New Business Models in Emerging

Markets
 Elements for businesses to consider
while developing a model
• Start in the Middle
– Don’t focus on the higher customer class (less
numbers more earning)
– Don’t focus on the lowest customer class (More
numbers less earnings)
• Offer unique benefits. Customer value
proposition
– It should solve a problem. “the customers rarely buy
what the business thinks it sells them”
– Affordability
– Access
• Once Customer Value Proposition (CVP) is
completed differentiation is done on the basis
of the following two things
• Competing on the basis of differentiation
(offer something unique and better)
• Competing on the basis of price
 Emerging Markets
• Emerging markets are countries that are
restructuring their economies along market
oriented lines and offer a wealth of
opportunities in trade, technology and FDI

• http://data.worldbank.org/country
Are Emerging markets a poor’s man
domain?
Five Myths about Emerging
Markets
• Emerging markets offer great growth
• Western companies enter emerging markets with
a great disadvantage
• Having less idea about these markets they create
the wrong offers which fail to meet the needs
• Many telecom based companies had their
headquarters in emerging markets
• Many have their headquarters in developed
markets but heavily invested in emerging markets
 The five Myths
• Emerging markets are technology backwaters
• Emerging markets consumers cant afford
technology purchases
• Consumers in emerging markets wont pay a
brand premium
• Technology offerings from mature markets will
succeed in emerging markets
• Emerging market consumers focus on
products not services
 Emerging Markets are technology
backwaters
• Companies have targeted emerging markets with
low end products
• emerging markets show a rapid adoption of
technology
• Customers even leapfrog due tot his rapid
adoption
• In developed markets businesses rely a lot on
technology
• In emerging markets small business have started
to use technology with much more efficiency
 Emerging market consumers cant
afford technology purchases
• Research showed that more than 80% people
in emerging markets have disposable income
• Bigger unexplored segments exist in these
markets
• In some markets middle segments comprises
of 70% of the whole population
• Small business were even willing to pay extra
20-30% price premiums for better products
Consumers in emerging markets wont
pay a brand premium
• Executives have assumed that its difficult to
hold a healthy position due to competition
from low cost local brands
• Surveys showed other wise. Consumers are
likely to purchase branded PCs if they had the
option
• More surveys showed a similar kind of result
i.e. brand name was an important factor
 Tech offers from Mature markets will
succeed in Emerging markets as well
• What's good in one market will succeed in other
as well.
• Evidence showed that companies should create
tailored product features and pricing according
to needs of consumers
• Products customized according to local
priorities have seen a lot of interest by local
costumers
 Emerging market consumer focus on
products, not services
• Many businesses have overlooked the services
element and not offered bundled solutions
• Customers actively look service providers and
this leaves a big gap for other businesses to
exploit.
• For B2B markets selling services has a huge
potential as compared to individual cusomters
•
Whats Wrong with Strategy?
• Strategic plan over the past two decades have become
a common thing
• Many planning sessions result in no action and plans
end up buried
• 3 reasons for this failure
– We misues objectives. Confusion between purpose (what
an organization exists to do) and constraints (what is
needed to survive)
– Process poses difficulties. Who should develop strategy?
Managers should develop them or they should follow?
– Planning is expected to lead to new strategies. This
happens rarely
Objectives: Purpose or Constraint?
• Its easier to develop a plan if it is known what to
achieve
• Clear objectives are necessary for planning
• What objectives should a company have? This is
where the confusions mainly builds up.
• A most common phrases in org at functional level
“ Why doesn’t the corporate tell us what it wants
us to do?”
