Friday, May 27, 2011

China's Rural Market Success Goes Global

The Chinese computer technology firm Lenovo recently launched a campaign to penetrate rural small and medium-sized business and consumer markets in Indonesia, Brazil, Mexico, India and Turkey over the next three years.  The company, which has grown faster than any other major PC manufacturer for five straight quarters, is aiming to replicate its success in rural China by establishing expansive distribution networks in key emerging markets. As demand for tablets and smartphones rises in urban centers, rural segments are becoming the new drivers of low-cost PC demand. In Indonesia alone, Lenovo's efforts to penetrate the rural market led to a 100% increase in computer shipments in the first quarter of 2011.

Despite strong early results, Lenovo faces fierce competition from other international brands and entrenched local "hero" brands such as HCL of India and Positivo of Brazil, which rejected an acquisition offer from Lenovo in 2008. With a thorough understanding of local markets and well-established distribution and marketing channels, local brands are poised to capitalize on increasing rural demand for low-cost PCs. Lacking the same familiarity with these channels, new entrants into these markets also face transportation challenges and weak retail presence.

A uniquely tailored approach that takes local logistical and economic realities into consideration is critical to penetrating rural markets. Building brands and implementing strategic marketing plans that place an emphasis on understanding local tastes and conditions can provide firms with a competitive edge. Acquiring and partnering with local brands can also provide foreign firms with a strategy to mitigate risk. Competitive analysis that includes local brands as well as multinational firms can help new firms to create tailored go-to-market plans that include product, place, pricing and promotional strategies that are responsive to local market conditions and the needs and wants of rural consumers.

Thursday, May 12, 2011

Going in Together: The Promise and Pitfalls of Partnerships

From Africa to India to the Philippines, partnerships are making headlines as a vehicle for advancing national development agendas and private-sector business interests. Last week, the Africa Progress Panel released its Africa Progress Report 2011, which focuses on the potential of partnerships to accelerate growth on the continent and "drive sustained social and economic development." The report notes that the recent improvement in African economic growth has had only a limited impact on employment and income. It cites a number of models that are successfully increasing access to services and identifies ways in which these models can be scaled and replicated. Public-private partnerships (PPPs), which involve joint investment and shared risk between government entities and private-sector partners, are also being used to jumpstart infrastructure and development projects in India and the Philippines, as well as in many developed economies. The growing appeal of partnerships comes at a time when actors in each sector recognize the need for cross-sector cooperation. 

Private capital, led by foreign direct investment, has eclipsed official aid contributions as the largest financial flow to developing countries. In the last decade, institutions such as USAID have placed a strategic focus on the formation of public-private alliances. Multi-national corporations are increasingly partnering with NGOs and public sector actors to improve supply chains, test new business models and gain entry into new markets. There are now numerous examples of governments, firms and NGOs benefiting from each other's unique set of expertise and resources, especially as constrained government budgets and continued tightness in capital markets make funding and implementing large-scale projects a challenge. Yet partnerships hold peril as well as promise. A new blog, The Best Intentions, exemplifies the maturing discussion around the opportunity and challenges afforded by PPPs.  It also explores the dynamics of how PPPs fail when the "secondary interests" of private sector, NGO and government partners are not aligned or diverge down the road.

To mitigate risk, managers have learned to create comprehensive strategies for partnership development. Multinational firms, governments and NGOs can successfully arrive at long-term partnerships that serve their interests when their goals align. Investing in business intelligence to evaluate primary and secondary incentives for traditional and non-traditional partners may allow organizations to avoid ad hoc arrangements or alliances doomed by misaligned objectives.

Monday, May 2, 2011

The New "Old" Path Forward: Bundling and Resource Sharing

Telecom infrastructure provider Viom Networks with India's Minister of Communication and Information Technology recently inaugurated a rural service center in the north of the country that aims to facilitate socioeconomic growth through connectivity and convergence. The center is the first of 20,000 such centers that Viom hopes to roll out across the country in partnership with the Indian government in the next two years. The goal for each rural service center is to capture untapped connectivity and electricity resources offered by existing telecom infrastructure. Modularized facilities surrounding the towers deliver medical services such as cold storage for vaccines, banking infrastructure to drive the Government's financial inclusion agenda, and Internet kiosks to facilitate education and eGovernance initiatives. 

Resource sharing and bundling strategies are well known to the ICT sector. Shared resource computing has grown into a viable product category that allows customers to leverage processing power that would otherwise go untapped. Mobile operators around the world are increasingly extracting the services layer and bundling offerings on a single platform to leverage economies of scale, combat high churn rates and raise average revenue per user (ARPU). The opportunity to leverage telecom infrastructure has been a topic of discussion since 2009, when the Development Fund of the GSM Association (GSMA) produced a report documenting that mobile base stations typically have 5 kW of excess power that could be used to provide services to rural communities around the world. The GSMA noted that favorable regulatory environments would be required to implement such programs. The developments in India suggest that the Indian government is interested in implementing this latest innovative application of a bundling and resource sharing strategy to deliver key services to its constituents.

For multinational firms and members of the development community seeking to scale products or sustainably deliver services, partnering with local and national governments to bundle services and share resources may provide an attractive entry strategy. A thorough examination of the regulatory requirements and business models needed to support such a strategy is an essential part of determining how to take advantage of this nascent opportunity. Whether related to mobile or not, looking outside the box for innovative ways to leverage existing platforms is a savvy emerging market strategy.