The rise of Digital Challengers

How digitization can become the next growth engine for Central and Eastern

Perspective on

The rise of Digital Challengers 1 The rise of Digital Challengers

How digitization can become the next growth engine for Central and

Perspective on Poland

Jurica Novak Marcin Purta Tomasz Marciniak Karol Ignatowicz Kacper Rozenbaum Kasper Yearwood About McKinsey & Company We are a global management consulting firm that serves a broad mix of About McKinsey private, public, and social sector institutions. We help our clients make significant and lasting improvements to their performance and realize & Company their most important goals. We have built on nearly a century of experience and added a wide range of new skills and capabilities in Poland to create a firm that is uniquely equipped to this task. For This year, McKinsey & Company’s Polish example, our colleagues in McKinsey Digital & Analytics office celebrates the 25th anniversary of its work together with clients to drive technology-enabled founding. Over the last quarter of a century, we transformations. By combining the latest with have become the largest strategic consultancy deep industry, functional, and technological expertise, in Poland, and today employ more than 1,500 we help clients capture value from data and succeed people. We serve as a trusted adviser to Poland’s in the digital age. We are home to thousands of largest companies and key public institutions. We are the world’s most talented professionals across proud to have shared the transformation and growth the fields of digital, analytics, and design. Our journey with industry leaders in banking and insurance, cross-functional teams enable clients to consumer goods, energy, oil, telecommunications, mining, reinvent themselves through technology. and many other sectors. In total we have carried out more than From optimizing core technology and 850 projects for our Polish clients. automating operations to building entirely new digital businesses, we Three key dates changed the face of McKinsey in Poland. In 2010 work side-by-side with our clients we opened our Polish Knowledge Center in Wrocław, which now to prepare them to survive and employs more than 200 outstanding knowledge professionals. One thrive in a rapidly changing year later, we established the EMEA Shared Services Center in Poznań, world. where more than a thousand colleagues work today.

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About the Digital Challengers research

This report is part of a wider research into the potential of the digi- tal economy in Central and Eastern Europe. In our November 2018 report, “The rise of Digital Challengers: How digitization can become the next growth engine for Central and Eastern Europe” we cover the regional perspective, joined by additional country reports for , , Poland, , and .

Czech Republic Hungary Poland Romania Slovakia

The rise of Digital Challengers 1 Contents Preface

KEY FINDINGS INTRODUCTION This report constitutes a perspective on Poland as In the final chapters of our study, we look at the part of a wider research analyzing the opportuni- vital role of collaboration in CEE, emphasizing the PAGE 4 PAGE 8 ties presented by the digital economy in Central importance of capturing regional scale effects, and Eastern Europe (CEE). Using new research tackling common challengers and sharing best of our own and an examination of published practices in matters related to stimulating digitiza- sources, we define the economic potential from tion across the region (Chapter 4), and examine CHAPTER 1 CHAPTER 2 accelerated digitization in the country. We con- the implications for policy makers, companies and sider Poland, alongside nine other markets in the individuals (Chapter 5). This final section contains Digital economy in Impact on Poland’s region (Bulgaria, , the Czech Republic, a list of actions for these stakeholders to capture Poland labor market Hungary, , , Romania, Slovakia and the digital opportunity. ), as a “Digital Challenger” demonstrating PAGE 10 PAGE 16 strong potential for growth in the “digital economy”, The ideas we present build on those outlined emulating the group of relatively small, highly digi- in our previous reports Digital Europe: Pushing tized countries we refer to as “Digital Frontrunners”, the frontier, capturing the benefits; A future that namely Belgium, , , Finland, works: , employment, and produc- CHAPTER 3 CHAPTER 4 Ireland, , the , tivity; as well as Digital Poland and Shoulder to and . shoulder with robots: Tapping the potential of Key enablers of Collaboration with automation in Poland. We would like to take this digitization in Poland other CEE countries Discussion about the opportunities and chal- opportunity to thank the authors of these publi- is key lenges of digitization has been ongoing for many cations as well as the McKinsey Global Institute years. We aim to provide a unique perspective: – in particular Jacques Bughin, Senior Partner in PAGE 24 PAGE 34 a comprehensive, fact-based analysis that, for Brussels, and James Manyika, Senior Partner in the first time, attempts to quantify the size and San Francisco, for their expertise, insights, inspi- growth rates of digital economy in Poland as well ration and guidance. as the CEE region and provide realistic scenarios CHAPTER 5 CHAPTER 6 for the economic impact of digitization through The work on this report was led by Jurica Novak, 2025. This approach enables us to understand McKinsey’s Managing Partner in , Implications for policy Recap of key in a quantifiable and comparable way how the Marcin Purta, Managing Partner in Poland, Tomasz makers, business messages for CEE digital economy is evolving across countries and Marciniak, Partner, and Karol Ignatowicz, Local leaders, and individuals region against the most relevant benchmarks. We provide Partner. in Poland primary insights on the level of digitization in indi- vidual sectors across Poland and the CEE region These individuals worked together with a team PAGE 36 PAGE 46 (Chapter 1). Building on previous research con- comprising the Consultants Kasper Yearwood, ducted for Poland, a core part of the study is our Kacper Rozenbaum and Arkadiusz Żarowski, investigation of the impact of digital transformation Communications Experts Joanna Iszkowska and on the labor market (Chapter 2). Our discussion Milena Tkaczyk, the Graphic Designer Małgorzata APPENDIX here covers both the shifts in society caused by Leśniewska and many others. the new technology and the increasingly acces- Methodology sible nature of the labor market as a result of the At the same time, we would also like to thank the digital transformation. Following this, we turn to many area experts from the public, private, and PAGE 48 consider a comprehensive, yet prioritized list of dig- social sectors who provided insights, source data itization enablers for Poland, including the relative and helped advance our thinking. In particular, we strengths of the country and key areas on which would like to acknowledge the collaboration with to focus going forward (Chapter 3). Our insights in on this research, including contribution this chapter are based on quantitative analysis and of analytical inputs and insights leveraged in this discussions with numerous market experts. report.

2 The rise of Digital Challengers Digital Challengers 3 EN KEY FINDINGS

Poland as a Digital Challenger

For Poland, the potential economic and the country. Alternatively, a “business as usual” sce- 4 THE GOVERNMENT, BUSINESS LEADERS, workforce in the long term. Joint efforts across developmental benefits of digitization can nario forgoing this acceleration opportunity would AND INDIVIDUALS ALL NEED TO ACT FOR the region can help in finding and implementing reach up to €64 billion in additional gross see the digital economy in Poland expand by €22 A SUCCESSFUL TRANSITION the most effective solutions. domestic product (GDP) by 2025. This billion to reach a 9 percent share of GDP by 2025. To achieve the aspirational digitization scenario, Poland • Similar starting points: Poland, like other CEE will have to count on all stakeholders. Companies will would lead to increased global competi- In this scenario, Poland would remain a long way markets, exhibits high levels of market openness from the “digital frontier” represented by countries need to understand and embrace the opportuni- tiveness and prosperity for the country’s and similar levels of digitization, besides cultural in Northern Europe. ties in digitization, increasing their adoption of digital 38 million people and allow Poland to join and historic commonalities. This adds relevance tools contributing to improved productivity, as well as the most digitally advanced economies in to their shared experiences on what has worked 3 POLAND IS WELL POSITIONED TO CAPTURE enabling them to reach new customers and expand well in digital investments and regulatory policy. Europe. THE DIGITAL OPPORTUNITY into global markets. Today, companies in Poland lag • Best practices: Poland has developed differ- SIMILARILY TO OTHER CEE MARKETS, THE In this report we consider Poland to be one of their Digital Frontrunner peers not only in terms of the 1 ent strengths related to the digital economy than CURRENT GROWTH ENGINES OF POLAND ten Digital Challenger markets based in Central adoption of these tools, but also, for instance, in the other CEE markets. Sharing best practices can ARE LOSING MOMENTUM and Eastern Europe. These countries exhibit degree to which they provided training to develop or accele­rate digitization. Leveraging the strengths of Over the past 30 years, Poland has experienced lower digitization rates than the so-called Digital upgrade ICT skills of their personnel. The public sector neighboring countries could limit the risk of harmful rapid development (GDP per capita grew by 123 Frontrunners (Belgium, Denmark, Estonia, Finland, also could integrate technologies increasing efficiency competition and allow for the creation of centers percent between 1996 and 2017), fueled by tradi- Ireland, Luxembourg, the Netherlands, Norway, and as well as improving the services provided for both of excellence. Also, this could encourage regional tional industries, dynamic exports, investments from Sweden) or EU Big 5 markets (, , companies and citizens. While Poland has already coordination and planning: Instead of developing abroad, a growing workforce than labor-cost advan- , , and ). However, Poland made a number of first steps in the area of govern- solutions in isolation, Poland could speed up the tages, as well as funding from the . has strong foundations on which to accelerate its ment digitization, the uptake of online services among development of its digital economy by replicating However, many of these drivers are beginning to digitization. The size of the digital economy in Poland the general population remains lower than both the successful strategies already tested elsewhere. lose their momentum. Significantly undercapita­ (at 6.2 percent of GDP in 2016) is trailing the CEE CEE and Digital Frontrunner average. For individuals, average of 6.5 percent, with a clear gap to Digital lized compared with more advanced European investing in lifelong learning for upskilling and reskill- In the future, Poland along with other Digital Chal­ Frontrunner markets such as Sweden (9.0 per- economies, Poland is also experiencing a shrinking ing will be key to take advantage of new labor market lengers could work together on digital projects and cent). However, it is relatively close in size to the EU and increasingly more expensive workforce, with opportunities. Policy makers are called upon to pro- policy solutions across the region – all with the aim Big 5 average of 6.9 percent and has also recent- at record low levels (4.9 percent in mote the adoption of technology in both the public of facilitating digital transformation. Also, a pan- ly gained significant momentum: between 2012 2017). There is a need for unlocking new sources of and private sectors. They can also support workers CEE coalition could help to ensure that the digital and 2016, the digital economy in Poland grew by productivity growth in the country. If Poland hopes through reskilling and upskilling programs (especially interests of the region’s countries are heard at the 7.0 percent a year, twice as fast as in the EU Big to continue on its path to increased general societal given Poland’s low adult participation rate in educa- European level. prosperity, it needs to redefine its growth strategy. 5. Additionally, good fundamentals in primary and tion and training, trailing both the CEE and Digital seco­ndary education quality (Poland scores on a par Frontrunner average), and improve the ecosystem for 6 THE TIME TO ACT IS NOW – OTHERWISE 2 DIGITIZATION COULD BE THE NEXT DRIVER with Digital Frontrunners in OECD’s PISA rankings), startups and the opportunities for digital . POLAND MAY MISS THE DIGITAL OPPORTUNITY OF SUSTAINED GROWTH FOR POLAND, WITH a large STEM and ICT graduate talent pool (Poland We believe that for Poland to benefit fully from the €64 BILLION OF INCREMENTAL GDP BY 2025 is responsible for 50% of the region’s graduates in 5 COLLABORATION WITH OTHER CEE digital transformation, the time to act is now. Poland AT STAKE these fields), high-quality digital infrastructure, as well COUNTRIES AS DIGITAL CHALLENGERS IS KEY is booming economically, but history shows that Our analysis shows that accelerating digitization as a legacy technology lock-in that is milder than in The countries of CEE, Poland included, can capture booms do not last forever, with multiple signs already and converging toward a tech-driven economy Western and Northern European countries lend sup- the full potential of digitization only by cooperating indicating future limitations to traditional growth have a big potential to unlock the new growth port to Poland’s Digital Challenger status. Relative to closely with each other. Four reasons underpin the drivers. Also, technology is poised to fundamen- engine that Poland urgently requires. In 2016, the other CEE markets, the country exhibits higher digiti- benefits of acting together: tally transform the Polish labor market: Our analysis digital economy­ in Poland already accounted for zation rates in the financial services as well as trans- • Scale effects: As the CEE region, Digital shows that up to 49 percent of workplace activities in 6.2 percent of GDP, the equivalent of €26 billion. portation and warehousing sectors. In many digitiza- Challengers represent €1.4 trillion in GDP – the country today could be automated by 2030 using Accelerating digitization in the country to close the tion-enabling areas, however, Poland performs close almost three times the size of the Polish econo- technology that already exists. This creates both gap to Northern European economies could see to or even below the CEE average, indicating room my. Enabling Polish enterprises to seamlessly tap a productivity increase opportunity and challenges this base expand by up to €64 billion by 2025. In for improvement. This especially holds true in areas into this potential can reap significant benefits. related to transitioning the labor market to new job this aspirational scenario, the digital economy in such as the startup ecosystem (with a significantly Promoting digital solutions across the region can pools. Immediate action is needed to address these. Poland would grow to represent 15 percent by smaller number of startups per capita), participation help reduce the cost of cross-border trade. Finally, now is the time when global rules of the digi- 2025. This could mean an extra percentage point rates in adult learning among the general population, • Common challenges: Poland faces the same tal game are crystallizing. Effectively navigating the on GDP growth each year over the period, a 30 as well as the adoption of digital tools by companies challenges as many other CEE markets, impor- digital transformation ahead requires a clear digital percent uplift on the projected baseline growth for for cross-border e-commerce. tantly the “brain drain” and need to reskill the agenda.

