Harnessing the Emerging Market Opportunity

Rapidly developing economies around the world are quickly changing the global business landscape, providing both opportunities and challenges for global companies in established markets that are seeking to engage with businesses and governments in these areas.

To better embrace this opportunity, Sun announced in June the formation of an Emerging Markets Sales region to accelerate growth in these areas. Peter Ryan was named executive vice president of Global Sales and Services, encompassing the emerging markets. Ryan takes this opportunity to share with Sun Inner Circle readers his views on the different strategies requisite for harnessing the opportunities presented by emerging markets.

Q: Emerging markets clearly represent opportunities for global companies. What are some of the challenges to embracing those opportunities?

A: The massive increase in people, applications, businesses, and services in the emerging economies coming online daily is staggering. Businesses serving these markets are looking to the network for connectivity to its global workforce, as well as the customers and communities they serve. To support the growth, companies must build out their organizational infrastructure and adjust their approach to workforce management to best serve these fast-growing markets. By improving technology and increasing network connectivity, businesses and people can work cross-border effectively and efficiently while attracting new markets and creating opportunities for growth.

Q: How does an emerging market strategy differ from an established market strategy?

A: The main difference is the pace of growth. In more established markets, university students often learn about your technology and then develop commercial applications which businesses purchase. Established market businesses also have legacies of different IT architectures, different skill bases, processes and procedures.

With emerging markets, it's important to take a 360-degree view. It's critical that your technologies are available to developers across all sectors of the economy and at the university level so that they can build skills, applications, and business models around those technologies that will help them gain access to a global audience. Government is another area of difference. Governments within emerging markets tend to be very open-minded and flexible to make different choices when it comes to new technologies and architectures.

Take for example, the telecommunications market. In more mature markets, like the U.S. and U.K., there has been fixed-line infrastructure laid in these countries for more than 50 years. In many emerging markets, the need to grow quickly is so imperative that they'll jump straight to newer technologies like wireless, mobile handhelds, and Internet devices. They can do this because they don't have the constraints of legacy infrastructure on the same scale as more mature markets. Let's just take a look at some of the statistics around mobile user trends.

Today, worldwide mobile phone users total 2.2 billion, with mobile broadband users at 42 percent today and expected to be 70 percent by 2012. In developing countries with little "landline" telephone infrastructure, mobile phone use has quadrupled in the last decade (leapfrog effect). This growth will come from markets like China, where only 46.2 percent of the population are using mobile phones, or Mexico with 53.5 percent of population using mobile phones. India is the largest growth market, adding about 6 million mobile phones every month. With 272.7 million mobile phones, market penetration in the country is still low at 24.1 percent. India expects to reach 500 million subscribers by end of 2010.

When dealing with these markets, it's important to be open-minded and strive to understand where they are today rather than grouping them in with developed markets.

Q: From an organizational perspective, why is a separate Emerging Markets Region important?

A: Prior to setting up this division, Sun has had active business in many of these emerging markets — Brazil, China, India, Russia, the Middle East, Africa, Eastern Europe. Some of these regions were very important in our third quarter of FY08. We grew over 20 percent year over year in Brazil, 28 percent in India, 12 percent in Russia, and 13 percent in China. We've been in these markets, winning with customers like Tata Teleservices Ltd., Reliance Communications, and MTS. Sun has also been working well with the governments and communities within these countries, such as Ministry of Public Security of the People's Republic of China and São Paulo University.

What we've started to see however, is a number of common characteristics among these economies — the way they are embracing open source technology, the way governments are choosing to build out infrastructure to deal with citizens over the network, and the way that wireless and mobile technologies are increasingly important.

So rather than having emerging economies attached to mature economies from a business model standpoint, we decided it made more sense to bring our people, processes and capabilities together to support the incredible growth happening in these areas. This allows us to share best practices and transfer know-how in working with various governments. This also avoids redundant cycles internally and helps us move as quickly as these economies need us to move.

Q: Do you see any trends emerging across these markets? What are the common themes and concerns?

A: They want to grow fast. They are trying to build out entire ecosystems, and for many of them, it's critical to build the educational part of the system to ensure students have access to technology. One of the easiest and most cost-effective ways to do that is via open source technology. Open source levels the playing field for developers in emerging markets.

