Tailoring technology in RGMs

Rapid-Growth Markets Forecast: July 2013

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As internet access spreads in the emerging world, it becomes possible to launch businesses that can reach many millions of consumers, but do not have the high entry costs involved in brick-and-mortar shops.

Technology is fundamentally changing both mature and emerging economies.

In some emerging markets today, technology usage is growing substantially faster than in developed markets.

This is especially true in the smartphone segment, but many RGMs are also enjoying a surge in the number of internet users.

These areas are closely related, as rises in internet usage are partly a function of the way smartphones and tablets provide increased connectivity in emerging markets.

In addition, traditional, PC-based internet connections are also increasing in many RGMs.

Whatever the device, internet user growth in RGMs is striking:

  • Worldwide increase in 2012 about 8% year on year
  • User growth in China about 10%, with more than 50 million internet users added
  • User growth in India about 26%

By enabling financial transactions, and the identification of parties to transactions, technology has the potential to increase business and market efficiency significantly across RGMs, where information infrastructure is often lacking.

In RGMs, low barriers to entry for online enterprises may lead to increased competition. This has the potential to reduce profit margins and prices, but expand the number of potential customers.

Today, technology products and business models are moving in both directions:

  • Leading technology companies from developed markets looking for growth in RGMs
  • Many RGM leaders seeking to expand beyond their own national boundaries

Some have found it hard to enter technology markets in mature economies, though a notable exception has been in communications equipment for network operators.

Emerging market producers of networking equipment, laptops or smartphones have been very successful in selling equipment in other emerging markets, with similar customer requirements or behavior.

Online retailing has great potential in markets where shopping malls are scarce but connectivity is expanding apace.

However, its development has often been held back by:

  • Inadequate postal services
  • Lack of infrastructure for financial transactions
  • Cultural issues of trust in societies that are largely cash-based

Pioneering online retailers have reacted creatively, often setting up cash-on-delivery logistical systems.

Business-to-business markets are also developing differently, or at different speeds, with stronger usage of cloud computing in some emerging markets, compared to the advanced economies.

What are the implications of these developments for technology companies? Some innovations and business models travel well and can be extended to, or replicated in, RGMs.

But local conditions may limit their relevance, or open opportunities for other innovations and business models that are better adapted to local conditions.

In developing technology business models in RGMs, understanding local constraints and culture are a critical part of success.