New Business Models in Emerging Markets

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Disruptive innovation

by

Matthew Eyring,

Mark W. Johnson,

and

Hari Nair

by

Matthew Eyring,

Mark W. Johnson,

and

Hari Nair

From the Magazine (January–February 2011)

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Summary.

Reprint: R1101E Many Western multinationals expect to find most of their future growth in emerging economies. But they have frequently struggled to exploit the opportunity, relentlessly cutting costs and accepting profit margins close to zero. The problem, say the authors, who are all with the innovation consultancy Innosight, is not that those companies can’t create viable offerings but that simply transplanting their domestic business models to the new markets won’t work. They must devise fundamentally new models—by identifying an important unmet job that consumers need to do; performing that job profitably at a price the customer will pay; and carefully implementing and evolving the model by constantly testing assumptions and making adjustments. Drawing on their experience with investing in, incubating, and consulting for companies that have created 20 new business models in developing markets, the authors describe the vast potential demand represented by the “middle market” in emerging economies—the millions of people who have the desire and wherewithal to pay for goods and services, from refrigeration to clothes washing to money transfers, that will help them do the jobs better than any other current offerings.

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The Idea in Brief

Multinationals are looking to emerging markets for future growth. But in trying to transplant their domestic business models, they end up slashing margins or confining themselves to the higher-income tiers, which aren’t big enough to generate sufficient returns.

They are overlooking a vast opportunity: the underserved “middle market” of people who struggle to meet basic needs such as refrigeration and clothes washing with low-end options because high-end alternatives are beyond their reach.

To exploit this market, companies must identify important unsatisfied needs, devise fundamentally new business models that can meet them profitably and affordably, and carefully implement and evolve the models by continually testing assumptions and adjusting them.

Right now more than 20,000 multinationals are operating in emerging economies. According to the Economist, Western multinationals expect to find 70% of their future growth there—40% of it in China and India alone. But if the opportunity is huge, so are the obstacles to seizing it. On its 2010 Ease of Doing Business Index, the World Bank ranked China 89th, Brazil 129th, and India 133rd out of 183 countries. Summarizing the bank’s conclusions, the Economist wrote, “The only way that companies can prosper in these markets is to cut costs relentlessly and accept profit margins close to zero.”

January–February 2011

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Read more on Disruptive innovation or related topics Experimentation , International business , Emerging markets , Business models and Growth strategy

ME Matthew Eyring is the managing partner of the strategy and innovation consulting firm Innosight.

Mark W. Johnson is co-founder and senior partner of the strategy consulting firm Innosight and author of  Lead from the Future   (HBR Press, 2020).

HN Hari Nair ( hnair@innosight.com ) is a venture partner in India at Innosight’s business-building arm, Innosight Labs.

