A Sharp Focus on China’s High-end Consumers

Japan-based Sharp Corporation announced this week that it plans to expand in the already-large-and-still-growing Chinese handset market. Sharp enjoys a 40% market share in the dynamic and lucrative Japanese market, but the company sells few handsets outside the country. In China, Sharp is aiming for the high end of the market with multifunctional handsets selling for almost $600. The company hopes to sell five million handsets a year in China in the next few years. Sharp sold only 15.5 million handsets worldwide in the fiscal year that ended March 2008, so an additional 5 million handsets would have a significant impact on its bottom line.

Vital Wave Consulting likes Sharp’s timing: Apple has not yet entered the China market with its iconic iPhone, and 3G services were rushed to market in several of China’s largest cities just before the summer Olympics. A phone that offers mpayment capabilities – standard in Japan – might also attract China’s wealthy elite. According to one report, Chinese mobile phone users led their counterparts in India, Taiwan, Singapore and Australia in storing music, playing games, making payments, and accessing the Internet. Chinese Internet users do not fit the same usage profile as many Western (or even other emerging-market) users. According to a Chinese government study, the Web is not necessarily perceived as a means of finding information or shopping; rather, it is seen as a highly customizable entertainment medium. Over 70% of Chinese Internet users are under 30, and tend to be avid gamers, social networkers, and “fanzine” subscribers. Handsets that allow Chinese users to access these services outside the Internet café could be highly sought-after.

The high end of the market (for handsets, computers, and many other consumer electronics) is a particularly good opportunity in China and in other large emerging markets such as India. The percentage of the Chinese population that constitutes the high-end market may be relatively small, but in a country with more than one billion people, the total opportunity is still ample and justifies the expense of forging new marketing and distribution channels that target the country’s elite.

Also in the news:

• Low-cost laptops drive PC growth
• Philips strengthens its presence in emerging-market healthcare
• Asus differentiates itself with free online storage

IBM Lowers Internal Barriers with Overseas Service Program

In a recent report, Vital Wave Consulting named internal company barriers as a key inhibitor to emerging market business growth. Some large ICT companies have recognized this weakness and found novel ways to address it internally. IBM recently initiated a program that, if executed well, will give up-and-coming executives valuable experience in the developing world. The company's new Corporate Service Corps will allow 600 employees to apply their business skills to economic development and information technology projects run by non-governmental organizations over the next three years. The first 100 managers will travel to Romania, Turkey, Vietnam, the Philippines, Ghana, and Tanzania later this year.

Emerging markets claim the highest growth rates in the world for IT and communications services. Mature-market companies are working to understand these new markets to remain competitive, so it’s no coincidence the launch of IBM’s program follows their recently announced focus on emerging markets. Technology managers also realize that emerging-market experience is becoming a requirement in a globalized world. IBM’s Corporate Service Corps program is clearly capitalizing on the desire for developing-world business experience (more than 5,000 employees applied for the first 100 positions).

Basic business fundamentals teach ‘know your market.’ While IBM’s Service Corps provides top-notch business support to recipient organizations, sending eager ladder-climbers to developing countries gives IBM real-world training for employees. The business benefits are clear for IBM and other corporations who consider this path. Employees gain a deep understanding of IBM’s growth markets, employees’ job satisfaction may increase (boosting retention and attracting new talent), and IBM gets a street view of emerging-market business problems – the very problems its future customers may be calling on them to solve.

Also in the news:

• Software piracy on the rise in developing countries
• Big pharma gets into emerging markets
• Microsoft releases low-cost laptop requirements for XP

Cracking the SME Nut

For multinational corporations (MNCs) examining emerging markets, the small- and medium-sized enterprise (SME) segment remains one of the most profitable opportunities. Increasingly recognized for their contribution to gross domestic product, SMEs have garnered the attention of global philanthropies like Soros, Omidyar and Google.org. Those organizations joined together last week to create a $17 million venture capital fund in India to support socially-responsible, early-stage companies. A recent article in the Latin Business Chronicle points out that certain developing-country governments are also trying to promote the development of the SME segment by reducing barriers to growth, facilitating exports, and improving access to financing. The author suggests that while deregulation puts competitive pressure on SMEs, they retain the advantages of greater flexibility, latitude, and speed in responding to threats and opportunities.

