The New Silk Route - Software for Emerging Economies

Introduction
With a unique blend of software, history and macro economics, the “New Silk Route” brings out the opportunity for the software industry to target the emerging economies like India, China, Russia, South Africa, Brazil etc. The book ponders on the changing world order and examines the critical business factors that are essential to successfully tapping the nascent software markets in these economies. Using a self developed “Emerging Markets Framework” for software products targeting emerging economies, the book looks at specific examples both in the consumer as well as in the enterprise market. Drawing on macros economic trends, the book delves into applying the principles of the above mentioned framework in the retail segment in India fuelled by a burgeoning middle class, the ERP and Supply Chain software market in chain driven by a strong manufacturing growth and an emerging healthcare software opportunity in South Africa. Interlacing contemporary trends and economics with history of the silk route, the book is a very easy read for the casual non technical reader and insightful to the serious professionals developing product strategies for emerging markets.

Salient points of the book

Understand why the emerging markets are important for software companies and examine the limitless opportunities of this 4Bil+ market
Learn about the changing world order and the underlying shifts that are contributing to this phenomenon and how it will shape the future of software
Develop a framework to analyze, design and develop software targeted at the Emerging economies
Examine specific Enterprise and Consumer scenarios in these markets and use the framework to develop software strategies

Target Audience

• Decision makers in Software companies that want to take their product global and cater to the 4 Bil+ market in the emerging markets
• Academia interested in global trade, software and new market development
• Students of global product management
• Students of the business of software
• Casual readers of contemporary software and trade trends

Table of Contents

• Chapter 1 : Introduction


• Chapter 2 : The Lure of the Emerging Markets
  

• Global Economic Outlook
• Challenges in the Emerging markets
• Business Model Challenges

• Chapter 3 : The Software business model
  
• Business model challenges in Emerging markets
  
• A new framework for software design
  
• Product Research
  
• Product Design
  
• Sales and marketing models
  
• Formulating Emerging markets strategy
  
• Chapter 4 : The Enterprise market


• Introduction to the challenges
  
• Industry: ERP - Country focus: China
  
• Industry: CRM - Country focus: India
  
• Industry: Healthcare - Country focus: South Africa
  
• Industry: Retail - Country focus: India
  
• Conclusion, major trends and strategies


• Chapter 5 : The Consumer market


• Introduction
  
• Macroeconomics in Emerging Economies
  
• Adoption characteristics
  
• Market segments
  
• Desktop applications
  
• Entertainment software
  
• Digital media
  
• Education software
  
• Mobility software
  
• Technology case study: Mobility in APAC
  
• Learnings in the business model


• Chapter 6 : Rural Computing


• Chapter 7 : Conclusion

Chapter 5: The Consumer Market

Chapter 5: The Consumer Market

Introduction

When transcending national borders, products have to go through a top down cleansing. Marketers and product developers in almost any industry face a multitude of challenges in getting their respective products ready for global markets. Consumer software is more difficult to localize, to launch and to strike a chord with the local people than enterprise software. It is not unlike in other industries where the products that are more intrinsically linked to the lifestyle like food, drinks, cars etc are inherently more difficult to customize than say, engine oils , razor blades or jeans.

The first reason for this is related to the fit of the product in the target consumer’s life style. An excellent example is breakfast cereal that is popular in most western economies but has little resonance with eastern consumers as it is quite a departure from their traditional diet. Another example is instant coffee which is quite popular in Britain an Ireland but is not so in Germany and France where the consumers prefer freshly brewed coffee over the instant variety.
The second reason for this phenomenon is directly related to newness of the product. Newer classes of products like computers, mobile phones etc have a better chance of faster global acceptance than food products that are well entrenched in the culture.

I would argue that software especially the ones that are intended for the consumers fall into the first category. Software like the ones that keep personal appointments, communication – email, instant messages, SMS etc, authoring, gaming etc are all tied intrinsically to the lifestyle of people and could be tied back to the socio economic attributes that influence a certain set of people.
“Socio”, because cultural and generational influences have distinct impact on the usage of consumer software. For example,

“Economic” because affordability and credit factors have distinct impact on adoption of new software and associated products.

Some macroeconomics

Before going any further into specific genre of consumer software products or exploring a few strategies in the emerging market consumer space, let’s get a few basic macro economic definitions out of the way. Though this book is not a treatise on macros economics, it is important to appreciate a few key points in order to formulate strategies for this segment.

Gini Index:
While formulating business models and pricing strategies in the consumer market, it is important to understand the factors that influence buying behavior. GINI index or GINI coefficient is perhaps the least celebrated of the macro economic indexes but is a great indicator of the consumer buying patterns. It is usually used to measure income inequality, but can be used to measure any form of uneven distribution. The Gini coefficient is a number between 0 and 1, where 0 corresponds with perfect equality (where everyone has the same income) and 1 corresponds with perfect inequality (where one person has all the income, and everyone else has zero income). The Gini index is the Gini coefficient expressed in percentage form, and is equal to the Gini coefficient multiplied by 100. The Gini coefficient's main advantage is that it is a measure of inequality, not a measure of average income or some other variable which is unrepresentative of most of the population, such as gross domestic product.
GDP statistics are often criticized as they do not represent changes for the whole population, the Gini coefficient demonstrates how income has changed for poor and rich. If the Gini coefficient is rising as well as GDP, poverty may not be improving for the vast majority of the population. The Gini coefficient can be used to indicate how the distribution of income has changed within a country over a period of time, thus it is possible to see if inequality is increasing or decreasing.

