Managing Director & Partner
This article is an excerpt from 2018 BCG Global Challengers: Digital Leapfrogs.
Digital technologies level the playing field between smaller competitors, wherever they are located, and large international corporations. But a growing number of emerging-market companies are no longer content simply to compete head-on with global MNCs. They are using their digital capabilities to establish alternative business models and ecosystems built on the belief that their way is better—for themselves, their customers, their partners, and their investors. In the process, they are providing new and exciting models for others to follow. Plenty of companies in emerging markets are taking notice and laying the foundations for their own journey to global prominence.
Here are five examples of leaders in digital innovation that have blazed eye-opening trails by building ecosystems, directing technology at customer solutions, using digital technology to fill market voids, and continuously innovating with a customer-centric focus. Two companies are global challengers (China’s BYD and South Africa’s Discovery), Tata Consulting Services (TCS) became a graduate in 2016, and Tencent and Alibaba are new global challenger graduates.
Emerging Markets: A Driving Digital Force
Meet the 2018 Global Challengers
Digital Leadership in Emerging Markets
Founded in 1998, Tencent has grown rapidly into the world’s fifth-largest company by market capitalization. It started as an online paging system but has expanded through multiple partnerships into a complete digital ecosystem. At the center lies WeChat, launched in 2011, a revolutionary social media product that provides a gateway to the everyday digital life of hundreds of millions of users.
Tencent is often compared with another social media behemoth, Facebook, but in fact the two companies have followed very different strategies and business models. Facebook has put social media at its core. More than 90% of its revenue comes from advertising. WeChat is built on a foundation of games and an expanding array of value-added services, many offered by third parties. Together, these services generate more than four-fifths of its revenue, with the rest coming from advertising.
From the outset, WeChat focused intently on customer needs, including entertainment, information, financial services, social interaction, e-commerce, and social and government services. Many of these services are provided in partnership with other leading companies. In e-commerce, WeChat works with JD.com, the second-largest e-commerce platform in China, and Meilishuo, an e-commerce platform focused on women. It has partnerships with Foodpanda for food delivery and with Didi Chuxing and Easy Taxi for ride-hailing in China and Southeast Asia, respectively. The company works with local governments to provide information and services related to traffic, education, and other matters.
As of mid-2017, WeChat had more than 950 million active users, according to the market data website Statista. Internet analyst Mary Meeker estimates that WeChat accounts for one-third of the total time spent on the mobile internet in China. For hundreds of millions of users, WeChat has literally become their gateway to daily digital life.
Like Tencent and WeChat, e-commerce giant Alibaba presents an intriguing alternative to the developed world’s biggest e-commerce company, Amazon. Consumers love Amazon because of its easy-to-use interface, nearly unlimited inventory, user reviews and recommendations, rapid delivery, and of course low prices. Amazon has used these strengths to build the quintessential e-commerce company.
The Alibaba experience is different and caters to different consumer desires. Alibaba has built the world’s largest interactive mall. Consumers go there to be entertained and explore new things. The company integrates shopping with games, celebrity events, social media, entertainment, and news to create a full online experience. At the same time, it connects millions of buyers and sellers (mostly small businesses) and helps brands deliver individualized online experiences for customers. Throughout it all, Alibaba collects data from every transaction and interaction, which it uses to provide an increasingly personalized experience. This model has propelled Alibaba to its position as the world’s seventh-largest company by market capitalization.
Alibaba’s ecosystem provides users with a range of services: travel, entertainment, gaming, finance, transportation, and of course e-commerce. It’s an eclectic mix, and for Alibaba it is the source of a wide-ranging array of data that the company collects and analyzes centrally. By capturing data from multiple sources, Alibaba can both tailor individualized offers for users, timing them to be most effective, and provide tools that help its online sellers enhance their own businesses. The results, of course, provide more data for the ecosystem.
In the past few years, Alibaba has built Ant Financial Services (originally Alipay) into a major force in fintech; it is the world’s most valuable fintech company, with more than 520 million users. Using machine learning technology and data from the Alibaba ecosystem, Ant provides a range of financial services to an underbanked market. Alibaba’s data and analytics capabilities enable Ant to assign credit scores for individuals and small businesses, and the company has expanded from payments into online wealth management and consumer and small business lending. In 2017, Ant launched payments using facial recognition technology and Ant Forest, which uses digital gaming technology to let users track their carbon footprints. The service has already attracted some 200 million users.
High mileage, low electricity costs, and high gas prices combine to make China the world’s leading market for electric vehicles (EVs). BCG projects that EV penetration will approach 20% in 2025, and by 2030 China will be the largest single market for battery-powered electric vehicles, which will have a 17% share of auto sales, while hybrid electric vehicles will take another 28%. (See The Electric Car Tipping Point: The Future of Powertrains for Owned and Shared Mobility, BCG Focus, January 2018.)