For many multinational corporations, the SME segment are becoming the “holy grail” of emerging markets. However, there is a troubling lack of information about the segment, for example many SMEs are part of the informal economy, lacking the capacity or incentive to implement transparent accounting or reporting practices. But even companies that are part of the informal economy need technology to grow and compete. Recent field research by Vital Wave Consulting in Central America on SMEs suggests that tourism and youth-focused companies present solid growth opportunities for technology companies. Small businesses with multiple locations also require more coordination and control and have a greater need for technology infrastructure.

To effectively target the fastest growing SMEs with growing technology needs, the segment must be broken down. Just as the term “emerging markets” lumps extremely diverse countries and economies into one category, so does the SME label. The diverse nature of the SME market means a broad-brush approach is not appropriate. A SME is most commonly described as a company with 10 to 250 employees, but this does not differentiate by industry or growth potential. There is a clear opportunity for MNCs that invest in a comprehensive SME segmentation and sizing analysis by sub-segment and by country or region. MNCs that understand the true size and nuances of the SME market opportunity will be best equipped to capitalize on this growing segment.

Also in the news:

• Intel to release low-cost platform
• Quanta says partnering with academia is challenging
• Tata bent on seeing wealth flow into emerging markets

Google's China Push Tests Out New Business Models

Last week, the Wall Street Journal (WSJ) delved into Google’s latest strategy to compete with Baidu, a formidable (and market-leading) search engine competitor in the Chinese market. Google has not been shy about its plans to beat Baidu on their home turf and a new joint venture with a Chinese online music company shows they are going for Baidu’s jugular. Baidu’s success rests precariously on popular free, unlicensed music downloads, straining relationships with the Chinese (and global) music industry. Google’s strategy to compete in China features free, high-quality, licensed music downloads in return for a share of ad revenues and download data for music labels.

While the WSJ focused on the horse race between Google and Baidu in China, they undervalued the article’s true technology business nugget – the music industry’s willingness to sign on to an entirely new business model. Universal Music Group has already agreed to participate in Google’s new scheme, and EMI Group, Sony BMG Music Entertainment, and Warner Music are interested. Vital Wave Consulting research has found that a non-traditional partner paired with a new business model can be a potent mix in emerging markets like China. And emerging-market consumers - even those with little disposable income – rank entertainment high on their list of basic needs. With music industry sales down and illegal music downloads outnumbering licensed downloads 20-to-1 worldwide, the timing is right for music labels to consider new ways of profiting from the ubiquitous online distribution of songs. With this solution, Google may manage to find a way to meet user demands for free music with the blessing of the record labels. Moreover, with China Mobile already signed on as a key partner for Android (Google’s open source mobile platform), this could have far-reaching implications for song distribution via mobile phones in one of the world’s largest markets.

If Google successfully applies this model in China, there is little to stop them from expanding it to the developed world. The flow of developing-country innovations to mature markets is increasingly common (e.g., pre-paid phone cards and mobile payments). Google’s music distribution scheme could eventually affect the technology and entertainment industries in the U.S. and Europe. The search giant’s competitors would be wise to secure non-traditional entertainment partners who would value alternative monetization schemes such as ad revenues. These creative partnerships will attract eyeballs and revenues in markets worldwide.

Also in the news:

• Handset manufacturers learn emerging market lessons
• Government rhetoric slows ICT growth in Africa
• Mobile phone, not PC, bridges digital divide

Asus Turns a White Box Play into Branded Success

Asustek Computer (Asus) capitalized on the U.S. pre-holiday news lull by generating coverage on the Eee PC. This PC solution seems to be catapulting Asus ahead of its low-cost computing competition. Announcements ranged from the introduction of new channel partners, to rollout into new geographies, and the availability of a Windows version of the Eee PC. An announcement of an increased sales forecast for 2008 to 5 million units of the Eee PC followed this week. But, in spite of the attention and growing forecasts, Asus’ CEO and President, Jonney Shih and Jonathan Tseng, claim Asus is not concerned that low-cost devices will cannibalize its more profitable PC business.

