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Are emerging markets dominating, or just levelling the playing field?

March 29, 2019

Are emerging markets the next super powers of the world? Or is their development simply acting to balance the playing field? We’ll probably have to wait for the next decade to transpire before we can really get a pulse on what role developing nations will have in the global economy. However, a few things are clear right now. First, the global middle class is going to greatly expand over the next decade, with some analysts estimating that in the next handful of years most of the world’s population will be part of the middle class. It’s worth noting that much of this expansion is prospected to be happening across developing nations, while it has been argued that these segments are waning in the western world. Secondly, both technology and the law develops quicker in these developing nations. And lastly, we’re trending toward globally interconnected systems, with developing nations having increasingly larger roles in these systems. 

 

Technology has now for a time developed quicker in emerging markets, but it might come as a surprise to learn that legislation too is relatively adaptive and changes at a pace surprising even to local regulators. It is this relationship that I wish to now explore. I will dissect both the roles of technology and legislative transformation in emerging markets and developing nations. I will then consider the relationship between the growth of technology and legal transformation in these markets, while drawing a picture of the possibilities this relationship could manifest in the coming decade. 

 

Technological Evolution 

Emerging and developing markets have for a long time provided the appropriate petri dish environment for technological innovation. Both the development and more recently the widespread adoption of new technologies has in some ways flourished in developing markets relative to developed nations. In fact, the World Economic Forum has said that “in some domains, emerging economies are actually ahead of richer countries.” There’s also a strange statistic that sheds light on the global accessibility of technology: more people have mobile devices than access to a toilet, by the billions. 

 

In terms of innovation, developing nations are making an increasingly large dent. In 2016 these markets accounted for more than 40% of patent registrations world wide. Additionally, these nations are taking hold of emerging technologies and could win the race across many domains. China for example is leading the way in autonomous vehicle regulation and adoption, while several African countries are building entire economies on blockchain technology while sitting outside of traditional banking structures. 

 

While there are likely many variables involved in emerging markets being an ideal environment for innovation, there are a couple items specifically that are cited regularly: age demographics, and lack of competition to drive new entrants out. Regarding age in particular, it is estimated that around 90% of the global population under the age of 30 lives in developing or emerging markets. Now, if we consider this statistic against mortality and birth rates in these countries the effect is less staggering. However, it is still indicative of the youthful energy these nations have that could contribute to the mass amount of innovation and economic growth. 

 

Legislative Transformation

The trends in technology growth and innovation in developing nations could play a role in the quicker pace of legislative transformation that these countries experience. For example, governments in emerging markets are better equipped for digital transformation, and are more inclined to drive innovative programs around smart city infrastructure or incentivized innovation. There is room here to suggest that these transformations have a trickle down (or trickle up) effect in creating the agile capabilities of the law in these markets too. Though it is difficult to determine exactly what is really creating this environment, it is likely that many of the reasons technology can evolve quickly in these markets are the same reasons legislative frameworks can and do adapt quickly in these markets also; for example, younger populations or less legacy infrastructure. 

 

These markets are not burdened by out of date legal infrastructures, and in some ways are a blank slate for building new law. Take for example the case of Microsoft's entry into the Arab world in 2002. At the time Jordanian law didn’t account for the kind of deal they were hoping to negotiate. The legal professionals on Microsoft’s team decided to draft a new statute themselves in order to account for what was missing. The story goes that it was accepted and is still used widely today by new businesses entering these markets. Just like that, new law was created and adopted. Such a story seems like a fairy tale when compared against legislative transformation in developed nations.

 

Mexico is a pretty solid case in point. If we look at a segment of a table found in the Legal 500's white paper titled “MINT The Legal Challenges of Working and Investing in Emerging Economies”, we can see fairly directly just how new a lot of these frameworks are. Specifically, looking at how many amendments or new enhanced regulators are required paints a pretty clear picture (as seen in the segment below): 

Source: MINT The Legal Challenges of Working and Investing in Emerging Economies

 

So what does this mean to you as a legal professional? 

If the trends that are supporting the growth and adoption of technology in emerging markets, are indeed the same trends supporting legal market adaptability and growth, then legal service providers need to greatly reconsider their global distribution of value. The opportunity is growing where traditionally it’s been dry, and it is no longer centrally pooled in a handful of jurisdictions. Further, other global trends like the influx of the Big Four into the legal market, are spawning a new generation of business whereby new competitive standards are emerging. This creates a troublesome picture for those trying to determine where to, and how to, grow their legal business in a way that will be sustainable. 

 

Allow me to take a bit of a detour for the purpose of illustration. In Geoffrey West’s, Scale, we learn about the underlying principles of growth and decline that are true across companies and cities. We learn that there are similar mathematical truths to why some companies and cities fail, while others excel. According to West, much of the underlying causes of failure for large companies has to do with expanding beyond means, centralized power, poorly designed infrastructures, and the lack of consideration of the kind of effect exponential growth could have across the system. These things create an equation by which most companies eventually fail. 

 

Whereas cities seem to have incredible resilience and lasting self sufficiency, meaning that if they have become successful flourishing cities they will, on average, continue to be successful. As an illustration of this concept consider Silicon Valley in San Francisco. Silicon Valley emerged out of an already flourishing economy supported by venture capital and well funded research initiatives, as such it was a natural emergence out of an already successful city, and will continue to add to the city’s success; as they say, “Success begets success”.

 

We can draw an analogy between the principles of scaling found in organizations and cities, and the way in which emerging markets are doing better than developing nations in terms of technology and legal structures. The question is whether emerging markets better reflect a company or a city, and in which case, whether their success is likely to continue, stagnate or decline. 

 

On the one hand emerging markets are like agile “startup” companies, and developed economies are similar to large corporations as they lag behind in similar ways. While on the other hand developed nations have effectively retained their status through good times and bad, which could suggest that the more appropriate comparison is that emerging markets are like large cities that are becoming developed, and once developed could successfully remain so. 

 

If the latter is the case then at the very least there will be a levelling of legal markets (and other markets) globally. However, if the former is closer to the truth then there’s a chance that emerging markets may actually continue to surpass developing nations across several domains. While only time will tell which analogy holds more weight, it is clear that the value of legal service provisions is no longer centrally confined. 

 

Those legal professionals, and firms, that take these considerations seriously will need to take their innovative growth thinking outside of their own backyards if hoping to merge with the era of emerging markets and globally dispersed value.

About the Author:
Aileen Schultz is a Toronto based award winning growth and innovation strategist with a global footprint, and a passion for creating better exponential systems. She works with SME's across several sectors with a focus in legal and emerging technologies.

 

 

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