• Conflict comes from financial goals and marketing
goals
Zero Based Design
• Starting from a position of assumed ignorance
• Assuming that nothing done before can work
• Hitting the poor people segment. People living
under $2 a day
• 8 steps for the conceptualization and
implementation of a business to market
essential products and services
 8 Steps
• Listening
• Transforming the market
• Scale
• Ruthless affordability
• Private capital
• Last mile distribution
• Aspirational branding
• Jugaad innovation
 Billionaires in the world
• Jeff Bezos- Amazon
• Bill Gates- Microsoft
• Bernard Arnault- Louis Vitton
• Warren Buffett- Investor
• Amancio Ortega- Indext fashion
• Larry Ellison- Oracle
• Carlos Slim Helu- Mexican Businessmen
• Mark Zuckerberg - Facebook
• Michael Bloomberg- American Businessmen
• Larry Page- Google
• Mukesh Ambani- Reliance
Wall mart
• Early 2011 it was the worlds largest company with net
sales of almost $420 billion
• More than 8400 stores in 14 countries and had over 2
million people employed worldwide
• Serving over 200 million customers each week around
the world
• Still struggled with growth strategy in the US which
accounted for 62% of total sales
• Having a growth rate of more than 10% was becoming
hard to maintain
• Decide to shift focus to “Every day low prices” and
open new smaller stores in urban markets
 Different store formats
• Wal-marts: discount stores the core of their business
700 discount stores were being operate by 2011
• A major shift from these discount stores to
supercenters was seen in 1990s. These stores added
grocery and additional services. By 2011 a total of 2900
supercenters were being run which generated 54% of
the revenue
• Sam’s club was a member only warehouse store. was
bigger than a discount store but smaller than a
supercenter, having a total of 609 stores
• Wal-mart express stores
 International Operations
• Mexico: growth took place with the combination
of acquisition, partnership and ventures. Joint
venture with the country's largest retailer Cirfa in
1991. later of acquiring the company and
changing its name to “Walmex”
• Argentina and Brazil: Entered Argentina in 1995
with Sam’s club format stores. In Brazil it became
the third largest retailer in the country. This was
achieved by acquiring bigger existing chains
• Canada and Britain: Entered Canada in 1994
with the acquisition of local business Woolco.
Expanded itself later on and started banking
services in 2010. In Britain walmart purchased
ASDA and became the country's second
largest retailer after Tesco. Later on with the
acquisitions of another retailer walmart
entered into the convenience store market in
order to compete Tesco and Sainsbury
• Japan and China: in 2002 started with a partial
investment in Seiyu. Less than 20% of japanese
customers had heard of Walmart. Japanese consumers
prefer low price low quality products as a result of
which walmart had to redesign itself. After 7 years of
loses the business started to achieve positive sales.
• Chinese markets was a huge potential with a $.17
trillion retail market. Started its operation in 1996 with
supercenter and sams club store format. 2011 fiscal
year the sales stood at &7.5 billion and growing at a
double digit rate.
Competing with emerging
market multinationals
• Many American and European firms
underestimate the competition from
emerging markets
• Huawei founded in 1988; Ericsson and
Siemens already established
• 1990s introduced its first digital switch for
telephones in China
• Most investment was put into R&D
• Low cost, customization and customer
response was competitive advantage
• Late 2000s few even knew about Huawei
• Completely overlooked by western companies
The rise of emerging market
multinationals
• Past 20 years have seen a major rise from emerging
economies
• East Asia, Middle East, Latin America have become
major exporters of manufacture goods, agriculture
good, energy commodities
• Emerging countries have become a major source of FDI
not only to other emerging economies but also to
developed ones
• By 2009 they accounted for 14% of all FDI in the world
• MNCs coming in from emerging markets are few but
growing in a considerable number
 Few Mncs from emerging markets
• Cemex
• Acer
• Samsung
• BYD
• TCS
• Sinovel
• In the next two decades emerging markets Mncs
will account for half of worlds top 500 companies
• Late 19th century saw the origin of the
Modern MNC in technology based
industries. Brand reputation and
knowledge played an important role in
their success.
• North American, European and
Japanese's firms were dominant in this
expansion
• These companies tend to share similar
core features like technology, marketing
and management strengths
• Start of 1990s saw a new trend in the
global markets, firms from South Korea,
India, China, Brazil, Mexico, Indonesia,
Spain started to expand.
• These businesses used different
methods to operate in the new markets,
joint ventures, alliances or completely
owned subsidiaries.
• Referred to as “challengers”, “thirds
world multinationals”, “late comers”
• These firms did not have the best
marketing or management skills
 6 distinguishing features
• Speed of internalization
• Competitive (dis) advantage
• Political capabilities
• Expansion path
• Preferred entry modes
• Organizational adaptability
 Feature 1 and 2
• Achieving global reach and global scale have become
more important than before
• Once a certain degree of success is achieved at home
country the next step is to go global as soon as
possible.
• Due to them being less competitive business they have
received less attention which has given them time to
develop strategies and adopt
• Being at a competitive disadvantage emerging markets
MNC have to work hard to reach a higher technological
level and to gain more resources
 3 and 4
• Emerging market MNCs might be weak in
technology or marketing capabilities but
they are good at handling political situations.