Asus’ sudden visibility in the low-cost laptop market may mislead business managers and industry watchers into overlooking the company’s primary business. Asus is, in fact, cited as the “mother of all motherboard producers”. With highly diversified manufacturing services, Asus produces components for cell phones, desktop and notebook computers, graphics cards, optical drives, servers, and networking devices for some of the world's leading ICT companies. One country-specific success story for Asus is in the Russian PC market where more than 80% of desktops are sold through the white box (unbranded) channel. The company entered this strategic growth market through this white box channel and developed a reputation for providing value and quality desktop PC components. Capitalizing on its brand recognition as a high-quality component provider, Asus has also become a highly competitive manufacturer of branded PCs in the Russian market.

HP, Dell and other hardware companies can take a page from the Asus playbook. To date, direct competition with white-box assemblers in emerging markets has proved largely unsuccessful for most global brands. Hardware companies could, instead, participate in this dominant emerging-market channel. With careful mapping of the value chain, global PC manufacturers can identify opportunities to provide aspects of their own competitive advantage (e.g. economies of scale, efficient tools and processes, pre-kitted and branded components, and even support services). With the white box market dominating the emerging-market PC business, hardware companies would do well to learn how to participate profitably in the revenue stream rather than swimming against the current.

Also in the news:

• Solar power charger launches in Kenya
• Financing opens doors for new handset buyers
• OLPC extends Give One Get One program

Google's Phone Keeps Everybody Talking

Google is characteristically silent, but rumors about the "Gphone" have people talking. According to Forbes Magazine, Google plans to enter the smart-phone market with a high-end handset subsidized by targeted advertising. Brian Caulfield, the article’s author, suggests that Google’s ad-supported mobile phones may best fit consumers in emerging economies. An effective advertising model could reduce the price of the handset and/or service, appealing to this price-sensitive market. Caulfield points out that a mass-market approach fits Google’s business model, and suggests China Mobile and Orange are possible partners.

Google certainly knows how to monetize advertising volume, but a foray into hardware would put the company well outside its comfort zone. While Google has entered partnerships in the past, it has never been as dependent on those partners as it would be with telecommunications partners in this new scenario. A phone with a great user interface and cool applications may get the market’s attention, but the ability to scale will be largely in the hands of Google’s partners. Google’s strength is its ability to abandon traditional business models. A mobile phone that makes money on something other than voice or data transmission may fundamentally disrupt the market, but is Google in the best position to capitalize on the opportunity?

An ad-based revenue model presents an opportunity for a host of other technology players. Yahoo! and AOL are also chasing emerging-market eyeballs through acquisitions and partnerships that integrate their services with newer handsets. Larger phone manufacturers and operators are exploring an ad-based interface, trying to secure revenues without giving too much away to content providers. Microsoft software is available on 140 mobile phone models, so it has well-established ties in the telecommunications industry. Perhaps a (long-rumored) partnership between Yahoo! and Microsoft would pave the way for an ad-based mobile OS. Ultimately, the winner in this race will be the company that offers the most compelling deal to developing-country operators without losing focus on the real opportunity - access to two billion eyeballs.

Also in the news:

• Quanta denies that OLPC shipments are delayed
• India mulls open standards
• Cisco chooses WiMax

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

India’s Broadband Drop Surprises Analysts

This week’s nugget was unearthed in an Economic Times article that claimed, to everyone’s surprise, India’s fixed broadband subscription rates fell last quarter. The total number of Internet connections dropped to 9.22 million between April and June from 9.27 million the previous quarter. The article and related blogs speculate on the possible causes for this drop: unstable connections, poor service and bandwidth constraints. It may be that Indians are turning to their mobile devices to access the web. According to the Economic Times, 38 million people, or more than a fifth of India's 200 million-plus mobile subscribers, access the web via their handsets.

