(Weekly Article Series): Technology and its Role in Strengthening Economic Value Production Chains – Second Article

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Date: 04 - 04 - 2019

Dr..Eng. Ali Mohamed El Khouri

Article No. 2

In the previous article, we ended by defining the economy and the concept of value associated with the product or service, and its close connection with the laws of supply and demand, which affect the movement and balance of markets. Then we touched on the concept of the value chain, which expresses a group of different activities, and contributes to adding value to products and services. We explained that this concept leads us to a more comprehensive concept, which is the value-added network, and we explained how such networks are not formed in longitudinal directions only, but also intersect transversely with the ends of chains for other products and services, and that without these transverse chains, the longitudinal chain will not progress, and the added value will not be formed with it.

In the world of economics, every human and every resource in itself represents an economic ability, and its value will not appear unless it moves to meet the demand of another human being; The farmer may not find any value for his products unless others demand them. Thus any production that is not required will have no economic value; In the language of the millions, it will return losses for not selling and a reason for the goods to spoil

In order to understand the nature of the economy and to approximate the picture more, let us take the similarity between it and the electrical circuit. The electric current needs to pass through the circuit to two electrodes, one positive and the other negative, in order for the electrons to move from the higher power source (the positive electrode) to the lower energy source (the negative electrode). The higher energy source can be depicted as a whole that is manufactured or prepared for sale, such as industrial, agricultural and service products, and the lower energy source can be represented as the recipient of the product, such as consumers or beneficiaries of the service or the product itself.

And as we know that the flow of electric current between the two poles cannot be done unless they are connected through a wire or some kind of electrical conductor. Similarly, the product will not reach the consumer unless he finds the mediator, as he is the conductor of the goods or service, and the mediator here may be transport and shipping companies, agents, distributors, traders and others.

If we go further in this approach a little, we will find in it many common concepts with economic nature, such as the concept of potential difference, current and resistance. The potential difference is economically similar to the abundance of production, and the intensity of the current is represented by the intensity of demand from the market, and the electrical resistance is directly proportional to the length and quality of the conductive wire and the nature of the components that hinder the connections of this wire; The higher the resistance, the greater the resistance

In simple economic terms, this means that the longer the value-added chain and the more economic units associated with it, the higher the cost and prices, as a result of shipping, transportation, warehousing, and other such things.

So, assuming that if the length of the value chain could be reduced, and the distance between the producer and the consumer reduced, this would support the level of production, reduce cost and increase profits; Which we can call the recovery or economic boom.

And the opposite is also true, the greater the complexity, delivery and distance between the product and the consumer, the greater the burden and cost and the product becomes unavailable or high cost, so the movement of the product decreases and the demand for it decreases, which is called recessions or economic depression

What we have shown now of the concepts of boom and bust is not only between the two ends of the value chain that we talked about, but is between each link associated with value generation and the next.

Looking at what we have mentioned about the value-added network in which value chains intersect, we will find that we have entered a more complex circle. But what concerns us from this approach is to conclude that the economic movement and its recovery are possible if there is a link that enables the knowledge communication between the components of the economic network in an appropriate and effective manner.

Knowledge communication between the issuer and the recipient will enable the identification of the market situation and the identification of requirements.

As forecasting information about future market needs, so that the producer and investor (the exporter in the value chain) can direct their capabilities to meet the volume of demand in the receiving market in the value chain

These are the three basic elements of economic value creation with demand and producer, and the connection between the recipient and the exporter.

The lack of communication between the two poles will prevent the goods from reaching their demander despite the presence of the applicant and the presence of the producer, and without it the cycle cannot be completed, and the added value will be cut off and economically absent, turning into a loss

In our technologically rebellious world today, countries or economic groups that will be able to put their economic and production capabilities into value-added networks, will enjoy much better economic growth opportunities, because they will achieve economic prosperity. Moreover, the transformation of digital economy mechanisms would provide great and diversified opportunities to keep pace with social and economic development requirements, and be supportive and possible to achieve economic prosperity and prosperity.

In the digital economy, we find that digital technology has increased its role today to play major roles in maximizing the capabilities of the value-added network, especially achieving knowledge communication between the components of the various value chains to link production cycles and stimulate demand and added economic value. Herein lies the ability of technology to unblock the restrictions that hinder the access of the issuer to the recipient

Also, technology can enhance a producer’s ability to increase production and quality. Technology also gives a unique opportunity to the recipient or consumer to choose what he wants and register his desires, either directly, such as official demand cases, or by knowing his data, needs and tendencies, which has become today a large and important job performed by big data analysis technologies, which according to this data and knowledge can be The exporter or producer directs and plans his production to enable him to provide products that meet these requirements

Returning to the concept of the value chain, we have clarified that all its links are linked to a continuous relationship between the issuer and the recipient.

