A Piece of the Pie a la Modi

Last week, Adobe quietly announced it would close its R&D center in China due to rampant software piracy, a strategic shift toward a cloud-based, software-as-a-service business model, and China's increasingly hostile business environment. Just a few days after Adobe's announcement, India's new Prime Minister, Narenda Modi, was having lunch with Wall Street's fattest cats, a cozy dinner with President Obama, and a loud rally with 19,000 Indian-Americans in Madison Square Garden.

Modi's Magical Mystery Tour of the US was perfectly timed. As the list of American companies being harassed, blocked, banned, investigated, censored, shuttered, or spied on by Chinese authorities continues to grow, few can blame them for seeking another billion-person market with good growth prospects. Meanwhile, Modi is making all the right noises about improving infrastructure, cutting red tape, and welcoming foreign partnership and investment. In fact, there's a big pile of cash looking for a home right about now. Foreign direct investment in China was down 17% in July, and 14% in August - the first consecutive double-digit drop since 2009. The Financial Times blames China's protectionist policies, slowed production, and distressed banking and real estate markets for this pull-back. Business growth in India, on the other hand, has rebounded from years of stagnation since Modi took office. Everything from cookies to tires is selling well, riding a wave of consumer optimism and a steadily growing middle class. One Asia-focused investment banking company, CLSA, predicts that India's economic growth rate will exceed China's as early as 2016. 

It's too soon to shift all the eggs from the Chinese to the Indian basket. India has stubborn infrastructure, bureaucracy, and poverty problems that will take years of focused, effective governing to overcome. But the contrast between the current Indian and Chinese attitudes toward partnership and investment is stark. If Modi succeeds in reforming India's huge bureaucracy and creating honest incentives, there will be excellent opportunities in a wide range of industries. Modi's own commitment will be tested when foreign companies push for lower competitive barriers (e.g., as Amazon and Alibaba battle local heroes like Flipkart and Snapdeal). But if reality follows rhetoric (not always guaranteed), smart companies will start throwing their nets a little wider to catch the world's fastest-growing big fish.

It's all fun and games until someone trips over 5 million subscribers

If MobiThinking's "Insider's Guide to mobile Web marketing in India" is accurate, 90% of the country's mobile subscribers have voted for a reality show-based contest via SMS. Half of them subscribe to regular SMS jokes, and nearly as many use their phones to get astrology or sports information. This is pretty remarkable in a country where many development organizations are struggling to achieve scale for their mobile-based health, agriculture, and education programs.

Writing for the GSMA recently, Kristen Roggeman pointed out that there is an obvious demand for entertainment among mobile users in both rural and urban India. She describes an innovative marketing effort by Hindustan Unilever (HUL), whereby mobile phone users make a missed call and receive an automatic call-back with 15 minutes of radio programming. The service now has 5 million subscribers and sends out 25,000 hours of programming every day. HUL has now dropped traditional radio marketing from its advertising mix. The hunger for entertainment is not unique to India. In Brazil, The most popular apps are for music, entertainment and navigation, followed by photo, video and social networking. In Nigeria, the national brewery ran a spectacularly successful SMS marketing campaign inviting 18- to 25-year-old men to attend music concerts. The ads had a response rate of more than 30% and a click-through rate of almost 9%. And in the US, drug makers and insurance companies are developing game-like apps that give points and gifts for sticking to drug regimens. (Failing to follow drug prescriptions is estimated to cost US employers, insurance companies and health providers around $200 billion a year.)

Development organizations might take note: even for the poor, entertainment is a central aspect of mobile phone usage. Mobile devices are quickly supplanting radio and television as the main conduit for personal entertainment in developing countries. Integrating entertainment - music, games, sports, movies, and contests - into dry but useful information campaigns is a viable way of extending the reach and impact of programs. Also, strategic partnerships (e.g., with sports, music, or media groups) could help defray the cost of promotion and generate buzz. Development organizations hoping to capitalize on soaring mobile penetration rates frequently devise SMS-based outreach programs. Making them more fun will require a little "outside the box" thinking, but it could be rewarded by increased awareness, adoption, and effectiveness. 

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.

Closing the IT Infrastructure Gap, Opening Doors to Rural Markets

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.