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CHAPTER RESOURCES Reading Content Introduction 11.1 Technology as Physical Infrastructure 11.2 Technology of Information Infrastructure 11.3 Technology of Human Infrastructure 11.4 Technology Trends in International Business Summary and Case ORION: Build your

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PRACTICE Chapter 11 Reading Quiz

APPENDIX

11.4 Technology Trends in International Business

LEARNING OBJECTIVE

Discuss how global business leaders position their firms to take advantage of technological opportunities.

The creation of new technologies can have a profound impact on global business opportunities. For instance, Safaricom (one of the largest mobile operators in Kenya) and Vodacom (the African arm of Vodafone of the United Kingdom, which owns a 40 percent stake in Safaricom) teamed up ten years ago to provide a new product called M-Pesa. This simple but effective phone-based money transfer system enables individuals to deposit, withdraw, transfer, buy mobile minutes and data, and even pay for goods and services with a simple text message. Most Kenyans don't have access to a bank and don't have enough funds to open a bank account anyway. M-Pesa provides an alternative to the traditional banking system but provides similar benefits for individuals: they are able to securely store and use their money.

The product has been very successful in Kenya. In that country of 44 million people, M-Pesa has nearly 20 million registered users, including 90 percent of adults. The system is supported by more than 90,000 M-Pesa agents who act as points of contact for customers, enabling them to deposit and withdraw money from their M- Pesa accounts. M-Pesa payments now represent over 40 percent of the country's GDP. Nearly everyone in the country is using the service to buy and sell goods and services and to send money. Because it provides benefits like those of banking—with perhaps even more convenience—it has improved the lives of millions.

Not only is the technology of M-Pesa providing individuals with value, it has provided many opportunities for business. For instance, because it offers a secure payment process, employers use it to pay salaries. When M- Pesa entered Afghanistan, the government there also began using M-Pesa to pay salaries. Immediately, police officers saw a roughly 30 percent increase in their paychecks because the process cut out corrupt officials who had been skimming the officers' salaries. M-Pesa also reduces crime because individuals are not walking around with cash, so there is less incentive for robberies. The service not only benefits the companies and customers that use it, but according to Bob Collymore, the CEO of Safaricom, the company makes a $250- million-a-year profit.

In addition to making money for the company and providing a valuable service to millions, this new technology has paved the way for a flood of entrepreneurial ventures. For instance, M-KOPA Solar offers customers in Kenya, Tanzania, and Uganda a “4-watt rooftop solar panel, a control box that attaches to the wall of a home or business, three lamps, and mobile-phone chargers.” To purchase the $200 unit, the company requires a roughly $35 down payment and then a daily payment of 40 Kenyan shillings, or about 40 cents, for 365 days, until the unit is paid off. The customer uses M-Pesa to make the daily payment, and if the payment is not made, the lights will not turn on until payments resume. The $200 cost may seem high, but it is actually cheaper than the kerosene lamp alternative most Kenyans currently use. Moreover, once the unit is paid for, the customer gets free power. The opportunity to invest in their personal energy needs has improved the lives of over 400,000 customers.

Similarly, the village of Njogu-ini installed a clean-water well that uses mobile payments through the M-Pesa platform. Residents simply walk to the well and use their phone to pay the small fee to activate the pump, providing them access to clean water. Water obtained this way costs about $6 a month per person. The critical feature is that the technology allows micropayments that are reasonable in the context of Kenyan life, while still enabling villagers to get clean water.

Now that the technology has been established, Safaricom is using the M-Pesa platform to expand to provide other services, such as mobile health care initiatives. The mHealth Kenya service enables doctors to remotely diagnose patients using cell phones, and patients can pay providers using their M-Pesa accounts. In addition, the government of Kenya is using M-Pesa to distribute e-vouchers for prenatal care in an effort to increase the health of mothers and babies.

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DOWNLOADABLE eTEXTBOOK PRINTER VERSION BACK NEXT

CHAPTER RESOURCES Reading Content Introduction 11.1 Technology as Physical Infrastructure 11.2 Technology of Information Infrastructure 11.3 Technology of Human Infrastructure 11.4 Technology Trends in International Business Summary and Case ORION: Build your

Proficiency Videos Animations Multimedia Study Tools Business Hot Topics

COURSE RESOURCES

Career Center Business Hot Topics Videos Animations

PRACTICE Chapter 11 Reading Quiz

APPENDIX

11.4 Technology Trends in International Business

LEARNING OBJECTIVE

Discuss how global business leaders position their firms to take advantage of technological opportunities.

