Archive for the ‘Emerging Markets’ Category

IKEA in India: Culture Centered Design Strategy

Its taken more than 10 years for single brand retail stores to enter the Indian market, and this year sees India’s first IKEA opening in Hyderabad. TS Ninan introduced their retail challenge succinctly, though he left me wanting more. And this snippet from an interview with the market opening CEO of IKEA in India (who, having laid the groundwork for 6 years, has now left – an interesting and thoughtful strategy right there imo) caught my attention.

In Europe, businesses look at the past, their systems and processes to plan ahead. India does not have a legacy. People don’t look backwards. Here you create the future as you go

Was IKEA’s product, design, and brand strategy going to be as human centered as reports of their 1000 home visits made it seem, or, as the groundbreaker Juvencio Maeztu implies, committing to India means a “culture centered strategy” – that too, one that is customized for each different culture, centered around a metropolitan area. For those who think India is a country, I like to remind them that its closer in concept to the EU, its a single market and currency, but each city has its own languages, culture, cuisine, and clothing, not to mention each state.

Ikea’s global designers meet artisans in co-creation workshops to handhold local artisans design products that meet global quality and design standards.via

I see familiar names in the design article. And I do like the photographs though I recognize my eye is taken aback because the years in Finland have influenced my aesthetic sensibilities closer to the Nordic norm. What I can say is that if this what the Swedes came up with after distilling down their hundreds of home visits, its an excellent integration of two extremes of design language. IKEA will have fun in India, and I suspect they intend to. The takeaway for culture centered design isn’t that “India” will receive one singular design aesthetic or product line but that each one of India’s cultures, both traditional and modern, will be catered to. That is powerful.

Moving from Unbranded to Branded

There’s a larger story here as well. The changes occurring in the Indian consumer market, for instance, and the increase in aspiration, purchasing power, and most importantly, design sensibilities. Back in 1990, during my first job after leaving the National Institute of Design, Ahmedabad, I faced barriers to marketing industrial design services that I suspect don’t even exist now. Product design was imitable and not something one paid good money for oneself. There were corporates who understood our value as a design studio but they were few and far between. Now, IKEA’s entry isn’t into a completely untapped market – there’s competition that’s been born in the last decade, both online and off. And, finally, there’s the handmade artisanal informal sector, who have long copied IKEA products from hand me down catalogs. On the other hand, unlike most consumer brands entering the Indian (or the African market) IKEA recognizes the competition offered by the informal (unorganized, as its known in India) economy, and seems to have addressed it.

What’s interesting about the Wharton analysis from October 2017, is that all the issues it raises seem to have been covered now that IKEA is finally revealing its India strategy as the first store prepares to open this month.

Unlike my concerns back in 2006/7, this time I’m a lot more confident that IKEA will achieve something wholly unexpected in India. I look forward to visiting.

The comparative global impact of Alibaba vs. Amazon

Alibaba Business School and the United Nations Conference on Trade and Development (UNCTAD) brought 29 young entrepreneurs from 11 countries across Africa to the Alibaba campus in Hangzhou, China for the third eFounders Fellowship cohort.

Chinese corporate soft power influence is production driven, not consumption focused. Alibaba, the e-commerce giant with digital payment tentacles, has been graduating cohorts of young entrepreneurs from Asia and Africa this past year. This initiative is the outcome from Jack Ma’s seminal visit to Nairobi last year, when thousands of young Kenyans waited for him in the sun.

Photo Credit: Abdishakur Mohammed, July 2017, University of Nairobi grounds, Kenya

He talks about entrepreneurship in a digital world, and personally shows up to meet visiting cohorts to talk about taking the lessons learnt from e-commerce in the most challenging environments in China (rural, mobile, social) back home to their own not dissimilar operating environments.

Contrast this with the first thing that comes to mind when you think about Amazon these days – a desperate workforce unable to take a leak, afraid to lose their low waged jobs as worker bees in a humongous warehouse. It keeps prices down and the consumption that runs the billions flowing, but whom does it benefit beyond the shareholders?

It struck me when I saw the news about “Alibaba Global Leadership Academy” that Chinese soft power was increasingly about driving production and growth aka development along their entire value chain, even among putative new consumer markets, whilst the American model was still stuck in a consumption driven mindset of the 1980s first wave of globalization. Buy more cola, wear our jeans, use our credit card, say the American brands in Jakarta or Accra or Nairobi.

