The New Silk Route ...

India is Nokia's 2nd largest market

2007-08-23T08:47:00.000-07:00

Nokia has done this better than anyone else in recent memory- innovate for the emerging markets. they have done this better and more aggresively than anyone else and now are reaping the benefits of truly serving the bottom of the pyramid. Now which software company can emulate this ??

Web 2.0 business models

2006-02-19T15:03:00.000-08:00

Web 2.0 innovation MAP

The Web 2.0 Mashup Matrix is another innovative way of figuring out what kinds of mashups exist and OBTW, there are conferences coming up that will give you a leg up on this stuff- MIX 06 and Mashup camp

some interesting companies ( read the ones wiht real muscle and funding ) I found in this paradigm

Writely.com
http://www.30boxes.com
http://www.techcrunch.com/index.php
www.trumba.com
www.campfire.com

WEF Panel Discussion with Gates, Chambers Schidt et al..

2006-02-02T22:28:00.000-08:00

Geoffrey moore ( of crossing the chasm fame ) moderated a Davos session on the future of technology where the panelists were Bill Gates, John Chambers, Eric Schmidt, and Niklas Zennstrom.
Get the Podcast from here
http://gaia.unit.net/wef/worldeconomicforum_annualmeeting2006/default.aspx?sn=15498

World Economic Forum - Davos

2006-01-23T22:36:00.000-08:00

The importance of the World Economic Forum cannot be overstated. Over the years it has become one of the major podiums for CEOs whether it is simply to take a gloabl stage or if it is to lobby international governments for special interests or if it is jsut to stroke egos the size of alps themsleves

http://www.usatoday.com/money/world/2006-01-20-davos-cover-usat_x.htm?csp=1

...but the Indians are taking it to a whole new level !!
http://businessweek.com/bwdaily/dnflash/jan2006/nf20060123_5900_db016.htm

Waiting for visitors at their hotel rooms will be gifts from India -- a
pashmina shawl, an Apple (AAPL ) iPod loaded with Indian pop and classical music, a piece of traditional art, some ayurvedic oils -- along with a CD packed with all sorts of economic information about the country.

For the first time ever, the country is embarking on a positive PR saga - a welcome departure from the self empathising past - onto a new brashful future - way to go !!!!!

emerging markets prophet

2006-01-17T08:52:00.000-08:00

http://businessweek.com/magazine/content/06_04/b3968089.htm

The article talks about C.K Prahalad - the thinker behind the push to the "bottom of the pyramid". this topic has been well publicised so I wont go into the details but here are a couple of concepts that the article touches upon that I would like to elaborate on:

#1 Innovation can come from any part of hte value chain in emerging markets
#2 Microtransactions are here to stay esp in emerging markets

First for #1, The article quotes Bharti Telecom which has innovated by outsourcing most of the operational elements of hte telco value chain. Over the last few years, the tier 0/1 telcos have taken a beating due to overcapacity , consolidation/scams, overpromise of 3G etc. In the developed world, the innovation is still focussed squarely on the customer interaction side with triple convergene, IPTV etc but Bharti had a different challenge. It couldnt really scale its operations to reach millions and drive grass roots.

For #2, the example in the microcredit lending industry is a great one. Think of others like retail music, SMS etc that are all multi billion $$ industries in their own right in many an emerging market. Extrapolating this phenomenon to other software markets like manufacturing. People often associated with hosted software - it doesnt necessarily have to be the case. "On premise" software can be licensed in a pay as you go model.

Online advertising business model

2006-01-14T12:41:00.000-08:00

I am not a financial analyst, I don’t play one on TV and neither did I stay in Holiday inn express last night but I would like to ponder on the valuation of a certain business model. There is so much clamoring for a piece of the advertising pie that I decided to check out what this hoopla I all about. I am not claiming that all these #s are totally accurate. They are back of the envelope calculations at best and take it for what its worth ( close to nothing ).

WW total spend on Advertising ( online + print+ media+ hoardings + etc ) = $500 Billion
Online advertising today = ( less than ) $20 Bil
This segment is projected to grow immensely
Say in 5 years Online advertising = ( less than ) $100 Bil ( 20% of overall advertising ) – BEST case

Google market share today is about 30 % - lets say it grown in the best case to about 40% which will put their share to 40 Billion

Margins in content publishing business will reach an equilibrium of 20% - even at a high end say it is at 30% -> GOOG’s margin is 12 Bil
For arguments sake, I am going to assume that google doesn’t really get much traction on other revenue streams other than advertising ( search, placement, display etc )

Let’s take an earnings multiple of 15-20X considering the risk, potential upside outside of this core business etc -> 180- 240Bil market cap – today GOOG’s market cap was 138 – some room for growth huh?

Supporting evidence

I know that you are itching to ask me why I took an revenue multiple and not an earnings multiple- the answer is that I think the earnings ( driven largely by the margins ) are going to wildly fluctuate in the next few years before it reaches an equilibrium. Of 20%. It might even increase in the short run before it starts coming down.

Developed markets have about 95% share of the WW spend on advertising. This is not bound to change much in the next few years but even if you think about 5% of a 100 billion market it is not bad - huh ? In the Indian market, there are an estimated 38 Million users of the internet who go to Indian websites like yahoo.co.in or msn.co.in and other local websites. Though the user base looks ripe to explode, the advertising spend still lags and will be on ramp for another few years. the opportunity is there - who will capitalzine on it ?

The science of the "Long Tail"

2006-01-10T20:47:00.000-08:00

Ever heard of the "Long Tail of the market" ? This phenom is ringing bells recenlty in discussions around the residual value of content aggregation businesses and how content providers like goog derive value etc. I found this useful in thinking about the business model of how economics in emerging market software would look. It is a simple Zipfian distribution if you think about it. the essence of this model is that Rank * Frequency = Constant which essentially means that the perpetuity of the business model tends towards infinity and if you plot it along a logarithimically, it will turn out to be a straight line. so why is this important in the emerging markets setting? it is relevant if you think about how the emerging market opportunties are essentially a compositio of several long tails. Hence one has to keep distribution, sales and maintenance costs to an absolute minimum to derive the maximum benefits of scale.

Chapter 7: Rural Computing

2006-01-08T14:37:00.000-08:00

Chapter 7: Rural Computing

This chapter is dedicated to the topic of how Information technology can revolutionize the lives of the poor people ( mostly living in rural areas ) in emerging markets. In a slight departure from the norm of this book, we will not look at this chapter not from a commercial aspect of how software companies can design products that will appeal to this market but rather take a more holistic view of this problem that is very close to my heart. Although they are a few success stories of late, designing any kind of product for this market is still a very nascent concept and one which is fraught with inherent dangers. It is as much a socio-economic challenge as much as a commercial business challenge. Lets begin by looking at the basic challenges in brining the power of information technology to the rural setting and then at how we can overcome those to achieve the end goal.

There are three stages of evolution to make the vision of Rural computing a reality. Let’s look at these various stages and see the progression from one to another.

First of there is the infrastructure challenge as in any setting in emerging markets. Rather than focusing on the usual infrastructural limitations like network, power etc, I would like to spend some time talking about a few others like accessibility to computers, lack of credit lines for the poor and the role of governance in establishing the right environment etc.

Driving awareness around computing is a key aspect of driving participation from the rural populace.

1. Profit maximizing institutional and individual shareholders
2. Creation by spin-off from existing regulated institution
3. Centralized organization with branch offices located in cities
Mainly non-profit institutional shareholders
Creation by conversion from NGO or formation of new entity
Decentralized set of small units in areas with weak infrastructure

To illustrate the concept of Microcredit, lets look at a couple of examples of financial services organizations that have successfully operated a micro credit policy to the poor.
After just two years in the field, ICICI, India's second-largest private bank, now has close to 1.5m customers that qualify as deeply poor, and an associated loan portfolio of $265m. It has achieved this by working through 53 small microfinance banks, which are superb at marketing loans but are constrained by having them sitting on their balance sheet. ICICI lends to the microfinance institutions at 9.5-11%, a bit more than it charges its corporate clients, and the microfinance institutions re-lend the money at 16-30%. The microfinance providers are responsible for the first 5-12% in loan losses to ensure that they proceed with caution. Returns were good for the first two years and ICICI is expanding the scheme.
According to some estimates, demand for loans from poor but creditworthy people in India could amount to $40 billion, 40 times the current supply. Very little of this demand could be met from charitable sources, but billions of dollars could be made available on commercial terms. Lots more could be raised by allowing small institutions to take deposits.

Many of the world's biggest banks have recently launched interesting pilot projects. ABN Amro owns a microfinance bank in Brazil, Real Microcrédito, jointly with ACCION, and provides credit to five microfinance institutions in India. Deutsche Bank recently raised a $75m investment fund and syndicated a large loan on behalf of ProCredit in Germany.
The most obvious way for large banks to get into microfinance is through handling remittances, a business that according to the World Bank is worth $225 billion a year and growing strongly. Until now it has been dominated by transfer agents such as Western Union and by informal arrangements, often with high charges or high risks. But money transmission is becoming more competitive, and global banks are well placed because they already have systems that can send large amounts of money around the world cheaply.
The most ambitious big bank in this area is Citigroup. It does not deal with individual microfinance customers, but has already established relationships with microfinance institutions in 20 countries and thinks the number could soon grow to 30. Working through its Banamex subsidiary in Mexico, it is providing life-insurance policies sold by microfinance firms and is preparing for various bond offerings, private placements and even the securitization of a large microfinance institution's loan portfolio that will be resold to investors. For its wealthy clients, it has created guarantee funds that allow them to put up collateral in America for credit extended in poor countries. The list goes on.
Citi's biggest contribution, though, is its belief that microfinance can become a valid, profit-making business. If it is right, the other big banks will also pile into the market—and so will investors.

Overlaying this with a technology offering can have interesting implications. For example, we can use this channel of distribution to allow young villagers to open internet kiosks for “community computing” described in another section of this chapter.

Community computing

What is Community computing ?
Due to the various economic constraints faced by the rural populace, I advocate creating a new paradigm called “Community Computing” that will make computing accessible without huge upfront costs. Community computes are the ones that are accessed by multiple people that don’t own the equipment.

Community computers can be typically used in environments like schools, libraries, internet and gaming cafes, community centers etc.
They represent a huge market opportunity that is particularly important in emerging markets. Estimates indicate that the computers ratio to computer users in the emerging markets is about 1:30 whereas in the developed world it is about 1:8. This tells us that there is a huge opportunity of tapping this nascent market to provide the best computing experience of the users.
There are many initiatives world wide to create cheap computing devices at price points ranging from $100-$300 per device. While this is a noble idea, I wonder about its many potential short comings like the feasibility of mass production of such a device, the knowledge barrier to its adoption, distribution and maintenance channels etc.

