Going in Together: The Promise and Pitfalls of Partnerships

From Africa to India to the Philippines, partnerships are making headlines as a vehicle for advancing national development agendas and private-sector business interests. Last week, the Africa Progress Panel released its Africa Progress Report 2011, which focuses on the potential of partnerships to accelerate growth on the continent and "drive sustained social and economic development." The report notes that the recent improvement in African economic growth has had only a limited impact on employment and income. It cites a number of models that are successfully increasing access to services and identifies ways in which these models can be scaled and replicated. Public-private partnerships (PPPs), which involve joint investment and shared risk between government entities and private-sector partners, are also being used to jumpstart infrastructure and development projects in India and the Philippines, as well as in many developed economies. The growing appeal of partnerships comes at a time when actors in each sector recognize the need for cross-sector cooperation. 

Private capital, led by foreign direct investment, has eclipsed official aid contributions as the largest financial flow to developing countries. In the last decade, institutions such as USAID have placed a strategic focus on the formation of public-private alliances. Multi-national corporations are increasingly partnering with NGOs and public sector actors to improve supply chains, test new business models and gain entry into new markets. There are now numerous examples of governments, firms and NGOs benefiting from each other's unique set of expertise and resources, especially as constrained government budgets and continued tightness in capital markets make funding and implementing large-scale projects a challenge. Yet partnerships hold peril as well as promise. A new blog, The Best Intentions, exemplifies the maturing discussion around the opportunity and challenges afforded by PPPs.  It also explores the dynamics of how PPPs fail when the "secondary interests" of private sector, NGO and government partners are not aligned or diverge down the road.

To mitigate risk, managers have learned to create comprehensive strategies for partnership development. Multinational firms, governments and NGOs can successfully arrive at long-term partnerships that serve their interests when their goals align. Investing in business intelligence to evaluate primary and secondary incentives for traditional and non-traditional partners may allow organizations to avoid ad hoc arrangements or alliances doomed by misaligned objectives.

Huffington Post Spotlights Vital Wave Consulting CEO

The Huffington Post’s Jim Luce just published an article about Vital Wave Consulting CEO Brooke Partridge. The article highlights Brooke’s thought leadership in making ICT sustainable and profitable in the developing world and traces her path into this pioneering work.

For those of us that work at Vital Wave Consulting, it’s wonderful to see Brooke’s leadership and the “behind the scenes” work of the company recognized. Brooke leadership comes out not just in envisioning the possibilities of technology for the developing world, but in understanding how to put all the pieces together to make a good idea a sustainable business, from substantiating the business case to structuring the necessary partnerships to getting organizational buy-in for investments.

Congrats to Brooke on this well-deserved recognition!

How to Compete with Emerging Giants

Seasoned business managers know to expect competition from unexpected places. Still, new global players from developing countries have caught many in the global business community by surprise. Last week’s Economist explored the phenomenon of emerging-market companies that are joining the ranks of the world’s largest multinational corporations (MNCs). Emerging-market companies, such as Huawai, Lenovo, and Infosys, are buying out rivals, merging with other small companies in key geographies, and quickly expanding into developed-country markets. These up-and-coming MNCs benefit from fast decision-making processes (common in family-owned and well-connected businesses) and scrappy managers who honed their skills on the tough local markets of developing countries.

Even with these advantages and homegrown talents, emerging-market companies will have to work hard to compete globally. Developed-country consumers often consider products from emerging-market countries as inferior. Even “made in Japan” once carried a stigma that Japanese companies had to overcome. To reassure consumers and compete in the global marketplace, emerging-market companies will face an up-hill battle even with the benefit of low-cost resources, tenacity, and drive. For U.S. and European MNCs, maintaining their position as Fortune 500 companies requires quick and decisive action to create locally relevant products and services for developing countries. The final business frontiers are quickly morphing from a potential growth opportunity to a business necessity equal in importance to traditional markets. Neither market can be left unattended for long.

To compete in emerging markets, developed-country MNCs have to use their traditional strengths (brand, influence, wealth and depth of business experience) PLUS all the same tools their new competitors will bring to the game (low costs, quick decision-making, creative distribution, local knowledge and a tolerance for low margins). For developed-country MNCs, this points to the creation of highly autonomous regional branches, innovation along the value chain, or acquisition of well-run organizations (without the imposition of parent-company baggage to slow them down). These are disruptive changes to any business and have impact on traditional methods of performance measurement. Publicly traded MNCs would benefit from ensuring clear and compelling explanations of their strategies in emerging markets to both internal and external audiences to increase their appreciation of the necessity and benefits of change.

