Literature review

Academic literature was not found to be rich in resources which combine an interest in broadband Internet businesses with a developing world context. The majority of published content seems to be from the International Development departments of western governments, trade organizations and both international and local Non-Government Organizations (NGO‘s).  There is also a plethora of web based material available.  Due to the political nature of government departments, trade organizations and organizations like the United Nations and World Bank, a bias can be expected in such material which at least puts a positive spin on results obtained.  Critically reflections and evaluations of their projects were not found. 

About the Digital Divide 

Before the issue of viability of individual Internet businesses in developing countries can be discussed, it is helpful to review the context.  Many people and organizations are attempting to increase Internet availability in the developing world in order to address the “Digital Divide”.

Where did the phrase “Digital Divide” come from and what is its impact?  One of the earliest references to the Digital Divide is thought to have been in the New York Times (Poole, 1996) referring to the differences in educational opportunities between computer-rich schools in affluent suburbs and those in computer-starved deprived neighborhoods, within the USA. The phrase seems to have gained official acceptance with the publication of “Falling Through the Net: Defining the Digital Age” (Department of Commerce, 1999) but still concentrated on the situation inside the USA.  This thinking extended beyond the United States to the developing world. The United Nations Development Program (UNDP) recognized in 1996 that “more than half of the world‘s population lives more than two hours from a telephone.” (d‘Orville, 1996) and it is claimed that in 2004, less than three percent of Africans use the Internet compared

with around 50% in countries belonging to the G8. (International Telecommunications Union, 2003.)  There are many definitions of what the Digital Divide is, but a common thread is that it concerns the inequality of availability and access to telecommunications and electronically accessed information.  Indeed, Norris (2001) makes a distinction between what she calls the Digital Divide, which she says is to do with physical infrastructure and connectivity and the Social Divide which describes the social and economic reasons why some people have access to digital sources of information and some do not.

By the year 2000, it seemed like information  and communications technology (ICT) had become a panacea in some people‘s eyes: “creating sustainable economic growth, enhancing the public welfare, and fostering social cohesion, and work to fully realize its potential to strengthen democracy, increase transparency and accountability in governance, promote human rights, enhance cultural diversity, and to foster international peace and stability.” (G8 Okinawa Summit, 2000)  The international aspects of communications inequality are sometimes referred to as the Global Digital Divide.

According to Latio (2003), developing countries will stay underdeveloped unless their populations can be better educated.  He insists that this requires excellent data communications access in schools and further education and education in Information and Communications Technology (ICT) itself. There are many studies showing a link between economic development and the degree to which efficient telecommunications are deployed, although there is also debate about which is the cause and which is the effect.  However, the lack of communications has a clear effect: “Efficient telecoms boost business efficiency. In Ghana, up to 50 percent of working time in small firms is wasted by chasing up goods and orders in person for want of reliable phone, telex or fax lines.” (Deane and Opoku-Mensah, 1997)

Limited local markets, especially in rural areas, leave little room for the degree of specialization in work that is common in developed societies. It is not new knowledge that such specialization improves productivity.  Adam Smith (1776) wrote, “The greatest improvement in the productive powers of labour, and the greater part of the skill, dexterity and judgement with which it is any where directed, or applied, seem to have been the effects of the division of labour.”

There are many references to all manner of ills which are blamed on the Digital Divide.  A more exhaustive discussion is inappropriate here.  However, having laid many of the problems of the world across the shoulders of the Digital Divide, it is not surprising that there is much effort directed at narrowing the gap.

Initiatives to improve access to the Internet

Whilst there is widespread acknowledgement of the problems that could be solved by better Internet access, there is less agreement about where to start with solutions.  Many approaches look at part of the problem – commonly infrastructure improvement. Peter Senge (1994) encourages the development of Systems Thinking – “a way of thinking about and a language for describing and understanding, the forces and interrelationships that shape the behavior of systems.”  Without doubt, the extension of the Internet in developing countries should be thought of in terms of developing an ecosystem and not just a wiring project.  The recognition of the ecosystem was quoted as being a major factor in the success of DoCoMo‘s i-mode in Japan (Natsuno, 2003).  This kind of thinking has been employed in an excellent guide, looking at the different aspects that need to reach a level of maturity in a developing country, in order for

Internet use to thrive. (Center for International Development at Harvard University, 2000)  Some people who are involved in the International Development sector recognize this. McNamara (2003) wrote, “The enthusiasm for ICTs has also mirrored earlier fads in development thinking in overemphasizing one factor and failing to focus adequately on the complexity.”

