Emerging markets already offer a wide range of business opportunities and the number of attractive business cases is growing at a rapid pace. Population growth, urbanization, industrialization, improved governance structures and the massive development in modern ICT technology are making the markets even more attractive and accessible for foreign companies...

1. INNOVATIONCAMPS.NET
BUSINESS MODEL INNOVATION
– TOOL KIT FOR EMERGING MARKETS

2. 2
INTRODUCTION
EMERGING MARKETS ARE DIFFERENT
– BUSINESSES MUST ADAPT
Emerging markets already offer a wide range of business opportunities
and the number of attractive business cases is growing at a rapid
pace. Population growth, urbanization, industrialization, improved
governance structures and the massive development in modern ICT
technology are making the markets even more attractive and accessible
for foreign companies.
In spite of the general improvements in business conditions, many
companies still struggle to find a strategy that enables them to effectively
tap into the markets. Market conditions are typically fundamentally
different from the market conditions found in more developed markets
and market entry and expansion is associated with a range of challenges.
Low average incomes, poor infrastructure and information gaps in
terms of regulation, consumer preferences etc. mean that business
models used in more advanced countries are not directly applicable
in an emerging markets context. Hence, to unlock the markets,
companies often need to go through an innovative process in which
existing business models are reviewed and adjusted in order to match
the specific conditions in the local market they are targeting.

3. 3
THE STRUCTURE OF THIS GUIDE
This guide provides you and your business with an analytical framework
that can serve as a practical tool for exploring market opportunities
in developing countries. The guide contains an introduction to a
framework for a structured evaluation of the most essential elements
in your business model – such as the overall value proposition, cost
structures, revenue streams etc.
The guide can serve as a check list to ensure that you address the key
questions that are most relevant for your company in terms of adjusting
your business model to an emerging market setting. The guide does not
provide concrete solutions to specific problems. Rather, it is a template
for an iterative process through which you challenge and develop your
business model together with your colleagues, partners and peers.

4. 4
BUSINESS MODEL INNOVATION
EMERGING MARKETS REPRESENT A VERY
DIVERSE SET OF MARKET OPPORTUNITIES
Market conditions in emerging markets are typically fundamentally
different from the market conditions in more developed markets.
International companies often face a wide range of challenges when
they try to enter, or expand, their activities in emerging markets.
Low average incomes and poor infrastructure can make it difficult to
create a market of a substantial size, while significant information gaps
in terms of local market conditions, regulations, consumer preferences
etc. often make it very difficult for foreign companies to navigate the
markets effectively.
Emerging markets represent a myriad of opportunities and market
segments with very different characteristics. In order to succeed in
emerging markets, your value proposition must be tailored to the
needs and preferences within the market segments that you are
targeting. The global elite, the emerging middle class and the Base-of-the-
Pyramid (BoP) segment represent very different business cases
and each business case calls for a different business model.

5. 5
MARKET SUCCESS WILL OFTEN REQUIRE A
FUNDAMENTAL ADJUSTMENT OF YOUR BUSINESS
MODEL
In order to present emerging market consumers with an attractive value
proposition you should deepen your understanding of the local market
environment in terms of market segments, cost structures, distribution
systems, consumer preferences, partnership opportunities etc.
The low level of purchasing power combined with a high level of
competition from local producers implies that foreign companies will
often need to reach price points that are significantly lower than the
prices they are used to dealing with.
Similarly, many companies will be forced to adjust their offerings as public
and private sector clients in emerging markets are generally looking
for solutions rather than specific products or services. Local business
systems do not offer consumers the same range of supplementary
product and service offerings as in more developed markets. This
means that companies are often forced to either expand their current
offerings or engage in a close partnership with other players in order to
offer clients an attractive solution.
A reduction in price points; expansion of offerings; or establishment
of partnership with local players evidently have implications for how
a business model works. An adjustment in one part of the business
model will often make it necessary to adjust other elements as well.
Market success in emerging markets therefore often calls for an iterative
process in which each element in the business model is evaluated and
adjusted in turn to develop a winning proposition.
In order to kick start the innovation process, a structured mapping of key
market assumptions will often be in place. It provides a good platform
for exploring each assumption in a systematic way, while compiling
the relevant information and evidence required to make an informed
choice. This is exactly what this guide will take you through.

