Planning for the Future: Latin America Leads the Way on Laptops for Kids

What started as a trickle three years ago in Uruguay is turning into a flood. That nation's decision in 2007 to purchase 100,000 ultra low-cost OLPC netbooks has created a domino effect across Latin America. Peru recently announced a deal to buy another 260,000 OLPC units for primary schoolchildren, bringing its total to 590,000. Argentina, meanwhile, took delivery of the first of 250,000 Intel Classmate PC laptops for technical high school students and the mayor of Buenos Aires announced an initiative to buy 190,000 laptops for primary school students. Brazil has also jumped in, launching a bid in February to acquire 1.5 million low-cost laptops. Latin America now leads the developing world in efforts to provide laptops for every student, with Uruguay becoming the first to give every child in primary schools their own computer for use at school and home. The Inter American Development Bank estimates that the number of children in the region covered by these programs will jump from 1.5 million to 30 million by 2015.

The move by Latin American governments to provide laptops to the region's children (and its primary schoolchildren in particular) is notable for several reasons. It marks an increased commitment on the part of these governments to raising educational performance, one of the factors many experts cite as a reason for Latin America's economic underperformance relative to Asia. It also signals that the region's governments are serious about building a tech-savvy workforce in order to better compete for knowledge economy jobs in the future. Yet these deals also demonstrate that governments believe that providing children with these computers will at the same time build local technology ecosystems in the here and now. All of these elements mean more work and skill development for local companies and workers.

These developments also present an opportunity for multinational firms. One-to-one computer deployments are enormously complex undertakings, requiring comprehensive plans for capacity building, teacher training, technical support and repair services in order to succeed. Many countries hope to build that capacity locally, but in the short term companies willing to partner with local enterprises might find numerous opportunities to provide products and services. Getting in early might also position firms for the future, when the tech-ready workforces produced by these programs enter the consumer base and workforce. Spotting the early signs of a blossoming tech economy can pay big dividends down the road.

You Can't Get There From Here

Nugget readers who have traveled in emerging markets have surely witnessed ineffective distribution channels. One Vital Wave employee recently shared a ferry to an island off the coast of Tunisia with a truckload of sheep. Upon arrival at the island dock, she saw an identical truckload of sheep waiting to board the return ferry to the mainland. Distribution channels, especially for physical goods, plague most emerging-market business ventures, and well-intentioned programs are often derailed by this obstacle. OLPC’s Chief Connectivity Officer, Michail Bletsas, highlighted the distribution issues in a recent interview: “Actually, what we're trying to do is not distribute any PC ourselves….but right now, no one else is trying to do that.” Other organizations are naively ignoring this hurdle. The Australia-based “Be A Hero” aid organization and Bigshop.com announced plans last week to provide underprivileged artisans in Thailand, Cambodia, Papua New Guinea, Manilla, Kenya, Zambia and Zimbabwe with the opportunity to sell their wares to a global audience. There is no mention of how the organizations will manage business process issues such as payment, quality control, distribution, warehousing, delivery or support.

Organizations such as Peoplink and Novica have built similar businesses and continue to struggle with distribution. Delivery times can exceed one month, and the need to warehouse stockpiles of products drives up costs. Distribution presents challenges for all suppliers – those selling products out of the developing world into the developed and vice versa. Some of the predominant issues include lack of reliable infrastructure (roads, railways, electricity, fuel access and postal service), corruption (stolen merchandise and unjust taxes), and extreme environments (dust, rain and heat). While reliance on volunteers and aid organizations may get a program off the ground, distribution is more likely to be successful when sustainable business models provide clear and compelling incentives along the entire distribution chain. Thamel.com, a Nepal-based marketing company that provides gift-giving services for the Nepalese diaspora, stresses the importance of business benefit for all involved. Even with one of the more successful developing-world distribution networks, Thamel.com sometimes puts the burden of product distribution, at least for goat delivery, on the gift recipient.

For businesses expanding into developing-country markets, whether delivering goats or laptops, it is essential to address distribution with creative and reliable solutions. Business managers may be required to invest in local infrastructure to ensure reliable product delivery. For this level of investment, businesses would do well to work closely with senior government leaders to ensure benefits for such investments (similar to traditional benefits given for investments in manufacturing facilities). Local partners, such as Thamel.com, have regional knowledge and established delivery systems that can also point to successful distribution strategies. As effective distribution models are built in developing countries, local industries will benefit from increased efficiencies, and fewer truckloads of sheep will pass each other on the dock.

