New Data Tools and Methods Required for Emerging-Market Business Decisions

Recent news articles have called into question the reliability of developing-country market data that is crucial to good decision-making for developing-country business expansion. Respected economist Lester Thurow challenged China’s economic growth statistics (New York Times subscription required) by using electricity consumption as a proxy for economic growth. Thurow estimates that China’s economy is growing at a rate of 4.5% to 6% annually, far less than the Chinese government’s figure of around 10%. Similarly, the Arab Advisors Group (AAG), a local telecommunications industry advisor, suggested that estimates of Jordan’s mobile penetration rates may be exaggerated based on results from their recent survey. Using two simple calculations - an assessment of population that takes into account migrants and expatriates as well as standard population figures, and an estimate of the actual number of phones per users – AAG asserts that mobile penetration may be closer to 50%, rather than the 74% claimed by local operators.

Market data such as mobile penetration and economic growth rates inform critical business decisions. The possible discrepancies suggested by AAG and Thurow demonstrate the complexity of designing for, and selling into, developing-country markets. Erroneous data can result from misrepresentation, insufficient validation, or from applying mature-market methods, user trends and historical adoption curves directly to emerging markets. Thurow’s approach to assessing China’s growth demonstrates how even developing-country data can be tested with creative proxies. AAG’s primary research revealed that over a third of all mobile users in Jordan have multiple phone lines (to capture savings on operator offers and promotions), which would lower market penetration estimates based on a unique subscription-to-subscriber ratio.

These two examples demonstrate that gathering accurate, reliable data on emerging markets requires new tools and methods, investigation beyond standard published sources, and a profound knowledge of local user needs, preferences and usage patterns. The companies that base their business growth decisions on sound, market-appropriate data collection and analysis will have the best chance of understanding the scope and location of the most compelling emerging-market growth opportunities.

Also in the news:

• Asus Set to Mass Produce and Launch $199 EEE PC
• India Overtakes U.S. as Nokia’s Second-largest Market
• Rumored Google Phone to Compete with OLPC

From Design to Market: Commercializing Innovations for Emerging Markets

Sometimes, the most elegant solutions to a problem are also the simplest. Last week, Tapan Parikh from the University of Washington was named Innovator of the Year by MIT’s Technology Review for his small-business software applications designed for mobile phones. Parikh's solutions help farmers and women's self-help groups capture and store information, manage their finances and communicate with lenders.

Parikh's simple, easy-to-use applications buck the trend of faster, more powerful technology for an increasingly sophisticated world. Many leading multinational companies have invested heavily to establish research and development centers in emerging markets, but then question whether the investment is paying off. But perhaps the problem is closer to home than in far-off R&D labs. Advance word from the researchers and developers attending this week's Home-Oriented IT (HOIT) conference in Chennai, India is that developing technology for local markets is sometimes easier than convincing corporate business managers to commercialize them.

Overseas labs frequently produce solutions that, like Parikh’s, receive positive press coverage, awards, and broad recognition for their relevance and quality. Nevertheless, they are often released only regionally and reach a fraction of their potential market. Why? In part, because emerging-market solutions are often simpler and cheaper – giving mature-market business managers visions of declining margins and cannibalization of existing products.

Companies like Microsoft, Intel and Nokia (among others) have developed various strategies for ensuring that emerging-market solutions do not cannibalize existing product lines. And the fact is, many products conceived in overseas labs, or by entrepreneurs, would not find a ready market in North America or Europe anyway. Researchers who assess and articulate the financial and operational opportunities posed by their innovations are better equipped to validate or dissipate the fears of business managers. With accurate assessment of the market opportunity and a realistic view of threats to their existing products, companies will better capitalize on emerging-market trends that are essential to maintaining global market share.

Also in the news:

• The iPhone in developing markets?
• Nokia uses anthropologists to design low-end handsets
• Nigeria replacing South Africa as Africa's economic engine

Recycled phones - Good for the environment, Good for revenues?

by Karen Coppock
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Handset manufacturers have multiple incentives to remove used handsets from the marketplace - keep environmentalists happy while decreasing a formidable threat to first-time handset purchases (used phones)

Environmentalists vocally encourage the reuse and responsible recycling of mobile phones. In the summer of 2006, Greenpeace began rating the environmental policies of mobile phone and personal computer manufacturers. The Greenpeace ratings are based on the amount of hazardous substances used in the product and the company’s take back and recycling program. None of the top five handset manufacturers – Nokia, Motorola, Sony Ericsson, LG and Samsung – analyzed by Greenpeace received the highest “green rating,” and many were penalized in their rating due to the lack of disclosure or progress on voluntary take back and recycling programs.

Mobile handset manufacturers may want to consider implementing more aggressive take back programs in emerging markets as an environmentally friendly mechanism for decreasing the amount of used handsets in circulation in these high-growth countries. By decreasing the availability of used handsets in these markets, manufacturers could minimize a significant competitor to the low-end models they are increasingly launching in these markets. Mobile handset manufacturers may even want to evaluate the feasibility of offering "certified used handsets" that they have cleaned, tested and updated potentially capitalizing on the used handset phenomena themselves while being good, and clean, corporate citizens.

Telenor Pakistan Plants a Flag on the Tip of the M-remittance Iceberg

Telenor Pakistan announced a partnership this week with ezetop Ltd (of Ireland) to offer a new “International Recharge” service for its customers. The service allows people working overseas to send phone credits to friends and family back in Pakistan.

