Innovation and technological disruption runs deep in emerging markets – a fact reinforced by our recent research trip to Latin America. We found examples confirming not only the rapid pace of disruption but that these changes are taking place in areas of the economy we least expected.
We spoke to companies which are at the forefront of innovation and harnessing it to improve their growth prospects. There were two areas which stood out in particular:
The impact of technological change is really apparent in financial services, and banking in particular. Credicorp, the Peruvian financial group, and its subsidiary BCP, are leading lights in how the switch to digital is transforming the banking world.
BCP’s ‘InnovaCXión Center’ in Lima has grown from around 20 people in 2013, to more than 100 people today. Its purpose is to develop disruptive technologies with the aim of improving customers’ digital experiences. With 61% of personal loans at BCP originating through digital means last year, there is already a clear tangible impact from its approach.*
It’s clear from our visits to companies in Latin America that the pace of change is rapid
Beyond customer engagement, this digital focus can also help BCP expand into new areas of the market. Previously, the high costs of distribution limited BCP’s minimum loan size to US$1,600 with the shortest tenor limited to two years. With digital channels proving to be nine times cheaper than the physical alternative, the company has been able to lower its minimum loan amount and shorten these tenors.* Banking penetration in Peru, currently in the 40% range**, is lower than that of developed markets and many emerging markets. Through these digital initiatives, banking penetration can increase faster than what had been possible in the pre-digital world. Ultimately this is positive for Credicorp and for economic activity in the region.
Housebuilding is not usually an industry you would associate with technological disruption but the challenges of the industry are encouraging innovation.
Brazil’s housing deficit currently stands at 8 million, and is growing by 500,000 homes per year, representing a significant structural issue for the country. MRV, Brazil’s largest housebuilder, is supporting the government’s Minha Casa Minha Vida (My House My Life) programme to close this gap – and using technology to support its efforts.
MRV estimates that technology on its construction sites and sales office is saving around 4,000 hours a month in workers time and is reducing the time taken to build new housing units. Surprisingly, 60-65% of sales originate online and MRV’s IT hub is working on projects including chatbots and artificial intelligence to engage with customers. This really demonstrates how the digital revolution has found its way into every industry.***
The company even employs virtual reality headset technology, not only to show customers their future homes, but also on the construction site, allowing engineers to improve the speed and accuracy of the construction process.
Have investors woken up to the change?
The impact of innovation and technology across emerging markets is unprecedented. It’s clear from our visits to companies in Latin America that, regardless of the line of business, the pace of change is rapid. We believe many investors still fail to recognise the importance of these developments and underestimate the long-term benefits that will accrue to the leaders of this push.
* Credicorp company meetings
** "World Bank. 2018. The Little Data Book on Financial Inclusion 2018. World Bank, Washington, DC. © World Bank. - License: CC BY 3.0 IGO"
*** MRV company meetings
Regulatory information and risk warnings
Past performance is not a guide to future returns
The information provided should not be considered a recommendation to purchase or sell any particular strategy / fund / security. It should not be assumed that any of the security transactions discussed here were or will prove to be profitable.
The opinions contained in this recording are those of the named manager. They may not necessarily represent the views of other Martin Currie managers, strategies or funds. These opinions are not intended to be a forecast of future events, research, a guarantee of future results or investment advice.
The information contained has been complied with considerable care to ensure its accuracy. However, no representation or warranty, express or implied, is made to its accuracy or completeness. Martin Currie has procured any research or analysis contained in this recording for its own use. It is provided to you only incidentally and any opinions expressed are subject to change without notice.