Thursday, May 29, 2008

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

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