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.

The "Down-Market Opportunity" in Emerging Markets

With the rising popularity of smartphones, mobile operating systems have become a major battleground for technology and communications giants, and with growth slowing in developed countries, competitors are shifting their sights to markets that offer stronger prospects. Google recently revealed that it is gearing up for a major push for its Android OS in emerging markets. Working in conjunction with partners such as Taiwan-based MediaTek, Google seeks to place its system on low-cost phones not only in China and India but in emerging markets throughout Europe, Asia, Africa and South America. Google's VP of Engineering, Andy Rubin, refers to this as "the down-market opportunity", a reference to the growth opportunities offered by less developed countries, which have been emphasized during the recent global economic recession. This announcement coincides with reports that the economic recovery may be weakening in the US and fresh projections by the World Bank that developing countries will lead global recovery.

This idea of looking "down-market" for opportunities is not new, and it can be applied to country markets as well as consumer segments. Nearly ten years ago, Goldman Sachs tagged the largest emerging markets, Brazil, Russia, India and China, with its now-ubiquitous BRIC designation. Now that the big four have begun to fulfill their promise, a new tier of emerging markets with high-growth potential has emerged, and multinational firms are starting to take notice. Named "the CIVETS" by HSBC, the Economist Intelligence Unit (EIU) evaluated the prospects for this group of countries in a report issued earlier this summer. According to the EIU, Colombia, Indonesia, Vietnam, Egypt, Turkey and South Africa all have sizeable young populations, diversified economies, reasonably sophisticated financial systems, and relatively low public debt. The EIU forecasts that the group will post annual GDP growth of 4.5% over the next twenty years.

Although the BRICs will continue to dominate emerging market headlines, firms would be smart to pay more attention to developments outside of these countries. The emphasis that Google and others are placing on these next-tier markets demonstrates that companies seeking business growth strategies in the wake of global economic recession may benefit from a more diversified geographic focus. Rising middle-class customers in the CIVETS and other dynamic, smaller emerging markets may offer valuable growth in the coming decade.

First isiXhosa mNovel written in South Africa

by Karen Coppock
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Steve Vosloo let me know that the Shuttleworth Foundation has just launched the world's first mNovel written in both isiXhosa (an indigenous South African language) and English.

The first chapter of this teen mystery story set in Cape town (about a group of graffiti artists) is available at: http://kontax.mobi - you can read it on your WAP-enabled phone (or your PC).

Check back daily as a new chapter will be posted every day through October 19th.

According to the press release for this mNovel, the pro of mNovels is that it allows teens access books, which are largely unaffordable for them, using the most commonly available technology tool in Africa - the mobile phone. The con is that they many teens use "txtspk"when writing on a mobile phone, which hinders, rather than improves, literacy. The Shuttleworth Foundation is working with University of Cape Town researchers to determine the impact of these novels on teens.

What are your thoughts on mNovels and m4Lit?

Pre-paid funeral plans....

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by Karen Coppock

From Soweto to Joburg to Limpopo, tombstone and funeral service signs dotted the landscape in all of the places we visited in South Africa last week. Billboards advertised tombstones, coffins, and even pre-paid funeral packages. Funerals are a big business in South Africa and unfortunately, with the spread of HIV/AIDS, it is a growth industry in Africa. The poor (and middle class) often experience the double trauma of both financial and emotional devastation when a loved one passes away. Our local researchers noted that in certain traditions, the family of the deceased is responsible for butchering a cow for their town every day from the person’s death until their burial. This cost is over and above the expenses of purchasing a coffin and a tombstone and has to be incurred even if the deceased person was the primary breadwinner.

Entrepreneurs have created business model innovations, such as pre-paid funeral packages and funeral insurance, to enable families to mitigate the financial losses associated with funerals yet still fully participate in traditional rituals. Both firms and families benefit from these innovations. Firms benefit as their clients’ lack of a constant income does not necessarily impact the firm’s bottom line. Families benefit by enabling a dignified end for the loved one and limited funeral-related debt for the surviving family members. Identifying this type of win-win situation is key to success in emerging markets…and in business in general.

Build on Existing Distribution Networks

Nokia Siemens Networks announced a “Village Connections” pilot project in Eastern Cape, South Africa last week. The initiative, part of a broader goal of providing wireless access to 5 billion people by 2015, is an attempt to lower the capital and operating expenses that keep most operators away from remote, rural villages. Wireless subscribers to this service are also expected to benefit from lower fees.
Nokia Siemens Networks (NSN) claims the reduced costs are enabled by an innovative “distributed architecture.” These technology and business-model advances push call control and customer management out to rural access points, each of which serves approximately 80 subscribers and runs on a basic computer equipped with a simple software application and wireless card.

With this initiative, NSN moves toward a potentially lucrative opportunity – a franchised service model for phone and Internet connectivity. NSN claims its GSM Access Points are “plug-and-play” and backed up by solar or battery power. The challenge remains, however, in identifying, training, supporting and managing a large number of geographically-scattered rural franchisees.

NSN (or other multinationals) will maximize their chances of success by identifying and securing good distribution partners. While every rural village has a small shop or retailer, networking companies don’t have enough boots on the ground to train entrepreneurs or install and service even the most self-contained access points at each location. They may, however, be able to piggyback on distributors who regularly supply soft drinks, beer, soap or other goods to those retailers. Distributors would gain a new revenue stream and operational efficiencies (i.e., shopkeepers could place orders using the new phone network). Village retailers could benefit from offering a new product line to their customers, beginning with phone service and extending to handsets, additional airtime and phone accessories. These shopkeepers are also the most likely to know how to run a business and protect valuable equipment. Schools might also be potential partners. In many rural villages, the school is the first (or only) place with a PC, electricity, adequate security and sufficiently educated personnel. And, if bureaucratic snags can be avoided, it may be worthwhile to partner with a government entity. Such alliances might help technology companies solve the rural distribution riddle.

Also in the news:

• OLPC Punts
• Dell Joins HP on Chinese Shelves
• M-banking Programs Supported By World Bank (and Gates)