Business Model Design: Emerging Markets

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Framework Primer
Business Model Design:
Emerging Markets
Presentation created by
Capacity Capability
Risk

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Contents
Templates
Overview
Emerging Market Business Model Factor: Capacity
Emerging Market Business Model Factor: Capability
Emerging Market Business Model Factor: Risk
Other Factors
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Emerging Market Business Model calls for rethinking of emerging
marketing strategies
Presentation Overview
Structuring a business model that accounts for capability, capacity, and risk can propel
our company to reach strategic headway in emerging markets.
Companies are flocking into emerging markets under the banner of globalization to access low-
cost sourcing in high-growth economies. Many have established fairly successful operations
and realized significant cost arbitrage.
The increased expansion of companies in emerging markets is expected in the next three years.
How successful our company may be in our strategic expansion requires selection of the right
business model suited for emerging markets.
From a strategic standpoint, three factors determine the emerging market business model.
In taking this path, our company must take a closer look at how to adapt our operating model
and global Value Chains. We must know how to offset the risks and challenges associated with
these locations, mindful of the fact that competition is doing the same thing.
This deck also includes slide templates for you to use in your own business presentations.
1 Capacity – increasing world class capacity both in scale and scope.
2 Capability – developing dynamic skill-based capability.
3 Risk – managing cross-border risks.

Emerging Markets Expansions is today’s global motivator of growth
Emerging Markets Expansion
Localizing our company’s Value Chain can contribute to our company’s successful
operation in emerging markets.
Companies are increasingly making emerging geographic markets a centerpiece of their global business
models. In the period of globalization, we’ve seen organizations expand aggressively in emerging
markets, generate global revenues, and heavily invest in these emerging markets.
Source: Rethinking Emerging Market Strategies, Deloitte, 2009
With this renewed interest, our company must
be more strategic in our operations. We need
to establish core functions of our Value Chains
in emerging markets.
There are top three strategic objectives for
establishing functions in emerging markets.
Cost Savings - The key motivator.
Market Expansion - The sole reason for
setting up shop abroad.
Speed to Market - The primary reason why
our companies are establishing operations
in emerging markets.
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3
2
Survey of 247 executives from consumer and industrial
product companies with presence in emerging
markets: important factors
Cost savings
Market expansion
Speed to market
Access to talent
Develop new services
Develop new products

Keeping pace with evolving capacity and capability of emerging markets
are fundamental in strategic expansion
3 Factors of the Emerging Market Business Model
Achieving global market leadership requires a strategic blend of diversified capabilities,
capacities, and proper management of cross-border management risks.
Emerging market now requires our company to strategically shift specific functions of our Value Chains. This is to
account for new objectives pertaining to growth, innovation, and sustainability.
From a strategic standpoint, three factors determine the emerging markets business model.
Rapidly expand local sales and
service operations to manage
growth.
Establish world-class
manufacturing both in scale
and scope to cater to the global
demand more cost-effectively.
Increase low-cost workforce
and improve their skills to
address global talent shortage.
Capacity Capability
Risk
Diversify capabilities and capacity across
multiple locations aligned with the strategic
goals to manage cross-border business
risks – exchange rate volatility, geopolitical
uncertainty, demand and supply chain risk.
Leverage increasing skill base to
manufacture high-end, more complex
products cost-effectively.
Build or acquire complementary
technology, assets and skill base to
compete with global and emerging market
giants.
Build R&D capability to develop products
for local and global markets.

Contents
Templates
Overview
Other Factors

Having the capacity to meet global demands gives our company the power
to sustain operational and market competitiveness in emerging markets
Capacity – Overview
Investing in building capacities is a primary consideration in addressing emerging market
challenges.
Global economic growth has slowed. But developing economies are continuing to be the pillars
of global GDP growth.
Companies are aggressively targeting emerging markets to achieve growth
targets. But selling in developing countries is no easy task. Capacities have
to be build founded on three elements.
Rapidly expand local sales and service operations to manage growth.
Establish world-class manufacturing both in scale and scope to cater
to the global demand more cost-effectively.
Increase low-cost workforce and improve their skills to address
global talent shortage.
Growing our capacity
for product develop-
ment and manufac-
turing, coupled with the
required skills are vital
in achieving global
competitiveness. It
allows our company
to meet the current
demand growth and
compete with local
emerging giants.
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3