Also in the news:

• Bill Gates says businesses should design for the poor
• India adds 8 million mobile subscribers last month
• Nokia says emerging markets will keep sales up

Western Union Joins Mobile Remittance Market

Western Union has been so slow to respond to the market impact of mobile-phone based remittances, the company risks losing decades of market leadership in the money transfer business. The recent announcement of a partnership with the GSM Association (GSMA) may be an attempt to catch MasterCard, which announced a similar initiative at the 3GSM conference in February. According to Reuters, Western Union and GSMA will help operators let customers transfer funds from a mobile phone to a Western Union location and vice versa, and enable mobile-to-mobile transfers. A pilot program of the service will be available by mid-2008 and Western Union expects to see a material contribution to revenues in 3-5 years.

Western Union’s slow rollout of a mobile remittance program opened the door for companies like Visa, MasterCard, banks, and local service providers. Mobile-to-mobile money transfer programs are already generating revenue for more nimble players like Smart in the Philippines and Safaricom in Kenya, among others. By 2012, the number of recipients of international remittances could reach 1.5 billion and the size of the remittances market could total US$1 trillion, according to GSMA.

Non-technology companies like Western Union are being drawn into the telecommunications market by the increasing utility of mobile phones. The GSMA, its members and other mobile technology companies will benefit from new partnerships with global non-technology companies like Western Union. They provide valuable assets such as global brand and new services that can now be delivered via mobile technology. Association with a strong brand like Western Union can allay customer fears associated with accessing services and executing transactions via mobile phones. And, the added services present opportunities for additional revenue sources for all involved partners.

Also in the news:

• Mitec plans to enter low-cost PC space
• Eee PC makes a hot debut
• Norhtec thin client surfaces again

Global versus Local: Search Engine Strategies for Emerging Markets

Google’s recent earnings report focused on their aggressive hiring in international locations. Eric Schmidt, Google CEO, explained that searching the Internet is now a global activity, and in order to compete with Yahoo!, Microsoft and, increasingly, local competitors like Baidu, Google’s staff has to become more international. Google has also developed a “cross-language informational retrieval” service, which translates foreign-language content for English-language searches (and vice-versa). According to one blog, translations will be available in English, Arabic, French, German, Italian, Japanese, Korean, Mandarin, Portuguese, Russian, and Spanish. Google’s “world-is-flat” macro approach will appeal to more Internet-savvy users interested in international news and opinions.

Yahoo!’s approach to international markets is slightly different. The company offers a language-translation program similar to Google’s, but a more intriguing initiative is the attempt to attract local users in developing countries by turning their search engine into citywide portals. Yahoo!’s India-based pilot, Our City - an online clearinghouse for local, dynamic content - has been introduced in 40 Indian cities and appears to have gained a solid user base. Yahoo!’s more localized approach will meet the demands of new users who are just beginning to access the web and are most interested in locally-relevant information such as government services, news, entertainment and events. While a combination of approaches is likely the best strategy for emerging market business success, a focus on locally available services and content will motivate the next billion PC users to take the Internet for a test drive.

Yahoo!, Google, and other IT companies should have no trouble finding local content. Small and medium-sized businesses (SMBs) are eager for sales opportunities outside their brick-and-mortar confines, and governments in many emerging-market countries are investing heavily in e-government portals and support for the SMB sector. Smart local entrepreneurs with intimate knowledge of local content needs could act as aggregators, benefiting from the technology, resources and scale of a multinational technology partner. All stakeholders understand this would result in more emerging-market users online, creating potential consumers of other online content and services.

Also in the news:

• Internet Slow to Reach the Unconnected
• Everex, Acer, and Medison Introduce Low-cost PCs
• Technology and Power, How is Access Defining Progress

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Emerging Markets Definition and World Market Groups

Vital Wave Consulting enables accelerated revenue growth in emerging markets. The company follows established World Bank economic benchmarks to define emerging markets as countries that have a gross national income (GNI) of $10,725 or less per capita.

Within emerging markets, Vital Wave Consulting distinguishes between three sub-groups according to market size (population) and economic attractiveness (GNI per capita in purchasing power parity terms).

• Strategic Opportunity Markets are the largest and most economically attractive for a multinational corporation that is looking to grow its customer base. These markets have a population over 40 million, and strong real GDP growth. These markets also have a GNI per capita over $2000 per year in purchasing power parity (PPP).
• Niche Opportunity Markets are countries with a population under 40 million that have average incomes over $2000 in PPP terms and strong real GDP growth. These markets provide multinational companies with opportunities to grow their markets on a smaller scale, or they may be “gateways” to larger nearby markets.
• Long-term Opportunity Markets are the least attractive markets to a multinational corporation. These markets exhibit a low standard of living with a GNI per capita under $2,000 per year in PPP terms. In these countries, persistent poverty, corruption and political instability may be hampering economic growth. These countries may be viable markets in the long term with consistent political and economic reform.

