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 Kohli Ventures
23 January 2015

Internet Set To Drive Innovation In Emerging Markets

Technology has been responsible for civilisation’s greatest leaps. The jump from stone to bronze provided better ploughs, allowing more food to be produced. Newcomen’s steam engine harnessed chemical energy to create kinetic energy – the technology behind the railways and steamships, enabling goods and raw materials to be sent more quickly around the globe.

Based on the concept of the stone, bronze and iron ages, some anthropologists now consider that we live in the information age. The revolution in the transmission and access to information is truly staggering.

Gutenberg’s invention of the printing press in 1440 is one of several major milestones in the story of information. Mass printing facilitated the propagation of scientific ideas, enabling the flourishing of scientific discovery in Europe in the following centuries.

Moving forward to the nineteenth century, the laying of telegraph lines in the 1850s allowed news and information to be exchanged with far away regions. By 1902 transoceanic cables provided a global network, forming the bedrock of our information age.

The invention of the World Wide Web, a network of computers, by Tim Berners Lee has led to an explosion in the availability of information. What was available to a few people in libraries is now open to anyone from around the globe with access to the internet. The growth in the number of people with access to the internet, in terms of access to information and education is one of the world’s major success stories.

 

By the end of 2014 there will be almost 3 billion internet users, two-thirds of them coming from the developing world, according to the International Telecommunications Union. The number of mobile-broadband subscriptions will reach 2.3 billion globally, of which 55% will be in the developing world.

The next leap in mobile technology, 5G will help boost internet availability to be almost everywhere, from villages in the Rift Valley to the slums of Dacca. This is thanks to new compact antennae technology that allows mobile stations to be fixed on normal homes and even telegraph poles, unlike current large and bulky mobile masts. With it, 5G will bring speeds of 800 Gps, equivalent to streaming 33 HD video films in a second.

Because mobile internet infrastructure is easier to install than cable based systems, emerging economies have leapt straight to a digital network. This means the new mobile networks can be expected to have a far more profound effect on the economies of emerging markets than in developed economies. It’s already happening now. In Kenya, farmers are using apps on their mobile to check up on stock prices of their produce so that they can get the best price.

The internet will have the most impact in emerging markets, which typically have younger populations than developed economies. They are home to 90% of the world’s under 30s; in India, for example, just over half the population is below the age of 25.

What this means for the world’s mainly young population was succinctly put by Bill Gates:

“The information highway is going to break down boundaries and may promote a world culture, or at least a sharing of activities and values…. This may strengthen cultural diversity and counter the tendency toward a single world culture.”

The convergence of technologies, such as GPS and digital mapping, digital video and cellular mobile devices, linked by the internet, provides a wealth of new business opportunities in the rapidly expanding service economy. Tapping into this environment is a generation of young people in the emerging markets, nurtured in a virtual world that is as familiar to them as the real world. They represent a pool of talent that will become the entrepreneurial pioneers of the future.

This combination of accessible information technology and a large young dynamic demographic is expected to be a major contributor to the success of emerging economies in the coming years with growth rates far outstripping Western developed nations. In a recent report, Euromonitor International predicts that emerging market economies will grow almost three times faster than developed ones, accounting for an average of 65% of global economic growth through to 2020.

Supplying the market as well as providing the pool of talent in emerging economies is a burgeoning middle class. According to Ernst & Young, in Asia along, 525 million people already count themselves as middle class – more than the European Union’s total population. This is set to triple to 1.7 billion, according to a report by the Brooking Institution. By 2030, Asia will be the home of 3 billion middle class people – 10 times more than predicted for North America and five times more than Europe.

Observing the backstory of innovation behind today’s tech giants such as Goolge and Facebook, there is a common pattern of young entrepreneurial technical talent with an average age of 23 when the business took off. Access to the internet combined with the growing educated middle class in the emerging world will mean this is where the new world-beating tech companies will emerge. But this is only going to happen with access to capital. Banks have failed to step up to the mark in helping small businesses to grow. Peer-to-peer lending is playing a role by allowing smaller investors to participate while reducing risk. However, venture capital, with the resources of not only funds, but also expertise to mentor young entrepreneurs, is in a position to take the lead in creating the businesses of tomorrow. And it is in the emerging market where the opportunities will be found.