Chapter 4
Australia to Zanzibar: No Country for Old Products
“Designed by Apple in California.”
Those five words are embossed on countless devices around the world. Those are words for consumers to lust after, but they mask a global journey beyond their initial design in Cupertino, California:
Manufacturing iPhones involves nine companies, which are located in the PRC (People's Republic of China), the Republic of Korea, Japan, Germany, and the U.S. The major producers and suppliers of iPhone parts and components include Toshiba, Samsung, Infineon, Broadcom, Numunyx, Murata, Dialog Semiconductor, Cirrus Logic, etc. All iPhone components produced by these companies are shipped to Foxconn, a company from Taipei, China located in Shenzhen, PRC, for assembly into final products and then exported to the U.S. and the rest of the world.1
That was iPhone version 1.0. Later Apple phones and devices have used different suppliers and different countries.
On the customer front, when Apple introduced the 3G version of the iPhone in 2008, it did so in 22 countries, with more than 50 other countries following over the next few months. The excitement was universal:
In Hong Kong, designer Ho Kak-yin, 31, wearing a T-shirt that said, “Jealous?” was first in line in a queue of about 100 inside a Hong Kong shopping mall. “I'm very excited. It's very amazing,” Ho said, after lining up two hours ahead of the kickoff. Hundreds queued outside stores in New Zealand's main cities got their iPhones earlier at midnight Thursday.2
The rollout required coordination with telcos like VimpelCom in Russia, Etisalat in Dubai, and Telia in Sweden, which many of us have never heard of.
Fast-forward to the iPad Apple introduced in 2010.
Mike Laven's bio modestly states he “has had a long career in financial technology in both Silicon Valley and London.” Starting with his MA in International Affairs from The School for International Training at Harvard and a Peace Corps assignment in India, and numerous technology jobs in between, he is equally at home in Paris, Delhi, and Tel Aviv. He truly is a “global citizen.”
He describes a scene at a spa in June 2011 in southern Germany:
Well-off clientele and always totally global: Egyptians, Russians, Israelis, Lebanese, the Stans, smatterings of everywhere else, many Europeans and rarely an American. The universal adoption of the iPad this year is incredible—everyone has one, ages 25–70. People are doing mail, checking local newspapers, getting news from home, but this is not a surfing/gaming crowd. Reminds me of last year's universal adoption of the Stieg Larsson novels, when everyone was reading the same book in different languages. Interestingly, I don't see many of the other tablets which I see in the U.S. While everyone else is talking Apple has locked up global opinion makers.
Apple's global prowess is impressive, but it is a mature company over three decades old.
How about Groupon getting to almost $650 million in quarterly revenue as a two-year-old startup?3 It has been called the fastest-growing company of all time. It bought stakes in similar coupon/deal sites around the world, including CityDeal in Germany, Darberry in Russia, Clan-Descuento in Chile, and Qpod in Japan. It offers daily deals in over 500 cities around the world.
Or Netflix. It was primarily a U.S. player until it expanded into Canada in 2010 with modest results as its streaming service was hindered by low data caps by the country's broadband ISPs. That led people to believe it would cautiously expand globally. To the surprise of many, it announced plans to enter Latin America in a big way!
While a populous and fast-growing part of the world, these aren't generally countries considered broadband leaders. For example, according to OECD data of per 100 inhabitant broadband penetration as of December, 2010, just two countries in the region—Mexico and Chile—fell into the top 34 in the world (#32 and #33 respectively), each with a 10.4 percent penetration rate per 100 inhabitants.4
With this blitzkrieg approach to global expansion, Groupon and Netflix are clearly betting that if they don't put down stakes, others will do so.
Some would say Apple, Groupon, and Netflix reflect the realities of Tom Friedman's description of a new Flat World.5
“Globaloney”
Actually, the world is not that flat. Pankaj Ghemawat, in his book World 3.0, calls that view “globaloney.”
Why?
“Because economic data simply don't support the view that we live in a flat, connected world, even if we are technologically connected with everyone, everywhere, all of the time. Data show that most types of economic activity that could be carried out across national borders are actually still concentrated domestically.”6
Look at the world from the eyes of someone “down under.” Ben Kepes is an analyst with Diversity, Ltd. in New Zealand:
I live a life full of dichotomies. I live in rural New Zealand in the midst of an idyllic valley and surrounded by vineyards and olive groves. My working life however sees me visit the U.S. several times each year, and spend most of my working day interacting with colleagues overseas primarily in the U.S. but in other countries as well. This dual life gives me an interesting perspective on technology and its adoption in different countries.
