The economic power shift: New global dynamics powered by technology and innovation in emerging…

The economic power shift: New global dynamics powered by technology and innovation in emerging markets

The global economy has undergone fundamental changes over the last 20 years. The financial crisis in 2007–8, technology boom, and fast growth in emerging economies like China and India have all reshaped the economic dynamics around the world.

Commodities have lost their relevance in the global market, opening the way for technology to set new market rules. As a result, IT and consumer-driven stocks have predominantly become the backbone of the new economy.

In the 2007 MSCI Emerging Market Index, energy represented 18 percent and materials 15 percent, and together accounted fully for one third of the total shares, showing that commodities were still highly valuable for the global economy.

However, ten years later, the economic reality has shifted. The 2017 Index shows that those two sectors combined account for only 14 percent. Meanwhile, information technology has risen to 28 percent of the index, from 10 percent a decade ago.

One of the greatest drivers of the technology boom was the shift in mindset that followed the global economic crisis. People and society have become more conscious and as such have geared towards products and services that can provide an added value and have a positive lasting impact in society. Technology is the enabler to build tools and systems that contribute to a more balanced economy, clearly reflected in the market value of technology products.

Technology has challenged the status quo in virtually every sphere — from digital banking to personal virtual assistants, and will continue to do so as it develops. McKinsey estimates that applications of the disruptive technologies technologies could have a potential economic impact of between $14 trillion and $33 trillion a year in 2025. More than creating something new, these technologies are highly focused on increasing consumer and social value, especially in areas such as financial services, healthcare and access to information.

From McKinsey, Disruptive Technologies

The shift to a digital economy also propelled a shift in the global economic power dynamics, which used to be well established in the advanced nations in the north-western corner of the map. This is no longer true: emerging markets may quickly outperform developed nations in Europe and North America, largely due to their strategic economic planning, openness to innovative technologies, and large consumer market.

The PwC World in 2050 report shows that global economic power has been shifting towards Asia for a few years now, a process set to continue over the next few decades. China and India, the largest countries in the world by population, are leading this shift.

According to PwC, these two nations are well placed to lead the way in key areas of innovation linked to new digital technologies.

In the case of China, digital technologies are estimated to contribute anything up to 26% of its GDP by 2030, as compared to a global average of 14% of GDP. This reflects the country’s leading position in areas like mobile technology and e-commerce, its large domestic market and its increasingly highly educated workforce.

At the end of 2007, China accounted for 16 per cent of the Emerging Market Index, and Chinese tech companies 0.3 per cent, whereas by 2017 China had a 30 per cent allocation and China tech accounted for 12.3 per cent of the index.

Neighbouring India is also a tech-savvy nation, nurturing an old tradition of producing world- class computer programmers and technologists who contribute significantly to technological developments around the world.

China and India are just two prime examples of the economic potential held by the populations in developing nations and the vast scope for technologies and services to succeed in those markets. By 2030, 80% of the world’s middle class will be found in developing countries, and they have increasingly more purchasing power. Developing countries are where technology can have a bigger social impact and makegreater contribution to the economy.

Over the coming years, there will be a restructuring of the global economy with non-OECD economies expected to account for 57 percent of the world GDP by 2030. By 2040, the economies of E7 countries, the group of greatest emerging economies China, India, Brazil, Mexico, Russia, Indonesia and Turkey, will be double that of G7 countries.

Of course, such a drastic change in the economic scenario has prompted paradigm shifts and some unwanted consequences, so the need to understanding the opportunities and challenges is urgent.

In order to create a more balanced global economy, governments and organisations are attempting to tackle the aftermath of this power shift, such as the rise of political extremes and inequality, as well as debating how to shape rules and regulations for an economy that is founded on the flow of data and information.

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