Global Services Sector Is On the Cusp of a Major Disruption
Taimur Hyat joins Sky News International to discuss the many ways the global services sector is vulnerable to technological disruption.
Shehriyar Antia, Head of Thematic Research at PGIM, joined Ausbiz TV to share insights from PGIM’s Fall 2021 Megatrends report, Reshaping Services: The Investment Implications of Technological Disruption. During the discussion, Antia highlighted the major ways technological innovation is disrupting the service sector, a sizeable part of the investment universe now accounting for one-third of institutional investment portfolios. Other topics covered included: the impact of the COVID-19 pandemic and resulting lockdowns on the rise in telehealth, online payments, and retail delivery logistics; how the ability to embrace technological disruption will determine the clear winners and losers of this megatrend; and the investment opportunities and risks that this megatrend will present in the short- and long-term.
>> This is the latest from PGIM. It's out with its Megatrends report, "Reshaping Services; The Investment Implications of Technological Disruption". To take us through the detail and those changes and perhaps why investors should care or why they need to care, let's welcome back Shehriyar Antia from PGIM joining us now. Terrific to talk to you again. So, yeah, particularly in the services sector, of course, it's interesting to where we've been throughout the pandemic and how some of the dynamics have changed. Has that sort of shaped where we're going?
>> So you know, what investors seem to be missing here is that a major part of the global economy is now on the cusp of disruption. And as you noted, Covid has really accelerated this. So what do I mean by this? Well, services account for 2/3 of global GDP and more than 3/4 of the workforce in develop market. And for investors, this wave of new technology will unleash a whole new set of winners and losers, really impacting every region and every portfolio. And Covid has really driven much of the technology adoption here. But perhaps the most surprising conclusion from our research is that this episode in services could really look quite different than earlier ones.
>> Yes, as you say, certainly what we've seen in Covid, that has amplified those changes there. So what are you seeing in the services sector at the moment, which is gathering pace. And I guess take for example what we're seeing in the financial sector. And we only have to look at what's going on behind the scenes with blockchain technology and DeFi as being disruptive.
>> Sure. So you know, broadly speaking, earlier waves of disruption saw really well-established incumbents like Harris Scarfe really roundly vanquished by tech upstarts like Amazon but history more often rhymes than repeats. And this next episode will not be exactly the same, mostly because service incumbents have advantages that their peers in retail and manufacturing did not. You know clients in service industries such as financial services tend to be stickier and client acquisition costs for new players are significantly higher but, you know, really more importantly service firms had seen this disruption horror movie before. And many, many more of them, you know banks, insurance companies, you know wealth managers are really embracing innovation rather than trying to compete with it. And the key point here for investors is there will likely be two sets of winners to emerge going forward.
>> All right. When you say there's two sets of winners, just lay that out for us and I guess how investors play that.
>> Sure. So we see two distinct paths here for winners. One path is for successful disruptors where upstarts are really able to overcome these high customer acquisition costs. They really have a chance to succeed. So some examples of this are you know payment platforms and neobanks such as Up or Judo here in Australia. They've overcome these customer acquisition issues by primarily focusing on underserved and unbanked communities. But in addition to this set of winning disruptors, there'll also be a small subset of incumbents who really, really thrive; the ones who truly embrace innovation and actively employ it today rather than resisting it. And you know sticking to the financial space, Commonwealth Bank and ANZed are great examples of this. They actually partner with [inaudible] firms to acquire the latest innovations and are really integrating them into their operations.
>> Yeah. And we probably -- you're probably aware of that news yesterday with the Commonwealth Bank now heading down the path of crypto, offering that on its app, so it is changing ever so rapidly at this point. Shehriyar, thanks so much for talking us through that. We could explore this for much longer, of course, but we are short of time. Thanks for joining us from PGIM.
>> Thank you very much.