Case in point is broadband. New Zealand has a single fiber optic cable connecting it with the outside world. As would be expected, this single cable (or more correctly, the single provider that sells access to the cable) means that data caps, poor access speeds, and throttled capacity are the norm. While moves are currently underway to lay an alternative cable between New Zealand and the outside world, it's fair to say that the realities of limited connectivity have had an impact on the uptake of technology. Given that the vast majority of data our citizens access come from outside our own borders, it never surprises me that smartphones are still a relatively unique phenomenon in New Zealand. Compare that to Silicon Valley, where it's rare to see someone without a data-enabled mobile device.
It is perhaps for this reason that New Zealand is one country where eBay hasn't realized market domination of the online auction space. Rather a local site, TradeMe, which not only has a local flavor to it but, more importantly, serves up content from local sources, is by far the biggest player in this space. In fact TradeMe is widely credited as being the service that really brought Internet usage to the masses. This amazing uptake saw TradeMe sell to Australian media group Fairfax for some $700 million several years ago. People have commented that TradeMe was helped to its position of strength by relatively slow uptake of technology caused by connectivity constraints.
In other areas, however, where connectivity isn't such an issue, we're real leaders in technological innovation. Witness EFTPOS, our own debit card system for electronic transaction processing. EFTPOS (short for Electronic Funds Transfer at Point of Sale) was introduced here in 1985 as a pilot scheme in gas stations. Since that time EFTPOS has become very much the de-facto way of paying for goods. The majority of all retail transactions are processed using EFTPOS, a figure that puts New Zealand close to the top of global debit card usage. In fact, a random observation at convenience stores, gas stations, and other retail outlets shows that New Zealand has almost attained that long-predicted status of a cashless society.
In such an uneven world it helps to have a “human-behavior researcher” like Jan Chipchase, who carries his Nikon around the world to send pictures back to Nokia designers in Finland and elsewhere:
(Chipchase) could be bowling in Tupelo, Mississippi, or he could be rummaging through a woman's purse in Shanghai. He might be busy examining the advertisements for prostitutes stuck up in a São Paulo phone booth, or maybe getting his ear hairs razored off at a barber shop in Vietnam.7
Local Nuances
Learning global nuances unveils nuggets like the following ones:
- A software company executive visiting Poland expects to review development opportunities there. Instead, he is presented with a market opportunity. “Your customers in the United States and Western Europe are hesitating to adopt your cloud computing offerings because they have to integrate with plenty of old legacy systems. We have little legacy—so few barriers to adoption. Come here first.”
- Then there is what is being called “trickle-up” innovation, or reversing the traditional global rollout model. GE Healthcare introduced its MAC 800 electrocardiograph machine in the United States for a mere $2,500, an 80 percent markdown from products with similar capabilities. But what really distinguishes the device is its lineage. The machine is basically the same field model that GE Healthcare developed for doctors in India and China in 2008.8
- A GE competitor in medical devices, Medtronics has a joint venture with Chinese firm Weigao for several reasons:
First, local demand: As China's second-tier cities boom, their clinics are crying out for cheap gizmos. Second, the Chinese government is pushing ‘indigenous innovation’ by favoring local firms in tendering, procurement, and so on. An engineer gleefully points out that as a local entity the Medtronic joint venture can buy essential rare-earth metals cheaply, despite Chinese restrictions on their sale.9
- There are unique regional nuances:
—The Japanese lead the world in their use of vending machines and service robots:
Japanese people have been exposed to robots as heroes that bring justice and peace. On the other hand, in the United States and Europe, robots are often depicted as enemies. Vending machines are one kind of robot, so Japanese people accepted this robot as easily and subconsciously as they accepted other robots in cartoons.10
- Few mobile users in India use voicemail and instead have evolved their own version of signals around “missed calls”:
Missed calls are when you call someone you know, you let it ring only once or twice, and then cut the call. This is generally between people who talk regularly and a missed call conveys a preset message. For example, a wife might give her husband a missed call at the end of the workday to convey that she is heading home and that it's time to meet up. Or someone might give a missed call to a friend they commute with indicating that it's time to pick him up. Or a student might give a missed call to her parents—so that the parents can call back (that way the parents incur the cell phone charges).11
- The “Arab Spring,” the revolts that spread across Tunisia, Egypt, and other parts of the Middle East, opened eyes to the impact of social networks even in authoritarian countries and the marketing opportunity they offered. There are
7.4 million Facebook users in the Gulf according to Inside Facebook as of May and 5.5 million Twitter users in the Middle East according to ArabCrunch as of March (of 2011).12
- Think only the Swiss and the Japanese can make precision watches? London-based Hoptroff is a “silicon foundry that designs and patents electronic watch movements for ‘future classic’ timepieces.”13 Hoptroff continues the tradition of other watch industry innovations from that city, including the 1664 invention of the balance spring and the 1753 innovation related to temperature compensation. An example from their “Carte des Ebauches”:
Bluetooth Low Energy is a new wireless technology being introduced during 2011 and 2012. It allows the wristwatch to make the small communications hop to smartphones while still only requiring coin-cell power. The phone connection allows the watch to complement the phone, rather than compete with it for the customer's attention, and allows access to live data from RSS data feeds using Hoptroff software on the phone.
