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Internet-led disruption: A journey to the east

15th October, 2019

Private investors have the ability to tap into emerging technologies at an early stage – often long before the next wave of innovation hits public markets. While investing in new, unproven business models involves a good deal of risk, clearly the potential of getting into the next Google or Facebook early can have its rewards.

Internet technologies have driven enormous disruption right across the global economy, upending old business models and fundamentally reshaping the way we communicate and do business. Nowhere is this disruption more apparent than in developing markets, and in China and India in particular – both have massive populations, growing middle classes, and enthusiasm for new technology. As a result, private equity growth investors find a wealth of opportunities in these locations.

Ubiquitous distribution

Internet-led disruption trends like e-commerce and digital payments became a fundamental tool for businesses to engage with domestic and international customers. Companies like Amazon and Netflix are among the frontrunners, especially in the US and Europe where the internet and smartphone penetration levels are the highest in the world. The Chinese e-commerce user base, which is the largest in the world, is set to increase further as internet penetration (55% versus 87% in the US) catches up, and other markets in Asia and Latin America are set to follow suit.

AI Innovation

Machines have surpassed humans in image recognition and object detection and can now diagnose skin cancer and lip-read. In August, a Chinese online lender helped to identify a murder suspect who tried to apply for a loan on behalf of his victim. The company’s facial recognition technology found no signs of eye movement, while voice recognition software detected that it was a man, rather than a woman.

More dramatic changes driven by Artificial Intelligence (AI) and Internet of Things (IoT) are ahead, as the rollout of the 5G wireless network, which allows for faster speed and better communication across devices, is still in its early stages.

The tables have turned

China used to have a reputation for cloning Western business models, but this is no longer the case, and global technology companies have begun replicating successful concepts from their Chinese counterparts. Back in 2011 China pioneered WeChat, a “super app” which offered a one-stop solution for services varying from shopping and ride hailing to money transfers and flight bookings - a model that Facebook and Japan’s Line have both begun to implement. Similarly, China’s TikTok, a short video platform which allows sharing of short lip-sync, comedy and talent videos, has spawned numerous viral trends and internet celebrties around the world. Many startups are now trying to replicate its success, targeting markets with large young populations like Southeast Asia, India and Latin America.

Crouching tiger, hidden dragon

Chinese ambition to embrace 5G transition was outlined in the Made in China 2025 blueprint and various market researchers have predicted that China will outpace the US in the race to roll out 5G infrastructure. Meanwhile India, the IT service centre of the world, has a population almost as large as China’s, but younger. The US and other developed and emerging countries have innumerable options for responding to developments in India and China. 

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