Building Effective Business Models in Emerging Markets


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Presentation on "Building Effective Business Models in Emerging Markets" delivered by McCord at Asia Competitiveness Forum 2012 in Thought Leadership Track

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Building Effective Business Models in Emerging Markets

  1. 1. Building Effective BusinessModels in EmergingMarketsTCI Asia Competitiveness ForumApril 26 and 27, 2012New Delhi, India
  2. 2. 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
  3. 3. 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.
  4. 4. Will Emerging Markets Overheat? • For economies growing at 6.5 to 7 percent, their margins of excess capacity have been largely used up, which could cause contraction. • Inflation and heavy inflows from investment are beginning to bog down emerging markets. • Higher prices but lags in wage growth have caused destabilization and unrest in some emerging markets. • Danger exists for these economies to “slam on the breaks.” However, it is likely that emerging markets can provide substantial opportunities for companies/investors in the foreseeable future. Copyright © 2012 Deloitte Development LLC. All rights reserved.
  5. 5. 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.
  6. 6. 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.
  7. 7. 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.
  8. 8. How can a company determine which approach is rightfor them? The Business Model Canvas The Canvas consists of 9 building blocks: 1. Value Proposition 2. Customer Segments 3. Channels 4. Customer Relationships 5. Revenue Streams 6. Cost Structures 7. Key Activities 8. Key Resources 9. Key Partners Osterwalder, A. & Pigneur, Y. (2009). Business model generation. ISBN-978-2-8399-0580-0. Copyright © 2012 Deloitte Development LLC. All rights reserved.
  9. 9. Business Model Case Study 1: WalMart • Developed a J/V with Bharti • Purchased $125 million annually from local producers • Focused on “wants” of the middle class • Built workforce capacity through development of training centers • Opened up other opportunities such as establishment of R&D Center in Bangalore Copyright © 2012 Deloitte Development LLC. All rights reserved.
  10. 10. Business Model Case Study 2: Nokia in India andWhirlpool in China Nokia: Whirlpool:• Captured 51% of the • Nascent understanding of market by 2010 using a flexible business model local culture• Used creative financing • Lack of communication• Opened up mfg • Unclear relationship with opportunities local partners• Utilized local distribution • $300 million loss by 2000. networks Copyright © 2012 Deloitte Development LLC. All rights reserved.
  11. 11. Business Model Case Study 3: Softwin • Utilized highly educated labor • Started small with 1-2 core products • Built international networks • Continually assessed the market for opportunities Copyright © 2012 Deloitte Development LLC. All rights reserved.
  12. 12. Business Model Case Study 4: Rubicon • Created a business model flexible enough to create and take advantage of opportunities • Infused innovation as a core • Established a network of small business suppliers • Focused on high quality • Built strong international networks Copyright © 2012 Deloitte Development LLC. All rights reserved.
  13. 13. Business Model Case Study 5: AGD • Took advantage of economies of scale • Enhanced/improved/de veloped logistics to link all parts of the value chain • Recalibrated its values/vision • Developed brand for local market • Transformed its business model multiple times Copyright © 2012 Deloitte Development LLC. All rights reserved.
  14. 14. Business Model Case Study 6: eTranzact • Understood and addressed market demand • Linked technology and banking services • Overcame cultural paradigms • Continually expanded services based on demand Copyright © 2012 Deloitte Development LLC. All rights reserved.
  15. 15. 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.