Insights about Service Business in Emerging Markets


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In this report Tatu Tuohimetsä and Ville Keränen crystallize their insights from a learning journey to China and India in November 2012. The focus of their attention was how to do service business in emerging markets. This report is made from the Finnish point of view. We are very happy talk in more detail about the ideas presented here and do a re-freshing workshop with you about the emerging markets like China and India. Please get in touch if we could be of help - for example you can call Tatu at +358 831 8118 or Ville at +358 40 731 2084. Have a great day! Ville & Tatu / Monkey Business

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Insights about Service Business in Emerging Markets

  1. 1. Insights about Service Business in EmergingMarkets: China & India (cc-by-sa) Tatu Tuohimetsä & Ville Keränen Monkey and Banana osk 4th of April 2013
  2. 2. Table of Contents• Introduction• Theories Remember that your ideas are so big but your• Insights on China mind so small.• Insights on India - President of China• Invitation referring to an advice from Master Nan• Contact Information
  3. 3. Here is a picture of authors of this report with one of our hosts in the middle, Diana the director ofthe Taihu Great Learning Center. The sign that Ville on the right and Diana in the middle are showingis a traditional sign of the Taichi and the idea is to show respect and say thank you teacher. We wantto acknowledge and say thank you to all people we met over this incredible journey to China and Indiain November 2012. Tatu s sign is traditional too, and it s about expressing enthusiasm.
  4. 4. Why This Report?This report is produced to foster your thinking and to help find right questions andunderstanding in order to design and run Service Business is Emerging Markets. Quotes andideas are collected in Finland, China and India. And beautifully mixed in Vaajakoski.The following insights are based on studies and learning journeys in three continents during year2012 in Masters Program of Open Innovation and Intrapreneurship (MiNN), InternationalExecutive MBA -program of Mondragon University, Spain.The content is created after the Learning Journey to China and India 8th to 24th of November2012. Also we have been supported by many dialogues with several front runner thinkers anddoers all around the world. Big thanks to all at MINN and everyone we have met on this journey.Travellers of this report, Tatu Aktiivipoika Tuohimetsä and Ville Keksijä Keränen, areentrepreneurs in a Finnish Learning Design Boutique called Monkey Business.
  5. 5. Shanghai Pudong landscape. These buildings did not exist 20 years ago. Then the governmentdecided we need something spectacular. And built Pudong on top of some wastelands just in to thecenter of Shanghai. Now Government has decided to take innovation on to their agenda.
  6. 6. Monkey Business Only failure is that we dońt learn anything.Monkey Business is a learning design company. We do not believe in teaching or preaching, orready made solutions and answers. We ask. We like to think together. We believe that peoplehave the ideas and knowledge to solve their own challenges. Our work is to help to ask rightquestions in order to create something new. Sometimes knowledge from the past may be aproblem. Our value is created through fun, being U.F.O. and experimenting. Learning is alwaysconnected with emotions, moreover only doing creates something new and changes the world.We define learning as a change of behavior and design as doing things that make sense.There are enough reports - do something. -Prof. Bengt Holmström, MIT.We Monkeys re-phrase that for you: Dońt just read reports, do something.Try things that have not been tried before. Do the Never! In the safety of Jyväskylä, 30.1.2013Tatu Tuohimetsä and Ville Keränen
  7. 7. Traffic in China can be very intimidating. Once we were stuck in a jam for about three hours on ourway back to Shanghai in the afternoon. Something we are not used to in Finland. Also at the back youcan see the gray sky. The sky was gray everyday because of the pollution and the humidity.
  8. 8. What are the right questions? Emerging markets are not just possibility to try something new or different. They are markets todo everything differently. -Anssi Tuulenmäki What are the questions we really need to solve? What we know from past/west may be a problem? How can we change our thinking and doing? There s no better sign of insanity that doing the same thing and expecting different results. If I had one hour to save the world I would use 55 minuted to find the right question and then 5minutes to solve it.-Einstein
  9. 9. Some of the best food we ate was at the places where locals eat too. Freshly made, sometimes toogreasy for our taste, but still good.
