Understanding the "Flavors" of Financing

Bloomberg News creatively captured the significance of an otherwise mundane sales figure when it noted that Brazilians are now buying more PCs than TVs. Brazil, which ranks fifth in the global PC market (up from seventh in 2006), has seen strong PC sales due to growing prosperity and a tax break for manufacturers. According to the Brazilian Internet Steering Committee, low-income families are buying PCs at a faster rate than any other group. Bank credit offers, installment plans, and other financing services provide new buying opportunities to this segment.

Vital Wave Consulting’s primary research in emerging-market countries has found that a significant obstacle for new technology purchases is the initial capital outlay. Consumers do not necessarily object to the total price, but struggle to pay for a product in one lump sum. Companies experiencing growth in emerging markets are benefiting from financing programs that allow lower-income buyers to overcome that initial financial barrier. Brazil provides greater access to financing than many other emerging markets, with nearly 45% of households having access to formal financial services. In a populous country like Brazil, the collective buying power of lower-income segments can impact global sales figures.

Business managers who understand that financing comes in many flavors are better equipped to capitalize on growth opportunities in lower-income segments. In Brazil, access to formal financial services is provided by consumer credit programs associated with large retailers such as Casas Bahia. In other countries, consumer financing may come from bank programs, microfinance services or even informal financial services such as Rotating Credit and Savings Associations (RoSCAs). Developing tailored strategies to tap into these varied financial services in each country or region will be a major advantage to technology companies in search of new markets.

Also in the news:

• Emerging-market telecom takes center stage
• ITU report puts mobile at 3.3 billion users
• OLPC releases new design concept

IBM Lowers Internal Barriers with Overseas Service Program

In a recent report, Vital Wave Consulting named internal company barriers as a key inhibitor to emerging market business growth. Some large ICT companies have recognized this weakness and found novel ways to address it internally. IBM recently initiated a program that, if executed well, will give up-and-coming executives valuable experience in the developing world. The company's new Corporate Service Corps will allow 600 employees to apply their business skills to economic development and information technology projects run by non-governmental organizations over the next three years. The first 100 managers will travel to Romania, Turkey, Vietnam, the Philippines, Ghana, and Tanzania later this year.

Emerging markets claim the highest growth rates in the world for IT and communications services. Mature-market companies are working to understand these new markets to remain competitive, so it’s no coincidence the launch of IBM’s program follows their recently announced focus on emerging markets. Technology managers also realize that emerging-market experience is becoming a requirement in a globalized world. IBM’s Corporate Service Corps program is clearly capitalizing on the desire for developing-world business experience (more than 5,000 employees applied for the first 100 positions).

Basic business fundamentals teach ‘know your market.’ While IBM’s Service Corps provides top-notch business support to recipient organizations, sending eager ladder-climbers to developing countries gives IBM real-world training for employees. The business benefits are clear for IBM and other corporations who consider this path. Employees gain a deep understanding of IBM’s growth markets, employees’ job satisfaction may increase (boosting retention and attracting new talent), and IBM gets a street view of emerging-market business problems – the very problems its future customers may be calling on them to solve.

Also in the news:

• Software piracy on the rise in developing countries
• Big pharma gets into emerging markets
• Microsoft releases low-cost laptop requirements for XP

Will Bridging Common Devices Be a Bridge to New Users?

Has Microsoft shifted its thinking on how to win the hearts, minds and wallets of the world’s low-income consumers? Dan Nystedt, a sharp-eyed tech writer at IDG News Service, suggested last week that new management in the company’s Unlimited Potential Group may favor mobile devices over low-cost PCs and shared computing in the effort to increase technology access in emerging markets. Though details are few and a release date is not on the calendar, Microsoft has been working on a low-to-mid range smart phone that connects to a TV docking station, so data on the handset can be displayed on a TV screen, essentially lowering the cost of computing for the poor.

Vital Wave Consulting likes the simple logic of bridging two common and accessible pieces of technology in developing-country homes – the TV and the mobile phone. There are over 850 million households with TVs in the developing world, and mobile penetration is extending to the most remote corners of the globe. The learning curve for each device is relatively flat and global ownership is an indication of affordability. But in one-TV homes there may be stiff competition between PC-time and regular television programming.

Microsoft is the right company to make such a technology work. It’s primarily a software issue, and the company’s experience with Windows Mobile could speed innovation and acceptance in the market. Adding applications and functions to a handset and turning the TV into a monitor could alter the fundamental perception of each device’s utility. It could also convert the handset into a family tool, rather than a private device. By partnering with Microsoft, mobile operators have two ways to increase ARPU – offer more services and increase the number of users on a single handset. Broadening the utility of existing technology devices is a good strategy for all technology companies. Emerging-market consumers are able to justify spending precious resources on technology that solves more problems for more people in the household.

Also in the news:

• IBM's developing-country service corps ramps up
• Microsoft defines requirements for XP on low-cost PCs
• Apple signs non-exclusive deal to get into emerging markets

Connection-sharing Hides Larger Potential Market

While conducting an interview in India recently, a Vital Wave Consulting researcher noticed a teenage boy standing on a fence outside the house. The interviewee explained that the boy was splicing the wires so he could tap into his neighbor’s cable connection to watch an upcoming cricket match. Meanwhile, across the sea, the Arab Advisors Group released a study claiming that, in Egypt, the average ADSL Internet connection is shared by three households. The group estimates the number of connected Egyptian households at around one million, effectively tripling the official residential ADSL access figure.

Belief in a one-to-one ownership and usage model is an assumption that mature-market business managers frequently (and erroneously) apply to the emerging-market context. In fact, sharing cable television signals, Internet connections, even electricity, is very common in many emerging markets. As with buying bootleg software and pirated videos, stealing signals is not perceived as a punishable offense, so much as a pragmatic way of living on a limited budget.

Though the Egyptian estimates need validation, the prospect of a user base that is three times larger than official figures is notable. The pervasiveness of shared services in India, Egypt and many other emerging markets suggests a substantial, over-looked market for online retailers, auction sites, advertisers and hardware companies. Hardware vendors have begun to capitalize on shared-usage models by designing products with features for multiple users (e.g., Nokia’s multiple phone books in one mobile phone). To accurately determine the size of these market opportunities, companies need a clear understanding of unconventional usage patterns and reliable methods for finding and validating market size data and assumptions.

Also in the news:

• GE redesigns medical equipment for emerging markets
• ZTE gains market share in Africa
• High demand for Intel's Atom