Emerging Markets: A Driving Digital Force

This article is an excerpt from 2018 BCG Global Challengers: Digital Leapfrogs.

Today, it’s a digital world—the whole world. Companies from emerging markets are systematically gaining share in multiple sectors of the digital economy. Digital consumption and use among consumers in these countries are widespread and growing fast—much faster than in developed nations. Together, emerging-market companies and consumers have become a driving force behind the global digital revolution.

Despite the volatility and turbulence of recent years, emerging markets remain exciting places to do business. In terms of growth, emerging-market companies have outpaced those in developed markets in most industries over the past decade. (See Exhibit 1.) One big driver of this growth is the digital economy, especially fast-rising consumer demand for e-commerce and digital services. On the basis of BCG analysis of forecasts from Forrester Research and from eMarketer, it is estimated that more than 2.2 billion consumers are online in countries we identify as emerging markets, and some 550 million of them made at least one online purchase in 2016. 

Moreover, the percentage of consumers who buy online has been rising at breakneck rates since before the start of this decade. (See Exhibit 2.) In Brazil, for example, connected consumers use the internet in at least one step of 56% of all the purchases they make. Some 70% of Indian consumers with internet access go online to make informed purchase decisions. We expect internet penetration in India to rise from almost 25% in 2016 to 55% or more by 2025, when the number of Indian users will likely reach 850 million. (See The New Indian: The Many Facets of a Changing Consumer, BCG Focus, March 2017, and “Shopping in Brazil: The Influence and Potential of Digital,” BCG article, December 2015.) In China, according to iResearch, which specializes in online audience measurement and consumer insights, consumers engage in 50 times more mobile transactions than their counterparts in the US. (See “Five Trends Transforming China’s Consumer Economy” BCG infographic, July 2016.)

It’s not just about consumers. Emerging-market companies are systematically gaining share in digital-related sectors. (See Exhibit 3.) For example, their share of global internet software and service revenue rose from 7% in 2007 to 32% in 2016. Similar trends are evident in other segments of the tech industry, such as telecommunications equipment, where these companies’ share of revenue increased from 5% to 21% over the same decade, as well as semiconductors and semiconductor equipment (where revenue increased from 23% to 34%) and electronic equipment and components (32% to 44%). The percentage of tech companies in the MSCI Emerging Markets Index jumped by a factor of three from 2008 through 2016, and eight of the top ten index constituents today are tech or digitally focused companies. The MSCI World Information Technology Index for emerging markets has far outperformed industrial and financial indexes since 2011.

Nontech companies, too, are using digital technologies to improve operations and overcome many of the physical, financial, and commercial hurdles to doing business in emerging markets, including those related to geography, logistics, and infrastructure. Consider just a handful of examples:

• Indian personal-care company Godrej Consumer Products uses advanced analytics for better sales decision making and is building cutting-edge sales force capabilities through technology-enabled learning.
• Sun Pharmaceuticals of India has launched a first-of-its-kind mobile application to connect doctors and patients. 
• Chilean wine maker Viña Concha y Toro, the largest in Latin America, has launched a chatbot named Renato that uses artificial intelligence to enable customer interaction with a “virtual sommelier.” 

And in what can be considered a sign of things to come, more than 40% of companies reaching “unicorn” status ($1 billion or more in market value based on private or public investment) in 2016 and 2017 are based in emerging markets. More than one-third of all unicorns (77 of 220) are from emerging markets, as are one-third of the 100 largest unicorns (25 from China and 8 from other countries), accounting for 41% of these 100 companies’ total value. (See Exhibit 4.) 

Almost 30% of emerging-market unicorns are active in e-commerce, 10% provide on-demand services (addressing some of those emerging-market business hurdles), and more than 20% are focused on internet software and services, fintech, health care, and cybersecurity. In fact, as some of our colleagues recently observed, two regions in one emerging market and in one developed country—the east coast of China and the west coast of the US—have established the principal centers of gravity in the digital world and are competing head-to-head for leadership in the race to disrupt and remake traditional industries internationally. (See “The New Digital World: Hegemony or Harmony?,” BCG article, November 2017.) Nowhere is this struggle more hotly contested right now than in the markets of Southeast Asia. (See “Getting Positioned for Growth in Southeast Asia.”) 

Technology’s impact is already big, and the economic future in emerging markets promises to be increasingly digital.  And nowhere is the trend toward digitization more evident than among the companies that we call global challengers, the 100 companies from emerging markets that, in the words of our first Global Challengers report, in 2006, are “changing the world.” These companies are leveraging digital technologies both to set new standards for innovation and to compete globally with multinational companies (MNCs). 

Indeed, since BCG first highlighted the achievements of major companies from often overlooked developing economies, many have grown rapidly in size and sophistication and have “graduated” into the ranks of the world’s leading MNCs. New challengers have taken their place, shaping the global economy by doing business according to their own visions, strategies, strengths, and often unique competitive advantages. 

Today, a growing number of global challengers are also digital leaders. In fact, they are achieving their leadership positions by leapfrogging their counterparts in developed markets. Some are innovators in digital technologies—bringing their inventions to market, building major businesses on new tech foundations, and taking share from developed-market competitors. Others innovate in their use of technology to develop new products and services in more traditional industries or to upend traditional ways of manufacturing or delivering products and services. In the related articles that make up this report, we explore how these companies are achieving their success, and how they have made emerging markets a driving force in the growth and development of the global digital economy.