  10. 10. Theory-U Four Levels of Responding to Change In order to enter the emerging markets, instead of quick fixes and re-engineering the currentManifest strategies that work in the developed economies,action 1. Reacting: quick fixes we need to reframe and regenerate our currentProcess, 2. Re-engineering: ways of working and thinking.structure policies Theory-U opened us in India, Pune in dialogues Let go Let comeThinking 3. Reframing: with local consultants and entrepreneurs. It was values, beliefs their proposal for entering emerging markets: 1. What works in Finland will not work in China orSource 4. Regenerating:of energy, India. What might work in there?inspiration sources of commitmentand will and energy 2. What do we need to understand about China and India in order to do business there? Above diagram is used under license from Presencing Insitute - Otto Scharmer 3. Ask your self why? And ask it five times.
  11. 11. Mental Models Mental Models are deeply held internal images and scripts about how the world works. The inner truths. They help us to deal with daily life but also at times constrain our thinking to old habits. They are the box we are asked at times to think outside of. I had been many times in China. When staying first time a bit longer I realized - nothing works here like in Finland!
  12. 12. Global growth depends on the east. Sun sets in the West. Due to the clouds we can see the sun as ared ball, something that is rarely seen back in Finland.
  13. 13. Experience Economy Progression of Economic Value Experience Economy is a new aspect into value creation compared to Porter s classic value chain model. The idea is that for the Unique Transformations Customization higher profits and less competition we need de ui G customize more and more the service into anCompetition Experiences Customization experience. Good example is coffee, how the e ag St Commoditization Services price of a cup may vary a lot depending Customization re iv Commoditization whether you drink it at home or in a cafe in el D Goods Paris with a view to Eiffel tower. I think Same, same e Commoditization ak M Commodities experience economy is more and more Extract present in the developed world but only on it s Market Premium Pricing way to emerging markets. Ref: Pine II & Gilmore - The Experience Economy - Updated Edition (2011). page: 245
  14. 14. How to read this report?Report has two types of pages. One with Second type is with two boxes on thea statement at the top of the page and a bottom. The box on the left elaborates thelittle story at the bottom. Important is to statement further. The box on the rightunderstand what is behind the quote. has questions for you to think about.
  15. 15. Before You Start. Stop.• Take a deep breath. Maybe drink a glass of water. Empty your mind from the worries of the day.• Imagine China. What do you know about China at the moment? How about doing business in China?• Imagine India. Did you ever visit the country? Do you know how Kalkutta smells? Or Bombay feels?
  16. 16. Why do you think there is emerging market for your company? Taxis are a good way to move around. However the drivers do not speak English so you need to have the address in a picture written in Chinese with you. Or you can call help from a special number that s attending you in English and guiding the driver in Chinese. That s a great service.
  17. 17. Number of Industrial plants in China will grow because consuming in Why do you believe there is market for you in China?China grows rapidly in following years. -Carlos, Mondragon Have you got a China man, a person high enough in the hierarchy of the There are no Chinese service companies good enough on the market. - company, back home who understands China and is ready to speed upLiborio, Fagor the decisions when needed?In most of cases they train their own people to do the service.
  18. 18. China is one generation behind.
  19. 19. China is unpredictable. Maybe in the same way as Finland was in thetimes of cold war. But China s economy grows super fast. But culture From what decade or century should you benchmark the servicemay not learn as fast. And even if it feels that China is one generation business model? -70́s, -80́s, -90́s?behind us now, they are likely to catch us in less than one generation of Where were we in Europe with service business models back in the 80s?time. Currently the main business model is copy and survival.
  20. 20. Give and yoúll get.
  21. 21. Understand the ecosystem and importance of guanxi. It́s prime mover market - what new you can bring? Some foreign managers and organizations think they know the answers What is it that you can do and the Chinese cannot copy?and that China is part of their country. What is your organizations contribution to China? Some companies have innovation centers in China (and India). Rovio let Are you creating something with locals or trying to bring somethingthe fake market to do the innovations and then they take benefit out of ready from outside?making best products official.