6. 6
The Business Model Canvas is a strategic tool developed to support
documentation of existing business models and the development of
new business models. The purpose of the tool is to provide a holistic
overview of the business model and visualize how the different parts of
the business model fit together.
The Business Model Canvas was first proposed by Alexander
Osterwalder and contains nine building blocks that can be grouped into
three broader groups as described below:
Group 1: How you add value for your clients
• Value proposition – Which problems you solve - and needs you
satisfy - for your clients
Group 2: How you engage with your clients
• Customer segments – Which customer segments you serve
• Channels – Which communication, distribution and sales channels
you use to deliver value to your clients
• Customer relationships – Which relationships you develop and
maintain with your clients
• Revenue streams – Which revenue streams you generate when
you successfully deliver your contribution to your clients
Group 3: How you create and produce your offerings
• Key resources – Which assets are required to effectively serve
your clients
• Key activities – Which activities are performed to effectively serve
your clients
• Key partnerships – Which external/outsourced resources are
required to effectively serve your clients
• Cost structure – Which costs you will need to cover in order to
effectively serve your clients
BUSINESS MODEL CANVAS
EXPLORE AND CHALLENGE YOUR BUSINESS
MODEL IN NINE BLOCKS

7. 7
Using the Business Model Canvas can be broken down in to three
phases:
• Phase 1 – Mapping of assumptions: A structured mapping of key
assumptions regarding value proposition, cost infrastructure and
client relationships in order to develop a set of clear hypothesis
that can be tested in the market
• Phase 2 – Collection of data: Market research based on desk
research and reports or on observations in the field to establish a
solid fact base for an evaluation of key assumptions and research
hypothesis
• Phase 3 – Business model innovation: Build a business model
that matches the improved understanding of the market in
collaboration with relevant internal and external partners
HOW TO WORK WITH THE MODEL:
Designed by: Business Model Foundry AG
The makers of Business Model Generation and Strategyzer

8. 8
VALUE PROPOSITION
Key things to consider in an emerging market setting:
• Needs are high and growing, but need is not demand
• Offering a solution can be more important than offering a world class product or
service
• Price is important, but other factors may be more important
In order to understand how you add value for your clients in an
emerging market setting, you should have a clear understanding of
which problems you solve and how your product, service or associated
benefits add value for the client.
The value proposition is closely related to the location in which your
potential customers live or operate. A value proposition that has proven
to be successful in well developed markets might not appear attractive
in an emerging market setting. Needs and preferences will often vary
significantly, while low levels of incomes and lack of access to finance
can restrict clients ability to choose.

9. 9
Key assumptions
Key action points to test assumptions
MOVING FORWARD
Guiding questions:
• What value do you deliver to your clients?
• What problems are you helping your clients to solve?
• What are the demands from your customers?
• What do you want your clients to remember after doing business with you?
• How do your products and services fit into the other needs of your client?

10. 10
CUSTOMERS SEGMENTS
Key things to consider in an emerging market setting:
• Aggregated purchasing power can be a poor indicator for actual market size as the
distribution of purchasing power will often just as important
• Ensuring potential clients access to the products and services you provide might
be more important than whether your offering is considered the most attractive
offering in the market
• Most clients in emerging markets are 1st generation consumers and their brand
loyalty will often be limited
There is rapid growth in opportunities in the emerging markets, both in
the B2C, B2B and B2G segments. Each market segment offers a variety
of opportunities and challenges and one size does not fit all. The needs
and preferences within the high-end market segment of the global elite
residing in the economic centers, may have many similarities to the
needs and preferences found in developed markets. On the other hand,
radical business model innovation may often be required in order to
successfully unlock new market segments within the emerging middle
class or the BoP.