Rural Resource Centers

Governments and other NGOs in some countries have been experimenting with the idea of consolidating all the technology assets into one simple center of dissemination. Such centers have the following common characteristics:

RRCs are Community centers for social and commercial get-togethers that promote the concept of shared computing resources
One lead villager who is well versed in the technology and applications that are being serviced in the resource center. This “volunteer” is typically paid for by the kiosk operator like an NGO or a government agency.
RRCs should contain “kisosks” that are dedicated to a specific cause like agricultural computing, e-Government etc.
RRCs promote the use of a “Shared Computing” model ( described below )
Shared computing model
For example, in a hospital environment, doctors, nurses and other medical practitioners might use computers in a “community” environment to access different kinds of data. The radiologist might be accessing a CT scan image of a patient while a physician might be pulling up the medical records of the same patient. Security, user context switching, data navigation, privacy of data etc are key aspects of Community computing models.
In an enterprise environment, they could be used in industries like manufacturing ( shop floors ), healthcare ( hospitals ), retail kiosks etc.

Dedicated Kiosks
Specialty kiosks like the ones that can help farmers with agricultural information, ones that helps fishermen with local fishing information etc are far more useful than general purpose PCs that hold very little intrinsic value themselves in rural settings. Dedicated kiosks could be locked down versions of personal computing devices but by limiting their functionality to one specific domain, we are greatly simplifying the use and maintenance of the device, reducing the price point and promoting faster deployment and acceptability of computing as a life style “companion” rather than a complicated scientific device which is the current perception. Later on this chapter, we will examine a few excellent examples of rural applications in the areas of agriculture , trading, e-Government etc that can all be considered as good examples.

Community involvement
Creation of Rural Resource centers and establishing shared computing resources are predicated on getting very strong local support for the initiatives. Healthnet in Uganda, Cybersheperd in Senegal, EChoupal in India are all initiatives that were carried out with great local volunteer support by governments and multinational companies. Phase 1 : Government and NGO Infrastructure

Many of the issues we considered in Chapter XXX regarding the role of a government in promoting the use of information technology apply here in this context as well. Things like telecom infrastructure, socio economic incentives of doing business with the poor, accessibility to the poorest are all gauging factors that contribute to the effectiveness of a rural computing network. Agencies other than the government also play a key role in ensuring the right climate for reaching the poor in an effective manner.
An open and pro-active government. This is critical. Governments in developing countries could greatly benefit from having a "champion" of public information, who will support consumers' and citizens' rights to information. Governments in emerging countries have a far more significant role to play than its counterparts in the developed world. Here are some of the major roles the government plays in influencing the adoption of Information Technology among the poor populace:
Fiscal policies: Federal policies around elements of IT like import duties for hardware, restrictions on foreign direct investment in this sector etc are all important levers in fostering a very healthy domestic IT sector.
IT enabling Government Functions: Governments may also consider adopting electronic tools to support processes such as providing education, health services information and streamlining public procurement
MicroCredit channels: In the developing world, nobody has the reach and influence that the governments have in almost every part of the world. Using this reach to enable a viable micro-credit channel for the rural poor will go a long way in ensuring a faster adoption of technology.
IT policies: Appropriate and forward-looking IT and telecommunication public policies, legislation and an understanding of their overall impact on a country's welfare is a key requirement from a country’s governance. Without appropriate policies players in the global information economy have no protection and the scale of their operations remains limited. High Internet tariffs, for instance, have historically being considered the most important obstacle to the development of a vibrant IT sector. Another example is e-commerce which, in the developing country context, cannot exist without a very specific set of public policies, an effective and e-enabled banking system and compliance with international practices. A strong and an independent regulator is needed to ensure that regulatory policy is enforced fairly and in a timely manner. Timing is everything as the underlying technologies and trends are in constant flux.
Infrastructure: All of the above points could contribute to a conducive infrastructure for IT adoption but physical infrastructure is another important element. Communication Infrastructure is in the critical path of making any meaningful progress in the IT segment and more the governments let private sector to get involved, the faster are the chances of reaching critical mass. Without infrastructure, IT can do very little and rarely at the local level. But with an investment in infrastructure, simple applications can have big impacts at all levels. Infrastructure costs decrease while effectiveness is enhanced when developing countries learn from what has being done elsewhere, and adopt the most current approaches to using IT, thus 'leapfrogging' less effective, even counterproductive, technologies.

Case Study: Costa Rica
Of the many countries that realize the importance of Information technology to elevate the living standards of the general population, Costa Rica is one of the few that has been able to articulate and work towards a sound vision over the last decade. The government of Costa Rica has enabled the emergence of such a sector. The jury is still out on whether this has led to poverty reduction but in the overall scheme of things, it is a great case study on this subject.
From the middle of the last decade, the Costa Rican government has aggressively pursued pro-active policies to develop an Information technology sector focused on the export market. These have included business incentives such as Free Trade Zones and duty free and low-duty exports and a heavy investment in a modern infrastructure and telecommunications network Also, since the 1970s, the Costa Rican government has invested heavily in general education, literacy and technical skills development. The intention was to drive economic growth.

The combination of government initiatives, stability, an educated workforce and appropriate infrastructure provided enabling conditions to attract investment. It is now estimated that more than 10% of GDP is attributable to technology exports. Costa Rica has also become a fairly attractive FDI destination with about $700 Mil USD in FDI projects. This is one of the highest in the region and can be directly attributed to the stability and foresight that the government has placed on the importance of the IT sector. An increasing percentage of exports are in software development and IT services as well as hardware and components. Today, Costa Rica has a very modern telecommunications infrastructure and is one of Latin America’s most densely networked countries (1 in 5 people have a telephone line). It also has one of the most educated and IT literate workforces outside Western countries. However, it is questionable whether this has truly affected the bottom slice of the social pyramid and whether the information technology sector has had any impact in the day to day lives of the poor. The GINI Index of Costa Rica is still at a high level of 46 indicating that there is still plenty of uneven distribution of income. There have been few significant linkages between this export sector and the rest of the economy and the ICE is lagging behind on the provision of remote telecommunication services. Although, the growth of the ICT export sector has contributed to national economic growth, the most direct impact on poverty reduction has been via the strong focus on education and skills development rather than through IT use per se.
Overall Costa Rica shows a remarkable picture of how a small poor country can make rapid strides by demonstrating a vision for the information technology sector and actively pursuing it. It also further validates the premises around other socio economic advancements that are necessary to uplift the masses and bridge the gap between the rich and the poor.

RURAL Computing

This section focuses on what information technologies can do to help in alleviating poverty. Despite huge inflow of donor money into alleviating poverty, the infrastructure of disbursement and ensuring an optimal distribution channel is a major challenge that is yet to be solved. The many stake holders in this context include governments, donors, private parties with vested interest, the poor and their diverse interests make it a complex ecosystem. Figuring out how software can help streamline some of these processes is a work in progress and in this section we will look into some of the successful case studies.

For corporations, the dual nature of the objectives in this exercise namely the philanthropic cause and establishing a self funded profitable business from addressing the needs of the poor also contributes to a lack of a longer term strategy. As more and more companies are establishing fledging business that are thriving by establishing a profitable business model by focusing on the “Bottom of the Pyramid” companies are looking at this underserved market as a longer term growth opportunity. In this section, we will look at some of the popular genres of rural computing applications that resonate with the rural populace.

· Agriculture Services: It is no secret that the rural economy in any part of the world is primarily driven by agriculture based occupations. There are several examples of how Information technology has transformed crops, fishing, cattle herding herding etc. Here are some examples of technology in use in this setting :
o GPS based services for Fishing: GPS kiosks connected to the internet use satellite data and overlays it on local geographic information to provide predictive forecasting of fishing data. Fishermen use this information to know what regions of the sea would be best for fishing. This saves them precious time, keeps them safe and maximizes their yield per trip to the sea.
o Commodities market information: In a country where 200 million people are engaged in farming or related activities, ITC ( a $2 Bil conglomerate ) is developing its internationally competitive agricultural business by empowering, not eliminating, the independent small farmer. The company is setting up of a network of Internet-connected kiosks, known as e-Choupals, through which farmers can receive all the information, products and services they need to enhance their farming productivity and receive a fair price for their harvest. Through the choupal, ITC sources the farmer's produce directly, reducing its procurement and transaction costs. Currently ITC has set up 4300 e-Choupals covering six states and 25,000 villages. By 2010, the e-Choupal network plans to cover over 100,000 villages, representing one sixth of rural India, and create more than 10 million e-farmers.
o Rural healthcare systems: Healthcare for the rural poor is one of the most important functions for a developing economy. An excellent example in which technology has pronounced impact is the HealthNet initiative in Uganda. HealthNet is pioneering the use of Personal Digital Assistants (PDAs) in the African healthcare sector to provide practitioners with real-time access to vital information. The technology also allows for easier consultation, real-time ordering of medicines, and access to medical journals - all of which improves the quality of Uganda's health care system. HealthNet Uganda's leadership and strategic planning have allowed it to successfully transition from a grant-funded project to a stand-alone non-profit organization, in part due to its ability to secure support from the Ugandan government. By introducing cutting-edge technology within an innovative business model, HealthNet Uganda is successfully working to improve the health of millions of citizens.
o Farmers Call Center: This experimental service pioneered in India is called t he Kisan ( stands for farmer ) Call Center( KCC ). The KCC offers three levels of interaction and support in agriculture, fisheries and animal husbandry domains, through national experts and corresponding directorates at the Central level. Questions coming through to the call center varies from “What is the seed treatment of groundnut, with dosage?” to “What is the method of controlling yellowing in a paddy nursery?” . These questions were answered by KCC agricultural and fisheries specialists. This is the working system for providing domain services in agriculture, fisheries and animal husbandry. Typical knowledge requirements in agriculture extend to soil, seed, water management, post-harvest management, productivity increase, crop insurance, banking and financial systems, education, healthcare, and employment or entrepreneurial opportunities.
· E-Government: As we have seen in the earlier section, governments in developing countries play a vital role in promoting Information Technology. Government functions like issuing land titles, grievances filing, birth certificates, tracking reimbursements, pension remittances etc are all prime candidates for computerization. Drishtee is an example of a 3rd party that has entered the market in India to make e-governemnt applications available in a rural friendly format to the poor.
· Education: Even primary education in rural areas of developing countries cannot be taken for granted. Elementary and computer related education make great starting points for raising the awareness of technology in far flung areas. Self paced tutorials in vernacular languages are very appealing. Entrepreneurs have also attempted to create stand alone kiosks aimed only at educational causes. Surprisingly, the primary audience currently is adults who are seeking computer skills rather than children seeking primary education.
· Communication Services: Low overhead communication technologies like cell phones and SMS messaging have revolutionized developing countries. It is well documented that the Cell phone market in Asia and Africa are exploding. These low cost devices can be a platform for delivering real time information and compelling applications. Smart Communications of Philippines has transformed the cell phone market in the Philippines by enabling electronic sales of airtime via short message service (SMS) and by reducing the unit size of such sales to as little as US$0.03. This innovation has enabled millions of low-income Filipinos to access communications services - 98% of Smart's subscribers are l ow-income, pre-paid customers. Its distribution system, using SMS technology, allows merchants to re-sell minutes, taking a commission on every sale, in essence creating a business opportunity for 450,000 entrepreneurs.

