Third World Semiconductor Growth Opportunities

Where is the next semiconductor marketing opportunity?  Maybe it’s not a specific application, geographic region or country but an overlooked portion of the world’s population. 

In the developed world, we drive upscale cars, travel around the world and want to be connected 24/7.   We understand immediately the appeal of stability control, GPS navigation systems, powerful laptops, smart phones, Wi-Fi and 4G. Our expectations taint our evaluation of potential markets. 

The annual GDP per person in developed countries is more than $25,000.   In the US, as an example, it’s nearly $50,000.   But, the annual GDP per person for more than 80% of the world’s population is less than $10,000 per year.   For nearly 40% of the world’s population it’s less than $2,000 per year. For nearly 15% it's less than $1,000. 

Because not everyone is a wage earner, average earnings are less than the annual GDP per person.  If the annual GDP per person is $10,000, for example, the average annual earnings may be as low as $5,000 to $6,000.  Let’s be generous and say it’s $6,000.  That doesn’t correspond directly to an annual salary of $6,000 in the US.   These are subsistence economies.  People raise most of their own food, and a lot of what they need is obtained by barter.  Still, there is far less than $6,000 per year available for discretionary spending in a country with an annual GDP per person of $10,000 and even less in countries with a lower annual GDP per person. 

The point is this; with $6,000 or less each year available for discretionary spending, people cannot afford a $20,000 car, a $1,000 PC, a $400 digital camera or even a $100 GPS system.  In the US, $200 and $100 are often critical price points for mass market. I n countries with average earnings of $6,000 or less, the corresponding price points are probably closer to $50 and $25, sometimes even less.  Products need to be marketed according to a population’s ability to purchase them.

 Tata Motors, in India, understands this perfectly.  The annual GDP per person in India is just over $1,000. T here is only a very small market, wealthy people, for automobiles selling at $20,000 or more, but the Nano was designed for the Indian market.  It's a tiny four passenger sedan no one in the US would buy, but it gets 78 miles per gallon and sells for just over $2,000 in India.  Not everyone in Indiana can afford a Nano, but many can.  The US had the Model T, England had the Austin Seven, and Germany had the Gogomobil. Each was a low cost automobile that put a country on the road. Now India has the Nano.  Millions will be sold.

It’s time to begin looking for similar electronic markets.  There will always be markets in the developed world for faster, more complex products with richer feature sets, but there are emerging markets for simpler, less complex products in third-world countries.  These could be PCs for $100, cell phones for $20, TVs for $75 or water purification sampling kits for $100.  The revenue and profit margins will be smaller, but the number of potential customers is huge.

There’s no need to stop the drive for faster, smaller more complex products for markets in the developed world; but if fast enough, small enough, simpler, less expensive products aren’t developed in parallel, countries in the developed world will miss a huge potential market.  The developed world is no longer alone in innovation. China, India, Taiwan and other emerging economies have developed engineering capabilities that match the developed world’s capabilities.  Companies in these developing countries will not miss the opportunity.