Wednesday, March 26, 2008

Truth or (In)consequence for PC Growth in East Africa

on't Don't tell the good people of Kenya, Tanzania, Ethiopia and Uganda, but a recent report by IDC labeled the East-African PC sector “inconsequential.” IDC cited the region’s weak market worth - $200m a year - compared to the world’s developed markets. While government programs are encouraging technology adoption and Internet connectivity, IDC feels the East-African region has far to go before sales compare to other faster-developing countries and the marture markets of the US, Japan and Western Europe.

IDC's characterization of East Africa is a perfect example of the shortcomings of historical-based forecasting practiced by traditional market research firms. By applying mature-market methodologies and considerations to developing-country markets, they derive results that may not fully capture the market opportunity. While unit sales in this region are still a small portion of overall PC sales (262,000 last year), this represents a 24% regional growth rate over the previous year. A more forward-looking assessment would consider market influencers such as changing demographics, increasing rates of electrification, urbanization, and literacy, and the size of the total population. These factors will increase technology adoption and support sustained growth rates that far outpace those experienced in mature markets.

Fortunately, for East Africans in search of a PC, the industry’s leading players continue to fight for market share in the region. By focusing on incremental growth and a deeper understanding of emerging-market dynamics, business managers are better equiped to discern whether a market is inconsequential or a ground-floor growth opportunity. Vital Wave Consulting’s recently-published brief helps with this analysis by describing ten key differentiators of emerging-market consumers and the corresponding implications for technology companies. To celebrate the one-year anniversary of The Nugget, Vital Wave Consulting offers “10 Facts about Emerging Market Consumers” free to our readership. Click here to download.

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Thursday, March 20, 2008

Build It and They Will Come (But Will They Watch?)

According to a recent report, mobile TV has arrived in India. Up to 6% of India’s mobile subscribers are interested in purchasing new TV-capable handsets to take advantage of new offerings like Nokia’s and (government-run telco) MTNL’s launch of mobile TV services. With 250 million mobile users and eight million new subscribers every month, India remains one of the mobile industry’s hottest markets. If the convergence of mobile technology and TV is the next killer application, no one wants to be left behind. Industry stakeholders in India and elsewhere are developing standards and grabbing spectra in anticipation of the mass adoption of mobile TV. The hope is that global sporting events such as the Olympics and the World Cup will encourage uptake of the new technology.

Indeed, televised games (and local language programming) appear to be key drivers of media growth rates. A recent report on African Broadcast Markets by Balancing Act, a publisher and consultancy with a focus on media and telecommunications in Africa, shows the rapid uptake in media consumption in African cities. But will increased media consumption extend to the mobile phone? On-the-ground experience in emerging markets makes Vital Wave Consulting skeptical of high demand for TV on phones. In most cultures, football matches and other televised games are social events that don’t lend themselves to small screens.

Vital Wave Consulting encourages companies to focus on how convergence is actually taking place on the ground. Keen observers see clearly that media, computing, telecommunications and the Internet are not being adopted at the same rate or according to the same usage patterns in emerging markets as they are in mature markets. There are many opportunities for hardware, software, networking, services, media and telecommunications companies to profitably participate in convergence. Whether or not mobile TV takes off in India, multinational companies would do well to keep their radar trained on mobile browsing, commerce and banking as well. Carefully and systematically observing on-the-go transactions will point to the future winners in a converged world.

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Thursday, March 13, 2008

Reducing the Effects of Cannibalization

Eight low-cost computing devices were on display at last week’s CeBIT conference in Hannover, and at least 16 more are set to hit the market in the coming months. This, combined with the news that Intel anticipates shipments of 50 million Atom-based processors in 2011, signals that low-cost computing is not a fad. Not everyone is excited about the budding low-cost computer market, however. At Sony’s annual Las Vegas Open House event, Mike Abary, Sony’s senior vice president of IT products, warned that if Asus’ Eee PC finds a market outside tech enthusiasts and developing countries, “We are all in trouble. That's just a race to the bottom.” Abary may not be speaking for everyone at Sony, but his comments had the ring of someone who is trying to fight the current.

Cannibalization from lower-priced products is a fact of technological life, fueled by innovation and cost-saving efficiencies. Companies can push back and resist cannibalization only for so long; eventually they must either play in the new space or accept their role in a limited, higher-end market. Sony seems to be missing the opportunity that its multinational competitors are beginning to recognize in low-cost computing. HP, Dell and Acer are expected to join the sub-$500 laptop space later this year. Whether or not these new laptops will be standard or sub-notebooks is yet to be disclosed.

While many manufacturers are focused on ever-decreasing prices through sub-notebooks and mini-PCs, an opportunity remains to provide a standard, high-quality and profitable product. Vital Wave Consulting research shows there is demand among first-time PC consumers in emerging-market for “real” computers instead of “alternative” computing devices. While not as interested in bells and whistles, these new buyers desire the support, reliability, sound construction and usability that warrants what amounts to such a significant investment for lower-income customers. PC manufacturers that opt out of the sub-notebook market can still provide high-quality, basic computers in traditional form factors along with financing packages to enable the purchase of these perhaps more expensive devices. Doing so would attract this sub-segment of first-time PC buyers and provide an alternative and profitable point of entry into emerging markets. With such an opportunity for Sony, perhaps Mr. Abary has less reason to be gloomy.

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Thursday, March 6, 2008

Cracking the SME Nut

For multinational corporations (MNCs) examining emerging markets, the small- and medium-sized enterprise (SME) segment remains one of the most profitable opportunities. Increasingly recognized for their contribution to gross domestic product, SMEs have garnered the attention of global philanthropies like Soros, Omidyar and Those organizations joined together last week to create a $17 million venture capital fund in India to support socially-responsible, early-stage companies. A recent article in the Latin Business Chronicle points out that certain developing-country governments are also trying to promote the development of the SME segment by reducing barriers to growth, facilitating exports, and improving access to financing. The author suggests that while deregulation puts competitive pressure on SMEs, they retain the advantages of greater flexibility, latitude, and speed in responding to threats and opportunities.

For many multinational corporations, the SME segment are becoming the “holy grail” of emerging markets. However, there is a troubling lack of information about the segment, for example many SMEs are part of the informal economy, lacking the capacity or incentive to implement transparent accounting or reporting practices. But even companies that are part of the informal economy need technology to grow and compete. Recent field research by Vital Wave Consulting in Central America on SMEs suggests that tourism and youth-focused companies present solid growth opportunities for technology companies. Small businesses with multiple locations also require more coordination and control and have a greater need for technology infrastructure.

To effectively target the fastest growing SMEs with growing technology needs, the segment must be broken down. Just as the term “emerging markets” lumps extremely diverse countries and economies into one category, so does the SME label. The diverse nature of the SME market means a broad-brush approach is not appropriate. A SME is most commonly described as a company with 10 to 250 employees, but this does not differentiate by industry or growth potential. There is a clear opportunity for MNCs that invest in a comprehensive SME segmentation and sizing analysis by sub-segment and by country or region. MNCs that understand the true size and nuances of the SME market opportunity will be best equipped to capitalize on this growing segment.

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