It wasn't long ago that some Western tech executives dismissed the prospect of a surge in new customers from emerging markets. Yes, countries like India and China had hundreds of millions of people not yet connected to the world via PCs and cell phones. But most of them were peasants who wouldn't make good customers, or so the misguided reasoning went.
Now, says Paul Jacobs, CEO of Qualcomm (QCOM), more and more execs are getting over the misconception that low-income consumers in emerging markets only want basic services and aren't worth pursuing as customers. "Everybody used to say that the low end was just voice and text," he says, referring to areas where telecom operators usually don't make much money.
But, he adds, there are rural customers who are just as quick as their city cousins to use cell phones for the kind of more advanced multimedia transmissions that operators treasure. "There is actually demand there for all kinds of connectivity," he says.
That's a big reason Qualcomm and other tech behemoths are developing new designs tailored specifically to the needs of consumers in countries like India. For instance, Qualcomm engineers are working to replace liquid-crystal displays on cell phones with new technology that can reflect natural light, so they'll eat up less energy and be easier to see out of doors. Motorola (MOT) launched an India-designed mobile phone that uses similar reflective technology.
Hotter PC Sales Growth
Indeed, the tendency for Western companies to sell technology targeted at the developing world will probably flourish in 2007. New statistics issued by market research group International Data Corp. illustrate just how important those countries are.
Shipments of cell phones in 2006 topped 1 billion for the first time, up 22.5% from 2005, according to a Jan. 25 IDC report. Driving much of that growth was demand from the developing world.
"Device shipments into emerging economies in Asia/Pacific, Central and Eastern Europe, the Middle East, Africa, and Latin America have surpassed shipments to mature markets," said Ramon Llamas, research analyst in IDC's mobile technology and tracking team, in a statement. "And the difference between the two continues to grow."
What's true for cell phones is equally true for PCs. Singapore-based IDC analyst Bryan Ma predicts that computer sales in Asia will grow 15% this year, thanks largely to demand from China and India, following last year's 17% growth. That compares with 10% growth globally and just 2.6% in the U.S. last year.
No wonder, then, that companies like Intel (INTC) are focusing more on hotter-growth countries beyond North America, Western Europe, and Japan. In May, Intel CEO Paul Otellini announced the company's "World Ahead" program, an effort to connect 1 billion users to the Internet via wireless access.
Intel hopes to roll out its Classmate PC, a low-cost computer for use by schoolchildren in countries where ordinary PCs are beyond the reach of most families. Up against Intel is One Laptop Per Child, an organization run by MIT professor Nicholas Negroponte that is working on an even lower-cost machine, expected to cost about $150, compared with at least $400 for the Classmate PC (see BusinessWeek, 6/12/06, "In Search of a PC for the People").
Meeting Basic Needs, Too
Technology for cell phones and computers grabs the most headlines, but in 2007 companies will be looking to emerging markets for opportunities in more mundane sectors, too. Consider, for instance, the humble light bulb.
Twenty percent of the world's electricity consumption goes to lighting, says Philips Electronics CEO Gerard Kleisterlee.
The Dutch conglomerate, one of the biggest producers of lighting equipment, hopes it can sell more efficient light bulbs in emerging countries where governments are committed to reducing energy bills. In the Chinese capital, the Beijing city government has switched the streetlights on Chang'an Boulevard, the main east-west road that cuts through Tiananmen Square at the entrance to the Forbidden City, to new high-intensity discharge lamps from Philips.
Similarly, in India, the company is working on advanced technology for basic needs. Last year, Philips (PHG) engineers concluded trials on a new technology for wood stoves that burns fuel more efficiently and reduces toxic emissions and smoke.
Philips is also working on technology to provide users with clean drinking water. "The focus on the bottom of the pyramid is for simple, affordable solutions for the needs of rural areas," says Kleisterlee.
As officials in China and India focus more on improving their infrastructure and health-care systems, Western companies are selling technology adapted to local needs. German electronics and engineering giant Siemens (SI) is tailoring capital goods to emerging markets such as India.
Among them is a system designed to help cities manage traffic flows; a lower-cost version was developed for Indian settings. Siemens also has developed a mobile hospital that can travel to remote villages and a mobile ultrasound machine.
"Siemens can't just work in glamorous high tech," says D. Ragavan, head of Siemens' medical division in India. "We have to create solutions for these people."
Nokia (NOK), which has made emerging markets a priority, continues to introduce low-cost phones designed for markets where many users do not have access to reliable electricity, and may not even be able to read.
At the same time, Nokia execs are adamant that users in the developing world do not want "cheap" phones, especially since a handset represents a major purchase for many people, akin to a car in the developed world. People want features—and even fashion.
So the Nokia 2310, which sells for about $85 before subsidies, has a built-in FM radio and comes in a variety of colors. The 1112, priced at $59, has a talking clock and an iconic phone book that allows people who can't read to use symbols, such as a flower, as a substitute for written names.
Nokia is also tailoring its infrastructure products to low-income markets. For example, one software offering gives prepaid customers a constant update on how much account balance they have left. Nokia is increasingly integrating more sophisticated services into low-priced phones, such as e-mail or Web browsing.
Outreach to Buyers
Figuring out how to reach the next billion is tricky, though. Look at what happened to Advanced Micro Devices (AMD) when it tried to sell users in the developing world a stripped-down computer designed to make it easy to get onto the Internet.
The "Personal Internet Communicator" was inexpensive but wasn't easy to use (it didn't have its own display, for example), and the product was a flop. AMD shelved it last year.
Difficulties aside, Qualcomm's Jacobs says that it's worth the risk. Consumers in emerging markets may not have as much money to spend as their counterparts in the West, but with economies growing, that will change.
"We don't think we're going to make a lot of money on the first phones people buy," he says. "But eventually they will buy more and more."