This drop in broadband Internet connections is small for a country the size of India. However, the lack of growth and the strength of mobile Internet access are notable. Fixed broadband availability and usage rates have often been used as an input for measuring a country’s technical maturity. The increasing sophistication of mobile devices may change that. Historical growth trends would have predicted that India’s broadband rates would continue to increase and certainly not slow, let alone fall. This demonstrates a weakness in historical-based approaches and confirms that new markets require new methods of evaluation. Applying developed-country adoption trends to developing-country markets leads business managers to design inappropriate strategies in emerging markets.

Technology is being adopted faster in emerging markets than in mature economies. Moreover, adoption and usage patterns may differ considerably. Consumer cash flow constraints, the stability and availability of a local infrastructure, technology awareness, and access to various technology devices all impact adoption curves. Therefore, historical growth trends are only one input among many to credibly forecast emerging-market growth. In a market like India, these factors can help project dramatic shifts in technology usage patterns. The increasing use of mobile phones for Internet access is yet another sign that IT and telecommunications strategies can no longer be considered in isolation, especially in emerging markets. Both industries will be competing more and more for access to the limited disposable income of developing-country customers.

Also in the news:

• Who pays for low-cost laptops?
• Intel readies CPU for cheap computers
• Eee PC scores one million-unit Russia deal

Africa Says "Call Me Back"

Reporting in their “oddly enough” section recently, Reuters noted that one-third of all cell phone calls made in Africa are “missed.” While odd to Reuters, “missed” calls are a generally accepted method of communicating in Africa. The practice of “beeping,” which involves phoning someone and hanging up so the burden of the return call cost is on the receiver, was created by cost-conscious users. (In most markets outside the U.S., cell phones charges are billed only to the calling party.) Frustrated local phone operators, whose lines are tied up with non-income generating exchanges, are actively seeking methods to generate nominal revenue from this practice including offering a limited number of “call me back” text messages for free with accompanying fees for increased use.

“Beeping,” while unanticipated by wireless operators, is a smart adaptation of technology to better suit user needs and is currently under study by Microsoft Research. Cash-strapped users can continue to use their phones to communicate with friends and family as long as someone else foots the bill. This practice comes with a host of etiquette rules like not beeping a romantic interest and the one with more wealth pays. While such rules help to make “beeping” more socially acceptable, it is still considered nominally intrusive by receivers and demonstrates the degree to which users are willing to inconvenience or be inconvenienced in order to communicate with one another via cell phone.

Wireless operators have the opportunity to benefit from users' willingness to suffer minor inconveniences in return for service. With emerging advertising models, operators allow users to make a phone call for free or at subsidized rates in return for viewing (or listening to) a short ad. Operators can sell ad space to corporations interested in reaching the emerging mass markets of developing countries. Skeptics may question whether cash-strapped cell phone users are an interesting target market for advertisers. Vital Wave Consulting research demonstrates that cell phone users, even those earning less than subsistence-level income ($2 per day), have funds available for the purchase of goods and services. For instance, in Nigeria alone, individuals earning less than $2 per day represented a $40 billion market last year. Add this to other large markets and the African continent begins to represent a significant growth opportunity for consumer companies that face saturated or low-growth markets in developed countries. With advertising in exchange for free or lower-cost phone calls, former “beepers” could be the next billion pairs of eyes and ears to corporations seeking such growth opportunities in emerging markets.

Also in the news:

• India's broadband connectivity numbers are falling
• CDMA still kicking in Africa
• International remittances equal to a Fortune 500 company

NComputing Gets a Leg Up in Low-cost PC Space

Recent articles praised NComputing, a company specializing in multi-user PC solutions, for its deal to provide every k-12 Macedonian student with one-to-one computer access. Prior to this, NComputing’'s customers were mostly suburban, developed-world school districts and government offices. The company has sold over 500,000 seats in less than two years. The Macedonia deal demonstrated that developing-country ministries of education may be a receptive market. This is the second foray into challenging the computer industry for NComputing’'s CEO, Stephen Dukker, who founded and led eMachines,– often credited with driving down the price of personal computers (PCs) worldwide.