The difference in mindset is stark when you think about the tech giants of Silicon Valley looking to uplift with low cost connectivity and internet basics for free, and compare to the Chinese giants thinking about raising the purchasing power first. The english language media would have you believe its all about neo-colonialism for natural resources, but the recent shifts in tactics and strategy seem to imply a less demoralizing mindset than anything evidenced by charitable good works handing out goodies to the downtrodden. Because whatever the agenda, the bottomline will be that at end of the exercise there will be a group left inspired to build their own markets on their mobiles, versus a group left holding a palliative goodie.

“My experience here has shifted my thinking. Before, we were focused on pleasing the investors, but now I see the importance of putting our customers first, then my employees, then the investors,” said Andreas Koumato, 26, from Chad , the founder of Mossosouk, an e-commerce platform. “Let others [benefit], then later, we will gain.”

Production driven social impact is far more powerful than consumption driven. Human centered productivity even more so.

Primer on African Fintech: Myths, Misconceptions, Opportunities, Hotspots and Roadblocks

As we prepare to start work for our third African fintech client, I thought it was time to quickly and briefly introduce the opportunity space and clear up some misunderstandings around fintech in Africa.

  • The first point is the common confusion between Fintech and financial inclusion. Investopedia’s definition of Fintech says financial inclusion, that is, affordable and accessible financial services to the underserved and unbanked is only one of the many areas fintech is actively addressing. While technology helps provide cheaper solutions for emerging markets such as those on the African continent, all fintech cannot be said to be equivalent to financial inclusion.
  • This leads us to a clarification on what exactly is Fintech. I prefer to quote Investopedia since the entry in Wikipedia defines it as the industry itself. “Fintech is a portmanteau of financial technology that describes an emerging financial services sector in the 21st century. Originally, the term applied to technology applied to the back-end of established consumer and trade financial institutions. Since the end of the first decade of the 21st century, the term has expanded to include any technological innovation in the financial sector, including innovations in financial literacy and education, retail banking, investment and even crypto-currencies.
  • Thus, while financial inclusion is a key untapped opportunity space for fintech innovation of all kinds, there are numerous other opportunities along the entire value chain of financial service provision both B2B and B2C, including intermediary services, which are ripe for disruption in the African context.
  • Beyond the conventional preference for disruption of the existing context, there are as many if not more opportunities for meeting the unmet needs of African businesses and consumers. History, geography, economics and conventional wisdom have together combined to create a vacuum of solutions and services that address the unique circumstances of the African operating environment which still tends to be heavily cash dependent and is described commonly as “informal”. And this commercial environment has lagged in custom designed tools and services for small business productivity or household enterprise management.
  • Hotspots: Kenya overwhelming leads in mindshare as the leading fintech innovation market on the continent, and grabs the lion’s share of investments in East Africa. However, the GSMA’s latest report implies West Africa is rapidly catching up, and may outspend East Africa. The WAEMU region is a hidden hotspot, and Ghana leads the anglophone countries.
  • The largest market opportunity, by population, remains a challenge however, for a variety of reasons including policy and regulation. Nigeria’s payments innovators have made a name for themselves but their domestic market has not felt the impact of their efforts. Even mobile money, introduced more than 5 years ago, has only achieved 1% penetration. On the other hand, it took India years and years before digital payments reached visibly transformational critical mass. There’s hope.
  • Lastly, Chinese investment has just entered the African fintech space, talking up financial inclusion – a clear sign of its economic importance for the future development of trade and industry.

West Africa’s incipient mobile platform boom will transform the ECOWAS economy

While East Africa has tended to grab the headlines as the mover and shaker in mobile platform innovation, there’s an imminent boom due to emerge in West Africa. The GSMA’s most recent report on the West African mobile ecosystem contains all the signals of this happening within the next 3 or so years.

Even in mobile money solutions, where East Africa has had a headstart (and worldwide fame for M-Pesa), numerous new solutions have been launched in West Africa and subscriber numbers show double digit growth.

In addition, both smartphone penetration (~30% of all subscribers) and internet use are growing as well.

All of this, taken together with the growth of incubators, accelerators and variations of tech hubs to support the startup ecosystem provide evidence of a transformation underway.

