Asus Turns a White Box Play into Branded Success

Asustek Computer (Asus) capitalized on the U.S. pre-holiday news lull by generating coverage on the Eee PC. This PC solution seems to be catapulting Asus ahead of its low-cost computing competition. Announcements ranged from the introduction of new channel partners, to rollout into new geographies, and the availability of a Windows version of the Eee PC. An announcement of an increased sales forecast for 2008 to 5 million units of the Eee PC followed this week. But, in spite of the attention and growing forecasts, Asus’ CEO and President, Jonney Shih and Jonathan Tseng, claim Asus is not concerned that low-cost devices will cannibalize its more profitable PC business.

Asus’ sudden visibility in the low-cost laptop market may mislead business managers and industry watchers into overlooking the company’s primary business. Asus is, in fact, cited as the “mother of all motherboard producers”. With highly diversified manufacturing services, Asus produces components for cell phones, desktop and notebook computers, graphics cards, optical drives, servers, and networking devices for some of the world's leading ICT companies. One country-specific success story for Asus is in the Russian PC market where more than 80% of desktops are sold through the white box (unbranded) channel. The company entered this strategic growth market through this white box channel and developed a reputation for providing value and quality desktop PC components. Capitalizing on its brand recognition as a high-quality component provider, Asus has also become a highly competitive manufacturer of branded PCs in the Russian market.

HP, Dell and other hardware companies can take a page from the Asus playbook. To date, direct competition with white-box assemblers in emerging markets has proved largely unsuccessful for most global brands. Hardware companies could, instead, participate in this dominant emerging-market channel. With careful mapping of the value chain, global PC manufacturers can identify opportunities to provide aspects of their own competitive advantage (e.g. economies of scale, efficient tools and processes, pre-kitted and branded components, and even support services). With the white box market dominating the emerging-market PC business, hardware companies would do well to learn how to participate profitably in the revenue stream rather than swimming against the current.

Also in the news:

• Solar power charger launches in Kenya
• Financing opens doors for new handset buyers
• OLPC extends Give One Get One program

iPhones in Beijing? Well…maybe later

Close on the heels of Apple’s iPhone launch in England and Germany, China Mobile announced it is in talks with Apple to introduce their iconic device to the world’s biggest market. The stock market certainly liked the news – Apple’s share price jumped 10% on Tuesday. But we at Vital Wave Consulting are questioning the “mature-markets-first, emerging-markets-later” launch strategy.

Consider: no fewer than ten iPhone clones are now available in China. This is not just the result of lax IP protection; it is also an expression of pent up demand for the status and functionality of a high-end, multi-functional device. Emerging-market consumers have shown they’re more than willing to leapfrog technologies for the right value proposition (witness the millions who have foregone landlines in favor of mobile phones). This may already be occurring in India, where a combination of low phone rates and poor home Internet services has driven large increases in mobile browsing and, according to India’s Economic Times, a decrease in broadband subscriptions.

While Apple focuses on mature markets, China Mobile and other carriers have been strengthening their hand for the coming negotiations. China Mobile recently joined Google’s Open Handset Alliance, inked a deal with Research in Motion (RIM) to sell the Blackberry, and announced strong growth for their in-house music download service. (Sixty million out of their 350 million subscribers now use the service.) Apple, Google, Nokia, Palm, and RIM have an excellent growth opportunity in emerging markets, especially in urban areas where there is relatively strong infrastructure and a burgeoning middle class. However, the layer of gold around that opportunity will only get thinner with an “emerging markets later” approach.

Also in the news:

• Asus plans desktop Eee for ’08
• EBay launches microfinance lenders site
• Notebook makers pay attention to low-cost PC market

India’s Broadband Drop Surprises Analysts

This week’s nugget was unearthed in an Economic Times article that claimed, to everyone’s surprise, India’s fixed broadband subscription rates fell last quarter. The total number of Internet connections dropped to 9.22 million between April and June from 9.27 million the previous quarter. The article and related blogs speculate on the possible causes for this drop: unstable connections, poor service and bandwidth constraints. It may be that Indians are turning to their mobile devices to access the web. According to the Economic Times, 38 million people, or more than a fifth of India's 200 million-plus mobile subscribers, access the web via their handsets.

This drop in broadband Internet connections is small for a country the size of India. However, the lack of growth and the strength of mobile Internet access are notable. Fixed broadband availability and usage rates have often been used as an input for measuring a country’s technical maturity. The increasing sophistication of mobile devices may change that. Historical growth trends would have predicted that India’s broadband rates would continue to increase and certainly not slow, let alone fall. This demonstrates a weakness in historical-based approaches and confirms that new markets require new methods of evaluation. Applying developed-country adoption trends to developing-country markets leads business managers to design inappropriate strategies in emerging markets.

Technology is being adopted faster in emerging markets than in mature economies. Moreover, adoption and usage patterns may differ considerably. Consumer cash flow constraints, the stability and availability of a local infrastructure, technology awareness, and access to various technology devices all impact adoption curves. Therefore, historical growth trends are only one input among many to credibly forecast emerging-market growth. In a market like India, these factors can help project dramatic shifts in technology usage patterns. The increasing use of mobile phones for Internet access is yet another sign that IT and telecommunications strategies can no longer be considered in isolation, especially in emerging markets. Both industries will be competing more and more for access to the limited disposable income of developing-country customers.

Also in the news:

• Who pays for low-cost laptops?
• Intel readies CPU for cheap computers
• Eee PC scores one million-unit Russia deal

New Data Tools and Methods Required for Emerging-Market Business Decisions

Recent news articles have called into question the reliability of developing-country market data that is crucial to good decision-making for developing-country business expansion. Respected economist Lester Thurow challenged China’s economic growth statistics (New York Times subscription required) by using electricity consumption as a proxy for economic growth. Thurow estimates that China’s economy is growing at a rate of 4.5% to 6% annually, far less than the Chinese government’s figure of around 10%. Similarly, the Arab Advisors Group (AAG), a local telecommunications industry advisor, suggested that estimates of Jordan’s mobile penetration rates may be exaggerated based on results from their recent survey. Using two simple calculations - an assessment of population that takes into account migrants and expatriates as well as standard population figures, and an estimate of the actual number of phones per users – AAG asserts that mobile penetration may be closer to 50%, rather than the 74% claimed by local operators.

Market data such as mobile penetration and economic growth rates inform critical business decisions. The possible discrepancies suggested by AAG and Thurow demonstrate the complexity of designing for, and selling into, developing-country markets. Erroneous data can result from misrepresentation, insufficient validation, or from applying mature-market methods, user trends and historical adoption curves directly to emerging markets. Thurow’s approach to assessing China’s growth demonstrates how even developing-country data can be tested with creative proxies. AAG’s primary research revealed that over a third of all mobile users in Jordan have multiple phone lines (to capture savings on operator offers and promotions), which would lower market penetration estimates based on a unique subscription-to-subscriber ratio.

These two examples demonstrate that gathering accurate, reliable data on emerging markets requires new tools and methods, investigation beyond standard published sources, and a profound knowledge of local user needs, preferences and usage patterns. The companies that base their business growth decisions on sound, market-appropriate data collection and analysis will have the best chance of understanding the scope and location of the most compelling emerging-market growth opportunities.

Also in the news:

• Asus Set to Mass Produce and Launch $199 EEE PC
• India Overtakes U.S. as Nokia’s Second-largest Market
• Rumored Google Phone to Compete with OLPC