4 The rise Digital Challengers The rise of Digital Challengers 5 PL GŁÓWNE WNIOSKI

Polska jako Cyfrowy Challenger

Dzięki potencjałowi rozwojowemu i ekono- Alternatywny scenariusz, zakładający utrzymanie obec- start-upów (znacznie niższa liczba start-upów na miesz- Podobne punkty wyjścia – podobieństwa kulturowe micznemu cyfryzacji PKB Polski może być nego kierunku rozwoju, oznaczałby wzrost gospodarki kańca), odsetek dorosłych dokształcających się wśród i historyczne to niejedyne elementy łączące kraje Europy wyższy aż o 64 miliardy (ok. 275 mld zło- cyfrowej tylko o 22 miliardy euro (ok. 94 miliardów zł) do ogółu społeczeństwa, a także wykorzystywanie narzędzi Środkowo-Wschodniej. Polska, tak jak inne gospodarki 2025 r., co odpowiadałoby jedynie 9% PKB. W tym sce- cyfrowych w sprzedaży e-commerce za granicę. regionu, wykazuje wysoki poziom otwartości rynku i zbli- tych) do 2025 roku. Umożliwiłoby to Polsce nariuszu Polska pozostałaby daleko w tyle za Cyfrowymi żony poziom cyfryzacji. Należy dodać do tego również 4 CYFROWA TRANSFORMACJA GOSPODARKI zwiększenie konkurencyjności na globalnych Liderami z Europy Północnej. zbliżone doświadczenia w obszarze inwestycji cyfrowych WYMAGA DZIAŁAŃ I WSPÓŁPRACY ADMINI- rynkach, poprawę sytuacji ekonomicznej 38 i polityki regulacyjnej. milionów obywateli, a nawet awans do grona 3 POLSKA MA SILNE PODSTAWY DO DALSZEGO STRACJI PUBLICZNEJ, BIZNESU I OBYWATELI ROZWOJU SWOJEJ GOSPODARKI CYFROWEJ Najlepsze praktyki – w niektórych obszarach Polska ma najbardziej zaawansowanych cyfrowo gospo- Aby ambitny scenariusz cyfryzacji w Polsce został W niniejszym raporcie wskazujemy, że Polska jest jed- zrealizowany, niezbędne są działania wszystkich pod- jednak inne atuty niż reszta krajów regionu. Dzielenie się darek w Europie. nym z dziesięciu krajów regionu, które ze względu na miotów mających wpływ na gospodarkę. Firmy powin- najlepszymi praktykami może przyspieszyć cyfryzację swój cyfrowy potencjał uważamy za tzw. Cyfrowych innych gospodarek i wzmocnić ich atrakcyjność dla pol- 1 DOTYCHCZASOWE MOTORY WZROSTU ny dokładnie przeanalizować, jakie nowe możliwości Challengerów (ang. Digital Challengers). Oprócz Polski skich firm i odbiorców. Dodatkowo wspólne wykorzysta- POLSKIEJ GOSPODARKI SŁABNĄ daje im cyfryzacja gospodarki i jak je wykorzystać, m.in. w skład tej grupy wchodzą: Bułgaria, Czechy, Chorwacja, nie atutów sąsiadujących ze sobą krajów mogłoby ograni- Przez ostatnie trzy dekady Polska notowała wysokie wdrażając więcej narzędzi cyfrowych. Pozwoli im to dalej Litwa, Łotwa, Rumunia, Słowacja, Słowenia i Węgry. czyć ryzyko szkodliwej konkurencji i umożliwić stworzenie tempo rozwoju (PKB na mieszkańca wzrósł o 123% zwiększać produktywność, znaleźć nowych klientów Szczegółowe analizy dotyczące potencjału cyfrowego w poszczególnych państwach wyspecjalizowanych cen- w latach 1996-2017). Lokomotywami wzrostu były trady- i łatwiej prowadzić ekspansję na globalne rynki. Także dla całego regionu Europy Środkowo-Wschodniej można trów doskonałości (ang. centers of excellence). Mogłoby to cyjne sektory gospodarki, dynamiczny eksport, inwesty- sektor publiczny mógłby bardziej wykorzystywać tech- znaleźć w publikowanym równolegle raporcie The Rise również zachęcić do większej regionalnej koordynacji i pla- cje zagraniczne, rosnąca siła robocza przy stosunkowo nologie, które pozwoliłyby zwiększyć wydajność pracy of Digital Challengers: How digitization can become the nowania działań. Zamiast opracowywać zawsze własne niskich kosztach pracy oraz środki z Unii Europejskiej. i jakość usług świadczonych na rzecz firm i obywateli. next growth engine for Central and Eastern Europe. rozwiązania w oderwaniu od innych, Polska mogłaby przy- Jednak wiele z tych czynników zaczyna wygasać. Z kolei mieszkańcy w kontekście nadchodzących zmian spieszyć rozwój gospodarki cyfrowej dzięki wykorzystaniu Zmagając się m.in. z problemem relatywnego niedostatku Poziom cyfryzacji w krajach tej grupy jest na razie niższy na rynku pracy powodowanych przez automatyzację sprawdzonych działań przetestowanych w innych krajach. kapitału, polska gospodarka stoi również przed wyzwa- niż u Cyfrowych Liderów z Europy Północnej czy u tzw. powinni inwestować w kształcenie ustawiczne, które uła- niami na rynku pracy: przy rekordowo niskim bezrobociu Wielkiej Piątki UE (Francja, Hiszpania, Niemcy, Wielka twi im przekwalifikowanie się i zdobycie nowych umie- W przyszłości Polska, wraz z pozostałymi Cyfrowymi (4,9% w 2017 roku) siła robocza staje się coraz droższa. Brytania i Włochy). jętności wymaganych przez pracodawców. Proces ten Challengerami z Europy Środkowo-Wschodniej, mogła- powinien się odbywać przy jednoczesnym promowaniu by wspólnie prowadzić prace nad projektami cyfrowymi Jeśli Polska chce pozostać na ścieżce szybkiego roz- Polska ma jednak silne podstawy, aby przyspieszyć przez decydentów wykorzystywania nowych technologii i regulacjami w skali regionu. Co więcej, silna koalicja woju gospodarki i wzrostu zamożności społeczeństwa, cyfryzację swojej gospodarki. Obecnie wielkość cyfro- i ich wdrażania. Powinni oni także wspierać programy krajów Europy Środkowo-Wschodniej sprawiłaby, że ich musi ponownie zdefiniować strategię rozwoju i poszukać wego segmentu gospodarki (6,2% PKB w 2016 roku) przekwalifikowywania się i powiększania kompetencji „cyfrowe” interesy wybrzmiałyby znacznie wyraźniej na nowych źródeł wzrostu. pozostaje nieco poniżej średniej dla regionu (6,5%) oraz pracowników oraz działać na rzecz wzmocnienia eko- forum europejskim. znacznie w tyle za Szwecją (9%). Nasz kraj jest jednak 2 CYFRYZACJA JAKO NOWY MOTOR WZROSTU systemu wsparcia dla start-upów. stosunkowo blisko Wielkiej Piątki UE (średnio 6,9% PKB). GOSPODARKI POLSKI MOŻE PRZYNIEŚĆ ZWIĘK- 5 KLUCZEM DO SUKCESU JEST WSPÓŁPRACA 6 NALEŻY DZIAŁAĆ JUŻ TERAZ – W PRZECIWNYM RAZIE POLSKA MOŻE PRZEGAPIĆ CYFROWĄ SZENIE PKB O 64 MILIARDY EURO (OK. 275 MLD Co więcej, w ostatnim czasie tempo rozwoju tej części KRAJÓW EUROPY ŚRODKOWO-WSCHODNIEJ ZŁOTYCH) DO 2025 ROKU SZANSĘ gospodarki w Polsce znacząco przyspieszyło. W latach JAKO CYFROWYCH CHALLENGERÓW Według naszych analiz przyspieszenie cyfryzacji i opar- 2012-2016 gospodarka cyfrowa rosła o 7% rocznie, Aby w pełni wykorzystać cyfrową transformację, należy Cyfrowi Challengerzy, czyli kraje Europy Środkowo- cie gospodarki na nowych technologiach mogłoby stać co było dwukrotnie wyższym wynikiem niż w krajach dostrzec unikalną szansę i działać natychmiast. To dobry Wschodniej, w tym Polska, mogą wykorzystać tę szan- się nowym motorem wzrostu, którego Polska tak pilnie Wielkiej Piątki UE. Dodatkowo stosunkowo dobra jakość moment m.in. dlatego, że obecnie polska gospodarka sę i dogonić Cyfrowych Liderów z Północy tylko wtedy, potrzebuje. W 2016 roku gospodarka cyfrowa w naszym szkolnictwa podstawowego i średniego (podobne wyni- rozwija się bardzo szybko. Jednak powszechnie wiado- gdy będą ze sobą ściśle współpracować. Przemawiają kraju stanowiła 6,2% PKB, czyli równowartość 26 miliar- ki testów PISA co u Cyfrowych Liderów na północy mo, że okresy dobrej koniunktury nie trwają wiecznie. za tym cztery główne powody: dów euro (ok. 112 miliardów złotych). Europy), liczna grupa absolwentów kierunków ścisłych, Już teraz widać pierwsze oznaki tego, że dotychczaso- rozbudowana i nowoczesna infrastruktura cyfrowa, Efekty skali – wielkość PKB dziesięciu omawianych we motory wzrostu zaczynają hamować. Przyspieszenie rozwoju gospodarki cyfrowej może nie jak również niższy niż w krajach Europy Zachodniej krajów Europy Środkowo-Wschodniej wynosi 1,4 biliona tylko przynieść Polsce dodatkowe 64 miliardy euro (ok. Dodatkowo technologia może gruntownie przekształcić i Północnej stopień uzależnienia przemysłu od technolo- euro, czyli blisko trzykrotnie więcej niż wielkość gospo- 275 miliardów złotych) do 2025 roku, ale też pozwolić polski rynek pracy – nasza analiza pokazuje, że nawet gii poprzednich generacji pozwalają Polsce stawiać sobie darki Polski. Umożliwienie polskim firmom nieograniczo- całkowicie zniwelować dystans do najbardziej zaawan- do 49 proc. czasu pracy w Polsce może zostać zauto- bardzo ambitne cele w zakresie rozwijania gospodarki nego wykorzystania tego potencjału może przynieść sowanych cyfrowo gospodarek Europy Północnej (czyli matyzowane do 2030 roku przy wykorzystaniu już istnie- cyfrowej i swojego statusu jako Cyfrowego Challengera. znaczące korzyści, m.in. obniżenie kosztów handlu tzw. Cyfrowych Liderów – ang. Digital Frontrunners: jących technologii. Oznacza to z jednej strony szansę na transgranicznego. Belgia, Dania, Estonia, Finlandia, Holandia, Irlandia, Już dziś są w Polsce sektory, np. finansowy i logistycz- wzrost produktywności, z drugiej zaś wyzwania zwią- Luksemburg, Norwegia i Szwecja). W tym ambitnym ny, gdzie poziom cyfryzacji jest wyższy niż średnia Wspólne wyzwania – Polska stoi w obliczu wielu tych zane z dostosowaniem siły roboczej do nowego rynku scenariuszu odsetek PKB, który generuje gospodarka dla wszystkich badanych krajów Europy Środkowo- samych wyzwań, co pozostałe rynki Europy Środkowo- pracy. Dlatego działania są niezbędne już teraz. Jednak cyfrowa Polski, wzrósłby z 6,2% aż do 15% PKB w roku Wschodniej. Z drugiej strony, w wielu ważnych obsza- Wschodniej, czyli przede wszystkim drenażu wykwalifi- przede wszystkim to właśnie teraz kształtują się nowe 2025. Mogłoby to oznaczać w tym okresie dodatkowy rach z punktu widzenia stymulowania gospodarki kowanej siły roboczej oraz potrzeby przekwalifikowywa- zasady globalnej cyfrowej rozgrywki. Aby więc skutecz- punkt procentowy wzrostu PKB każdego roku, co spo- cyfrowej Polska osiąga wyniki albo tylko zbliżone do nia pracowników ze względu na nasilającą się automaty- nie przejść transformację cyfrową i wykorzystać jej pełen wodowałoby aż 30-procentowy przyrost w stosunku do średniej dla regionu, albo wręcz od niej niższe. Dotyczy zację. Wspólne wysiłki w regionie mogą pomóc znaleźć potencjał, trzeba koniecznie stworzyć jasną i szczegóło- prognozowanej dynamiki rozwoju kraju. to w szczególności obszarów takich jak ekosystem i wdrożyć najskuteczniejsze rozwiązania. wą strategię działania. 

