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The digital transformation and growth of emerging markets

 Jan Muehlfeit, Chairman of Microsoft Europe
Technology and economic growth are inextricably linked. Emerging markets like South Korea, China, or India are increasing their demand for technology to fuel growth, and Western markets are seeking new ways to optimize processes digitally and drive innovation. The economic conditions have hastened the adoption of key technologies—mobility, cloud computing, business intelligence and use of Big Data, and even social media. These are transforming businesses and industries, driving education and training, efficient use of capital and resources, as well as consumer income and demand, sparking a new wave of wealth creation, particularly in the emerging world. 

Ancient and digital: from Estonia to E-stonia

Estonia was part of the Soviet Union until 1991, and now it’s one of the most digital and internet connected countries in the world. Due to Estonia’s investment in digital technology, citizens vote online, pay taxes online, access their health records online which are stored on the cloud, and pay public parking with their mobile – allowing the country with a population of only about 1.3 million to massively increase its efficiency and functional size.

The investment in technology that has made Estonia into E-stonia – as the country’s President Toomas Hendrik Ilves often jokes – has given way to many technology start-ups. These tech start-ups have not only made Estonia’s economy competitive but have also been getting a lot of attention from the global scene. One example is Skype, which has long been taken from an Estonian start-up to a global company and bought by Microsoft in 2011. We at Microsoft have been impressed with the tech start-ups in Estonia for many years and we welcomed Skype into the Microsoft family. Since 2011, Skype has evolved and expanded to launching programmes such as one dear to my heart – Skype in the Classroom.

Speaking of the classroom, behind the digital services offered to Estonian citizens, and behind companies like Skype and the tech start-ups, is the source that fuels the country with digital capabilities – the education system. Firstly, Estonian schools have been online since the late ‘90s. Secondly, programming has been taught in secondary schools for some time, and is now being introduced to children earlier, when they enter school at the age of seven. Teaching young students basic computer science not only helps them develop their creativity and logical thinking, but it also gives them the skills and expertise to later innovate and accelerate their country’s economy. 

Education in emerging markets has shifted into hyperdrive

Education in South Korea for example, is viewed as being crucial for success and competitiveness. Mathematics and the sciences including computer science are considered very important, as well as languages like English. In addition to an emphasis on science and technology in the classrooms, South Korea was the first country in the world to provide high-speed internet access to all primary, junior, and secondary schools.

The result has been remarkable. In the 2009 Programme for International Student Assessment (PISA) scores, South Korea ranked second in reading, fourth in mathematics and sixth in science – way above United States scores and the OECD countries average.

Digital technology was an enabler of these academic achievements, and of much more – a way to rise from poverty. Students in South Korea are very motivated to achieve their results and their parents are supportive of this drive, perhaps in an unparalleled way. According to OECD, the number of hours spent by students studying every day and every week is longer in South Korea than in any other OECD country. Furthermore, not only do students study longer than anywhere else, but parents are also willing to pay more for the education of their children than parents anywhere else. Though the South Korean government’s subsidy for education is about average or even lower, parents choose to pay a lot in school fees and private tutoring.  According to an OECD report from 2011, between 2000 and 2008, private expenditure per student in primary and secondary education increased by 75% in South Korea – significantly more than the OECD average increase of 34% over the same period.

Education and technology have enabled families to rise to the middle or upper-middle income class in South Korea, and I believe that this commitment to education, technology and digital skills – commitment that can be observed in other emerging economies such as China and India – has been key to making South Korea one of the world's fastest growing economies.

The digital divide reverses: from developed to emerging markets

Economic power has been shifting from the developed to the emerging world, where companies have been investing heavily in technology, often outpacing those in the Western markets. Indeed, this is becoming a new competitive challenge for Western companies as they will have to deal with technology-charged firms from emerging countries with their sights set on advanced economies.

Today’s trade and economic marketplace is set on a digital playing field, which allows firms to quickly become global competitors. Through technology, companies in developing economies now have easier access to capital, intellectual property and new markets that were less available to them in the past. Technology has created a more levelled playing field between companies despite their size and geographic location. For example, the benefits of cloud computing are significant. Cloud computing, which provides the infrastructure for the digital economy, enable governments and companies to have all the digital access and storage they require on a pay per use basis. At Microsoft, we have different types of cloud services based on our customers’ needs, but in short the benefits of cloud are clear: cost effective and scalable so even small entities can afford to think and strategize big, secure and reliable so data is always protected, easy to implement, and interoperable.

I sometimes hear from business leaders that the thing that will make or break an emerging market is infrastructure, including IT infrastructure. However, going back to a previous example, unlike countries in Western Europe and North America, Estonia started its IT investment and development on a clean sheet. The country did not have to accommodate any legacy IT infrastructure and could immediately jump to the leading edge in IT systems. This leapfrogging of technologies in the emerging world, where countries and companies can bypass the normal technological development, is a great advantage.

From a business perspective we used to think of emerging markets in terms of a labour pool, a new customer base, and a potential source of new competition. And while we thought these would be cycles in a process, one phase happening after the other, these have been and are happening today all at the same time. However, these emerging markets have been experiencing explosive economic growth due in great part to technological momentum and maximum effort in skill training. So, the labour pool is becoming a skilled talent pool. The new customer base is actually a complex and diverse market where the customer is savvy and takes centre stage. And, the source of new competition is a significant competitive challenge especially in these companies’ own markets. Not to mention that today any company can be a digital competitor.

Source: Leaders Magazine - 
Author: Jan Muehlfeit, Chairman of Microsoft Europe



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