Vital Wave Consulting

India On-shoring?

2011-10-25T17:12:00.000-07:00

The Indian government's Department of Telecommunications quietly released a policy document that should rattle pretty much every global tech company in the world. The National Telecom Policy advocates a huge increase in domestic manufacturing and design, particularly in the areas of microchips, network equipment and computing devices (including smartphones). Designed to meet local demand for relevant products and services, reduce the trade deficit and ensure cyber security, the policy aims to:

Promote domestic production of telecoms equipment to meet 80% of India's demand and capture more of the global ICT market
Provide preferential market access for domestically manufactured telecommunication products including mobile devices and SIM cards
Support development of Indian standards for hardware and software
Streamline taxes and provide greater access to financial resources for local manufacturers and R&D groups

For India, this is a well-designed and ambitious policy initiative, and multinational ICT companies can't afford to ignore the underlying reasons for the move. Countries like India and China, which have the design talent (and in some cases the manufacturing capacity) to implement or impose a home-grown ICT ecosystem, are becoming increasingly aware of the inherent vulnerability of buying critical technologies from abroad. Multinational ICT companies may see in the new policy a threat to market access, but it remains to be seen whether the DOT has the broader government backing to implement and enforce it. There are also unresolved questions about the policy, such as whether locally designed products made by multinational companies will qualify as domestic.

Tech companies should also smell opportunities in the new policy. The goals of ensuring at least one e-literate person per household and increasing access to mServices promise a growing market for mobile and low-cost devices. Efforts to support IT purchasing by small- and medium-sized businesses, especially in Tier II and Tier III cities, may also bolster demand. And there will almost certainly be partnership opportunities, particularly for companies that respond to the government's concerns over cyber security by building in or enhancing security features in their chips, network equipment, hardware and software.

For more information about the Indian Government's proposed policy and its implications for your business, contact anne.craib[at]vitalwaveconsulting.com

Battle of the Form Factors: Tablets vs. Ultrabooks

2011-09-02T07:17:00.000-07:00

A glance at the headlines over the past several weeks makes clear the battle of computing form factors continues to rage. HP announced it will sell or spin off its PC division, including its struggling TouchPad. Meanwhile, in India, Lakshmi Access Communications announced the launch of a new US$99 tablet computer. The tablet, which runs Google's Android OS and connects to the Internet using both Wi-Fi and 3G networks, comes only a few weeks after Bharti Airtel and Reliance Communications launched tablets to compete with Apple's iPad and Samsung's Galaxy Tab. In the United States, Intel said it would invest US$300 million in companies that develop new technologies for Ultrabooks, a class of thin and light laptops, signaling that the company believes there is still a market for the notebook form factor.

These announcements recall the debut of OLPC's ultra-low-cost XO laptop several years ago and the subsequent netbook craze. The netbook category, which took off and then promptly fizzled, was a response to demand for low-cost computing devices that were lighter, consumed less power and accessed most functions and content via the Internet. Yet its demise illustrated that fickle consumer preferences and technological convergence, especially coupled with the rise of mobile networks, can cause a category to stall just as quickly as it rose. Companies, like Intel, may be hoping that snazzy devices combining the best features of the tablet, smartphone and laptop form factors might help drive demand for devices packing its higher-margin processors. This is especially true in emerging markets where consumers may own just one or two devices and demanding more functionality from each device.

While it may be impossible to predict device trends with any accuracy (few foresaw the tablet boom), it is fair to say that only categories that address both a deep consumer need and align with market characteristics will have staying power. Purchasing power, evolving tastes and ICT infrastructure will continue to drive consumer decisions in both developed countries and emerging markets. A differentiated device strategy that caters to local market characteristics and needs can help multinational firms capitalize on convergence trends in diverse markets.

Mobile Commerce: A Boon to E-Commerce in Emerging Markets?

2011-08-09T14:50:00.000-07:00

South African book retailer Kalahari.com recently launched a mobile version of its website, exemplifying the bet that many retailers are placing on mobile commerce (m-commerce), a market that is projected to reach $119 billion globally by 2015. Wal-Mart has stated its intent to boost investment in m-commerce, including in emerging markets, and recently demonstrated it by investing in Yihaodian, an e-commerce company in China. British grocery and merchandise retailer Tesco, which has operations in several emerging markets, recently added an Android application to its mobile application offerings that allows consumers to scan and order products for home delivery. Meanwhile e-tailers such as Latin America's Mercado Libre have also launched mobile applications, and China's Taobao is aiming to have 120 million mobile users by the end of this year.

