Dynamism, Localization Typify the Developing “Digital South”

In Growth Markets by Octavio Kulesz

The latest digital publishing developments from Brazil, Africa, the Arab World, India and China indicate change and challenges for the major global players.

By Octavio Kulesz

As a result of a 2011 report, “Digital Publishing in Developing Countries”, carried out by Octavio Kulesz in October 2010 and commissioned by the International Alliance of Independent Publishers, with the support of the Prince Claus Foundation, this year sees the launch of the the Lab, an experimentation and training unit sponsored by the Alliance, the Prince Claus Fund and the International Organization of La Francophonie. Among the many activities carried out by the Lab will be tracking news related to digital publishing developments in the “Digital South” — the metaphoric area that is home to the majority of developing countries — with updates offered via the Twitter account @digisouth and on the Lab’s web site. What follows is a summary from the Lab of recent developments in this dynamic region.

Brazil: Latin America’s Powerhouse

2012 has already been a year rich in news from Brazil, including the report 6 out of 10 Brazilians now belong to the middle class, resulting in an increase in online sales. E-books are increasingly interesting to buyers and new digital strategies are being developed by publishing houses and aggregators alike. The government has demonstrated an interest in developing indigenous tablets and early examples, such as the YPY by Positivo, may prove competitive to foreign models, as a result of low price and adaptability. Finally, the Brazilian Book Chamber (CBL) has announced that it will hold a Third International Congress on Digital Books, together with other training initiatives – yet another sign that the Latin American giant aspires to position itself as a hub in the regional world of electronic publishing.

Sub-saharan Africa: Cell Phones are the Way Ahead

Given the elevated penetration of mobile networks across sub-saharan Africa, development continues to revolve around mobile phones. Several new companies have arrived to take advantage of the scenario, including Eskimi, mobile social network from Lithuania, that has 2 million users in Nigeria, and the Orange from the UK which has announced a plan to distribute Wikipedia articles through cell phones. In addition, mobile money – a tool that in our view turns out to be vital for the emergence of digital markets in developing countries – is expanding rapidly in Africa. These factors might explain the fact why mobile broadband throughout South Africa faster than in the United States. The ventures undertaken in the continent seem to achieve greater dynamism once they have given up solutions in deux ex machina-fashion and taken on their own concrete context as a starting point. From our perspective, this could explain the success of projects focused on mobiles phones as well as on other more informal or low tech tools.

Arab World: Still Lacking in Content in Arabic

Rufoof's App Store offers options for Arabic-speaking Apple users

The Arab World still suffers from a lack of content in its mother tongue. However, some relatively new actors are starting to gain ground in the field of e-publishing and e-distribution. Several companies are producing iPhone and iPad apps, such as Dubai-based Flagship, which has launched Rufoof store. Much of the app development is concentrated in the high-income Gulf, Apple products are too expensive for the mass market in the remainder of the Arab world. Numerous other digital projects are related to the reading of the Koran and traditional texts, such as the launch of the eAlim EL 1000 tablet, best known as the “Islamic iPad”. Nevertheless, there is the expectation that the recent political and cultural changes across the Arab World will inspire further technological innovation.

India: Price Wars and a $35 Tablet

As we pointed out in 2011 report, the remarkable size of the Indian market has given rise to online sales giants; in the last few months, the competition between domestic players such as Flipkart and Infibeam has triggered a fierce price war that threatens the established network of print bookstores. Like in Sub-saharan Africa, cell phones represent a crucial platform in India, to the point that the government has started subsidizing mobile connections in rural areas. But it is tablets that are attracting the most attention, as a result of a plan by the Indian government to distribute reading devices to students across the country — the chose device, the Aakash (which means “sky” in Hindi), costs just $35 USD and is manufactured by Datawind, an Anglo-Canadian company founded by the brothers Raja and Suneet Singh Tuli, from the Punjab. Despite the ups and downs that the project has encountered, the trend seems clear: the Indian State is eager to mass-produce tablets aimed at the native population, which will lead to a powerful platform for the distribution of content, bearing in mind, though, that business models for publishers and authors contributing to the platform have yet to be finalized. Should this project turn out to be successful, it will undoubtedly be exported to other developing countries.

China: Companies Rising to Rival the Americans

In China, the transformation is long-term. The market of mobile apps, online search engines, social networks and digital content continues to grow at an extraordinary pace and is becoming a battlefield between colossuses such as Tencent, Sina, 360Buy, DangDang, Baidu, Shanda and many others that can even outperform the main players from the North. It is worth remembering that Sina’s micro-blogging platform Weibo has recently overtaken Twitter’s record for most messages-per-second. Gradually, companies in the public sector – under the guidance of GAPP and other agencies – , as well as those in the private sector, are preparing to move beyond China’s borders. It is no secret that Baidu, for example, is planning to include content in other languages, and that Alibaba has set its sights on Yahoo!.