The creation of new technologies can have a profound impact on global business opportunities. For instance, Safaricom (one of the largest mobile operators in Kenya) and Vodacom (the African arm of Vodafone of the United Kingdom, which owns a 40 percent stake in Safaricom) teamed up ten years ago to provide a new product called M-Pesa. This simple but effective phone-based money transfer system enables individuals to deposit, withdraw, transfer, buy mobile minutes and data, and even pay for goods and services with a simple text message. Most Kenyans don't have access to a bank and don't have enough funds to open a bank account anyway. M-Pesa provides an alternative to the traditional banking system but provides similar benefits for individuals: they are able to securely store and use their money.

The product has been very successful in Kenya. In that country of 44 million people, M-Pesa has nearly 20 million registered users, including 90 percent of adults. The system is supported by more than 90,000 M-Pesa agents who act as points of contact for customers, enabling them to deposit and withdraw money from their M- Pesa accounts. M-Pesa payments now represent over 40 percent of the country's GDP. Nearly everyone in the country is using the service to buy and sell goods and services and to send money. Because it provides benefits like those of banking—with perhaps even more convenience—it has improved the lives of millions.

Not only is the technology of M-Pesa providing individuals with value, it has provided many opportunities for business. For instance, because it offers a secure payment process, employers use it to pay salaries. When M- Pesa entered Afghanistan, the government there also began using M-Pesa to pay salaries. Immediately, police officers saw a roughly 30 percent increase in their paychecks because the process cut out corrupt officials who had been skimming the officers' salaries. M-Pesa also reduces crime because individuals are not walking around with cash, so there is less incentive for robberies. The service not only benefits the companies and customers that use it, but according to Bob Collymore, the CEO of Safaricom, the company makes a $250- million-a-year profit.

In addition to making money for the company and providing a valuable service to millions, this new technology has paved the way for a flood of entrepreneurial ventures. For instance, M-KOPA Solar offers customers in Kenya, Tanzania, and Uganda a “4-watt rooftop solar panel, a control box that attaches to the wall of a home or business, three lamps, and mobile-phone chargers.” To purchase the $200 unit, the company requires a roughly $35 down payment and then a daily payment of 40 Kenyan shillings, or about 40 cents, for 365 days, until the unit is paid off. The customer uses M-Pesa to make the daily payment, and if the payment is not made, the lights will not turn on until payments resume. The $200 cost may seem high, but it is actually cheaper than the kerosene lamp alternative most Kenyans currently use. Moreover, once the unit is paid for, the customer gets free power. The opportunity to invest in their personal energy needs has improved the lives of over 400,000 customers.

Similarly, the village of Njogu-ini installed a clean-water well that uses mobile payments through the M-Pesa platform. Residents simply walk to the well and use their phone to pay the small fee to activate the pump, providing them access to clean water. Water obtained this way costs about $6 a month per person. The critical feature is that the technology allows micropayments that are reasonable in the context of Kenyan life, while still enabling villagers to get clean water.

Now that the technology has been established, Safaricom is using the M-Pesa platform to expand to provide other services, such as mobile health care initiatives. The mHealth Kenya service enables doctors to remotely diagnose patients using cell phones, and patients can pay providers using their M-Pesa accounts. In addition, the government of Kenya is using M-Pesa to distribute e-vouchers for prenatal care in an effort to increase the health of mothers and babies.

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M-Pesa has changed the economic landscape in Kenya and is expanding to Tanzania, Afghanistan, South Africa, India, Eastern Europe, and more. The simple but effective technology is also starting to be copied by other companies in more advanced markets. Tencent—a large computer technology company in China—has announced WeChat mobile payments, and even Apple is working on a text-based payment system that would enable users to text money to one another.

All these opportunities—and countless more—came about because a new technology enabled millions of Kenyans, traditionally overlooked by international businesses, to safely store money and make mobile payments.