Also in the news:

• HCL releases Classmate PC for consumers
• Sears sells sub-$200 Linux desktop PCs
• Businesses make progress in designing for developing world

Bare-bones PC Finds Customers Outside Emerging Markets

Almost unnoticed in the low-cost PC craze is the MicroClient Jr., a small, limited-function personal computer (PC) produced by Norhtec, based in Thailand. Designed for environments with limited space or extreme temperatures, the device retails for $85 without a monitor, mouse or keyboard. Norhtec has no flashy marketing campaign and has steered clear of the OLPC (AMD) versus Classmate PC (Intel) battle. And the company is treating the low-cost PC market strictly as a business endeavor rather than a philanthropy project.

Due to their fear of cannibalizing mature-market product lines, multinational PC and chip manufacturers have aimed their low-cost computing solutions at emerging-market consumers. Norhtec, however, has recognized a demand – even among mature-market commercial customers – for inexpensive PCs that reliably perform only a few basic functions. And they’re selling thousands of units. Customers include a Canadian diamond-mining company and McDonald’s franchises.

Norhtec’s strategy supports Clayton Christensen’s theory, widely publicized in The Innovator's Dilemma, that technology innovation will originate from the low-end of the marketplace and eventually evolve to displace high-end technology. While multinational giants are fighting to sell higher-margin products and protect existing product lines from cannibalization, scrappy start-ups in emerging markets are innovating with the low-end customer in mind and finding high-end mature-market demand, as well. Multinational technology companies that overcome their resistance to low-end offerings will be better prepared for the Norhtecs of the world, who will inevitably enter mature markets through the back door.

Also in the news
• Analysts push Motorola to gain momentum in India
• Developing countries strengthen their hand in the global economy
• Intel and AMD battle over low-end laptops

Microsoft’s Gambit Strengthens Intel’s Hand

April 25, 2007

Microsoft’s Gambit Strengthens Intel’s Hand

Bill Gates’ splashy announcement last week in Beijing that Microsoft will begin to offer a $3 software package called the “Student Innovation Suite” to emerging market schools put the low-cost PC ball in the manufacturers’ court.

The terms of the deal – governments can only get it by providing free computers to students – suggest Microsoft is trying to compete with One-Laptop-per-Child’s $100 laptop, which runs on a version of Linux. Vital Wave Consulting notes, however, that Mr. Gates wasn’t sharing the stage with PC manufacturers, so Microsoft’s strategy may not be to compete directly with OLPC, but to stunt its growth by removing Windows as a barrier to offering low-cost PCs.
Microsoft’s announcement, together with a production delay for OLPC’s first shipment, presents an opportunity for local manufacturers and global PC companies. Chinese or Indian PC makers are working hard to market ultra low-cost PCs, but they will have trouble scaling outside their own countries. HP, Dell, Toshiba or Acer may eventually capture this market, but the real near-term beneficiary is Intel, whose Classmate PC can run on Windows or Linux. How long will it be before Intel announces the marriage (and resulting cost savings) of their Classmate PC and Microsoft’s Student Innovation Suite?

Also in the news this week

• How will mobile search business models differ from PC Search?
• Motorola stumbles with low-cost handset strategy
• Free mobile directory assistance launched by MS and Google

Low-cost Laptop Competition Good for the IT Industry

March 7, 2007

Low-cost Laptop Competition Good for the IT Industry

Respected tech writer Michael Kanellos offers up this week’s nugget with his discussion of which approach to emerging-market computing will prevail – Intel’s full-service Classmate PC, or One Laptop Per Child’s less-expensive XO machine.

Kanellos points out that the battle boils down to the OLPC’s centralized assembly (and the resulting cost savings) and Intel’s partnership with local manufacturers and suppliers to provide support, maintenance and locally-relevant content.

OLPC has clearly succeeded in driving innovation and competition in the IT industry, and four million orders for the XO demonstrate demand and the willingness of governments to spend on IT for education.

As the leaders of each initiative, Nicholas Negroponte at OLPC and Craig Barrett of Intel, define their distinct approach to product and market development, buyers will have clearer choices and the IT industry will learn valuable lessons about how to expand near-term growth markets in developing countries.

Also in the news this week

• UN-GAID conference coverage in Forbes and InformationWeek
• Cisco’s high margins in emerging markets