Third World First

Monday, January 21, 2008

Das, a 42-year-old commercial painter, grins as a worker for a local micro-finance group frames his face with a digital camera and zooms in. It is an important moment. His photo will adorn a smart card that, with help from a mobile phone and a fingerprint reader, will allow Das to store money electronically, make small cash withdrawals, and send money to his family on the other side of the country. It is the first bank account he has ever had.

This might seem like a classic example of the Third World struggling to catch up with the First. After all, people in the United States and Europe have been using ATM cards and the Internet for years to perform the simple banking tasks Das is only now able to do. But look again: The technology used to bring slum-dwellers like Das their first bank accounts is so advanced that it isn’t available to even the most tech-savvy Americans – at least not yet.

Soon, however, it may help you purchase groceries, withdraw cash from an ATM, or ride the T. Already in the past year, Citigroup has taken a mobile banking system it pioneered in India and brought it to the United States. And a host of other companies, from Ford to Microsoft, are following suit: piloting new technologies and ways of doing business in the developing world, and only then bringing these products and services to wealthier consumers in more mature markets.

This represents a stunning reversal of the traditional flow of innovation. Until recently, consumers in the Third World also had to tolerate third-rate technology. Africa, India, and Latin America were dumping grounds for antiquated products and services. In a market in which some people still rode camels, a 50-year-old car engine was good enough. Innovation remained the exclusive domain of the developed world. Everyone else got hand-me-downs.

But today, some emerging economies are starting to leapfrog ahead. Why build a network of telephone wires out to remote areas when you can go straight to a cutting-edge mobile network at a fraction of the cost? Why burn fossil fuels for electricity and cooking if cleaner – and in some cases cheaper – alternatives, like solar and biogas, are available? Why electrify rural villages with incandescent bulbs if longer-lasting, environmentally friendly options like LEDs or new fluorescent bulbs exist? In many cases, it is mature markets like the United States and Europe, tethered to older systems, that find themselves playing catch-up.

There are numerous industries in which the new new thing is being designed for the developing world, and only later reaching the United States or Europe. Motorola’s Motofone, designed with emerging markets in mind, is thinner than its popular Razr, gets up to 400 hours of standby on a single battery charge, and has a screen specially designed for text messaging that works using reflected light, with no need for an internal lamp. Oh, and it will retail for just $30. Intel has begun field tests of a new wireless broadband standard that could connect billions in the developing world to the Internet cheaply – and, if it works, will probably become the standard for the rest of us. Cheap combination drug therapies that are easier for poorer, less educated patients to follow are pioneered in the developing world before arriving in our medicine cabinets. Improvements in water treatment and clean energy – for instance, producing biogas from household waste – are also emanating from the developing world.

To achieve the growth rates and returns their shareholders demand, companies have increasingly begun chasing what C.K. Prahalad, a business professor at the University of Michigan, has called “the fortune at the bottom of the pyramid” – the vast aggregate purchasing power locked away in the 4 billion people who make up the world’s poor. And as they do, companies are confronting the unique challenge of making high-tech products cheaply enough to make a profit. In some cases, this means shifting jobs for talented designers and engineers to the developing world – not just to save labor costs, but in order to better understand the markets they are now trying to reach.

Continue reading “Third World First

Source: Boston Globe (link opens in a new window)