11. 11
MOVING FORWARD
Guiding questions:
• How do you create value for your clients?
• Which factors can prevent a potential client from purchasing your products and
services?
• How do your clients in emerging markets differ from your existing clients?
• How does the environment in which your clients interact with the products and
services you offer influence the value you bring to them?
• Which market segment do you expect to be the most attractive market for your
company in the short term? - And in the long term?
Key assumptions
Key action points to test assumptions

12. 12
CUSTOMER RELATIONSHIPS
Key things to consider in an emerging market setting:
• Most clients in emerging markets are looking for integrated solutions rather than
isolated product and services
• Innovative solutions that assist clients in getting access to finance may be more
important to the client than the actual products and services that you offer
• Brand loyalty is typically low in emerging markets and long term relationship with
clients will often require the use of business models involving a clear link between
deliverables, e.g. in terms of service maintenance agreements.
• Emerging markets may lack basic infrastructure, but most customers have access
to SMS or internet.
Succeeding in emerging markets is very much a matter of overcoming
a range of practical challenges to serving clients. Low average incomes
and poor infrastructure can make it difficult to create a market of a
substantial size, which in turn implies that it can prove difficult to rely
on a business model that builds on direct interaction with clients.
Similarly, a lack of access to finance or to ad hoc maintenance services
will lead many clients to look for integrated solutions, and this presents
a challenge with respect to setting up business models based on
stand-alone sales. In consequence, many business models in emerging
markets involve an element of automated services and/or self-service.

13. 13
MOVING FORWARD
Guiding questions:
• Which kind of relationships have you established with your current clients?
• What relationships do your target customers expect you to establish and maintain
with them?
• How costly is it to establish and maintain a relationship with your clients?
• To what extent is your client relationship based on one-way or two-way
communication?
• How does the client relationship fit into your overall business model?
• Can you involve your customers in contributing value?
Key assumptions
Key action points to test assumptions

14. 14
CHANNELS
Key things to consider in an emerging market setting:
• Identification of a good, local distribution partner will often be instrumental for
market success
• Distributors need to be motivated, educated – and controlled.
• The last mile problem still constitutes a significant challenge in most markets
• Uncertainty with respect to delivery, will often make it necessary to operate with
a higher level buffer capacity than in more developed markets, e.g. in terms of
storage
Business models in emerging markets are often challenged by a limited
access to clients. Poor infrastructure and a lack of efficient distribution
networks make it difficult to reach large parts of the population. The
route to market is often longer and more unpredictable than in more
developed markets. The internet, in combination with the expansion of
global value chains, has eased the access to clients in emerging markets.
However, the last-mile problem continues to be a significant challenge
for most companies calling for development and implementation of
new innovative solutions.

15. 15
MOVING FORWARD
Guiding questions:
• How do companies usually reach their clients in the market?
• How strong are your customer channels and which is most cost-efficient?
• How are the channels related to other client routines?
• To reach your potential clients, what channels are conceivable, and which have
you explored in other markets?
• How are the channels integrated and to what extent are you in control of the
processes?
Key assumptions
Key action points to test assumptions

16. 16
ACTIVITIES
Key things to consider in an emerging market setting:
• The business environment in emerging markets can change very fast, making it
instrumental to ensure that you have a certain level of flexibility and autonomy in
terms of potential adjustments in non-core activities
• Building the right local partnerships is more time consuming than you expect
• A market approach based on a joint venture with existing business partners might
help you reduce the risk associated with a market entry
Companies entering a new market typically go through stages. Initially,
establishing sales and distribution, sourcing or manufacturing locally,
and in some cases creating a local division for research and development.
The business eco system in emerging markets is typically less developed
than the business system in more developed markets. One implication
of this is that it may prove difficult for potential clients to find suppliers
of products and services that complement the product and service that
you provide and hence enhances the value proposition you offer, e.g.
in terms of maintenance services etc. In consequence, many clients
will be looking for integrated solutions. This makes it instrumental to
consider which key activities create the value you deliver to customers
and which activities need to be lifted by other players – if feasible.