This measure is key for several reasons. When we talk about consumer products including consumer software, we are essentially talking about volume. To size the market accurately and prepare product and services offerings for the appropriate micro segments, a GINI Index based segmentation is essential. Some countries have such varying degrees of inequalities that it is impossible to create a mass market product since it implies a staggered income distribution.
Here are some examples of countries along with their GINI indices


Source: United Nations – Human Development Report 2004, CIA World Fact book 2004

Analysis

1. Japan with a low Gini index and a very high per capita GDP indicates a very rich country that has a fairly uniform distribution of wealth. This combination speaks volumes about the affordability of the general population. This is very well backed up by real consumer data that shows strong propensity for personal electronics spending on goods like camera, mobile phones, gaming stations, music and entertainment gadgets etc.


2. India with a relatively low Gini Index along with a low national GDP indicates that even though the country is poor, the spread is relatively very narrow making it a very attractive consumer market. This is of course contingent on the right strategy with regards to pricing , perceived value of the service, etc.


3. China on the other hand tells a different story with its high GINI index for its low per capital income indicates a dispersion in the market making it a little more complicated than Indian when it comes to formulating segmentation and pricing strategies.


4. Brazil and South Africa indicate rare high levels of GINI indices implying an uneven distribution of wealth in these countries. This is also a fairly common trend in many other South American and African counties as well.

PPP

Purchasing Power Parity (PPP) is a method used to calculate an alternative exchange rate between the currencies of two countries. The PPP measures how much a currency can buy in terms of an international measure (usually dollars), since goods and services have different prices in some countries than in others.
PPP exchange rates are used in international comparisons of standard of living . A country's GDP is originally tallied in its local currency, so any comparison between two countries requires converting currency. Comparisons using real exchange rates are considered unrealistic, since they do not reflect price differences between the countries. The differences between PPP and real exchange rates can be significant. For example, GDP per capita in Mexico is ca. 6,100 U.S. Dollars , while on a PPP basis, it is 9,000$ (U.S. GDP/capita is 37,388$, as of 2004 ).

First suppose that one U.S. Dollar (USD) is currently selling for ten Mexican Pesos (MXN) on the exchange rate market. In the United States wooden baseball bats sell for $40 while in Mexico they sell for 150 pesos. Since 1 USD = 10 MXN, then the bat costs $40 USD if we buy it in the U.S. but only 15 USD if we buy it in Mexico. Clearly there’s an advantage to buying the bat in Mexico, so consumers are much better off going to Mexico to buy their bats. If consumers decide to do this, we should expect to see three things happen:

1. American consumers desire Mexico Pesos in order to buy baseball bats in Mexico. So they go to an exchange rate office and sell their American Dollars and buy Mexican Pesos.
   
2. The demand for baseball bats sold in the United States decreases, so the price American retailers charge goes down.


3. The demand for baseball bats sold in Mexico increases, so the price Mexican retailers charge goes up.

Eventually these three factors should cause the exchange rates and the prices in the two countries to change such that we have purchasing power parity. If the U.S. Dollar declines in value to 1 USD = 8 MXN, the price of baseball bats in the United States goes down to $30 each and the price of baseball bats in Mexico goes up to 240 pesos each, we will have purchasing power parity. This is because a consumer can spend $30 in the United States for a baseball bat, or he can take his $30, exchange it for 240 pesos (since 1 USD = 8 MXN) and buy a baseball bat in Mexico and be no better off.
Purchasing-power parity theory tells us that price differentials between countries are not sustainable in the long run as market forces will equalize prices between countries and change exchange rates in doing so.

Other macro economic measures that influence

Disposable income

Urban Vs Rural population dispersion
Rapid urbanization of the world has been a well documented topic over the recent years and a close look at the statistics reveal enlightening views. China and India still have a predominantly rural ( 70% ) population. Brazil and Argentina on the other hand have about 80-90% of the population residing in large urban cities. This dispersion is important for consumer markets as rural consumers are traditionally harder to reach and severe infrastructural limitations hamper rapid deployment and adoption of new technologies and products.

Population age dispersion

It is essential to understand the distribution of population in the various economies as it speaks volumes about the trends in consumer spending and the types of software that are likely to be used. Lets’ take a minute to glance through the date

Source: United Nations Demographics report:2002

The above data clearly indicates several things. In a nut shell, we can summarize that China and India have younger populations than the developed economies like Germany, UK and USA. 70% of India’s population is less than 35 years old indicating a massive ( more than 700 Mil ) market of young, earning people who probably also have a higher portion of disposable income than people that are older than say 55 years.
Consumer software companies have to pay close attention to the above trends as many of the genres of consumer software like entertainment, communication etc are more appealing to the <35 years segment.


Now that we have taken a whirlwind tour of macro economics, lets turn our attention to the various markets that make up the consumer software market. It will not be a stretch to say that the consumer software market is no where as mature as the enterprise segment. Although software has touched out lives in a significant way since the internet boom in the mid 90’s it is still nearly not as influential as it has the potential to become. Software companies have also focused almost exclusively on the enterprise segment as the demand and predictability of this market is far more stable and consistent than that of the consumer segment. This combined with the fact that consumer markets vary far more across cultural and geographic boundaries make it more complex to cross market products that have been developed to cater to a specific market.

