We are in the midst of an unprecedented era of digital disruption, one which is characterised by the blurring of boundaries between traditional industries. The possibilities opened by digitisation have encouraged a new breed of companies, which enter seemingly unrelated industries and challenge industry conventions that have been in place for decades.
Yet, this is not the first time “new entrants” have caused disruption. New entrant activity has historically followed the cyclical pattern of economic growth, and we are in the middle of the third wave since the start of the century. Though we have faced convergence tailwinds in the past, this wave is unique in the impact it is likely to have. That is the outcome of PwC’s study Drive or be driven - Understanding the third wave of industry convergence.
Though industries have been impacted by new competition in the past, this phase is unique in its spread and intensity. New entry is at their highest level in over twenty years, driven by a high urgency on the part of companies to explore new technologies, not just to innovate but also to remain competitive.
The first two phases of disruption since the turn of the century largely involved a few industries, leading to a rather limited impact at the macroeconomic level. Unlike the previous two phases, the current wave of disruption is affecting industries across the board, magnifying its likely impact on productivity and the macroeconomy.
New entrants are expected to continue on their long-term growth trajectory through the foreseeable future. As emerging technologies mature, companies are likely to grow capabilities organically as opposed to acquiring or partnering with other industries. Even if there is a slowdown in the convergence wave, it is expected to have little bearing on the disruption which the new entrants have already induced.
Our analysis points towards a causal relationship between new entrants and the productivity of industries, indicating the power of the technologies and business models they bring. Productivity gains from new entrant disruption will push sustained improvements in demand and boost overall growth of all industries. The impact on incumbents on the other hand might not be consistently positive, especially if they do not catch this convergence wave during its upswing, and at the very least, before it runs its course.
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