The Post Emerging-Market WorldDiego Visconti
Two trends seem to consistently dominate business coverage. One is the continued ability of new technologies to astound consumers and power businesses. The other is the stunning growth of emerging-market economies, from China and India to Brazil and South Korea, among others. Consider that in 1995, only 20 companies from emerging markets were listed on the Global Fortune 500. Today that number stands at 91.
The next trend, which is already taking shape, is how these two stories converge. Technologies such as cloud computing, mobile communications, and collaborative computing, in concert with the momentum of emerging-market growth, have formed a tipping point. As millions of new consumers and small-business operators—even in the most rural villages—become participants in the global economy, the economies we now call emerging will no longer merit the title. They will have fully emerged. Economic power will then be truly dispersed in a multipolar world, and the implications for businesses everywhere are profound.
If you travel to any of these countries, you can't help but see how technology has enabled quantum leaps in the economies of emerging-market countries. While I have been to India many times, on a recent trip I was particularly impressed by the ways in which technology is enabling Indians to overcome challenges in their infrastructure, which has long been seen as one of the country's greatest obstacles to real growth. Wireless telecommunications is connecting hundreds of millions of India's rural citizens to the wider world, obviating the need for the time-consuming and costly effort of building a fixed-line network to every corner of the country. This same scenario is playing out all over the world, and is but one example of the stunning changes that are occurring.
A report recently published by Accenture, "Global Connection to Global Orchestration: Future Business Models For High Performance Where Technology and the Multi-Polar World Meet," explores several technology-enabled developments that are making explosive growth in emerging markets possible. Here is a brief look at three of the most significant:
1. Information technology is creating new bridges between producers and consumers. Thanks to effective intermediaries, the talent and insights of innovators and entrepreneurs can reach the most remote points on the planet. Soon, no one with a good idea anywhere will be left out simply because of distance or economic circumstances.
A good example is InnoCentive, a global, Internet-based hub designed to help connect "seekers"—those with challenging research problems, with "solvers"—individuals who devise creative solutions to these problems. InnoCentive itself does not generate solutions; rather, it brings together individuals, companies, academic institutions, and public-sector and nonprofit organizations that collectively represent more than 200,000 of the world's brightest minds.
Indeed, technology enables all kinds of unimagined connections and opportunities, whether for banking in remote parts of the world, e-learning across vast distances, or commerce among individuals or groups that will never meet face-to-face.
2. Information technology is enabling new forms of business-to-business commerce in emerging markets. Business-to-business companies that used to supply raw materials as well as semi-finished and wholesale goods are seeing cost advantages in outsourcing more of their non-core activities to specialists. Hong-Kong based Li & Fung is a good example. Founded in 1906 as an exporter of silk and porcelain, Li & Fung now uses its IT efficiency to provide a variety of business-to-business services. For example, in 2009 it acquired the sourcing operations of Liz Claiborne and is now the primary sourcing agent for all of the New York-based fashion company's labels.
3. "Cooperative consumption" is shifting power to emerging companies and consumers. Technology, and increasingly open trade borders, allow groups to act as one. In the past, emerging-market companies were at a disadvantage when it came to purchasing power because of their relatively small size. Banding together, however, can make them stronger than individual buyers from developed economies. For example, Shanghai-based Liba.com, founded in 2003, sells everything from paint to ceiling lamps and had 1.6 million members within five years. It attracts 300,000 unique visitors a day to its Web site and handles some 30,000 transactions a month during group buying events in cities such as Beijing, Shanghai, and Guangzhou.
The primary effect of such market-making forces is a diminishing of the distinctions between emerging- and developed-economy consumers and companies. The shifts in relative power will quickly put emerging-market companies and consumers on equal footing with those everywhere else. As technology increases their affluence and access to markets, consumers in emerging markets will become more and more attractive to companies everywhere. And companies from emerging markets will no longer be limited in reach.
These trends have big implications for businesses, both in emerging and developed markets. New technology and communications are opening up emerging markets to international companies, making it easier and cheaper than ever before to reach new, rapidly growing customer groups with products and services that have previously been unavailable to them. The increasing penetration of Internet and mobile technologies have also created new channels of communication into emerging markets, allowing global players to establish local brand presence and strengthen awareness of their offerings.
Incumbent players in emerging markets need to prepare for an onslaught of foreign brands and products and plan their response. Many will be acquired, as global multinationals seek a local platform from which to grow. Incumbents should focus on strengthening their customer loyalty, and continually innovate and adapting them to local market requirements.
For emerging-market companies, these trends have created a wealth of new business opportunities, as companies around the world seek to partner with specialists who can offer lower-cost or more distinctive products or services. Gaining access to these opportunities has never been easier, and companies with the skills and drive to succeed have the potential to scale quickly and establish capabilities that other companies cannot duplicate.
It is critical that they do so. Long-term success will depend on their ability to create competitive advantage based on cost, quality, or customer service, all of which serve as barriers to entry to other, similarly ambitious, emerging-market companies. Emerging-market players clearly have an opportunity to carve out their own marketplaces in the developed world as they bring their natural cost advantages and strong domestic performance to bear.
The business landscape will evolve rapidly as a result of these trends, and we will see an increased blurring of boundaries around the world. Indeed it may not be long before the term "emerging market" is viewed as a relic of a bygone era.