Adoption characteristics - S Curve

The tradition S Curve is a great tool for analyzing how consumers adopt new technologies. The S Curve deals with the cumulative adoption of any new product or technology by the mass population. It starts off with a steep incline that indicates rapid adoption of the new technology by a very small segment of the population followed by a steady curve where most adoption takes place. WE can characterize this part of the curve as the “mainstream adoption”. The curve flattens once we reach towards the top of the chart and the ceiling indicates the saturation line for the particular product. For ex, take online gaming for example- there is only a sub section of the population that is interested in the online gaming market and it is usually a predictable steady line that is constant along time. The rate of adoption of new products like xbox might vary due to numerous other factors but it will be considerably shorter and steeper than the original gaming curve of the 80s as the awareness of computer games has increased tremendously over the last two decades. The same argument can be extrapolated to other technologies like mobility software, DVD players etc.

In his book “Crossing the Chasm”, Geoffrey Moore talks about the chasm that exists between adoption of new technologies by the enthusiast and visionaries and the main stream population.




S Curve variations in Emerging economies

This chasm could be small and short lived and in some other cases like the emerging economies, it is deeper and longer. I draw this inference based on the analysis of income distribution we did in the last section using the GINI index. Lets try to plot the same curve for an emerging economy. In developed economies, the chasm is more a result of technological apprehensions than it is due to the economic dispersion. In emerging economies on the other hand, the chasm is an absolute product of wildly varying economic dispersions. For example, take mobile music devices like iPod or other music players. Lets say, of the 700 Mil people in India below the age of 35, 20% ( about 140 Mil) would like to listen to some kind of music during their normal day of activity. Of this 140 Million only about 5 million ( 3.5%) will be able to afford the devices. Once we have eliminated the first barrier to entry, lets see how the S Curve fits into this target segment. In most markets, the Early adopters to the left of the chasm is only about 10% of the mainstream audience putting our number at about 500, 000 likely early adopters which is not a bad number considering the product. The main challenge for any new product entering a virgin market is to cross the chasm and move to the mainstream where 905 of the target market resides.


Other observations

1. The depth and the width of the chasm is directly proportional to the GINI index. Higher GINI numbers indicate a wider dispersion of wealth among the population and hence the longer it would take to bridge the gap between the wealthy early adopters and the mainstream adopters.


2. The general steepness of the curve is a factor of per capita GDP and disposable income. The more the disposable income is, the steeper is the curve for non essential products like mobile audio players.

Market segments

In this section, we will look at the overall landscape of the consumer market segment and how the various concepts we explored in the first part of this chapter can be applied to the overall landscape. Consumer software markets can be generally classified into the following categories:

Personal productivity

Consumer software owes its origins to this segment with the original word processing tools like Lotus 1-2-3 and Word Perfect, etc. Remarkably, this segment has been devoid of much innovation despite advancements in graphics, internet, hardware, form factors etc. I would argue that personal productivity software is no where close to influencing our daily lives as much as it can potentially be. Here are some examples of personal productivity applications that have evolved over the years.

Desktop applications
Desktop operating systems can also be considered a part of this segment for a lack of better alternative. Other applications such as browsers, music players, photo organizers etc are all part of this genre as well. Communication and organizational tools such as Email, web conferencing tools, appointments also fall into this category.


EM considerations:
In emerging markets the above category of applications form the baseline of desktop computing. The main obstacle to mainstream adoption of personal computers has been the high barrier to entry of acquisition costs associated with the purchase. This can be mitigated to a large extent by innovating on payment models as I have touched upon several times in this book. Smart packaging by the hardware and software vendors can substantially reduce the price of acquisition. For example consider this scenario- The cost of a new branded desktop PC is about $500 in most emerging markets. In pure economic terms, it is about 10% of the per capita GDP for a country like India. Comparatively, the cost of a new PC in the untied States is only about $1000 which is about 2.5% of the per capita income. This significant variation is the most obvious barrier to entry for desktop PCs. One way of solving this is to subsidize the procurement by forming a bundle of the hardware, the operating system and compelling desktop applications like personal finance, communication and gaming software. The users could then be charged the same $500 over a period of 12 or 18 months through a reliable channel like the television cable company or the phone provider. I like to call this model “Subscribe to own” where the user will own the rights to the software and hardware when they pay off the total amount. Along with innovating on the payments side, the software should also be customized and localized for local languages and cultural aspects. We will look into this more in the subsequent sections


Entertainment software
This category has more cultural overtures than any other class of consumer applications. I don’t have the data but having lived in emerging economies, I can attest to the fact that people in emerging countries spend quite a bit of their disposable income in personal entertainment like movies, music, games etc. The software industry as a whole has really not made a lot of inroads into this segment.

EM considerations:
We have to think about ways by which software can enrich and at the same time piggy back on the enormous popularity of local movies and music.

Interactive TV
TV penetration in Emerging markets is usually at astronomical levels. This market is ripe to be taken advantage of by offering value added services to basic television. As with the mobile phone platform, value added services can be built into the delivery channel. This has huge advantages like eliminating the requirement for a separate billing solution which is a major stumbling block in emerging economies. Television is one of the most accepted appliances in this market and has already reached critical mass in terms of acceptance and penetration. Value added services like programming on demand, educational programs, provisions for buying merchandise etc can all be considered. Most of these services can also be provided without having to change the television set and can be accomplished with the installation of a set top box. With embedded software in these set top boxes, software companies can also experiment with personalization, child locks, programmability etc.


New software delivery models


Gaming
Mobility

• Cell Phone software

Online

This is classic B2C market that led the dotcom boom of the late 90’s. This fad never really reached the Emerging Economies before bursting in 1999. Though this segment has mellowed down since its early peak days, it still holds a lot of promise. It will have to slowly overcome many challenges in the emerging markets like lack of established and trustworthy online credit payment vehicles, lack of organized supply chain etc. Let’s first look at this segment a little closely before diving into the challenges associated with this market.

