Why emerging markets lead the disruption race
2 October 2018
Singles Day sales in China dwarf Thanksgiving, Black Friday and Cyber Monday combined. In 2017, sales for Singles Day were a massive US$25.3 billion.
Dubbed the ‘Fourth Industrial Revolution’, disruptive technologies are integrating physical and virtual environments with a velocity of innovation that has no historical precedent.
Emerging markets (EM) are at the vanguard of this incredible period of global change, harnessing technology much faster and more enthusiastically than many of their developed-market peers.
Whether it is in e-commerce, fintech, big data, artificial intelligence (AI) or gaming, emerging markets have become crucibles of global innovation.
Rapid tech adoption
Various factors have come together in EM to spur this incredibly rapid tech adoption.
Young, increasingly wealthy and tech-savvy populations now have access to low-cost mobile devices and some of the best network coverage in the world. In 2017, China and India had around 660 million and 400 million smartphone users, respectively. This compared with only 220 million in the US.
This has massive economic implications. For instance, because of its greatly enhanced mobile connectivity, China is now the world’s largest e-commerce market and boasts some of the highest user rates of fintech services such as money transfer & payments, savings & investments and borrowing.
In the US, Thanksgiving Day and Black Friday sales amounted to US$3.8 billion and US$4.7 billion in 2015 and 2016 respectively. Asia’s equivalent (China’s ‘Singles Day’) dwarfed these figures, with US$14.3 billion and US$17.8 billion in the same years. 2017 sales for Singles Day were even larger, clocking in at a massive US$25.3 billion.†
And with a large proportion of EM populations accessing the internet principally via smartphones, EM tech firms have excelled in developing mobile-based applications.
China’s Tencent, for example, has built a whole content-driven social-networking ecosystem through mobile internet, including e-finance, e-commerce, ad-platforms, online-to-offline services, travel and mobile gaming.
Support from above
While the private sector is leading this creative-tech thrust, EM governments have also invested heavily in the infrastructure necessary to enable their digital economies.
For instance, the Indian government’s vast digital strategy includes the largest biometric ID system in the world (over 1.1 billion users), as well as substantial state funding and tax breaks to catalyse development in the country’s tech start-up community and connect rural areas with high-speed internet networks.
In China, the government has substantially invested in areas of new technology, including its three-year plan to build an AI application market valued at more than US$15 billion. The country is also stealing the march on the deployment of 5G mobile networks. State-owned firms such as China Mobile, China Unicom and China Telecom collectively plan to spend US$180 billion over the next seven years on what is planned to be the world’s largest 5G network.
Meanwhile, with a US$9 billion venture fund announced last year, South Korea has the highest per capita backing for start ups in the world and looks set to remain the world’s most innovative economy.
EM, the patent factory of the world
Emerging market countries now have phenomenal home-grown innovation. According to the World Intellectual Property Organisation, half of all international patent applications now originate in East Asia – with China having rocketed to second place globally (after the US) in 2017.
Looking at filings at national patent offices, China already eclipses the rest of the world, with some 1.3 million applications in 2016, more than the next four ranked offices combined. Of course, this is not exclusively a Chinese story.
South Korea, for example, continues to perform very strongly in international rankings, helped in no small measure by the large number of applications by tech juggernaut Samsung Electronics.
Young, willing and knowledgeable
Demographic shape is a clear positive for emerging markets with the youthful profiles of many emerging market countries making them especially conducive to rapid tech adoption.
Education is another critical component of the story. In China there has been a veritable explosion of university graduates since 2000, a large proportion of whom fall in the ‘science, technology, engineering and mathematics’ category – known as the STEM subjects. China generates the most STEM graduates globally with an eye-watering 4.7 million in 2016 (more than eight times the US figure), followed by 2.6 million in India
Instead of playing catch-up with developed-market economies, many EM countries are already leading the world in embracing disruptive technologies. We expect this trend to not only continue, but power ahead in the years to come providing some truly compelling investment opportunities.
Martin Currie’s Emerging Markets team has a strong track record of identifying high-conviction opportunities that have arisen from these disruptive growth themes. Our robust, differentiated and highly-successful approach to Emerging Markets investing, based on the collaborative focus of a highly experienced team enables us to build concentrated portfolios of our strongest investment insights. Together, these capabilities form a powerful investment approach for our clients, one which we believe they can be confident will deliver exceptional long-term returns.
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