  22. 22. Good enough quality.
  23. 23. Case Danone: They spent loads of money trying to educate Chinesepeople about their products quality. After changing the packaging they Is your service simple enough?started to sell like hell. → Concentrate on the key product! Cheap enough? Chinese want service, but not to pay for it. They want something simple,safe and reliable - good enough. One button instead of 1000 buttons. Good enough?Our service business is profitable, but small.
  24. 24. It s forbidden to make mistakes in China. I was very happy to find a bunch skateboarders in one square of Shanghai. Trends are born in the streets. And play is universal phenomenon.
  25. 25. Guanxi. From the moment you enter China, it́s all about the trust. How It is forbidden to do mistakes in China. You lose your face. And youdo you cultivate it? Proof that you are bringing better knowledge. career. That́s why buying immaterial is hard.Be transparent, so that everybody will benefit. Show importance - CEOs How many people do you know from the local governments of the citieslike to meet other CEOs etc. and regions where you aim to do business?People is the key point, they need to feel what you say in true.Lobbying plays key role in getting the deal. How do you show that not buying your service is a mistake?
  26. 26. Infra is future.We visited buildings that were over 30 floors high. They swung a little in the wind in order to beresilient. However, it made me sea sick.
  27. 27. Who could be the companies in China to start a joint venture with you?Nobody wants a drill. Everybody wants service they need, i.e. a hole in Is strategy to provide machines to a new factory? Or just service feethe wall in order to place a painting there or things moved from place to charged?another. In future Chinese wońt pay for time or parts, they start to pay Are you selling spare parts and maintenance or service?for value created. What is your value innovation? (According to Blue Ocean Strategy.)
  28. 28. Digital Landscape is completely different in China. The trendy fixed gear bikes could be also found in Shanghai right next to the skate boarders meeting place in a square on top of one shopping centre. But the reality in countryside is different.
  29. 29. Chinese version of eBay, Taobao or T-Mall, is bigger than eBay.Chinese are fast building their own web services. Usually very well What should you understand about Chinese internet and Social Media?equivalent to the Western ones. E.g. Renren is the local Facebook. Should you be there? When? How?To some extent we can also use Google Trends, Alerts and Insights tosee what́s cooking on the web, even in China.
  30. 30. Chinese are practical. In Shanghai, motorcycles are power by electricity. That s good for the air quality. But problem is you cannot hear them coming. And that is a big problem because they do not obey the traffic lights and may drive on pedestrian ways, too. That is why we renamed them silent killers.
  31. 31. Chinese like to call and chat. They may look up the product online but Is your website fit for Chinese market?before buying they want to chat. Your service / webpage have to be Have you got a chat option at your website?usable in that sense. -Heard at Web2Asia Chinese dońt usually speak english. Are your materials and web visualSelling information is hard. as pictures are the universal language?
  32. 32. Chinese are short time orientated - not willing to do long time investments.
  33. 33. They are short of cash even if they are willing to invest long term.It may be also about trust to the future, as they do not trust future as Is it true that Chinese are not willing to invest in long term?much as we do in the West. China feels very uncertain and What kind of business models you should use to enable Chinese to investunpredictable. long term?S.K.F and Bao Steel have a joint venture where S.K.F benefits more if Who makes the final decision about investments?bearings last longer.
  34. 34. China does not exist i.e. There are many Chinas One interesting service model was the WIFI that was offered in the photo booths. We did not try that or actually, did not see anyone use it either. But still could be handy in case of need.
  35. 35. There is no one China. China is huge! It́s very diverse. Everycompany is a different. No 1 China, so many differences. What is your focus in China? Making mistake in China is forbidden. China is a developing country - Where do you concentrate?and it changes a lot. China s GDP grows about 9% every year.In China everything is possible for someone - no one rule.
  36. 36. How do you support customers and allfor the future? Incredible India. 32 states trust different. In India cars and busses are packed to the full. On the road drivers use the horn a lot for example to give a sign of taking over another car on the road.
