International Data Corporation (IDC) estimates that 2013 will see an 8.8 percent IT spending growth in emerging markets, which is about 34 percent of worldwide IT spending. Growth in these markets also represents 50 percent of all new growth in IT commerce. Productivity catch-up, increased assimilation into the global market, progressive macroeconomic policies, burgeoning middle-class, and better health and education is shifting the global economic power to developing nations, especially India and China.
India and China will dominate IT Commerce in the coming years and here are the reasons why:
India and China account for 38 percent of the world’s population and population penetration of IT is far from saturated. Data from the United Nations/ International Telecommunications union shows that population penetration of Internet in China is about 42 percent, and that of India is a mere 11 percent. The projected growth of Internet users in China is 10 percent year-on-year, and that of India is a whopping 26 percent year-on-year. The data clearly shows the massive IT growth and investment opportunities in India and China.
India and China also have a huge demographic advantage compared to the rest of the world that has a rapidly aging population. China has the highest number of working age individuals in the world. At its current rate of population growth, its working age population will peak in 2016. India’s working age population is steadily rising and will peak around 2039.
How does this help India and China dominate IT commerce? A research conducted by Accenture, found that young workers and students of India and China are the world’s most intensive users of corporate Information Technology. The survey shows that young Chinese in the workforce spend an average of 34 working hours a week on tech communication tools, compared to the 11 hours spent on average by the rest of the world. The Chinese youth also spends an average 5.1 hours shopping on the Internet and 5.3 hours in virtual worlds. This is in stark contrast to the average 1 hour and 0.4 hours spent respectively on these activities by the rest of the world.
Current data on IT Commerce in India and China:
FlipKart is currently the biggest online retailer in India with estimated annual revenue of over 64 million pounds. The site has 7.4 million unique visitors per month and is growing at 431 percent annually. Snapdeal, another online retailer, comes in a close second at 6.9 million unique visitors per month. Among online travel sites in India, IRCTC (Indian Railways), MakeMyTrip and Yatra are the most visited.
On the infrastructure end, the Indian Ministry of Communications and IT has launched a massive project that when completed will connect 250,000 Gram Panchayats (local self-governments at the village or small town level) across the country through 100 Mbps of optical fibre cables. Once implemented, this digital highway will pave the way for massive e-commerce growth in smaller towns and villages, as two-thirds of India’s population reside in rural areas.
According to data published by the Ministry of Industry and Information Technology (MIIT) of China, its e-commerce sector grew by 45.3 percent year-on-year while raking in revenue of 52 billion pounds in the first half of 2013. The data also show that consumption of information products and services jumped 20.7 percent year on year to 22 billion pounds.
For continued dominance in IT Commerce, spending power is the key. For this, the economies of both India and China must continue to grow at an above average rate. There are several challenges that both countries need to be address to maintain this rate of growth. Their topmost concern is resources such as water, energy and food to support their growing population. Another concern is the possibility of concentration of wealth among high-income households.
A challenge specific to China is its one child policy to curb population growth. Due to this policy, China’s working-age population will peak by 2016 and China will join the ranks of aging nations by 2020. Even though it will continue to be an economic powerhouse, its economic dominance will gradually decay unless it addresses the issue.
Some of the challenges particular to India include bad infrastructure, corruption, inefficiency and restrictive labour laws. India may have a democratic government, but bureaucracy severely compromises its governing ability. To make use of its favourable demographics India needs to make a concentrated effort to educate its youth.
What does this mean for US and Europe?
IT companies across US and Europe are already tapping into the huge revenue potential from these emerging markets.
Amazon forayed into the Indian market by launching amazon.in in June 2013. The company is actively entering into tie-ups with local retailers and internet portals such as Croma and Gadgetsguru to build its user base.
The social networking giant Facebook earned 159 million pounds of its 1.2 billion pound Q2 2013 revenue from the Asian market. India is the fastest growing small and midsize business market for Google AdWords. Google India reported revenues of 116 million pounds for the quarter ending March 2012, a 36 percent growth from its previous filing. Whilst, Google’s AdMob unit has more than 10,000 registered developers in China. Its server gets 7.9 billion requests a month to show ads to mobile-app users in the country.
According to CyberMedia Research, Microsoft’s revenue in India is about 640 million pounds annually, 90 percent of which is from domestic sales and the rest from exports. While China has been a piracy trap for Microsoft, the company is hoping to make its comeback in China with the launch of Windows Azure, its cloud computing platform, in partnership with a local company 21ViaNet.
China and India are the second and third largest Asian market respectively for French three-dimensional modeling software maker Dassault Systemses. While the French company does not provide a national breakdown of revenue figures, it did indicate that the Asian region brought in 27 percent of its E1.78 billion revenue last year.
According to the latest World Bank report, India and China will dominate global saving and investment by 2030. In IT, India and China will capture more than 50 percent of IT spending due to their oversized share of industry growth. While China is already dominating IT Commerce due to domestic demand, India is just starting out. China will continue to dominate the market till the mid-2020s, when India will take over as demographic trends shift in its favour.
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