However, significant challenges remain before m-commerce can gain widespread acceptance in the developing world. Smartphone penetration is still less than 10% in nearly all emerging markets, and most users of Internet-enabled feature phones do not have data plans. Also, a majority of consumers lack experience with e-commerce due to low PC and Internet penetration, driving a need for retailers to educate consumers and build their trust in online shopping. Finally, 72% of emerging-market consumers lack access to banking services, including credit cards, to effectively pay for goods and services over the mobile phone.

Despite these challenges, retailers can reap benefits by developing a long-term m-commerce strategy. Multinational retailers would do well to consider local payment and handset capabilities when designing mobile applications and target m-commerce initiatives where low-cost smartphones, mobile broadband, mobile money and e-commerce systems are gaining traction. Implementing technologies such as Near Field Communication - which allows for transactions with the touch of a NFC-enabled device - and linking with mobile money payment models could accelerate m-commerce acceptance. Partnerships with banks and mobile payment firms can also be employed to help increase familiarity and confidence with mobile commerce alongside mobile payments. Finally, utilizing social networks to promote m-commerce and e-commerce more broadly can help introduce these systems to early adopters.

Emerging-market Social Networks Defend Their Turf

2011-07-25T09:25:00.000-07:00

Social networks have been dominating technology industry headlines in recent weeks. LinkedIn's red-hot initial public offering in May intensified speculation as to when Facebook (which recently hit 750 million users) will go public and allow a closer look at its finances. New entrants are stirring up the space as well. The strong start for Google+ indicates that while Facebook is the unquestioned market leader, there is plenty of room for innovation.

While Facebook is being challenged in its home market, it is also facing stiff competition in a number of important emerging markets, such as China (Tencent) and Russia (V Kontakte and Odnoklassniki). In some cases, cultural and political factors can influence the success of social networks. The Iranian government's limiting of access to Google's Orkut and censorship efforts against Twitter and Facebook have allowed local networks, such as Cloob, to spring up and fill the market opportunity. Yet in other countries, the need for competitive advantage and the hunt for elusive profitability have led to innovations that keep consumers loyal to local brands. China's Tencent QQ instant messaging service allows users to buy "Q coins" at 1 Q coin per RMB, which allow users to buy virtual goods including items for games or accessories for a user's avatar. This is similar to the Facebook Credits payment system. As Tencent's earnings show, catering to the Chinese consumer culture of playing games and charging them for virtual goods has led to a huge payoff. By facilitating the purchase of digital goods, these networks can spark an entire industry of games and applications that bring in additional revenue.

Multinational firms doing business in these markets can benefit by paying attention to trends in the social networking space, given the sector's status as a bellwether for consumer technology tastes and preferences. Capitalizing on these trends requires paying attention to social and political factors, finding a way to capture revenue from innovative revenue models and building software with local device capabilities in mind (many emerging-market consumers access social networking sites through their mobile devices, for example). By engaging social network users, firms can not only gain an in-depth understanding of their client's tastes and preferences, they can add potentially lucrative new sales and marketing channels as well.

New Incubation Labs Boost Mobile Innovation in the Developing World

2011-06-22T10:17:00.000-07:00

Egypt's Technology and Entrepreneurship Center recently announced agreements with Nokia to establish mobile application incubation initiatives in Egypt known as mLabs. The partners will provide training, certification, business mentoring and other services to local universities, entrepreneurs and developer communities in order to encourage growth of local mobile applications and content. Incubators - like the mLabs network supported by infoDev, Nokia and the Government of Finland - seek to build a community of mobile technology entrepreneurs and accelerate development of locally oriented mobile businesses. mLabs typically offer services such as technical training, business training and access to important players in the mobile ecosystem like mobile operators or investors. As the mobile application market is expected to reach $15 billion in revenue in 2014, with over $10 billion going directly to mobile application developers, mobile incubators are expected to multiply in the coming years.

Vital Wave Consulting research has shown that the number of mobile incubators are increasing globally. However, they are still at a nascent stage and exhibit a range of business and operating models. These findings are part of a larger report Vital Wave Consulting recently authored for infoDev, Finland and Nokia to support mLabs - and other mobile application laboratory initiatives globally - in the development of sustainable business models. A global landscape analysis of incubators included in the report reveals that there is a spectrum of laboratory-types. At one end are grant-funded laboratories that focus on social returns and assist NGOs and local governments in the delivery of public services. At the other end are profit-driven incubators that work with entrepreneurs to develop commercially viable mobile applications to compete on a broader national or international scale. Other incubators combine these two models to achieve profitability and social returns. Public or private organizations, or a consortium of public and private entities working in partnership, can be equally well suited for sustainability.

