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Globally the competition for market share is quite aggressive. It states that every business has to discover its edge over everyone else for it to thrive. This slight edge is what is often referred to as the competitive advantage. As economies move towards full digitization, companies have had to reimagine their businesses to realign with the new reality. Therefore, to maintain their competitive advantage, companies have had to digitize their assets.
Three questions therefore emerge:
- What is asset digitization?
- How does it proceed?
- In which ways does it give a business an edge over the others?
Answering these questions will explain how the digitization of assets enables a firm to achieve a competitive advantage.
What is Asset Digitization?
Going digital has required us to come up with new ways of representing information. This representation of data as real-world assets and situations in a digital format constitutes digitization.
In other words, asset digitization is the identification of physical asset’s qualities on a blockchain. Digitization often involves tokenization, which is the main idea behind this form of presentation.
What is Tokenization?
Tokenization is the process of creating a security token over a blockchain. A security token is a digital representation of a real-world asset’s ownership rights. One may tokenize both fungible and non-fungible assets.
Tokenization isn’t a new phenomenon; we practice it unaware daily. Take the case of your bank balance, for instance. The credits you have are an electronic representation of what the bank has stored for you. It is not the physical cash you keep with them, though you may convert it through withdrawals.
You can tokenize anything in your possession. For example, if you own property valued at $100 million, you could create 100 million tokens, each representing part ownership of the physical building. If someone acquires a portion of those tokens, that will translate into part ownership of the building itself.
Is Digitization Worth the Buzz It has Created?
To answer this question, let us look at some of the available data. According to leading global business data firm Statista, the global digital population stood at 4.57 Billion people in July 2020. This figure represents 59% of the global population. These are people who transact most of their daily engagements through the internet.
Additionally, Statista reckons that up to 1.92 billion people transacted via online platforms. It states that e-retail sales worldwide accounted for more than $3.5 Trillion with projections of further e-commerce growth in the future.
These statistics are too significant for any firm to ignore. It is no wonder that many are starting to embrace digitization.
How does Digitizing a Company’s Assets Impact its Competitive Advantage?
One constant about consumer behavior is that it evolves. As described in the previous section, consumers leave traditional commercial platforms behind for internet-based and streamlined platforms.
Nothing lays more confidence in this assertion than the proliferation of electronic currencies and products. As such, firms aligning with this reality will increase their competitiveness.
Increasing a Firm’s Liquidity
Tokenization provides an opportunity for firms to increase the liquidity of previously illiquid assets. Through a security token offering (STO), firms can offer tokens directly to the public and bypass traditional funding routes lengthy because of the red tape involved. Additionally, the STO affords the firm a larger pool of resources that they can draw from.
Smart contracts are critical to the function of security tokens. Consequently, they automate transactions. This means that they remove intermediaries leading to a speedy conclusion of deals.
Reducing Transaction Costs
Tokenization eliminates intermediaries allowing for P2P transactions, as stated above. In typical transactions where third parties are involved, they draw fees for the roles they play.
Therefore, their removal saves firms the transaction fees they would otherwise attract. In turn, deals conclude more affordably to the company’s gain.
Increased Transferability of Assets
Digitization transforms real-world assets into digital forms. The transference of these can easily be compared to that of paper form assets.
Broadening the Investor Base
Tokenization makes it easy for the broader public to invest in a firm. Security tokens represent the smallest fractions of the firm or asset on offer. As these are affordable to acquire, they significantly lower the required minimum investment amounts.
Moreover, they allow many to invest in firms that would otherwise charge an arm and a leg to invest in.
Improving Customer Experience
To the customer, tokenization takes care of two major pain points: red tape and high costs of transactions. In this way, it makes for a fulfilling customer experience when transacting with the firm. The rich customer experiences stimulate further investments in the firm.
A key feature in securitization is the inclusion of the owner’s legal rights and obligation within the token. Coupled with their execution over the blockchain, it promotes transparent engagements between parties.
Attainment of Borderless Trade
Digitization enables firms and investors to transcend time and geography. The blockchain technology that anchors security tokens’ function allows one to transact anywhere and anytime they access their funds.
To the firms, it provides an opportunity to venture into regions they previously wouldn’t be able to.
Since most of our advances are progressing online, digital solutions are becoming crucial in transacting our daily affairs. One such solution disrupting all facets of our living is tokenization. Its effects are not only evident in individual lives but also the functioning of firms.
As the business world becomes more and more competitive, any slight advantage over the competition makes a huge difference in how viable a venture could be. Therefore, firms have to adapt to the changes occurring in their space.
Digitization, as shown in this article, has the potential of altering the way companies behave. As we advance, firms that adopt it will have a competitive advantage over their peers.