Emerging markets were already key players in global IT, and the downturn has increased their importance.
Among developing economies, the BRIC countries (Brazil, Russia, India, China) stand apart. Because of the downturn, 42% of respondents see them as more important sources of low-cost inputs, over twice the equivalent figure for other emerging markets (19%). Sales opportunities are even more attractive than cost containment. Here too, the BRICs outshine others: Nearly half of respondents (48%) see them as more important current markets, compared with 21% who say the same of other emerging economies. Looking to the future, 60% say the BRICs’ potential market size is of increased interest, compared with 44% of other developing countries.
More striking than the potential benefits of emerging markets, 80% of respondents expect to see increasing competition in the next three years from companies based there. Wim Elfrink of Cisco is under no illusions: “It is a challenge and a threat.” At the same time, though, he points out that if companies understand that it is also an opportunity to take part in new developments—such as the creation of an analytics industry— the growth of such companies offers tremendous technological, collaborative and revenue benefits for all.
Executives interviewed for this report suggest that much of this growth will come from India and China rather than elsewhere in the developing world. The reasons are the combination of skill and scale—for the latter both of workforce and of domestic market. As Microsoft’s Ravi Venkatesan puts it, “You may find something surprising coming from a smaller economy, but the law of numbers favours India and China quite a lot.” KR Lakshminarayana of Wipro agrees: “Other countries will be able to improve their technical skills, but won’t be able to change their scale for a very long time.”
Just as not all developing economies are alike, however, neither are all the BRICs. For the IT industry, interviews suggest that Russia is a case apart. Its economy is driven by natural resources, and will likely grow more slowly in importance as oil prices rise. BT’s Neil Sutton explains, “Russia is a challenging place to do business, but it is where companies like ours have to have a presence.” Meanwhile, “Brazil, India and China are an intrinsic part of how we deliver global services.” For many technology companies, China, India and, to a lesser (but still significant) extent, Brazil, enter into current strategy; Russia is a medium-term proposition.
Going beyond the BRICs, although various developing countries have rapidly growing IT sectors, no consensus on the next new powerhouse is discernable in the survey. Instead, investment is driven by geography. For North American IT companies, the emerging market most likely to receive investment is Mexico; for Europeans it is Poland; and for those in the Asia-Pacific region it is South Africa, followed by Indonesia, Malaysia and Thailand.