- There's Spain, the land of Don Quixote and his tilting against windmills, now a global leader in wind energy. Iberdrola Renovables, the world's biggest producer of wind power by installed capacity, is based in Valencia but operates in over 20 countries.
All this has significant impact on global product launches and marketing considerations. It is very easy to ignore promising markets and focus on traditionally “rich” countries. On the other hand, it is easy to assume consumers in each market behave the same. Public policy also differs considerably around the globe and regionally within countries as we see in the next section.
Impact on Public Policy
In the United States six years ago, just two markets—the western and southeastern regions—accounted for more than 55 percent of the nation's renewable energy generation capacity. “Their share of capacity is now down to about 40 percent; other regions have grown at a faster clip.”14
Two-thirds of Iceland's population (approximately 320,000) is on Facebook,15 so the council that is revising its constitution broadcasts its weekly meetings live not only on the council's website, but on the social network as well.
Singapore has turned itself into a laboratory, teaming with MIT to form the Singapore-MIT Alliance for Research and Technology (SMART) center to examine the “future of urban mobility” as well as other growth issues. Its purpose? “To study how cities work and how they can work better.”16
Joe Garde of IrishDebate.com points out the Irish are the “glue” in many enterprises around the world. This has allowed the Irish Diaspora outside Ireland, estimated at 20 times the population in the island, to thrive. It challenges the Irish government, though. Should it prepare its young talent to “export,” as it did for decades, or should it find a way to attract multinationals to invest there as they seek tech-savvy talent and replicate its more recent Celtic Tiger success?17
South Korea is investing 2.2 trillion Won ($2 billion) under its Smart Education program to digitize all elementary and secondary school textbooks. This way they can be read on a variety of devices, including computers, interactive whiteboards, iPad-like tablets, and smartphones. Classes will also be video-streamed online so children who can't come to school due to poor health or weather don't miss out. Children with disabilities may also benefit: e-books could be controlled by eye-tracking or gesture recognition, for example.18
Quincy, in a rural part of Washington State, has quietly become a data center hub for companies like Dell, Intuit, and many others. “Quincy officials say the data center building boom is helping them buck the trend. Real estate prices are rising, and tax revenue surged to $2.24 million last year, from $700,000 in 2005, according to City Administrator Tim Snead. Quincy recently spent $1 million on a new library and $75,000 for a new museum parking lot. It repaved 60 percent of the streets, bought a hook-and-ladder truck for the fire department, and erected an edifice for such services as the management of parks and water.”19
Of course, while we compete on earth, there are plenty of opportunities to collaborate, especially in space. The International Space Station has had over 200 people from 11 countries over the past decade, and it has been assembled from components named Destiny, Kibo, and Zarya from 15 countries.