While the mLabs movement is still in its early stages, and critical success factors and lessons learned are still evolving, it is clear that many different approaches for operating these programs have enjoyed initial success. Regardless of the business model, mobile application incubators will have increasing impact on the local mobile industry of developing countries, especially in the area of value-added services (VAS). The private sector would do well to pay attention to the growth of mLabs and to the development community as an influencer and investor in application development. Furthermore, for all stakeholders involved - such as development agencies, network operators, handset manufacturers, investors and mobile platform providers - promoting local business models and enabling entrepreneurs to build applications relevant to their local communities are essential components to driving demand for the products and services they offer.

A Case for Strengthening CSR in Emerging Markets

2011-06-09T07:01:00.000-07:00

The nongovernmental group World Growth recently released a report entitled "Corporate Social Responsibility: How Global Business is Getting it Wrong in Emerging Markets." The report examines the corporate social responsibility (CSR) policies of nine major international corporations including Nestle, P&G and Unilever. According to the report, the CSR policies of these corporations are disproportionately influenced by developed-world NGOs, such as the World Wide Fund for Nature (WWF). As a result, their policies often hurt low-income producers, are misaligned with emerging market national development objectives, and promote causes of little value to local people in emerging markets.

CSR may have once been understood as philanthropy. However, many firms are realizing that giving away a product or service to communities that need them is often a short-term solution to a long-term problem and are examining other models for social and economic development. Companies like Novartis have encouraged supply chain innovation to create profitable new business models that better serve emerging markets in a sustainable manner. Pharmaceutical giant Novo Nordisk recognized how epidemic diseases strain national health systems in markets where it operates. Together with Oxford University, the World Health Organization and Yale University, the pharmaceutical firm spearheaded an international healthcare campaign focused on improving diets and encouraging exercise to fight chronic diseases that it stands to profit from. Rather than giving drugs away, GlaxoSmithKline cut the cost of its products in its poorest markets by providing regulatory and technical support to establish production facilities with local third-party contractors.

As the above cases demonstrate, CSR efforts in emerging markets can be executed in a profitable and sustainable manner. Firms seeking to improve their CSR programs in emerging markets can focus on improving the delivery of their products or services to make them more accessible, affordable and usable. In addition to discovering new business models, firms seeking to address local problems can engage in partnerships with experts who understand these environments and the needs of customers within them. Mutually beneficial strategic partnerships can also help multinational firms leverage partner core competencies to help gain access to local markets and support operations. When firms consider the impact of their activities from the vantage point of potential emerging market customers and governments, they are better positioned to discover new business models and capture new sources of revenues.

China's Rural Market Success Goes Global

2011-05-27T10:01:00.000-07:00

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.

Going in Together: The Promise and Pitfalls of Partnerships

2011-05-12T07:16:00.000-07:00

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.

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

2011-05-02T07:42:00.000-07:00

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.

Closing the IT Infrastructure Gap, Opening Doors to Rural Markets

2011-03-17T11:21:00.000-07:00

Rural areas in China, which have fallen further behind major cities during the country's long economic boom, are set to receive a major upgrade to their information technology infrastructure. The Ministry of Commerce, the Agricultural Bank of China and China Mobile recently announced a cooperation agreement to install and develop new platforms to help modernize rural areas by increasing businesses' and residents' access to information networks and boosting the appeal of these areas for outside investment. The news comes as other developing country governments announce initiatives aimed at helping rural areas close the economic and infrastructure gap with their urban counterparts. For instance, India's budget for 2011-2012 included a $12.8 billion allocation to improve telecommunications and broadband in rural areas. South Africa has earmarked $65 million to expand rural broadband infrastructure and services.

These investments underscore governments' realization that their large rural populations have been economically underdeveloped and socially disadvantaged by their lack of information technology infrastructure. Roughly half of the global population lives in rural areas, including 56% of China's population and 70% of India's population. Telecommunications investment has been overwhelmingly concentrated in urban areas due to their high levels of wealth and inhabitants, while rural areas have been left behind. This focus has constrained companies' access to rural markets, in addition to reducing access to products and services for people who live there. In Nigeria, even with significant foreign direct investment in the telecommunications sector, data access penetration has remained low, and the Nigerian government is being blamed for the lack of investment in broadband. Ultimately, national governments will have to take the lead in investing in and creating policies to support the expansion of broadband and other IT infrastructure to rural areas.