· Entertainment: Rural areas in developing countries spend a disproportionate amount of their disposable income on entertainment like movies, music etc. Rural computing that can marry information with entertainment will get a lot of traction.

Case Study 1: “Cyber Shepherd” project in Senegal, Africa

One third of Senegal’s nine million people are pastoral and are dependent on cattle farming. It relies on the ability of herders to manage grazing and water resources. This requires the seasonal movement of flocks and herds. Herders move their animals when the rains cease, in search of new pasture and watering points. In Senegal, this search takes them from the parched savannas of the north to more fertile areas in the south. The ever more fragile environment is subject to great pressures. In this context, the seasonal movement of livestock is essential to the survival of the herds, but it is also a source of problems.
The movement leads to many conflicts between migrant herders and farmers in the pasture areas, and between sedentary and migrant pastoralists. There is also the risk of introducing or spreading animal diseases in the host area. Moreover, traveling such long distances wears out the already poorly nourished herds, leading to lower milk and meat
production. Yet these migrations remain essential to the economy where livestock production accounts for 15 to 35% of gross domestic product and between 15 and 30% of export revenues. Transhumance is thus a central feature of the primary sector in Senegal and provides rural people with 55 to 75% of their income.
How can technology help rural communities to protect pastures that are threatened, in the long term, by overexploitation?
The Cyber Shepherd project aims to use new technologies to provide pastoralists with information about resources in the transhumance zones.Field surveys were conducted among more than 200 families in Burkina Faso, Mali, and Senegal to compile an inventory of traditional practices and local know-how in the use of pastoral resources, with a view to combining them with modern tools and knowledge and making them more accessible. Three zones were selected in Senegal as sites for a pilot project. In each of these trial zones, herders have been taught to read and to prepare geographic maps by working with GPS (Global Positioning System) devices that are linked to satellites and that can be used for accurate positioning on the ground. Several of these herders have also been equipped with cell phones to speed up the exchange of information and provide them with an "early warning system" against pending disasters.
Some herders have received IT training so that they can access information available on the Web. All the equipment needed for Internet connection has been installed in each pastoral unit, where real-time information on pasture issues can be accessed through a site. This is the first time in Africa that a combination of technology and local resources have been used for tracking livestock migrations. Pastoralists say that the project has lifted a number of constraints by making information available about pasturelands and watering spots. Before the project, it was very hard for herders to get information, because they had to wait for the weekly market or go off to see for themselves where they should take their animals. In practice, people involved in the project have had trouble putting the new technologies to use in these rural areas.

Case Study 2: B2Bpricenow.com in Philippines

Philippines like most other developing countries has more than 60% of its work force in the agricultural sector. This includes farming, fishing and other related occupations. There was a severe need to connect small time farmers to mainstream markets to empower them and B2BPricenow.com was the answer and this brief case study will illustrate how this website and its associated infrastructure helped the farmers.
B2Bpricenow.com is an e-marketplace in the Philippines that enables farmers, fishermen, and SMEs to access market prices and trade products. The marketplace can be accessed via web site or cell phone. The first phase of the project involved obtaining content for the B2B web site from a variety of agricultural and fishery cooperatives and training them to access and post products on the site. The second phase of the project focussed on getting target groups connected to the Internet and conducting actual transactions online.
The project objective was to “enable farmers to harness the benefits of information and communications technologies to promote economic development and social well-being.” The objective was that by providing transparent and timely market information to both buyers and sellers, the project will enhance efficiencies in the agricultural market. In addition, the ability of farmers to tap buyers and sellers directly and to obtain competitive prices for inputs and outputs should result in higher incomes - direct poverty alleviation impact. The rationale behind the project was that farmers in the Philippines, particularly those in rural areas, have long suffered from lack of market price information and poor access to buyers and sellers. Co-operatives and government agencies collected samples of prevailing market prices several times a week that were then disseminated on demand a day or two later. Often the available prices were out of date. Also, the system was unable to provide comprehensive price information throughout the 7100 islands of the Philippines. So, producers have been unable to get the best value for their produce. Furthermore, there was no mechanism to allow farmers and co-operatives to market their products and trade directly with distant buyers and sellers. B2B provides a free electronic bulletin board and marketplace designed to bring relevant market information directly to farmers, primarily through their cooperatives. As an electronic bulletin board, the web site enables users to gain greater negotiating leverage from awareness of prevailing market prices for their products. Project activities to date include establishment of the web site, creation of web site content, and a training/information road show presented in over 30 cities. The training program included computer training and online basics. Currently, project activities are focused on getting cooperatives connected to the Internet in 1,500 municipalities through the establishment of business centers on cooperative premises. A major technical challenge has been poor quality or non-existent telephone connections. This has limited access to municipal centers. For areas far from any telephone service, B2B is looking to use satellite and wireless technology companies. While B2B has focused on the Internet, it has become obvious that mobile phones offer a greater opportunity for relevant and useable service. They are common in the Philippines and text messaging is popular. B2B offers part of its service through SMS and will expand this aspect in response to demand. In August 2003, B2Bpricenow.com had nearly 2000 businesses connected to its website.

The project contributes to pro-poor growth as:
• Farmers may increase their revenues by getting competitive prices for their produce
• Farmers may lower costs by communicating electronically with other cooperatives that have similar purchasing and marketing requirements
• Price and supply volume information aids farmers to make better crop and other investment choices, and
• The site enables farmers to broaden their customer base and to trade with one another

Case study 3: HealthNet in Uganda
Technology continues to be vital to the development of many African nations. The digital divide between industrial nations and the developing world represents an opportunity for many micro-enterprises to build sustainable models for profitability and growth. HealthNet Uganda (HNU), a project funded by SATELLIFE, a U.S.-based non-profit organization, was created in an effort to demonstrate the effectiveness of using personal digital assistants (PDAs) in healthcare in Africa. HealthNet Uganda is transitioning from a grant-funded project to a self-sustaining non-profit organization. The project conducted market and profitability analyses and identified potential clients. In addition, the underlying assumptions that define HNU’s business model—including the willingness and ability of consumers to spend a premium on HNU services, the effectiveness of the technology, and ongoing support of critical partners and constituents—were scrutinized and evaluated. The use of information and communications technology (ICT) has had a significant impact on healthcare worldwide and Uganda will be no exception. In fact, the analysis shows that Uganda, and potentially other developing nations, have an urgent need for ICT in the delivery of healthcare. HealthNet Uganda’s services will be used by medical professionals, students, NGOs, and other individuals and institutions involved in the Ugandan health sector. All of HNU’s targeted users see the value in having readily available real-time access to information. The availability of information ensures accurate reporting and analysis of health data and provides doctors with the ultimate tool to care for patients. Health workers in remote parts of the country will now be able to consult with peers, access information from medical journals and order drugs and medical supplies in real time. This ability to share information could have far-reaching benefits for the health sector in Uganda. The Ministry of Health in Uganda has enacted policies which demonstrate its commitment to the use of ICT in healthcare. Currently the Ministry uses technology in its Health Management Information System (HMIS) for telemedicine. However, there remains lingering concerns about the necessity, applicability, and affordability of PDAs. Policy implications of PDA adoption will have to be considered as a necessary part of HNU’s model. As HealthNet Uganda transitions to a self-sustaining organization, the most obvious challenge is the scarcity of financial and human resources. With the support of stakeholders and partners, thorough strategic planning and analysis, and dedicated leadership, it is likely that HealthNet Uganda will not only succeed in its stated objectives, but will lead the way for further innovation in the delivery of services in the health sector in Uganda through the use of ICT.

Food for thought

We have collectively not even scratched the surface of what’s possible with information technology to aid the poor and downtrodden. As it has been evident from this chapter, technology is only a part of the solution and a simultaneous push from the governments, NGOs , the rural populace and other parties with vested interests is essential to make this dream a reality. This dream cannot be fulfilled without a comprehensive well thought out plan as we discussed in the earlier portion of this chapter.

The global economy is increasingly a market economy and our systems must operate under market constraints. That means, for example, that infrastructure is expanding where it is most convenient - usually where it is profitable and there is a large enough market for private-sector investment. Conversely, it is not infiltrating areas below the minimum revenue threshold, sparsely populated regions for example. In other words, scale is also of utmost importance. Even the Grameen Bank can operate its cell-phone project in Bangladesh partly because the population density in that country makes it feasible. One way that developing countries can address that market constraint is to be more strategic about infrastructure investments. Instead of investing in land-based telecom infrastructure that is used only part of the time and often not for any productive effort (in economic terms), a country could invest in satellite links to beam down Internet connectivity to rural areas. That connectivity may prove more productive because it would be a catalyst to a number of other activities as we have seen in the local level examples. Over the Internet, voice communication would also be possible, and scale may be achieved over a multitude of communities in large rural areas, thus decreasing costs even below the levels of the originally intended land-based systems.
One strategy for initiating that change to more productive investments would be to identify leverage points, to do a cost-benefit analysis of making any IT infrastructure investment. For example, three areas of a country need information. One area produces silk, another okra and the third fish. Because the global market for silk is far larger than for the other products, it would make more sense to initially concentrate the IT infrastructure to serve the silk-producing areas. That analysis is often missing and may represent another role for development organisations to play.
It might not be an exaggeration to argue that in a global economy, IT is a material necessity. Many people say 'Isn't it more important in rural areas to have electricity than it is to have IT access'? Common wisdom might say yes, but if an investment in IT can spark greater growth in the long term, wouldn't that justify the initial costs for IT? If the silk-producing community can use IT to generate economic activity that is greater than what would be produced if the community invested in electricity to power a factory, should they not make the IT investment?
An investment in IT can also be measured in different terms, as a social good. Perhaps having the technology to contact a hospital and describe the symptoms of a very sick person and receive a written procedure back, would be more important to the community than electricity to light village homes at night. Of course the decision is to be taken by the local community, but in the information age, for the first time, the question of what comes first among electricity, telephone, and information does not have to be a foregone conclusion.

Sources
World Bank Poverty redcution initiative
www.worldbank.org/poverty/strategies
United Nations Conference on Trade and Development
http://www.unctad.org
http://www.digitaldividend.org/

The New Silk Route - Software for Emerging Economies

2005-08-24T22:33:00.000-07:00

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

2005-08-24T22:17:00.000-07:00

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

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.