17. 17
MOVING FORWARD
Guiding questions:
• What key activities are most essential for our value proposition?
• What activities must be done locally? What is the role of Headquarters at home?
• What key activities do our distribution channels, customer relationships and
revenue streams require?
• How would your business model change if you increase or decrease the amount
of key activities?
• What are the options for outsourcing non-core activities locally?
Key assumptions
Key action points to test assumptions

18. 18
RESOURCES
Key things to consider in an emerging market setting:
• Access to external resources will often be limited in an emerging market setting
• In order to ensure stable access to resources locally, it will often be instrumental
to engage in a close partnership with a local partner
• Investment in local capacity building may be required to establish a solid platform
for operation
In order to make a business model work in practice, it is essential to
obtain a solid understanding of the key resources that are required to
effectively deliver your offering to clients. At the fundamental level, a
business needs buildings, communication, power, transportation and
certain machines to operate. But skills are crucial, too. Companies may
need to invest in local capacity building and/or consider innovative
ways to provide the resources required, e.g. through establishment of
partnerships with local suppliers.

19. 19
MOVING FORWARD
Guiding questions:
• What are the most important resources in terms of your value proposition?
• What resources do you require in conjunction with your distribution channels,
customer relationships and revenue streams?
• How might you get access to the relevant resources in the specific market and
how much are you willing to invest?
Key assumptions
Key action points to test assumptions

20. 20
PARTNERS
Key things to consider in an emerging market setting:
• Operating on your own in an emerging market may be more challenging than you
expect
• Lack of knowledge and resources calls for establishing strong local partnerships
• What you see is not necessarily what you get
Market conditions in emerging markets are typically fundamentally
different from the market conditions in more developed markets, so
international companies often face a wide range of information gaps
when they enter developing countries. Therefore, establishing strong
partnerships will be crucial in order to navigate effectively in the
markets. However, identifying the right partner will often in itself, be a
major challenge and may involve a substantial investment of both time
and resources as well as further investment in on-going support as the
partnership develops.
Partners can range from distributors, local manufacturers and suppliers,
sources of market insight to relations within large stakeholders and
governments.

21. 21
MOVING FORWARD
Guiding questions:
• Which element in your business model is most dependent on access to local
partners?
• Which key resources are you currently acquiring from your partners and what are
the opportunities for acquiring these resources from local partners in the future?
• Which key activities do your current partners perform and which activities will
local partners be able to perform now and in the future?
• What are the opportunities for establishing a strategic alliance with existing
partners in order to develop a more solid value proposition?
Key assumptions
Key action points to test assumptions

22. 22
COST STRUCTURE
Key things to consider in an emerging market setting:
• Emerging markets offer opportunities for both low cost and high cost offerings
• The total cost of ensuring stable access to key resources might be much higher
than the price of the resources in themselves
• Many costs are not fixed and they can be reduced significantly through targeted
investments or interventions
The cost structures in emerging markets can be very different from
cost structures in more developed markets. Many resources, such
as manual labor might be cheaper, but some factors may actually be
more expensive. Hiring employees with a specialized skill set or getting
access to certain kinds of financial services or imported goods can,
for instanse, be more costly in an emerging market setting due to the
scarcity of such resources.

