Dividends for the Emerging Market Knowledge Account

Dell announced the formation of a new emerging-markets group this week to concentrate on growth opportunities in developing countries. This announcement echoes similar efforts by Sun to create a dedicated emerging-markets business unit and IBM’s late-2007 “significant shift” to focus on emerging markets. These multinational technology companies represent a second wave of re-organizations aimed at cracking emerging-markets; nearly a decade ago HP, AMD and Cisco started pioneering programs focused on understanding emerging economies.

The contingent of ICT professionals focused on emerging markets is still relatively small but it is growing quickly as large corporations continue to make organizational and financial investments to better address these growing markets. Emerging-market business professionals in Silicon Valley came together Wednesday at Vital Wave Consulting’s third anniversary celebration and networking event in Mountain View, California. In attendance were long-time emerging-market practitioners as well as those new to the discipline. Collectively, they possess extensive experience and hard-earned knowledge of successful business growth in emerging markets. At the gathering, conversations ranged from segmenting the market for an alternative energy generation and storage device to the scalability of social capital investments in emerging markets. “It’s great to see more large companies investing in emerging economies,” said Janine Firpo, executive director of Sevak Solutions and former head of HP’s Microfinance Development Program. “In the early days at HP, there was really no one else doing this type of work.”

With the surge of mobile phone and low-cost laptop sales in emerging markets and recent media attention on the vibrant business opportunities in these countries, corporate executives are determined to develop appropriate strategies for these new markets. The broad and varied projects discussed at Vital Wave Consulting’s event this week demonstrated the momentum that has resulted from investment in ICT business growth in emerging economies. By building on lessons learned, those new to the discipline of emerging-markets business will be better equipped to quickly and effectively enter these exciting and challenging markets.

Also in the news:

• Agilent benefits from China 3G standard investment
• SanDisk launch new solid-state drive
• AMD to launch low-cost processor

Investing in Teachers Makes Good Business Sense

Researchers released illuminating results last week from a study of Romanian school children with access to computers. Students who bought PCs through a state-sponsored assistance program spent less time sleeping or doing homework and performed worse on tests than their peers without computers. This may surprise some, given the perceived advantages of educational computing. But the devil is in the details. In Romania, the computers were provided and used with no meaningful supervision or guidance from parents or teachers.

Commentators correctly point out that the findings weaken claims by the One Laptop Per Child initiative that students can construct their own learning with the right equipment and little or no help from teachers. The “constructivist” approach sounds great in theory, as teacher training expenses – a major cost component for school technology projects – could be dramatically decreased. But it does not resonate with career educators who emphasize the crucial role of teacher training in successful IT implementations. To truly reap the benefits of computers in education, teachers need more extensive and continual multi-faceted training, onsite support, a platform for meaningful collaboration, and access to relevant content.

The education segment is one of the most strategic markets in developing countries because the budget is reliable and today’s students are tomorrow’s consumers. A few multinational companies have developed programs that help reduce the cost of teacher training for emerging-market schools. Microsoft’s Partners in Learning program and the Intel Teach program have made considerable contributions in many countries, but training is often limited to the conveyance of basic computer literacy, and online resources require reliable, affordable Internet access. There is an opportunity for MNCs to win greater brand loyalty among all education stakeholders by broadening their teacher training and content development assistance. When MNCs address this significant pain point for schools, education officials will be able to prove the value of tech expenditures and justify continued and larger investments.

Also in the news:

• Acer says it prefers Linux over Microsoft
• PC forecasts raised by IDC and Gartner
• OLPC redux
  

mServices to Ride in on Next Wave of Emerging-market Mobile Growth

The International Telecommunication Union (ITU) recently reported that mobile phone subscriptions topped 3.3 billion worldwide with global growth reaching 22% annually. Mobile phone users in developing countries are continuing to make communication a priority and are even demanding more advanced features such as multimedia capabilities. Mobile penetration rates exceed 100% of the entire population in nearly 40 countries, including several emerging markets in Asia and Eastern Europe. Other countries that are not saturated, such as India and China, already had a robust population of mobile phone subscribers – 232 million and 547 million respectively – at the end of 2007, with those numbers increasing rapidly every year.

Penetration rates, particularly in emerging markets, continue to amaze industry watchers who, until recently, greatly under-estimated low-income consumers’ willingness and ability to purchase mobile phones. Operators, however, need more than increased subscriber numbers to claim victory in emerging markets. The average revenue per user (ARPU), the primary metric upon which operators are valued, has historically fallen as lower-income consumers adopt mobile technology. But ARPU doesn’t have to suffer in emerging markets. While developing-country consumers may have a limited budget for communications, they do allocate funds for other expenses that are increasingly being provided as mobile applications - healthcare, finance, education and entertainment.

The delivery of mobile-based services that capitalize on expanding mobile phone penetration is key to increasing ARPU in developing countries. In many cases, basic services (e.g., banking and healthcare) are underdeveloped or concentrated in urban areas but could reach far greater markets through mobile platforms. The success of many small mBanking and mCommerce programs indicates that mobile phone users in the developing world are willing to utilize their mobile phones to access value-added services. By providing robust and varied services to address basic needs, mobile companies are helping to transform the mobile phone into a life tool upon which even low-income consumers could be willing to spend a significant percentage of their monthly income. These types of mServices have the potential to counter diminishing ARPU and infuse incremental revenue into the mobile communications industry.

