Emerging Markets in the Digital Age

My colleagues and I have been actively speaking about the evolution taking place in many emerging markets over the past few decades. We’ve seen dramatic shifts occurring, with the often one-dimensional economic models of the past giving way to new and diverse growth drivers. This evolution includes the rapid embrace of new technologies and the rapid digitalization of economies. Here, Carlos Hardenberg, senior vice president and managing director at Templeton Emerging Markets Group, further addresses the topic.

Looking at emerging-market economies as a whole, we’ve seen a dramatic transformation from the models of the past, which were often based on commodity exports. We’ve seen a new generation of highly innovative companies located in emerging markets moving into higher value-added production processes and services. We think it’s a very exciting time for investors in this space.

The technology sector in emerging markets is providing us with many interesting opportunities—from hardware to software to various forms of e-commerce and entertainment.

Autonomous driving is an example of the growing clout of emerging-market companies. Many producers of the components and infrastructure to make autonomous driving a reality are located in emerging markets, particularly in Asia. And, they are highly specialized. For example, sensors, cameras, other lightweight components and software to enable autonomous driving are oftentimes produced in emerging markets.

Another example is in mobile-phone technology. Some 80% of the components of one popular mobile phone are made in emerging markets, from the battery to the camera to the casing (see image below).

We know how technology has touched nearly every aspect of our lives. It has transformed how we communicate with each other, how we shop, work and play. This is true for consumers across the globe, even in what one might consider the least-developed economies. It has been estimated that 40-50% of the world’s population has access to the internet, and 70% of youth aged 15-24 use it.1It wasn’t all that long ago that no one did.

The number of internet users has increased tenfold from 1999 to 2013. The first billion was reached in 2005, the second billion in 2010 and the third billion in 2014.2 When looking at the amount of internet users globally, China (21%) and India (14%) have the largest share, above the United States (9%), Japan (3%) and Germany (2%).3

China’s “Internet Plus” strategy, unveiled in 2015, demonstrates the key role the government hopes online businesses will play in fueling its next stage of economic growth. The strategy aims to increase digitalization across the economy and to increase the presence of China’s internet-based businesses globally.