International Data Corporation (IDC) estimates that 2013 will see IT spending growth of 8.8% in emerging markets, representing approximately 34% of global IT spending. Growth in these markets also accounts for 50 percent of all new growth in IT business. Regaining productivity, greater assimilation into the global marketplace, progressive macroeconomic policies, a burgeoning middle class, and better health and education are shifting global economic power to developing nations, especially India and China.

India and China will dominate the IT trade in the coming years and here are the reasons why:

India and China account for 38 percent of the world’s population and IT penetration in the population is far from saturated. Data from the United Nations/International Telecommunication Union shows that Internet penetration of China’s population is around 42 percent, and India’s is just 11 percent. The projected growth of Internet users in China is 10 percent per year, and India’s is 26 percent per year. The data clearly shows the massive IT growth and investment opportunities in India and China.

India and China also have a huge demographic advantage compared to the rest of the world which has a rapidly aging population. China has the largest number of working-age people in the world. With its current rate of population growth, its working age population will peak in 2016. India’s working age population is steadily increasing and will peak around 2039.

How does this help India and China dominate IT trade? Research by Accenture found that young workers and students in India and China are the world’s most intensive users of corporate information technology. The survey shows that young Chinese in the workforce spend an average of 34 working hours a week on technological communication tools, compared to an average of 11 hours spent by the rest of the world. Chinese youth also spend an average of 5.1 hours shopping online and 5.3 hours in virtual worlds. This contrasts sharply with the average of 1 hour and 0.4 hours spent respectively on these activities by the rest of the world.

Current data on IT trade in India and China:

FlipKart is currently the largest online retailer in India with estimated annual revenue of over £64 million. The site has 7.4 million unique visitors per month and is growing at 431 percent annually. Snapdeal, another online retailer, comes in second with 6.9 million unique visitors per month. Among the online travel sites in India, IRCTC (Indian Railways), MakeMyTrip and Yatra are the most visited.

In terms of infrastructure, India’s Ministry of Communications and IT has launched a massive project which, once completed, will connect 250,000 Gram Panchayats (local self-governments at the village or small town level) across the country through 100 Mbps of fiber optic cables. Once implemented, this digital highway will pave the way for massive e-commerce growth in smaller cities and towns, as two-thirds of India’s population resides in rural areas.

According to data released by China’s Ministry of Industry and Information Technology (MIIT), its e-commerce sector grew by 45.3% year-on-year to £52 billion in revenue in the first half of 2013. Data also shows that consumption of information products and services jumped 20.7 per cent year-on-year to £22bn.

challenges:

For continued dominance in IT trading, purchasing power is the key. To do this, the economies of India and China must continue to grow at above-average rates. There are several challenges that both countries must address to maintain this rate of growth. Their main concern is resources such as water, energy and food to support their growing population. Another concern is the possibility of wealth concentration among high-income households.

A specific challenge from China is its one-child policy to curb population growth. Due to this policy, China’s working-age population will peak in 2016 and China will join the ranks of aging nations in 2020. Although it will remain an economic powerhouse, its economic dominance will gradually wane unless it addresses the issue.

Some of India’s particular challenges include poor infrastructure, corruption, inefficiency, and restrictive labor laws. India may have a democratic government, but the bureaucracy severely compromises its ability to govern. To make use of its favorable demographics, India needs to make a concerted effort to educate its youth.

What does this mean for the United States and Europe?

IT companies in the US and Europe are already tapping into the huge revenue potential of these emerging markets.

Amazon entered the Indian market with the launch of amazon.in in June 2013. The company is actively partnering with local retailers and internet portals such as Croma and Gadgetsguru to build its user base.

Social networking giant Facebook earned £159m of its £1.2bn revenue in the second quarter of 2013 from the Asian market. India is the fastest growing small and medium business market for Google AdWords. Google India reported revenue of £116m for the quarter ending March 2012, a 36 per cent growth from its previous filing. While Google’s AdMob unit has more than 10,000 registered developers in China. Its server receives 7.9 billion requests a month to serve ads to mobile app users in the country.

According to CyberMedia Research, Microsoft’s revenue in India amounts to about 640 million pounds annually, 90 percent of which comes from domestic sales and the rest from exports. While China has been a hacking trap for Microsoft, the company hopes to make a comeback in China by launching Windows Azure, its cloud computing platform, in partnership with local startup 21ViaNet.

China and India are the second and third largest Asian markets, respectively, for French 3D modeling software maker Dassault Systemses. While the French company does not provide a national breakdown of revenue figures, it did say that the Asian region generated 27 percent of its €1.78 billion revenue last year.

According to the latest World Bank report, India and China will dominate global savings and investment by 2030. In IT, India and China will capture more than 50 percent of IT spending due to their huge share in the growth of the industry. While China already dominates the IT trade due to domestic demand, India is just getting started. China will continue to dominate the market until the mid-2020s, when India takes over as demographic trends shift in its favor.

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