- Cost-cutting gains are narrowing; growth is the new frontier
- Digital capability must become priced customer value
- Organization and data governance set the ceiling
1. The Ceiling on Cost Cutting Has Appeared
For years, when private enterprises in China talked about digitalization, the first thought was saving money: deploy ERP, move to the cloud, automate equipment, cut headcount, reduce inventory, lower error rates. That logic worked well in the early stage and genuinely helped many manufacturers push unit costs down. But today, the marginal return from simply buying equipment and installing systems is shrinking fast.
The reason is not complicated. On one hand, general-purpose digital tools spread quickly, so it is hard for peers to differentiate themselves with the same software. On the other hand, investment in equipment and software creates new fixed costs; if orders are insufficient and capacity utilization is low, the burden only grows. The Private Economy Promotion Law, effective May 20, 2025, explicitly supports private economic organizations in using production factors equally according to law and participating fairly in market competition. This provides a more stable institutional expectation, but it also means competition becomes more thorough and transparent, leaving less room to profit from information and cost advantages.
If digitalization stays at the level of saving money, it easily falls into homogeneous competition. The real question is: can digital capability help firms earn more?
2. The Key to Growth: Turning Digital Capability into Customer Value That Commands a Price
Moving from cost reduction to revenue growth sounds like a simple change of goal, but it actually requires firms to rethink the object of digitalization. Cost reduction targets internal processes; revenue growth targets external customers. Digital capability only completes the transformation when it becomes value that customers can perceive and are willing to pay for.
First, use data to turn uncertainty into commitments. Many private firms fear inaccurate delivery dates and quality fluctuations when taking orders. If a company can use production and supply chain data to make more reliable scheduling and delivery forecasts, it can promise shorter lead times and more stable quality, which is itself pricing power. Customers are not buying software; they are buying certainty.
Second, use digital channels to turn one-off transactions into ongoing services. The boundary between manufacturing and services is blurring. After equipment is sold, can remote monitoring, predictive maintenance and consumable reminders turn a one-time sale into an annual service fee? This model is not out of reach for small and medium-sized private enterprises. The key is to connect equipment, accumulate data, and then design service packages and pricing.
Third, use data assets to participate in higher-level cooperation. On open platforms such as the Lin-gang Special Area and Yangshan Special Comprehensive Bonded Zone, rule-based dividends in cross-border trade and finance are being released. If private firms can connect data across orders, logistics, customs clearance and settlement, they are better positioned to win financial institutions' trust and take the initiative in cross-border cooperation. Good data governance is itself financing capacity and negotiating power.
3. Without Organizational Change, Revenue Growth Is Hard to Land
The biggest obstacle in moving from cost reduction to revenue growth is often not technology but organization. Cost reduction can be driven by an IT department, but revenue growth requires sales, production, R&D and finance to change together. If performance evaluation still focuses on how much money was saved, no one will be responsible for how much more was earned.
The flexible mechanisms of private enterprises are an advantage. Shifting the goal of digitalization from cost center to profit center requires concrete actions: let business leaders lead digital projects rather than leaving them solely to the tech department; include customer retention, repurchase and service revenue in evaluation; treat data quality as a management issue, not an IT issue. Inaccurate data will only amplify errors, no matter how good the model.
Digital transformation is not a one-time project. The Private Economy Promotion Law emphasizes equal protection of the lawful rights and interests of private economic organizations and their operators according to law. A stable legal environment gives firms the confidence to make medium- and long-term investments. The revenue effects of digitalization often take two or three business cycles to appear. It cannot be rushed, but it also cannot be delayed.
Conclusion
Cost reduction helps a company survive; revenue growth helps it thrive. For today's private enterprises, digitalization has passed the stage where buying equipment automatically saves money and is entering the stage where data creates customer value. Those who can earlier turn digital capability into priced, deliverable and replicable revenue streams will occupy a stronger position in the next round of competition. This is not a technology question. It is a business question.