Does West Africa have the potential to surpass the success of East Africa? I believe so, given its larger population, greater numbers of dynamic economies from both Francophone and Anglophone regions, and the side effect of years of watching East Africa grab the headlines.

How do we make a business case for an innovative concept given the data scarcity for the African mass market?

Anzetse Were writes some thoughtful points on the challenges facing private sector innovation in Kenya, and Africa. Two of her points caught my attention, in particular:

With regards to the private sector, an interesting point raised is that innovation targeting it must have a business case for adoption otherwise the innovation won’t be absorbed. Innovation must demonstrate that the short-term inconvenience of adoption will pay off in the long term.
[…]
We have a real problem with information asymmetry and data bias. [… ] strategies for market penetration and sharing cannot be rolled out since the lack of data means the private sector doesn’t know where the market sits.

While Anzetse has specifically focused on the interface between the private and the public sector with regards to innovation, the points she brings up are nevertheless a challenge for either or both parties.

Size and value of the market opportunity for an innovation when data is scarce

Investors in innovation for new and untapped markets need the numbers to make sense of the opportunity. A dollar value and estimated size of the market are among the conventional metrics used to provide evidence of a return on their investment. How substantial is it?

In the African context, the mass market where the volumes can be found tends to be heavily biased towards the informal sectors, and still for the most part based on cash transactions. Textbook approaches to sizing and valuing the market space fall short without accessible and relevant data.

A few years ago, we were faced with a similar challenge for Village Telco, a social enterprise launching an innovative ICT device for low cost voice and data communication. They had developed the Mesh Potato,  a device for providing low-cost telephony and Internet in areas where alternative access either doesn’t exist or is too expensive. It is a marriage of a low-cost wireless access point capable of running a mesh networking protocol with an Analog Telephony Adapter.

They were looking to enter the Kenyan market, with the notion that the cyber cafe industry would make the best target audience for their device. Their investors wanted to know the size and value of the market opportunity prior to launching the product in Kenya. Although this happened just over 6 years ago, Kenya had already made a name for itself as a forward looking mobile phone market unafraid of experimentation.

Our challenge was two-fold: We were to look at 2nd and 3rd tier towns, not just Nairobi and Mombasa. Village Telco was looking to connect the unconnected. And we had to estimate the size and value of the market opportunity for a sector – internet cafes – that was primarily cash based and informal, particularly given the rural and small town geography we were considering. There was little or no data available to even get a handle on the number of cyber cafes operating in Kenya.

Secondly, we had to get an idea of the price point at which the product would be acceptable to this target audience. Keep in mind that the device was wholly unknown – an innovation – and there was nothing comparable on the market.

A qualitative approach to quantitative estimation

Given that this was not a conventional research project, and time and resources were constrained to a market analysis, we designed a minimal viable market discovery phase that would permit us to gather enough insights directly from the cyber cafe operators in order to estimate the size and value, as well as recommendations for pricing and market entry.

In late 2011, Kenya’s administrative divisions were still the original provinces.

Based on population density and relative income demographics, as well as an ICT gap analysis of voice and data services – reports available through Kenyan government institutions – we planned an optimal route that maximized exposure to the types of locations Village Telco had specified whilst sampling cyber cafes across a range of infrastructure access and regional income. This coverage was completed in less than 3 weeks.

Surfacing trends through indepth open ended interviews

Where we invested our time and effort was in identifying entrepreneurial and innovative cyber cafe operators in the smaller towns and villages we visited. The vast majority of internet cafes are run as side businesses by the owners who might be white collar employees or civil servants, and often managed by employees. It was the cyber cafe owner operator who saw their business as a growth opportunity that we were seeking.They not only knew their market but had seen the opportunities to grow and expand their services.

They were able to give us an idea of the future of the cyber cafe business in their region, a rough estimate (few businesspeople are willing to openly share revenue data) of the scale of their business, and the trends in decline or growth of the types of services they offered.

Through the data gathered, we were able to estimate the high growth regions for internet cafe services – Nakuru town for instance had seen the number of cybers grow from 10 or 15 in 2007 to upwards of 50, primarily due the increase in tertiary education institutions. Kilifi, on the Coast, had seen a doubling when a local university campus opened.