  37. 37. India is even more diverse than China. China is one generation behind. So where is India? And all it s different When we entered Indian market there was 5000 competitors all ready. states?One Strategy is not enough. No central control like in China. Over 1 In which city and region do you want to start your operations?billion people live there. Many many religions. Really diverse. What markets are rising and what are going down? You have to stay here for 5-10 years to understand the cultures even a What if Chinese and Indian businesses enter your market at homeland?little.
  38. 38. Everything works in India. In India we found people very friendly in all levels of the society starting from the slum Dharavi in Mumbai to the consultants in Pune and PhD students of IIT Kharagbur.
  39. 39. Electricity cuts last a day or so in Incredible India.When you come to India - come with open mind. If electricity breaks down for a day maybe thinking about the machine is the last thing to think about? In the morning about 80% of the workers appear to work. When westarted it was less What is the value you are offering? Sometimes I receive a post card or a fax even if the matter could have Do you understand the local reality/culture/needs/mindset?been taken care of with email or phone.
  40. 40. We have been fooled so long.
  41. 41. We have been fooled so long. said Manish an experienced consultantwho s been living in and out of India based on his experience with many How do you build the trust and a win - win business model?different companies coming to India, as well as reflecting back to the How do you help your customers out of the short cash cycle ?British Empire. Indians want to fix it themselves. How do you support customers trust for the future?For Indians it very difficult to say, NO.
  42. 42. Bottom of the Pyramid is the source of radical innovation What is your Mental Model about slum in Bombay? We visited Dharavi, one of the most dense slums in the world with 1 million people living within 2sq km of space. It was cleaner than Kalkutta. There were over 10 000 enterprises with over 600 million $ of turnover.
  43. 43. Radical Innovation Week in Shanghai was nice, but it was Finnish people How about collaborating with IIT for R&D and Innovation?speaking to Finnish people. -Student at Aalto Tongi Design Factory What is the value we Finns get e.g. from the Aalto Tongji Design FactoryIndian Institute of Technology (IIT) Kharagbur asked us (Monkey in Shanghai compared to local initiatives?Business) to do proposal about shared actions. They accept only 0,1% to Bottom of The Pyramid is the real source for radical Innovation in thethe applicants to IIT. They will start an international R&D center at their Future.campus to work with their students.
  44. 44. The most local is the most systemic.
  45. 45. Entrepreneurial systems are sustainable. Many of the biggest business in Systems Thinking - who makes the decisions? Whom do you need toIndia is family business e.g. Tata, Mahindra, Wipro, Reliance Industries convince? With whom you should co-create? Whom should you listen to?etc. The Oldest man influences the decision making process even when How would your Service Business look like if based on entrepreneurialthere is a board and CEO appointed. system? What about if locals would create it for local markets?
  46. 46. Innovation is more about empathy than engineering.
  47. 47. The only way that companies can prosper in these markets is to cutcosts relentlessly and accept profit margins close to zero. What empathy means in our service business?Prototype is the spirit of innovation. Who are your key partners in the service business ecosystem? India is a land of opportunities. We are open to outsiders to come anddo business in here. But together!
  48. 48. Further Reading and Ideas• Trendwatching:• McKinsey:• Harvard Business Review: • Business Model Innovation in Emerging Markets: New Opportunities and Challenges • New Business Models in Emerging Markets • Finding Great Ideas in Emerging Markets• Economist Special Report: Innovation in Emerging Markets• Exolus on the Future of China 2020• FinNode China - Threats and Opportunities in Chinese Social Media
  49. 49. Do you want to organize a participative workshopabout doing Service Business in Emerging Markets? Get in touch with Tatu Tuohimetsä +358 40 831 8118 or or
  50. 50. Questions, comments, anything? Please connect!Aktiivipoika Monkey LabsTatu Tuohimetsä Ville Keränen+358 40 831 8118 +358 40 731
  51. 51. To change the way of thinking and doing is hard. You really have to want it. More than anything else.