do our customers see us as
part of their community?
Is our brand integrated with
local minds?
Are we investing enough in
local technology
ecosystems and building
relationships with
local partners?
How much do we invest
in local talent—
especially in IT talent?
How strong are our
relationships with local
policymakers? What would
strengthen them?

4: USE TECHNOLOGY AS PART OF
THE SOLUTION
Smart use of technology will provide a strategic advantage for smart multinationals, which are
asking themselves questions like:
How does national
legislation influence where
and when we can invest in
3D printing?
What is the best choice for
cloud structure? What
degree of centralization
is right for us?
What role can AI
solutions play to help us
deal with talent migration
limits?
Can blockchain help
us manage our work
in a balkanized technology
environment?

CONTACT US
Omar Abbosh
Chief Strategy Officer
Accenture
omar.abbosh@accenture.com
Armen Ovanessoff
Principal Director
Accenture Research
armen.ovanessoff@accenture.com
Mark Purdy
Managing Director –
Economic Research
Accenture Research
mark.purdy@accenture.com
Paul Nunes
Managing Director –
Thought Leadership
Accenture Research
paul.f.nunes@accenture.com

APPENDIX: THE PATH TO DIGITAL
GLOBALIZATION WILL BE DISRUPTIVE,
PATCHYAND UNCERTAIN
Populism
creates political pressure to restrict
trade and migration, in reaction to
rising income inequality and fears of
unemployment. Think Brexit.
State Nationalism
advocates for international barriers to
competition in favor of nurturing
homegrown firms. Think Internet
companies in China.
Data Legislation
pushes regulation aimed at controlling
where data is kept and how it can
move. Think the European Data
Protection Directive.
Powerful economic, social, and political forces are driving change to
global flows of technology, talent, and data.

Digital Fragmentation: Adapt To Succeed In A Fragmented World

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