E + IT Adoption in Emerging Markets. An Output of Zinnov Center of Excellence for Emerging Markets. May 2013

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1 IT Adoption in Emerging Markets An Output of Zinnov Center of Excellence for Emerging Markets E + May 2013 To access full report, please mail us at Info@zinnov.com This report is solely for the use of Zinnov Client and Zinnov Personnel. No Part of it may be quoted, circulated or reproduced for distribution outside the client organization without prior written approval from Zinnov Zinnov Management Consulting

2 E+ economies demonstrate a strong growth potential outpacing developed markets Potential for growth High India Philippines Indonesia Malaysia Africa South Africa China Lat- Am Middle East United States Euro Zone 10.0% 7.5% 5.0% 2.5% 0.0% GDP at Current Prices Growth (%) 7.3% 6.7% 0.4% 8.0% 7.2% 3.6% 8.3% 8.0% 4.1% Low All Emerging Markets E+ Markets Developing Economy Type Developed G7 Markets 2

3 Domestic and Foreign Investments are driving significant growth in these economies USA India Indonesia Philippines Malaysia South Africa All Figures are in USD Figures are for 2012 Foreign Direct Investment Bn 27 Bn 23 Bn 2 Bn 11 Bn 6.3 Bn Gross national savings as % of GDP 13% 32% 33% 24% 31% 15% Investment as % of GDP 16% 36% 34% 21% 24% 21% 3

4 E+ market with rapidly expanding youth population and labour force is set to yield demographic dividends Demand Youth Population (15-24) 2012 Youth Population 2020 Youth Population as % of population 2012 Labour Force Labor Force Participation Rate 43 Mn 43 Mn 13% 155 Mn 63% United States E+ 315 mn 323 Mn 17-20% 687 mn 52-67% 238 Mn 243 Mn 18.8% 498 Mn 55% India Indonesia 42 Mn 42 Mn 17.3% Supply 118 Mn 67% Philippines 19 Mn 21.4 Mn 19.7% 40 Mn 64% Malaysia 5.2 Mn 5.8 Mn 17.8% 13 Mn 60% South Africa 9.9 Mn 9.8 Mn 19.5% 18 Mn 52% 4

5 Given the growth potential of E+ economies the IT market is rapidly scaling All Figures are in USD Mn Over USD 50 Bn in IT investments India % Hardware 9,700 11, % Software 2,500 3, % Services 8,100 10, % Malaysia % Hardware 2,700 2, % Software % Services 1,600 1, % Fastest growth across the world Large enterprises and govt. are key spenders South Africa % Hardware 5,400 5, % Software 2,300 2, % Services 4,600 4, % Indonesia % Hardware 4,200 4, % Software % Services 989 1, % Philippines % Hardware 2,200 2,400 +9% Software % Services 1,000 1, % For South Africa IT spending increase is in local currency, but in USD it decreased due to currency fluctuation Sources: BMI, IDC 5

6 There are four key drivers of accelerated IT growth in emerging markets 1 Rapid Globalization of Large US Companies Over 50% of revenues starting to come from non US markets for many US based companies; Rapid expansion in emerging markets 2 Rapidly Growing Base of Large Enterprises from E+ ~100,000 large enterprises in E+ compared to 41,000 in the US 3 Largest Base of Technology Ready SMBs A base of 75 Million SMBs makes E+ the largest SMB base globally 4 Large Base of Consumers 3X faster growth in personal consumption in E+ compared to the US market 6

7 The large base of SMBs is an untapped opportunity for IT players 3 Current Size PC penetration in SMEs India has the 2 nd largest base of SMBs in the world United States 23 Mn 70% ~20% contribution to the total GDP for E+ E+ 75 Mn 12-24% 48 Mn 12% Indian SMBs contribute to 40% of Exports India Indonesia 25 Mn 27% E+ SMEs have low PC penetration and represent a Philippines s SMBs contribute to 36% Of total mfg output Indonesia s SMBs contribute to 24% of country s total GDP Philippines Malaysia 816K 640K 24% 20% large untapped market for IT services South Africa 536K 16% 7

