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Andrew McAfee, a researcher at MIT’s Sloan School of Management, is perhaps best-known as a proponent of Enterprise 2.0 and the transformative effects of Web 2.0 tools within business. This week, a piece by GigaOM’s Katie Fehrenbacher spurred McAfee to explore the idea of “cloud first” markets — those markets where companies’ first serious engagements with information technology are in the form of cloud computing. This is a particularly important issue when it comes to the expanding BRIC countries (Brazil, Russia, India and China), and the question is, As its basic infrastructure becomes more accessible, can companies in these markets use the cloud to grow quickly and cost-effectively? And will Europe, North America and other established markets where corporate IT remains dominated by legacy systems be able to keep up?
McAfee sees a similar trend in telephony that is informative here. Across large expanses of Africa, fixed-line telephony was limited in the past and based largely on colonial-era infrastructure. Rather than investing in laying cables, fiber and wires to emulate the established phone systems found in developed nations, governments and telcos instead built out new infrastructure to support cell phones. For millions of Africans, their first experience of telephony was with a cheap mobile handset (Nokia still dominates here, in the world’s fastest-growing cell phone market), and phones are now being used in innovative ways that extend far beyond simply making calls.
Turning to IT, the competitive advantage for BRIC companies’ using cloud solutions is that the developed world’s biggest enterprises remain reliant on complex supply chains, tightly integrated stock control systems, advanced analytics and big corporate databases. All of this is tightly tied to data centers full of expensive hardware running enterprise software from the likes of SAP and Oracle and maintained by armies of highly trained professionals. These systems took years to develop, and their cost is typically written down over an extended period. When pitted against one another, large enterprises can use these legacy systems to their competitive advantage. But competing against new markets, or against a new generation of competitors who carry none of the legacy IT baggage, those enterprises are in danger of becoming held back due to those systems.
India and China also boast highly skilled (and often English-speaking) graduates that are also technically proficient. And more are on the way: The Boston Consulting Group projected that Brazil would have a higher proportion of Internet users (74 percent) than the U.S. (73 percent) by 2015. Established providers of IT services are keen to locate within the BRIC countries. Equinix, for example, continues to open data centers that serve the Chinese market from Hong Kong; this month Amazon is opening a new data center in Brazil. Homegrown solutions are also emerging, often initially bootstrapped by foreign expertise.
Especially in knowledge industries, where expensive fixed assets can be minimized, well-understood attributes of the cloud such as scalability and agility can be employed to ensure that new companies can emerge, develop and grow with remarkable rapidity. Big companies like Tata as well as smaller startups like India’s Netmagic and Brazil’s Órama have all been quick to leverage cloud solutions in their business. And a market in which you have less powerful competition is one in which it is easier to deliver evolving solutions or even to make small mistakes.
Government and private investment is ensuring that much of the infrastructure is in place, at least in urban areas. The skills are in place. Across a wide swathe of (predominantly knowledge-based, for now) business areas, the low-cost, rapid-scaling and ongoing agility and global reach of cloud-based solutions offers a real opportunity for young companies in the BRIC and other emerging economies. Manufacturing in the U.S. and Europe has largely been outsourced to cheaper countries such as China. Might our knowledge industries follow, and much sooner than we had anticipated?