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.

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.

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:

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.
The demand for baseball bats sold in the United States decreases, so the price American retailers charge goes down.

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

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.

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

2005-08-24T19:45:00.000-07:00

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:

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.

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

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

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

CRM systems often need offline functionality to support disconnected sales forces

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

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

On demand CRM

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

Chapter 3: The Software Business Model

2005-08-24T07:23:00.000-07:00

Chapter 3: The Software Business Model

Modifying the offering and business models to the ground realities of the target market is a concept that has been practiced for centuries. In one of the most definitive works of modern day economics, Adam Smith in his 1776 book “The wealth of Nations” discussed Mercantilism of medieval Europe and cons the term the “Invisible Hand” . The idea behind the "invisible hand" is the claim that people will unintentionally improve their community through pursuit of their own wants and needs. Adam Smith used this to argue his case for capitalism and influenced the early thinking on lais·sez faire, where governments have a smaller role to play in international trade and empowerment of the individual was considered good for the economy of both the trading nations.

Evidence of business model adaptations can be found even in the works of a brilliant 3rd century economist Kautilya’s. His book called Arthashastra, is one of the earliest works on commerce, taxation and international trade. This book was instrumental in setting up multi lateral trade agreements around this era that led to the formation of the famous “Silk Route” to enable connecting China and India with Persia and western Europe. Trading was customized depending on the requirements of the target market. For example, the Chinese exported Silk for precious stones. Europe in turn imported fur from the Russians using this route in return for exotic horses.
We can take this in the context of modern day economics and more specifically software and explore why business models and offerings in one part of the world is not necessarily transferable to the other parts without some modifications. These changes might range from tweaks to the functionality, pricing structure, marketing strategies to more wholesome changes like a different pricing structure and new delivery mechanisms. The markets are extremely different from one another and it requires a deep understanding of the dynamics and motivations of the individual segments to be able to design, develop and market a solution from each of them. In green field markets like the emerging ones, it takes even more research to get it right. Lured by the prospect of one billion breakfast eaters, Kellogg, the U.S. cereals giant, ventured into India in the mid-1990s. Three years after entering the market, sales stood at an unimpressive $10 million. Indian consumers were not sold on breakfast cereals. Most consumers either prepared breakfast from scratch every morning, or grabbed some biscuits with tea at a roadside tea stall. Advertising positions common in the west, such as the convenience of breakfast cereal, did not resonate with the mass market. Segments of the market that did find the convenience positioning appealing were unable to afford the international prices of Kellogg’s brands.

Sources of competitive advantage for Global Firms

How do successful firms ( in software or in other industries ) gain competitive advantage ? Among numerous factors, they chose a different innovative trajectory than that of its competitors, by focusing on a different segment, altering geographic breadth or combining the products of related industries.

Innovation and Emerging economies

Innovation, in this context can be characterized to include both improvements in technology and in better ways of doing things. It can be manifested in product changes, process changes, new approaches to marketing, new forms of distribution and in addressing new target markets and segments. Innovations shift competitive advantage when rivals either fail to perceive the new way of competing or are unwilling or unable to respond. This can be a result of many causes, among them complacency, inertia, inflexible assets etc. In his book “Innovators Dilemma” , Clayton Christensen portrays this predicament to be a direct result of successful firms paying too much attention to its existing customer base. Here are some of the reasons that can be attributed to this behavior.

Focusing on existing customer base is unavoidable for successful firms. Responding to their changing demands preoccupies the mindshare of software companies to such a large extent that they fail to see the emerging threats to their industry. Success metrics, product cycles, research, value chains are all tied to the existing business model. This impairs the ability of companies to innovate beyond those boundaries.
Take the computer industry as an example. IBM once dominated the mainframe market but lagged behind for years in the minicomputer market, although the latter is technologically simpler than mainframes. Digital Equipment Corporation (DEC) pioneered in the minicomputer market, closely followed by Data General, Hewlett-Packard, Nixdorf, Prime and Wang. However, each of those missed the emergence of the desktop personal computer market. In this case, it was another new comer Apple Computer that took the lead. When Apple brought its portable PC to the market, however, it was already six years behind Compaq. Similarly, the workstation market was created by some other rookie players at the time, namely, Apollo, Silicon Graphics and Sun.
So how can we apply these lessons to the emerging world where the customers in these countries have dramatically different requirements and a unique combination of infrastructural and social challenges?

In this chapter I will develop a new framework for designing products for the emerging markets. This framework takes into account the idiosyncrasies of the target market and explores how best to offer services that fit into their requirements. Before we can dive into the framework, lets look at some of the major factors that impact the business model as a whole. The factors that we will be discussing are broadly based on the consumer characteristics, enterprise behaviors, infrastructural and the competitive challenges in the emerging markets. In this chapter we will also be discussing the consumer as well as enterprise angels to each factor. Software is probably one of the very few products that cater to the consumers as well as to enterprise businesses.

Barriers to Entry
Let’s first explore some barriers to entry in the developed world for software markets. Lets take the case of Microsoft Office. It is well documented that the Office team at Microsoft considers previous versions of Office like Office 97 and Office 2000 as the primary barriers to the adoption of its latest versions. This is also referred to as “It is good enough” problem in the software circles. Other well established products such as Adobe Photoshop, Quicken etc also face the same problem. Why would an average user go out and but new versions of a tax software every year when 99% of the software doesn’t change year over year ? Thanks to Uncle Sam, the yearly changes to the taxation laws constitute the other 1% for which we shell out anywhere between $30- $100 to buy new versions of the tax software not to take chances with the IRS. Unless we are forced to, the software is “Good Enough” for average use. This is not only isolated to the consumer space. In the enterprise space this is even more acute as adopting new software means an installation cycle that comes with its own set of headaches for the IT departments and a learning curve for the users of the software.

In the emerging world, the first barrier to entry is often the acceptability of existing manual business process. The emerging countries don’t have many companies that can exploit economies of scale making it very difficult for medium enterprises to justify the cost of software acquisitions. Though there is consolidation happening to exploit scale and squeeze efficiencies, it is still a very fragmented landscape. Any business software can only be as good as the business process that leverages it. Here is where the problem begins in the target market.

Software Sales model

Identifying potential customers, developing sales strategies to raise awareness of the products, managing an active pipeline of customers and establishing a direct sales channel especially in the mid markets is a daunting task that keeps most business away from even trying. Targeting the top 5% or so of the market is easier as it means a handful of large enterprises which are more likely to have established business processes and have larger IT budgets and more latitude for experimentation. These large corporations are also likely to be divisions of multi nationals or have some major overseas presence in developed markets themselves. But this market is miniscule compared to what the overall market can offer.
Piracy
Affordability and payment practices

As we have discussed before in Chapter XXX, affordability of enterprises and consumers alike in emerging markets will have to be considered while developing the business model. Payment practices are typically a by product of affordability. “Micro credit” models usually work the best in these conditions for the consumer market. More on that later, but in the enterprise space also the business models will have to incorporate the fact that the traditional software licensing models of a significant one time upfront fee plus a periodic subscription might not be the best fit in these new markets based on the affordability factors.

Technical Infrastructure

Business practices
The critical success factors that influence the adoption of software in running the business processes of enterprises are very different in these markets. For example, improving productivity and reducing the manpower is a platform that resonates with the developed world where businesses are always looking to improve man power efficiencies. This constraint is not so severe in the emerging world where skilled labor is not as scarce or expensive as it is in other parts of the world. Another manifestation of the same issue is the fact that several business practices are not as evolved from a process stand point as their developed counterparts.
For example, the healthcare systems are far from being evolved in most emerging economies. The insurance and automatic billing are almost non existent.

Lateral Design

In his theory of dominant logic, Prof C.K. Prahalad talks about how one dimensional and preconceived certain assumptions can influence strategy and product decisions. This is prevalent in the software industry as much as it is in others. In this section, we will develop a framework with which we can challenge some of the premonitions and explore how the constraints of emerging economies. Lateral logic has to be applied to ensure that the fundamental assumptions of software usage are questioned and validated in the context of these target markets.

Lateral design involves challenging and re thinking some fundamental aspects of the software. For example, rethinking usage characteristics, underlying infrastructure, accessibility of the application, resource constraints etc. some of the other factors we have already discussed in this chapter like pricing, business practices , etc are also important to include in this thinking. The reason I call this lateral design is because when we take each of these issues, we have to analyze, capture and apply its repercussions to product design in ways that might be counter intuitive to normal design practices. For example, shelf life of applications is what is sometimes referred to as the “Half Life” of the product. In developed countries, it varies anywhere between 3 -10 years in most industries. This means that the product is significantly changed or upgraded every 3 -10 years. In some industries like manufacturing shop floor type of domains, it is closer or greater than 10 years where as in high tech consulting services space, software is constantly replaced or significantly upgraded every 3-4 years or so. This is in keeping with the pace and the fluid nature of the industry the software is supporting. Product designers take this half life into account while determining certain features like deployment and updates to ensure that the most appropriate service model to support the business. For example, the product might be designed to support constant updates in business logic functionality through web services in one domain while in another, it might not be that important while durability and availability might be the higer order bits.
In emerging markets, these conditions might be slightly different. In highly regulated economies, manufacturing software might be required to support

In this section, we will develop a model for product development for emerging markets. The top row of this figure indicate some major gates of the decision processing software companies should go through while developing new products or adapting their current offerings for the emerging markets. Lets look at each of these stages and dive deep into the factors affecting each.

Product Research

This maybe the most important element of the Emerging markets framework. Researching the target market and mapping the offerings ( product, service or a combination of the two ) to the characteristics of the market is the main objective of this step. This augments the traditional product research that any software company might normally do to extend its product line. The following product research elements are important for emerging markets as well:

Market Size analysis
This analysis is typically performed to understand the potential market size and characteristics associated with the target market. For software companies, this typically means understanding the enterprise landscape to make sure that the target segment is growing at a sustainable pace to allow sufficient room for a few major players in the domain.

In addition to the above usual steps, it is also important to perform the following ones to make sure that the offering being developed is in line with the characteristics and requirements of the target market.

Country Analysis

Country analysis is about understanding the macro socioeconomic factors that are influencing the country’s direction at any given point of time. Lets take Brazil as an example to see how to break down the data to model a sample product offering taking the various macro economic factors into account.

Brazil is generally a slow growing country with only about 3% growth in GDP over the last 10 years. This combined with a very high level of fluctuation in currency meant that the saving patterns of consumers are dramatically different from those in other emerging markets.
The propensity of Brazilians to kick back a little and enjoy life is evident by a number of factors like low saving rates, generally expressed happiness with quality of life ( among the highest in emerging countries ) etc.
Brazilian population predominantly resides in Urban areas which is also a major variance from other comparable countries like Russia and India.
An inflation rate of 10% + in the recent years also indicates an inherent macro economic instability.

