China's Innovation Breeds IP Respect?

The world's leading handset manufacturers, drawn to the explosive growth of the Chinese market, are facing a rising challenge there from indigenous manufacturers. China's rapidly expanding mobile subscriber base is supporting the expansion of local firms, who are using their knowledge of local tastes to cash in on Chinese consumers' insatiable appetite for the latest gadgets. Phones made and designed by Chinese firms will account for a third of the global handset market in 2009, and the increasing competition has caused the average price for a feature phone in China to drop from $220 to $90 in just five years. Native firms have grabbed market share by developing innovations, such as twin SIM card slots and phones that double as projectors, at a price and pace that foreign firms have difficulty matching.

These developments reflect the growing maturity of homegrown Chinese companies, which are starting to transform themselves from low-cost manufacturers into innovators in their own right. This evolving position gives Chinese firms, as well as the Chinese government, a greater stake in the protection of intellectual property (IP) rights, an issue which has long been a bone of contention between China and the West. China's regional and national governments are increasingly aware of the need for stronger IP protections and have begun to implement them.

These trends are a double-edged sword for Western firms. The rising innovation capacity of Chinese (and other developing-country) firms will make them stronger competitors in both developed and emerging markets. But greater protection for IP will make introducing products in emerging markets safer and potentially more profitable for foreign firms. Working with market experts can give firms a clearer picture of both the legal and sales landscape and help them to become more nimble contenders both at home and abroad.

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

Are Mobile Phones Going the Way of Refrigerators?

A recent study by Enterprise Africa! on emerging-market technology trends examines the poverty-alleviating aspects of mobile phones in Africa. The organization looked closely at the small, Southern African nation of Botswana, where cell phone subscribers jumped from zero in 1998 to 823,070 by March 2006. With mobile technology now reaching roughly half the population, Botswana is a model for other developing economies striving to impact development through access to technology. Most notable about the study is the utilitarian rationale provided for cell phone ownership - safety and business expansion.

As handsets penetrate ever-lower rungs of the economic ladder, new buyers are more concerned that the purchase can be justified as an essential utility. Mobile phone companies in developing countries are competing for a share of the wallet with non-traditional competitors such as household appliance retailers. Vital Wave Consulting research found that many low-income residents of developing countries consider a stove, TV and refrigerator to be “essentials” and all other electronic and durable goods, including mobile phones, “luxuries.” In one study of prospective phone buyers in six emerging-market countries, TVs were preferred over both landline and mobile phones by two-thirds of respondents.

In order to capture growth opportunities in these rapidly-expanding markets, mobile phone service providers and manufacturers would do well to convey the safety and business benefits of cell phones to potential customers who live on little more than $1 per day. Low-income consumers are required by virtue of their limited resources to conduct a careful cost-benefit analysis for all purchases. With refined value-proposition messaging that includes the utilitarian functionality of cell phones, the mobile industry may accelerate the growth of their market opportunity among lower-income segments in developing countries.

Also in the news:

• The XO Computer may hit US retail markets by Christmas
• Microsoft Expands Pay-As-You-Go Model for Office ’07
• World Bank and Google Mash Development and Business

Mobile Banking Lacks a Global High-Tech Leader

Using mobile phones for financial transactions, or m-banking, has seen rapid adoption in countries like the Philippines and Japan. Though the service remains fragmented and country-specific, this week’s CIO magazine points out the growing opportunity for m-banking in Africa.

CIO bases their assertion on survey results from South Africa, where local bank subsidiaries are already processing thousands of mobile transactions each month, and the biggest barrier to wider adoption seems to be a lack of consumer awareness.

Finding signs of m-banking success in South Africa is not surprising. Vital Wave Consulting research reveals that the mobile phone saturation rate among South Africans living at or above subsistence is comparable to the level in European markets. Saturation in South Africa (and Nigeria), together with rapidly increasing mobile penetration rates in other African countries, create a fertile user base. And mobile phone-based financial services are particularly attractive when poor roads and public transportation systems make a trip to the bank an expensive, all-day journey.

There are ample, quantifiable business opportunities in the m-banking value chain for multiple players, including banks, international credit companies, carriers, and software designers. While financial service providers are moving quickly to realize these opportunities, no global technology leader has stepped forward. A multinational high-technology company capable of providing such mobile solutions has much to gain by enabling comprehensive m-banking across emerging markets.

Also in the news:
• Microsoft is putting their money on smart phones as the next computer
• GSM and CDMA search for the best foothold in developing countries
• Vodafone unveils handsets designed for emerging markets

Nokia's Emerging Market Strategy Connects the Dots

Nokia quietly demonstrated a solid emerging market strategy this week with technological, marketing, sales and distribution innovation in India.

The world’s leading handset maker launched seven new mobile phone designs with functions and features to meet the needs of rural Indians. The new phones have ruggedized exteriors, longer battery life and discrete user phonebooks and call-time limits to make sharing easier. Nokia’s announcement received more coverage by local Indian press until Business Week reported sightings of colorful Nokia vans in rural areas – part of an innovative marketing scheme to promote the new phone models among first-time buyers and potential upgrade customers.

Nokia’s comprehensive strategy may help boost their market leadership in India, which fell from 80% last year to about 67% today. As more high-tech multinational companies successfully penetrate rural and mass markets in developing countries, the opportunity will expand for application providers. Enabling the delivery of relevant services such as electronic remittances and health information will benefit an underserved consumer base and the companies that serve them.

Also in the news this week:

• One-Laptop-per-Child and Microsoft become strange bedfellows
• Indian researchers claim they are on the way to a $10 laptop
• Microsoft explores split-screen technology for shared-use environments