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The digital divide knowledge basded society

THE DIGITAL DIVIDE
KNOWLEDGE BASED SOCIETY
WIM WIELENS
WORLD SCIENCE FORUM
9 November 2003

Good afternoon Ladies and Gentlemen,

It is indeed a privilege for me to represent my company today in front of such a distinguished audience of technology professionals. I thank you for inviting me to join your discussions.

It is good to be here in Budapest. To give you some brief background information, Philips was first operational in Hungary in 1925 and we re-entered in 1989. We are present in all five of our divisions here: consumer electronics, domestic appliances, lighting, medical systems and semiconductors.

However, I'm not here just to talk about our company. This afternoon, I want to share with you my thoughts on our knowledge based society and the global digital divide.

Not many years ago it was common to divide up our world by the points of the compass... pro-Western, Eastern bloc, or non-aligned. And whenever people thought about who was richer or who was poorer, they spoke of a North-South divide.

Today we define ourselves as members of a single - if sometimes argumentative - global community. But in place of those old divisions a new and perhaps even deeper chasm threatens to split our world.

It is not about belief systems, ideologies, or even about money. It's about access to technology. There is no sharper division than the line separating the digital haves and have nots.

Half of humanity has never made a phone call: less than one twelfth of the world's population has access to the internet. The number of people forever barred from the internet because they cannot read or write is much larger than the privileged global community able to surf the web, email friends and colleagues, or enter online chat rooms.

But the great bulk of the world's population - the four billion people at the bottom of the human pyramid in low-income developing countries - is barred from this digitally linked community. Only 12% of the world's population has a PC.

We routinely speak of a "world wide web." Today I'd like to focus on what might be called a quite separate "world without the web." I want to ask the question:

What does it take to satisfy the unmet technology needs and aspirations of four billion people?

The greatest challenge we face is how to accelerate accessibility and affordability so the benefits of technology - above all in healthcare and education - are more evenly shared. This is what we're here for: for a century, Philips has been associated with improving the quality of people's lives.

As a global company, we try to take a broadest possible view. That affects the way we design products too. For instance, our latest product line in consumer electronics is called "Connected Planet." Connected Planet is the embodiment of the consumer experience of information technology, freed from the home environment. Today it's a developed world phenomenon, but before too long, this should be available to everyone.

As sustainable development rises up the global business agenda it is increasingly clear that there is no surer way of creating a better future for everyone, than by helping this new growth market to "log on" to the benefits of what we at Philips call "technology for people." This isn't just good talk. It's good business too.

Let us see how widening access to technology for these people - by far the largest "new growth market" in human history - will in turn affect developed markets and perhaps solve some of the problems we face there.

The truth is that the digital "haves" and "have nots" hold the solutions to each others' problems.

In developed markets we are suffering a temporary "digital glut" caused in part by the collapse of the dotcom boom, in part by a relentless "technology push" that is not matched by a "market pull" from eager consumers. Sluggish markets, overcapacity and increasingly fierce competition are forcing all of us to reassess our business models.

At the same time in emerging markets, potential demand is almost infinite - if the price is right and technology can be used to "leap frog" over infrastructure deficiencies. New technology can make up for decades - perhaps centuries - of underdevelopment.

So how can the two parties on either side of the digital divide help to solve each other's problems? And how can the technology industry serve as a bridge between the two?

Technology providers are going to have to make some important changes to their traditional business models. When dealing with new growth markets we need to revise our revenue models and - perhaps - our obsession with the "latest and fastest" for a "whatever works" approach.

Ladies and Gentlemen, these issues are particularly relevant to Philips.

Almost every consumer knows Philips for its consumer electronics products in the living room, for its lamps almost everywhere, for its Philishave and for its many kitchen appliances but we are also a world leader in Medical Systems and a leading Semiconductor company providing the essential chips in 65% of all GSM phones. We're an integrated technology provider with a strong focus on our customer base. In fact I like to describe our central activity as "technology for people."

Philips has more than 95,000 patents and is recognised as one of the world's leading innovators. We played a leadership role in bringing the world CD, CD-ROM, CD-RW, DVD, DVD+RW etc.

PAUSE

I would now like to share with you the polarised worlds that are the digital divide and how they can help each other out of what is close to their gridlock.

From the perspective of, let's call them the digitally conversant economies, all is not well with the consumer electronics market. Sluggish economic growth, weak consumer demand, and ever-tougher competition are all hurting us.

Whilst I'm here, I'd like to review some of the conclusions that we at Philips have drawn, in the context of the key challenge I spoke of earlier: satisfying the unmet needs and aspirations of four billion people.