A rich ecosystem of advanced transportation solutions is taking hold in China, and one of the major players is BYD, a leader in lithium batteries—the power source for most EVs—and one of the two largest battery producers in the world. Lithium batteries are also critical components in smartphones and other high-tech hardware. In addition to being a global leader in battery manufacturing, BYD is the world’s largest producer of electric cars by volume. Its revenue in 2016 was $15.6 billion, having grown at 25% a year from 2013 through 2016, compared with annual industry growth of about 7%. BYD wields a significant cost advantage over key developed-market competitors thanks to its process innovations, such as replacing expensive nickel plate with cheaper alternatives and using “dry boxes” instead of more expensive “dry rooms” in the formation of certain components.
BYD is clearly betting that its future, and that of the auto industry, lies in providing consumers and businesses with efficient mobility solutions that meet a wide and evolving range of needs. It has positioned itself to serve this market with its own innovations in battery and EV manufacturing and with an ecosystem of advanced-technology partners. In the past few years, BYD has established the following ventures and investments, among others:
BYD has also partnered with numerous other players in the automotive, industrial goods, and tech sectors, including ABB, Daimler-Benz, and Microsoft. In 2017, it started production at its first electric-bus plant in Europe.
South Africa’s Discovery is a pioneer in the business model of shared-value health insurance, which encourages healthy living through health-promoting behavior. With 2016 revenue of more than $3 billion, Discovery is South Africa’s largest health care funder, managing 14 schemes. From 2013 through 2016, it grew at a rate of more than 20% a year, compared with an industry rate of 6%.
With more than 8 million members, Discovery’s Vitality is the world’s largest incentive-based wellness solution. It is active in South Africa, North America, Europe, and Asia-Pacific.
Discovery’s Vitality program encourages healthy behavior through such benefits as discounts on gym memberships and healthy food, reward points for preventive care and checkups, and incentives to use its online platform to maintain personal health records and track diet and exercise.
Big data and advanced analytics are critical to Discovery’s business model, allowing it to build a picture of clients’ lifestyle choices and behaviors as they relate to health and disease. The company uses multiple types of information, including unstructured data from such sources as websites and smart devices, to gain an understanding of its clients. Discovery recently partnered with PHEMI Systems, an analytics company specializing in large, unstructured data sets, to further analyze how behavior affects an individual’s risk profile. It is using the resulting insights to fine-tune the incentives system. Discovery is working with Fitbit, Nike, and Garmin on novel tracking possibilities and is expanding its incentive and tracking system to other insurance products, such as car insurance, where it uses telematics to track vehicle usage and driving behavior.
In 2017, Discovery launched an app that uses digital technology and AI to allow members to engage with doctors in South Africa and internationally. Patients identify their condition or ailment and then get information about treatment options and urgency. “Answers are tailor-made to suit client and patient needs,” Discovery Health CEO Jonathan Broomberg told the South African website Moneyweb. The company is now introducing a service that uses AI to predict medical risks before they arise, providing new decision-making capabilities for physicians and allowing for treatment of diseases and other medical conditions.
Discovery also has automated processing for 30 medical conditions covering about 40% of its paper applications. The company now processes up to 100,000 transactions a day.
India’s TCS has grown into one of the largest companies in its home market and a global powerhouse in IT consulting, operating in more than 45 countries. The company is also a digital leader, increasingly adopting emerging technologies such as AI, advanced analytics, mobility, the Internet of Things, and cloud computing in its operations and offerings. TCS targets its R&D investments to develop intellectual property into a distinctive competitive edge—it has been granted more than 600 patents—and to advance the digital capabilities of its staff through in-house digital competency development programs. More than half its workforce has been “reskilled” in recent years.
TCS’s impressive growth—13% a year for the past four years, to $19 billion in 2017—is based in part on its development of new platforms using emerging digital technologies. For example:
Global digitization will continue at an accelerating pace, and emerging markets will remain a driving force behind the digital revolution, contributing to both important technology advancements and the disruption caused by new approaches and business models. Whether the changes come from east or west, north or south, is less and less important. More significant is how technologies are changing the way companies operate globally—in terms of their market reach, their speed of entry and market development, and the ecosystems they construct to augment their own capabilities and better meet customer needs.
Traditional companies, even the most successful, need to embrace digital change, starting immediately. Those already pursuing digital strategies won’t slow down. As the success of our 2018 global challengers illustrates so strikingly, the future belongs to those with a clear vision of how digital technologies can help them achieve their goals, the flexibility to test and adopt new models enabled by those technologies, and the determination to keep one foot firmly pressed on the accelerator of change.