Executive Thought Leadership

Transformation of Emerging Markets

Large parts of the world are undergoing a major period of transformation as they grow their economies, improve government efficiency through increased productivity and connectivity, and educate their populations. These regions—the emerging markets—include more than 100 countries in central and eastern Europe, the Middle East, Africa, Latin America, the Caribbean, and Russia and the Commonwealth of Independent States. Cisco believes that network technology is the key to global advancement for emerging markets.

Emerging markets are undergoing a transition from slow growth and limited connectivity to hyper-growth—in some instances even "leapfrogging" technology to surpass developed countries. The middle-class sectors are growing quickly, indicative of stable societies, increased focus on education, and better standards of living. Foreign investment, while historically limited, is also increasing.

In fact, according to The Economist, the rich nations no longer dominate global production, representing the biggest shift in economic strength since the rise of the United States over 100 years ago.

The emerging countries recognize the strong correlation between technology and global competitiveness. According to The Global Information Technology Report from the World Economic Forum, there is an 89% correlation between a country's Information and Communications Technology (ICT) usage and its global competitiveness. In addition, Viviane Reding, the European Commissioner for Information Society and Media at the European Union, was recently quoted as saying, "We know that ICT accounts for half of the productivity growth in modern economies."

Many of these countries receive support from such organizations as the United Nations Millennium Development Goals and Development Programme (UNDP), the European Union (EU) Structural and Accession funds, the New Partnership for Africa's Development (NEPAD), and the World Bank. The EU, for example, has earmarked funds to support the infrastructure and broadband implementation of the countries joining the union. The commitment of these organizations ensures the integrity of the transition, reduces resistance to change, and instills trust.

To serve emerging markets—more than 100 countries, 81 million square kilometers, almost all of the world's time zones, and an untold number of cultural differences—Cisco takes a holistic approach through solutions for the governments, service providers, enterprises of all sizes, and individuals. In any given country, these four sectors all cross paths regularly and exert critical influence on each other. Though each group has unique needs, each must be assigned equal weight and approached with the others in mind.

The common holistic framework for addressing these sectors—the unifying force for change—is the IP network. The network platform equalizes all countries and can even give emerging countries an advantage.

In the emerging markets, service providers are in a period of great expansion that is being driven by massive deregulation across the board and a desire by governments to develop a knowledge-based economy. In these countries, the average broadband penetration is below 5% of households. Thus service providers have a great opportunity to compete based on the services and IP capabilities they can deliver. In Croatia, for example, new challenger MetroNet is deploying a complete IP next-generation network to try to leapfrog the incumbent. Affordable managed services are imperative too with the growth of small and medium-sized businesses and the rise of personal income.

Governments seek to improve global competitiveness in terms of basic access, education, healthcare, and overall efficiency, through technology. According to the Net Impact studies, governments can improve productivity sevenfold by deploying and managing business processes over the network. This concept is taking hold in the emerging markets, where countries are leading the way using networking technology to improve government efficiency and citizen satisfaction. Some examples:

• Cisco focused its first efforts on areas without broadband connectivity. Hungary's nationwide virtual private network will bring high-speed Internet access and content delivery to 7,000 schools and public institutions.
• In Slupsk, Poland, Cisco worked with 50 organizations to provide complete, citywide connectivity, creating a transformation model for other cities. Emerging markets are undergoing a transition from slow growth and limited connectivity to hyper-growth.
• In the Middle East and North Africa, gender initiatives have enabled more than 2,000 women to participate in the Cisco Networking Academy program.
• The Jordan Education Initiative, a partnership between Cisco and the Kingdom of Jordan, is a global model for the World Economic Forum.
• Brazil is the pilot for a global initiative named IT Access for Everyone (ITAFE). Cisco is one of ten leading companies on the program. The goal is to develop new models of public–private collaboration to promote sustainable digital inclusion.

Cisco works in emerging countries with an industry-specific approach. Consider the Kingdom of Saudi Arabia, where millions of Muslims travel each year to the holy cities. Through a partnership with the Ministry of Hajj, Cisco has connected ministries, travel agents, tourism operators, and embassies. The visa process alone has been condensed from six weeks to one day.

Another example is in the area of energy and materials. Natural resources account for more than 50% of exports in countries such as Chile, Kazakhstan, Russia, and Saudi Arabia. Cisco works with leading customers to develop and replicate innovative solutions across these industries. At Chile's copper producer Codelco, Wi-Fi deployed in tunnels, refineries, and smelters gives miners more time above ground.

Another target is individual citizens. The middle classes are expanding rapidly, and their eagerness to participate in the global economy produces strong demand for products and services that symbolize their success. For example, an increasing number of the underclass sacrifice to acquire a mobile phone as an important step out of poverty. Reaching some individuals is a challenge since almost 70% of the citizens reside beyond the reach of telephone networks. To resolve this, Ethiopia provides telecommunications "hot spots" in community post offices and schools.

Conditions are in place in emerging markets for accelerated, sustained economic growth. In 2005, these countries accounted for more than 50% of the world's output and over 50% of the increase in global GDP.

The network platform is at the heart of this shift. The ability of emerging countries to compete depends on how they exploit its power. Some of these countries are in phase one, starting with basic broadband build-out, connecting citizens and businesses. Others are moving into the next phase, using the power of the network to surpass the developed world. While they may be emerging today, the strongest countries will be transformed tomorrow. Those that understand the power of technology will get there first.