In the first part of a three-part series, this post examines the growth of BRIC SMB IT markets, and their ranking relative to other markets. Here we will discuss the Top 10 markets from an SMB IT Spending perspective, and while it is well known that emerging markets grow faster from a smaller base, the absolute rankings of large markets tend to be relatively stable except in the case of exceptional growth, making it an important milestone. This is the case for China, in this forecast as it replaces Germany in its’ longstanding position of the third largest SMB IT Market. Other changes in ranking are that Brazil replaces Italy, and India comes into the Top 10 by the end of the forecast period. Korea displaced Australia as #10 in 2011 and manages to stay within the group throughout the forecast. The primary reason for this displacement is similar to that of other economic segments: sheer volume increase based on population and higher GDP per capita.
According to this Forbes article, the equity value of the BRIC economy financial markets peaked at 18% of the global value in mid-2011, and grew four-fold in the previous ten years. As a general rule, technology adoption lags economic growth and depends on many factors. This accounts for the slower climb up the rankings when compared with the overall economy, and is exacerbated by the fact that SMB IT adoption radiates from Tier 1 Cities to Tiers 2 and 3 as infrastructure allows.
Even so, we can see the fundamental differences in the market structures between Germany and China shown in this graph, despite the huge volume increase in China. Germany demonstrates a much more mature mix of IT products and services, weighted toward value-added segments of Software and Services, while the China market remains very hardware centric; almost half the opportunity is still hardware devices by the end of the forecast period. However, China is different than many other emerging markets because it is not only strategic as an end user market, it is also critical as a supplier to the world and to its’ own domestic market. The history of the IT market in Asia Pacific, especially since introduction of the standard PC architecture, has been a race between US brands and local manufacturers whose production is adopted in the domestic market through osmosis along with cultural and distribution advantages. In the case of China, this is more serious as it becomes an increasingly important global segment; on one hand there is a push to open the market while on the other US giants like Apple, IBM, Intel and Microsoft become more reliant on the Chinese Consumer and Enterprise IT markets.
There will be increasing international pressure to make sure there is a “level playing field” in China, as we have seen from initial forays like the Huawei controversy earlier this year. PC maker Lenovo is going very strong in the global market, having reached the #1 vendor in unit shipments worldwide in a relatively short period of time, and snatching three times more domestic market share than the nearest competitor. Lenovo and Huawei have also pushed Apple to sixth place in the Chinese mobile handset market, despite Apple manufacturing tens of millions of handsets and tablets in China. Welcome to the global economy.