23. 23
MOVING FORWARD
Guiding questions:
• What are the most important costs inherent in our business model?
• Which key resources and activities are the most expensive for your business?
• Which kind of investments can improve your business by reducing the cost of
resources and or increasing the efficiency of processes?
Key assumptions
Key action points to test assumptions

24. 24
REVENUE STREAMS
Key things to consider in an emerging market setting:
• Willingness to pay may be quite different from the ability to pay
• Business models that are based on a series of small transactions rather than one
large transaction will often be more attractive for clients with low purchasing
power
• Flexibility in terms of payment has high value in an emerging market setting due
to volatility in income and earnings.
One of the most fundamental difference between emerging markets and
more developed markets is the massive difference in purchasing power
– in particular among regular consumers. The challenges associated with
the low level of family incomes and business earnings, are aggravated
by the lack of financial infrastructure and access to credit. Consequently,
simply due to liquidity constraints, many consumers and businesses
are forced to choose low quality products and services - even though
these products and services will often be economically inferior to more
expensive solutions in the long run. In terms of business model, the
low degree of purchasing power implies a need to explore alternative
ways to engage with clients, e.g. by applying business models that rely
on patient capital or generates revenue stream linked to the total cost
of ownership rather than the up-front investments. An example could
be business models based on renting or leasing as opposed to models
based on ownership.

25. 25
MOVING FORWARD
Guiding questions:
• How much does your different revenue stream contribute to your overall
revenues?
• What opportunities do your potential clients have in terms of getting access to
finance?
• What are your customers willing to pay for your product and how much can they
pay?
• How do your clients prefer to pay?
Key assumptions
Key action points to test assumptions

26. 26
ABOUT THE INNOVATION CAMP
PROGRAM This guide has been produced as part of the “Emerging market Innovation
Camp program” – pioneering innovation program sponsored by Nordic
Innovation.
The purpose of the program is to assist Nordic companies in identifying
concrete market opportunities in emerging markets and to develop
tools and networks that enable the companies to explore new innovative
ways to unlock the markets.
The program includes a series of innovation workshops throughout the
Nordic countries and on-site Innovation Camps in emerging markets
with Nordic participants. During the program, companies engage with
local experts, innovation specialists and Nordic peers with the capacity
to contribute to business success by driving sales, improving profits
and reducing risk.
More specifically, the objective of the Emerging Market Innovation Camp
program is to support the realization of Nordic companies emerging
market aspiration by…
• Introducing practical innovation tools and enhancing market
understanding: In-depth understanding of innovation practices and
local market conditions to increase companies ability to effectively
navigate new markets together with local partners and Nordic peers.
• Building strategic capacity to realize opportunities: Internal
capacity building and practical business development to give
companies a chance to realize short-term opportunities and enable
proactive approaches towards opportunities in new markets.
• Developing enduring and innovative partnerships for emerging
market success: Engage a range of public and private sector
players from Denmark, Finland, Norway and Sweden to become
part of a Nordic network that creates a strong foundation for peer
learning and establishment of partnerships.

27. 27

28. 28
PROJECT MANAGEMENT
PROJECT PARTNERS
CONTACTS
Dalberg Research
Hans Uldall-Poulsen, Director of Research
Phone: +45 25 61 03 24
Mail: hans.uldall-poulsen@dalberg.com
Inclusive Business Sweden
Mike Debelak, CEO
Phone: +46 (0) 761 855 655
Mail: mike.debelak@inclusivebusiness.se
Dalberg Research
Stig Tackmann, Program Management
Phone: +45 22 31 38 40
Mail: Stig.tackmann@dalberg.com
Confederation of Danish Industries
Sara Ballan, Senior Consultant
Phone: +45 33 77 37 42
Mail: saba@di.dk
Aalto University, Aalto Global Impact
Petri Allekotte, Business Engagement Manager
Phone: +358 50 344 0612
Mail: petri.allekotte@aalto.fi
SIGLA
Karoline Teien Blystad, Analyst
Phone: +47 912 41 191
Mail: karoline@sigla.no

29. 29

30. WWW.INNOVATIONCAMPS.NET
muku m edia
Pictures by Jesper Houborg.
For more, see:
http://africanmiddleclass.com
MUKU.EU