Suddenly, our problems in the developed world look more manageable and the opportunities in the developing world look truly endless.

That is in part why my colleagues and I at Philips are reinventing our company and in the process helping to transform this whole industry.

Let's start by discussing some of the issues facing the developed world. First, there has been a step-change in the pace of competition: the landscape has been fundamentally altered to the point where true innovators investing heavily in R&D have less and less time to enjoy the fruits of their labors before "me too" producers catch up.

Next, responding to these changes requires a flexible organization that's truly global yet adapts design, manufacturing, and above all marketing, to local or regional conditions.

Finally, it's no longer enough to launch new products into increasingly saturated markets - leaders have to be able to launch whole categories and create entire new markets where none existed before.

So the new business model rests on these three pillars:

• high speed, continuous innovation.

• flexible organizations.

... and new categories that redefine the borders of consumer electronics to generate growth

Let's examine each of those categories - and then see how satisfying the unmet needs of the developing world could create new growth and vigor for this industry.

First, innovative responses to competition.

Leaders are being assailed by the increasing velocity of the innovation-to-commoditization cycle.

For example, two years ago the DVD player was the star product on the market. Today that very same product has experienced a price collapse by a factor of ten - and is today given away free with other products. The arrival of "me too" or "C" brands based in Asia that are able to replicate cutting-edge technologies with lightning speed, means that leaders have less and less time to recoup heavy investments in R&D.

Everywhere the message is similar: too much competition, too little growth. When the US economy is flat then technology - which accounts for 50% of all capital spending - is flat too.

Let's review this first theme against the benchmark of satisfying unmet technology needs in developing economies. First of all, demand is almost infinite for the right product. The issue isn't competition - it's getting the right models that match economic realities. Being innovative, being creative.

To bring you examples of innovation and creativity, I'd like to talk a little about what we as a company are trying to do to bridge the digital divide and bring technologies and connectivity to populations in all areas.

Let me tell you about two schemes in the area of IT literacy that we sponsor - one in Russia that introduces IT into school libraries and a mobile education unit in Turkey that improves childrens' knowledge of IT. In the Russian example, introducing IT into school libraries and training librarians, is seen as the best way to introduce IT into the Russian education system as a whole.

In Turkey, two mobile education units visit rural areas to teach computer literacy to children in less well-equipped schools. From April to September 2003, the two trucks reached 6,000 children.

Within another discipline, in India we are looking closely at telemedicine and learning options utilising the growing network of "internet kiosks" linking rural areas through the fiber optic backbone.

 In the field of connectivity and consumer electronics, let me tell you about another initiative specifically designed to bring the urban poor of shantytowns and even more isolated rural areas into the digital community. Almost three billion people in these situations - many of them illiterate -- need to be able to communicate with family, employers and friends even though fixed line or wireless phones are way beyond their economic reach. Our solution is called "Voices in your Hand." This project is already being tested in Recife, Brazil, and it gives an example of how Philips enhances the quality of people's lives by creating technology that is meaningful to different people in different markets that are in different stages of development and is therefore within the framework of sustainable development.

Using modified existing MP3 players that support voice recording and playback and carry a text free user interface, people can listen to personalised webcasts of audio information offline in their homes, talk back and use voice email. Then they visit a public utility point to link their sets to the Internet via USB. It's not real-time or on-line, but remember you can buy 40 units for 40 families for the price of even the cheapest PC.

The availability of clean, safe drinking water is identified by the World Bank as the largest single factor affecting the health, wealth, and possibly the peace of humanity. Traditionally, clean water means centralised systems, engineering skills, concrete, chemicals, distribution pipelines - and foreign investment. But it's possible to have affordable, effective, small-scale water treatment at the astonishingly low cost of 10 US cents per villager per year using the Ultra Violet Waterworks (UVW) technology. The secret is to combine solar power, direct current and UV purification on a decentralised basis. Philips has all these technologies. Already, UVW systems are being tested around the world and one Indian organisation -- Ashok Gadgil - has shown the potential.

Just a few examples from around the world of appropriate technologies that sidestep the stagnant demand for "latest and best" products in developed countries - and don't seek to export costly "made in the west" solutions to developing economies.

Next, to my second theme of building flexible organizations.

Most people agree that global enterprises need to become truly flexible organizations by adapting their design, marketing and technology capabilities to regions and markets.

What you're seeing is some companies moving away from being vertically integrated manufacturing monoliths to focus on sales and marketing, with technology leadership. In the process we are, I believe, becoming pioneers with quite a different approach to that of our main competitors in the CE business.