6 The rise Digital Challengers The rise of Digital Challengers 7 POLAND

INTRODUCTION REGIONAL POPULATION IN TOTAL VS. COUNTRY AVERAGE, 2017, MILLIONS

Poland and Digital Challengers at a glance 62 Digital Frontrunners 7 (avg.) From the perspective of economy and digitization, three broad groups of countries have emerged in EU Big 5 Europe over the last three decades. The first group is formed by relatively small, open economies with very high digitization rates. This so-called Digital Poland Frontrunners group comprises Northern European 323 38 and Benelux countries: Belgium, Denmark, Estonia, Finland, Ireland, Luxembourg, the Netherlands, 65 Norway, and Sweden.1 The second group is com- (avg.) posed of the five biggest economies in the EU (so- called EU Big 5) – France, Germany, Italy, Spain, and United Kingdom. Compared with the first group, these countries typically exhibit much lower market 101 openness, relying more on their large internal mar- Digital kets, combined with lower, albeit still high, digitiza- Challengers 10 tion rates. Finally, there are ten countries of Central (avg.) Eastern Europe – Bulgaria, Croatia, Czech Republic, Hungary, Latvia, Lithuania, Poland, Romania, GDP PER CAPITA GROWTH Slovakia, and Slovenia. 1996–2017, % MARKET OPENNESS, 2017, GDP COUNTRY AVERAGE, Poland has recorded significant economic growth TRADE AS % OF GDP 2017, € trillion since the 1990s. (GDP) per capita grew by 123 percent between 1996 and 2017. The main growth drivers in this period were 103 137 0.5 0.1 123 114 traditional industries, dynamic exports, investments from abroad, labor-cost advantages, and the inflow 128 67 0.4 2.6 58 27 of EU funds. But now these drivers are beginning to lose their momentum. The Polish economy is gene­ rally undercapitalized relative to more advanced European economies: the ratio of capital, measured as net assets per employee, is more than 60 percent lower here than in the five largest economies in the European Union (the “EU Big 5” of France, Germany, CAPITAL STOCK Italy, Spain, and the United Kingdom). Workforce UNEMPLOYMENT, PER EMPLOYEE, costs are rising, and there are limited labor reserves 2017, % 4.9 6.5 9.2 6.1 2016, € million 5.1 5.4 12.9 22.6 left to plug into the economy, with at record low levels: 4.9 percent in 2017, compared with 7.6 percent in the European Union. WORKING PRODUCTIVITY, Additionally the working hours in Poland are already HOURS PER 2017, GDP per above the EU average. Moreover, productivity lags YEAR, 2017 hour worked, € behind Western Europe, and the inflow of EU funds 2,028 1,778 1,592 1,573 30 31 53 64 to Poland is likely to weaken after 2020. As a result, Poland Digital EU Digital Poland Digital EU Digital Poland needs a new engine to continue its economic Challengers Big 5 Frontrunners Challengers Big 5 Frontrunners growth.

EU BIG 5: France, Germany, Italy, Spain, United Kingdom Digital Frontrunners: Belgium, Denmark, Estonia, Finland, Ireland, Luxembourg, the Netherlands, Norway, Sweden Digital Challengers: Bulgaria, Czech Republic, Croatia, Hungary, Latvia, Lithuania, Poland, Romania, Slovakia, Slovenia

SOURCE:

8 The rise Digital Challengers The rise of Digital Challengers 9 CHAPTER 1: DIGITAL ECONOMY IN POLAND

Our approach to measuring the digital The size and growth of the digital economy economy in Poland in Poland

The term “digitization” is widely used by economists. Yet its precise meaning is a topic Share of digital Digital GDP Growth of digital Growth of non- of much discussion, particularly when it comes to measuring its impact on economies.2 economy, 2016, per capita, economy, digital economy Consequently, uncertainty reigns about the scale of the digital economy in Poland and CEE. % of GDP 2016, € 2012–16, % 2012–16, % In this report on Poland, similarly to its CEE edition, we try to strike a balance between the various definitions of digitization when looking at the digital economy. We define it as the sum of three components: POLAND 6.2 693 7.0 2.6

The value of the information and DIGITAL 6.5 746 6.2 2.6 communications technology CHALLENGERS (ICT) sector, measured as the AVERAGE spending of government and companies across all sectors on hard- EU BIG 5 6.9 2,264 3.1 1.2 ware, software, and AVERAGE telecommunications solutions

DIGITAL 7.3 3,276 5.9 2.0 FRONTRUNNERS AVERAGE

SWEDEN 9.0 4,152 9.9 2.2 The value of the e-commerce The value of offline con- market, measured as online sumer spending on digi- purchases of goods and ser- tal equipment According to our analysis, the digital economy in Poland accounted for 6.2 percent of total GDP in 2016. vices by consumers This is close to both the CEE and EU Big 5 averages, while clearly lagging Digital Frontrunners markets such as Sweden. In per capita terms, the differences are more pronounced. The digital GDP per capita in Poland is just over one-fifth the size of the Digital Frontrunner average, and one-sixth that of Sweden. As discussed in The rise of Digital Challengers (CEE perspective) report,3 we have chosen this Importantly, however, historical dynamics indicate a faster growth pace for the digital economy in Poland definition for two main reasons. First, it is relatively comprehensive – broader than just the ICT than in the EU Big 5. Poland is even catching up to Digital Frontrunner markets in this respect. While sector, yet more concrete than, say, “all activities related to digital data.” Second, reliable data this is a positive indicator, room for improvement clearly remains. Despite starting from a higher level, is available for each of the three areas it covers, so its total value can be easily calculated (see Sweden was able to grow its digital economy by 9.9 percent a year between 2012 and 2016, for methodology appendix). This enables us to use a bottom-up modeling approach, drawing example. With enough extra effort, Poland could accelerate the pace of growth of its digital economy on data collected at the national level. and catch up to or even overtake some of the more digitally advanced economies.

10 The rise of Digital Challengers The rise of Digital Challengers 11 CHAPTER 1: DIGITAL ECONOMY IN POLAND

Sector-level digitization in Poland

Before identifying potential levers for achieving accelerated growth in Poland, we should look at the Sector-level digital leaders, followers, and novices in Poland manner in which digitization has already taken place around the world. An examination of global % of GDP trends indicates that there is no standard route to achieving high rates of digitization. Most markets, including Digital Frontrunners, have digitized unevenly, with large variations between different sectors 0 2 4 6 8 17 20 and individual companies. To understand which sectors drive digitization at a “macro” level, we need Finance and insurance a multidimensional view. The McKinsey Global Institute (MGI) Industry Digitization Index offers such Digital ICT sector a perspective, assessing digitization at the level of individual sectors.4 It uses eight indicators to capture leaders different ways in which companies are digitizing. All results at sector level are weighted for the economic Arts and entertainment size of the sector and compared with the global digital frontier, namely, the ICT sector in the United Accommodation and food States.5 Digital Professional services followers Transportation and warehousing MGI INDUSTRY DIGITIZATION INDEX Trade (retail and wholesale) Manufacturing

Digital Agriculture Digital-asset spending novices Education

Government Hardware spending Share of total expenditure spent on ICT hardware (e.g., computers, servers) Mining Healthcare Software and IT services spending The digital economy of Poland has developed unevenly, with Share of total expenditure spent on software and IT services (e.g., enterprise digital leaders, followers, and novices emerging at sector level. Utilities resource planning software) Going forward, the priority for each sector will be to catch up with counterparts in digitally more advanced countries. Telecommunications spending Share of total expenditure spent on telecommunications (e.g., broadband access, mobile data services) Sector digitization in Poland compared with CEE, Western Europe, and Digital Frontrunner benchmarks

Low: Average: ~3%–10% High: >10% Digital-asset spending per worker <~3%

CEE Hardware spending on workers Selected countries ICT hardware (e.g., computers, servers) expenditure per full-time- from Western Europe equivalent employee (FTE) (France, Germany, UK) Sweden as representation Software and IT services spending per worker of Digital Frontrunners Software (e.g., enterprise software licenses) and IT services expenditure per FTE Comparing Poland with Sweden (a Digital Telecommunications spending per worker Frontrunner representative), Telecommunications (e.g., broadband access, mobile data services) the biggest gaps in terms expenditure per FTE of digitization are found for utilities, manufacturing, government, professional, Digital-capital deepening and business services. The finance and insurance sec- Hardware assets per worker tor and for transportation ICT hardware assets (e.g., servers, computers) per FTE and warehousing. Software assets per worker Software assets (e.g., workers’ software licenses) per FTE SOURCE: McKinsey Global Institute

12 The rise of Digital Challengers The rise of Digital Challengers 13 CHAPTER 1: DIGITAL ECONOMY IN POLAND

Digitization can We see two trajectories for Poland to grow its digital economy: a business-as-usual be the next driver scenario bringing an additional €22 billion of sustained growth of GDP and an aspirational scenario with 7 in Poland €64 billion of GDP at stake € billion Looking ahead, we see two potential trajectories for further digitiza- Share of GDP, % tion in Poland.

In the first, a “business as usual” scenario, the country maintains its historical growth rate for the digital economy. The digital economy Aspirational expands by €22 billion to reach 9 percent of GDP by 2025. The gap to Digital Frontrunners (measured as the digital economy’s share of 90 GDP) remains almost unchanged, and the gap to the most dynamic markets, such as Sweden, increases. 15% The second scenario is an “aspirational” perspective. Here, we +64 estimate the value at stake from Poland closing the gap to Digital Frontrunners. This would see its digital economy growing by €64 billion to reach 15 percent of GDP by 2025, translating into an extra one percentage point, a GDP growth each year, or a one-third increase in the projected growth rate. The additional €42 billion,6 on top of the €22 billion impact of maintaining the historical growth rate, is made up of the following amounts:

• €34 billion from increased productivity from closing the gap to Digital Frontrunners in the digitization of public and private sectors Business as usual

• €8 billion from extra growth in e-commerce and consumer offline spending on digital equipment 48 +22 9% The first of these amounts (closing sectoral digitization gaps to Digital Frontrunners) comes from Poland increasing its ICT spend- ing levels (as a share of sector GDP) to match Digital Frontrunner markets. Achieving this would require acceleration of the digital transformation, especially in the sectors that lag furthest behind their Digital Frontrunner benchmarks and at the same time account 26 Digital economy for a significant share of the Polish economy. This includes asset- 6% in 2016 heavy sectors such as manufacturing, public sectors such as healthcare and education, and deconcentrated industries such as agriculture. The second amount comes from faster growth in e-commerce and offline consumer spending on digital equipment (for more details, see the methodology appendix). Capturing this potential will depend on all stakeholders embracing 2016 2025 digital technology in the coming years. For companies, it will mean taking advantage of solutions enabling growing sales through digi- tal channels, including boosting their export capabilities. For both public and private organizations, it will mean improving operating efficiency by integrating automation and streamlining solutions. For individuals, it will mean investing in developing the skills needed in the digital economy.