(to view a larger version of this chart on the Vital Wave Consulting website click here).

Over 141 countries, representing 84% of the world’s population, meet these criteria. The proportion of worldwide technology expenditures by emerging-market countries is steadily increasing relative to mature markets. The ten largest emerging markets are expected to spend $558 billion on IT and telecommunications in 2009. By 2015, the combined GDP of emerging-market nations will surpass that of the top 20 developed economies.

Vital Wave Consulting provides strategic consulting, market research and business intelligence services and publications on emerging-market business opportunities. Clients include multinational corporations in the information technology and telecommunications industries. For more information, please visit www.vitalwaveconsulting.com, or call (650) 321-3313.

Marketing to the Masses: Bringing Low-cost PCs to the General Public

Dominating the technology and emerging markets news again this week is the race to capture the low-cost PC market in developing countries. Via joined its competitors last week with the release of a low-cost education PC in South Africa. Intel also announced that they are joining forces with the One-Laptop-per-Child initiative, adding the tech giant’s heft to the project, and two weeks ago we discussed Microsoft’s recent launch of the IQ PC for India. The solutions all share a focus on the education market and have limited distribution.

PC and software companies aim for the education segment in emerging markets because government buyers, even in poor countries, can have relatively large budgets. Vital Wave Consulting research shows the 10 largest emerging-market countries spent an estimated $4.7 billion (USD) on IT in education last year. A well-designed computer with relevant content can help meet a country’s education goals, and affirm the PC manufacturer’s commitment to social and economic development, blunting any criticism that they are capitalizing on the world’s poor.

Targeting the education segment is strategically sound, but the fast-growing consumer segment also presents a significant opportunity for multinational companies (MNCs) looking to increase revenues in developing countries. Original research by Vital Wave Consulting identifies a noticeable discrepancy between consumers’ perception of PC prices and the actual price offered in the retail channel. In-depth interviews of likely near-term PC buyers in seven emerging markets showed that the prices most consumers are willing to pay for a PC actually exceed the current price of a basic computer. MNCs can increase their total addressable market (TAM) by educating potential buyers about the “true price” of a starter PC. This is one strategy that can help MNCs capture near-term incremental market opportunities with minimal disruption to existing business processes.

Also in the news:

* Michael Dell and OLPC execs spar over recycled PCs
* Developing countries as leaders in innovation
* iPhone as a computer of the future with developing world applications

Designing for Global Markets

GE Chairman and CEO Jeffrey Immelt offered up this week’s nugget at a gathering of Indian Institutes of Technology (IIT) graduates in California’s Santa Clara Convention Center. During a wide-ranging address, Immelt characterized three generations of technology business: the past, in which developed-world companies designed for mature markets; the present, with developed-world companies tapping emerging-market manufacturing and personnel resources to deliver products and services to mature markets; and the future, when developing-world companies design and sell products and services to mature markets.

Vital Wave Consulting wondered why Immelt’s three generations each ended with mature-market (rather than global) buyers, when GE’s revenues from emerging markets are projected to grow from $10 billion to $50 billion between 2000 and 2010. Last year, nearly 20% of the company’s $163 billion in revenues came from emerging markets, and revenue in these markets rose 14% in the first quarter of 2007. Emerging markets already represent the fastest growing markets for global technology companies, and overall revenue potential in these regions will soon overtake that of mature technology markets. For GE and other technology companies, a more accurate description of the third generation of technology business is global companies designing for global markets, not just the developed world.

Immelt’s audience of primarily Indian-born engineers, eager to compete in the world’s most advanced markets, was receptive to his suggestions. Successfully designing for the developing world, however, presents a worthy challenge and, in the long-run, larger rewards. Business trends suggest that companies based in developing countries will not only be selling into mature markets, they will also be designing for emerging markets around the world. With lower cost structures, technical expertise, and a broader understanding of global problems, emerging-market entrepreneurs may bring a richer set of solutions to local challenges. Multinational corporations, however, retain the advantage of global scale. To lead in developing countries, they must develop effective strategies to design for the world’s growing mass markets. First, however, they must acknowledge that the market opportunity is global and that, if they don’t act fast, their counterparts in developing countries will.

Also in the news:

• Via pushes forward in emerging markets with a Mecer PC
• Vodafone and Nokia petition for m-banking regulatory changes
• Rare interview with Aga Khan: Development through venture capital