Companies looking to break into untapped rural markets would do well to pay attention to these governmental infrastructure investments, and the grant making trends of the regional development banks that often fund them. By understanding where and when they will be completed, they can position themselves to enter rural markets on the heels of these projects. In many cases, new rural infrastructure is built using the latest technology, providing opportunities to create next generation products specifically to meet the needs of rural consumers instead of recycling technology previously developed for urban markets. The rise of rural technology investment allows companies a unique opportunity to not only reach rural markets, but also leapfrog existing technology to develop innovative products for them.

New Educational Technologies Set to Take Hold in Emerging Markets

2011-02-28T07:38:00.000-08:00

McGraw-Hill and Wipro Technologies recently announced a partnership to develop "mConnect," a new mobile learning platform offering preparation support for university entrance exams and English-language training. Targeted to the rural poor in emerging markets, the product will first be launched in India as an affordable alternative to the traditional test prep materials that many consumers are already accustomed to purchasing. Pearson, the British publishing group, made a similar move last month by investing further in TutorVista, an Indian online tutoring services firm.

The global education industry is the second-largest industry in the world after health care. Economic growth hinges on creating an educated and skilled workforce, which is driving the demand for education technology in developing countries. In recent years, the focus has been on supplying hardware products, such as the One Laptop Per Child (OLPC), to younger children in countries such as the Philippines, Costa Rica and India in order to educate them in the use of technology. Now the spike in rural mobile adoption, combined with the growing demand for varied educational content by teenagers and adults in developing countries, is creating a market for mobile education ("mEducation") services as well.

For technology companies, publishers and entrepreneurs seeking to meet the growing mEducation demand, the challenge will be commercializing these new educational products. Organizations would do well to design solutions for scale from the outset, which includes having the right business model and partners in place to support the wide adoption of new educational tools. Adapting content and technologies to local educational structures, as well as tailoring content delivery to multiple device categories (e.g., mobile handsets and laptops), can also enhance the adoption rate. Actionable business and market intelligence on local education needs and business systems can inform the development of go-to-market strategies that help ensure new mEducation services are both relevant and sustainable.

Growing Political Unrest Calls for a Fresh Look at Risk Management

2011-02-23T07:25:00.000-08:00

As political instability spreads throughout the Middle East like a wildfire, the risk associated with operating in emerging markets is keeping managers and investors alike on their toes. Unrest in Egypt left Coca-Cola, Procter & Gamble and other foreign multinationals no other choice but to bring local operations to a halt, mirroring a similar move made by Cisco and Fidelity in Tunisia weeks before. The panic felt by nervous investors, still jittery after the global financial crisis, triggered a massive flight of domestic capital and foreign investment, wiping nearly $50 billion from Arab stock exchanges. Not surprisingly, risk management firms are advising their clients to start planning for the effects of spreading turmoil throughout the region, and interest in political risk insurance has spiked as companies scramble for ways to protect against potential losses.

These developments highlight a sensitive issue for firms operating in emerging markets: how to react to unforeseen changes in political environments? Some of the countries affected by the current wave of unrest once appeared stable to outsiders due to the presence of longstanding autocratic governments, but a closer look would have revealed an undercurrent of growing unrest. Political risk is about more than just the possibility of change in political regimes; it encompasses complex social and economic forces that can shatter the established order. The need for quality information on these forces is clear, yet respondents in a study from PricewaterhouseCoopers cited the difficulty in accessing vital risk information as a major impediment to business planning. Moreover, the study shows that although a high percentage of multinational managers engage in ongoing monitoring of country political environments, most feel they lack effective political risk management processes.

The recent developments underscore not only the importance of performing political risk assessments that incorporate social, political and economic conditions and their impact on the local operating environment, but the need for conducting such assessments on a continual basis. Changing risk landscapes are creating new issues that were not on the radar a decade ago, such as rising geopolitical tensions in Asia, the rapidly rising cost of food and politically motivated decisions to enact capital controls. Firms can mitigate risk through the development of effective risk management plans for both new opportunities and existing operations in foreign markets. Despite the concern over political instability, the growth potential for emerging markets remains strong, and businesses can capitalize on this growth by keeping their ear to the ground in periods of stability and turmoil alike.

Vital Wave Consulting quoted in The Economist

2011-01-27T15:57:00.000-08:00

Vital Wave Consulting comments on commercializing mServices in The Economist:

Not just talk: Clever services on cheap mobile phones make a powerful combination—especially in poor countries