And Yes, Let's Not Forget about Zanzibar
That's Zanzibar as in the bar that Billy Joel made famous with his hit in 1979 (it included a memorable solo by the famous jazz trumpeter Freddie Hubbard). The hospitality and restaurant industry has a continuing problem with inventory accuracy and losses. It is an established industry fact that approximately 25 percent of all alcoholic beverages disappear, and not via evaporation. Automation to help control inventory has been of limited success, mostly due to intrusive methods for setup and control or because the overtaxed bar staff were required to do additional tasks to manually facilitate inventory control. Beverage Metrics Inc., a California subsidiary of Austrian company Identec Group, has built a solution utilizing second-generation wireless technology to provide real-time control of inventory in general and beverages in particular. Additionally, its solution can reconcile actual liquor, beer, and wine pours with point-of-sale (POS) system entries without any additional tasks being performed by the bartending or waitstaff of a restaurant, bar, or banquet. This solution also provides analysis on bar staff performance around over- and underpours, substitutions, compliance with mixed drink recipes, and compliance to a POS revenue transaction for every pour dispensed. The system uses sensor-enabled RFID tags and readers. They are capable of sensing the pouring motion of the liquor or wine bottle and communicating to the middleware infrastructure. That translates the sensor data into an estimate of the volume that was poured. This “pour engine” is 90 to 95 percent accurate, considered the best in the industry. An in-line turbine system is used to accomplish the same task for draft beer.
Conclusion
In some ways we live in a flat world where Apple, Google, and Facebook have become our common language. On the other hand, there are so many unique nuances that it would be naïve to assume global branding and universal product versions can be successful for all products. The different rates of technological evolution also offer significant policy opportunities as states, provinces, and nations compete for jobs and investments. Let's next look at Estonia's remarkable “Tiger Leap” and rapid evolution away from decades of communist stagnation.
Case Study: Estonia's “Tiigrihüpe”—Tiger Leap
“George Washington.”
“George Washington.”
“George Washington.”
Rein Krevald is using a heavy accent as he mimics his late grandmother's answers to every question on her U.S. citizenship test. The Immigration Officer had every reason to fail her. Instead, he chuckled at the grace of the lady and said, “Welcome to the United States.”
Krevald, born in the United States, continues reminiscing about his family with roots in the tiny Baltic country of Estonia.
It occurs to me that my parent's success when they arrived in the United States in 1947 and Estonia's success after the fall of the Soviet Union in 1991 had a very significant common denominator: Starting with a blank slate!
When my parents arrived in the United States, they had absolutely nothing material to their names but they both had an education. My mom was a pharmacist and my father had been a lawyer in Estonia. It was almost impossible for them to aspire to their previous careers in this country. Being open minded towards any opportunity that came along, my mother launched a successful career as a cosmetic chemist (she ended up with numerous patents to her name) and my dad ended up working for CitiBank in New York.
When Estonia regained its independence, it also was starting from scratch … . Estonians had suffered during the Communist regime (even though the Soviets had secretly assembled their first computer and designed their first space mission in an Estonian research park), but to the best of their ability had kept up with the rest of the world especially through watching Finnish television.
The capitals of Finland and Estonia are just 50 miles away as the crow flies. Before the Soviet takeover of Estonia, the countries had roughly similar standards of living. Over the next 50 years, the Finnish per capita income was estimated at seven times as much as that of Estonia.
Same with the country after the Soviets left—decisions had to be made quickly but starting from square one made it easier.
Jaan Tallinn, one of its founders of Estonia-born Skype, agrees with Krevald. Skype is the company that revolutionized VoIP calling and that Microsoft bought in 2011 for $8.5 billion. He says: “Because we started anew, we got new laws, new leaders, and new technology … . the big winners were the start-ups.”20
Continues Krevald:
Estonians were not mired with the existing infrastructure. Do we try to fix the crappy Soviet landline phone system or do we embrace cell phones? Easy answer. In no time almost every Estonian was using a cell phone. It helped that Nokia, a Finnish company, was close by.
Western economists give a lot of lip service to a flat tax system. Estonia just went ahead and successfully implemented it.
As Erich Follath wrote in 2007: “Few countries are as crazy about the Internet as Estonia, and no capital city can keep up with Tallinn on that count. All schools are connected to the Internet; more than 90 percent of all bank transactions are conducted online; and there are more mobile phones than residents.”21 “You should see their electronic voting. Not like our hanging chads,” jokes Krevald, who lives in Florida.
One of the architects of this digital society is current president (then Estonian ambassador to the United States) Toomas Hendrik Ilves, who in 1996 proposed a “Tiger Leap” for the country. The tiger moniker was in recognition of the “Asian tiger” economies that had blossomed using technology.
