Alumnus Ruiz discusses evolving markets, business strategies

Hector Ruiz, president and chief executive officer of Advanced Micro Devices (AMD) said companies must rethink business models if they hope to capture the world’s “next generation” of consumers, a group that is expected to have annual income of less than $4,000.

Ruiz discussed “Innovating Business Strategies to Serve the Next Billion Computing Customers” Feb. 10 at Rice University’s Jesse H. Jones Graduate School of Management.

These consumers will be in countries like Brazil, China and India, and their product demands are different from those in the U.S., he said. New business models will be needed to take into these developing markets.

“This will be a new class of consumers,” Ruiz said. “The challenge is not an issue of technology, but rather the development of a [new kind of] business model.”

The financial limitations of people in less-developed countries require “affordability, relevance, usability and availability.” As a result, Ruiz said, Western companies have to produce new approaches to marketing and selling products in those countries.

Successful business models in these markets have turned away from the traditional practice of customers paying after services are rendered and are moving toward prepayment plans.

“There is a strange dynamic that occurs,” he said. “If you pay after you need something then you tend to spend more than you actually needed to.”

Ruiz cited an example of this trend in the use of prepaid cellular phones in underdeveloped countries. In the U.S. about 90 percent of all cell phone users have lengthy contract agreements and pay monthly service fees. In return, he said, they receive a predetermined number of “free” minutes that they may or may not use each month. In countries such as the Philippines, however, 90 percent of cellular phone users have prepaid plans.

“If customers prepay, then they do not tend to spend more than exactly the amount they need,” he said.
Ruiz said Western companies have a tremendous financial opportunity to provide services to underdeveloped countries, if they are willing to modify their approach.

In underdeveloped countries, consumers often experience unpredictable or irregular income. To deal with this reality, companies are challenged to produce less-expensive products while still turning a profit.

Redesigning or tailoring certain existing products to a specific country’s needs may be the solution, Ruiz said.

In India, the makers of shampoo realized that the average family could not afford or was unwilling to buy large bottles as families in the U.S. do. By producing one-ounce packages, Ruiz said, Western businesses were able to make the products affordable for purchase on an as-needed basis.

“[U.S. consumers] make very large investments because we can afford it, not because we’re smart about it,” he said.

However, companies face a number of other problems marketing products abroad. In many cases, they must penetrate several levels of government bureaucracy. If companies are able to find a way to deliver traditional services through a new method — such as Internet service via energy providers — they are often faced with the difficulty of coordinating the technology, government regulations, service providers and software and hardware manufacturers.

Ruiz said the entire process can take more than a year to complete and can be costly. Still, he believes lucrative business plans exist that can meet the demands of this new market.

“People have asked me before why [our company] provides these types of services,” he said. “[The consumers in these markets] are not charity cases. … There is a $100-billion industry here.”

Ruiz earned his bachelor’s and master’s degrees in electrical engineering from the University of Texas–Austin. He earned his doctorate in electronics from Rice University in 1973.

He currently serves on the National Security Telecommunications Advisory Committee, which provides industry-based advice and expertise to President George Bush on issues and problems related to implementing national security and emergency preparedness communications policy.

Ruiz also serves on the Eastman Kodak Co. board of directors, the advisory board for the Tsinghua School of Economics and Management and the board of directors for the Semiconductor Industry Association.

Ruiz was visiting Rice for the unveiling of the university’s new Cray XD1 supercomputer, which features AMD processors, along with Cray President and Chief Executive Officer Peter Ungaro. The supercomputer, located at Rice’s downtown data center, was acquired with a $2 million grant from the National Science Foundation after a two-year project to bring it online.