Auctions
eBay is one of the few companies that survived the onslaught

• Sharing and collaboration ( pictures, files music etc )


• Travel


• Other misc ecommerce

Music industry
Music - online or not, is a talent-based industry. Developed countries used to have advantages in technology, but the general progress in computing and the Internet is rapidly eliminating any difference. The low overhead associated with production and consumption of music makes it very attractive for emerging markets as a viable medium of digital entertainment.

In emerging markets, music reproduction is a critical part of the socio economic make up. In most of the cases, this reproduction has been through illegal ways. The global entertainment sector has recently been more concerned about restricting illicit use of copyrighted content, and thus may provide only marginally relevant guidance for artists and industry in developing countries.

As I explained earlier in this chapter, emerging economies spend an inordinate amount of money on music and entertainment.


Education

Emerging economies place a premium on education and this can be used a vehicle for reaching out the consumers in these markets. Education for consumers can be classified along the same lines as those in traditional markets but for the purpose of our discussion in this context, lets stick with the segment of higher education. The reason I want to narrow the discussion down is because of the fact that this is the most likely segment to spend money on software for educational purposes. Higher education is typically pursued by the middle class who will benefit from this offering.
Online higher education, which involves the dissemination of, access to, and exploitation of
higher education, including research, via the Internet, is being explored and promoted as a strategy
to provide further access to education and technology for national and international students. For example, in India students are able to obtain via the Internet a bachelor’s degree in information technology (IT) from the Indira Gandhi Open University (IGNOU). IGNOU is building on its existing structure as a distance education provider. The current online higher education market is still small (compared with traditional face-to-face education) and fragmented (with multiple providers
and self-developers providing flexibility, innovation and plurality but also some confusion). Online programs are concentrated in the most popular and marketable subject areas ( business management, technology , and education)

















































Barriers to consumer software adoption in emerging economies

Affordability
As we have seen in a couple of different places in this chapter and the book, affordability is a key recurring theme in the emerging economies for influencing adoption of any kind.

Infrastructure

Infrastructural limitations in emerging countries have severe repercussions in the adoption curve as well as the depth of adoption.

Half Life of technologies
Emerging economies don’t have the luxury to experiment on emerging technologies. Neither do they have the critical mass of early adopters to push the volume nor do they have the infrastructural set required to respond to constantly changing landscape. For example, lets look at large scale public deployment of public WiFi networks.

How have the emerging countries been solving some of the above mentioned issues and how can software companies act as catalysts to influence and accelerate this ? This will be the main theme of this section.



Technology case study : mobility space in Asia

Summary:
The Asian mobile data market was more than $25 billion with a revenue growth rate of close to 30%. There is a pronounced shift from voice to data traffic in this market which in turn allows for a multitude of new rich services delivered by software to enrich the user experience. Increasing demand has arisen for more data based applications in both the business and consumer sectors.
Systematic and almost complete deregulation of the Asian telecommunication industry speeded up these significant changes earlier in the decade. Consumers have opened up to the notion of having most of their communication happen through tiny mobile phones and this is fast challenging the value and acceptability of bulky desktops and PC based devices.
The fascination around mobile data services is not isolated to Asia but it would be safe to say that it has caught its imagination more than in any other part of the world. Some estimates indicate that around 25% of disposable income for the youth is spent on mobile products in these markets, displacing spending on traditional youth products like clothing, books, sporting equipment etc.
The youth plays the most important role in shaping up this market. Key software scenarios include messaging, ring-tones, wallpapers, logos, games, music and videos, and others.
Messaging services and other variations of SMS continue to remain the most popular service in the youth market. It is as much a lifestyle issue as much as it is a technology. Revenue generated from SMS has a growth rate of more than 30% with value added services like weather, sports scores, news etc make up this hot growth market.

Other segments of growth

Mobile Gaming
Mobile gaming is fast emerging as the favorite application for young mobile users across the world, spearheaded by Japan and South Korea where content has grown in terms of technology sophistication. Service providers are turning to mobile games to drive the demand for 3G services alongside the growing need for high-speed data transmission. The mobile games market in the Asia Pacific region is estimated at $1.4 billion in 2004. This industry is set to more than triple its size by 2010. The deployment of 3 G network infrastructure in some of these geographies will be a major boost to get the aggressive adoption rates even higher. This segment holds great promise and the deployment of next-generation technologies herald the new beginnings of rich mobile content development such as video clip download and streaming, music broadcasting and music album in the tier 1 markets.
This is a great opportunity for software companies to leverage their experience in the development of software and animation into the mobile world. Mobile games have evolved from basic monochrome single player games to full fidelity multiplayer, GPS-based games.
Payment models
Pay for bandwidth Paying for usage is probably the most time tested of all models. Per-kilobyte charge model is a volume–based model charged by the operators. NTT DoCoMo’s i-mode mobile Internet services have been offered primarily using this payment model. Mobile content like music and video are available from tailored i-mode handsets. The option of per kilobyte is commonly available with different rates varied across the countries.
Pay for usage
Usage based payment models normally works on commoditized content like ring-tones, pictures, music, etc; where no monthly fee is required and users are only charged for the number of downloads per content type. Software companies should look at this model more closely as it embodies the micro credit model that is absolutely required for reaching out to the masses.
Unlimited
True to its name, the unlimited model indicates a flat monthly charge billed to the subscriber with unlimited usage. Though it is one of the most complete models, it is typically associated with higher costs.