The recipient in the first stage will become an exporter to the recipient in the second stage, and so on.

By expanding the scope of the vision, we will discover that the reality of the economic reality consists of intertwined value chains,

For this network to form a huge cloud state of communication points to activate the state of fulfillment between the issuer and the receiver, in a sequential and intersecting manner

The question that arises here is, how can technology enhance this communication? And how to activate the link between the producer of value and its demander?

In fact, the multiple technological solutions available today that can achieve the cohesion of the points of the value-added production network are very many, and we will try to highlight some of those technologies, especially those that have a major role in value-added chains. We will discuss each type in a separate article later

advanced broadband communications services 

It is concerned with enabling individuals and institutions to access the Internet quickly and with high quality, and it is one of the components of the digital economy, and a basic necessity without which any component of value chains, whether it is an exporter or a recipient, cannot benefit from the value-added network and the enormous development opportunities provided by various technological solutions.

Cloud Computing

It refers to computer systems of applications and technical solutions that companies and business sectors can rent instead of developing them without the need to invest or buy expensive servers, computers and networks. The hosting parties provide platforms for various technological services via the Internet from safe use of servers, storage spaces and applications, with their flexibility, speed and scalability for expansion as needed, which would contribute to supporting companies to shift from capital expenditures to operating expenses, and help them focus on development and innovation. production and value system

fintech services

Financial technology is a new technology industry that applies advanced technologies to improve financial activities, which are services that serve the financial sector, such as banking applications, electronic payment applications, and money transfers in their various forms. Electronic commerce is one of the most important areas of intersection for the application of money technology concepts. This technology is expected to pose a significant challenge and competition to the traditional banking sector

eCommerce

E-commerce represents the clearest example of communication between the producer or manufacturer and the consumer, as it represents the processes of buying and selling in general through electronic stores on the Internet. E-commerce varies in different forms, including governments, institutions and individuals, including commerce between companies (B2B), companies and governments (B2G) and between companies and individuals (B2C), and it includes within it very wide networks for added value.

Big Data: Big Data

It refers to packets of large and complex data that are difficult to handle through traditional systems. Its importance lies in the fact that after collecting and analyzing this data, it will become of very high value as it gives accurate information about market conditions and consumers’ desires and helps direct appropriate products and according to consumers’ desires, which will activate trade operations and adjust the production system to be compatible with market requirements and competition.

Blockchain

This modern technology represents the pinnacle of economic and financial transactions, especially in the field of e-commerce between companies (B2B), where it is possible to record, automate and verify the validity of financial and commercial procedures and agreements and monitor their implementation with unprecedented levels of security. This technology would revolutionize the business world because of its advanced capabilities in the areas of creating secure digital assets, improving service delivery, exchanging information between different parties and developing supply chains. It also threatens to abolish government and private sectors. Banks and money transfer companies come at the top of this list.

Artificial Intelligence: Artificial Intelligence

This technology will enable speed and accuracy of decision-making, through its ability to perceive, infer, deduce and learn. This means that this technology is able to simulate human patterns of understanding languages, conversations, images, reactions and dealing with different data similarly and even beyond human intelligence. And artificial intelligence will have an important role in the business sector, as it no longer competes with the human employee in terms of functional capabilities and the ability to operate it around the clock, but it is expected in the near future that machines will communicate with each other and make deals with each other. And that in its entirety will have a significant impact on the nature of communications – between the producer and the consumer – in the value-added network

Machine Learning: Machine Learning

We take advantage of this technology to support economic decision-making in a new way, as the machine will be able to learn from trial and error, and use predictive and statistical models to make decisions and secure economic transactions.

Digital Cryptocurrency

It is characterized by all the characteristics of traditional money, from transferring or exchanging other currencies, and using it to pay for the product or service. These currencies rely mostly on blockchain technology and have become very popular around the world, as cryptocurrencies cannot be reversed or counterfeited, which makes them more reliable than traditional currencies, and as a tool to provide added value.

These are simple examples of the technologies of the Fourth Industrial Revolution that are pushing the world and the economic landscape towards unprecedented transformations. There is no doubt that the potentials possessed by these technologies will lead us to the stages of no return, and no one will be able to resist this trend but accept it. Whoever has the speed to make decisions and benefit from the available capabilities will be in the front ranks, and whoever is left behind, the tax will be heavy.

Dr..Eng. Ali Mohamed El Khouri

Advisor to the Council of Arab Economic Unity and President of the Arab Federation for Digital Economy