Innovation in Emerging Market: New Business Models

In Economist's recent report on innovation in emerging markets here, the article "Here be dragons" talks about three specific business models that - "are not only important innovations in their own right but have serious implications for the way that Western companies run their affairs".

The three business models discussed and shared below are designed for the culture and society that is under pressure of growth and has a deep desire to fulfill its aspirational goals. The West cannot copy and paste these. It can only succeed if the society is willing and driving its own transformation. Will it? In another article from the report, "The power to disrupt":

"Anand Mahindra, vice-chairman of the eponymous family firm, says that these days when Indians go to bed at night their dreams about their country’s future “are not just colourful but steroidal”. His compatriots are at last beginning to believe that “the sandcastles we build in our minds are not going to be simply washed away by the morning tide.” The same is true across the emerging world, whose “sandcastles” are now being built on the solid foundations of business innovation. They will endure, changing not just emerging markets but the rest of the world as well."

Business Models -

The first business model is "scaling out, which means involving a wider range of people in the process of production and distribution, something that has been made much easier by mobile phones and the internet. The most successful examples of this are clinics on wheels, but there are plenty of others. Nutriset, a French manufacturer of fortified food for malnourished children, has outsourced production to local franchises in Africa. The company maintains quality control and the franchises are close enough to the children to make distribution quick and easy." This is in comparison to "scaling up".

The second business model is "“pull” model ..., designed to help companies mobilise resources when the need arises. Hong Kong’s Li & Fung or China’s Chingquing Lifan Group can use their huge supply chains to produce fashion items or motorcycles in response to demand. Taiwan’s Quanta and Compel can produce cheap computers and digital cameras for a fashion-conscious digital marketplace." this is in comparison to the "push" model.

The third business model is "the application of mass-production techniques to sophisticated services. This started with India’s outsourcing firms, which demonstrated that economies of scale and scope could be reaped from services that used to be highly fragmented and geographically rooted. These outsourcers are still expanding and moving upmarket. Indian consultancies are now challenging Western ones in complex services, not just dealing with customer complaints."

And it is the third model that is creating impact beyond the traditional information technology driven growth: "[Indian entrepreneurs] see a huge market for legal services requiring a high level of expertise. Dr Shetty is only one of many Indians who are applying Henry Ford’s principles to health care. LifeSpring has reduced the cost of giving birth in a private hospital to $40 by looking after many more mothers. Aravind, the world’s biggest eye-hospital chain, performs some 200,000 eye operations a year. It takes the assembly-line principle literally: four operating tables are laid side by side and two doctors operate on adjacent tables. When the first operation is done, the second patient is already in place."

Growing Entrepreneurism - "Start-up Visa" to Dubai?

Interesting piece on offering visas to individuals who plan to start new businesses in a location that is not their native country.  The concept is discussed in the Abu Dhabi newspaper, The National, in an article "Making Dubai the global hub of start-up success", here.

The article provides comparisons to major start-up centers of the world such as San Francisco with an evaluation of infrastructure, tax consideration, etc.

Roger Martin - On Designing the Future

My astute friend from McKinsey, Samvit Kanoria forwards "What's Thwarting American Innovation? Too Much Science, Says Roger Martin", in Fast Company, see here.  The article highlights Mr. Martin's focus on creativity in innovation being a combination of science and design aspects of product or service development working together.

For the scientist, he states - "The future has no legitimacy for analytical thinkers."

Mr. Martin thrashes the large management consulting companies and lays the blame of innovation bottle neck on a corporate structure mired in research and analysis of the past - "But what they analyze is the past.  And if the future is not exactly like the past, or there are things happening that are hard to measure scientifically, they get ignored."

Mr. Martin is asked - "Are you saying that the regression analysis jockeys and Six Sigma black belts have got it all wrong?" and he states - "Well, yes."

Interestingly, my tenure at P&G was during the time Roger Martin was advising A.G. Lafley and I was a part of the substantial changes brought within P&G's approach to business.  See information on some my work related to Virtual Shopper here on my friend Franz Dill's blog, who also was one of the founders of the P&G Innovation Centers.