The above analysis tells us that the business model of the offerings should take into account the following:

The business model should lend itself to exploiting more near term opportunities given the geo political instability and consistently high inflation rate
Personal consumption of software is the highest in Brazil when compared to other countries making it a promising market for consumer software like personal communication and productivity software.
There is a lot of emphasis on entertainment making it attractive for video gaming and mobility based software
Rapid expansion of telecommunications and the impressive growth in the use of internet has surprisingly increased the usage of B2C type of eCommerce over the internet. This is a clear departure from the trends we see in other markets like India and China.

Primary and Secondary market research

Performing any kind of user research in emerging market is a very tricky proposition. The challenges can be summed up by just one macro point- The target customers ( both enterprise as well as consumers ) really don’t know what they need. This is true to some extent even in the developed world. In his book “Crossing the Chasm”, Geoffrey Moore illustrates brilliantly the natural dispersion of customers when it comes to adopting new technologies. This theory is built on the idea that the rate of diffusion in the Technology Adoption lifecycle curve is not continuous. There is a chasm between the early adopters and mainstream users and this is further amplified in the emerging markets for a variety of reasons we have discussed in this book so far.

Primary market research in emerging markets is not as accurate as in the developed world because the customers are typically not as advanced and the business imperatives driving them are also different. For example, a focus group study on anticipated online gaming usage might not resonate well with the emerging market as the broadband high speed adoption lags that of the developed world significantly. Without the experience of being always online, the results of such a primary market research might not be indicative of potential usage and adoption simply because the user base is not ready for the technology.
Secondary market research can also have its own share of inaccuracies. Secondary market research is typically used to validate perceptions and to predict adoption, market share, project growth rates etc. In emerging economies, the challenges include unpredictable macro economic data, wildly fluctuating economic and political climates, lack of clear understanding of the patterns of technology adoption etc. Emerging markets are notorious for their propensity to jump technical waves. For example, the cell phone penetration rates are much higher than land line density every reached. India also almost skipped the entire mainframe/mid range computing wave and caught on to the desktop PC wave. Emerging countries have the advantage of not having to worry about legacy issues. Individual consumers also exhibit similar behavior so it is imperative for secondary research to take this into account while predicting technology adoption and market growth.

Pricing Strategies

As we have discussed extensively in the last section, affordability plays a big part in assessing one’s business model. While I don’t intend to discuss the basics of pricing strategies in this section, I do want to touch upon a few important points that are relevant in this discussion. Pricing is a very important barrier to technology adoption both in the consumer as well as in the enterprise markets. In consumer markets, the concept of disposable income is often discussed as one of the determining factors of pricing. For example, if it costs.15 cents to manufacture, market and distribute a can of coke in Brazil, how much should it priced at ? 30 cents or 55 cents ? Other factors like size of target market, competition, perceived value of the product etc all have significant input into this process but the key element here is the portion of disposable income that an average consumer is willing to spend on a “luxury” spend item like a can of coke. It is also fascinating to understand the behavior of rural and poor markets when it comes to discretionary spending. Unilever sells more single serve shampoo sachets than it sells larger bottles. This is typically because of the proclivity of the rural consumer to live for the day or the week rather than planning for the entire month or the year. These concepts can be extrapolated into the world of software to analyze the spending practices of consumers and enterprises.

Perceived value of software
Software makers, especially the ones that make mission critical business applications like SAP that runs Fortune 500 businesses or ABB that creates software to manage shop floors sell the concept of using software as a competitive advantage over its immediate competitors . the more the customers realize this, the higher the premium they are willing to pay for the software.
This is also true in the mid market segment of developed countries where small companies are realizing that software can be effectively used to gain the extra edge while servicing customers. For example, by using a CRM system, a legal firm can track and service its largest clients with up to date and most accurate information thereby increasing the customer satisfaction and reducing turnaround time. This gives the companies the competitive edge that can be quite difficult to duplicate immediately.
In emerging markets, other than in the very high segment which usually comprises of multinational companies, the perception of software is that of a necessary evil. It is not considered to be a source of competitive advantage. There are several reasons for this latency. Competitive pressures, globalization and market fluctuations are changing this but we have to learn to adapt to these realities while we look at pricing strategies. As long as software is not accepted as a key strategic advantage, it will continue to be a minor part of the overall enterprise budget.

Multi layered pricing
The pricing model should take the above into account and have appropriate strategies for offering staggered SKUs at various price points. Business software in the developed countries often have SKUs that are categorized into 2 or 3 levels of usage typically starting from a “Standard” version to a high end “Enterprise” version that typically has a few more bells and whistles in functionality. In the emerging market, we have to be a little more innovative in pricing and subsequent definitions of the product SKUs. I propose thinking about having “single serve” versions of the software that expire on pre determined usage. For example, a customer could buy a retail software that will expire based on a number of days or number of transactions that are posted through the system. This is very similar to a pre paid phone card that needs “recharging”. This strategy could run the risk of getting complicated if the vendors try to get too fancy with this. Keeping it simple and having the end objective of providing a low entry point for the consumers while keeping the option of upgrading based on usage will be an attractive option for companies that simply cant afford the high upfront costs associated with licensing complex software.

Business Practices
Most of the enterprise software makers pride themselves on the fact that their software captures the best practices of the target market they service. For example, SAP prides itself on the fact that their software bring to bear the established practices in the area of supply chain management. A healthcare application in the physician management space is intended to optimize the workings of a physicians clinic and the software is intended to bring local practices, regulations and cultural aspects into the process. It is generally accepted that by following these best practices, business can not only weed out process in efficiencies but also effectively use it to model their business.
In emerging markets, the business practices might not be in sync with those in the developed world. For example, many elements of the supply chain process are still manual as small time suppliers still are not savvy enough to fulfill order information electronically. In most emerging countries healthcare is not as heavily regulated as it is in the developed world. Consequentially, hospitals are not inclined to pay for software that emphasizes heavily on regulatory compliance.

Taking these differences into account, software should be redesigned to incorporate these subtle but sometimes very important differences in business practices. A great example of where this is applied is in the area of professional services software. This genre of application is typically used by legal and consulting companies to optimize on the resource allocation as manpower is usually very expensive in the developed world. This software helps build a process to streamline allocation of resources as it is the source of competitive advantage for the services firms. On the other hand, in emerging economies, manpower resources are not that scarce. Emphasis is paid more on customer management and real time collaboration with overseas customers and in knowledge sharing. It is the same application but with slightly different accent to accommodate the strategic intent of the target user base.

Generalizing the above observations, we can concur that it is really important to understand the underlying business challenges and tweak the design of the product to address the target market imperatives. This could be anywhere between having a different marketing emphasis to creating a new feature set to cater to the requirements.

Product Design

With any new product development process, once we have the fundamental market and product research done, we proceed on to designing the product or in the case of an existing product, customizing it for the intended market. Product design is often an ignored discipline in software and is often mangled by technical design or high level user requirements. In this section, we wil explore how to instill this discipline back into the product development process. I propose looking at the following as the critical elements that influence the way of designing software for emerging markets. These will be of course above and beyond the normal steps of traditional product design processes.

Deployment

Usability

Subscription services

This kind of licensing model is not new to the technology industry. Actually this was perhaps one of the earliest business models in the computing industry with original mainframes. During the dotcom era, subscription and hosted services made a mighty comeback. Internet was the backbone for this thinking and everything had to be based on the internet.

There were several reasons why this concept never really took off in the enterprise environment.

Subscription based software licensing means that the licensee doesn’t have to shell out huge upfront licensing costs typically associated with enterprise software

Chapter 2: The Lure of the Emerging Markets

2005-08-24T07:08:00.000-07:00

The Lure of the Emerging Markets

Background
Doing business with the world’s 4 billion poorest people — two-thirds of the world’s population — will require radical innovations in technology and business models. It will require MNCs to reevaluate price– performance relationships for products and services. It will demand a new level of capital efficiency and new ways of measuring financial success. Companies will be forced to transform their understanding of scale, from a “bigger is better” ideal to an ideal of highly distributed small-scale operations married to world-scale capabilities. In short, the poorest populations raise a prodigious new managerial challenge for the world’s wealthiest companies: selling to the poor and helping them improve their lives by producing and distributing products and services in culturally sensitive, environmentally sustainable, and economically profitable ways.

Global Economic outlook
The G7 economies are growing at an average of 4% GDP with an industrial output of about 2%. Contrast this with the E8 growth rate of 7% with a combined industrial output growth of more than 6 %. If things go right, in less than 40 years, the BRICs  economies together could be larger than the G6 in US dollar terms. By 2025  they could account for over half the size of the G6. Of the current G6, only the US and Japan may be among the six largest economies in US dollar terms in 2050.

PC numbers

The number of PCs in use worldwide will reach almost 1.3 billion by the end of the decade — up from about 575 million today. With only about 150 million new PCs coming from mature PC markets in Europe, the US, and Asia, the rest will come from emerging markets like China, Russia, and India. Several research reports forecast that an additional 600 million new PCs will be in use in these countries by the end of 2010. But today's products from Western PC vendors won't dominate in those markets in the long term. Instead, local PC makers like Lenovo Group in China and Aquarius in Russia that can better tailor the PC form factor, price points, and applications to their local markets will ultimately win the market share battle. Lenovo recently announced plans to design PC desktops specifically for the Indian market. the Indian market for PCs was around 3.6 million desktops in 2004 with an annual growth rate of more than 80 ! Regardless of the manufacturers or the software that the PCs will be using, it is critical to take stock of what this means to the software industry in general. About 500 million new users are going to be entering the market as potential customers. Staggering numbers indeed, but unless companies reconcile the fact that these users have very different considerations, requirements and usage scenarios, the expanded market means little to nothing. This chapter focuses on understanding the ways in which these users are different from their counterparts in the developed world. We have to understand the differences first before we can dive into formulating strategies for getting them on board as customers.
Internet growth rates
In mid 2005, 170 million people or roughly 60% of the population in the US had access to the internet. On the other side, only 7% of Chinese and 2% of Indians had access to the internet. The statistical difference in these numbers is staggering but indicates the immense opportunity that lays ahead of the industry to piggy back on the impending explosion of global internet usage.

