Everyone and their brother has heard the term “disruption” in news reports about technological advancements hurting legacy companies. Think Amazon versus the local bookstore. Amazon versus the shopping mall. Artificial intelligence versus the portfolio manager. Earlier this week, HSBC published a 126 report listing 15 sectors of the economy at the greatest risk of technological disruption, the companies facing the most risk, as well as those ready to gain from it.
Here’s a look at three sectors that are not high on anybody’s list, but face the risk of an innovation blindside. One quick takeaway from these three picks: the Chinese are innovating and leading.
Telecom
How about a blockchain company that allows you to bypass your cell service to communicate directly with whomever you want? It’s what the cell phone has done to old Ma Bell; and what wifi has done to T-Mobile’s core business of cell phone conversations and text messaging. It’s coming.
The U.S. is most worried about 5G development. Washington believes China will dominate. HSBC thinks Washington is right. Leading operators in Asian countries are expected to be the backbone of 5G rollout, but 5G is likely to be more evolutionary than revolutionary, report authors wrote. The business case for 5G is unclear, as most internet operations work just fine without the extra bandwidth. That’s true for now.
Even some of the habitual cheerleaders for new generations of mobile technology are adopting a cautious tone on 5G. For example, Korea Telecom is not yet engaging in large-scale investment in 5G. YongGyoo Lee, KTs head of 5G, said during Mobile World Live in February that, “It’s not clear what the business case is, not clear at all.”
To some, this sounds an awful lot like computer technicians who thought a 20-megabyte hard drive was all you needed.
The U.S. does not want to get behind the curve on this, even if there is no need for it at this time. HSBC thinks the Chinese are the leaders.
Best stock for this in China: China Mobile. (CHL).
Sporting Goods
New printing technologies like 3-D and on-demand production to cater to custom-made products are revolutionizing the sportswear industry. By improving materials and manufacturing processes, the supply chain is shifting the focus from costs to speed, says Erwan Rambourg of HSBC consumer research department in New York.
“When we attended Nike’s capital market day last year in Portland, Oregon, one of the surprises the management team had for investors was the capacity to create a bespoke pair of athletic footwear from scratch in less than an hour,” Rambourg says. “A person would describe colors, patterns, and possibly names or initials while standing with a blank white pair of sneakers in the middle of a sort of sensor grid. Less than 60 minutes later, there they were, courtesy of 3D printing,” he says.
“Our view is that in a consumer world of mass customization, these initiatives will be very important in terms of standing out in what has become a crowded market.”
HSBC likes Chinese manufacturer Shenzhou International Group. Production speed is everything. Customization, almost everything. Bad news for Footlocker. (Does that place still exist?)
Shenzhou has benefited from co-operation with Nike on the production of the Flyknit sneaker, introduced in 2012. The upper materials led to a significant change in both product offerings and manufacturing process. Automated production of knitted shoe uppers has replaced a significant part of traditional cut-and-sew in Chinese factories. As a result, apart from reducing weight and increasing breathability of footwear for the consumer, the use of knitted shoe uppers has led to lower reliance on labor. Better yet: faster production speed.
Shipping & Logistics
The industry has lagged behind other sectors on the digital curve. However, a host of new technology themes are emerging as incumbents and start-ups look to take the lead.
One standout HSBC focused on was the existing freight forwarding business model. Analysts there think it may be threatened in the long term as digitization is as much an opportunity as a threat. For shipping lines, those with better technology will remain in business. The others will get swallowed up or fold.
Analysis by shipping company Maersk revealed that in 2014, shipping refrigerated goods from East Africa to Europe required more than 200 interactions with nearly 30 people or organizations. This is likely to involve some manual interactions and perhaps the use of such relatively outdated technology as a fax machine, HSBC analysts led by Edward Stanford in London wrote in the report.
Freight forwarders theoretically face two threats. First, a straightforward loss of market share to the likes of Maersk as it extends its logistics offering, or to Amazon/Alibaba/JD.Com as they start to offer their in-house logistics expertise to third parties. This is a mammoth and old industry with a lot of changes coming, from blockchain to autonomous vehicles.
The main publicly traded logistic operators like Germany’s DHL Logistics, DB Schenker Logistics, and California-based CEVA Logistics are all actively adopting new technology to solve these delivery bottlenecks and reduce shipping times, and costs.
Last year there were 20 billion connected devices in the market. Today, approximately 50 million new connected devices are added each week. Half of all data that exists in the world was created only last year. It comes from what users put on their Facebook page to what retail payment systems capture from the chip in your credit card every time you make a purchase. Yet, less than 1% of this data is either considered useful, or even analyzed.
IDC forecasts that spending on artificial intelligence and machine learning will grow from $12 billion last year to $57.6 billion by 2021. Companies are forecast to spend $19 billion on AI in 2018, a 54% increase from last year, on things like computer learning systems and algorithms for investment firms.
McKinsey & Company expects the market size for AI to grow a whopping 50% a year, hitting $130 billion by 2025.
Autonomous vehicles has the potential to decrease the number of vehicles by 28%, reducing parking spaces by 48%, and reduce emissions by 66%, according to the CEO of Iconiq Motors.
eSports — competitive video gaming — is so huge that China’s internet company Tencent recorded 60 million people tuned into their League of Legends finals in 2017. That’s bigger than the Oscars…and the NBA finals, combined.
