Academic journal article The McKinsey Quarterly

Making Money Where It's Scarce

Academic journal article The McKinsey Quarterly

Making Money Where It's Scarce

Article excerpt

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 telecommunications infrastructure needed to permit even a basic level of information 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 problem 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 developing world seem capable of providing financial returns high enough to interest private companies. Typically, these models rely on cellular technology 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.

The problems of the developing world are so intertwined that any infrastructure 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 collaborations might finally make many projects in emerging markets a reality. …

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