As Time Goes By – Technology and Emerging Markets

Technology advances are swift in the emerging markets.

Photo: David Wilson. Source: Wikipedia

The Templeton Emerging Markets Group recently noted the evolving make-up of the emerging market technology sector. In theory, an emerging market is an economy in transition from state controlled to one with increasing economic freedom. Along comes integration in the global marketplace and greater standards of living. A more familiar imagining of the emerging market is one of extraction: both of resources (commodities and labor) and cheap, manufactured goods.

Global investment in emerging markets took off in the 1990s. At that time, technology companies were 3% of the MSCI Emerging Market Index. Now it’s at 23%. Growth in software and services has outstripped that of the production of hardware and components.

In China, Baidu, Alibaba and Tencent are the holy trinity of tech companies (paywall). Although they lack the size of the FANG stocks, they not only dominate their home markets but invest in many of the same lines of business as their American counterparts. Autonomous cars, grocery delivery, drones…

Companies in the emerging markets can innovate in certain areas like mobile payments or fintech that traditional tech companies struggle with because they can adapt and add on to existing technology without the legacies of mainframe or desktop computing or certain consumer expectations.

Many people around the world get online for the first time through their phone. 75% of web pages loaded in India are done on mobile devices. Chinese users rarely use a credit card. Got a tricky bill to split at a restaurant? Each diner need only scan a QR code at their table with their WeChat app and enter the amount they wish to pay the vendor. M-Pesa, a mobile phone based money transfer app was launched in Kenya in 2007 by Vodafone. Users bypass the bank- mobile network operators and retail outlets act as banking agent. In 2016, M-Pesa had 29.5 million active customers, 287,400 agents, and operated in 10 countries. It processes billions of transactions a month, an integral aspect of everyday life for millions of people around the world.

While it is no surprise that companies in emerging markets would increasingly turn to serve their domestic economy and cater to consumers, investors tend to focus on their home markets and developments abroad can pass unnoticed. Who knows? Maybe soon we will see an EM company successfully take on an issue in the American market left unaddressed by our own legacy products.

Veronica Peterson

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