Chapter 4 : Enterprise Software for Emerging Economies

Chapter 4 : Enterprise Software for Emerging Economies

Let’s have a look at a birds eye view of a few industries and how the local landscape impacts them in emerging economies. In this chapter we will zoom in on ERP, CRM, Healthcare and Retail industries. We will look at some of the critical factors that influence the product decisions in emerging markets for each of these industries. For starters let’s look at the following factors

• Infrastructure


• Often the biggest stumbling block for enterprise software companies. To be able to formulate a product strategy in any segment for an emerging market it is important to asses the infrastructural limitations of the specific country, its direction, role of the government, private sector investments or lack thereof etc.


• Regulations


• The power of public policy formulation in the technology sector can never be understated. The critical factor to consider here is whether the government is willing to let the private sector play a significant role in formulating the various policies associated with the emerging technology markets. For example, laws about Intellectual property rights, eCommerce trade laws, online privacy protection, telecommunication tariffs etc.


• Affordability


• In this book I have already discussed the concept of affordability in emerging markets several times already. In this chapter we look at it at a slightly angle. We will look at some of the factors that make it a relevant point of discussion. Enterprises are not very different from consumers when it comes to affordability as they work within similar constraints as the mainstream consumers. As we saw in the last chapter, the positioning of IT as a competitive differentiator has still to sink in emerging markets. Fundamental business issues like lack of scale and infrastructural challenges limit the effectiveness of IT in the enterprise setting. In this chapter we will look at a few industries and see how the affordability of technology might have an impact on product strategies


• Business practices


• Business practices of local economies can have profound impact on the software products. For example, the general inventory turnover requirements in china for American customers might be very different from those in Brazil for local customers. Similarly, Value added Tax calculations in most parts of the world are different with their own local variations. It is very difficult to asses and plan for such variations in business practices before designing the product for a specific geography.

ERP market in emerging economies – Focus country – China

Enterprise Resource Planning (ERP) is the evolution of early manufacturing applications into a full back-office solution including Financial, Human Resources, Manufacturing, Distribution, Customer Relationship Management and selected core vertical functionality.

ERP is the market for packaged applications, with an integrated user interface/code set-metadata/data set, that automate at least general accounting, inventory management, sales and/or purchase order processing, and some industry-specific business processes (e.g., materials requirement planning [MRP] in manufacturing, patient scheduling in healthcare delivery, or branch bank automation). Increasingly, ERP products also include many extended functions, such as treasury and profit management, human resources (HR) and workforce management, customer relationship management (CRM), intra- and interenterprise supply chain automation (SCA), and associated analytics. Although these extensions are not required in order to be considered ERP in this analysis, if they are integrated in the ERP product, the revenue is included in this measurement.

ERP applications are different from many other technology markets in that the business requirements drive the selection process. Hardware, operating system, database and other technology decisions are typically made in support of enterprise applications. There are three categories of business requirements:

• Horizontal – financials, HR, manufacturing, CRM, SCM, procurement, etc


• Vertical – Automotive, CPG, Financial Services, Oil & Gas, Telecom, etc.

Although the driving forces behind ERP implementations vary by vertical markets, the common theme across the various vertical markets are the inherent advantages of the ERP system. Most of the benefits gained from an ERP system are derived from improved back-office operations and the sharing of inventory among the business units. Other benefits include online and real-time information throughout all the functional areas of an organization, data standardization and accuracy across the enterprise, efficiency, and the analysis and reporting that can be used for long ERP planning. ERP comprises a commercial software package that promises seamless integration of all the information flowing through the company - financial, accounting, human resources, supply chain, and customer information.

In addition, solid backbone ERP can allow companies to readily build their e-business capability for operations such as sales, procurement, and logistics, enabling tight integration between back-office processes and front-office transactions. Moreover, ERP systems provide transaction-level data that can be analyzed by predictive software solutions to optimize inventory management and enhance supply chain logistics. When predictive software is embedded in a real-time transaction stream, it can yield intelligence, enabling companies to adjust their business strategies.

With its low labor costs and a vast domestic market, China is becoming the largest global manufacturing hub. However, local manufacturers are lagging far behind their global competitors in their IT infrastructure. In order to enhance their performance in the market, they actively adopted ERP applications during the recent years, which also drove the deployment of software in the manufacturing industry. This presents a tremendous opportunity for ERP vendors to capture this opportunity and ride the wave.

The Chinese market for ERP applications was about $300 Million and is project to grow at more than 30% per year over the next 5 years. Here are some of the macro economic drivers that wield considerable influence over the manufacturing industry that in turn directly impacts the ERP market

• Government policies encouraged development of the ERP market.


• Government sponsored “863 Plan” defines an action plan fro identifying global trends in the IT industry. It is intended to create a favorable environment for the IT applications in the manufacturing sector. This induces planning for increasing the talent pool in the space of software, investment in key areas like automation of shop floor, agricultural IT sector etc. the China Software Industry Association ( CSIA ) issued a policy document called the “No 18 document” that promoted software industry in general. CSIA also sponsors sub committees on manufacturing software and to work on international standards bodies in this area

• The World Trade Organization (WTO) created more business opportunities.


• China's entry into the WTO has attracted a lot of Foreign Direct Investment ( FDI ) in the area of manufacturing. This has resulted in the integration of these manufacturing companies in the global supply chain. Overseas customers want to get real time information about production data to plan their supply chain effectively This has opened up a brand new opportunity for ERP applications

• Competitive landscape


• The ERP market world wide is dominated by large players like SAP, Oracle and Peoplesoft, etc. Local Chinese ERP vendors like UFSoft, Kingdee etc know the local market better and provide good customized software. Later in this section, we will explore the various attributes of this market closely .