14 The rise Digital Challengers The rise of Digital Challengers 15 CHAPTER 2: IMPACT ON POLAND’S LABOR of working time in Poland % OF ACTIVITY THAT COULD BE AUTOMATED MARKET is spent on activities that could be automated The potential for work 49% Predictable physical 75 automation in Poland Processing data 71 Collecting data 65

7.3 Unpredictable physical 39 equivalent number of Increases in GDP in Poland over the past decade million jobs that could be Applying expertise 29 were associated with employment growth and rising automated in Poland productivity. While the latter of these was by far the Interacting with stakeholders 22 bigger contributor, growth of the working population was still responsible for around 30 percent of GDP Managing people 9 growth between 2005 and 2017.8 However, a growing consensus exists that Poland has now reached peak employment level. Negative demographic trends such as SHARE OF OCCUPATION TYPES WITH GIVEN AUTOMATION POTENTIAL, declining birthrates, emigration, and aging could hinder % of 820 occupation types) the future development of the region. Assuming flat 0% 100% employment projections and productivity growth rates at historical levels, this could put at risk up to 32 percent 100% 1 of the GDP growth rate by 2030.9 >90% 9 While few occupations are fully automatable, 60% of all occupa- >80% 19 tions have at least 30% technically One of the sources of productivity acceleration in the >70% 27 automatable activities future may come in the form of automation technologies. >60% 34 We have explored this potential at length in a 2018 report >50% 41 >40% 50 published with Forbes, Shoulder to shoulder with robots: >30% 60 Tapping the potential of automation in Poland,10 where >20% 72 we estimate that up to 49 percent of workplace activities >10% 91 AUTOMATION POTENTIAL AUTOMATION today in Poland – the equivalent of about 7.3 million >0% 98 jobs – could potentially be automated by 2030 using technology that already exists today.11 This is close to the Machine operators, Rail transportation Chemical technicians, Engineers, teachers, Psychiatrists, graders and sorters of workers, travel administrative assistants, sales and marketing legislators, potential for the entire region, which we have estimated agricultural products, agents, food construction workers workers, healthcare entertainers, 12 food production workers preparation workers practitioners religious at 49–51 percent . workers

Without an accelaration in productivity growth, demographic trends TOTAL AUTOMATION POTENTIAL IN EQUIVALENT NUMBER OF JOBS might cut GDP growth in PolandPL - Chapter by 32% 2 Exhibit 1 Simulated long-term impact of employment growth on GDP, FTE million Automation potential, % compound annual growth rate, % 1.9 Manufacturing 64 1.2 1.1 Trade (retail and wholesale) 50

-32% 1.0 Agriculture 52 0.0 0.7 Public administration 40

0.6 Transportation 65

0.5 Construction 52

0.3 Healthcare 33

0.3 Education 26 Assumed historic growth productivity Productivity growth Productivity Employment growth GDP growth Employment growth – projected GDP growth 0.2 Accommodation and food 49 Historical growth, 2005–2017 Simulated growth, 2018–2030 0.2 Professional services 35 NOTE: Projection assuming historical productivity growth and projected changes in 0.1 Finance and insurance 36 employment growth. SOURCE: MGI; McKinsey analysis

16 The rise Digital Challengers SOURCE: McKinsey Global Institute analysis The rise of Digital Challengers 17 CHAPTER 2: IMPACT ON POLAND’S LABOR MARKET Demand for technological skills could grow by around 50 percent, and for social and emotional skills by Opportunities and challenges around 20 percent.13 of work automation Skills used, by category, Western Europe, all sectors, 2016–2030, % of total hours worked

AUTOMATION CAN HELP DE-BOTTLENECK INDUSTRIES WITH BIG LABOR SHORTAGES Physical and manual Automation brings new opportunities as well as con- low unemployment rates and a growing number of -16% cerns. Technology adoption can be a significant pro- job vacancies in Poland have created a favorable 17 Basic cognitive 14 ductivity contributor, leading to stronger economic labor market situation for employees, and chal- 25 development. In the labor market, this could manifest lenges for employers. Sectors such as accommo- 31 -17% itself by enabling employees to focus on more value- dation, manufacturing, transportation, agriculture, 2016 21 2030 adding activities; for example, doctors and nurses and construction – all areas with a high potential for 22 Higher cognitive could spend more time with patients rather than on automation – have in recent years faced the biggest 17 performing administrative tasks. Additionally, indus- labor shortages. Digitization and the implementation 12 +7% tries with the highest job vacancy rates could benefit of technology could help companies in these sectors 18 Social and emotional from automation as the problem of the inadequate overcome workforce-related barriers and achieve 22 labor supply is mitigated. In recent years, relatively growth. +22% Technological Industries with the highest job vacancy rates could benefit from automation, unlocking economic growth stifledIndustries by inadequate with the highest labor job supply. vacancy rates could benefit from automation, unlocking economic growth +52% stifled by inadequate labor supply People in Digital Challenger countries exhibitChange lower basic in hours and worked advanced digital skills than in Digital SOURCE: McKinsey Global Institute Industries with the highest job vacancies and automation potential Frontrunner countries across all age groups

Industries with highest job Job vacancy rate, Automation potential, vacancy rate in Poland Q4 2017, % % of worked hours scientific researchers. The McKinsey Global Institute When looking at the current level of digital-skill pro-

Construction 2.3 52 model100 suggests that time spent on these skills will grow ficiency in Poland, however, we can see a clear gap rapidly as companies2% realize their automation potential. relative to citizens in Digital Frontrunner markets. This Information and communication 2.0 36 Advanced80 technological skills will15% be critical for digitizing includes basic skills, as well as advanced digital skills. the economy in Poland, but people with these skills will Importantly, the older the age group, the bigger the Transportation and storage 1.5 65 33% still be a minority. At the same time, all employees will gap, especially when it comes to advanced skills. This 60 Accommodation and food service 1.3 49 need to develop basic digital skills, as workers will be indicates a56% strong need for promoting life-long learn- required to use online applications or other technologi- ing among the citizens of Poland, which we explore in 40 Professional services 1.2 35 cal tools in their day-to-day work. Chapter 3 as a key enabler for68% digitization in the country.

Manufacturing 81% 1.1 64 20 People in Poland are less likely to exhibit advanced digital skills than in Digital Frontrunner Finance and insurance 0.8 36 countries across all age groups Basic digital skills 0 Wholesale and retail trade 0.8 50 Digital skills by age group, % of population Digital Frontrunners Poland 100 Relative gap to SOURCE: ; McKinsey Global Institute analysis Digital Frontrunners 80 SKILL SHIFTS AND THE POTENTIAL FOR A LABOR MARKET MISMATCH Skill shifts have accompanied the introduction of new in demand will occur for technological skills, which 60 technology in the workplace since at least the Industrial constitute the smallest skill category today in terms of 29% Revolution. The adoption of digital technology, automa- hours worked. Demand is expected to rise by around 41% tion, and artificial intelligence will mark an acceleration 50 percent here, representing 17 percent of hours 40 over the shifts of even the recent past. worked in 2030. 53%

Advanced digital skills 20 73% The McKinsey Global Institute has developed a model Demand will grow for both basic and advanced tech- 79% 84% for the skill shifts that will likely take place in the work- nological skills. Occupations requiring advanced tech- 0 place. Looking at Western European countries, most nological skills include big data scientists, IT profes- 16–24 25–34 35–44 45–54 55–65 65–74

of which have a similar or slightly lower automation sionals, programmers, engineers, technology design- NOTE: Advanced digital skills: example metrics investigated include analysis and data collection using digital tools, the use of online tools such as banking or e-commerce, use of online communication, etc. potential compared to Poland, the strongest growth ers, advanced-technology maintenance workers, and SOURCE: Eurostat; McKinsey analysis

18 The rise Digital Challengers The rise of Digital Challengers 19 CHAPTER 2: IMPACT ON POLAND’S LABOR MARKET Opportunities and challenges of work automation

POLAND’S BIGGEST SECTORS ARE THE ONES WITH THE LARGEST LIKELIHOOD FOR A FUTURE NEW TECHNOLOGY CAN HELP ACTIVATE POLAND’S LABOR FORCE LABOR MARKET MISMATCH ComparedCompared towith Digital Digital Frontrunner Frontrunner benchmarks, benchmarks, Digital PolandChallengers could could have have up toup 3.3to 8.6 million million people people in in Progressing digitization of the economy will accel- accommodation are the sectors in Poland dis- untappeduntapped laborlabor reserves reserves due due to tolower lower activity activity rates rates erate the demand for people who understand how playing a similar mismatch in terms of low cur- Activity rate among different population groups, 2017, % Poland Benchmark (Sweden) to work with technology and are able to innovate in rent digitization rates and high future automation the workplace. The need for new digital talent will potential. While these sectors also will have to Younger people -36% be particularly great in sectors where the potential significantly update their skill base, they are sig- (15–24) for automation is high and the current penetration of nificantly smaller in terms of their share in the total 35% 55%

technology is low. These industries may experience labor population of Poland. Men -5% the biggest “workforce mismatch” in the future. • Poland’s most digitized sectors showing rela- (25–59) We distinguish four groups of sectors in Poland with tively lower potential for automation. Telecom­ 89% 93% differing levels of need with regard to digitization: munications and financial and insurance services -13% Women of maternal • Big sectors with the greatest likely need for were the first to undergo digital transformation age (25–39) workforce reskilling. The biggest labor pools in and are now the leaders of technology adoption 77% 89% Poland are found in manufacturing, agriculture, in Poland. They have already started attracting the -16% Women and trade. These sectors also display a mis- digital talent they need and we estimate that their (40–59) match, with low current digitization rates and high further automation potential is relatively low. 75% 90% future automation potential. Given that these sec- • Sectors with low digitization and low automation Elderly population -47% tors are responsible for almost 50 percent of the potential must prepare for an evolution.Sectors (60–74) labor population in Poland, this creates a strong such as education, healthcare, and arts and enter- 19% 36% exposure for the region’s labor market stability, tainment are not facing a drastic change in the -15% and should constitute a priority area for reskilling form of a high automation potential. Nevertheless, Population (15–74) efforts in the future. given their low starting point in terms of digitiza- 62% 73% • Smaller sectors with a great likely need for tion, they should prepare to adopt more technol- 0 10 20 30 40 50 60 70 80 90 100% reskilling. Utilities, mining, transportation, and ogy and not underestimate the effort required.

In The rise of Digital Challengers (CEE perspective) Poland labor reserves compared with activity rate Sectors with low current digitization rates and high automation potential in Poland are likely to report, we have also explored the ways in which of Sweden, million people, 2017 experience the greatest need for workforce reskilling in the future. digitization will affect individuals beyond the potential for automation. Among the many potential benefits that Digitization Index, 2016, % Size of bubble = number of FTEs technology brings to individuals in their daily lives, the 25 ICT % Share of total labor population in Poland 1.0 0.8 The most digitized rise of platforms enabling flexible working solutions may sectors with less potential Finance and insurance also contribute to an increased activation of the work 10 for automation 5% (60–74) (15–24) force. Similarly as in other CEE markets, despite a high 3.3 9 job vacancy rate, the economic activity level in Poland 8 Smaller sectors with 12% falls behind benchmarks. Assuming benchmark activity (15-74) large potential (25–59) 7 levels of one of the most active labor markets in Europe – 0.4 need for reskilling Sweden – Poland has around 3.3 million people forming 6 Transport (40–59) Sectors with low untapped labor reserves. In the whole population of (25–39) Accommodation 5 digitization and low and food Poland there are 15 percent fewer active people than Services 0.7 0.4 4 automation potential Manufacturing in Sweden. The highest gap can be observed among Entertainment 48% 3 35% Retail young (36 percent) and elderly (47 precent) people. The Education Healthcare Large sectors participation of women of maternal as well as middle NOTE: Activity rate = share of population, both employed 2 Utilities with greatest and unemployed, that constitutes the labor supply. Mining age also falls short by 13 to 16 percent. 1 Government Agriculture potential need for SOURCE: Eurostat, McKinsey analysis workforce reskilling Supporting new marketplaces for independent work, 0 22 24 26 28 30 32 34 36 38 40 42 44 46 48 50 52 54 56 58 60 62 64 66 68 70 which empower people to find new forms of flexible Automation potential, % employment, can be one way of increasing the activity SOURCE: McKinsey Global Institute; Eurostat; McKinsey analysis rates in Poland and the wider CEE region.