International Development is a huge “business”, generally comprising of the efforts of various bodies to effect improvements in the lives and conditions of the citizens of the world‘s poorer countries.  The governments of most developed nations have International Development departments. There are then many International Non-Governmental Organizations (INGO‘s) such as the many branches of the United Nations (UN).  Additionally, there are any thousands of Non-Governmental Organizations (NGO‘s) – a group comprising large and small charities, trade organizations and foundations of many kinds.  A huge number of organizations have published material aimed at improving Internet access in developing nations.

There have been hundreds of initiatives and projects started by Development agencies (too many to review here.) Yet, impact has been relatively low. The problem has been how to scale-up from pilots and technical demonstrations. In a meeting with Mustafa Terrab, Head of InfoDev at the World Bank in Washington, DC, the author was told that this is now their major challenge.  Stuart Mathison (2003) puts it this way, “It is becoming increasingly evident that the ICT4D sector is hampered by what we might call the  ‘forever pilot syndrome’ – the inability to move from research pilot to an expanding programme that has national and even regional significance.” (ICT4D = ICT for Development)

The example of The Nakaseke Multipurpose Community Telecentre and Library Pilot Project, is illustrative.  It is located about 60 Km out from Kampala, Uganda. It was funded and started (with great media attention) in 1999 by the United Nations Educational, Scientific and Cultural Organisation (UNESCO), International Development Research Centre (IDRC), Danish International Development Agency (DANIDA), International Telecommunications Union (ITU) and the British Council. Alex Potts (2003) says that Nakseke was supposed to be self supporting after 5 years. However, the sources of revenue envisaged have not materialized, There have been all kinds of technical and maintenance problems and the number of users has dropped. This hardly seems the right way forward.

Probably the grandest of all master-plan projects has been the World Summit on the Information Society (WSIS) – driven jointly by the United Nations and the ITU. Comprehensive Plans and Declarations have resulted but hard plans to fund these pronouncements are starkly absent.  One researcher‘s analysis is: “W SIS paints a wholly utopian, technologically deterministic picture of an "Information Society" that oversimplifies and generalizes a complex issue and phenomenon, about which no clear consensus exists.” (Pyati, 2005)

Undoubtedly, there has been some success in improving the international infrastructure in developing countries.  For example, information presented by IDRC show that in 2002  there were only six countries in Africa with more than 1.5Mbps of international Internet bandwidth.  In 2005, there are only about that number with less than 1Mbps. (IRDC, 2006).  Still focusing on Africa, this improvement in infrastructure has not significantly reduced prices to consumers, because of the strangle-hold of the incumbent (often monopoly) telecommunications companies (Southwood, 2005).  Southwood goes on to explain that financing future infrastructure will be a challenge because there is no clearly

established, quantified demand and there are “almost no market mechanisms through which infrastructure can be built.”

About sustainability and viability

It seems that although many pilots and small scale projects have been launched, development focused projects have rarely achieved sustainability.  Since Development budgets are not bottomless, a scaling up to achieve widespread access will not happen unless projects are considered sustainable.

However, there appears to be a dissonance between a business understanding of sustainability and that in the development sector. One definition used by eCenters run by the United States Agency for International Development (USAID) in Kyrgyzstan is as follows: “The eCenters pilot project defines sustainability as monthly revenue exceeding monthly costs to run the eCenter, pay trainers and overhead.” (Rynecki, 2006)  Meanwhile, Gerster and Zimmerman (2005) write, “A sustainable project or institution will be able to continue to deliver benefits in the long term, even after external assistance has lapsed.”  From a business perspective, these are defective definitions because they do not account for capital costs engaged in start-up, financing costs for loans, depreciation, investment for growth or replacement and upgrading of equipment.  From a development standpoint, projects do not even have to be sustainable to be considered successful, where success means "most stakeholder groups attain their major goals and do not experience significant undesirable outcomes" (Heeks, 2005)

From a business perspective, Alan Thompson (2005) proposes a much more holistic and rigorous view of what makes a viable business.  The following research further examines some of  the factors that need to be considered, especially in the developing world context.

