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For vibrant, competitive internet businesses, look to emerging markets – The Economist

Dec 4th 2021

A DECADE AGO the relentless expansion of American internet giants promised world domination. With their vast home market affording them ec…….

Dec 4th 2021

A DECADE AGO the relentless expansion of American internet giants promised world domination. With their vast home market affording them economies of scale, the likes of Amazon, PayPal and Uber looked destined to monopolise the screens of everyone from Californian charmers to Kalahari farmers.

Today America still rules the global tech industry, broadly defined, accounting for 71% of the market value of listed firms. Nonetheless a different pattern has emerged in the part of the technology industry that focuses on providing internet services to consumers. Here, activity is more dispersed and less American. The trend has been highlighted this year by a rush of flotations of emerging-market internet firms.

Instead of a few monoliths, three different categories of business have formed. Using a taxonomy first drawn up by Asia Partners, an investment company, you can define the first group as the global platforms. These still dominate in services where minimal physical presence is required, in particular search, social media and cloud computing. Giants like Alphabet and Facebook (now Meta) generate just over half their sales outside America and are among tech’s most international businesses.

A second category has become important in some places: the protected national champion. China’s tech giants are keen to expand abroad, but their profitable home markets are largely sealed against international competition and they are subject to increasingly heavy-handed guidance from their own government. This protected model of tech is becoming popular in other authoritarian countries. Russia has favoured home-grown outfits in e-commerce and fintech, and in the past year has cracked down on the activity of Silicon Valley firms.

The third digital type—local heroes—is prevalent across much of the rest of the world. In Asia and Latin America local and regional companies often rule in e-commerce, gaming, digital payments, ride-hailing, food delivery and other app-based services. Examples from South-East Asia include Sea, Grab and GoTo; South Korea has Kakao and Coupang; and Argentina has MercadoLibre. In India giants including Reliance and Tata aim to promote super-apps that provide a range of services, even as specialists, such as Zomato, a delivery firm, are scaling up.

Typically, these firms operate in markets where it is useful to be on the ground, or where local tastes are what count. In South-East Asia supply chains are highly decentralised, rewarding such knowledge. In fintech regulatory differences make it harder for international groups to thrive. Activity is booming. India’s Unified Payments Interface, a system …….


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