20 The rise Digital Challengers The rise of Digital Challengers 21 CHAPTER 3: KEY ENABLERS OF DIGITIZATION IN POLAND

C A good primary and secondary education D A large and high-quality graduate talent pool in Key foundations for Poland’s Digital Challenger foundation the areas of ICT (information and communication technology) and STEM (science, technology, status engineering and mathematics) The digitization of a country or region is WE SEE FOUR FOUNDATIONS FOR FURTHER Overall primary- and secondary-education quality gap Almost 50% of STEM graduates in CEE come ultimately the outcome of many processes DIGITIZATION IN POLAND between Poland and Digital Frontrunner countries is from Poland and factors. Here we look at key areas of almost nonexistent Number of STEM graduates, thousands, 2016 importance for digital transformation and A Competitive advantages at a macroeconomic PISA (OECD) – range of country ICT graduates, % of all graduates identify which of these should be priori- level scores (2012-2015 average) 3.6% tized for action by Poland. Our investiga- Poland offers high-growth economy with relatively tion covers all dimensions, from talent and Digital Frontrunners Maximum low labor costs 234 Digital Challengers Minimum 3.7% innovation to infrastructure and gover- 127 Poland nance. For each of these dimensions, we Average GDP Average hourly Digital Frontrunners have tested multiple hypotheses, looking growth, 2015-17, % labor cost, 2017, € 550 538 4.5% at the experience of Digital Frontrunners 525 Digital Challengers 520 1.0% 87 201 and comparing it with the performance of 500 504 511 501 514 506 512 Italy 1 Poland +3.7 9.40 Germany Digital Challengers and Poland. By calcu- 486 487 485 lating scores for key performance indica- 450 440 3.9% Spain United Kingdom tors (KPIs) in these areas and combining 437 434 105 this data with qualitative assessments 2.5x 3.8x 400 199 EU Big 5 +1.4 29.04 Poland by experts, we are able to identify areas faster lower France 3.6% where Poland already performs close to or 111 100 3.1% on a par with Digital Frontrunners. These 198 areas can be thought of as the foundation Digital +1.5 35.47 50 for growing the digital economy further in Frontrunners 3.0% the country. 0 SOURCE: World Bank; Eurostat Math Science Reading 1 For the Netherlands, data taken from 2015. NOTE: PISA – Programme for International Student Assessment SOURCE: Eurostat

B Good overall digital infrastructure quality and coverage E An already emerging, vibrant digital ecosystem (selected areas)

Poland exhibits digital infrastructure quality and coverage close to the CEE and Digital Frontrunner average TRADI- Digital Challengers Digital Frontrunners Poland Average EXAMPLES SOFTWARE TIONAL POLAND’S OF POLAND’S DEVELOPMENT INCUMBENTS GAMING Share of populated DIGITAL HOUSES IN IN POLAND -11% 98 INDUSTRY areas covered by 4G, 99 98 98 96 CHAMPIONS POLAND ADOPTING 92 % 91 87 82 DIGITAL 73 72 72

There are many digital success Several Poland-based Poland is at the forefront of the Large incumbents from more tradi- stories in Poland of companies CEE’s growing gaming indus- tional industries are also following suit. leveraging the digital economy to companies have star­ try. CD Project Red, known in The financial-services sector has been achieve scale and revolutionize ted becoming regional recent years for projects such at the forefront, with Poland often con- 44 their industries. Allegro, the Polish powerhouses in their as The Witcher, is among the sidered as the EU’s banking laboratory. 35 -24% e-commerce platform, is Europe’s respective fields, with top 20 most valuable com- In 2015, six of the largest banks in the Share of ultrafast 27 30 26 fifth-most-visited marketplace. many ranked among panies on the Warsaw Stock country came together to create BLIK, broadband subscrip- DocPlanner is an online health- the fastest-growing Exchange. Another Polish a mobile payment system enabling tions ≥100 Mbps, % 16 20 14 13 13 care platform enabling patients companies in Europe. company, Huuuge Games, is smartphone users to make payments 10 7 to find physicians and book Examples include responsible for titles that are at retail outlets and via the internet. appointments online, which has 10Clouds, CodiLime, among the top mobile games PKP Energetyka, the railway electric- 1 already begun expanding glob- Codewise, Miquido, regionally by download or rev- ity distributor, implemented field-force CZ LV LT SI HU PL SK HR RO BG ally. LiveChat is a global provider Monterail, Netguru, STX enue. Other notable examples automation technology to manage of live support and help-desk Next. include PlayWay, 11 bit stu- the execution of maintenance tasks SOURCE: DESI 2018 software. Other notable success dios, Ten Square Games, and in real time. Żabka, the convenience stories include Booksy, Brainly, Vivid Games. store chain, has unveiled a “store of and Estimote to name a few. tomorrow” concept utilizing AI and automation technologies for improved customer service and operations opti- mization.15

22 The rise of Digital Challengers The rise of Digital Challengers 23 CHAPTER 3: KEY ENABLERS OF DIGITIZATION IN POLAND 1 DIGITIZATION ENABLER Increase the adoption of digital tools by Key enablers for further digitization in Poland Poland’s small, medium, and large enterprises

Several areas remain where Poland has to make improvements in order to fully tap its digital potential. We With the help of digital tools, businesses can enhance their performance through boosting their revenue identify multiple “key enablers” for digitization where closing the gap to Digital Frontrunners would have growth capabilities, as well as increasing their efficiency through better resource allocation. We look a major positive impact on the digital economy of Poland, along four dimensions: at five ways in which companies can achieve such benefits, benchmarking Poland against Digital Challengers as well as Digital Frontrunners. • Soft infrastructure, including the adoption of digital tools and skills among the Polish general population, Poland based enterprises, and the public sector REGIONAL AVERAGES, LARGE COMPANIES VS. SMALL AND MEDIUM-SIZE ENTERPRISES (SMEs) • Talent, including stimulating the growth of the ICT specialist population and lifelong learning among % of companies Digital Frontrunners, average Digital Challengers, average Poland Poland’s population ... using social media for branding and ... selling online, 2017 ... participating in cross-border • Innovation in the form of fostering the country’s culture marketing, 2017 e-commerce sales (within the EU), 74% 2017 50% 43% • Legal, political, and business environment in the context of supporting growth in the digital economy 55% 51% 25% 29% 21% 33% 25% 31% 9% 14% 19% 19% 9% 7% 4%

... paying to advertise on the internet, Share of enterprise turnover ... participating in cross-border Increase the adoption of digital tools 1 2016 from selling online, 2017 e-commerce sales (outside the EU), by Poland’s small, medium, and 43% 2017 32% 26% 39% 14% SALES GENERATION 15% large enterprises 27% 34% 23% 21% 24% 5% 11% 9% 7% 10% 3% 2% Increase the adoption of digital skills SMEs Large enterprises SMEs Large enterprises SMEs Large enterprises 2 and take-up of internet services by CONNECTING IN E-COMMERCE INTERNATIONAL Poland’s general population REAL TIME SALES OVERALL E-COMMERCE

Soft Develop, implement, and promote Digital-tool adoption – Proxy metrics infrastructure 3 e-government solutions in Poland’s ADVANCED ANALYTICS STREAMLINING AND public sector FOR DECISION MAKING AUTOMATING PROCESSES

... analyzing big data, 2016 ... sending e-Invoices suitable for Leverage and grow Poland’s ICT automated processing in B2B, 2016 4 specialist labor pool 53% 37% 32% 13% 36% 34% 22% 18% 17% 9% 12% Increase the provision of training 6% 7 Talent to develop/upgrade digital skills of 5 ... utilizing cloud computing tools, ... using software solutions like customer key enablers employees by Polish enterprises 2016 relationship management (CRM) systems, 2017 of digitization 63% 66% 35% 36% 64% for Poland 31% 31% 48% Improve Poland’s ICT regulatory 22% 13% 20% 6 environment to ensure investment OPTIMIZATION OPERATIONS 7% attractiveness SMEs Large enterprises SMEs Large enterprises Legal, political, and business In terms of leveraging digital tools to connect with a significantly smaller share of enterprises in the environment customers in real time, we see gaps across all country engaging in online sales, as well as cross- enterprises in Poland in the share of companies border e-commerce. Foster entrepreneurship 7 leveraging the internet for online , including Gaps can be also seen in proxy metrics measuring in Poland to stimulate the the use of social media for branding and marketing. the degree to which businesses streamline and startup ecosystem In terms of adjusting their business models to automate their processes in Poland. leverage digital tools for revenue growth, small and Finally, a significantly smaller share of both SMEs and medium-size enterprises (SMEs), as well as large Innovation large enterprises in Poland leverage cloud computing ones, trail Digital Frontrunners in Poland. We see tools or digital solutions for analyzing big data.

24 The rise of Digital Challengers The rise of Digital Challengers 25 2 DIGITIZATION ENABLER Increase the adoption of digital skills and take-up of internet services by Poland’s general population

We consider the widespread adoption of digital skills among the general population a key enabler for Take-up of internet services is also clearly lower in Poland compared to Digital Frontrunners – closing digitization in Poland. It is an area where Digital Frontrunners excel, with clear gaps for Poland to this gap in terms of demand and supply of products and services available online will be an important close. driver for the growth of e-commerce in the region.

DIGITAL TOOLS AND SKILLS PERSPECTIVE Digital Challengers, average TAKE-UP OF INTERNET SERVICES PERSPECTIVE Digital Frontrunners, average Poland % of population aged 16–74 (2017) ... Basic digital skills Gap to Digital % of population aged 16–74 (2017) ... Frontrunners Poland differs significantly ... who have used online banking Average Looking at the adoption ... with at least basic digital skills ... using the Internet in the last from Digital Frontrunners of various internet 12 months Digital (DF) in terms of basic 80 services in Poland, gaps 70 93 Frontrunners digital skills, with a gap of -50% to Digital Frontrunners −34% 78 −16% 61 57 -52% 47 77 around 34 percent. 56 51 are even bigger than for 46 Digital 40 39 38 39 digital skills. Only half The vast majority 33 Challengers of the respective share of the population of people in Poland, in Poland uses the 7 5 compared to Digital internet. However, LV CZ LT SK PL SI HU HR RO BG Frontrunners, have internet penetration, used online banking, ... looking online for information ... sending/receiving email at 78 percent is still for instance. Poland about goods and services clearly below the DF perfoms close to the 80 87 benchmark. ... who have used online travel and accomodation services CEE average, meaning 58 −29% 62 −31% Digital Gaps are also visible in 54 that similar gaps can 57 60 Frontrunners other proxy mertrics for 48 -57% be seen in other proxy basic digital skills, such 39 35 -55% measures, such as the Digital as using the internet as 23 23 24 share of people having 18 18 17 Challengers a source of information 12 11 used online travel about goods and and accommodation services (29 percent less) CZ SI SK PL HU LT LV HR RO BG services (57 percent Advanced digital skills or sending and receiving lower in Poland), email (31 percent less). participating in online % of population aged 16–74 (2017) ...... participating in online social or professional networks social or professional networks (30 percent ... with above basic digital skills ... who have written a computer Looking at advanced lower), or using health program digital skills, the gap to -30% -25% Digital and care services 71 Digital Frontrunners is 66 Frontrunners provided online (55 60 59 43 9.4 even larger. The share 54 52 53 Digital percent lower). −51% −66% 50 50 49 48 46 24 of people with above Challengers 21 3.4 basic digital skills is 3.2 almost twice as large for Digital Frontrunners as in Poland. Looking HU LV SK LT RO PL BG CZ HR SI at proxy metrics, ... with software skills for content ... who have uploaded self-created such as the share of manipulation content to any website to be shared individuals having written a computer program or ... who have used health and care services provided online 53 41 having software skills for 38 −28% 31 −46% 38 content manipulation, all -55% -50% Digital 22 indicate that this is an 27 31 Frontrunners 22 area for improvement. 19 16 15 14 Digital 14 11 10 16 7 Challengers Eurostat; Digital Economy and Eurostat; Digital Economy and Society Index, 2017 SI HR LT SK CZ PL LV RO BG HU Society Index, 2017

26 The rise Digital Challengers The rise of Digital Challengers 27 3 DIGITIZATION ENABLER 4 DIGITIZATION ENABLER Develop, implement, and promote e-government Leverage and grow Poland’s ICT specialist solutions in Poland’s public sector labor pool

Digitizing public services has various benefits for citizens, businesses, and the government itself. Having a large pool of information and communications technology (ICT) specialists enables the digitization of both private and public sectors. ICT specialists are the driving force behind the Digital government services can significantly reduce the administrative burden on citizens and firms. digitization and automation of back-end processes, developing next-generation customer experience It also increases transparency about decisions and thus reduces the risk of corruption. solutions and building data-driven insights. Developers and engineers who are up to date with the latest technology trends also form the technological and creative backbone of startups.

