Managing Director & Partner
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.
Meet the 2018 Global Challengers
Digital Leadership in Emerging Markets
Digital Innovation on the World Stage
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:
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.”)
Southeast Asia has become a hot battleground for tech giants and investors from east and west looking to expand their global footprints. And with good reason: the market is booming. A report from Google and Temasek Holdings pegged the value of the Southeast Asian internet economy at $50 billion in 2017 (with 330 million online participants)—on its way to $200 billion in 2025. The report projects the volume of e-commerce in the region exploding from about $10 billion in 2017 to almost $90 billion in 2025. And the website eMarketer projects mobile ad spending in Indonesia, Malaysia, the Philippines, Singapore, and Thailand to exceed $2 billion in 2020.
Fast growth and big expectations are leading to a host of deals in multiple segments. For example, in May 2017, a group of US and Asian investors injected $500 million into Tencent-backed Sea Limited (Sea is an acronym for Southeast Asia; the company was formerly known as Garena) for the expansion of its online shopping arm, Shopee, in Indonesia. The investment came shortly after Alibaba bought a controlling stake in another Southeast Asian online shopping company, Lazada, which recently expanded into the grocery sector with the acquisition of RedMart in Singapore. In March 2018, Alibaba announced its intention to invest an additional $2 billion in Lazada and install one of its own founders as the company’s CEO. Last July, Amazon launched its Prime Now service in Singapore with two-hour delivery of tens of thousands of items.
The ride-sharing segment is seeing a flurry of dealmaking. A week before the Sea investment, Tencent led a $1.2 billion round of funding for the Indonesian ride-hailing company Go-Jek. Google is another investor. In March, Uber announced that it would sell its southeast Asian business to the region’s ride-sharing leader, Singapore-based Grab, taking a 27.5% stake in the latter company. Japan’s Softbank, owner of 15% of Uber, is already an investor in Grab, which is also backed by China’s Didi Chuxing, among others.
In fintech, Ant Financial, an Alibaba affiliate, has made investments in Thailand, Indonesia, the Philippines, and Singapore.
How all the deals and competitive positioning play out remains to be seen, but the dealmaking certainly seems set to continue.
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.