Krevald grew up with Ilves and was in the same Estonian Boy Scout troop in northern New Jersey. “You could tell he was into technology even back then. He and his father would be working on radios and electronics when the rest of us were running around in the woods playing with sticks.”
The initial Tiger Leap focus was on education. Almost all the schools were supplied with computers in 1997, and a quarter of the teachers was trained on them. By the end of 1999 there was an average of one computer for every 28 students in Estonia, bringing its target of “one computer for every 20 pupils” within reach. More than half of the total number of teachers has graduated from the Tiger Leap's beginner course.22
Says President Ilves, “Every student's access to a computer and Internet is as natural today as having a lamp in the ceiling of the classroom.”23
Today, of course, it is way beyond education. “For citizens of Estonia, e-services have become routine: e-elections, e-taxes, e-police, e-healthcare, e-banking, and e-school. The ‘e’ prefix for services has almost become trite in the sense that it has become the norm.”24
Tiina Krevald (Rein's second cousin) has been in technology since 1994 even before the Tiger Leap initiative. She now works for Microsoft in Estonia, and describes her family's digital lifestyle:
—We have free wi-fi everywhere. In practically all public establishments, from hotels to gas stations, there is a public wi-fi that is free of charge or for a small fee. I travel around the world, and nowhere is web access so easy—and usually it costs so much.
—I can do all my banking online 24×7, even sign contracts digitally with my resident ID card (the card has a chip that not only holds information about the card's owner, but also two certificates, one of which is used to authenticate identity and the second to render a digital signature).
—My tax declaration took five minutes this year. Everything popped up on-screen prefilled (my income, my donations, my tax exemptions for my young kids). I only had to check the accuracy of data and press the confirmation button. Shows the power of a flat tax, and the level of automation of the tax system.
—Took me another five minutes to cast my vote. In the 2011 parliamentary elections 140,000 voters (25 percent of the total) used this convenience.
—I pay for parking using my mobile phone. The charge shows on my cell phone invoice. It's available all over Estonia in public and private parking zones.
—Our medical and real estate records are digitized and very easy to access in our state registries.
—Via e-School I can check on my kids’ grades, their absence from classes, the content of lessons, and homework.
—Our prescriptions are digitized from the doctor to the pharmacy—so no lost paper scripts, or handwriting transcription challenges.
In 2007, the risks of that much digitization of the economy showed up. The Economist wrote, “for the past two weeks Estonia's state websites (and some private ones) have been hit by ‘denial of service’ attacks, in which a target site is bombarded with so many bogus requests for information that it crashes.
The Internet warfare broke out on April 27th, amid a furious row between Estonia and Russia over the removal of a Soviet war monument from the center of the capital, Tallinn, to a military cemetery.”25 Wired magazine called it “Web War One”:
All major commercial banks, telcos, media outlets, and name servers—the phone books of the Internet—felt the impact, and this affected the majority of the Estonian population. This was the first time that a botnet threatened the national security of an entire nation.26
NATO responded by establishing a Cooperative Cyber Defence Centre of Excellence (NATO CCD COE) in 2008, and located it in Estonia.
Having blazed a digital trail, Estonia is now poised to also lead the world on cybersecurity even as the world tries to emulate what Estonia has offered its citizens for over a decade now. It has set up a cyber National Guard. President Ilves notes, “It's a government-funded, white-hatted hacker organization … . People spend their weekends or evenings and they do something defense-related.”27
President Ilves looks ahead and says, “We must give the Leap new meaning so we may cope with ever-changing functions.” He honors “Tiger Achievers” on a regular basis and keeps encouraging entrepreneurs who are following Skype's lead and companies like Microsoft to expand there with talent like Tiina. Along with its Baltic neighbors, Latvia and Lithuania, Estonia is developing a nice reputation for mobile, social, gaming, and other applications.
In the meantime, Estonian citizens and Diaspora around the world are justifiably proud of the digital prowess. Some like to call it “e-Stonia.”
Indeed, Krevald tells an Estonian joke that goes:
At an archeological dig, Russian scientists found traces of copper wire and announced their ancestors had the world's first telephone network. Germans later announced they had found traces of fiber-optic cable during a dig and concluded that their ancestors already had an advanced digital network. Soon after, Estonian newspapers reported a dig in Narva had found absolutely nothing. We, therefore, have concluded that our ancestors were the first users of wireless technology.