At the end of 2004, nearly 700 million people (or about 12% of the total population of the world)
had access to the Internet. This represents an increase of more than 60 million people or 7.8 per cent compared with the figures at the end of 2002. Developing countries account for more than 36 per cent of all the Internet users in the world and their share in the Internet population of the world grew by nearly 50 per cent between 2000 and  2003. However, Internet users in the developing world are concentrated in a handful of countries: China, the Republic of Korea, India, Brazil and Mexico account for 61.52 per cent of them. Almost 75 per cent of the growth in the number of Internet users in the world occurred in the developing world. In spite of rapid rates of improvement in the penetration ratios of developing countries, these remain ten times lower than the average of the developed world.  It needs a very deep understanding of the user characteristics, their constraints and their preferences to develop software for these new generation of internet and PC users.  PC growth rates and the internet usage correlations are almost like the positive correlation between roadways and automobiles in the 40’s and 50’s. Although it is very common to find that a staggering number of desktops in the developed world are connected to the internet, it is a fraction of that in the developing world. It is because of the poor telecom infrastructure and regulatory issues that govern local internet connectivity. We will explore this aspect a little more in detail later on in this chapter. Lets take a minute to examine some of the key factors that are likely to act as a catalyst in hastening the adoption of borad internet usage in the emerging markets.

Local information through local web sites

Availability of localized information like maps, weather, yellow pages etc is very critical to create the end user value proposition for end consumers

Lowering the barrier of entry for hardware

Having a shared computing model where computing resources are available for “rent” rather than having to pay upfront costs is a key in lowering the barrier to entry

Single purpose internet browsing appliances

AMD has been experimenting with an internet appliance that is extremely cost effective and is intended only for one purpose – browsing. The deeper we get into the emerging markets, the lower the affordability of the end consumer gets and it is imperative that we not only look at the software but also lower the footprints of the hardware to enable faster adoption

Grass roots availability of telecom infrastructure

Availability of appropriate telecom infrastructure in remote parts of the emerging world cannot be taken for granted and has to be factored into any discussion governing internet adoption. We have to think creatively about leveraging existing infrastructures like cable TV, phone lines etc to ensure minimum investment but maximum connectivity

e-Commerce
Analysis of e-Commerce usage trends worldwide presents an even more interesting problem.
The available data from the United States and the European Union (EU) show that while the value of online transactions is increasing, it is not increasing at the same speed as that at which businesses connect to the Internet. In the United States, e-commerce between enterprises (B2B), which in 2002 represented almost 93 per cent of all e-commerce, accounted for 16.28 per cent of all commercial transactions between enterprises. But the business to consumer e-commerce numbers is less than stellar accounting for less than 2% of the total retail sales in the US. To put this in perspective, the US retail market is probably the most mature and most conducive to end consumer retail sales. To understand why these numbers are low and to understand how the emerging markets will take to this trend, let’s take a detour and examine the evolution of this industry in both retail and the enterprise sectors.

Maturity of the electronic payment processing

In many of the emerging economies, the seemingly simple process of electronic payment processing is not established or supported by businesses. End users either don’t have credit cards or are extremely reluctant to use them online. Businesses on the other hand are leery of exchanging payment information with partners that don’t have an established relationship with them in the absence of a regulatory system to back them up. This is discussed in greater detail in the next point.

Maturity of legal infrastructure to support the payment processing

Specific regulations governing compliance of the ecommerce transactions are almost non existent in the emerging markets. In most developed countries, e-procurement is a big part of the b2b market. Unless there are regulations that govern the electronic transfer of funds, the electronic paperwork associated with creating and fulfilling an order and all the process behind this business process, this market can’t really take off. The major emerging markets like Brazil, China and India are all in varying levels of maturity in putting these regulations in place. Participation of the respective governments in these process is critical in accelerating this process. E-Procurement in the government sectors like defense or civil supplies is a great catalyst to kick start this process. This is a little challenging in the emerging markets as it means little room for non conformance, tighter auditing and implied accountability – all of which are not given in these countries !

Maturity of the supply chain to fulfill the process behind the transactions

Supply chains

Maturity of the electronic data exchange

Unlike the accessibility of the internet, ecommerce usage on the other hand is a function of many other non technical factors that we will be exploring later on in this chapter in detail.

Mobile devices

Challenges in the Emerging Markets

Shifting Demographics

World population in 2015 will be 7.2 billion, up from 6.1 billion in the year 2000, and in most countries, people will live longer. Ninety-five percent of this increase will happen be in developing countries, nearly all in rapidly expanding urban areas. Increasing lifespan will have significantly divergent impact on our point of interest as well.

Declining birthrates in most of the advanced economies and in a growing number of emerging markets combined with rapid aging will combine to increase health care and pension costs while reducing the relative size of the working population, straining the social contract, and leaving significant shortfalls in the size and capacity of the work force. This has a direct correlation to the impending surge in personal productivity devices and software to power the devices. Automation, personal devices, healthcare systems, hospital software etc are just a few examples that will stand to benefit from this trend. Although the living standards of many people in developing and emerging economies will rise over the next 15-20 years, per capita incomes in most countries will not compare to those of developed nations by 2020. There will continue to be large numbers of poor even in the rapidly emerging economies, and the proportion of those in the middle stratum is likely to be significantly less than is the case for today’s developed nations.

Some studies show that China’s middle class could make up as much as 40 percent of its population by 2020, double what it is now but it would be still well below the 60 percent level for the US. And per capita income for China’s middle class would be substantially less than equivalents in the West

In India, there are now estimated to be some 300 million middle-income earners making $2,000-$4,000 a year. Both the number of middle earners and their income levels are likely to rise rapidly, but their incomes will continue to be substantially below averages in the US and other rich countries even by 2020.

However, a $3,000 annual income is considered sufficient to spur car purchases in Asia; thus rapidly rising income levels for a growing middle class will combine to mean a huge consumption explosion, which is already evident.

This growing proportion of middle class in the emerging economies means that software companies have an enormous new market to sell their software and services to. This book explores these concepts and provides pointers for making inroads into this untapped market. While discussing these demographics we should also look at the key characteristics of these people. Here are some major characteristics of this target group:

Wealthy vs middle class

Wealthy urbanites: The early adopters will be the wealthy, educated urbanites who have the need, means, and motivation to buy PC technology from Western manufacturers like Dell, HP, and IBM. After initially buying entry-level PC configurations, these users will demand more power from their next PC and pay a higher price point as a result. For example, the China Center for Information Industry Development (CCID) reports that the price bar for a new PC has risen from about 5,000 yuan ($600) to about 7,000 yuan ($850), with these more expensive systems now accounting for more than 40% of PC sales.(

Middle class: As the PC market grows, higher price points won't sit well with the second wave of buyers — literate middle-class consumers stepping into the market for the first time. These buyers, who represent the sweet spot market in terms of PC unit volume sales, will have less discretionary income to spend and won't necessarily latch onto to established Western brands. Instead, local PC makers will tailor the PC form factor, price points, and applications to local market conditions. For example, in August, Dell announced that would it exit the low-end Chinese PC business in response to the aggressive pricing strategies from Lenovo and focus on the higher price bands. Lenovo targeted smaller Chinese cities with an AMD-based Linux machine for about $350 — a low margin configuration that Dell won't copy any time soon. Also, some potential PC buyers in this wave will opt to buy PC alternatives, such as smartphones, instead.

Urban Vs Rural mix

User characteristics in the rural markets are very different from those in the urban city areas. These potential users have limited means, need, and motivation and often lack the basic infrastructure to support a PC, such as communications and a reliable source of power. The PC industry will need to go back to the drawing board to develop PC products for this market. For example, AMD has made a start with what it is calling a "Personal Internet Communicator" (PIC) — a sealed case computing device loaded with basic applications like an email client and a browser — that will be branded and either sold or subsidized by local providers for less than $250, including a keyboard and monitor

Affordability of the new users

It is not inconceivable that these new users will not all own a desktop PC per household. In individual economies we have to consider the clusters of wealth distribution when predicting how the PC vs other devices ownership patterns and adoption growth. Special attention has to be paid to the shared computing model where multiple users will access computing resources often deployed at ta local library or a kiosk.

Discuss GINI
The Gini Index, published by the World Bank, measures the degree to which income distribution among individuals within each country deviates from a perfectly even distribution among the entire population. A 0 Gini Index score would indicate perfect equality — everyone earns the same. A 100 Gini Index indicates perfect inequality — that one person controls all the wealth.

Software for day to day life

The importance of the above mentioned middle class in the world cannot be over emphasized in the new world order.  With increasing share of disposable incomes, they are shaping the face of global consumer products industry. This segment of the market is notorious for their penchant for price/performance characteristics. Price combined with killer personal usage scenarios led to the explosion of cell phone usage in theses markets explained earlier in this chapter. Areas that had spotty land line access now boasted of 100% cell phone coverage enabling the populace to be aggressive consumers of mobile phones at a far greater pace than the developed economies ever experienced. Another catalyst for this was the phenomenon of skipping technology generations. It is well documented that under developed areas have the advantage of leapfrogging to the latest infrastructural facilities.
Usage in day to day life is a very important consideration for these consumers.  Consider this- When I am home in Redmond, almost every time I leave home with my family, I need to use the internet for a variety of reasons. Checking directions, weather, schedules of the destination, traffic  etc are some of the few travel related information that I cant imagine living without. On the other hand, when I am in India on vacation or business,  life seems to revolve around the mobile phone instead of the PC. This is a very important aspect of life in an emerging world. Every software company should get this – the consumer is still the king and knows the local environment the best. I cant use the PC in the same way in India as I use it in the US for a variety of reasons. In this example above, getting directions to a location over the web is an in exact science because of the fact that the map information has not been completely digitized and constant construction and acute traffic congestions can lend directions irrelevant most of the times. Also, in most large cities in emerging economies, the public transportation systems are so prevalent that driving your own car is very in efficient for running day to day errands.

Simputer

Simputer was developed by scientists from the Indian Institute of Science in Bangalore and Encore, a software company. At $200 each, Simputer offers computing at dramatically low costs compared to a $700 PC. Apart from the low cost, Simputer has many other advantages.

It is roughly the size of a handheld organizer, thereby making it very portable

It can run on an AAA battery, making power connection not a requirement. Uninterrupted power is a huge problem in the rural areas of India and other developing countries, so a very low power requirement is a major plus.

It uses IML ( Information Markup Language ) to convert English content from the internet into many local languages

It uses a text to speech converter to read out the content

It uses the Smart Card feature to allow for personal information management at the individual level for an unlimited number of users.