At the same time, we were able to gauge the value of the opportunity space by using the proxy of the proportion of owner/operators to manager/employees – the former were more likely to be interested in the Mesh Potato than the latter.

Our route planning also provided evidence of the pathways for innovation diffusion, outwards in a hub and spoke model from the central hub of Nairobi’s business district where new electronic products landed from the manufacturing centers of Asia.

Sitting down face to face with the cafe owners and showing them the product and what it could do gave us the insight on pricing and market entry strategy. By the end of 5 weeks from start to finish, we were able to make a business case for innovation meant for a data scarce environment.

Innovation means breaking new ground

While the effort on the ground was very different from a conventional market analysis exercise due to the need to elicit information directly on the market and the product, the time and resources invested by the client were no different from an analysis based on secondary sources and accessible data flows.

The nature of the African mass market is such that pioneers entering the market will have to break new ground, not only with their products and services, but also their approach to analyzing and evaluating the business case for investment. It is not an impossible task and should not be considered a barrier to entry.

Why does the prepaid model work so well and what are the lessons for business model innovation?

Increasingly, employment is becoming ad hoc and flexible. The gig economy and the informal sector share a common characteristic of incomes which are irregular and unpredictable, unlike the timely wages characteristic of formal employment. Both budgeting and planning thus become a challenge when there’s no predictable paycheck to rely on. Expenses are managed against cash flows to minimize volatility, and payments with calender deadlines become a challenge in planning.

It is in this scenario that the prepaid or pay as you go model works so well for the customer, one of the reasons why its ubiquity across the developing world drives the growth of mobile phones. It puts control over timing and amount of money spent in the hands of the user, allowing them juggle voice and data purchases against available cash in hand.

Here are the lessons for business model innovation applicable for a plethora of products and services, drawn from our decade of research into the financial frameworks underlying the operating environment characterized by unpredictability and volatility, and the success of the prepaid model.

Flexibility

The prepaid model is flexible. There is no rigid requirement on the amount that can be spent, beyond the voucher values of each telcom operator, nor are there periodic calender based deadlines such as those in a monthly bill. In Nigeria, traders have been found to top up their phones multiple times a week or even the same day, yet purchasing the smallest denomination of vouchers. High frequency of small amounts is a purchasing pattern that resembles their own cash flow while trading in the informal market. They don’t want to tie up their liquidity in airtime in case cash on hand is required for business, yet their trade is clearly dependent on mobile communication hence the frequent recharges.

This flexibility built into the business model clearly puts control over timing and amounts spent in the hands of the end-user who must manage a volatile cash flow situation.

Seasonality

In addition to the daily or weekly fluctuations in cash flow experienced by gig economy workers or those active in the developing country informal sectors, there are larger variations in income level over the course of the natural year. Unlike the regularity of a monthly salary, irregular incomes rise during peak seasons, such as festivals and holidays, and plunge during low seasons. Developing country economies are more closely linked to the seasonality of agriculture, given the greater proportion of the population’s dependence on farming. Incomes can vary as much as 300% for instance, for tea farmers in western Kenya’s Kisii region. Climatic effects also have greater impact on cash flows, and the current drought in East Africa is expected to depress livestock prices in the coming half year. On the upside, seasonal peaks in consumer durable sales are predictable as the regional harvest timings are a known factor. North India’s post harvest season in late October/November kickstarts an orgy of consumer spending during the festivals and the weddings which take place during this period.

Business models designed to take expected seasonal changes into account can minimize the dropout rate of customers when their income changes.

Liquidity

One of the biggest challenges we have wrapping our heads around when considering more rural or cash intensive economies is that liquidity is not equivalent to wealth, or even purchasing power. While this factor can apply to anyone relying on multiple income streams from a variety of sources, I’ll use the example of a small farmer to explain its importance to the design of business models.

The homestead is managed like an investment portfolio, with different sources of income maturing over different durations of time over the course of the natural year. This is also why control over Timing – frequency, periodicity – of payments, such as possible in the prepaid model, is so critical for the success of payment plans. A smartphone might be purchased after the major harvest of the annual cash crop, but its the daily cash from the sale of milk that would be used for recharges (and other basic necessities). Similarly, a calf may be purchased to fatten against the following year’s school fees.

