IT Growth in Emerging Markets

Stephen DeAngelis

September 6, 2007

One doesn’t expect to have Borat, the bumbling Kazakh reporter portrayed by comedian Sacha Baron Cohen, to serve as the lead in to a story in BusinessWeek; but, Steve Hamm pens just such an opening in an article about soaring IT sales in emerging market countries [“The Back Roads to IT Growth,” 6 August 2007]. Hamm’s point is that perceived backwater states like Kazakhstan are moving rapidly into the information age.

“If you ask Western technology giants how they regard Kazakhstan and dozens of other so-called emerging markets, you won’t hear much giggling. In fact, as tech markets mature in the U.S. and Europe, outposts in all sorts of global backwaters are delivering a powerful dose of growth. Consider this fact: Kazakh carrier JV KazakhTelecom chose networking giant Cisco Systems Inc. in July to upgrade its national broadband networks. The thought of Kazakhs surfing the Net at lightning speeds may come as a surprise to some. But Cisco is banking on such deals. It expects sales in emerging markets to explode from $2.5 billion last year to $10 billion in 2010, which would be about 20% of its business, say analysts. Dozens of developing countries—many flush with oil-related cash—are snapping up everything from routers to fancy telepresence video gear. ‘We’re not selling low-tech cheap. These countries are looking to leapfrog the West,’ says Paul Mountford, president of Cisco’s Emerging Markets Theater.”

This trend is one reason I see opportunities every time I read about or visit an emerging market country. It is also why I believe that Enterra Solutions’ Development-in-a-Box™ approach has a bright future. It builds upon and enhances the very IT technologies that Hamm writes about. Leading this trend are the most advanced emerging market countries, the so-called BRIC nations.

“SAP, the German software maker, said sales in the so-called BRIC countries—Brazil, Russia, India, and China—grew at 2 1/2 times its overall corporate growth rate of 10%. Meanwhile, IBM’s BRIC sales increased 32%. Russia vaulted by an astounding 52%. India grew by 45%. And the company’s overall BRIC growth rate is actually accelerating. Other markets in Eastern Europe, Southeast Asia, and the Middle East are adding big growth numbers for the tech giants as well. ‘These economies are reaching a point where they’re large enough to make a difference,’ says Stephen Minton, an analyst for market researcher IDC.”

Hamm notes that not all big companies are doing well.

“Even when markets are bubbling, some blue chips struggle. For instance, Dell Inc.’s preferred method of selling via phone or Internet doesn’t always travel well. It’s one of the reasons Dell is on the skids. But the computer giant has been learning from its mistakes. Dell now sells to consumers through stores in Mexico. And through much of the rest of Latin America, the company is hawking its gear on traveling shows. It may sound retro, or like a page from Gabriel García Márquez. But if putting on traveling shows wins business in booming developing markets, why stay home?”

Dell’s troubles don’t come as a surprise. You can’t very well take advantage of a system that is just being put in place and with which few potential customers are familiar. Traditional stores and traveling shows become the two-sigma solutions that work when six-sigma approaches don’t make sense. This appears to be a lesson that McDonald’s has also learned. In emerging market cities where, transportation remains a problem and traffic congestion is the norm, McDonald’s is making home deliveries [“Knock Knock, It’s Your Big Mac,” by Michael Arndt, BusinessWeek, 23 July 2007].

“While Americans suffering from a Big Mac attack typically pull up to the drive-through window, in the developing world the fast-food chain increasingly does the driving. In traffic-choked cities from Manila to Montevideo, McDonald’s deploys fleets of motor scooters to get hot food to customers fast. … All told, McDonald’s delivers in some 25 cities, with a half-dozen more on deck. The company just launched deliveries in Taipei, with 1,000 drivers, is expanding Shanghai to citywide service this summer, and is testing the concept in Beirut and Riyadh. In Egypt, where the setup was pioneered in 1995, deliveries now account for 27% of all McDonald’s revenue and up to 80% at some restaurants.”

As I’ve written before, this kind of bottom-of-the-pyramid activity is important and encouraging to see whenever it points up. It helps create jobs. It helps put in place the kind of infrastructure upon which other sustainable development activities can build. It helps familiarize people with the technology they will need to move from the ranks of the poor to the ranks of the middle class. It encourages people to become literate and get more education. There are also companies, like Dell, that expect the installation of IT infrastructure to spur the PC market. That is one reason that the Taiwan computer company Acer has agreed to buy Gateway and why the Chinese computer company Lenovo Group bought IBM’s Thinkpad line. Although it will take some time for emerging markets to close the digital divide with developed countries, it is happening faster than most people thought it would.