The increase in mobile internet speed has largely driven emerging markets’ embrace of technology. Back in 1995, the 2G standard set a leisurely pace, fast enough for texting and little more. Three-G enabled graphics to enrich the content, 4G enabled smartphone video, and 5G promises to accelerate communication among interconnected devices.
As internet capabilities increased and migrated to smartphones—and as the cost of smartphones came down with the introduction of open-source Android software—emerging markets consumers embraced the internet and adopted smartphones in overwhelming numbers. China alone had half-a-billion mobile internet users by 2013—a number that has since grown to 812 million.i As the user base spread out, the focus on innovation intensified. Today China is leading the world in adopting 5G technology. In 2020 as the developed world awaits the arrival of the advanced networks and speculates on the changes it will bring about, they will be broadly operational in China (see chart).
China is Leading the World in Adopting 5G Technology
As of 2019
Source: Morgan Stanley
Technology assumed its dominant position in the emerging markets index so quickly because technology in the emerging markets had nothing to overtake and disrupt—no shopping malls, no credit cards, very little by way of formal education systems or professional sports, and no easy means to get from one place to another in its sprawling cities. Ecommerce—the virtual shopping mall—since the introduction of the Android smartphone in 2009 has grown to top $1 trillion, or about twice as large as the comparable figure for the United States. And the gross merchandise value of the goods moved by the largest emerging markets online merchant, Alibaba, exceeds Amazon’s turnover by a factor of five.
Even with all that growth the internet merchants have only scratched the surface. They have focused their efforts to date on the largest cities, leaving the secondary metropolises largely untouched. Yet residents of these secondary cities rely on the internet as much as their big-city counterparts and in China alone they have a combined purchasing power amounting to $2.3 trillion, a number that forecasters project to triple over the next 10 years.2
At the same time as they are extending their markets outside the big cities, the internet merchants are expanding their offerings. They have moved past goods into services as diverse as insurance and food delivery. The market is large and growing in China’s largest cities, and the demand for such hallmarks of urban life is evident in the smaller metros. Moreover, such services have provided the Chinese internet giants a vehicle for overseas expansion. Alibaba and Naspers, the South African holding company that holds a large stake in Alibaba’s biggest domestic competitor, Tencent, back the two dominant food delivery concerns in India. Together they control better than a 90% share of one of the fastest-growing categories in Indian ecommerce.
The preceding is an excerpt from Emerging Markets: The World’s Innovation Lab. Read the full paper.
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i Source: Morgan Stanley