• Role of channel partners


• ERP software is notorious for the complexities of the implementation cycle. Due to this, local channel partners are becoming increasingly important to vendors to increase efficiency and win bids. They are also pivotal in engaging with the customers and act as key relationship brokers between the global software companies and local customers. It is imperative to work with local Chinese Systems integration partners to have them aggressively sell and implement ERP products to local customers


• Small and medium sized business (SMB)


• Medium-sized and small customers are key drivers of consumption in China. Requirements for ERP products in this market segment are strikingly different from those in the enterprise segments in developed markets. Affordability, feature requirements, deployment, implementation are all quite different when it comes to small medium businesses. SMB customer budgets are typically lower, and delivery expectations considerably shorter, than those at the enterprise level. For this reason SMB customers cannot withstand long project implementation cycles and far-off returns on their investment. Their understanding of how technology can help their business is also much less sophisticated – many simply look to improve internal efficiencies through the automation of specific manual processes. SMB customers are typically not in the market for technology to drive competitive advantage, unlike their large enterprise counterparts. It is important in such an environment to provide a solution that can be implemented quickly with the least amount of integration cost, but that is robust enough to address more complex processes at a later date, if that time comes at all.

Product consideration for the Chinese market

In this section, we will look at how to plan and develop ERP products to respond to the above challenges in the local market. We will apply the framework in chapter XX to think about the various local considerations and how it might impact the design of ERP products.

Country analysis
We discussed some macro economic numbers related to this earlier in this chapter and it is clear that China is rapidly shaping up to the manufacturing hub of the world. ERP software has traditionally followed manufacturing economies and this is going to be no exception. What is different in this case though is that more than 80% of the manufacturing companies in China are in the Small and medium business segment. This is a critical piece of information that needs to be factored in while designing ERP software for this market.

Pricing strategies
One of the stumbling blocks of ERP software acquisition is the huge upfront licensing costs. In this specific target market, companies should price it such that it becomes affordable to a large portion of the SMB market. Subscription based licensing, ROI based licensing and multi tiered SKUs at various price points are some of ways by which ERP can be made affordable to the SMB space. Partnering with local resellers who can customize the generic ERP product by incorporating local business logic like value added taxes can help in reducing the implementation time for these products.


Unique business practices

Most of the manufacturing is done for international customers in the developed world like western Europe or North America. This means that the ERP software needs to be flexible enough to provide the visibility into the inventory, production plans etc real time to the customers. This is often referred to as Supply Chain Visibility for it provides the customer visibility into all aspects of the supply chain. A more comprehensive view of the supply chain allows businesses to trim inventory, streamline logistics, and optimize the efficiency of their work forces as they gain a competitive advantage.

Infrastructure
Technology infrastructure could be a challenge in terms of predictable high speed internet connections in remote manufacturing areas. ERP software should be designed to support local caching of data that can synchronized with central data bases on a periodic basis depending on the availability of network bandwidth.

Usability
Another technical challenge could be that of archaic computers in these small manufacturing companies. ERP products designed for these markets should have very low memory footprint and should support multiple ways of user input like keyboard only. Multi device support for parts of the functionality like inventory stock taking should be allowed in the applications as it will allow for cheap hardware acquisition for menial tasks that really don’t need a computer.

CRM market in emerging economies – Focus country – India
CRM applications automate the sales, marketing, and services functions to provide a 360-degree view of the customer and enable enterprises to be more customer-focused. When CRM technology emerged about a decade ago, it was welcomed by businesses that were finding it increasingly complicated to maintain personal relationships with their customers. Early adopters started using the new technology primarily in the service and support departments to boost service quality and speed. As CRM vendors introduced more features and functionality, use of the technology spread across the enterprise, creating a whole new level of complexity. Companies started experiencing significant challenges, putting CRM into practice as the realities of conforming their business practices to what was technically feasible often overwhelmed more mundane issues like speed of deployment, user adoption, and basic functionality.
As companies face the challenge of trying to extend business reach and at the same time curtail spending, CRM solutions are helping many customers get more out of their technology investments. However, whether starting from scratch or expanding an existing CRM implementation, understanding how CRM impacts ROI has become more critical than ever. Yet in order for CRM to continue to properly mature, metrics that conclusively prove CRM success or failure within enterprises must be developed and accepted. CRM software is predominantly used in the services businesses like call centers, consulting, telecommunications etc making it a very important software segment for a strong services economy like India. CRM software typically comprises of 3 distinct but interconnected parts

• Sales Force Automation ( SFA )


• SFA is typically used to manage sales opportunities and associated information like sale pipeline, opportunity management, scheduling, email etc. This is typically used my sales groups selling products or services


• Services Automation


• Services Automation is used to manage service and support requests from customers. Service request tracking, knowledge repositories, data mining, etc are all sub components of the Services automation software.


• Marketing Automation


• Marketing automation is used by marketing professionals to plan and run marketing campaign, collaborate with other marketing partners, marketing forecasting and analytics are all parts of a typical marketing automation system

Here are some key attributes to a generic CRM system:

1. Tracking customers efficiently is one of the main objectives of a CRM system. The application should be able to define and track customers. Customers need to be identified according to their importance based on the level of membership, investment, opportunities etc.


2. CRM systems should be conducive to streamlining business development and marketing functions.


3. CRM should enable cross-selling products and services across departments and divisions.


4. CRM systems should be able to offer up information in various form factors and devices like smart phone and PDAs


5. CRM systems often need offline functionality to support disconnected sales forces


6. Leveraging knowledge bases and personal expertise in a collaborative manner is essential in providing timely accurate information to clients.