Global Players are Changing Local Strategies

Not so long ago, the strategy of players such as Amazon and Apple seemed to be inflexible in developing countries. These companies didn’t appear too interested in adapting their formats, languages, content, price-, charge- and payment-policies to the local economies. Thus, for a Latin American user, a Kindle was a Kindle, only able to be purchased in dollars from Amazon’s US website. The numerous other obstacles for acquiring and using the device – paying with an international credit card, picking up the article at customs, paying the tax, finding content in their mother tongue and so on – were left of to the user to resolve. Rather than following the motto “think globally act locally,” these platforms tended to take on the opposite approach: “think locally – i.e. exclusively in terms of the American user – and act globally.” That is why, in our 2011 report we stressed that, ceteris paribus, it wouldn’t be that easy for the companies from the North to market their products on a massive scale in the Southern countries, which were already beginning to show signs of autonomy.

Nevertheless, recently, perhaps as a consequence of the acute financial crisis – and particularly the decline of Europe as a market – we have seen a dramatic change in the strategy used by global platforms, which are now more willing to rethink their models to meet the needs of each context. For starters, Apple has launched its iPhone 4S in China, via China Unicom (an event that was not without some negative complications — see below). Likewise, a recent tax exemption agreement reached by Foxconn and the Brazilian government suggest iPads are to be locally produced in Brazil — something that should further enhance the appeal of the devices in that increasingly important market.

Not sitting idly by, Amazon, has made it clear that it intends to open a new fulfillment center in Nanning, China, and another in Bombay — having opened for business in India earlier this month. Furthermore, after the failure of the first round of negotiations with Brazilian publishers in 2011, Amazon has hired a former e-book executive from Livraria Cultura, to speed up the launch of the Kindle in South America.

Finally, Yahoo! has announced it will include content in 8 languages from India; Twitter will adapt its platform to meet the “requirements” of the different national States; and Google, after countless clashes with the Chinese government, is now considering the possibility of adopting a “less tough” stance to accommodate the rules of the country.

Ignore Cultural and Linguistic Differences at Your Peril

What is lost and what is gained with this change in strategy implemented by companies that until recently had not made many concessions to the peculiarities of each country? In our view, such a shift entails numerous risks for those key global players who tend to underestimate the complexities on the ground, giving a golden opportunity to local ventures.

To begin with there is always the issue of language. Apple may have introduced the iPhone 4S in Asia, but it should have first made sure its applications worked as reliably in Chinese and Japanese as they do in English. Unfortunately, this has not been the case, as demonstrated by the parody “Siri doesn’t understand Chinese” – or in the misfortunes of a Japanese user who gets nowhere because of his accent.

There are also difficulties every time cultural and political differences are ignored. We already mentioned that the launch of the iPhone 4S. Unfortunately, the public event surrounding the launch had to be cancelled due to overcrowding. Apple tried to make it appear as an indication of the device’s popularity – since there were lots of people – when in reality it was taken to be a sign of serious negligence on behalf of the company. In the US or in Europe, a crowd outside a shop may appear to be an idle group of shoppers, but in China – due not only to the country’s current circumstances but also to its tradition of social harmony – that restless crowd was interpreted as an attempted uprising. Indeed, that is how the event ended up – with people hitting, shouting and throwing eggs at the store, something that can hardly be considered a success for the brand.

The International “Network Effect” Wanes in Influence

We also find some problems developing as a result of what we might call the “loss of the network effect.”

Originally, a platform like Twitter may have been conceived as a means of direct and horizontal communication between heterogeneous users – in this way, a Tunisian student was able to follow the messages written by an Egyptian professor, for example. And in truth, if Twitter has beaten other local sites, it has been because of a snow ball or international network effect: the more users it had, the greater the number of potential users. However, any platform must become profitable at some point, and this is when local variables – languages, prices, charges, payments, regulations, governments, etc. – start to play a role, forcing the platform to make concessions that eventually pose a threat to the initial network effect. Indeed, what advantage would there be for Egyptian users to use a platform in which they couldn’t have a good connection with colleagues from Tunisia, if they knew that Twitter and the government had an agreement to ban or manipulate “inconvenient” messages? At this stage, we don’t see why Twitter would be preferred over other native services.

Finally, as for the different “invitations” that the multinational companies receive to produce gadgets on the ground, far from being a sign that Southern countries are passive, it could mean that many of these nations – of a longstanding industrial tradition, like Brazil – are preparing for a context of global protectionism. The countries of the Digital South want to secure the necessary technology and know-how to supply their own market and that of their regional partners. It is worth stressing that the Brazilian government is not just allowing Foxconn and Apple to produce iPads locally: it also demands that they invest 4% of the net income in R&D projects, which accounts – directly or indirectly – for a major transfer of technology.

Interesting Times

If developing countries host increasingly relevant players and the companies from the North are forced to adapt their models according to the different contexts, the future of digital publishing in the South seems both fascinating and unpredictable. International platforms boast high tech, economic power and well-known brands. On the other hand, local ventures have the chance to strengthen digital ecosystems together with domestic actors who have first-hand knowledge of their own market and are able to join forces with a powerful public sector that desperately needs to close the digital gap.

This is the setting. Let the games begin.

CONTACT: The Lab via email or Twitter to make a contribution with new perspectives and further data.

READ: The 2011 report “Digital Publishing in Developing Countries”

READ: Our previous coverage of the report.

SURVEY: When Can China Rival the US for Digital Dominance?

About the Author

Octavio Kulesz