• Due to their experience in an unstable
political environment they can do easily
adjust in a stable one
• Some MNCs might prefer global reach as
compared to gaining better
abilities/resources. But both are important
 Feature 5 and 6
• These business use alliances and joint
ventures to enter into a new market
• This is done in both host country and
the expanding country to gain access to
them
• Home market entry point can be used in
a newer market as well when entering
(competitive advantage)
• Due to their changing nature emerging
markets MNCs tend to adapt to newer
practices quickly
 How serious is the competitive threat
• 1960s and 70s saw the emerging of giants from
Japan, Taiwan and Korea
• Currently it’s a similar story but with a lot more
countries involved
• Western MNCs are ignoring emerging market
giants due to
– Being technological backward
– Unsophisticated products
– Inefficient operations
– Less international experience
– Little marketing skills
• Have so many risks in them
– Weak institutions
– Corruption
– Overreliance on natural resources
• Japanese companies were suppose to take
over the world but that never happened
• Financial crisis of 2008 gave emerging market
giants opportunity to expand and grow at a
faster rate
 General Electric Chief Executive
• GE has tremendous respect for traditional
rivals like simens, philips and rolls-royce. But it
knows how to compete with them; they will
never destroy GE. By introducing products
that create a new price-performance
paradigm, however, the emerging giants very
well could.
 What are the competitive advantages
of Emerging market MNCs?
On surface they don’t seem to have any competitive
advantage like the western companies (like
technology, global reputation, experience, scale)
Some say they don’t have any competitive
advantage other than
– Cheap labor
– Abundant natural resources

Yet we see a global expansion by companies coming

out of emerging markets, so what's going on here?
• 4 waves of multinationals to appear
– Wave 1: before World war 1 dominated by
European firms, British, Dutch, French and
Germans
– Wave 2: came after World war 1 and World war 2,
Dominated by US firms
– Wave 3: 1960s-70s came out of Japan and 4 small
Asian tigers
– Wave 4: current wave from Rest of the World
 So what are their advantages?
• Operational Excellence in adverse
environment
• Privileged access to resources and markets
• Insight into customer needs
– They attempt to truly understand what the
customers actually want
– Products need to be cheap and portable
– Producing in large batches but keeping the cost
low
 Internationalization and competitive
advantage
• They produce high quality stuff at lower price in
emerging market and sell it off in developed markets
for higher margins
• Global consolidators
– Emerging market giants who acquire business from
developed countries
– Lenovo acquiring IBM personal computer business, Tata
steel acquiring companies, Chery acquiring volvo
• Expanding in other international markets
– Having a business model from developed country to an
emerging country will not work in most conditions
– A business model from emerging market to a developed
market will more likely work
Strategic Innovation at the Base
of the Pyramid
• Companies that attack their competitors do
this by having business model breakthroughs
• They try to find gaps
• Go after these gaps
• Turn these gaps intro profitable markets
• This is what provides you a competitive edge
 For developed markets
• Finding new customers
• New products
• New ways of promoting
• New ways of producing
• New ways of distributing them
• Most of the research related to strategic level
is focused on developed markets
 For emerging markets
• Growth opportunities in emerging markets lie
at the bottom of the pyramid
• Exploring this area can lead to significant
opportunities and to unlock value
• Strategic innovation in emerging market
differs in the following three manner
– Its not about finding the new customers its all
about tapping the nonconsuming ones
– Its not about creating new products its all about
adapting to existing ones
 Developing affordable products
and services
• The biggest 20 emerging economies have a
total of more than 700 million households
• Tapping this market means introducing
affordable products which is a challenge for
companies
• Low income consumers have low disposable
income
• Two third of indian villagers (out of 171
million) are in low-income category. They pay
mostly on food items while the remaining
• 50% of the population in Philippines living
below the poverty line.
• This posed a massive challenge for mobile
operators
• Middle or upper income group can pay for the
services but a huge chunk of market was left
untapped
• Analyst figured that the mobile market cannot
penetrate beyond 3-% until 2008 at the
earliest
Dealing with product acceptability
• Another important challenge is making
customers accept the product or service being
offered.
• This can be achieved by adjusting the product
price- performance ratio
• Or by making small modifications to make it
culturally acceptable
• Hindustan Unilever ltd introducing dual
purpose soap called Breeze 2-in-1. can be
used as a soap and shampoo
 Addressing Supply chain and
Exposure issues
• Traditional marketing methods are not very
successful in these type of customer segments
• A huge chunk of people living under the
poverty line don’t own a TV so advertisement
cannot work effectively
• Using non conventional methods are have
been used in developing countries for this
purpose
• Micro franchise sales and distribution model
by Avalon have been adopted