Emerging markets (EMs) often lag behind developed countries when it comes to technology adoption. But things are changing. Developing-world countries and companies are rapidly becoming Internet trendsetters—especially in online retail and digital payments.

Conventional wisdom suggests that EMs are technology copycats. From the growth of China’s nascent enterprise cloud market to India’s billion-plus cell phone boom, EMs often follow the US and other developed-world technology leaders.

These days, the Internet is leveling the playing field and many EM businesses are benefiting. More developed-market companies are going to start paying closer attention to the innovations coming out of EMs, in our view. And for equity investors, these trends have important implications when searching for opportunities in emerging equity markets.

EMERGING E-COMMERCE IS EXPLODING

Online retail is at the center of the changing landscape. In several EMs, e-commerce penetration is higher than in developed markets despite lower per capita incomes (Display). In fact, in some countries, the lack of a developed retail infrastructure actually proves to be an asset for e-commerce leaders.

India and South Korea are prime examples. In India, 90% of the retail sector is still unorganized and often unbranded. Offline retailers never established the kind of footprint and consumer behavior that Walmart Stores or Carrefour have in their respective home markets. As a result, online retail penetration in India is already ahead that of Italy and will soon exceed that of Singapore, a country with one of the highest per capita incomes in the world.

ONLINE PAYMENTS SURGE AHEAD

EMs are also blazing a trail in online payments—and are well ahead of developed countries. In the US, for example, mobile payment is still in its infancy, despite a big push by Google and Apple to promote their respective payment platforms. According to a March 2016 survey by the US Federal Reserve, only a fourth of US smartphone owners had used their device to make a payment in the past 12 months.