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4 T H E M c K I N S E Y Q U A R T E R LY 2 0 0 1 N U M B E R 4: E M E R G I N G M A R K E T S

This Quarter

Making money where

it’s scarce
The phrase ‘information economy’ conjures up, in most people’s minds,
the tools and assets of an affluent society: video on demand, personal digital
assistants, inventory control systems. In fact, developing countries too have
a lot to gain from interconnectedness—indeed they may have more to gain,
since getting anything at all done in them is sometimes quite difficult. A
farmer in an impoverished country may have little use for supply-chain-
management tools, but his fortunes would improve considerably if he could
pick up a mobile phone and find out which regional market offered the best
price for his produce.

Unfortunately, the rural areas of many developing countries lack the tele-
communications infrastructure needed to permit even a basic level of infor-
mation flow. The problem is well enough known to have its own buzzword:
the “digital divide.” Every year that developing countries go without basic
telecom service, they fall further behind developed countries.

Dozens of projects, mostly sponsored by governments and by nonprofit and

multilateral organizations, are under way to reverse this trend. But the prob-
lem is too big to be solved by them alone. To build a telecom infrastructure
on a rush schedule, the developing world will need to obtain significant
amounts of capital from the private sector, including corporations in the
developed world.

As some articles in this special issue explain, that goal may not be so quixotic.
In fact, a number of business models for infrastructure projects in the devel-
oping world seem capable of providing financial returns high enough to
interest private companies. Typically, these models rely on cellular technol-
ogy because it is less costly to install than the wireline version. The target
populations are often very large and underserved, which helps make up for
the low per capita ability to pay.
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The problems of the developing world are so intertwined that any infra-
structure venture usually requires the cooperation of a number of parties.
Although companies have tended to shy away from such multifirm efforts,
in the past few years, joint ventures and other alliances have grown more
common, and in this volume several authors describe how such collabora-
tions might finally make many projects in emerging markets a reality.

In “Connecting the unconnected,” Rajat Dhawan, Chris Dorian, Rajat

Gupta, and Sasi K. Sunkara show how “no-frills” mobile service could more
than pay for itself in places lacking basic phone connections. The key is
collaboration between mobile operators and companies eager to communi-
cate with low-income people. Business information providers, for instance,
would probably welcome the chance to sell price forecasts to small-scale
farmers, and would likely pay operators for the privilege.

Similarly, governments in the developing world would probably rather make

payments to a pensioner’s bank account via phone lines than stick with the
cumbersome methods used now. To get the infrastructure built faster, the
mobile operators might leave the construction and maintenance of the actual
transmission towers to local entrepreneurs, whose familiarity with the local
culture and government bureaucracy would come in handy.

In any such infrastructure project, the mobile operators’ clearest allies are
probably banks—both big global ones and, in many cases, those located in
the developing world. Financial services, which are amenable to a completely
digital format, are currently unavailable in many rural areas of emerging
markets. In “Could mobile banking go global?” Arnab Datta, Mehmet Pasa,
and Tom Schnitker describe how financial services delivered over mobile
phones could help pay for the mobile network. For example, the right kind
of alliance between banks and telecom companies could give rural shop
owners the ability to carry out cashless transactions. Customers wouldn’t
need personal handsets—only small microchip-bearing cards that cashiers
in stores would slide into their phones.

Through projects like these, digital information technology, far from widen-
ing the income gap, might someday close it. When the developing world’s
farmers can acquire the know-how to improve crop yields, and its small busi-
nesses can reliably sell goods to the highest potential bidder, its untapped
human talent should start yielding significant financial returns.

Horst Beck
Director, Singapore office