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Navigation Menu. Subscribe. Sign In. Account Menu Account Menu Hi,  Guest. Search Menu. Close menu. CLEAR. SUGGESTED TOPICS. Explore HBR. Latest. The Magazine. Ascend. Podcasts. Video. Store. Webinars. Newsletters. Popular Topics. Managing Yourself. Leadership. Strategy. Managing Teams. Gender. Innovation. Work-life Balance. All Topics. For Subscribers. The Big Idea. Data & Visuals. Reading Lists. Case Selections. HBR Learning. Subscribe. My Account. My Library. Topic Feeds. Orders. Account Settings. Email Preferences. Log Out. Sign In. Subscribe. Latest. Podcasts. Video. The Magazine. Ascend. Store. Webinars. Newsletters. All Topics. The Big Idea. Data & Visuals. Reading Lists. Case Selections. HBR Learning. My Library. Account Settings. Log Out. Sign In. Your Cart. Visit Our Store. My Library. Topic Feeds. Orders. Account Settings. Email Preferences. Log Out. Reading Lists. 1 free. s. last free article. Subscribe. Create an account. Disruptive innovation. by. Matthew Eyring, Mark W. Johnson, and. Hari Nair. by. Matthew Eyring, Mark W. Johnson, and. Hari Nair. From the Magazine (January–February 2011) Tweet. Post. Share. Annotate. Save. Get PDF. Buy Copies. Print. Summary. Reprint: R1101E Many Western multinationals expect to find most of their future growth in emerging economies. But they have frequently struggled to exploit the opportunity, relentlessly cutting costs and accepting profit margins close to zero. The problem, say the authors, who are all with the innovation consultancy Innosight, is not that those companies can’t create viable offerings but that simply transplanting their domestic business models to the new markets won’t work. They must devise fundamentally new models—by identifying an important unmet job that consumers need to do; performing that job profitably at a price the customer will pay; and carefully implementing and evolving the model by constantly testing assumptions and making adjustments. Drawing on their experience with investing in, incubating, and consulting for companies that have created 20 new business models in developing markets, the authors describe the vast potential demand represented by the “middle market” in emerging economies—the millions of people who have the desire and wherewithal to pay for goods and services, from refrigeration to clothes washing to money transfers, that will help them do the jobs better than any other current offerings. Tweet. Post. Share. Annotate. Save. Get PDF. Buy Copies. Print. The Idea in Brief. Multinationals are looking to emerging markets for future growth. But in trying to transplant their domestic business models, they end up slashing margins or confining themselves to the higher-income tiers, which aren’t big enough to generate sufficient returns. They are overlooking a vast opportunity: the underserved “middle market” of people who struggle to meet basic needs such as refrigeration and clothes washing with low-end options because high-end alternatives are beyond their reach. To exploit this market, companies must identify important unsatisfied needs, devise fundamentally new business models that can meet them profitably and affordably, and carefully implement and evolve the models by continually testing assumptions and adjusting them. Right now more than 20,000 multinationals are operating in emerging economies. According to the Economist, Western multinationals expect to find 70% of their future growth there—40% of it in China and India alone. But if the opportunity is huge, so are the obstacles to seizing it. On its 2010 Ease of Doing Business Index, the World Bank ranked China 89th, Brazil 129th, and India 133rd out of 183 countries. Summarizing the bank’s conclusions, the Economist wrote, “The only way that companies can prosper in these markets is to cut costs relentlessly and accept profit margins close to zero.” January–February 2011. New! Start Course. Learn More & See All Courses. Read more on Disruptive innovation or related topics Experimentation , International business , Emerging markets , Business models and Growth strategy. ME Matthew Eyring is the managing partner of the strategy and innovation consulting firm Innosight. Mark W. Johnson is co-founder and senior partner of the strategy consulting firm Innosight and author of  Lead from the Future   (HBR Press, 2020). HN Hari Nair ( hnair@innosight.com ) is a venture partner in India at Innosight’s business-building arm, Innosight Labs. Tweet. Post. Share. Annotate. Save. Get PDF. Buy Copies. Print. New! HBR Learning. Start Course. Learn More & See All Courses. Read more on Disruptive innovation or related topics Experimentation , International business , Emerging markets , Business models and Growth strategy. Partner Center. Latest. Magazine. Ascend. Topics. Podcasts. Video. Store. The Big Idea. Data & Visuals. Case Selections. HBR Learning. Subscribe. Explore HBR. The Latest. All Topics. Magazine Archive. The Big Idea. Reading Lists. Case Selections. Video. Podcasts. Webinars. Data & Visuals. My Library. Newsletters. HBR Press. HBR Ascend. HBR Store. Article Reprints. Books. Cases. Collections. Magazine Issues. HBR Guide Series. HBR 20-Minute Managers. HBR Emotional Intelligence Series. HBR Must Reads. Tools. About HBR. Contact Us. Advertise with Us. Information for Booksellers/Retailers. Masthead. Global Editions. Media Inquiries. Guidelines for Authors. HBR Analytic Services. Copyright Permissions. Manage My Account. My Library. Topic Feeds. Orders. Account Settings. Email Preferences. Account FAQ. Help Center. Contact Customer Service. Follow HBR. Facebook. Twitter. LinkedIn. Instagram. Your Newsreader. About Us. Careers. Privacy Policy. Cookie Policy. Copyright Information. Trademark Policy. Higher Education. Corporate Learning. Harvard Business Review. Harvard Business School.