Today 55 percent of the worldwide developer population is in emerging markets. According to analyst research, the worldwide software developer population is expected to grow to 17.2 million by 2011 from 12.2 million in 2006, but North America will account for only 18 percent of those jobs in 2011. Sun is leading the charge in open source to help developers use cutting-edge technology to innovate. By stimulating innovation, we are playing our role in enabling countries to move up the worldwide IT value chain.

We're giving businesses in emerging economies access to our IP without barriers to adoption, exit and without barriers of licensing to build their network infrastructure. Governments and educational institutions are warmly embracing open source technologies because they allow them to move quickly without the multimillion dollar commitments to licensing proprietary technology. Instead, they can take a technology like MySQL, download it, and learn it with no up-front costs.

Governments are playing a leading role in helping the wider populations have access to technology. Again, that's partly due again to open source, but also to the pervasive role of the network and enabling access to technology and services. Many telecommunications and financial services companies are creating business models for the network in order to make service offerings available. According to Internet World Stats 2008, here are some impressive growth rates for Internet users in emerging markets between 2000-2008¹:

These are compared to a more moderate worldwide average growth rate of 306 percent.

Q: Sun has been publicly promoting sustainable technologies in many of these emerging markets. What has been the reception to this?

A: Very good. Eco responsibility is part of Sun's overall corporate social responsibility strategy, which strives to create positive social change, minimize environmental impact, and generate business value as we go about our day-to-day business. Increasingly, companies are looking at their global impact and environmental footprint, and more companies are taking action to improve eco position/responsibility as stakeholders use it as a metric to do business/invest and eco issues dominate the news. According to Gartner², datacenter power and cooling problems will get worse during the next 10 years. Datacenter energy bills will continue to rise, which means that companies will have to re-evaluate and adjust their IT budgets accordingly.

These economies are faced with a number of challenges, including eco. As I mentioned, building out infrastructure quickly is paramount. To support that growth, they need to be mindful of the fact that these technologies require energy and space. The city of São Paulo in Brazil is growing very quickly and is densely populated. So if you're going to build out a huge IT infrastructure to facilitate growth, you must be mindful of both the energy requirements and the space premium.

Sun's approach of measuring not only sustainability, but of applying pure research to get at the root causes and impacts of using less power and space as we build products, is a very attractive approach. Sustainability is part of our DNA.

Q: In past years, emerging markets were often seen as investment opportunities rather than revenue opportunities. How much has that changed?

A: Significantly. These are very big businesses for Sun, as evidenced by the growth we've reported in our financial results. Beyond Sun, these are important businesses in their own right. According to a recent study from the Boston Consulting Group, 87 of their 100 Global Challengers are businesses from China (41), India (20), Brazil (13), Mexico (7) and Russia (6).

Additionally, the Financial Times just covered the rise of new business powers in our emerging markets as well. I expect these regions will continue to be very large parts of Sun's business. It's not just about potential anymore. These markets are generating real business profit and sustained potential.

Q: How is Sun's open strategy playing out in these markets?

A: Very well. If you look at the downloads and registrations of Sun's IP around the world, such as GlassFish and MySQL, much of the volume is coming from the emerging markets.

For example, MySQL downloads this year between mid-April to mid-July in emerging markets equaled over 1 million, that's 40 percent of the total downloads around the world. The largest single downloader over the past 12 months was ChinaNET Guangdong province network (a regional ISP) at almost a half million (462,013). This trend also applies to Java, GlassFish and OpenSolaris (among others), which have been very successful in these markets.

In February, Sun announced its first overseas expansion of its OpenSPARC educational program. The three-year agreement with China's Ministry of Education (MOE) extends to as many as 10 universities in China this year, and trains 150 teachers each year on Sun's OpenSPARC designs. If you look at how fast our business is growing, it's largely driven by the adoption of open source technologies at the university level and across governments. We're seeing broad adoption and that's enabling us to get into solid dialogues in a number of these markets.

About Peter Ryan
Peter Ryan is executive vice president of Global Sales and Services for Sun Microsystems and is responsible for driving Sun's growth and profitability. In this role, Ryan delivers a consistent, integrated and responsive customer experience through a unified worldwide sales and services organization. Ryan's 17,000-strong worldwide team, combined with Sun's partner community, represents one of the largest and experience-rich channels in the technology marketplace, spanning the globe in every industry, product category, and area of technical and business pursuit.

¹ Internet Usage and World Population Statistics are for June 30, 2008
² Gartner: Data Center Power and Cooling Scenario Through 2015; March 14, 2007