Building Effective Business Models in Emerging Markets
Building Effective BusinessModels in EmergingMarketsTCI Asia Competitiveness ForumApril 26 and 27, 2012New Delhi, India
Why are Emerging Markets Important?•Emerging markets have enjoyed exponential growth. In 1990 they represented 21% ofglobal GDP, by 2008 this had grown to 34% and by 2010 to 38%.•Emerging markets have continued to grow even in economic downturns. Davies, G. (2011). Emerging vs. developing countries GDP growth rates 1986-2015. Financial Times
Emerging from the Mist: The Rise of Emerging Markets•By 2015, Emerging markets will account for 50% of the world’s GDP•In 2008 the economies of the six largest emerging markets were larger than the G-7economies combined with the exception of the United States.
What should companies understand?•Don’t just focus on what customer’s need, focus on what they want.•New entrants and small enterprises will likely find it easier to developmarket oriented solutions in lower end emerging markets than will largecorporations.•Corporates will likely do better in mega-markets such as BRIC (Brazil,Russia, India, and China).•Domestic enterprises can be formidable competition because theyunderstand the market and may have more vertical and lateral flexibility tomaneuver.•There must be a demarcation in the term “affordability” versus the terms“cheap” or “inexpensive”.•A key to success in emerging markets is the development of a businessmodel that allows a company to reach formerly unreachable customers.
What should companies understand?•Recruitment of talent is a key aspect in developing aneffective business model, as is exploring collaboration withlocal firms, suppliers, and transport companies.•Integrating the four elements of strategy, customer value,affordability, and access is key to the creation of a effectivebusiness model.•Market recognizance should be of primary importance tocompanies seeking to enter emerging markets.•Being nimble and “fleet of foot” are key aspects of effectivebusiness model creation.
An overview of business models in emerging markets• Market Based: Allows companies to determine the end-state they desire forinvolvement in emerging markets.•Volume/Price Based: Offers products and services to customers at prices theycan afford, yet the volume of business makes the scenario viable for the company.•Tier Based: Provides ranges of products and services to companies based ontheir ability to pay.•Collaboration Based: Allows companies to “piggyback” products and servicesthrough existing supply chains, thus enabling customers to gain access to them atprices they can afford.•Innovation Based: Typically used by companies that can add incrementalimprovements to a product/service that add relatively small cost but generate highvalue.•Integrated Channels: Allows companies to involve more people in theproduction and distribution process, thus creating operation synergy that favorablyimpacts revenues and creates space for local partners.
What are the takeaways relative to the creation ofeffective business models in emerging markets?•Do not assume. It can be dangerous, strategically unsound, and arecipe for disaster.•Find a niche. Don’t try to be everything to everyone. Find an area whereyou can compete and focus there.•Start small and grow from there. Unless you have a large corporatepresence, take a lower risk approach of testing the market with a smallpresence and then growing this presence strategically.•Focus on innovative approaches. Don’t stay with the status quo. Findways to infuse innovation into many facet of your business.•Build alliances with local stakeholders. They know the market andcan assist your company in navigating unfamiliar regulations, customers,and distribution systems.