The Globalization of Research and Development Historically, international companies conducted their research and development (R&D) at their corporate headquarters and pushed the products they invented there to the rest of the world. Over the past decade, this strategy has changed in two ways. First, international companies are spending more money on R&D. Second, they have moved R&D to locations around the world, particularly China and India.

When looking at R&D trends, most analyses focus on the level of gross expenses on research and development (GERD). For instance, total worldwide GERD in 2001 was just $753 billion. Five years later, in 2006, it had ticked up to $1.05 trillion, and in 2011, the amount passed $1.43 trillion—nearly double the 2001 figure. The trend has accelerated, with GERD topping $1.88 trillion in 2015. At that level, roughly 1.75 percent of world GPD is being spent on R&D. Of that, over $1.80 trillion is being spent by the top forty countries ranked by GDP. The United States represents more than 26 percent of global spending, China accounts for over 20 percent, and Japan comes in third with nearly 9 percent of worldwide R&D spending.

While the amount of R&D spending is increasing everywhere, it is growing most rapidly in Asia, as global companies rush to fill the needs of the world's largest markets—China and India. A recent National Science Foundation report highlights this increase, noting that, while R&D spending is increasing in the United States and the European Union, the increase is proportional to increases in the countries' GDP. In Asia, on the other hand, R&D is increasing at a rate faster than the growth of GDP. These trends are highlighted in Figure 11.15.

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M-Pesa has changed the economic landscape in Kenya and is expanding to Tanzania, Afghanistan, South Africa, India, Eastern Europe, and more. The simple but effective technology is also starting to be copied by other companies in more advanced markets. Tencent—a large computer technology company in China—has announced WeChat mobile payments, and even Apple is working on a text-based payment system that would enable users to text money to one another.

All these opportunities—and countless more—came about because a new technology enabled millions of Kenyans, traditionally overlooked by international businesses, to safely store money and make mobile payments.

The Globalization of Research and Development Historically, international companies conducted their research and development (R&D) at their corporate headquarters and pushed the products they invented there to the rest of the world. Over the past decade, this strategy has changed in two ways. First, international companies are spending more money on R&D. Second, they have moved R&D to locations around the world, particularly China and India.

When looking at R&D trends, most analyses focus on the level of gross expenses on research and development (GERD). For instance, total worldwide GERD in 2001 was just $753 billion. Five years later, in 2006, it had ticked up to $1.05 trillion, and in 2011, the amount passed $1.43 trillion—nearly double the 2001 figure. The trend has accelerated, with GERD topping $1.88 trillion in 2015. At that level, roughly 1.75 percent of world GPD is being spent on R&D. Of that, over $1.80 trillion is being spent by the top forty countries ranked by GDP. The United States represents more than 26 percent of global spending, China accounts for over 20 percent, and Japan comes in third with nearly 9 percent of worldwide R&D spending.

While the amount of R&D spending is increasing everywhere, it is growing most rapidly in Asia, as global companies rush to fill the needs of the world's largest markets—China and India. A recent National Science Foundation report highlights this increase, noting that, while R&D spending is increasing in the United States and the European Union, the increase is proportional to increases in the countries' GDP. In Asia, on the other hand, R&D is increasing at a rate faster than the growth of GDP. These trends are highlighted in Figure 11.15.

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FIGURE 11.15 Total R&D spending and R&D spending as a percentage of GDP for select countries, 1981–2011 Source: “Chapter 4. Research and Development: National Trends and International Comparisons,” in “Science and Engineering Indicators 2014,” National Science Foundation, February 2014, www.nsf.gov/statistics/seind14/index.cfm/chapter-4/c4s2.htm.

Private businesses, governments, higher education institutions, and private nonprofit donors typically invest in R&D. In the United States, nearly 70 percent of R&D is funded by businesses; that's less than the 83 percent in Israel but much more than the 36 percent funded by businesses in India. Perhaps more interesting is the nearly universal increase in business-sponsored funding (see Figure 11.16), indicating that global businesses are recognizing the competitive advantages that come from being at the forefront of technology.

