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

Brand Name Power

Sales fell 19% last quarter for the top three local PC brands in South Africa including Sahara and Mustek's Mecer. Strong global brands such as Dell and HP recently decreased their prices to levels that are comparable to local brands. Distributors have found that when local and global brands are priced competitively, consumers chose the well-known globally-branded PCs over local hero PCs.

Global brands have traditionally struggled to compete with local companies, which often sell at lower prices. With savings in labor and distribution, local companies can maintain thin margins and pass on those savings to the consumer. However, with value chain efficiencies and falling PC prices, larger global brands such as Lenovo, Dell, HP and Sony have begun to reach a similar price-point to local brands. While competitive pricing may not assure the premiums that multinational corporations are accustomed to, they do lead to a greater market share. Success in emerging markets has kept the PC industry healthy in spite of a weakening economy in the US and Europe. Companies that have previously invested heavily in building their global brand are beginning to reap the rewards in these growing markets.

Strong growth in emerging markets is quickly becoming essential to a global technology company’s health. With global brands becoming viable competitors to local hero brands, multinational corporations would do well to expand their marketing and build brand awareness among a wider and more diversified customer base in emerging markets. As costs come down for consumer electronics and global brands become more competitive, brand awareness and perceived quality could tip the scales.

Also in the news:

• Dell releases four new Linux-based designs for China
• Symantec to use PC Tools to penetrate emerging markets
• Samsung bets on solid-state drives for low-cost PCs

Innovation on the Desktop for Emerging Markets

A continuous stream of leaks this week has kept the imminent launch of Dell’s Inspiron 910 top-of-mind in the press. Dell will join the likes of HP, Lenovo, Acer, Asus and MSI with its entry into the sub-notebook market. This week also saw a rebranding of Intel’s Classmate PC by MPC for US-based education markets. This recent barrage of sub-notebooks in the press is part of a confirmed trend. An upcoming report by Vital Wave Consulting found that of low-cost computing devices (including desktops, thin-clients, handhelds and notebooks) announced in recent years, 60% were sub-notebooks.

Sub-notebooks have dominated media attention. The early low-cost sub-notebook craze initiated by the One Laptop Per Child initiative placed the focus squarely on computing technology for developing countries. Since then, the focus has shifted to second (or spare) PCs for accessing the Internet, primarily for consumers in mature markets. While some of the sub-notebook innovations such as extended battery life and ruggedized exteriors are important in an emerging-market context, one could argue that desktop PCs are a more appropriate design for professional or educational environments in emerging markets. The lack of easy portability provides additional security; the larger screen and a stationary setting is more conducive to a shared-use environment common in developing-country educational institutions; and, plug and play components enable usage of inexpensive or existing peripherals (monitor, keyboards), which keeps costs down. To date, however, desktop innovation has focused on cloud computing, which relies on regular and high-speed Internet access - still uncommon in most regions in developing countries.

While major PC manufacturers remain focused on sub-notebooks and cloud computing, the market is ripe for desktop innovations for emerging markets. A ruggedized desktop PC with lower power demands and the ability to withstand temporary power outages, built-in physical security features, bundled software solutions that are not dependent on Internet access, and compatibility with older model peripherals could find a growing demand among technology buyers who have not succumbed to the sub-notebook craze.

Also in the news:

• New telecom operators pull down ARPU
• Emerging markets crucial for economic prosperity
• Ericsson's multimedia creates value in emerging markets

Apple Takes a Bite into Emerging Markets

Announcements this week show Apple’s iPhone making headway in emerging markets in spite of a history of challenges working with local carriers. The company announced plans to launch the iPhone in 10 Latin American countries and India this month. A later launch (end of 2008) has been suggested for two of the world’s largest mobile markets, Russia and China. Apple’s recent willingness to do away with revenue-sharing requirements and allow carriers to subsidize phone purchases is credited with accelerating negotiations worldwide.

In spite of a delayed official launch, Russia may already be home to one of the highest concentrations of iPhone users in the world with an estimated 500,000 gray-marketed devices. The robust industry sells unofficially-imported iPhones (even Russian President Dmitry Medvedev has been seen using one), “unlocks” them from any carrier restrictions, and imports local language software. This overwhelming demand highlights the existence of the top-of-the-pyramid market in developing countries. While small in number, this market is not only profitable but is also a strong influencer of consumer choices further down the economic pyramid - particularly in urban areas where low- and high-income consumers live in close proximity. This influence from the top-of-the-pyramid market can create a demand for more affordable and appropriate versions of a product among the rest of the population.

Apple’s roll-out in emerging markets will undoubtedly see impressive sales, but iPhone buzz in developing countries may ultimately pay off more for others. Apple’s strategy of targeting the elite in emerging markets with its high-end products leaves an opportunity for rivals who see the potential in the much larger lower-income markets. Companies that introduce an iPhone-like device that is more appropriate for local environments, telecommunication networks, and income levels will realize sales by fulfilling the aspirations of those who have been influenced by the local elite but can’t yet afford an iPhone.

Also in the news:

• Microsoft shifts India R&D team to an emerging-market focus
• AMD holds back on a netbook chip
• Lenovo and IBM to collaborate on Linux for emerging markets

mHealth: Making the Market Happen

The United Nations Foundation and Vodafone Group Foundation hosted a conference last week on using mobile technology to improve healthcare delivery in the developing world. This exclusive gathering brought together 25 leading eHealth practitioners, academics and business managers with the ambitious goal of setting a global strategic direction for the delivery of healthcare through mobile devices (mHealth). Facilitated by Vital Wave Consulting and hosted by the Rockefeller Foundation, the week-long conference in Bellagio, Italy was designed to create a common framework for sustainably scaling mHealth initiatives.

