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Motley Fool guest contributor Brad Hessel manages an investment advising service in North Carolina. He has previously worked in investment banking, and has founded or co-founded a computer game design company, a CASE tool software company, and a knowledge management consulting practice.
"Globalization, as defined by rich people like us, is a very nice thing ... you are talking about the Internet, you are talking about cell phones, you are talking about computers. This doesn't affect two-thirds of the people of the world."
Jimmy Carter is a great ex-President -- Nobel Peace Prize-winner, key Habitat for Humanity player, tireless human rights activist, intelligent and forthright commentator on all that ails us and how we can fix it -- but he is guilty of agonizingly linear thinking in the above quote, which is commonly attributed to him.
Sure, our iMacs and ThinkPads need reliable electric and broadband service to be fully functional. But it does not necessarily follow that a person living in a rural region in an emerging-market country with no running water -- to say nothing of electricity -- cannot benefit from the Internet.
My daughter just spent three weeks in Antigua, a small city in Guatemala, for a Spanish immersion course. Where she was staying, most everyone had electricity; but outside of town, power for many people was minimal, unreliable, or both. Yet almost every twenty- or thirtysomething person had a cell phone. The power-challenged folks don't leave them on all the time -- and recharging can be a catch-as-catch-can business -- but folks have embraced the technology and it is having an impact on their lives.
As another example, consider this recent article from The Economist. It relates the story of an illiterate northern Indian farmer who invested $20 to purchase a cell phone. He used to have to speak in person with each of his buffalo-milk customers, to arrange in advance when and how much to deliver. Now they just call him when they need some. This is so much more efficient that his income has risen by 25% to more than $150 per month, because he can spend more time on production and serve more customers. Presuming he spends no more than $35 a year on service, which would buy nearly 500 prepaid minutes a month in the fiercely competitive Indian cell phone market, he's getting better than a 10-to-1 return on his investment.
It is an article of faith for many critics that globalization comprises a plot by greedy corporations to exploit emerging-market cheap labor -- and that high tech only widens the gap between the rich and poor, both within and between nations. But in reality, globalization is far more likely to help the poor. Consider the steady growth of wealth and literacy in Brazil, China (92% literacy despite still being 57% rural, a truly outstanding human achievement), and India.
Communications technology in particular has aided these developments, and arguably could help enough to narrow the income. Progress is evident already with just basic cell phone service, and will be even more apparent once the economies of scale and Moore's Law contrive to make smartphones affordable for everyone in the next few years. After all, whose life will likely be affected more dramatically by access to 21st-century high-tech communications: an urban American who's already wired in, or an illiterate rural Indian who's never seen a smartphone in his life?
Speaking of illiteracy, there's another tired objection to the efficacy of globalization and concomitant high tech for emerging-market countries: Fancy gadgets are supposedly less than useless for folks who can't read. On the one hand, we have a potential market of about a billion phoneless people in mostly agrarian China and India. Literacy rates tend to run lower in rural regions, so by my estimates, at least 15% of rural Chinese and more than 50% of rural Indians can't read.
That comes to 600 million to 700 million potential customers who cannot read, but could nevertheless benefit commercially and personally from enhanced communication capabilities.
On the other hand, we have companies such as China Mobile (NYSE: CHL ) and Reliance Communications fighting tooth-and-nail to sign up new customers for service before the competition grabs them (or after, for that matter). Think it might be worth someone's time to design a voice/touchscreen input and voice/GUI output interface accessible to illiterates? (And not so incidentally, net access increases both the opportunity and incentive for learning to read.)
What's in it for me?
How can you invest to take advantage of these growth opportunities? Of course, high growth situations are valuable because they are rare, and they are rare because they require hard-to-achieve and hard-to-maintain conditions to exist. So in valuation terms, you tend to pay more to invest in them, and the risk of them devolving into low-growth or worse -- sometimes very rapidly -- is considerable.
That said, the momentum of the South Asia growth story is extremely powerful. Even economic collapse in the U.S. and/or Europe would most likely only reduce, rather than reverse, that growth.
Thus, in addition to the direct communications plays already mentioned, you could participate by investing in raw materials companies such as PetroChina (NYSE: PTR ) or Sterlite Industries (NYSE: SLT ) , basic infrastructure such as diesel engine manufacturer China Yuchai (NYSE: CYD ) , or consumer discretionary stocks like Zee Entertainment, among many other reasonable choices. If the vagaries of individual company stocks are bad for your digestion or sleep, consider broad country-based ETFs such as India Fund (NYSE: IFN ) or the iShares FTSE/Xinhua China 25 Index (NYSE: FXI ) .
Enhanced communications technology is no different from any tool we humans invent: There will be basic, intermediate, and advanced users. For sure, the Zuckerberg-level wizards at the advanced level will wow us with their insights and borderline magical usage, and discover or invent new vistas. But as glorious as the difference is between, say, the pre-Facebook Internet and now, it pales in comparison with the difference between never having been connected, and getting plugged in. Thus, it would be a mistake to overlook the huge life-enhancing differences that usage at the basic level -- soon by a billion neophyte users! -- will make, both to their own lives and ours.