From the available details, Telenor Pakistan’s new service is a bit cumbersome compared to mobile phone-based remittance services in more advanced telecommunications markets like the Philippines. To use Telenor’s service, overseas workers must visit an “ezetop distribution partner,” buy a voucher and send the voucher details back to relatives in Pakistan. But Telenor Pakistan’s service is a start, and they will likely improve the process in time to capitalize on m-banking services as they spread through Pakistan and other developing countries.

Pakistan has seen astonishing growth in mobile subscriptions in recent years. There are now 63 million subscribers in Pakistan, up from just 3 million in 2004. However, with a population over 150 million, there is ample room for growth. In an upcoming report on financing options for handset buyers in emerging markets, Vital Wave Consulting estimates Pakistan’s total addressable market for first-time subscribers at around 24 million.

Telenor Pakistan has mirrored the industry’s growth, jumping from 3.8 million subscribers in July ‘06 to over 9 million in March ’07 (or 16% of the Pakistani mobile market). Though aimed at current mobile phone users, Telenor’s International Recharge service could also help drive new subscriptions and mobile handset sales. Many potential buyers in Pakistan’s near-term addressable market are poor, speak a minority language, and live in remote areas; it can be very difficult to reach them via traditional media. Marketing to the economic buyer (overseas workers) rather than the end user could be a cost-effective way to extend mobile communications to new users (family or friends in Pakistan). Handset manufacturers could also join carriers to enable purchases of handsets, in addition to phone time. Telenor Pakistan, its partners and emulators would be tapping into a sizeable opportunity. Worldwide, remittances from overseas workers total more than $250 billion annually – vital income for millions of emerging-market families.

Also in the news

• Airtel extends access for rural subscribers
• ISI focuses on remittances from the US to Mexico
• AMD’s strong growth in South Africa

Microsoft Pilots Ad-supported Software, Aims for New Revenue Streams

Microsoft announced last week that it will offer a free, advertising-supported version of Microsoft Works, its basic productivity software suite. Microsoft is working with undisclosed computer manufacturers to bundle the software and pilot the solution in certain geographies. Combined with other recent announcements about expanding their subscription and Flex-go programs, the ad-supported software suite adds to Microsoft's competitive efforts against Google, piracy, and open source software. (Google offers a Beta version of free online applications - Google Docs and Spreadsheets, and the free software suite from OpenOffice.org has been downloaded 100 million times since 2001.)

Microsoft has not specified where the ad-supported Works will be tested, but the model has clear potential in emerging markets. Developing-country users are more price-sensitive and may be more willing than their developed-country counterparts to trade ads for free, legal software. Emerging-market users might also prefer Microsoft's pre-loaded software over online productivity applications if their Internet connection is slow, expensive or unreliable.

Microsoft's foray into the free software market would benefit low-income computer users who cannot afford full-priced software licenses and do not want to use pirated software. In addition to gaining new (legal) users, Microsoft would also benefit from partnerships with multinational corporations (e.g., Coca-Cola, P&G, Dell) eager to reach emerging mass markets through targeted advertising. Ad-based software could help these potential advertisers capture a larger share of the small but rapidly growing disposable income of emerging mass market consumers.

Also in the news

• Lenovo to Launch $199 PC
• Google to Develop its own Handset
• Emerging Markets-based Companies Spend More on Innovation

Global versus Local: Search Engine Strategies for Emerging Markets

Google’s recent earnings report focused on their aggressive hiring in international locations. Eric Schmidt, Google CEO, explained that searching the Internet is now a global activity, and in order to compete with Yahoo!, Microsoft and, increasingly, local competitors like Baidu, Google’s staff has to become more international. Google has also developed a “cross-language informational retrieval” service, which translates foreign-language content for English-language searches (and vice-versa). According to one blog, translations will be available in English, Arabic, French, German, Italian, Japanese, Korean, Mandarin, Portuguese, Russian, and Spanish. Google’s “world-is-flat” macro approach will appeal to more Internet-savvy users interested in international news and opinions.

Yahoo!’s approach to international markets is slightly different. The company offers a language-translation program similar to Google’s, but a more intriguing initiative is the attempt to attract local users in developing countries by turning their search engine into citywide portals. Yahoo!’s India-based pilot, Our City - an online clearinghouse for local, dynamic content - has been introduced in 40 Indian cities and appears to have gained a solid user base. Yahoo!’s more localized approach will meet the demands of new users who are just beginning to access the web and are most interested in locally-relevant information such as government services, news, entertainment and events. While a combination of approaches is likely the best strategy for emerging market business success, a focus on locally available services and content will motivate the next billion PC users to take the Internet for a test drive.

Yahoo!, Google, and other IT companies should have no trouble finding local content. Small and medium-sized businesses (SMBs) are eager for sales opportunities outside their brick-and-mortar confines, and governments in many emerging-market countries are investing heavily in e-government portals and support for the SMB sector. Smart local entrepreneurs with intimate knowledge of local content needs could act as aggregators, benefiting from the technology, resources and scale of a multinational technology partner. All stakeholders understand this would result in more emerging-market users online, creating potential consumers of other online content and services.

Also in the news:

• Internet Slow to Reach the Unconnected
• Everex, Acer, and Medison Introduce Low-cost PCs
• Technology and Power, How is Access Defining Progress

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