The conference agenda included examining the landscape of mHealth, understanding the various applications of mHealth (including mobile telemedicine), evaluating its delivery value chain, determining critical success factors and identifying the incentives for financially sustainable implementations. As with any initiative focused on extending universal, quality service to the most remote and underserved people in the world, there are considerable challenges to overcome – interoperability of networks and platforms, lack of local capacity and management expertise, diverse and often contradictory regulatory regimes, and distribution channels that rarely reach rural constituents, to name a few. It is the nature of these challenges that makes public-private partnerships an integral part of the future mHealth landscape.

mHealth is a promising sub-vertical of two rapidly-growing areas of ICT – eHealth (i.e., delivery of health-related services through electronic media) and mServices (i.e., delivery of services such as banking and governance through mobile networks). Attendees recognized the value, importance and inherent opportunity of committing to an “mHealth Alliance” dedicated to designing and executing effective mobile service projects. The inception of the mHealth sub-vertical provides companies in the telecommunications, software and hardware industries, as well as service and content providers, with the opportunity to shape the market in its infancy. With effective public-private partnerships that establish common mHealth standards and practices, participating companies can make the market happen instead of waiting for the market to take shape around, or perhaps without, them.

Also in the news:

• Lenovo unveils $399 laptop
• MIT announces plans for $12 computer
• Google pushes its software on low-cost laptops

Business Advantages of Content and Service Partnerships

Nokia has cemented its position as a market leader in nearly all of the world’s top emerging markets by offering numerous handsets with a wide range of prices and functions, creating an extensive network of distributors and resellers, and answering consumer demands in diverse environments. According to (Nokia-supported) ShareIdeas.org, an online community focused on mobile communications for social benefit, the Finnish company is also quietly supporting projects that enable educational content delivery to primary schools and mass SMS text delivery by non-government organizations (NGOs).

Nokia is partnering with several government agencies and NGOs on BridgeIt, a service that allows primary school teachers to review a menu of math, language and science content on their mobile phone and order lessons with a simple text message. The request is relayed from a server to a satellite, which immediately beams the content to a TV in the classroom. Similar services use an expensive two-way satellite interface or an Internet-based menu. The BridgeIt program (under the name “text2teach”) has benefited over 150,000 students in the Philippines and recently expanded to Tanzania. Nokia has joined another group of investors to support FrontlineSMS, a web-based platform that allows non-profit organizations to send and receive mass text messages with millions of mobile phone users. The service enables remote data collection, supports several common languages, and works on a wide range of software platforms, handsets and modems. Now in use in over 40 countries, the free service has helped NGOs coordinate health initiatives, publish price information, and act as government watchdogs.

These are only two examples of a rapidly-expanding array of content and service delivery models that rely on mobile telephone technology. Nokia is not the only telecommunications company involved in these initiatives; Qualcomm, Alcatel-Lucent and AT&T (to name a few) have also supported content-delivery projects in Africa or Asia, and Google’s open source Android platform will enable the development of useful tools to new handsets. Vital Wave Consulting likes the benefits such programs bring to private-sector partners. Collaboration with government agencies, foundations and NGOs (i.e., major buyers in emerging markets), direct exposure to the changing role and usage of mobile phones, and brand association with the benefits of social programs are just a few of the dividends from such investments. Collaboration and facilitation of beneficial programs such as BridgeIt and FrontlineSMS allow handset companies to concentrate on their core competencies and extend their access to diverse, important customer groups in new markets.

Also in the news:

• Toshiba and LG looking into mini-notebooks
• Sony Ericsson behind the curve
• Dell going strong in India

Riding NComputing into Emerging-Market Schools

NComputing announced last week that it is on track to sell one million units this year. The company expects that demand in emerging markets will exceed that of the US and estimates that 35% of revenues will come from India alone by 2009. The boost in sales comes primarily from India’s educational institutions and from the proliferation of India-based resellers. NComputing’s desktop virtualization software and hardware allows seven (or more) users to work independently from one CPU, reducing the per-seat computing cost to around $175.

While low-cost laptops cater to individual consumer demand for portability and private ownership, NComputing’s solution has gained the attention of institutional buyers by addressing concerns over affordability and power consumption. Educational institutions now account for 70% of NComputing’s revenues. In a meeting with Vital Wave Consulting last week, Dukker maintained that his company’s success is based as much on a sustainable business model as on meeting customer needs. With lower per seat costs than “mainstream” PCs, NComputing’s model leaves enough money in school budgets for teacher training, service and support. According to Dukker, this allows other members of the value chain to maintain profitability and build their presence in the strategically important education segment.

This argument made sense to education officials in Macedonia; NComputing recently delivered 180,000 seats to the nation’s schools. These large-scale multi-user deployments create new opportunities for technology companies with complementary solutions. PC manufacturers, for example, can maintain their profits by deploying high-performance, higher-margin models. Educational software companies, service providers and peripheral manufacturers (e.g., monitors, keyboards) can also capitalize on these broad technology initiatives. More participants with sustainable profit margins in the education-technology value chain will ensure the longevity of solutions, build the service and support links of the value chain, and extend technology to a larger user base.

Also in the news:

• Toshiba and LG looking into mini-notebooks
• Sony Ericsson behind the curve
• Dell going strong in India