Also in the news:

• Intel launches Atom for low-cost PCs
• CTL launches sub-$400 PC
• Yahoo! bets on online ad growth in emerging markets

WiMax Stays in the Spotlight

The WiMax drumbeat continued this week, signaling enduring interest among media, business and global standards organizations. Intel, the most vocal corporate proponent of the new standard, argues that WiMax has clear benefits in emerging markets, where the majority of the population is unconnected and there are fewer barriers from legacy systems. The company recently announced they would be making strategic investments in India-based WiMax firms and they are omnipresent at the 2008 WiMax Expo, which kicked off Monday in Taipei. At the Expo, hardware manufacturers are showing off WiMax-capable devices, such as a newer, larger version of Asus’ popular Eee PC.

As WiMax becomes more prevalent and begins to connect emerging markets previously underserved by DSL and cable services, there will be increasing opportunities for convergence of information and communication technologies. WiMax (with one foot in both IT and telecommunications), 3G-capable laptops, voice-over-IP, and other hybrid technologies represent both a convergence of technologies and of the value chains that deliver them. The convergence of products and distribution invites new players into the value chain, creating competition for revenues.

Companies with large, diverse product and service portfolios (e.g., HP, IBM, Sony) would do well to monitor converging technologies and capitalize on the opportunities presented when value chains overlap or merge. MNCs are well equipped to pursue these new business lines through acquisitions of smaller, nimbler companies or through internal growth. By diversifying their roles and broadening their control of the value chain in emerging markets, MNCs can benefit from entirely new revenue streams, making it easier to weather ongoing changes in global markets.

Also in the news:

• Dell confirms it has a low-cost laptop
• Mobile growth still strong in Africa
• Via takes on Intel's Atom

Understanding the "Flavors" of Financing

Bloomberg News creatively captured the significance of an otherwise mundane sales figure when it noted that Brazilians are now buying more PCs than TVs. Brazil, which ranks fifth in the global PC market (up from seventh in 2006), has seen strong PC sales due to growing prosperity and a tax break for manufacturers. According to the Brazilian Internet Steering Committee, low-income families are buying PCs at a faster rate than any other group. Bank credit offers, installment plans, and other financing services provide new buying opportunities to this segment.

Vital Wave Consulting’s primary research in emerging-market countries has found that a significant obstacle for new technology purchases is the initial capital outlay. Consumers do not necessarily object to the total price, but struggle to pay for a product in one lump sum. Companies experiencing growth in emerging markets are benefiting from financing programs that allow lower-income buyers to overcome that initial financial barrier. Brazil provides greater access to financing than many other emerging markets, with nearly 45% of households having access to formal financial services. In a populous country like Brazil, the collective buying power of lower-income segments can impact global sales figures.

Business managers who understand that financing comes in many flavors are better equipped to capitalize on growth opportunities in lower-income segments. In Brazil, access to formal financial services is provided by consumer credit programs associated with large retailers such as Casas Bahia. In other countries, consumer financing may come from bank programs, microfinance services or even informal financial services such as Rotating Credit and Savings Associations (RoSCAs). Developing tailored strategies to tap into these varied financial services in each country or region will be a major advantage to technology companies in search of new markets.

Also in the news:

• Emerging-market telecom takes center stage
• ITU report puts mobile at 3.3 billion users
• OLPC releases new design concept

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

Will Bridging Common Devices Be a Bridge to New Users?

Has Microsoft shifted its thinking on how to win the hearts, minds and wallets of the world’s low-income consumers? Dan Nystedt, a sharp-eyed tech writer at IDG News Service, suggested last week that new management in the company’s Unlimited Potential Group may favor mobile devices over low-cost PCs and shared computing in the effort to increase technology access in emerging markets. Though details are few and a release date is not on the calendar, Microsoft has been working on a low-to-mid range smart phone that connects to a TV docking station, so data on the handset can be displayed on a TV screen, essentially lowering the cost of computing for the poor.

Vital Wave Consulting likes the simple logic of bridging two common and accessible pieces of technology in developing-country homes – the TV and the mobile phone. There are over 850 million households with TVs in the developing world, and mobile penetration is extending to the most remote corners of the globe. The learning curve for each device is relatively flat and global ownership is an indication of affordability. But in one-TV homes there may be stiff competition between PC-time and regular television programming.

Microsoft is the right company to make such a technology work. It’s primarily a software issue, and the company’s experience with Windows Mobile could speed innovation and acceptance in the market. Adding applications and functions to a handset and turning the TV into a monitor could alter the fundamental perception of each device’s utility. It could also convert the handset into a family tool, rather than a private device. By partnering with Microsoft, mobile operators have two ways to increase ARPU – offer more services and increase the number of users on a single handset. Broadening the utility of existing technology devices is a good strategy for all technology companies. Emerging-market consumers are able to justify spending precious resources on technology that solves more problems for more people in the household.

Also in the news:

• IBM's developing-country service corps ramps up
• Microsoft defines requirements for XP on low-cost PCs
• Apple signs non-exclusive deal to get into emerging markets