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Executive summary
GCC countries can develop what are known as “tech champions” to grow their digital economies. Such companies provide the economies of scale and scope necessary for innovation, talent attraction, job creation, large-scale investment, and exports. A thriving technology ecosystem leads to a strong digital economy.
We forecast that the digital economy, growing six times as fast as its traditional counterpart, can contribute up to 25 percent of global GDP by 2025. Currently, China and the U.S. are in a commanding position because their tech champions account for 90 percent of the market capitalization of the world’s 70 largest digital companies.
The GCC’s digital economy is expanding rapidly, but remains focused on traditional IT. The region can invest more in R&D and startups; increase tech and digital talent; and improve national innovation, development of products, and services delivery.
Tech champions develop in three key stages: creating an anchor portfolio and value propositions; scaling up and expanding geographically; and diversifying and monetizing at scale.
By instituting the right policies and by developing tech champions, GCC countries could reach the level of advanced digital economies, adding US$255 billion to regional GDP, of which $119 billion would be in Saudi Arabia.
Technology attracts significant foreign direct investment to a country and creates many jobs. In countries with the largest digital economies, we estimate that some 6 percent of the workforce work in technology-related jobs. The development of a technology ecosystem has thus become a key measure of a country’s ability to compete on the global stage. The industry promises rapid growth and makes a country more self-sufficient, resilient, and secure.
The rapid development of the technology industry has continued despite the disruptions caused by the COVID-19 pandemic. Indeed, the pandemic has resulted in accelerated growth for the technology industry and wider adoption of tech solutions.
What tech champions provide
GCC region countries can capture the economic and social benefits promised by technological innovation and growth if they enable the buildup of national tech champions. Tech champions are companies that play a pivotal role in the global technology industry and help to shape the technology sectors in those countries that have forged ahead. Tech champions possess the necessary economies of scale and scope to promote innovation, attract talent, create jobs, and boost investment and exports. They are able to dominate their domestic markets and grab a significant share of global markets.
Tech champions rule the market in the most advanced tech economies. The world’s 10 largest tech companies (seven in the U.S., and three in Asia) have a combined valuation of more than $12 trillion, equal to the size of the economies of France, Germany, India, and the U.K. combined. Due to the concentration of tech champions in the U.S., the country accounted for more than 34 percent of the global ICT market in 2021.
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“The region can transform its position as a digital economy disruptor. Imagine a GCC with more tech champions – that’s an extra $255 billion in regional GDP and 600K tech jobs.”
Tech champions also create many spin-off enterprises, resulting in new job opportunities. The Bangalore region of India today employs more than a million IT professionals in a tech ecosystem that Infosys indirectly helped establish. Former Infosys employees have set up some 200 tech companies in India.10 The spin-off effect replicates the experience in Silicon Valley in the 1960s, when 30 spin-offs were created out of Fairchild Semiconductor. By 1970, only 10 years after the founding of Fairchild, Silicon Valley was employing 12,000 people. The total today is over 600,000.
Tech champions inject significant resources into the innovation ecosystem. They integrate new products at a global scale. Their acquisitions provide viable exit opportunities to startup entrepreneurs. Their vital role in tech innovation can also be seen through the investment of these tech champions in R&D. Three of the largest U.S. tech companies alone (Amazon, Alphabet, and Microsoft) account for more than 15 percent of the total R&D spending of the country.
How tech champions emerge and how governments encourage their development
The journey to creating a tech champion proceeds through three stages. The route varies depending on the company’s original starting point, its specific capabilities, and how it seeks to differentiate itself from competitors.
During the first stage, the company lays the foundations for success. It creates an anchor portfolio and builds a credible value proposition. That means recruiting top talent and leaders to drive the process of capability building; developing minimum viable products (MVPs) for a specialized portfolio; building core capabilities for innovation; establishing key partnerships, alliances, and acquisitions; and putting in place a resilient corporate structure.
During the second stage, the company scales up its offerings and expands beyond its home market. M&A, and the establishment of joint ventures and subsidiaries, are among the mechanisms that allow the company to scale up its offerings and build the accompanying value chain. The company identifies synergies with respect to capabilities and reinforces the development of the intellectual property (IP) ecosystem by building a supportive environment for R&D and innovation. The company broadens its geographic footprint into top-priority markets by whichever means is the most appropriate, including agreeing on strategic partnerships, making acquisitions, or establishing direct representation.
During the third stage, the company, now an aspiring tech champion, diversifies and monetizes at scale. It establishes global reach, attaining a significant presence in all major markets. It expands its global IP factory and develops a complete innovation ecosystem. It diversifies its portfolio and consolidates its global operating model.
Sustainable value creation and a clear identity
Successful go-to-market formula
Appropriate corporate structure and geographic footprint
Growth
success
factors
Agile operating model
Effective talent system
Government regulatory and policy support
Conclusion
GCC countries can transform their position in the global tech market. At present, they are largely buyers and adopters — an unsustainable position. Instead, they should become tech disruptors by enabling the development of their own tech champions. The creation of GCC tech champions will require a concerted effort by companies that take the lead and invest, and by the government acting as a facilitator.
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