Technology allows customer acquisition to leapfrog barriers

Residents of Naiorbi send Mpesa funds to relatives or family members on April 14, 2012. Trevor Snapp/Bloomberg News

Residents of Naiorbi send Mpesa funds to relatives or family members on April 14, 2012. Trevor Snapp/Bloomberg News

Published Sep 1, 2014

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THE POTENTIAL for emerging and frontier markets to see accelerated economic growth due to technology transfer is a regular theme in our research, but we are increasingly seeing a new feature – the capacity for new technology, particularly related to data over the internet, to completely bypass swathes of older technology and business activity, creating the possibility of quite dramatic progress.

We have noted the phenomenon of Kenya’s mobile money transfer system before, but the scale and full potential of the system merit further discussion.

Starting from an identified need for Kenya’s migrant workers to have a secure means of remitting funds to their families – advertising for the service was based on the slogan “send money home” – the system has spread rapidly to many other countries in Africa, Asia and even Europe, where geography or the security situation renders money transfers over distance problematic. In the meantime, in Kenya and elsewhere, the easy-to-use service has produced an explosion of additional activities in commerce, savings and loans.

Such transactions amount to about a quarter of Kenya’s gross domestic product and involve well over half the country’s population. Similar operations are also becoming established separately in other countries. Although banks remain a key part of the system, the need for a physical branch network has largely diminished.

We see the same process in action within India’s retail space. We believe the country, having largely prevented the creation of supermarket and multiple-store chains through nationalist legislation and bureaucratic inertia, appears well on the way to avoiding the need for costly store construction in the first place.

Internet retailers have been making rapid strides in India’s retail markets. When we meet with the managements of such companies, we are struck by a regular anecdotal theme that sales models set up to meet an assumed dominance of tech-savvy urban customers have, in fact, experienced dramatic levels of demand from rural areas. Just as technology and the internet allowed Prime Minister Narendra Modi to campaign in many places at once during the recent general elections, through his use of live hologram projections of his speeches, so India’s retailers can suddenly reach a customer base of millions with only limited levels of capital investment.

This factor highlights the potential for relatively simple infrastructure projects to have a tremendous pay-off in India.

With a hypermarket available through his or her smartphone, a rural dweller in India requires only reliable electricity, internet connectivity and adequate roads to transport supplies.

Our visits to some cosmetics companies have demonstrated a similar process on a more intimate scale. Having operated largely through direct sales from teams of saleswomen going from door to door, a process requiring a slow build-up of sales forces and quite gradual geographic expansion, the businesses are now able to use the internet to enter entire new geographies at limited cost. Interestingly, the basic human connection between the potential customer and a trusted interlocutor remains, but instead of standing on the doorstep, the saleswoman can be present electronically, through a blog posting, online live chat or even a Facebook page.

An important aspect of all these stories is the way that they can open up new customer bases. In these circumstances, the ease and cost of customer acquisition are likely to be far lower than that seen decades ago when similar businesses were set up physically in developed markets.

With technology, we believe the implications for growth rates are profound.

Investment and infrastructure remain vital for many important activities in developing markets. Basic levels of power provision and transport links remain necessary to allow these economies to function effectively, while spending on education is needed to give populations the necessary skills to engage with a global marketplace.

We believe many industrial activities will continue to require heavy initial capital investment. However, across a wide range of consumer activities in particular, technology and the internet are linking potential customers to markets at a rate that would have seemed impossible even a decade ago – to the potential benefit of both the populations of developing markets and the businesses set up to serve them.

Mark Mobius is the executive chairman of Templeton Emerging Markets Group.

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