Google-China dispute throws the spotlight on policy issues

Since Google's recent news of security breaches and its reversal on censoring materials in China, Yahoo has come forward to say that it knew of similar security issues that originated in China. The company also said that it is aligned with Google's position on the matter. Yahoo's main partner in China, Alibaba, is calling Yahoo's public comments "reckless" and unfounded, and the Chinese government is defending its position and denying responsibility for the breaches. Nonetheless, this issue highlights the way in which government policies can have a major impact on the ability of foreign companies to do business successfully in China and other emerging markets. In this case, Google actually threatened to pull out of China altogether; it now says it is "committed to China."

Most international policy issues faced by technology companies are less publicized than this one, but they can be equally important to the profitable growth of multinational corporations. For example, China's encryption policies require that any kind of encrypted code, from BIOS to application software, be placed in an escrow account with the Chinese government. The potential impact on foreign companies in China is as significant for hardware and software manufacturers as the Google negotiations are for online companies.

The Director of International Affairs at the Semiconductor Industry Association, Anne Craib, recently told Vital Wave Consulting's CEO, "Companies need to have a well-articulated strategy and knowledgeable resources focused how they are going to handle governmental and bureaucratic challenges as they arise." Companies may have a code of conduct for international operations, but for real impact, one has to go deeper into country-specific policy and government affairs. Companies of all sizes that operate internationally would benefit from proactive and regular assessments of relevant public policies and their potential impact on continued business growth around the world.

Role reversal, America Movil purchasing its parent company, Telmex..

by Karen Coppock
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Interesting news this morning from Mexico, the GSMA reports that America Movil - a mobile network operator in Latin America will be merging with Telmex - a fixed line operator in Mexico. What is interesting about this story is the fact that Telmex is America Movil's parent company - it established America Movil (then called Radio Movil Dipsea) in the mid-1990s. Telmex subsequently spun Radio Movil Dipsea off into its own entity, which became America Movil.

Given that both America Movil and Telmex are owned by the Carso group of companies, a merger is not too surprising. What is interesting is the transition of power from the mammoth fixed line operator to the mobile operator. When I worked in the telecom industry in the mid-1990s, Telmex was king. Now the tides have shifted and America Movil is the dominant player with operations across the region. This is just one more indication of the importance of mobile networks in emerging markets.

Disaster in Haiti: How to Help

The staff of Vital Wave Consulting wishes to extend its condolences to the millions of people affected by the earthquake that struck Haiti this week. The link below contains a list of charities and organizations that are assisting in the relief effort.

Haiti Disaster Relief: How to Contribute

Many of these organizations have a long history of working in Haiti, and a number of them already have people on the ground distributing aid and treating the injured. Vital Wave Consulting does not endorse any of the organizations listed above and urges readers to do their own research before donating.

Voices From Emerging Markets: Innovative Electricity Generation in Rural India

By Rama Siva in India

I have been in rural Eastern India for the past few weeks in villages that have had no electricity for most of its history. Then about 2 years ago, Husk Power Systems(www.huskpowersystems.com) came on the scene with small scale power plants that create electricity from rice husk. The changes in the villages since the coming of electricity have been enormous.

The technology of gasification and power generation is many decades old. So why is it that these and thousands of other villages rich in agricultural waste are yet to be electrified? The answer may lie in the challenges of operating such a set up in a sustainable way in a rural setting. It is tough to find and train operators from the village level labor pool. The costs have to be kept well within the ability of the local consumers to pay for it. Even when the price is reasonable, it is a huge effort to get the consumers to pay regularly month after month.

Husk Power Systems is active on the field finding solutions to some of these challenges. Rich in venture capital funding and grants from the likes of Shell Foundation, they plan to set up 60 of these power plants in 2010 reaching a quarter of a million people in India. This is technology from early 20th century being harnessed on a large scale with 21st century management tools.

Landlines a viable competitor to mobile phones

by Karen Coppock
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With the incredible expansion of mobile phones in the developing world, it is easy to overlook the role of the simple landline phone. This is a mistake. Although landline phones are much less prevalent in emerging markets - ITU data shows a greater than 25:1 ratio of mobile phones to landlines in emerging markets - they are still a viable competitor to mobile phones, especially as you go further down the economic pyramid.

I was very surprised to see how many people were using public pay phones in the streets of Mexico last week. During a 20 minute coffee break in a cafe in the Zocalo (historic center of Mexico City), I saw a half dozen people use the public pay phone. This was true across the city - pay phones were very frequently used.

I should not have been surprised, however, as the use of landlines and pay phones were found to be a substitute for mobile phones in primary research Vital Wave Consulting conducted among low-income (and non-mobile phone owners) citizens in Mexico and six other emerging markets 18 months ago. From Ke in China to Siem in Cambodia and Mona in Egypt the people that we interviewed as a part of this research noted that "it was not an inconvenience" to seek out and use a public pay phone and that it was their primary mode of communication. Pay phones are an increasingly rare site in the US, yet they may continue to play an important role in emerging markets for the foreseeable future.

Rural India Provides a New Lab for mServices Scale

Entertainment may not be the first thing that springs to mind when people think about the basic human needs that mobile phones can help to fulfill. But for many it is a fundamental contributor to quality of life. This fact is illustrated in a recent Wall Street Journal article on the growth of entertainment in rural India provided via mobile phones. mEntertainment, as it is called, is one of many mServices growing rapidly in India, as customers pay to call and listen to the latest Bollywood tunes or receive text messages with the day's cricket scores. Other services, such as mAdvertising and mBanking, are also taking off. A full 31% of car-buying decisions in the country are now influenced by mobile phone advertisements, and increasing demand for mobile financial services has led Nokia to begin offering its new 'Nokia Money' service in India.

y developing countries are striving for scale in mServices. But India appears to be leading the pack with accelerated growth of offerings and adoption. This is, in part, due to the extremely low mobile voice and text prices that Indian mobile subscribers pay. Customers in India are paying less than a penny a minute for voice calling, a result of fierce competition among a large number of mobile operators. This dynamic is stimulating greater mobile phone adoption and use, but it is hard on mobile operators who are struggling to make a profit; average revenue per user (ARPU) has been declining while the market grows rapidly into lower-income customer groups. Operators are now responding by providing additional services - mServices - to stimulate incremental customer spending, over and above what is already spent on normal voice and texting capabilities.

Operators - and handset manufacturers - around the world are hoping mServices will address growth and margin requirements that traditional voice and texting services cannot. mServices provided through existing voice and texting capabilities can increase revenues through higher volume. And over time, the offering of more sophisticated services, like targeted customer profiling and web-based capabilities, will allow for premium pricing and increased profits. This also creates opportunity for other companies that either create or enable new mServices. Tools, components and turn-key solutions for mServices can all find customer demand and partnership opportunities, especially in emerging markets where service alternatives are few and operator pressures are mounting.

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.