8 Domestic consumption is expected to fuel IT growth further 4 GDP PPP % change GDP Per Capita PPP % change Personal Consumption as % of GDP United States E+ 1.8% 5.9% 1.2% 3.1% 72% 59% 3X faster growth than the US India Indonesia To access full report, please send in your 6.7% 5.6% request to Info@zinnov.com 57% 5.9% 4.7% 57% 2.5 X faster growth in per capita GDP as compared to US Philippines Malaysia 4.7% 4.2% 3.1% 3.1% 73% 47% Household consumption in E+ nearing that of the US South Africa 2.6% 1.7% 59% 8

9 Accordingly most E+ economies show positive trajectory towards IT adoption PC Shipments (in Million) PC Shipments Growth/Decline (%) PC Penetration United States E % 2% 70% 17.4% Steady traction in new PC shipments across E+ markets 11 6% 10% India Indonesia % 7% Tablet driven growth expected in E+ economies going forward Philippines Malaysia % -22% 10% 36% Cost of PC coming down dramatically in E+ economies South Africa 2.5 7% 26% 9

10 However, IT growth in E+ markets observes significantly different characteristics as opposed to the US 1 Telecom US Market Characteristic Telecom revolution brought by well penetrated fixed line network; 80% internet traffic on desktops E+ Market Characteristic Telecom revolution with mobile networks; Over 50% internet consumption on mobiles 2 Retail 85% organized retail market Over 75% unorganized retail market; customer reach is a major pain area 3 Automotive 75% share of large & mid sized cars 56% share of small cars forcing all OEMs to focus on new products for emerging markets 4 Education Over $10,000 per student in public spending Most E+ markets spend less than $1,000 in public spending on education; Cost effective solutions required for such markets 5 Healthcare Average 2.4 doctors per 1,000 people Average 0.7 doctors per 1,000 people. Remote delivery of healthcare is a necessity 6 Banking Over 70% of population have access to banking facilities (bank accounts) Less than 30% bank account penetration; internet/ mobile banking driving growth 10

11 Start-up ecosystem is rapidly growing in E+ and is driving innovation Total Number Of Start-ups 1 (2012) Number Of Start-ups growing in India at a CAGR ~15% 25,883 2,128 1,646 1, USA U.K. Canada E+ Germany Israel China Japan Famous Indian Start-ups have been nurtured by MNC Talent Founded by ex Amazon employees Founded by ex IBM, TI and Honeywell employees R&D Talent Pool Across 1,033 MNCs in India = ~235,000 Region % Start-ups % MNC R&D Centres % MNC R&D Talent Bangalore 27 % 40 % 53 % Mumbai Region 22 % 21 % 17 % Delhi NCR 24 % 16 % 10 % Hyderabad Region 13 % 11 % 13 % 11

12 Technology MNCs have started putting strategic importance on E+ markets Increasing Relevance for Local Customers New Market Development SMB Enablement GE India created a compact electrocardiogram (ECG) device that operates up to 1 week on a single charge SAP in association with its technical partners (Cisco, Intel, NetApp and Vmware) developed private cloud for operations in ASEAN Region In Malaysia, Google partnered with the Information Ministry, SME Trade body and domain registrar to help SMEs go online at low costs 4 Global Breakthrough Innovations Adobe India created an innovative print optimization solution grounds up from India for global markets 5 6 Focus on Modern IT For Inclusive Growth Cost Efficient Solutions Microsoft Partnered with Philippines s Department of education to roll out cloud solution to connect ~45,000 schools, 200 divisions & 600,000 staff across 7,000 islands IBM launched low priced servers in the price range of $5,500- $6,000 for big data & cloud computing needs of SMEs across emerging markets 12

13 Strategic purpose and vision needs to be developed with the future in mind Industry discontinuities / mega trends Different Markets New Products / Services New Business Models Competition from Local Companies Some people skate to the puck and I skate to where the puck is going to be Wayne Gretzky 13

14 Zinnov Management Consulting 69 "Prathiba Complex", 4th 'A' Cross, Koramangala Ind. Layout 5th Block, Koramangala Bangalore Phone: /6 Thank Thank You You First Floor, Plot # 131, Sector - 44, Gurgaon Phone: Patrick Henry Dr. Building 7 Santa Clara CA Phone: , Waterway Ave, Suite 300 The Woodlands TX Phone: info@zinnov.com This report is solely for the use of Zinnov client and Zinnov personnel. No part of it may be circulated, quoted, or reproduced for distribution outside the client organization without prior written approval from Zinnov