Emerging markets are leapfrogging due to openness and less mature industries.
Technology companies have always had a place in GIC’s portfolio, the state investor said in its annual report. In the course of its investment in technology, GIC has noticed four trends.
GIC cited emerging markets, notably China and India, which are seeing their own wave of innovation, and in some cases a faster adoption curve than in developed markets.
“Leapfrogging is happening due to their greater openness to experiment, less mature industries, fewer legacy arrangements, underserved customer base, and strong talent pool,” it said. “This is a very important trend to participate in.”
The state investor said they are looking beyond “traditional investment categories” as incumbents are constantly challenged by disruptors from outside the traditional verticals.
“For instance, an e-commerce company can now offer wealth management and enterprise infrastructure services, whilst the sharing economy is changing the competition landscape for hotels, transportation and luxury retail,” added.
It added that disruption is not “a zero-sum game.” By targeting inefficiencies and creating scalable platforms, disruptors are enabling better consumer choices and experiences, compelling incumbents to do the same, and creating new industries.
GIC noted that start-ups provide innovation capacity that large companies need. “By providing startups with better resources, networks and business platforms, they also improve the chances of their success. We see this in the pharmaceutical industry, where large companies are licensing drugs developed by smaller startups,” it said.
GIC has a technology investment group that handles early stage investments through venture capital funds, co-investments, and direct investments. Meanwhile, it has a technology business group that recommends GIC’s overall technology portfolio size and recommendation.
Lastly, GIC noted that technology has enabled business ‘ecosystems’ to form a strategy in a “highly competitive environment.”
Large technology companies have created rich digital platforms where different component businesses reinforce each other, it said. “Customers are ‘locked in’ via multiple channels such as e-commerce, search, social media and entertainment.”
Moreover, data-rich platforms provide hyper-customised experiences, allowing the companies to cross-sell effectively, take more wallet share, and build customer loyalty. “For investors, an expanded customer base often creates a network effect, providing an ‘investor surplus’ as additional profits are generated without additional capital from investors,” it concluded.
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