Emerging Markets in the Digital Age

Emerging Markets in the Digital Age




In turn, consumers have more discretionary income, and the middle class is able to gain more clout. This increased spending power has driven a more consumer-oriented culture, and new and more diverse investment opportunities.

According to McKinsey research, if Indonesia fully embraces digitization, it can realize an estimated USD $150 billion in growth—10% of GDP—by 2025.6 Harnessing digital technology can boost productivity and expand economic participation across the economy. While e-commerce is growing rapidly in Indonesia—one of the world’s 10 largest economies by purchasing power parity—there is still room for more progress.

In 2013, the Pew Research Center surveyed nearly 40,000 people in 39 countries and asked the question: Will children in your country be better off than their parents?7 Interestingly, in most of the advanced economies, the answer to the question was overwhelmingly “no.” Two-thirds of people surveyed in the United States answered that way, and the people in Britain weren’t much more optimistic their children would be better off than them, either.8

In contrast, in China, 82% of those surveyed expected their children to do better, and in Brazil, 79% felt that way.9 In Chile, Malaysia, Venezuela, Indonesia, the Philippines, Nigeria, Ghana and Kenya, the majority of people surveyed also believed that the next generation will be better off than the current one.

A Changing Profile

Not only have consumers changed, the profile of what one might think of as an emerging-market company has as well. In the past, these businesses were generally fairly simple, nascent business models. They were highly geared towards infrastructure.

During the last 10 years or so, we’ve seen a gradual migration to  increasingly sophisticated business models. Emerging-market companies have established their own brand names, their own niches and have expanded beyond their home countries or region, often by acquisition.

We are seeing a new generation of emerging-market companies develop. By and large, emerging-market companies have also seen healthy cash-flow generation and improving earnings. In the past, there were certain periods where corporate balance sheets were under severe stress due to foreign-exchange debt. They ran into problems, particularly when the local currency came under pressure.

Today, these currency issues seem to be managed much better and corporate balance sheets appear to be much healthier. In general, emerging-market companies have deleveraged over time; they have cleaned up their balance sheets and repaired their business models.

It’s Still about Growth

One characteristic that has generally defined emerging markets in the past—and still does—is their high growth rate. Emerging-market economies have been growing significantly faster than developed-market economies, and we anticipate this trend should likely continue.

Despite this higher rate of growth, valuations generally appear much more reasonable than in developed markets. You can invest in many of these companies at a price that is a significant discount to what you would have to pay to invest in an equivalent business in the developed world.

Business models in emerging markets have become far more sophisticated and robust than they ever were in the past. We are very excited about the opportunities we’re finding in emerging markets today and the potential for the future.

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