All of the above features are indented to make the User interface as easy to use as the telephone keypad or the TV remote. Illiteracy, power , dust and other hostile working conditions, ease of use, multi user capabilities were some of the design factors that went into the Simputer’s original plan. Simputer was designed with multi use capabilities in mind. This was a brilliant idea as it encourages a community purchase of the device that can be shared by multiple people and the smart cards stores the personal information for the individual user. I call this concept Shared Computing and is elaborated upon in Chapter X

Some of the innovative uses the simputer has been put to have been in the following fields

Rural Economy Applications

Educational and Content Delivery

Applications requiring a SmartCard readers

Micro banking

Regulatory challenges

Being able to develop and build the industry, depends on having an education
system that can provide some basic, entry-level training to the potential
workforce;
It requires the identification, through a basic mapping exercise, of a core reservoir
of computer software and services activities and personne l from which to build a
wider participant and industrial base;
Many of the potential attractions stem from being able to develop and upgrade
past the initial, low skill-based software activities;
This, in turn, is associated with the ability of domestically-owned companies to
tap into and serve sophisticated overseas clients based in the main advanced
economies of the world;
Above all, the development of the industry requires commitment in terms of coordinating
the wide multiplicity of agencies and institutions, both vertically and
horizontally, to deliver the right environment for the industry to prosper and grow.
Policy intervention requires adequate linking and inter-facing and social learning
processes for it to be successfully delivered on a local scale.

Adoption characteristics
Adoption rates, behaviors and requirements are vastly different in emerging economies as we have explored in this chapter so far. The consumers in these countries are guided by a variety of factors like affordability/ disposable income, day to day use of the technology, infrastructure available for support, needs and wants as evident from mass penetration of cell phones etc. The order of technology adoption is also very different from those in the developed economies in both consumer as well as in the enterprise space. For example there are more cell phones in China than there are people in the United States, but many fewer landlines. Many households in India have cable television but don’t have clean water. We can’t assume that technology diffusion will happen in the same order, at the same rate, or to the same segments as it has in our previous history. Some of these countries have already leapfrogged developed country adoption rates of e-voting and smart-card-based identification. A great example is how India leapfrogged the who mainframe generation to more of the a client server economy because of the fact that software infrastructure was just not there in the 70s and 80s. Couple this with the huge upfront costs of big iron mainframe boxes and it just did not make sense for the companies to jump on the mainframe bandwagon. The maturity level or lack thereof of enterprise 15 years back also played a significant role in this context. It was not until after mid 80’s in china and in early 90s in India that most companies were integrated into the global supply chains.

Furthermore we can’t assume that the applications useful to information workers in the developed world will be equally desirable. For example, most software in the developed world that deals with the professional services sector deals with optimizing resources and saving on manpower allocation but this is not a major concern in the developing economies where labor is often cheap. In these countries, the emphasis is on collaboration and reporting in these types of services application to ensure timely billing and visibility into the project lifecycle.

There is also evidence that point to applications and services that are most desirable in these economies are as follows:

Entertainment— Emerging economies put a premium in the entertainment business. Whether it is in movies in India ,karaoke in Thailand or in gaming in Korea, the regular user in the developing world puts a premium in personal entertainment over other genre of applications

Communication—Adoption of Text and video chats, VoIP etc is an order of magnitude more than in the developed world.

Filling the tiers of the opportunity matrix with high-value but appropriate offerings will require new thinking about customers, products, and business models. We have to e creative to take advantage of the inherent strengths and preferences of the target segment and not look at them through the prism of the developed world. Bundling software services with mobile phone or delivering movie nuggets using value added software or creating a personal entertainment device are all possibilities we will explore in chapter XX when we will discuss the business model imperatives.
Phones, TVs and PCs that really do more together in a manner a consumer can easily use would be compelling to both emerging market and developed world end users. For the emerging world, creating software more resilient to intermittent power or connectivity would be a strong mobility feature in developed markets.

Business model challenges

Intellectual Property challenges

A key problem for the computer services and software industry is that whilst many of the
products and services produced are costly and often pose a financial risk to develop, they are also easy to copy. Ease of copying creates major disincentives to develop new and innovative software, hindering the development of individual (innovative) firms and the industry overall. It should be recognized that not all aspects of the computer software and services industry are affected by copyright and piracy problems. For some computer services, such as maintenance activities, copying is often not a problem. This is the case for custom made computer software writing, where a specific problem requires a specific solution and adapting this solution to fit another user context can be expensive, difficult and in many cases fruitless.
Moreover, the consumer has little or no incentive to share the knowledge associated with the activity because those who stand to gain most are likely to be competitors. There have been two parallel developments associated with intellectual property within the industry: First, there has been a strengthening of intellectual property rights protection afforded to computer software. Second, there remains the issue of unlawful software copying which has become technically easier over time, but which may become more difficult with new
encryption. Enforcement of intellectual property rights legislation in many countries remains very weak or non-existent

Although intellectual property rights protection is important for software firms seeking
protection under various intellectual property rights laws, it is not the only mechanism to avoid appropriability of its intellectual property. There are a number of other strategies which computer software and services firms can turn to, in addition to, or as a substitute for, intellectual property law. These are:
Secrecy: Some argue that the best intellectual property rights’ strategy for an innovative
service firm is secrecy, or “secret know-how” (Taylor and Silberston, 1973). How far secrecy
can be sustained in the computer software and services industries is questionable given that
much (packaged) software can be simply reverse-engineered;

“Ensemble” Protection: This, in a sense, is not a substitute for using intellectual property
rights legislation, rather it seeks protection through novel ways by combining different types
of intellectual property rights to provide protection for a new service product. Thus, software
firms may consider protecting their innovations through an ensemble of intellectual property
rights methods, for example using trademarks with patenting and copyright to protect a piece
of software;

Short Innovation Cycles: By seeking to create ever shorter innovation cycles, a firm can
reduce the risk of copying and imitation by reducing “lead times” by such a factor that by the
time a potential competitor does seek to copy or imitate the innovation, it is too late.
Significant barriers to imitation are created by such action. Innovation cycles in the software
industry are often less than six months. This is particularly true where regular updates are
required and are “natural” for the purpose, for example, with computer virus programmes
which need to come out regularly over short periods to keep pace with new viruses and
“trojans”. However, short lead times impose considerable costs to a firm and more
specifically means that innovation costs will need to be amortised over very short periods;

· “Firmware”: There was much discussion in the 1980s that intellectual property protection
for computer software was so weak that firms sought to protect their software by embedding it
in microchips, coining the phrase “firmware” or more formally “embedded microelectronics
software.” A variety of methods exist for incorporating the software (the “micro-code or
micro-programmes”) in the electronic circuit, although a significant proportion of software is
protected this way, if only because all microprocessor systems must by definition incorporate
their own control programme (OECD, 1985). Interestingly, although such micro-code may be
harder to copy, in the United States such code still falls within the meaning of “computer
programme” (Bainbridge, 1996);
· Standards: A major factor that helps protect software companies is the creation of separate
standards on which their software run. This can be a double-edged sword in the sense that to
be truly successful, software companies need other third-party companies to accept and
develop applications software to run on their system software, by controlling the operating
standards the software is based on. There is a danger that the standard setting software
company can lose control of the standard it creates and therefore lose the power that is
involved with standards-setting in terms of determining the framework and conditions of
software being developed that is based on that standard. There is also the other danger of
being seen as wielding too much monopoly power if the standards become too dominant, as
with the case of Microsoft with its DOS and Windows systems used as the de facto operating
standard for IBM-compatible personal computers

Technology awareness challenges

Technological learning is a real and significant process. Users and firms using a given technology for similar periods need not be equally proficient. Learning curves are different based on skill level, efficacy of the processes and the urgency of the implementation. This is accentuated in the emerging market by the fact that typical mid market companies often have low skilled laborers in data entry type of jobs.

Enterprises in the emerging markets often have archaic business practices that are very labor intensive. There is a lot of in built inertia associated with optimizing these processes as it might entail shrinkage of the labor force. This creates a natural aversion to new software technologies although the productivity gains might be very evident. This phenomenon is changing rapidly with companies and governments coming to grips with reality albeit slowly

Technical advancements have to influence all aspects of a company to be effective. For example in a manufacturing set up the shop-floor, product engineering, quality management, procurement, inventory management, logistics and supplier relations etc all have to be touched for the software to yield the expected results.

Technological interactions occur within a country and with other countries. Imported technology is generally the most important initial input into learning in developing countries. Since technologies change constantly, moreover, access to foreign sources of innovation is vital to continued technological progress. Technology import is not, however, a substitute for indigenous capability development — the efficacy with which imported technologies are used depends on local efforts to deepen the absorptive base. Some countries are better than the others in this aspect. Even with the BRIC community, India and China have a natural inclination towards using technology wile Brazil and Russia are a little more traditional manufacturing type of economies.

Chapter 1: Introduction

2005-08-23T21:39:00.000-07:00

The Great Silk Route, operational from the late 2nd century B.C to about 4th century A.D laid the foundation of the first truly global economy and the first multicultural society. The Silk route connected Northern China under the rule of Hun dynasty with Western Europe through the trading junctions of the Indian subcontinent and Persia. Silk, spices, horses, precious metals and even religion and technologies like textiles and metallurgy were traded in this first multilateral global trading consortium of kingdoms. The same reasons that led to the development of this route and flourishing trade about 2000 years ago are leading the way to a new revolution in today’s context. The quest to design and sell software to emerging economies of the world has many a parallel to the silk route in its fundamental economic origins. Entrepreneurs in mature markets are looking outside their core constituencies by catering to virgin markets. In the old times, the silk  market in China, the spices market in India and the horses market in Europe were all saturated but all the regions benefited by customizing their products and selling to new consumers.  Software companies in the developed economies are facing the same challenge today and an incredible opportunity awaits them in the form of a 4 + Bil people market representing the so called “Emerging economies”.

Several significant events over the last few years like the end of the cold war, opening up of east asian economies like India and china, explosion of the internet and mobile phones etc  have shifted the tectonic plates, and the after effects are still being felt in the world of trade and commerce. These changes will have a profound impact on how companies view their target market as it is very evident that the consumers in the lower slab of income are becoming attractive in every facet of business. As we map gaze into the crystal ball, empowerment of the poor and exploiting the economies of scale and volume in these markets will be key expansion strategies for the software industry. Yes, there is tremendous opportunity in the developed world for software but the sheer numbers of the emerging markets are too staggering to ignore. This emergence is not going to be automatic. We have to realize and design products that take into account the differences in culture, infrastructure and business practices. This book is about developing a methodology for doing just that.

What is globalization ? Why do we care about this ? How does this impact the world of software ? These are some of he tough questions that are being asked across the industry today. The software industry is no stranger to globalization and emerging economies. What is different now is that rather than just focusing on emerging economies as sources of great developers and sources of software development, software companies are  looking at designing and developing software applications that are targeted at the 4 Bil+ people that live in the non developed parts of the world. This is an area in which the software industry can learn from other predecessors like the consumer goods, retail and financial services industries that have a head start when it comes to customizing products for local economies. Traditional thinking is that globalization is all about leveraging economies of scale and just a matter of setting up delivery channels for delivering the products or services. From this perspective, the key strategic challenge is simply to determine how much to adapt the business model—how much to standardize from country to country versus how much to localize to respond to local differences. While this works in some industries it is really not that simple in most cases. Even fundamental products as Coke and Kellog’s cereal had tremendous challenges when it ventured into emerging economies. It Kellog’s case it was more of a cultural issue that in many target countries like India, cereal was not an accepted part of the breakfast routine. It had to reinvent its products to make inroads into one of the most promising consumer markets in the world.

