Business model innovation in emerging markets : identifying common principles
Thesis (MBA)--Stellenbosch University, 2014.
ENGLISH ABSTRACT: With developed economies experiencing slow growth, multinational corporations (MNCs) in various industries are looking to tap into the enormous potential of emerging economies. By identifying emerging markets as future markets, MNCs can increase their market share and profits, and grow through a diversified strategy that focuses on unconventional markets and customers with unserved needs. However, MNCs entering these markets cannot succeed by simply transferring business models, products, and services developed for mature economies as the needs of the new consumers in emerging markets require innovative and non-traditional business models and approaches. The research question for this study is to investigate if and to what level MNCs have to adapt their business model when entering or expanding their operations to emerging markets. Therefore, research has been done on four MNCs across a diverse range of industries. For collecting data, the research made use of a qualitative case-study research approach and is based primarily on findings from four in-depth interviews with strategy or marketing experts from MNCs across industries. Further information was obtained through deep research on publicly available information about the company. The research aimed to identify similarities in the business model of successful pioneers and to analyse common principles that could be of use for other MNCs when planning to enter unknown emerging markets. The interviews were conducted personally, telephonically, and via email. In a next step, the interviews were transcribed and common themes were extracted and combined with findings from further research. For collecting and ordering the information, Osterwalder & Pigneur’s (2010) business model canvas was applied. Finally, the findings were grouped, formulated and compared to existing literature in order to identify similarities, common principles or differences for new output propositions. The primary finding of the research was that specific factors, such as the difference in market conditions and environments, as well as in consumer preferences and needs, strongly influence the design of business models. A key differentiating factor was the choice between keeping traditional business models with a focus on global and centralized systems, processes, brands and products or designing business models that are adjusted or innovated to meet local market conditions and consumer trends. Another key finding was that a balanced portfolio of brands is a critical factor of success in emerging markets. To reach different market segments in emerging markets, MNCs need to offer mainstream as well as premium brands, all based on a strong brand identity and brand values. The partnership with local business partners and key stakeholders was identified as fundamental to be able to react to local business environments. Furthermore, the integration of local suppliers and communities, as well as the adjustment of the value chain to the local environment, has been seen as a key factor to reduce costs while gaining acceptance and building close relationships with the local community. In order to overcome local challenges of institutional voids and lacking knowledge in emerging markets, the research has shown that a collaborative strategy with local partners is of high importance. The research showed that MNCs with global brands follow both approaches. While some MNCs maintain a traditional business model for all its markets, other MNCs design their business model based on standardized systems and processes to the local environment. In terms of the level of innovation, it can be said that none of the researched MNCs showed an extremely high level of innovation. Common principles and activities that could be identified in the business model design for emerging markets between all researched MNCs, are as follows: (1) balanced portfolio of strong brands, (2) strong partnerships with local key stakeholders, (3) loyal relationships with consumers, (4) an efficient and cost-effective value chain, and (5) collaborative partnerships or acquisitions as a critical market entry strategy.