E-GOVERNMENT PENETRATION AND UPTAKE On average, Digital SHARE OF ICT SPECIALISTS Frontrunners lead the 2016, % of employed population, 2016 Digital Challengers way in both penetration Digital Frontrunners of digitization in the Digital Frontrunners, average EU Big 5 public sector and Digital Challengers, average Poland uptake of public digital Poland services by society. Uptake: Individuals accessing public services online, 4.8 Close to 80 percent of A large gap exists % of individuals aged 16–74 the population in these 2.9 -46% between Poland and 100% countries access public 2.6 Digital Frontrunners services online. in terms of the share 90% DK Among Digital of the population employed in the ICT FI SE Challengers, Poland is 80% NL below average in terms sector. Poland also LU EE Digital Frontrunners of both penetration and Entire population performs below the average (15–74) 70% uptake, Latvia is well CEE average in this FR LV above. area. 60% Slovenia, the Czech EU Big 5 BE DE average Republic and Slovakia, UK 50% are in the middle of ES LT 74 years old HU SK SI 15 years old 34 years old CZ the spectrum, while 40% Digital Challengers Romania and Bulgaria This difference average have the furthest to go, is mainly driven HR PL with uptake rates below by significant 30% 5.1 4.8 25 percent. underrepresentation IT -15% 4.3 -62% of ICT specialists in 20% BG 4.3 2.3 the older population 1.8 in the country. 10% RO

0% 30% 35% 40% 45% 50% 55% 60% 65% 70% 75% 80% 85% Young population Older population Penetration: Government Digitization Index (15–34) (34–74)

SOURCE: Eurostat; Digital Economy and Society Index, SOURCE: Eurostat; Digital 2017; UNESCO Institute for Economy and Society Index, 2017 Statistics

28 The rise Digital Challengers The rise of Digital Challengers 29 5 DIGITIZATION ENABLER 6 DIGITIZATION ENABLER Increase the provision of training to develop/ Improve Poland’s ICT regulatory environment to upgrade digital skills of employees by Polish ensure investment attractiveness enterprises

With the progressive adoption of automation technologies, most industries will experience a growing The digitization of trade can be expected to magnify the importance of formal and informal shift in their demand for skills in Poland. Higher cognitive skills, social and emotional skills, and institutional factors for comparative advantage. The ability of countries to enforce contracts, and technology skills are the categories that will grow in importance. The labor market will have to adjust to ensure data privacy and pro-ICT regulations will grow in importance. Robust protection of to meet this demand. In this context, reskilling efforts, including the promotion of lifelong learning and intellectual-property (IP) rights will be particularly important, since technology patents often formal employee training provision by companies, will be key. represent a large portion of assets for technology enterprises, a source of their competitive strength.

Outliers above Digital Frontrunners average Digital Frontrunners, average Digital Challengers, average Poland Investigating the friendliness of the Markets close to Digital Challengers average regulatory regime toward ICT in Outliers below Digital Challengers average WORLD ECONOMIC FORUM NETWORK READINESS INDEX Poland and CEE, we see gaps to Synthetic score, scale of 1 to 7, where 7 is highest performance Poland Digital Frontrunners. On average, laws related to the use of ICTs ADULT PARTICIPATION RATE IN EDUCATION AND TRAINING IN LAST The degree to which (e.g., electronic commerce, digital Importance of ICTs to government vision 12 MONTHS the population in Poland signatures, consumer protection) 2016, % of 25- to 64-year-olds embraces training for 7 are considered to be less well adults is below the CEE 6 developed, with Poland below the average. 5 56 Average for 4.82 CEE average. In terms of a clear 54 Digital Frontrunners 4 3.54 Government 48 With the exception Intellectual- implementation plan for utilizing 46 46 46 3 3.27 success -51% -33% of Hungary, all Digital property 5.83 ICTs to their country’s overall 2 3.73 4.98 in ICT Average for protection competitiveness (importance of 36 Challengers have 3.99 1 promotion 32 Digital Challengers 3.95 3.27 28 lower adult learning ICTs to government vision), Poland 26 25 participation rates than also lags Digital Frontrunners. The same can be said of government Digital Frontrunners. 3.91 2.98 3.08 4.27 purchasing decisions fostering 7 3.86 5.29 innovation, as well as the promotion of the use of information and HU LV CZ SK SI HR LT PL BG RO communications technologies. Laws relating Government Finally, the protection of intellectual to ICTs procurement of property also is deemed weaker in advanced tech Poland than in Digital Frontrunner FIRMS PROVIDING TRAINING TO DEVELOP EMPLOYEES’ ICT SKILLS When it comes to markets. 2017, % of firms enterprises providing STARTING A BUSINESS ENFORCING CONTRACTS training in ICT skills for their employees, the Number of procedures Number of procedures The overall attractiveness of gap is even bigger. to start a business to enforce a contract the business environment

Average for More than twice as in Poland indicates room 27 29 Digital Frontrunners for improvement compared 23 23 many firms, relatively, -58% -48% 17 17 in Digital Frontrunner with Digital Frontrunners. Average for 12 11 15 Digital Challengers countries provide Looking at proxy metrics, 10 9 4.6 4.0 3.8 33.0 32.7 29.7 such as the number of days 4 training to employees to develop their ICT skills, and procedures needed Number of days to Number of days to SI CZ HR HU SK PL LT LV BG RO to start a business or compared to Poland. start a business enforce a contract enforce a contract, Poland underperforms relative to Digital Frontrunners.

SOURCE: Eurostat; Digital Economy and Society Index, 2017 30.0 11.5 7.1 685.0 597.3 422.0 SOURCE: World Economic Forum, Network Readiness Index, 2016

30 The rise Digital Challengers The rise of Digital Challengers 31 7 DIGITIZATION ENABLER ANALYSIS: WHAT IS THE IMPACT OF STARTUPS ON THE ECONOMY Foster entrepreneurship in Poland to stimulate the startup ecosystem

Here we look at the state of the ecosystem for startups in Poland compared to Digital Frontrunners. Startups contribute to the economy in three ways: they increase innovation, enable the development Our focus is on five areas: the entrepreneurial talent base, the startup community, early-stage startups, of large-scale enterprises, and they create jobs. Innovation is a major long-term driver of economic growth-phase startups, and enterprises having achieved significant scale. Digital Challengers have growth. For historical reasons, Digital Challengers have fewer large-scale private enterprises than a large entrepreneurial talent pool, but their entrepreneurial environment and capabilities could be Digital Frontrunners. However, this gap is closing, thanks to digitization. improved, and there are gaps in funding.

EARLY-STAGE STARTUPS Poland is above the Digital EXAMPLES OF HOW DIGITAL STARTUPS CAN REACH SIGNIFICANT European startups Challenger average in SCALE: COMPARISON WITH TRADITIONAL INDUSTRY FIRMS are oriented toward Global Entrepreneurship index Number of startups per million Global Entrepreneurship Annual revenue, € million international markets. On citizens, 2018 Index, which ranks average, they generate 55 Digital countries in terms of Poland Czech Republic percent of their revenue Frontrunners, outside their domestic 215 entrepreneurial attitudes, average markets. Digitization Digital abilities and aspirations -4% p.a. +94% p.a. +554% p.a. 0.66 Frontrunners, allows startups to replicate of the local population. average digital assets and reach 0.50 However, Poland is a global consumer base 0.39 -24% -87% still trails behind Digital (see examples on the Frontrunners in this area. left of two fast-growing 58 This can also be seen in -3% p.a. startups from CEE that have become global the number of startups 27 in scale). Although in the country compared only 34 of the 1,000 to Digital Frontrunner Poland Digital Digital Poland fastest-growing firms in markets. Poland exhibits Challengers, Challengers, Europe are from Digital average average 3,865 3,104 118 3,276 367 336 3 700 only 27 startups per Challenger countries, million citizens, compared 2011 2016 2011 2016 2014 2017 2014 2017 90 percent of them are to 58 in the CEE region digital natives (based on on average and 215 Traditional Startup: Traditional Startup: enterprise: Online currency-ex- enterprise: Local Online travel the ’ 1000 among Digital Frontrunner Top 3 bank change company airline company agency Europe’s Fastest Growing markets. Companies 2018 ranking). STARTUP FUNDING IN CEE, 2017

Gap in VC investment as share of GDP, by stage (relative gaps between % OF YOUNG SMEs IN % OF YOUNG SMEs IN NEW Young small and Poland and the CEE region to the EU average at each stage) TOTAL EMPLOYMENT JOB CREATION medium-size enterprises Later- (SMEs) contribute Seed Startup stage disproportionally to job Total investment, % of GDP stage stage venture Exit creation: Across 17 Beyond the aspect OECD countries, they of entrepreneurship, account for 16 percent of 0.0103 Poland financing is also overall employment but 4.7x 10.7x 5.5x 3.4x 56x a factor. Controlling 16 41 create 40 percent of new for GDP size, VC jobs. Additionally, creating investments in Poland one high-tech job can

CEE are significantly 0.0097 lead to the creation of 5.0x 1.7x 6.1x 7.2x 20x behind Digital more than four additional Frontrunners. non-high-tech jobs in the same region.

EU SOURCE: Eurostat; Global 0.049 Biggest gap is at more Entrepreneurship and Development NOTE: Young SMEs: companies with less than 250 employees and operating for no longer than 5 years SOURCE: European Startup advanced investment stages Institute; Funderbeam; Dealroom; Monitor; European Commission; and exits Angel.co; Invest Europe; Pitchbook Financial Times

32 The rise Digital Challengers The rise of Digital Challengers 33 CHAPTER 4: COLLABORATION WITH OTHER CEE COUNTRIES IS KEY

Four arguments for the benefit of collaboration between Digital Challengers

A SCALE EFFECTS C BEST PRACTICES

Together, Digital Challengers Each CEE country has developed digitally in different areas, so sharing best practices can represent €1.4 trillion in GDP, accelerate digitization. million making them the equivalent 101 people Looking at the various KPIs and case studies we have explored in our CEE report The rise of Digital of the twelfth-largest Challengers: Digitization as the next growth engine for Central and Eastern Europe, we see that no economy in the world. single Digital Challenger market outperforms the other countries across all digitization enabling areas. largest Most markets in the region appear to have digitized differently, developing advantages in certain 12th economy fields. For instance, we already saw Poland exhibiting digitization rates above the CEE average in the financial services, the transportation, and warehousing sectors. In many digitization enabling areas, however, Poland performs only close to or even below the CEE average, indicating room for improvement. This especially holds true in areas such as the startup ecosystem (with a significantly smaller number of startups per capita), participation rates in adult learning among the general €1.4 population, and the adoption of digital tools by companies for cross-border e-commerce. This implies trillion that sharing best practices between countries could be very beneficial. in GDP Leveraging the strengths of neighboring countries could limit the risk of harmful competition and allow for the creation of centers of excellence. Also, this could encourage regional coordination and planning: instead of developing solutions in isolation, Poland could speed up the development of its digital economy by replicating successful strategies already tested elsewhere. See also our The Rise of Digital Challengers (CEE perspective) report, where we quote multiple success stories related to stimulating the digital economy across the CEE region.

B SIMILAR STARTING POINTS D COMMON CHALLENGES

The countries of CEE have high levels of market openness and similar levels of digitization. The region’s countries share some of the same challenges, including “brain drain,” the need to improve and standardize ICT-related solutions, and a long-term need to reskill the workforce.

Brain drain is a common issue for most CEE markets. Compared with Digital Frontrunners, Poland exhibits a two and a half times higher emigration rate among individuals with higher education.

% of population 14 Trade, 2017, % of GDP with higher education living 13 in another EU 12 EU Big 5 Digital Frontrunners Digital Challengers Poland RO country 11 Size of bubble = number of 10 people, 2017 9 8 BG LT 7 SK HR 67 128 137 103 6 LV 5 HU PL 4 3 Digital Frontrunners 2 CZ SI 1 Digital Frontrunners, except Luxembourg, and Ireland 0 1 2 3 4 5 6 7 8 9 10 11 12 13 14 NOTE: Digital Frontrunner figure not including Luxembourg (strong outlier with a 424 percent result) Emigration rate, % of total population living in another EU country

SOURCE: World Bank NOTE: Other common challenges explored in our CEE report The rise of Digital Challengers: How digitization can become the next growth engine for Central and Eastern Europe SOURCE: OECD 34 The rise of Digital Challengers The rise of Digital Challengers 35 CHAPTER 5: IMPLICATIONS FOR POLICY MAKERS, BUSINESS LEADERS, AND INDIVIDUALS IN POLAND Build skill sets for the future Implications for policy makers

KEY FACTS ABOUT POLAND Diagnose the state of the current workforce, and forecast the necessary shift in skill sets for the future, e.g., develop a labor market model, identify sector shifts, understand the gap between current and future skills. Develop a wide- Search for relevant solutions and benchmarks, e.g., look at the experiences of Poland has a large future need for workforce reskilling: up to 49 percent ranging reskilling other markets such as , Denmark, Singapore. strategy of workplace activities could potentially be automated by 2030, using Commit to the program and measure the effectiveness of actions, e.g., measure technology that already exists. changes in employment rates and wages, hold educators responsible for the outcomes of reskilling programs. Poland’s general population lags Digital Frontrunners in basic and advanced digital skills – the older the age group, the bigger the Ensure standard digital infrastructure, integrate digital tools and resources in schools (e.g., online courses, virtual reality, gamification), and equip teachers gap. with the necessary skills. Update youth Update the curricula of pre-university schools, e.g., increase focus on skills such Despite a large STEM graduate talent pool, the share of ICT education for the as programming, entrepreneurship and initiative-taking, leadership and man- specialists in the Polish labor force (2.6 percent) lags both future aging others, communication skills. “Zwolnieni z Teorii” is a good example of the CEE and Digital Frontrunner average (2.9 percent a related initiative of this kind in Poland. and 4.8 percent, respectively). Promote specialization in STEM subjects to build an ICT talent base, focusing especially on enabling women to study technology in order to close the gender The adult participation rate in training in Poland (26 gap. Widely recognized programs of this kind in Poland include “IT for SHE” or percent of people aged 25–64), is significantly “Dziewczyny na Politechniki”. lower than the CEE and Digital Frontrunner Cooperate with the private sector to create practical education programs and average (36 percent and 54 percent, support apprenticeships. respectively).

