For vibrant and competitive Internet companies, find emerging markets

a A decade ago The continued expansion of American Internet giants promised to take over the world. With their vast domestic market affording them economies of scale, the likes of Amazon, PayPal and Uber seemed destined to monopolize the screens of everyone from California witches to Kalahari farmers.

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Today America still rules the global technology industry, in the broad sense, accounting for 71% of the market capitalization of listed companies. However, a different pattern has emerged in a part of the technology industry focused on providing Internet services to consumers. Here, the activity is more dispersed and less American. The trend this year has been highlighted by the rush of flotations Internet companies in emerging markets.

Instead of a few monolithic units, three different classes of business were formed. Using a rating first developed by Asia Partners, an investment firm, you can identify the first group as global platforms. These are still dominant in services that require minimal physical presence, particularly search, social media, and cloud computing. Giants like Alphabet and Facebook (now Meta) generate just over half of their sales outside of America and are among the most international tech businesses.

A second class became important in some places: the protected national hero. China’s tech giants are keen to expand abroad, but their lucrative domestic markets are largely held against international competition and they are increasingly subject to strict directives from their government. This protected model of technology has become popular in other authoritarian countries. Russia has favored domestic firms in e-commerce and fintech, and last year cracked down on the activities of Silicon Valley firms.

The third digital genre – local heroes – is widespread in most parts of the world. In Asia and Latin America, e-commerce, gaming, digital payments, passenger transportation, food delivery, and other app-based services are often ruled by local and regional businesses. Examples from Southeast Asia include Sea, Grab, and GoTo; South Korea has Kakao and Coupang; And Argentina has MercadoLibre. Giants in India, including Reliance and Tata, are aiming to promote super apps that provide a range of services, even as specialists, such as delivery company Zomato, expand.

Typically, these companies operate in markets where it is advantageous to be on the ground, or where local tastes matter. Supply chains in Southeast Asia are highly decentralized, which rewards this knowledge. Regulatory differences in fintech make it difficult for international groups to thrive. Activity is booming. India’s Unified Payments Interface, a system that connects banks and non-banks to make cheap and instant payments, recorded about $100 billion in transactions in October, more than four times the amount in the same month two years ago. Mynt, a startup offering mobile payments and loans, has become the Philippines’ first-ever mono atom, meaning it’s valued at more than $1 billion.

These companies have helped by increasing the availability of capital, especially as global investors look for alternatives to China, where President Xi Jinping’s tech crackdown will lead to lower profits. Of the $342 billion spent on acquisitions of technology companies in emerging markets this year so far, 71% have come from economies outside of China, the highest share in 11 years. Technology companies in emerging markets outside of China have released $53 billion in stock markets so far in 2021, more than double the previous record. Venture capital groups previously focused on America, and possibly China, are scouring the planet in search of start-ups.

The success of the third type of Internet company is gratifying. They promote competition and innovate to solve local problems, such as mapping cities without registered property. Unlike American and Chinese companies, they come with little to no geopolitical baggage and create groups of seasoned software developers and investors around the world who may go on to create another generation of startups. Local pension funds no longer have to invest money on Wall Street in order to get a feel for the digital economy.

Inevitably, there are risks. Some countries may be tempted to protect their domestic champions from competition, or limit the extent to which outsiders can disrupt private interests at home. Local expertise may not travel well. Capital markets may be unforgiving — share prices in India’s Paytm, a payments company, have plummeted after a failed listing last month — and higher interest rates will make capital more expensive. When the supply of capital is depleted, groups still struggling to make money may be in trouble.

However, the odds of a global army of smartphone users clicking on an identical set of apps on their screen have diminished. Variety should thrive instead, and that’s welcome.

This article appeared in the “Leaders” section of the print edition under the heading “Local Heroes”.

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