7. Integrating with other legacy and back office systems to provide a full, 360° view of client relationships.

Key vertical markets in India for CRM applications
Telecommunications: The telecommunication sector in India started opening up in the mid nineties and has not turned back since. This market is growing between 30-40% every year. The number of total wireless phones has overtaken the landlines and currently stands at about 50 Mil subscribers. In a country of 1.2 Bil people, this is less than 5% indicating a tremendous opportunity for growth in the next 5-10 years. The government has also been doing its part by reducing the various tariffs associated with this sector. This trend has been fundamentally responsible for energizing the domestic market for cell phone carriers and as a derivative, CRM software.

Financial Services: The financial services market in India is one of the most mature markets in the emerging world. This market in India is booming as a result of key disinvestments in public sector involvement and subsequent opening up of the economy. Venture capital, investment banking, private equity and other financial institutions are struggling with ways to cut costs, increase efficiencies and manage prospect, client and consultant relationships while still developing and enhancing the overall sales process. They all need to track, manage and leverage all interactions with clients and prospects. Being able to leverage who in the firm knows whom, who knows what, and who knows how, can help uncover new business opportunities and enhance overall client service. To build this competitive advantage, firms must build their internal competitive intelligence and make this information available instantly to every professional. At most financial institutions, this intelligence is scattered throughout the organization making it virtually unusable. It may reside in the minds of firm professionals, in disparate databases or in countless contact managers. All these factors have the making of a perfect storm for strong CRM systems to help the companies meet the challenge.

Product consideration for CRM in the Indian context

In this section, we will look at how to plan and develop CRM products to respond to the above challenges in the local market. We will apply the framework in Chapter XX to think about the various local considerations and how it might impact the design of CRM products. The first aspect of the Lateral Design framework is to perform country analysis.

Major trends in the Indian economy that impacts the CRM industry

Outsourcing boom

As China has become the manufacturing hub of the world, India has emerged as the Services hub of the world over the last 5 years. Most of these services operations that are being outsourced are customer facing and involves agents interfacing with consumers to capture their support requirements and subsequently up sell or cross sell other products and services that the company offers. For this to be executed efficiently, the companies need to have a strong understanding of the customer, their history, their preferences and their proclivity to buy more services. This is fuelling a strong growth in demand for CRM software in India.

Booming domestic retail industry

The middle class in India is an estimated 300 million people with a per capita income in the range of $3000-$6000 per annum. The recent opening up of the Indian economy has led to a gold rush of multinational consumer companies into India hoping to lure this burgeoning middle class. Consumer goods from air conditioning to mid sized cars to fast food chains have all started taking advantage of this market. The general optimism in the economy has also been successful in increasing the disposable income of the middle class contributing to the retail market in a big way. All this activity in the retail space has resulted in a flourishing service ecosystem around the global retailing companies making CRM software imperative to track and report on customer data.

Local business practices

Infrastructural challenges
Sales automation is a big component of CRM software and its main target users are the sales professionals. They typically travel to customer locations to interact with them and to help win new business. The contact information, sales leads, opportunity lifecycle are all managed by the CRM system. To be effective, the sales professional has to enter data frequently ( ideally daily or at least weekly ) but in Indian conditions, internet connectivity in every city is not predictable. To accommodate for this, the software should support offline functionality so that the data could be entered locally and synchronized on a periodic basis.


Infrastructural limitations

1. On demand CRM




3. CRM Analytics requirements

Healthcare market in emerging economies – Focus country – South Africa
Healthcare software industry can be classified into the following major areas

• Healthcare providers: This segment includes the following sub components:


• Inpatient: This is the largest segment in the Healthcare market and includes the medical equipment and the software that resides on it, hospital management software, software that allows physicians to collaborate with each other, patient management systems, etc.


• Physician offices: Software in this segment includes patient management, physician office management software that helps in scheduling and following up of patients in local clinics.


• Healthcare payer or Insurance: This sector is very large in the developed world where healthcare insurance is ubiquitous but not very big in the emerging world. This includes providers to payers integration software, patient billing applications, etc.


• Life Sciences: This segment deals with the disease research, drug discovery and biopharmaceuticals, bio informatics aiding in genome research etc.

Landscape of the healthcare system in South Africa
South Africa's health system consists of a large public sector and a smaller but fast-growing private sector. Health care varies from the most basic primary health care, offered free by the state, to highly specialized hi-tech health services available in the private sector for those who can afford it.
The public sector is under-resourced and over-used, while the mushrooming private sector, run largely on commercial lines, caters to middle- and high-income earners who tend to be members of medical schemes (18% of the population), and to foreigners looking for top-quality surgical procedures at relatively affordable prices. The private sector also attracts most of the country's health professionals.
Although the state contributes about 40% of all expenditure on health, the public health sector is under pressure to deliver services to about 80% of the population. Despite this, most resources are concentrated in the private health sector, which sees to the health needs of the remaining 20% of the population. Widening gap between the public and private sectors
Drug expenditure per person varies widely between the sectors. About R59.36 was spent on drugs per person in the state sector as opposed to R800.29 on drugs per person in the private sector. This gap is only widening further emphasizing the opportunity for healthcare software companies to focus on the private healthcare sector. Annually, the government spends the equivalent of approximately US$3.1 billion (at a late April 2002 exchange rate) on 35 million people, while the private sector spends US$36.5 billion on just seven million. The private sector, bristling with sophisticated technology, serves just 16% of the population – those with private health insurance. There are more than 200 private hospitals, owned by consortia of private physicians or large corporations. Private hospital beds number 24,537, public ones 110,143. Public healthcare is free to pregnant women and children under six; others pay on a means-tested, fee-for-service basis.
The number of private hospitals and clinics continues to grow. Most new health professionals prefer to work in private hospitals and there has been a government program to bring doctors and other specialists from Cuba to serve the domestic market. With the public sector's shift in emphasis from acute to primary health care in recent years, private hospitals have begun to take over many tertiary and specialist health services.
Public health consumes around 11% of the government's total budget, which is allocated and spent by the nine provinces. How these resources are allocated, and the standard of health care delivered, varies from province to province. With less resources and more poor people, cash-strapped provinces like the Eastern Cape face greater health challenges than wealthier provinces like Gauteng and the Western Cape. This presents a great opportunity for software providers to help optimize these processes and help the public and private sectors. The private sector in particular is very receptive to technological advancements in the healthcare industry thereby opening up the gates for healthcare software companies.