Share of total (%)

Country GERD PPP ($billions) Business Government

Institutions of higher education

Private nonprofit

R&D funding sources

United States (2011)

$429.1 58.6% 31.2% 6.4%  3.8%

China (2011) $208.2 73.9% 21.7% NA  1.3%

Japan (2011) $146.5 76.5% 16.4% 6.6%  0.5%

Germany (2010)  $93.1 65.6% 30.3% 0.2%  3.9%

South Korea (2011)

 $59.9 73.7% 24.9% 1.2%  0.2%

France (2010)  $51.9 53.5% 37.0% 1.8%  7.6%

United Kingdom (2011)

 $39.6 44.6% 32.2% 6.2% 17.0%

** = included in data for other performing sectors; NA = not available. GERD = gross expenditures on R&D; PPP = purchasing power parity.

FIGURE 11.16 Percentage of GERD by funding source, 2005–2011 Gross expenditures on R&D for selected countries, by performing sector and funding sources: 2011 or most recent year Source: Adapted by the authors from “Chapter 4. Research and Development: National Trends and International Comparisons,” in “Science and Engineering Indicators 2014,” National Science Foundation, February 2014, www.nsf.gov/statistics/seind14/index.cfm/chapter-4/c4s2.htm.

The shift toward business-sponsored R&D is driven by the rise within emerging markets of local companies that develop advanced products for local and global customers. In response, many multinational companies are shifting R&D into those same markets to reclaim an edge. For instance, GE built R&D centers in China and India in 2000, expanded to Israel and Brazil in 2011, and entered Saudi Arabia in 2015. As a result, GE has introduced to its global customer base new products that were designed for a local market such as India. As a result, the company is now meeting customer needs different from those it traditionally focused on.

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Concept Check 11.4 ! "

Question 1 of 3 NEXT NEXT

Question 1

There is a positive correlation between education spending and economic output.

FIGURE 11.15 Total R&D spending and R&D spending as a percentage of GDP for select countries, 1981–2011 Source: “Chapter 4. Research and Development: National Trends and International Comparisons,” in “Science and Engineering Indicators 2014,” National Science Foundation, February 2014, www.nsf.gov/statistics/seind14/index.cfm/chapter-4/c4s2.htm.

Private businesses, governments, higher education institutions, and private nonprofit donors typically invest in R&D. In the United States, nearly 70 percent of R&D is funded by businesses; that's less than the 83 percent in Israel but much more than the 36 percent funded by businesses in India. Perhaps more interesting is the nearly universal increase in business-sponsored funding (see Figure 11.16), indicating that global businesses are recognizing the competitive advantages that come from being at the forefront of technology.

Share of total (%)

Country GERD PPP ($billions) Business Government

Institutions of higher education

Private nonprofit

R&D funding sources

United States (2011)

$429.1 58.6% 31.2% 6.4%  3.8%

China (2011) $208.2 73.9% 21.7% NA  1.3%

Japan (2011) $146.5 76.5% 16.4% 6.6%  0.5%

Germany (2010)  $93.1 65.6% 30.3% 0.2%  3.9%

South Korea (2011)

 $59.9 73.7% 24.9% 1.2%  0.2%

France (2010)  $51.9 53.5% 37.0% 1.8%  7.6%

United Kingdom (2011)

 $39.6 44.6% 32.2% 6.2% 17.0%

** = included in data for other performing sectors; NA = not available. GERD = gross expenditures on R&D; PPP = purchasing power parity.

FIGURE 11.16 Percentage of GERD by funding source, 2005–2011 Gross expenditures on R&D for selected countries, by performing sector and funding sources: 2011 or most recent year Source: Adapted by the authors from “Chapter 4. Research and Development: National Trends and International Comparisons,” in “Science and Engineering Indicators 2014,” National Science Foundation, February 2014, www.nsf.gov/statistics/seind14/index.cfm/chapter-4/c4s2.htm.

The shift toward business-sponsored R&D is driven by the rise within emerging markets of local companies that develop advanced products for local and global customers. In response, many multinational companies are shifting R&D into those same markets to reclaim an edge. For instance, GE built R&D centers in China and India in 2000, expanded to Israel and Brazil in 2011, and entered Saudi Arabia in 2015. As a result, GE has introduced to its global customer base new products that were designed for a local market such as India. As a result, the company is now meeting customer needs different from those it traditionally focused on.

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Concept Check 11.4 ! "

Question 1 of 3 NEXT NEXT

Question 1

There is a positive correlation between education spending and economic output.

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