Much has been written about – indeed entire election campaigns have been based on – how the mining boom is coming to an end, and the imperative for Australia to diversify its economy into other sectors. This debate has focused on an anticipated decline in demand for our natural resources from emerging economies such as China and India.
However, while the jury is still out on this issue, one undeniable opportunity for Australian companies lies with the digital revolution occurring in emerging markets. Not enough has been written about taking advantage of this emerging markets opportunity on our doorstep.
While we in Australia have been furiously debating how to roll out national broadband infrastructure, emerging markets across the world, but in particular from Asia, Africa and South America, have been quietly upgrading their broadband infrastructure. These emerging markets are, to put it simply, getting on with their broadband business employing a range of 'push' and 'pull' factors.
The push comes from governments of emerging economies who realise that broadband infrastructure and internet access are critical for economic development. An International Telecommunications Union report in 2012 suggested that a 10 per cent growth in broadband can yield about a one per cent increase in GDP.
The pull factor arises from the insatiable consumer appetite for content, data and network services – fuelled by more sophisticated (and cheaper) smartphone and televisions.
In a recent report conducted by global law firm Linklaters, the emerging markets are expected to provide a 174 per cent increase in broadband connections (the majority of which will be mobile) and retail revenues for broadband services are set to grow to $193 billion by 2017, an 84 per cent increase on today's revenue.
These figures paint the picture of an increasingly affluent populace with a strong desire to connect with the rest of the world.
Content, mobility and the Cloud
The Australian telecommunications media and technology (TMT) sector – together with complementary sectors such as health and financial services - need to bravely enter these emerging markets, leveraging expertise built over many years in our own markets.
In particular, Linklaters has identified four TMT-related areas in emerging markets that are likely to generate significant economic activity and which Australian companies should seriously consider exploiting. They are content, mobile banking, cloud ICT and mobile health.
As consumers continue to seek out 'smart experiences' in the most affordable and immediate ways, there will be an explosion of demand for content and applications in emerging markets, with the biggest opportunities coming from value added services such as messaging apps, mobile gaming and mobile music. For example, app developer, LINE, generated approximately $US30 million in 2012 from the sale of premium emoticons alone. As services like LINE expand into emerging markets, there will be numerous opportunities to monetise social messaging.
In emerging markets, there are more connected people than 'banked' people. The exponential growth in mobile ownership over the last decade, combined with limited access to financial services, is fuelling rapid growth in mobile financial services across emerging markets.
Significantly, revenue from mobile financial services are expected to rise by more than 3000 per cent in the years to 2017, peaking at nearly $US30 billion. As no single player can successfully offer the full suite of mobile financial services on their own, there will be opportunities for all companies in the mobile financial services food chain – mobile network operators, payment processors, device vendors, independent players and financial institutions - to play in this space.
We all know that cloud ICT is revolutionising IT service delivery in developed markets. However, a lesser known fact is that emerging markets are also seizing these opportunities. They are bypassing traditional IT infrastructure by adopting straight-to-cloud strategies and accessing world class ICT services on par with their developed market counterparts.
The opportunities for the Australian ICT industry are immense. Cloud ICT services spend by customers in emerging markets was $2.2 billion in 2012 and is set to grow to $10.4 billion by 2017. Cloud ICT – whether Infrastructure as a service, software as a service or platform as a service – will open up new markets for the Australian ICT industry. Australian ICT organisations are well placed to get a slice of this pie.
Mobile health is set to generate around $8.8 billion of annual revenues for TMT providers in emerging markets by 2017, as governments use broadband infrastructure to address poor health outcomes and limited healthcare resources. The deployment of mobile health services is becoming a standard component of healthcare delivery.
Mobile health services range from leveraging basic mobile phone functionality (such as health information phone services paid via a users phone bill) to remote monitoring services (often delivered by healthcare providers, vendors and medical institutions in partnership) to leveraging sophisticated functionalities (such as Android based geographic apps to map polio risk areas and track routes covered by polio immunisation teams).
A bigger piece of the pie
So the opportunities are plainly there. The question then becomes: what do Australian companies need to do to get a large slice of the opportunities on offer?
Certainly we have seen Australian TMT companies already making inroads into these emerging markets. For example, on-line job ads site, SEEK, is successfully expanding internationally into high growth markets, utilising their domestic experience to partner with local management teams to grow market share in key jurisdictions.
For those Australian companies yet to take the leap, there are some basic guidelines they need to follow to help them break into these markets.
The first is to understand the importance of localisation. It is crucial that foreign investors understand the lay of the land in emerging markets, especially when it comes to the regulatory and governmental environment, as well as a solid understanding of the impact of that country's culture and customs on the commercial behaviour of these potential customers. A local partner (or multiple local players) will be crucial to understanding where the real threats and opportunities reside.
Australian companies will also need to be agile to adapt to what is sometimes a rapidly changing legislative and economic landscape in emerging markets. Such markets are rarely stable and those that are stable see rapid change in the demographics of its populace. We have seen this in China where the government's tolerance of foreign internet operators - via so called 'variable interest entity' structures –has waned in recent times. Reading the tea leaves and adapting to change is vital.
A patchwork quilt of data protection regimes across Asia may inhibit the widespread adoption of cloud services, particularly when data is stored across many countries. Restrictive cross border data flows, together with data access rights under local laws, need to be reviewed to ensure that cloud based services do not fall foul of privacy and data protection laws.
And finally, Australian companies will need to commit long term to a market if they are to reap true market share and revenue.
Entering an emerging market is difficult, and will be made more so by the competition from leading TMT companies in North America, Europe and Asia. But our geographic proximity and young, vibrant TMT sector are well placed to stake their claims in this new territory.
Niranjan Arasaratnam is the head of the Technology, Media & Telecommunications sector at law firm Allens, which has an integrated alliance with Linklaters.