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Sloan MGMT Review The Next Wave of Business Models in Asia Innosight
Sloan MGMT Review The Next Wave of Business Models in Asia Innosight
Sloan MGMT Review The Next Wave of Business Models in Asia Innosight
Business Models
in Asia
WINTER 2017
ISSUE There’s a new generation of sophisticated entrepreneurial
growth companies in Asia — and they’re competing by
reconfiguring business models.
Asher Devang
Christian Kruse
Andy Parker
Pontus Siren
PLEASE NOTE THAT GRAY AREAS REFLECT ARTWORK THAT HAS BEEN INTENTIONALLY REMOVED. WINTER 2017 MIT SLOAN MANAGEMENT REVIEW 35
THE SUBSTANTIVE CONTENT OF THE ARTICLE APPEARS AS ORIGINALLY PUBLISHED.
KEEPING UP WITH EMERGING MARKETS: BUSINESS MODELS
gamified badges, the ability to view videos not oth- the second wave is driven primarily by business
erwise available in their region, early access to new model innovation and typically leverages new
shows, and an advertising-free, high-definition ex- technology. These companies are characterized by
perience of the content. extensive and often radical reconfigurations of the
As it happens, the market is ripe for services like profit formula, resources, processes, and relation-
Viki’s. In fact, the combination of rapidly increas- ships within a broader stakeholder ecosystem.
ing internet video adoption rates and a greater They may have a sophisticated global orientation
appetite for foreign content — both in Asia and from the start; for example, in Viki’s case, the com-
globally — has become a big opportunity for Viki, pany was “born global,” beginning as a class project
which was acquired by Tokyo-based Rakuten Inc. by graduate students who were studying in the
for a reported price of $200 million in 2013.2 United States but who later moved the company to
Singapore.3
Two Business Model Waves
From our perspective, as a consultancy that analyzes The First Wave
business model innovation across the globe, Viki’s The first wave of contemporary business innova-
story exemplifies a larger trend playing out in Asia. tion emerged in Asia during the post-World War II
We see Viki as an archetype of a new generation of era. It became a tidal wave from China following
companies emerging in Asia and leveraging business Deng Xiaoping’s 1978 “open door” policy, which
model innovation to drive growth in the region. But changed the competitive landscape of global man-
to understand this type of business model innovation ufacturing. Another sea change involved opening
in its proper context, it’s important to understand and deregulation in India in the 1990s, which
Viki’s forerunners. Our research into business model transformed the global services industry. These
innovation in Asia uncovered two distinct, yet over- changes have been explored before. For example,
lapping, waves of innovation: one decades old and C.K. Prahalad and Stuart L. Hart pioneered re-
still going, and one that includes Viki and is evolving search on the opportunities at the “bottom of the
now. (See “About the Research.”) pyramid” in emerging markets.4 John Seely Brown
The first wave, as we call it, primarily exploited and John Hagel III also investigated product and
differences in labor and other input costs between process innovation practices from Asia.5 In a simi-
developed and developing markets. By contrast, lar vein, Vijay Govindarajan and Chris Trimble’s
OYO, can increase asset utilization and reduce the find new, often digitally enabled, ways in which
commissions and finder’s fees they have typically resources and processes can be leveraged, as demon-
paid to online booking engines, hotel touts, and taxi strated by OYO’s booking and quality systems. The
drivers. OYO employs a dynamic, algorithmically de- third is that second-wave companies identify creative
termined pricing model; hoteliers can decide how ways for partners, stakeholders, and customers to be
much of their inventory they want to offer at that involved in value creation and capture, as evidenced by
given price. The algorithm seeks to optimize profit- Viki’s digitally connected army of volunteers.
ability by balancing inventory and cost and taking The second wave will create new opportunities
market demand into account. OYO plans to become and challenges for established players. While most
the largest supplier of budget hotel rooms in India. In incumbents have chosen defensive strategies, some
the summer of 2015, OYO raised $100 million from have embraced the second wave as an opportunity
Softbank Group Corp., Sequoia Capital, and other for business model innovation, assertively reimag-
investors to help fund growth plans.11 The company ining their processes for a new era. One of these
also recently made its first foray into Malaysia. incumbents is our client Medtronic Inc., the global
Despite its rapid growth, OYO has faced chal- medical devices and technologies company based
lenges, including some hotels that have cut ties with in Dublin, Ireland. In 2010, Medtronic launched a
the service.12 Sinha is aware of such challenges; new business model in India to radically increase
he aspires to hit Six Sigma levels of quality across access to pacemakers. Its “Healthy Heart for All”
front- and back-end processes. Meanwhile, OYO’s business consists of an installment-based, noncol-
value proposition and business model have inspired lateralized financing program for implantable
imitation, as evidenced by a number of new com- pacemaker devices. This integrated program in-
petitors (including Rocket Internet’s ZenRooms and cludes a care network with diagnostic outreach,
MakeMyTrip’s Value+) that have entered the fray. health hotlines, financial counselors, heart screen-
Customers will ultimately flock to whoever manages ings, and device implantation. As of May 2016,
to offer the most consistent and reliable experience. approximately 167,000 consumers in India had
been screened and 15,000 patients had been treated.
Catching the Second Wave Medtronic is now bringing the model to other
The first wave of innovation from emerging mar- Asian markets and to the United States.13
kets in Asia has been predicated on the replication If you want to reimagine your own business
of existing business models at lower cost. As the model, the first step is challenging the fundamental
model has evolved, it has become increasingly so- assumptions about what it means to be a business,
phisticated, as demonstrated by BGI offering employee, partner, or customer. For example, Viki
competitively priced yet highly sophisticated ge- has reimagined how the company finds, compen-
nomics services. Nonetheless, we believe the second sates, retains, and motivates people who, in more
wave could be even more disruptive than the first traditional businesses, would be employees or con-
wave was. There are three reasons why, all of which tractors, and OYO has reimagined what it means to
reveal the ability of second-wave companies to be in the hospitality industry by disintermediating
achieve scale while remaining nimble. branding, operations, and quality assurance.
The first reason is that second-wave companies But all of that is easier said than done, since most
fundamentally reimagine various facets of the busi- established companies lack experience in developing
ness model. The second is that second-wave companies and testing new business models. One way to start
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