NComputing’'s success shows that perhaps the needs of a suburban school in Dallas are not that different than those of a Macedonian school district. Both customers were looking for a solution that could stretch their existing technology budgets to accommodate more students. Capitalizing on existing PCs in under-equipped computer labs, NComputing’'s technology turns one CPU into individual computer access for up to seven students. NComputing built upon existing technology and previously-tested solutions to address a fundamental need to increase one-to-one computer access in emerging economies. Like many emerging-market solutions, the beauty is in the simplicity. The education market agrees. In a recent roundtable discussion with Vital Wave Consulting, Dukker explained that NComputing’'s biggest limiting factor is not demand but rather a robust enough channel to distribute the technology.

Research by Vital Wave Consulting suggests that NComputing'’s approach of adapting current technology for emerging-market needs has merit. (Indeed, the company has had more success to date than other high-profile, low-cost PC initiatives.) Vital Wave Consulting favors this approach as one of the key strategies for success in emerging markets. With straightforward technology adaptations like NComputing'’s multi-user solution, corporations could penetrate developing-country markets without undue disruption to current industry and technology processes.

Also in the news:

• 3Com Goes After Cisco in Emerging Markets
• Cheap Laptops are Still Missing in Action
• Ericsson’'s Approach to Low-End Markets is More of Same

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)

New Data Tools and Methods Required for Emerging-Market Business Decisions

Recent news articles have called into question the reliability of developing-country market data that is crucial to good decision-making for developing-country business expansion. Respected economist Lester Thurow challenged China’s economic growth statistics (New York Times subscription required) by using electricity consumption as a proxy for economic growth. Thurow estimates that China’s economy is growing at a rate of 4.5% to 6% annually, far less than the Chinese government’s figure of around 10%. Similarly, the Arab Advisors Group (AAG), a local telecommunications industry advisor, suggested that estimates of Jordan’s mobile penetration rates may be exaggerated based on results from their recent survey. Using two simple calculations - an assessment of population that takes into account migrants and expatriates as well as standard population figures, and an estimate of the actual number of phones per users – AAG asserts that mobile penetration may be closer to 50%, rather than the 74% claimed by local operators.

Market data such as mobile penetration and economic growth rates inform critical business decisions. The possible discrepancies suggested by AAG and Thurow demonstrate the complexity of designing for, and selling into, developing-country markets. Erroneous data can result from misrepresentation, insufficient validation, or from applying mature-market methods, user trends and historical adoption curves directly to emerging markets. Thurow’s approach to assessing China’s growth demonstrates how even developing-country data can be tested with creative proxies. AAG’s primary research revealed that over a third of all mobile users in Jordan have multiple phone lines (to capture savings on operator offers and promotions), which would lower market penetration estimates based on a unique subscription-to-subscriber ratio.

These two examples demonstrate that gathering accurate, reliable data on emerging markets requires new tools and methods, investigation beyond standard published sources, and a profound knowledge of local user needs, preferences and usage patterns. The companies that base their business growth decisions on sound, market-appropriate data collection and analysis will have the best chance of understanding the scope and location of the most compelling emerging-market growth opportunities.

Also in the news:

• Asus Set to Mass Produce and Launch $199 EEE PC
• India Overtakes U.S. as Nokia’s Second-largest Market
• Rumored Google Phone to Compete with OLPC

From Design to Market: Commercializing Innovations for Emerging Markets

Sometimes, the most elegant solutions to a problem are also the simplest. Last week, Tapan Parikh from the University of Washington was named Innovator of the Year by MIT’s Technology Review for his small-business software applications designed for mobile phones. Parikh's solutions help farmers and women's self-help groups capture and store information, manage their finances and communicate with lenders.

Parikh's simple, easy-to-use applications buck the trend of faster, more powerful technology for an increasingly sophisticated world. Many leading multinational companies have invested heavily to establish research and development centers in emerging markets, but then question whether the investment is paying off. But perhaps the problem is closer to home than in far-off R&D labs. Advance word from the researchers and developers attending this week's Home-Oriented IT (HOIT) conference in Chennai, India is that developing technology for local markets is sometimes easier than convincing corporate business managers to commercialize them.

Overseas labs frequently produce solutions that, like Parikh’s, receive positive press coverage, awards, and broad recognition for their relevance and quality. Nevertheless, they are often released only regionally and reach a fraction of their potential market. Why? In part, because emerging-market solutions are often simpler and cheaper – giving mature-market business managers visions of declining margins and cannibalization of existing products.