Create an ecosystem that helps adults reskill and upskill: build motivation to learn The emigration rate for well-educated among adults, offer practical training and/or incentives, provide support during members of the population in Promote lifelong the transition period, and assist in job-seeking. Poland is more than double the learning and mid- Support new types of education credentials, e.g., digital programs. average for Digital Frontrunners. career training Increase accessibility of education by improving people’s English-language skills, enabling them to access global knowledge resources.

Keep ICT specialists from leaving the country, e.g., encourage universities to collaborate with the private sector to provide high-quality internships as part of degree programs or immediately after graduation, stimulate the startup ecosys- Actively tem to attract local talent to seek tech-related jobs locally. counteract talent Attract ICT specialists who have left back to the country, e.g., provide scholar- leakage ships for young people studying abroad in exchange for a commitment to come back and work in the home country. Attract additional ICT specialists from around the globe, e.g., work with the pri- vate sector to determine the demand for highly skilled workers and simplify the migration process for such individuals.

Carry out research to understand the size and growth of the gig and indepen- dent-work economy. Leverage Consider updating policies supporting the gig economy and worker protection initiatives. independent work platforms

36 The rise of Digital Challengers The rise of Digital Challengers 37 CHAPTER 5: IMPLICATIONS FOR POLICY MAKERS, BUSINESS LEADERS, AND INDIVIDUALS IN POLAND Support technology adoption Implications for policy makers

KEY FACTS ABOUT POLAND Ensure strong support from the government to drive digitization, e.g., set up a dedicated task force/ministry charged with tackling regulatory barriers to new business models and stimulating growth of the digital economy.

Poland trails Digital Frontrunners in the European Comission’s Government Digitize the public Speed up the development of online public services, e.g., promote integrated Digitization Index which, among others, measures the availability of key sector online public-service platforms and online signatures. Examples of progress in Poland in this area include the creation of ePuap, the nationwide platform for e-government solutions, such as electronic identification (eID), digital communication of citizens with public administrations. documentation, electronic authentication changes, and digital post in communication with citizens and businesses. Support the adoption of online public services, e.g., launch educational cam- paigns, promote online solutions during offline interactions, decrease adoption barriers by creating simple user interfaces.

At the same time, take-up of e-government services is Develop digital skills among public-sector employees. particularly low, with less than one out of every three citizens Digitize back-end government processes, focusing on the most labor-intensive aged 16–74 accessing public services online, compared and expensive processes first. with three out of four Digital Frontrunner citizens. Unleash big data capabilities by standardizing government data and opening it up (for instance, in the form of virtual data repositories) to third-party collabora- tors (researchers, businesses, startups, etc.) so they can build applications on The adoption of digital tools and skills by top of it. companies in Poland is much lower than in Invest in (IoT) infrastructure in the public sector, e.g., sup- Digital Frontrunners. Only 13 percent of port smart city and human health solutions strongly leveraging public data and companies in Poland exhibit a very high resources. or high adoption rate for digital tools, compared with the CEE average of 16 percent and Digital Frontrunner average of 35 percent. Promote the benefits of digital transformation, focusing on SMEs and major sec- tors that lag a long way behind. Local initiatives of such kind in Poland include Support the setting up of the “Platform of the future industry” (Platforma Przemysłu technology Przyszłości) foundation in 2018. adoption at Create incentives for companies, especially SMEs, to use digital tools, e.g., make companies business-to-government interactions digital by default. Leverage external funding, e.g., from the EU, to finance the most promising initia- tives supporting the development of the digital economy.

38 The rise of Digital Challengers The rise of Digital Challengers 39 CHAPTER 5: IMPLICATIONS FOR POLICY MAKERS, BUSINESS LEADERS, AND INDIVIDUALS IN POLAND Improve the ecosystem for startups Implications for policy makers

KEY FACTS ABOUT POLAND Embed entrepreneurship in formal education, especially in STEM subjects. Link entrepreneurial education to startups, accelerators, incubators, and busi- Improve the ness angels. While Poland exhibits higher entrepreneurship levels than the CEE average entrepreneurial Expand the entrepreneurial talent pool by attracting talent from outside the (see Chapter 3), it is still trailing Digital Frontrunner markets. talent pool region.

The number of startups per million citizens in Poland, at 27, is less than half the average of 58 for the CEE region – and far behind the Digital Frontrunner average of 215. Position startup hubs high on municipal governments’ agendas, and actively communicate the importance of startups. Strengthen the position of major Create physical startup clusters where they can cooperate at scale, e.g., Station F in Paris, Blk 71 in Singapore. CEE cities as As a share of GDP, venture capital investments in Poland startup hubs, Support the creation of testing grounds for new business models, e.g., imple- are one-fifth of the average investment levels in the tailored to local ment regulatory sandboxes enabling entrepreneurs to try out their innovations European Union. needs in real market conditions. Poland has take the first steps toward the creation of a regulatory sandbox for (so called “fin-techs”) players, initiating a virtual regulatory sand-box pilot in 2018.

Simplify business angel investing, e.g., with standardized, easily available forms and with low capital requirements. Increase access to Provide additional incentives for business angels and serial entrepreneurs, e.g., capital tax breaks. Simplify procedures for obtaining and reporting public/European Union fund.

40 The rise of Digital Challengers The rise of Digital Challengers 41 CHAPTER 5: IMPLICATIONS FOR POLICY MAKERS, BUSINESS LEADERS AND INDIVIDUALS IN POLAND Strengthen cross-border digital collaboration Implications for policy makers

KEY FACTS ABOUT POLAND Establish a coalition favoring pro-digital legislative measures at the European Create a strong level, strengthening the voice of individual countries in EU policy discussions. digital pillar Assemble working groups at relevant levels to develop a pipeline of priority col- within regional laboration areas, e.g., representatives from digitization ministries at the national Poland can only capture the full potential of digitization by collaboration level, private-sector leaders. cooperating closely with other CEE economies. Four reasons platforms (e.g., Facilitate the sharing of best practices and experience in the region – dissemi- underpin the benefits of acting together: 3SI, V4, B9) nate what has worked well regarding regulatory policy and investment.

• Similar starting points: Poland, like other CEE markets, exhibits high levels of market openness and similar levels of digitization, besides cultural and historic commonalities Cooperate to abolish barriers to the full functioning of the Digital Single Market Ensure such as geo-blocking, unjustified data localization practices, regulatory barriers. standardized, • Scale effects: As the CEE region, Digital Challengers Support the standardization and free flow of cross-border nonpersonal data in represent €1.4 trillion in GDP – almost three times the flexible digital- the public sector, as well as the technological interoperability of digital infrastruc- size of the Polish economy policy solutions tures, e.g., 5G networks. across the region Establish common security models and cybersecurity standards. • Common challenges: Poland faces the same challenges as many other CEE markets, importantly the “brain drain” and need to Facilitate cross-border digital infrastructure projects that close the gaps across reskill the workforce in the long-term the region, e.g., fiber optics, 5G technology, strategic e-commerce logistics cen- Implement cross- ters, complementary energy infrastructures. In 2018, as part of the Three Seas • Best practices: Poland has developed border projects Initiative (3SI) Summit, Poland has proposed the creation of a 3SI Digital Highway, digitally in different areas compared facilitating the including investments in digital infrastructure across the region enabling improved to other CEE markets – sharing digitization of the data transfers and bridging the gaps in the communication infrastructure. best practices can accelerate region Establish common platforms for cross-border public-sector services, includ- digitization. ing cross-border integration of eID systems, increasing their effectiveness and reducing administrative burdens for enterprises. An example of cross-border collaboration in this space is the Nordic Council’s efforts to integrate electronic See also our regional authentication systems. perspective report for Strengthen cross-border industry cooperation over research and education sup- more details on already- porting joint technology initiatives such as autonomous transportation, smart established forms of cities, human health solutions. An example of cross-border collaboration here is the Franco-German alliance in artificial intelligence. In 2018, during the 2018 cooperation between Economic Forum in Krynica, government representatives of Poland and Lithuania Digital Challenger have signed a contract according to which the planned “Via Baltica” road infra- and Digital structure section will become an “intelligent route” on which the 5G and autono- Frontrunner mous car technologies will be tested. markets.

Cooperate in Improve cross-border freedom of movement, skills accreditation, and worker the management safeguard procedures. of social change as Join forces to tackle talent pool issues such as the brain drain and the need for a result of changes more ICT and digital skills at all educational levels, e.g., initiate a joint promotional in the labor market effort marketing the region as a digital hub to attract talent and investments.

42 The rise of Digital Challengers The rise of Digital Challengers 43 CHAPTER 5: IMPLICATIONS FOR POLICY MAKERS, BUSINESS LEADERS, AND INDIVIDUALS IN POLAND Actively adopt technology and innovation Implications for business leaders to close the gap to digital leaders Anticipate and, if necessary, prepare for digital disruption to demand for your product, KEY FACTS ABOUT POLAND Adapt your e.g., unbundle and tailor your product or turn it into a service. business model to Anticipate and, if necessary, prepare for how digital disruption will change supply in your market, e.g., analyze the possibility of new, online players and anticipate changes meet the demands Polish enterprises trail Digital Frontrunner peers in terms of digitization, in the value-chain structure caused by automation. of the digital looking at the share of enterprises (selected examples): Investigate the potential for forming strategic alliances with innovative organizations and economy enterprises changing the face of the market (e.g. startups) to create new competences • Using social media for branding and marketing (SME gap: -50 in your organization. percent, large enterprise gap: -26 percent) Leverage social media and online advertising to connect with customers in real time, • Selling online (SME gap: -81 percent, large enterprise gap: Use digital tools in a targeted and measurable way. -23 perecent) for revenue growth, Use the Internet to increase your revenue growth capabilities by utilizing e-commerce, including boosting e.g., build an online presence for your organization, develop your own e-commerce • Participating in cross-border e-commerce sales within your export platform, or make use of a multi-vendor e-commerce platform. the European Union (SME gap: -58 percent, large capabilities Leverage your own or external e-commerce platforms to boost your export capabilities enterprise gap: -63 percent) and tap into global demand pools for your products and services.

• Analyzing big data (SME gap: -54 percent, large Streamline and automate internal operations where possible, implementing for, e.g., enterprise gap: -51 percent) e-invoicing suitable for automated processing, resource management software tools, Use digital tools focusing on the most labor-intensive, expensive processes first. • Using software solutions such as Customer to optimize your Leverage the power of big data and cloud computing for improved decision making Relationship Management systems (SME bottom line and process optimization. gap: -39 percent, large enterprise gap: Build cybersecurity capabilities to ensure competitive dynamics and customer -3 percent). trust.

In terms of providing formal Put more focus on assessing candidates’ skills, e.g., through open competitions, employee training for ICT skill Update your games, . development, the share of approach to Develop a talent pipeline to shift from reactive to proactive recruiting, e.g., offer work- companies conducting such recruiting future shops and apprenticeships to help candidates build the desired skills. activities (at 12 percent) is employees Leverage contractors or freelancers to fill talent gaps, using digital platforms to opti- significantly lower than mize the search effort. the Digital Frontrunner average (at 29 percent). Create reskilling and upskilling Enable reskilling and upskilling opportunities, e.g., provide practical in-house training, opportunities for offer financial support, create opportunities for formal and informal knowledge sharing. current employees

Start the change from the top, fostering understanding and conviction among employ- ees on the benefits of digital: ensure that leadership and middle management act as Embrace role models in terms of their use of digital tools. a pro-digital Support employees in developing their skills and knowledge, e.g., encourage employ- organizational ees to cultivate their curiosity about creating opportunities in combining emerging culture technologies with innovative services, implement reinforcement mechanisms. Prioritize agility and learning over forecasting and planning. Form strong digital collaborations within trade associations, focusing particularly on SMEs. 