The choice to do business in one country rather than another can depend on a number of factors. The business friendliness of most countries is well documented and measured on the World Bank‘s “Doing business” website (World Bank, 2006).  The level of corruption also adds to the level of business risk.  Transparency International (2005) publish a Corruption Perception Index showing how corruption varies from country to country.

The legal framework is also important.  Peruvian economist Hernando de Soto emphasizes the importance of properly legally documented property rights as being essential for the release of capital and for enforcement of contracts.  Without the release of nationally held capital (mostly tied up in property), de Soto says that a nation will not speedily develop. (de Soto, 2000)

With all the potential difficulties, and a general perception that poor people are not a good market, it would not be surprising if companies decided to write off the developing world, yet C.K. Prahalad (2005) challenges these perceptions and gives examples of many significant sized businesses that have been highly successful by realigning their products, services and processes to serve the 5 billion plus of the world‘s people at the lower end of the income scale – referred to by Prahalad as the “Bottom of the Pyramid” (BOP).  Having said that, it is admitted that one of the businesses cited as successful (Infocentros telecenters of San Salvador) benefited from a ten year interest free government loan. (Prahalad and Hammond, 2002)  Many otherwise unviable businesses might succeed with that kind of advantage.

Much of the business literature pertaining to competition and strategy is relevant but just two references will be mentioned here.  The principles of The Balanced Scorecard (Kaplan and Norton, 1996) bring an emphasis to additional business areas that should be considered when discussing viability – financial results do not happen without attention to these other factors.  Kaplan and Norton identify management by historical financial reporting as being like driving by viewing through the rear view mirror. The Balanced Scorecard allows lead and lag indicators to be considered.  It tries to identify goals in three additional areas (or “perspectives”) that will contribute to financial results.  These are typically in the realms of customer relationships, business process improvement and  “learning and growth” (the ability to increase the capability and capacity of the business.) The discipline of thinking strategically and holistically about business aspects that contribute to financial outcomes is thought to be helpful.

In addition, the discussion of Value Innovation by Kim and Mauborgne (2005) is particularly useful.  It is often thought that it is necessary to out perform competitiors in every way to maintain competitive advantage.  These authors propose that a superior value position can be created by:

• Eliminating some attributes of your product or service that the industry  regards as an essential norm, but the customer does not particularly value.
• Reducing some attributes of your product or service to less than the industry norm, since the customer does not particularly value them.
• Raising some of those attributes of your product or service that are highly valued by customers well above industry norms.
• Create some additional attributes to your product or service which add new value that will be prized by customers.

Thinking through this approach may well allow a business to simultaneously add value whilst reducing costs.

An observer might say that there are already many Internet cafés around the world and surely they wouldn‘t exist if they were not viable.  Yet most of the existing locations are based on slow connections (properly researched data on this has not been found.)  Many of the applications that the developed world is now using are dependent on fast Internet connections. The introduction of fast connections may require a complete realignment of the Internet market in developing countries .  There seems to be an insatiable appetite for speed.  Even before experiencing it, over 20% of Internet Café users in Tanzania say they are willing to pay more for an improved service. (Hartshorn, 2004)

Gaps in the Literature

In the area of mobile telephony, much more seems to have been written on how the economics of the industry works, compared to the Internet. GSM phone service expansion has been rapid and funded entirely by the private sector.  According to Slocombe (2006), two billion GSM phones will have been connected by now and in a BBC podcast, Craig Ehrlich of the GSM Association claimed that 82% of the second billion were in the developing world. (BBC, 2006).  Certain aspects of mobile phone business models are well understood.  Newberry (2006) reports, for example about the SMART mobile network in the Phillipines, “SMART's Ramon Isberto explained to me that the most important factor in creating a successful telecom company is scale.” A very wide-ranging analysis was also produced by Baldwin et al (2005).  Scale refers to the size of the business.  Larger ones are often able to achieve considerable economies

of scale.

Yet there is little literature that addresses the question, “what makes a viable Internet business in the developing world?” It is hoped that this research will

contribute some knowledge in that arena.