Diffusion of Technology
Technology diffusion into the emerging markets will continue over the next several years but the rate will not be uniform and the depth of penetration will be varied across the different geographies.  Various socio economic factors will dictate the order of technology adoption and its rate of penetration. For example, due to poor land line infrastructure, cell phone adoption has exploded while the desktop PC adoption has been lukewarm.

Famous Economist Robert Solow observed in 1994 that Computers are everywhere except in productivity statistics. In an ironic twist to that “tongue-in-cheek” observation, software is ubiquitous except in 70% of the world ! To say that software has really not touched the 4 Bil+ people living in the so called “emerging” economies of the world would not be an exaggeration. As enterprise software companies run out of Fortune 500 companies to sell to and consumer software makers run out of households and teenagers in the developed markets, the emerging markets in the Bottom of the economic pyramid becomes a very attractive but a challenging target. This article examines why software has not really been able to penetrate this segment and ponders on the critical success factors that might influence the software design and the business models for successful forays into these markets.

The Lure of the Emerging Markets
Let’s look at some of the major factors that makes this market very attractive but at the same time extremely difficult to cater to due to the fundamental socio economic challenges:

Size of the target market -70% of the world’s population has a per capita income of $15,000 per annum. Chances are that these people are probably not regular users of any kind of computing device currently. This makes them attractive target markets but they present an extreme challenge because of their social set up and affordability factors.

The number of PCs in use worldwide will reach almost 1.3 billion by the end of the decade — up from about 575 million today. With only about 150 million new PCs coming from mature PC markets in Europe, the US, and Asia, the rest will come from emerging markets like China, Russia, and India. With growing computing power comes the need for compelling software to boost productivity and to gain process efficiencies

Empowerment of the poor- The Rural markets of the emerging economies are more wired and accessible now than ever before. With this connectivity comes the opportunity to communicate and to access knowledge for day to day tasks. This opens up a consumer market of giant proportions as long as we are smart about tapping it

Global Supply Chains ( GSC )- GSCs are a result of off-shoring, out-sourcing and a renewed focus on exploiting the untapped emerging market consumers. Thomas Friedman in his latest book “The World is Flat” writes about how the playing field has been leveled and how supply chain for almost every business has become global. Global supply chains have impacted almost every vertical industry like Healthcare, Legal, Financial Services, Manufacturing etc making it important for software companies to customize and offer its products and services to parts of the globe that were afterthoughts until recently !

Busting the myths around emerging markets
There are plenty of myths surrounding the needs and wants of emerging economies. Some of them have sound reasoning behind them but most don’t. Here are some fundamental flaws in traditional thinking around selling software to the emerging economies

1. Waiting for the Emerging economies to be “ready” for software
One of the frequent quotes that one hears from software makers is that “the emerging markets are not ready for our products”. On the contrary, Globalization has affected almost every other perceivable industry like healthcare, retail, Financial Services etc. Companies in these industries are not only using services from emerging markets as “out sourced labor pools but are also aggressively pursuing these markets as the next big opportunity to sell their products and services. Manufacturing and Supply chain software companies are probably the ones that have had to develop software for the emerging markets keeping in line with the trends On the other hand, software industry that prides on being the leading light of leveraging the offshore development and delivery model has been surprisingly stoic to the fact that these markets present incredible opportunities themselves.

2. Extreme paranoia over software piracy
Sure software piracy is a major problem for software makers in emerging economies but it is not an unavoidable phenomenon especially in the enterprise market. Firms that are fixated over this are most likely the ones to be left out of the emerging wave of opportunity.

3. Assuming that poor markets can be served with “minimal” functionality
Another frequent mistake that software companies make is to offer “trimmed” version of the same software for developing countries and wonder why the adoption rates are rather appalling. A key characteristic of the emerging market whether we consider the enterprise or the consumer market is that they expect no less in terms of features and functionalities. In fact one might even go on to add that these consumers are savvy enough to demand the latest in computing, state of the art cell phones in rural India and China being cases in point.
4. Emerging economies are often laggards when it comes to consuming bleeding edge software
Here is another urban myth – no pun intended. Emerging economies might be laggards in terms of overall adoption rates but we should not mistake this for the market being a laggard in terms of its wants. On the contrary, emerging markets are notorious for their tendency to skip generations of technology, a luxury its developed counterparts don’t have. For example, India pretty much skipped the main frame wave of computing and directly hopped on to the current wave of desktop and PC based computing. Another example is the rapid and remarkably dense penetration of high speed internet lines in South Korea almost skipping the whole dial up generation.

Now that we have a good understanding of the market dynamics, lets turn our attention to factors that software makers have to consider while designing software for the emerging markets

Focus on what’s working in the emerging markets

Learn from the cell phone penetration in the emerging markets. India alone added about 2 Mil Cell phones every month. NTT DoCoMo’s famous i-mode mobile service had more than 3.5 million users in Japan in its first year in operation alone in 1999-2000. i-mode’s original target market were the 20 something upper middle class and above gen Xers

Innovate new payment models

In the example above, DoCoMo also pioneered a new payment model of a flat fee plus packet based charge for downloads. It also allowed for 3rd party companies to make content and other downloads such as games available through i-mode for a royalty fee. This was a brilliant concept and quickly a thriving ecosystem of content providers, billing consolidators and value added service providers sprung up.

Focus on the right genre of software applications

Social computing: Most of societies in the emerging economies put a premium on social interactions making this a very compelling domain for software makers to focus on. Making blogs, podcasts and multi node networking sites available in devices in different form factors will be one such avenue. SMS is a stranger to most people in the US but is the lifeline of many an emerging economy. Stock quotes, weather, sport updates, instant messages, tele marketing campaigns etc are some of the innovative uses SMS has been put to in these countries. There are even companies that offer SAT and GRE learning services over SMS !

Entertainment software

You never know what will entertain people in different parts of the world. Exclusive Ringtone downloads alone were about a $3.5 Bil market growing at more than 40% worldwide last year of which more than 20% of the market was in India alone. Surprising but true is the fact that this market is strongly influenced by the local Indian movie releases as ring tones of the latest film music is a fashionable thing ! Other entertainment software include, peer to peer gaming, interactive TV , mobile games, quizzes and puzzles etc.

Collaborative software

Tailoring solutions based on locale

Many basic elements required for buying and using software that we take for granted in the developed world are not so in the emerging world. For instance, most poor people cannot to buy software and would rather rent or lease it for on a per use basis. Usage patterns of technologies are also quite different in these parts of the world. In most developing countries, internet access is predominantly dial up based and fees are charged based on the number of minutes one is online and that charge includes ISP and telephone fees. This has led to people pre typing all their email in notepad prior to logging on to the internet for the absolute minimum time to just paste and send their emails ! This should be a case for creators of CRM product vendors as sales reps are more likely to be offline for the majority of the day and would probably do a quick sync up every 2-3 days. Software should be tailored to the local economies to facilitate these behaviors instead of expecting the consumers to change their patterns.

Invest on consumer education

Another aspect of catering to the emerging markets is to ensure that the target consumers fully understand the benefits of the software product they are offered. ITC, a large Indian Corporation offered direct access to the Chicago Board of Trade for rural farmers in interior India by setting up e-Choupals that are essentially internet kiosks that give the farmers up to date information about the commodity prices worldwide. In a place where pure drinking water and paved roads were luxuries, e-Choupals caught on like wild fires but not before ITC trained the locals on its usage and potential benefits.

In addition to taking into account the specific factors we discussed above, it is also important to consider some fundamental aspects that govern software for the emerging economies.

Rethinking the business model

Traditional Client access based licensing models might not be the best ones in Emerging markets that are known to be notoriously cost conscious. Despite having similar user characteristics, the enterprises in the merging economies often work with tighter budgets and even thinner budgets for IT. Manpower on the other hand might be in abundance making productivity arguments for ROI in IT systems rather ineffective. The value of IT as a critical competitive advantage is something that has not sunk in completely in the mid markets of the emerging economies. IT spending is seen mostly as a necessary evil and hence strategies must be crafted to clearly articulate the value proposition of the software above and beyond just productivity. Penetrating the market with a low upfront but annualized payment model might be a better approach in these markets.
In chapter XXX we will develop a framework based on a model I call “Lateral Design” to help us uncover these challenges.  This framework will help in designing software for emerging economies by taking into account factors like affordability, infrastructural limitations, deployment imperatives etc.

Rethinking the vertical markets
Let’s look at some of the leading vertical markets and explore how the socio economic factors in these industries impact the way software has to be designed to address those macro factors. Most of the business applications intended for the enterprise market evolved from the business practices of the developed countries. For example, the financial services segment largely grew out of the GAAP and SEC regulations in the US and the Sarbanes Oxley regulation is shaping the software features around compliance and auditing. In many emerging markets, there are many instances of fundamental differences in the way business is carried out and the software has to be specifically modified to accommodate those differences. Micro Credit lending is a large scale program run in many emerging economies at grass roots level.  This might be an opportunity to design a software to manage this process around micro credit schemes.
Most emerging markets don’t have state sponsored healthcare hence the regulatory and healthcare related insurance markets for software makers is low but the market for in-patient hospital management software is ripe. Another area of potential growth is in Life Sciences software as there is an increasing amount of grass roots research and drug trials. With the recent enforcement of GATT and WTO regulations that provides IP protection for generic drugs, the pharmaceutical manufacturing industry is bound to take off in the next 2-4 years. Manufacturing software that specifically address this need might be another possible solution in the healthcare segment.
In the retail industry, most emerging markets don’t have large retail chains like WalMart or JC Penny but this is changing very rapidly. For example, in China the 10 largest retail chains combined to sell more than $15 Bil a year in 2004 and is growing at more than 50% a year. This means that there is a lot of potential for Point of Sale as well as backend store management, distribution software, warehousing solutions etc.

Robert Solow might have been right in 1994 but we are battle tested and too smart to let it happen again. Software companies will eventually figure out how to serve the poor and the underprivileged and make successful business models out of it but the real challenge is in getting there first. Lets the games begin !

The New Silk Route

2005-08-23T21:37:00.000-07:00

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 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 framework for software targeting emerging economies, the book looks at specific instances both in the consumer segment as well as in the enterprise market. Drawing on macros economic trends, the book delves into applying the principles of the 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.

Salient points of the book

Understand why the emerging markets are important for software companies

Learn about the changing world order and the underlying shifts that are contributing to this phenomenon

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

Status of the work

About 60 % of the manuscript has been written

The book is expected to be about 75,000 words long

Manuscript has not been edited or proofread yet