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Digital Challengers in the Next Normal: the Czech Republic and Slovakia in the CEE context

Shutdowns caused by COVID-19 speeded up the adoption of digital technologies in the region and elsewhere. Some areas digitize faster than others.

During the first five months of the COVID-19 pandemic, the digital economy in Central and Eastern Europe (CEE) grew almost twice as fast than in the last two years, according to McKinsey’s latest report, Digital Challengers in the next normal: Central and Eastern Europe on a path to digitally-led growth. McKinsey estimates that between January and May 2020, the digital economy in CEE grew at more than 14%, and captured 78%, or EUR 5.3 billion, of the increase seen in the whole of 2019. During the same period, the Czech digital economy experienced a much lower boost, at 8.8%.

Digital Challengers in the next normal

The  new CEE report builds  on  McKinsey’s series  of  reports  on  the  rise  of “Digital Challengers”, published  in  2018. The  analysis  examined  ten  countries: Bulgaria, Croatia, the Czech Republic, Hungary, Latvia, Lithuania, Poland, Romania, Slovakia, and  Slovenia.  Those  countries can  be considered “Digital  Challengers” as they demonstrate strong digital growth potential and the ability to emulate the success of “Digital Frontrunners”, a group of countries in Northern Europe with high digitization rates. According to the research from those previous reports, robust digitization in the region had a potential to contribute EUR 200 billion of additional GDP by 2025.

A recent McKinsey survey shows that almost 12 million new users of online services appeared in CEE during the first months of the pandemic—more than the populations of Slovakia, Croatia, and Slovenia put together. Notably, the strongest growth was observed among consumers aged over 65. Around 70% of respondents claim they will continue to use new services digitally after the pandemic.

“Since the outset of the coronavirus crisis, the Czech Republic has seen the highest penetration of digital services within CEE countries. Up to 83 percent of Czech consumers use digital services today, compared with 69 percent before the crisis, an increase of 14 percentage points. Companies that invested in digitization before the pandemic thus have a larger opportunity to provide services to new consumer segments,” says Tomas Karakolev, a senior expert from McKinsey Czech Republic.

According to McKinsey’s 2020 Digital Challengers report, the CEE region has the foundations in place for further digitization in the next normal. They include strong macroeconomic performance (GDP per capita increased by 115% in the period 2004–2019), high-quality digital infrastructure, and a vibrant emerging digital ecosystem with CEE’s unicorns worth around EUR 31 billion. The region also boasts good primary and secondary education systems, as well as a large talent pool, with 216,000 graduates in STEM subjects (science, technology, engineering, and mathematics) in 2018.

Helena Šarkanová, McKinsey partner for Slovakia adds, “The coronavirus crisis creates pressure not only for companies, but also for public institutions to digitize. For example, due to recent public-health measures, education is transitioning from in-person to remote learning. According to OECD numbers, access to online learning platforms is 37 percent lower in CEE than in countries that are ‘digital frontrunners’. At the beginning of 2020, 77 percent of Slovak teachers used their own computer for remote classes, while 90 percent of them also created their own learning materials. Therefore, it is important in our region to make these digital platforms more accessible both for students and teachers, and to improve the conditions that enable remote learning.”

To realize the untapped digital potential, additional action is required by all stakeholders in the CEE countries. For a successful digital transformation in the next normal, the McKinsey report recommends that enterprises take a holistic approach by digitizing customer interactions, optimizing operations, and modernizing IT. In light of the rapid migration of consumers to digital technologies driven by the pandemic, policymakers might consider bringing more public services online and creating a digital ecosystem in which individuals and businesses can thrive. They can do this by supporting entrepreneurship, creating incentives for SMEs to digitize and cooperating with “tech clusters”—sectors that enhance the competitiveness of the region.

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