Companies like Microsoft, Intel and Nokia (among others) have developed various strategies for ensuring that emerging-market solutions do not cannibalize existing product lines. And the fact is, many products conceived in overseas labs, or by entrepreneurs, would not find a ready market in North America or Europe anyway. Researchers who assess and articulate the financial and operational opportunities posed by their innovations are better equipped to validate or dissipate the fears of business managers. With accurate assessment of the market opportunity and a realistic view of threats to their existing products, companies will better capitalize on emerging-market trends that are essential to maintaining global market share.

Also in the news:

• The iPhone in developing markets?
• Nokia uses anthropologists to design low-end handsets
• Nigeria replacing South Africa as Africa's economic engine

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.

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Addressing the Value of WiMax to Emerging Market Consumers

Late last week, Motorola announced an agreement with Vietnam Data Communications to launch WiMax testing in Vietnam later this year. This announcement came just days after Ericsson spoke publicly about their refusal to put their weight behind WiMax, claiming it lacks a business model. While Ericsson continues to remain focused on cellular broadband, building upon existing infrastructure instead of transferring over capabilities to WiMax, others like Motorola and Intel believe that WiMax is a cost-efficient way to boost broadband adoption in developing countries. Motorola, Intel, Samsung, and others are clear about their interest in this emerging technology. Yet, widespread WiMax adoption in developing countries is not guaranteed.

Investors bear the risk that governments may choose not to support WiMax in their spectrum allocation policies favoring homegrown technologies. In addition to spectrum policy issues, WiMax success or failure rests on its true addressable market and its value proposition against available options in developing countries. Once established as a viable technology, the addressable market for WiMax will depend on customers’ eagerness to have and ability to afford broadband access and devices. With price-sensitive consumers, the value (or net utility) of broadband has to be carefully weighed, and recent studies show that, for new users, access to high-speed connections is not necessarily a priority.

The opportunity for corporations banking on WiMax is to focus on the value proposition of the technology in this market. The technology alone will not automatically induce adoption. Essential to WiMax success are service offerings, devices and go-to-market plans that maximize the net utility offered by the technology to the price-sensitive customers of emerging economies. This can be done, in part, through the introduction of services and applications via strategic relationships. Key partnership areas will include financial institutions to facilitate electronic payments and remittances, health professionals for delivering and collecting health-related information, and advertisers who are willing to supplement WiMax service costs in return for access to these new markets. With a great value proposition for the customer and reliable market data about where to focus their efforts, MNCs will be better equipped to benefit from the potential of the WiMax market.

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Quantifiable Business Value required for Social Development in Emerging Markets

Increasingly, multinational corporations are required to justify business investments in developing countries as having benefits for local populations, and likewise, philanthropy departments are asked to demonstrate the business rationale for philanthropic programs. IDG news recently discussed how some corporations are managing to achieve this delicate balance better than others. Recognizing and quantifying a blended value for these types of investments is necessary as technology companies search for near- and long-term growth opportunities in lower-income markets around the world where infrastructure is weak and educational programs are limited. For years, technology companies have addressed these issues through philanthropic or corporate social responsibility projects. As developing countries become increasingly attractive consumer markets, however, social development initiatives married to the company’s core products and services are proving to be sound strategic business investments.

The shift from philanthropy to sustainable business investments, or “social innovation,” may be here to stay, according to Unilever’s Chief Executive Patrick Cescau. Recently, Cescau even suggests that corporate social responsibility (CSR) may, in fact, be dying out. By addressing socio-economic conditions with their products and services, companies are both identifying next-generation consumers and discovering novel, low-cost ways of using technology.

Business managers sometimes find resistance to focusing company resources on emerging-market business growth due to the challenge of quantifying the opportunities and benefits. Managers responsible for growth in emerging markets will gain greater traction internally by demonstrating the business value of social development initiatives. These investments must be measured on the basis of market size, financial opportunity and alignment with current business systems and goals. By applying business rigor to social development initiatives, companies can ensure their sustainability and ultimately maximize the benefit to the target markets.

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