CRM Heat Map

Opportunities

Countries

Challenges



Product considerations for Healthcare software

The characteristics exhibited by South Africa are well representative of many major emerging markets. The overall healthcare spending in the emerging markets is about 5-7% of the GDP in these emerging countries while it is about 10-15% in the developed world. This is an amazing gap given the population and opportunities in raising the quality of living in these poor countries. The software industry is an unique position not only to capitalize on this growing trend but is also in a position to have a positive impact in the transformation of these societies and help them meet the challenges of basic healthcare. In this section we will focus on the specific segments in healthcare that can be leveraged by healthcare companies to gain entry into the emerging markets. Unlike the other sections, we will focus on the overall emerging market in general rather than just South Africa as many of the challenges in this market are transnational in nature.


Hosted services

Whenever software is discussed in the context of emerging markets, hosted software is immediately offered up as a solution to reduce costs. Unfortunately it is not that simple in most scenarios due to infrastructural challenges. Healthcare on the provider side is an area where hosted services do make sense to reduce cost for hospitals. Private hospitals usually have stronger infrastructure than local clinics and physician offices and can take advantage of hosted services. These hospitals seldom have IT professionals on staff and are a little resistant to managing software in house. Subscription based hosted services, where the business model lends itself to lower recurring payments also makes sense for this segment.

The Life Sciences sector
For our discussion, it s also very important to understand the life sciences sector as it has a profound impact in the emerging markets. The life sciences industry is best described as an ecosystem of science-oriented organizations consisting of several types of companies:

· Pharmaceutical companies: organizations that discover, research, development, manufacture, and sell new medicines.
· Biotechnology companies: smaller, specialty scientific organizations focused at discovery and development of treatments in specific therapeutic areas.
· Medical device companies: organizations that discover, research, development, manufacture, and sell new medical instruments and devices.
· Contract research organizations (CROs): business partners for pharmaceutical, biotechnology, and medical device companies that provide outsourced services for R&D, sales & marketing, manufacturing, laboratory sample analysis, and informatics.

The life sciences industry represents a huge component of the global healthcare market. It currently represents a $330B market growing at 8% annually, and 15 of the world’s largest companies are life sciences firms. In this ecosystem, pharmaceutical firms are the largest customer organizations -- very large global operations with extensive scientific, operational, and partnership capabilities. Each of the top 10 pharmaceutical firms brings in over $10B in sales annually.

Pharmaceutical Firms
Generally speaking, most pharmaceutical firms consist of the following business areas:

· Discovery and Preclinical: business units focused at identifying new target compounds for the treatment of specific disease states and markers. This work includes testing in vitro and in vivo.
· Clinical development: business units focused at developing a new drug through scientific studies in humans, as well as the review and approval of the drug’s safety and efficacy by global regulatory authorities. This research is commonly called “clinical trials”, and moves progressively through various phases of research:
o Phase 1: basic testing in healthy humans to profile the safety of a new drug
o Phase 2 and Phase 3: broader testing in healthy and unhealthy humans to profile and safety and efficacy of a new drug
o Phase 4 and Phase 5: longer-term studies, many conducted once the drug is commercially available, investigating the long-term effects of the drug on individual patients and patient populations.
· Sales and Marketing : business units focused at promoting the value of specific drugs to physicians so that physicians will write prescriptions for the drug to their patient populations. In addition, pharmaceutical firms are increasingly marketing directly to consumers so consumers will exert influence on their physicians regarding particular drug treatments.
· Manufacturing and Supply Chain : business units focused at creating drug products from raw materials, as well as distributing the drug products through sales distribution channels.
· Finance and HR : the central business functions for pharmaceutical business operations
· Information Technology: business units focused at technology used in central business functions as well as clinical and scientific functions.
· Regulatory and Quality : business units focused at managing ongoing relationships with regulatory authorities, and ensuring that a pharmaceutical organization is compliant with applicable global regulations.

For most organizations, the primary business driver is time-to-market for new medical treatments. Early in the R&D process, a pharmaceutical organization will file a patent on a new treatment that the company plans to develop into a commercial product (such as a new prescription drug). These patents have a fixed time duration before they expire -- once a patent expires for a given firm’s treatment, competitors are free to offer similar products at dramatically lower costs (commonly called “generic drugs”). Since the patent has to be filed before the company actually has completed the necessary research to bring the drug to market, the organization is driven to finish R&D as quickly as possible so as to maximize the amount of time that their product can be on the market without generic competitor

Retail Software markets in Emerging Markets



POS systems:
Point of sale systems are the ones used in checkout counters for billing. They are typically embedded systems with bar scan software and help in keeping track of in store inventory. Retail POS systems are one of


Retail back office systems:
These are applications that


Retail warehousing and logistics software