July 13, 2017 10:00 am JST

Gianfranco Casati: Digital readiness can make all the difference for emerging Asia

Harnessing technology will help sustain growth and break the boom-bust cycle

IT workers in Bangalore © Reuters

Forecasting the success or failure of emerging markets is a tricky game. Attempts have seen the creation of acronyms like BRICs and MINTs, and such markets have been the source of dreams dating back to Marco Polo. For every index that suggests renewed optimism about developing economies, one can offer up a cautionary counterargument.

Historically, the story of emerging markets has been one of big booms and busts. The Asian Tigers ran straight into the Asian financial crisis 20 years ago. Resource-rich economies have mirrored cyclical commodity price trends, while manufacturing nations have inevitably faltered when their workforces seek less labor-intensive positions.

But the story of many emerging markets today, particularly in Asia, will be based on new fundamentals that will help transform the narrative from one of caution to expectations of sustained success. This story will be about digital readiness: expertise and investment in the use of internet technology. By harnessing the power of digital, China, for example, stands to grow its gross domestic product 3.75% by 2020, the equivalent of adding $527 billion to its already huge economy.

Consider the fundamentals. On a broad-brush level, most readers intuitively would accept that some emerging markets are home to tech-savvy experts.

From India's information technology campuses in Bangalore to Israel's startup community, IT centers are thriving well beyond Silicon Valley. No surprise, then, that the internet economy is growing 15% to 25% per year in emerging markets, according to Boston Consulting Group.

On a more granular level, there is evidence of a wider pool of talent and greater demand for IT in emerging markets than elsewhere. Earlier this year, Accenture commissioned research on women in the workforce with an eye to finding out what skills are needed to help women attain pay parity with men. One of the ancillary insights the research yielded was that in many emerging markets, particularly China, women tend to be as schooled in IT as men, creating a large potential pool of candidates for such work.

We found that the digital capabilities of male and female undergraduates in China are fairly equal; 96% of the Chinese undergraduate women surveyed said they had taken computing or coding module classes, against 100% of the men. Some 73% of the female students said they felt they adopt new technologies quickly, versus 79% of the men. Nearly universal tech savviness among college graduates is an essential building block for future-ready businesses and countries that can adapt to the new world order.

THE CONSUMPTION FACTOR To fuel economic engines, countries need more than just expertise, they need consumption. Once again, emerging markets stand out because they need digital services. The majority of the world's 2 billion unbanked individuals reside in emerging markets. This is leading to significant innovation in mobile and financial technologies. Market research company Berg Insight estimates that the number of registered mobile money accounts in emerging markets has been growing at a compound annual growth rate of 25% and will reach 1.24 billion this year.

This consumption demand has attracted investment, much of which is flowing from emerging markets into other emerging markets. Consider the story of Indian mobile payment app Paytm. One of its main investors has been China's Alibaba Group Holding. Japan's SoftBank is also a key backer.

Paytm benefited late last year from Indian Prime Minster Narendra Modi's effort to cut corruption and increase tax payments by canceling roughly 86% of paper currency in circulation. The app became a lifeline for keeping businesses going.

Once people start using digital payments and experience the convenience, they are hooked. Paytm's mobile wallet app now has 220 million customers.

Tech-savvy customer bases don't have to be rich; they just need to have smartphones. As we know, many people in Asia are armed with at least one. China and India are in pole position to take advantage of technological know-how, but other emerging markets in the region, such as Indonesia, Malaysia and Thailand, show promise due to their willingness to utilize digital solutions.

This can be a foundation for continued growth, sustained from within, which can buffer emerging Asia from global booms and busts. It also could make emerging markets attractive to global investors. Companies that demonstrate a willingness to adapt their core businesses to the new era by using digital -- not just to cut costs, but across entire operations -- are poised for growth.

Skeptics counter that digitization won't drive job creation. But the history of innovation shows otherwise: with new innovations come new jobs. The invention of airplanes meant the creation of positions for engineers, pilots and air traffic controllers. Think astronauts, radiologists and app developers. Some jobs are lost but new ones are invented, often with higher entry-level wages.

While economic predictions are never without hazard, the digital readiness fundamentals of emerging markets are significant and suggest cause for optimism.

Gianfranco Casati is group chief executive for emerging markets at Accenture.

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Alibaba Group Holding Ltd.

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