Negotiability

This leads directly to a factor more relevant to heavily informal economies where variance in systems and structures means transactions are more human centered, depending on face to face communication, trusted references, and mutual compacts rather than legal contracts to enforce agreements. Negotiability of your business model, and its close relation, reciprocity – “the give and take” – is an element missing from faceless institutions that seek to serve this demographic.

This is one reason many prefer to seek solutions outside of formal banking institutions, for example, as their opening hours might not suit the trader’s business hours. In Busia, Uganda, most women traders had established trusted relationships with a mobile money agent, many of whom would show up at the end of the work day to assist the trader in transferring the cash earning safely onto the digital wallet. And, unlike the bank, the telco’s prepaid model allows customers to “negotiate” when and how much they’ll pay within the constraints of far more flexible terms and conditions than most other models.

A farmer has “purchased” this solar panel after coming to an agreement with the shopkeeper. He will pay off the total, over time, as and when he has spare cash, and collect the panel when payment is complete. There is no interest charge. The shopkeeper has put the farmer’s name on the panel but will keep hold of the item.

The greater the span of control over timing and amounts, the greater the success of the payment plan

The prepaid model bridges the critical gap between the predictable formal structures of the large institution and the dynamic challenges of the informal. The bottomline is that the flexibility, negotiability, and reciprocity of the model are more important factors for its success than the conventional understanding of permitting micropayments in advance. Numerous consumer product marketers entering emerging markets experienced this challenge when their micropayment hire purchase models failed customers who might have to miss one or two week’s payments due to illness or other emergencies – their products were repossessed without any recourse to adjustment. Its the rigid calender schedule embedded in a payment plan that is often the barrier to a high ticket purchase than the actual price itself.

None of these factors are insurmountable with today’s technology, and the field for business model innovation for irregular income streams such as those in the gig economy or the informal sector is still wide open for disruption.

Disrupting Predictions: How Stereotypes Distort Expectations

This chart embodies some stereotypical thinking regarding the high growth opportunities now available in low income and lower middle income countries. Its from the just released World Development Report 2019’s concept note on the theme “The Changing Nature of Work”.

Where the cognitive dissonance lies is in the accompanying text which highlights the transformational capacity of digitization and its impact on the nature of work in developing countries. As this snippet shows, Kenya has been showcased as an example of such technology enabled change:Based on this, the chart’s positioning of jobs such as “mobile application developer”, “data technologist”, and even “cyber security consultant” should actually be further to the left, given that its the lower income nations where the majority of the future need will emerge from.

Even fashion designers are not spared, placed as they are in middle income countries. Lagos Fashion & Design Week has become the byword for up and coming fashion brands, sponsored heavily by the likes of Heineken. Kigali is another hotspot for fashion’s rapid growth, and the local brand “House of Tayo” reached the pinnacle of global visibility with their bespoke suit for Lupita Nyongo’s brother, worn for the Black Panther premiere.

The irony is that if this chart is used as is, without correlation to the transformations mentioned in the text, it will end up being the one thing that readers will notice when glancing through the final report. Diagrams and visuals catch our attention faster among reams of text.

Further, if these are the predictions being made, how much of the unquestioned assumptions relegate lower income nations to tourism hubs and farming? Drones are being deployed for healthcare in East Africa, and being tested for parcel delivery where transportation is scarce. Won’t drone operators and robotics engineers find jobs if these initiatives scale as planned? Its the developing countries that face greater logistics challenges, lacking the infrastructure of the developed.

There’s a strong case to be made for the redesign of this chart. It places an unfair burden on lower income and lower middle income countries, and implicitly relegates their future of work opportunities to the less skilled quadrant. Given the current and existing changes already underway, there’s a disruption waiting to happen if this is the chart that’s used for policy planning and analysis.

The African Informal Sector: GDP Contribution vs Scale of Human Impact

The informal economy in sub Saharan Africa (SSA) tends to be measured as a share of GDP, counting its contribution to the national economy. By this metric, Nigeria has the most economically empowered informal sector, contributing over 60% to the GDP. On the other extreme, South Africa, has one of the smallest contributions to the GDP from the informal sector, but the highest unemployment rate.

Yet both Nigeria and South Africa are neck to neck when it comes to the title of “largest economy on the African continent”, or place in the top 3. So what does this tell us about these IMF metrics being used to measure the informal sector?

