Emerging Markets First, Traditional Markets Second For IBM

This week’s nugget was buried in a New York Times article by Steve Lohr on the lowering of IT-spending projections for 2008. The article contained the complete text of a memo by IBM’s CEO Sam Palmisano to the company’s senior executives. In the memo, Palmisano describes a major change in strategic direction – IBM “will focus first on how to capture all the growth in emerging markets, and then adjust our plans to serve the more traditional markets appropriately.” Palmisano underscores IBM’s continued investment in Brazil, Russia, India and China (BRIC), and announces a $1.6 billion initiative to capture growth opportunities in other parts of Southeast Asia, Eastern Europe, the Middle East, Africa and Latin America. A special emerging-market-based group will drive the initiative, which Palmisano expects to contribute significantly to the company’s revenues by 2010.

Palmisano deserves credit for recognizing the near-term opportunity “beyond BRIC” and providing strong leadership on strategic growth in “second-tier” developing countries. He has a proven track record of backing up past announcements with solid action. The number of employees in India, for example, has increased 40% to 73,000 in a year, reflecting the company’s rapid growth in the region. The BRIC countries have yielded a compound growth rate of 22 percent since 2004. Despite this success, Palmisano clearly understands the importance of bracing senior management for a strategic shift away from more comfortable traditional markets. “This is quite a change in mindset,” he says in the memo, “but that’s what is required to exploit today’s most exciting growth opportunities."

The overt change in focus by IBM and others (Cisco, GE, Microsoft, Nokia) presents an opportunity for regional offices to contribute more directly to the corporation’s strategic direction. With a spotlight on growth opportunities in their local markets, senior leaders in those countries (whether they are from the local area or moved there by the company from abroad) can contribute to company growth by influencing how products and services should be designed to meet local needs and preferences. For IBM to be successful in emerging markets, it will require a sustained commitment to innovation and understanding local markets. The details of Big Blue’s new emerging-market growth initiative will govern its degree of success, but the announcement alone is a bold step in the right direction.
Also in the news:

• Nokia Village Solution due out in Q108
  Cisco WiMax focus on developing countries
• China-based Hasee enters low-cost PC market

Prime Minister Calls for Corporations to Support Development

British Prime Minister Gordon Brown called this week for the support of multinational corporations to help achieve the United Nations’ Millennium Development Goals (MDGs) by 2015. Reports claim he is attempting to enlist the support of over 20 private corporations to use their expertise and resources for capacity building, infrastructure development and capital investments in developing countries. Calling the situation a “development emergency,” Brown believes that the lack of enterprise in some of the least-developed countries is inhibiting growth and the achievement of the MDGs. Private-sector companies already tapped for support include Vodafone and Google. In the coming years, Britain’s development minister will be focusing on initiatives in financial services, mobile phones and agriculture.

Brown raises a critical development issue - the need for enterprise investment to ensure sustainable economic growth in the world’s poorest regions. However, he failed to mention that ICT companies are focusing increasing attention and resources on fast-growing markets in the developing world. Companies like AMD, Intel, Microsoft, Cisco, Nokia and Ericsson have made significant business investments in developing countries. The reason for Brown’s omission may be that the public sector struggles to connect these investments with economic and social growth. Most large corporations, especially in the technology sector, have corporate social responsibility (CSR) programs but the size of philanthropic investments is inherently capped by market forces. These programs often pale in comparison to the business investments made by these companies in developing countries.

Private-sector companies can help the development community and the public sector appreciate the full social and economic impact of their activities in developing countries. The private sector has a direct and positive impact on the developing world through the expansion of local business ecosystems, the commercialization of new products and services designed specifically for these markets, and business models that increase the affordability of productivity tools. Because these efforts are profitable, they are more sustainable than philanthropic activities. Certainly, there is a place for philanthropy and CSR in addressing the challenges in the developing world. But a sustainable approach to addressing global poverty increases the longevity and size of resources committed to such investments. And corporations that identify credible methods for measuring and promoting the social and economic impact of their business efforts to the development community will experience greater business value through increased brand equity, visibility and an enhanced ability to influence local policies.

Also in the news:

• Handset majors may exit entry-level market
• M-payment not taking off in China
• Linux may take over low-end PC market

Bypassing the Network May Connect the Unconnected

This week’s nugget was unearthed when a little-known telecommunications company promised to bring to market a mobile phone that can bypass operator networks and enable users to text and make free calls to people within a one kilometer radius. Sweden-based TerraNet believes the technology addresses the need for communication in developing countries, especially in rural areas where operator networks do not exist, and could also aid in disaster relief. The technology can even be used for free phone calls outside the immediate vicinity if there is a broadband-enabled PC with Voice over Internet Protocol (VOIP) capability within range. Focusing on areas without existing operator networks, TerraNet intends to launch a commercial network in 2008 with revenue models based on licensing and handset sales.

Though TerraNet's technology requires special handsets, the company hopes it will eventually be a feature available on standard phones. Phone manufacturers, however, will have to overcome the objections of operators if they intend to offer a service that bypasses the operator’s network to make free calls. Indeed, many operators – focused relentlessly on competition from other operators and maintaining ARPU (average revenue per user) – may not be prepared for a competitive threat like TerraNet’s solution. Because consumer needs and user habits differ considerably in emerging and mature markets, a solution could quickly become formidable competition in emerging markets while not posing a threat in developed countries.

While TerraNet’s solution poses a threat to telecommunications companies, Vital Wave Consulting suggests that it may also present an opportunity for PC maufacturers and local entrepreneurs. Mobile technology that taps into a connected village PC for free VoIP calls could present not only a lifeline to the outside world but a strong enough value proposition to prompt community or entrepreneurial investments in PC-based connectivity for longer-distance communications. TerraNet’s solution is also a reminder that multinational technology corporations doing business in developing countries would do well to look far outside traditional technology and business model solutions to understand competitive threats and accurately identify growth opportunties.

Also in the news:

• Motorola loses ground because of ultra low-cost segment
• Everex partners with Zonbu for low-cost laptop
• OLPC signs Peru for 260,000 laptops