Are big companies in big cities different in emerging markets?

In a recent discussion with execs at Intel about how to position netbooks into emerging market, someone raised the question about how different technology buyers in metro areas in emerging markets are from those in mature markets.  Are tech buyers in the Tier 1 cities in China — Shanghai, for example — any different from those in New York, London, or Paris?  I was reminded of this discussion when reading one of Mark Beckford’s Disruptive Leadership blog entries. He starts his “10 Things You Must Do To Win in Emerging Markets” blog with:

First a caveat … emerging markets is a catch-all phrase to describe developing countries.  It was coined by Antoine van Agtmael in the early 1980’s to replace the more negative term “third world country.”   It is supposed to designate those countries in a transitional phase between developing and developed status.

But here’s the rub … China is considered an emerging market.  But I wouldn’t call Shanghai or Beijing an emerging market because income levels, as well as PC, internet and mobile phone penetration are approaching levels found in developed countries.  But a significant area of the country, specifically the 800 million or so people in rural towns and villages, would truly be considered an “emerging market.”

Well, yes and no.  While income levels, technology adoption and internet penetration may be increasingly comparable to more mature markets, buyers and buying behaviors even in Tier 1 cities of emerging markets are not — nor are the political and economic environments, nor the perceptions and general outlooks on life and opportunities.  To illustrate the point, I took a basic cut of Forrester’s Global Budgets Survey data for two categories “emerging markets” and “mature markets.”   Cut this way, the data obscures country characteristics but I wanted to test the hypothesis that big companies in big cities in emerging markets are no different from those in mature markets.  Forrester’s survey included only companies of 1000 employees or more and sampled only in major metropolitan areas.

In fact, buyers and buying behaviors are significantly different.  I first looked at the question “What is the outlook for your industry in 2009?” Obviously, economic conditions differ across markets.  Companies of the same size and industry, even operating in large metropolitan cities, operate in different markets — and face different business outlooks.  While most respondents thought they faced a “somewhat challenging” year, three times as many in emerging markets expecting the year to be “very good.”2009Outlook

Asia_economistIt’s not surprising that buyers in emerging markets express more optimism than those in mature markets.  Most of the large technology companies are seeing emerging market revenues growing as a percentage of total revenues.  And, news sources are reporting “Asia’s astonishing rebound” and the Middle East “Waking from its sleep.”

A number of other local political-economic factors influence not only what buyers in emerging markets purchase but how and why.  In response to the question about which actions “you expect your firm to take this year as a result of the current economic conditions,” respondents in emerging markets were more likely to:

  • Defer capital expenditures
  • Reduce costs of energy
  • Reduce use of contractors or consultants
  • Increase ROI justifications for projects.

They were much less likely to:

  • Implement staff layoffs or hiring freezes

Many of these responses are not surprising.  Deferring costs and increasing financial justification for IT projects reflect the high cost of capital in many markets.  A preference for maintaining IT staff and reducing dependence on outside contractors or consultants reflects a relatively low cost of labor.  Concern over energy use reflects both the cost of energy and in some places the reliability of electricity sources.  Interestingly, while more respondents in emerging markets actually account for energy costs as a separate line item in their IT budgets, fewer report specific initiatives to “go green.”  The “green” message is not one that resonates, although cost-savings and energy-efficiency does.

Major technology and management related themes also differ across emerging and mature markets.  When asked “Which of the following initiatives are likely to be your IT organizations major technology-related themes for 2009?” IT decision makers in emerging markets are more likely to prioritize:

  • Significantly upgrading your security environment (critical priority)
  • Consolidating IT infrastructure (high priority)
  • Adopting or increasing your use of software-as-a-service (high priority)
  • Improving the measurement of IT’s impact on business performance (high priority)

In mature markets, there is a greater focus on:

  • Implementing or expanding mobility initiatives  (critical priority)
  • Rdesigning/redeploying IT’s architecture, eg. implementing SOA (critical priority)

I’ll save my thoughts and the data on business drivers and buying patterns for another entry.  For now, it seems clear to me that despite similar sizes and metropolitan areas, technology buyers in emerging markets are different than those in mature markets.  They do not share the same outlook or priorities, and certainly face different market environments.

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