Though Mr. Martin speaks candidly, yet the change he suggests carries pain to the corporate as a whole and the machinery of suppliers supporting it.  Corporate innovation remains more perception than reality, with incremental results seen in their markets from licensing, buyouts, etc.  Breakthrough innovation remains the domain of the entrepreneur, one who can imagine a future unburdened by the past!

The Economist Looks at Business Through Schumpeter's Eyes

This is probably the best article I have read to date that puts the past, the present and what may be the future of business and management into perspective. The Economist's "Schumpeter, Taking Flight" is a new column launched on September 19th, 2009, read here, says of Schumpeter - "Joseph Schumpeter was one of the few intellectuals who saw business straight." I agree.

As an entrepreneur and a global businessman, Schumpeter's concepts on economics have made the most sense to me. Especially, the concept of "Creative Destruction" (see a primer here) has been a key to my thought process in the past twenty years as I conduct and build businesses around the world. The Economist states:

"[Schumpeter] regarded business people as unsung heroes: men and women who create new enterprises through the sheer force of their wills and imaginations, and, in so doing, are responsible for the most benign development in human history, the spread of mass affluence."

I look forward to the Economist's perspectives as it perceives business today through Schumpeter's eyes.

TiE - The Indus Entrepreneurs and TiECON 2009

The Economist recently cited in the article "Global Heroes" here, The Indus Entrepreneurs (TiE) as one of the premier entrepreneurial organizations in the world.

I am proud to say that I am a charter member of the organization. TiE (see global website here) is a non-profit organization with the mission to - "... to foster Conscious Entrepreneurship Globally by Educating, Mentoring and Networking."

The above article states:

"TiE was founded in Silicon Valley in 1992 by a group of Indian transplants who wanted to promote entrepreneurship through mentoring, networking and education. Today the network has 12,000 members and operates in 53 cities in 12 countries, but it continues to be anchored in the Valley."

TiE is hosting the world's leading entrepreneurial conference in Silicon Valley on May 15th and 16th, 2009. See details here.


I recommend the TiECON 2009 conference and the TiE organization to all entrepreneurs, successful and budding alike.

China and Singapore Plan "Knowledge City"

Following the "Suzhou Industrial Park", "Tianjin Eco-City", the third large-scale cooperation project between China and Singapore - "Knowledge City" has been settled in the north district of Science Town in the Guangzhou Development Zone. Both sides have reached an agreement on the location of the project and will jointly carry out the project's feasibility study from April to Aug. The construction of the project is expected to begin in early 2010.

The World Bank - "Doing Business"

I was prompted to dig deeper into "Doing Business" here, an effort under the World Bank. Ratings on 181 countries showing rankings such as "Ease of doing business", "Dealing with construction permits", "Protecting investors", "Paying taxes", etc. See the complete list here.

The Economist quotes Robert Litan, of the Kauffman Foundation, "... the World Bank may have done more good by compiling "Doing Business" than by lending much of the money that it has."

The Time has Arrived for Entrepreneurism

A very good article from the Economist - "A special report on entrepreneurship: An idea whose time has come" here. The report connects entrepreneurship and economics:

"Today entrepreneurship is very much part of economics. Economists have realised that, in a knowledge-based economy, entrepreneurs play a central role in creating new companies, commercialising new ideas and, just as importantly, engaging in sustained experiments in what works and what does not. William Baumol has put entrepreneurs at the centre of his theory of growth. Paul Romer, of Stanford University, argues that “economic growth occurs whenever people take resources and rearrange them in ways that are more valuable…[It] springs from better recipes, not just more cooking.” Edmund Phelps, a Nobel prize-winner, argues that attitudes to entrepreneurship have a big impact on economic growth."

The report believes that entrepreneurship going mainstream also lies in "... that the social contract between big companies and their employees has been broken."

The report discusses a fantastic effort by the World Bank:

"In 2003 the World Bank began to publish an annual report called Doing Business, rating countries for their business-friendliness by measuring things like business regulations, property rights and access to credit. It demonstrated with a wealth of data that economic prosperity is closely correlated with a pro-business environment. This might sound obvious. But Doing Business did two things that were not quite so obvious: it put precise numbers on things that people had known about only vaguely, and it allowed citizens and investors to compare their country with 180 others."