The human impact story is missing from the equations

South Africa might have one of the smallest informal sectors in terms of contribution to their GDP, but the number of people generating their income from the informal sector is almost as large as Tanzania, whose informal sector contribution is more than double, second only to Nigeria.

WIEGO’s research, from which the above employment figures are drawn, highlights the social impact and scale of the informal sector in human terms. Already, the informal sector’s employment opportunities are growing faster than the much smaller formal sectors in most major African economies. New graduates and working age adults still need to find a way to put food on the table.

Its not enough to simply look at GDP contribution when it comes to the complex value embedded (and untapped) in the informal economies of these nations. Where social safety nets are scarce, and systems variable in their functioning, the human and social impact of the informal cannot be ignored in development planning and policy design.

Connectivity, Communication, and Commerce: The 3 Cs of Africa’s Smartphone Led Future

Recent headlines touted the decline in marketshare being seen by smartphones on the African continent, and the concurrent increase in sales of basic devices. Yet a closer look shows that this shift might only be numerical due to the opening of new markets in heavily populated DR Congo and Ethiopia – first time buyers are likely to start with entry level phones.

In fact, role of smartphones in Africa is not only likely to grow and evolve over the coming 3 to 5 years but its very likely that it will be connectivity apps driving their adoption. We Are Social’s latest report shows Africa’s internet user numbers have been growing by over 20% year-on-year.

The 4th C – the Challenge of Unquestioned Assumptions and Great Expectations

With connectivity and communication, commerce was expected to take off but anyone tracking the headlines would notice the challenges faced by African e-commerce platforms. Some point fingers to connectivity as the issue, expecting to reap benefits from scale of penetration. Others point to high costs of data and devices, or challenges with completing the transaction online.

Looking at the patterns exposed by all the reports and the articles makes one wonder whether it’s the underlying assumptions and expectations that are the real problem. The untapped market is hyped out of proportion by each new entrant who rush in with their disruption to revolutionize the African consumer, only to rush back out again when the traction fails to succeed. This has been muddying the waters of what could have been a considered thoughtful opportunity to transform the social and economic landscape.

Yet its not all negative. If someone was to ask me about how connectivity and communication are driving commerce in the African context, I’d point to the plethora of informal trade in goods and services being conducted daily across social media platforms. Everyday there’s a new product or service launched with a tweet. Groups on Facebook encourage and support the entrepreneurial journey. Cryptocurrency trading is making Kenya famous as a first mover.

The difference in traction seems to be that which is self organized and organic vs that which is institutionalized and/or introduced from elsewhere. The external pressure to succeed in the same terms as that visible in the Silicon Valleys might actually be a greater barrier to the sustainable development of the African online community led commerce, increasing pressure on founders and startups with every negative headline. Maybe the lesson from the informal organic growth online is that might actually be a matter of throw the technology at them and see what emerges without lifting the lid every other second to check progress?

Maybe all that is needed is more locally relevant content, such as already being seen emerging from Nigerian and Kenyan tech blogs, rather than the imposition of metrics and heuristics from developed nation contexts.

Mobile First Africa: Opportunity for Accessories that Boost Productivity on Smartphones

Long ago, when smart phones were still on their way to changing the world, I remember the product development of a host of accessories that would boost business productivity in a variety of areas for phone owners.

The projector phone was one such innovation, flopping back when it was launched due to the tech not having caught up yet. I bring this up because I read an article this morning that highlights a major challenge for the ‘mobile first’ African market.

“We hear about mobile-first Africa, it sounds sexy,” said Nanjira Sambuli, digital equality advocacy manager at the World Wide Web Foundation. “But how much meaningful work can you get done through your mobile. Are we creating a divide? We are not going to be equal if mobile is the only way. Because mobile is for consuming.”

Today, technology is far more advanced, and as China has shown us, far more affordable. Can a range of productivity solutions be launched as accessories for smartphones to disrupt the African SME market?

The Japanese are already ahead with their answers, such as this keyboard by Elecom. The products are all out there, I think its just a matter of identifying the opportunity and the price point for the African markets.

The continent tends not to be taken as seriously for enterprise solutions as it could be. Informal sectors do not mean lack of purchasing power or opportunity space. Perhaps this is the sector that is now ripe for disruption by an enterprising entrepreneur.