So we are evolving into a more flexible "composition of parts." We're a global enterprise built around sales, technologies and people. We need different business models for different regions, while our technology base remains global.

More and more players - Philips included - realize that ownership of production facilities, whether located in Europe or developing countries, is not the answer, Instead, excellence in technology and marketing are the keys to sustained business success.

Developing countries have become successively our manufacturing base, our market, now our outsourcing and partnership networks.

And - thanks to installations such as our R&D/Technology Center in Bangalore - some of our innovation will come from such areas too. Solutions developed here combined with the marketing, reach and distribution strengths of our businesses here could help the developed world.

In energy management we have much to learn from societies that cannot depend on electric power grids. The boost for LED lighting, for example, might come from "off grid" village societies in India that will migrate straight to DC current while Europe still struggles with AC systems dating back to Thomas Edison.

So flexibility means recognizing how much we have to learn from solutions developed here.

Now to my last key theme:

New categories that redefine the borders of the technology industry to generate new growth.

As I've said, the cake represented by rich-country technology markets isn't growing. But fighting to redistribute existing market share seems short-sighted when such great needs remain unmet. New growth markets aren't just a matter of physical location: they're about meeting customer needs everywhere by creating new categories of experience.

So how do we help Europe's consumers "log on" to these benefits and in the process create a new market category? Europeans traditionally use the Internet to surf the web, and check email - things you can do with a simple dialup connection. We want to help them experience the full richness of digital media - streaming video, music, or digital photography. But to do so they need to convert to broadband.

In fact it's probable that a 'pay per use' basis for technology will become just as common as "owning the box" and this will be the future business model for our industry. So we need to focus more on marketing 'benefits' and 'solutions' than simply on sales.

A perfect example is the successful program of internet kiosks for rural areas in India: it's not necessary to own a computer to stay in touch. Likewise hospitals in India (such as the facilities at and near Hyderabad and at Bangalore) have shown they are able to utilise diagnostic equipment such as CT scanners at very high rates, which make their use financially viable. So developing markets are likely to show us the way forward in creating new market categories of the kind I described with the "rent-don't-buy" broadband hook-ups in Europe.

Another important area in emerging markets is distance learning. There's huge potential for disseminating basic information. The interface for distance learning in schools, clinics and local institutions - whether by TV or PC - is always the display. Philips sees huge potential demand for displays to support distance learning - and a chance to make a major contribution.

Half of all households in India - that's 100 million families - -do not yet have access to radio. Philips is already the largest suppliers of branded radios in the country. But if Philips could develop a radio that could be marketed for around US$5 - we could enable huge numbers of people.

Let's return to the subject of healthcare, we are convinced this could be the biggest and most exciting "new category" of all. Philips has an interest to declare: we are the world's leading producer of patient monitoring equipment and a top-three producer of diagnostic equipment such as MRI scanners, CT scanners and x-ray equipment.

Both sides of the "digital divide" have the same problem with healthcare - we just can't afford it.

In the rich countries, the exploding cost of care for graying populations is based on the inefficiency of a decades-old "business as usual" scenario. Even developed economies can't afford a luxury system that leaves patients, doctors and taxpayers unsatisfied.

At the same time developed-world patients are changing: they're becoming discriminating customers. They seek empowerment, wanting to know about their treatment and to participate in it, helping to save money. They want treatment in the home, not in hospital.

Add all this up and you get what we at Philips call personalized healthcare: empowered consumers using an array of small user-friendly machines that straddle the world of medical diagnostics and consumer electronics.

Now let's transport this same scenario to the developing world - a world which also can't afford the current cost of healthcare.

You're familiar with the scenario: an office worker might spend US$1 on transporting himself and a sick child to the city hospital for medical treatment that can potentially cost only 25 cents. At the village level, the provision of very basic telemedicine monitoring programs can make a huge difference while reducing the load on hospitals concentrated in the cities.

In other words, the emergence of efficient telemedicine and personalised healthcare can be just as revolutionary in developing countries as in developed economies.

Although it might appear that a gulf separates those on either side of the digital divide. I hope I have shown that what unites is just as powerful as what appears to divide us.

All of us in this room are lucky to live in the world of the "technology haves." but we share with those in the remotest and poorest village of Africa a common set of aspirations about the quality of life. Health, dignity and happiness are our common pursuit.

For over a century Philips has been committed to bringing meaningful technology to markets to improve the quality of people's lives, yet this is an exciting new start for us. We need to get to the stage where good health becomes a right not a privilege. Satisfying the unmet technology needs and aspirations of four billion people is a worthy challenge for all of us.