44 The rise of Digital Challengers The rise of Digital Challengers 45 46 CEE DIGITAL CHALLENGERS 3 2 1 The rise of Digital Challengers MESSAGES FOR THE CEE REGION CEE THE FOR MESSAGES KEY OF RECAP 6: CHAPTER Challengers CEE Digital UNIQUELY IN CEE ARE COUNTRIES THE OPPORTUNITY THIS TO POSITIONED CAPTURE each yearthrough 2025inCEE into anextra1percentage pointonGDPgrowth Realizing theaspirationalscenariowouldtranslate DIGITIZATION ANSWER TO THE BE CAN CHALLENGE THIS EU Big5 Challengers CEE Digital EUROPE ISLOSING MOMENTUM EASTERN AND CENTRAL OF ENGINE GROWTH THE EU Big5 Sweden Frontrunners Digital can build on a strong historical growth momentum growth historical astrong on build can Despite a lower size of the digital economy, Digital Challengers in 2016,€billion Digital economy 6% ofGDP 76 economy, 2016, economy, Share of digital Productivity, GDP per hourworked, % of GDP 6.5 6.9 Europe lags behind Productivity 9.0 2017, € 2016 64 53 31 Digital-economy growth scenarios forDigitalChallengers

Digital GDP GDP Digital per capita, capita, per 2,264 2016, € 2016, 4,152 746 Unemployment, hours aboveEUaverage unemployment andworking CEE hashistoricallylow 2017, % 6.5 9.2 6.1 Growth of digital of digital Growth WHY IS DIGITIZATIONWHY FOR KEY CEE? 2012-16, % economy, economy, 6.2 9.9 3.1 employee, 2017 Hours worked per year 1573 1592 1791

mentals in place for further digitization: further for place in mentals Digital Challengers have funda the necessary

An already-emerging, vibrantdigitalecosystem A milderlegacytechnologylock-in High-quality, affordable digitalinfrastructure A largeSTEMandICTgraduatetalentpool Good primaryandsecondaryeducation +200 +60 2025 2016, €million per employee, Capital stock very slowly talized and thegapisclosing Economy inCEEisundercapi- 22.6 13.0 5.4 Business asusual 16% ofGDP Aspirational 9% ofGDP 16, averagegrowth 276 formation, 2012– 13 Gross capital rate, % 0.8 0.7 1.7 - HOW TO CAPTURE THE POTENTIAL? THE HOW TO CAPTURE OPPORTUNITY TO TIME THE ACT ISNOW –OTHERWISE MAY REGION THE DIGITAL THE MISS CEE DIGITALCOLLABORATION BETWEEN CHALLENGERS IS KEY STAKEHOLDERSALL NEED TO ACT FOR TRANSITION ASUCCESSFUL initiatives ahead-start initiatives this could give new digital joying an economic boom; Digital Challengers are en drain” andtheneedtoreskill theworkforce iar challenges,importantlythe“brain The region’s countriesfacesimil- potential of digitization in the CEE region: to full the capture necessary is cooperation why reasons four are There accelerate digitization sharing bestpracticescan oped digitallyindifferent areas; Each CEEcountryhasdevel- Implications forpolicymakers startups Improve theecosystemfor border digitalcollaboration Strengthen regional cross- by companies Support technologyadoption by thepublicsector Support technologyadoption acting braindrain andcounter lifelong learning, cation forthefuture, promoting including updatingyouthedu- Build skillssetsforthefuture, -

practices - Best Best The Fourth Industrial Revolu Industrial Fourth The immediate response and labor market, requiring an economy the transform will tion

Implications forbusinessleaders culture Embrace apro-digital organizational within industryassociations Form strong digitalcollaborations ing andupskilling recruiting andactivelydrivingreskill - including anupdatedapproach to talent strategiesforthefuture, Invest inhumancapitalandprepare bottom line Use digitaltoolstoimprove your capabilities including boostingyourexport Use digitaltoolsforrevenue growth, the demandsofdigitaleconomy Adapt yourbusinessmodeltomeet challenges Common Common starting Similar Similar points points

The countries of CEE have high levels of The countriesofCEEhavehighlevels effects effects market openness and similar levels of market opennessandsimilarlevelsof Scale - digitization

12th largesteconomyintheworld making them the equivalent of the making themtheequivalentof game are crystallizing; to com crystallizing; are game The global of rules the digital develop a digital clear agenda to need Challengers pete, Digital represent €1.4trillioninGDP, Together, DigitalChallengers Implications forindividuals The rise of Digital Challengers all aspectsoflife tage ofdigitaltoolsin and takingadvan- to improve skillssets ing inlifelonglearning economy byinvest- advent ofthedigital Prepare forthe -

4 6 5 47 RECAP – MESSAGES KEY Methodology appendix About the authors

All calculations were performed using real values for GDP, E-commerce and offline spending the value of e-commerce and consumer offline spending. We In the acceleration scenario for 2025, we assume fixed growth used a fixed exchange rate from 2016 for all years analyzed. of e-commerce and consumer offline spending based on the historical weighted-average growth trend for the CEE region Digitization Index between 2012-2016. One of the goals of the Digitization Index is to show the level of digital penetration across sectors by indicating the gap Digitization potential in the public and private sectors between the “digital frontier” (the most advanced digital We assume that the Digitization Index in CEE will reach Jurica Novak Marcin Purta Tomasz Marciniak sector) and the other parts of the economy. The Digitization the level found in the Digital Frontrunner Sweden. We use Managing Partner in Managing Partner Partner Index presents a view across sectors of how corporations Sweden as a benchmark because of its digital maturity and Central Europe in Poland invest in ICT (a proxy for ICT spending, calculated as the value its inspiring digital growth in recent years. To assess the Advises clients in banking, Expert with 20 years of Leader of the Strategy and of the ICT sector less consumer spending on communication potential impact, we first analyze productivity and digitization telco, consumer goods, experience in strategic Corporate Finance Practice, services and equipment) and how they digitize their internal levels in CEE. We then calculate the digitization potential private equity, insurance, and consulting, advising clients on Banking and Insurance processes. It uses eight indicators to capture different ways in CEE based on the Swedish sectors’ productivity rates, other industries primarily on growth strategies based on Practice in Poland as well as in which companies are digitizing. For instance, digital assets incorporating digitization multipliers. Finally, we estimate the strategy, digital, corporate advanced analytics and digital the Electric Power and Natural include spending on computers, software and telecom potential productivity growth in the CEE economy caused by finance, and governance. innovations in sectors such as Gas Practice in Central and equipment and the stock of ICT assets. Workforce, on the traditional ICT growth vs. the productivity baseline for each TMT, retail, energy and logistics. Eastern Europe. other hand, is calculated on a per-worker spending basis. We country. measure this by aggregating digitization scores across sectors, which is easily comparable between European countries Internet of Things, Big Data and artificial intelligence use against the United States. To calculate the digitization scores, cases the Digitization Index is weighted for the economic size of the We assess how the Internet of Things (IOT) can create value sector, to measure the distance of each sector from the global by analyzing more than 150 IoT use cases across the global digital frontier, namely the ICT sector in the United States. This economy. Based on our prioritization, we examine the 57 sector was chosen as the global digital frontier as previous of these use cases that promise to bring the highest value. MGI research16 shows that it is the most digitized sector in the We use bottom-up modeling to assess the potential benefits world across comparable groups of metrics. that these use cases can generate, including productivity Karol Ignatowicz Kacper Rozenbaum Kasper Yearwood improvements, time savings and improved asset utilization. The digital economy We also include an approximate economic value for reduced Local Engagement Consultant Definitions on the size of the digital economy vary significantly disease, accidents and deaths. Partner Manager in terms of their scope. On one end of the spectrum, it is Advises clients in TMT, Advises clients in energy, Advises clients in retail, often defined simply as the value of the ICT sector.17 On the Automation potential retail, basic materials and telecommunications and energy and finance on other end of the spectrum, institutions such as the IMF uses To understand the impact of automation on the labor other industries primarily on technology on topics of topics of strategy, digital transformations and studies18 that define it as all digital activities in all sectors market, the McKinsey Global Institute analyzed around 800 strategy, digital transformation, strategy, turnarounds and digital advanced analytics. of the economy. In our report we use the latter definition, different occupations and more than 2,000 work activities. turnarounds and operational transformations. while ensuring that the digital economy in our definition is Each of the activities was assigned a combination of 18 improvements topics. quantifiable and comparable between countries. predefined performance capabilities (for example, fine motor skills, sensory perception, natural language understanding). Impact scenarios Its automation potential based on technologies available today was then estimated. By aggregating the automation The authors of the report would like to thank to dozens of McKinsey colleagues who greatly contributed to this Baseline growth potential of activities and their share in total working hours, report, among them (in alphabetical order): Graham Ackerman, Maria Ballaun, Tim Beacom, Norbert Biedrzycki, In the basic scenario for 2025, we assume that the digital we can estimate the potential for each occupation and Ola Bojarowska, Tomislav Brezinscak, Adam Chrzanowski, Mateusz Falkowski, Adrian Grad, Jerzy Gut-Mostowy, economy continues growing at the historical growth rate for industry.  András Havas, Joanna Iszkowska, Levente Jánoskuti, András Kadocsa, Daniel Kałuża, Tomas Karakolev, Viktor 2012-2016. Kozma, Krzysztof Kwiatkowski, Lucie Markova, Márta Matécsa, Małgorzata Leśniewska, Joanna Ostrowska, Péter Puskás, Helena Sarkanova, Dan Svoboda, Michal Skalsky, Daniel Spiridon, Jakub Stefański, Anna Szucs, Milena Tkaczyk, Katarzyna Tłuścik, Daniela Tudor, Roxana Turcanu, Robert Wielogórski, Mateusz Zawisza, Jan Zieliński and Arkadiusz Żarowski.

48 The rise Digital Challengers The rise of Digital Challengers 49 Endnotes

1 For more insights, see: McKinsey & Company, Digitally-enabled automation and artificial intelligence: Shaping the future of work in Europe’s digital front-runners, October 2017.

2 On the one hand, some experts put forward a narrow definition of digital economy limited to online platforms and the activities on these platforms, focusing purely on the Internet and Communication Technologies (ICT) sector. On the other, broader definitions include all activities that use digital data – following this logic, the digital economy could constitute a major part of most industries, ranging from agriculture and arts to research & development. See for example: International Monetary Fund Staff Report, Measuring the Digital Economy, February 2018 3 McKinsey & Company, The rise of Digital Challengers: How digitization can become the next growth engine for Central and Eastern Europe”, November 2018 4 McKinsey Global Institute, Digital America: A tale of the haves and have-mores, December 2015

5 This sector was chosen as the global digital frontier (i.e. the most digitized sector) by previous MGI research. For more information, see McKinsey Global Institute, Digital America: A tale of the haves and have-mores, December 2015

6 Using data from IHS Economics for baseline GDP growth projections for Hungary

7 Productivity growth captured by increase of traditional ICT usage (software, hardware, telecommunications) to the level of Sweden (in terms of its share of sectoral GDP), treated as a Digital Frontrunner benchmark

8 Based on the Total Economy Database by by The Conference Board

9 McKinsey analysis based on data from the Total Economy Database by The Conference Board – for the purpose of the exercise, assuming historical productivity growth (2.6%)

10 McKinsey & Company, Shoulder to shoulder with robots: Tapping the potential of automation in Poland, May 2018

11 Ibid.

12 McKinsey & Company, Digital Economy: The next growth engine for Central Eastern Europe’s Digital Challenger markets, November 2018 13 Based on difference between hours worked per type of skill in 2016 and forecast hours worked in 2030. Numbers may not sum due to rounding. Western Europe: Austria, Belgium, Denmark, Finland, France, Germany, Greece, Italy, Netherlands, Norway, Spain, Sweden, , United Kingdom 14 The FT 1000: the complete list of Europe’s fastest growing companies https://ig.ft.com/ft-1000/2018/ 15 More information available online at: https://antyweb.pl/zabka-zaprezentowala-swoj-sklep-przyszlosci-ktory-powstal-we- wspolpracy-z-/

16 McKinsey Global Institute, Digital America: A tale of the haves and have-mores, December 2015

17 OECD report, Digital Economy Data Highlights, 2016

18 International Monetary Fund Staff Report, Measuring the Digital Economy, February 2018

Digital McKinsey 2018 Copyright © McKinsey & Company

50 The rise Digital Challengers 52 The rise Digital Challengers