Building capacities in emerging economies must be aligned with our
strategic directions
Capacity – Key Considerations
Despite increasing expenses associated with workforce, the cost differential is still
favourable when the result is enhanced capacity.
Strategic approaches to conquering emerging markets are evolving. To successfully target
emerging economies and achieve growth targets, key considerations must be look into.
Deep understanding of the market, culture, and local constraints, in addition to sufficient sales forces
and support structures must be established.
Commercial operations must be expanded and revenue models transformed.
Operations in low-cost centers are allowing our company to take advantage of favorable currency
arbitrage.
Scale and the scope of our company’s production capacity needs to be expanded.
Expansion of human resources capacities by training local talents in specialized skills are needed
to complete the work. While workforce abounds, demand for specialized skills is outstripping supply.

Contents
Templates
Overview
Other Factors

Developing dynamic capabilities in emerging markets require scaling up
technology research and learning orientation
Capability – Overview
Building dynamic capabilities becomes our company immediate concern when faced with
increased market competition.
A second factor that our company must need to build our strategies around is capability.
To build capability, it should be founded on the following elements:
Leverage increasing skill base to manufacture high-end, more
complex products cost-effectively.
Build or acquire complementary technology, assets, and skill base to
compete with global and emerging market giants.
Build R & D capability to develop products for local and global
markets.
After years of
mastering low-cost
parts and assemblies,
our company must be
ready to move up the
engineering Value
Chain. Low-cost, high
end manufacturing
abilities can be tapped
to build more complex
products for local and
global markets.
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2
3

Developing the capability to success in the marketplace is a sine qua non
for our company
Capability – Key Considerations
Adaptive capability is effectively built as competition in emerging economies intensifies.
Under the fierce pressures of the fast changing environments that characterize emerging economies,
our company must develop dynamic capabilities to survive competition. Key considerations must be
considered to keep strategic capability directions effective and contingent with market dynamics.
Low-cost, high-end manufacturing abilities may be tapped to build more complex, engineered
products for local and global markets.
Acute awareness of local features that could expand our product or service offering. Bolstering our
company’s R&D capacity will build the capabilities we need to enter the fast-growing developing
economies.
Capability extends beyond R&D to other parts of the Value Chain. Accessing emerging markets to
enhance our products or service offerings maybe done through acquisitions or alliances with local
companies.
Access to the right talent pools can expand our capabilities.

Contents
Templates
Overview
Other Factors

Managing risks in emerging market is becoming a priority agenda
Risk – Overview
Abandoning emerging markets due to such risk factors is not a viable solution.
The third salient factor that our company needs to consider in our strategic expansion involves
cross-border business risks.
Our company must be
able to manage these
risks more proactively.
Spreading various
parts of our Value
Chains across
different countries can
be a strategic move
in hedging these
myriad risks and
complications.
Our company must carefully choose the concentration of activities and
locations to create a sustainable cost and revenue structure across
geographies.
Diversify capabilities and capacity across multiple locations must be aligned
with strategic goals to manage cross-border business risks. The several
faces of cross-border risks are exchange rate volatility, geopolitical
uncertainty, and demand and supply chain risk.

Effective management of risks requires having a good grasp of your risks
and knowing how to better mitigate them
Risk – Key Considerations
More distributed models can offset the risks associated with placing too many Value Chain
chips in a single economic basket.
Cross-border business risk has several faces, each of which can lead to dramatic stumbles
and larger-than-usual headline type.
Exchange rate volatility which has a nasty habit of wiping global profits and tightening cash flow.
Political, and increasingly geopolitical, stability can affect the success or failure of our endeavors.
Operational stability is a prevalent concern in emerging markets. Quality and supply chain lapses
can be corrosive to hard-won corporate reputations.
Spreading the various parts of our Value Chain across different countries will allow our company
to diversify our holdings and hence our operational bets.

Contents
Templates
Overview
Other Factors

Selecting a strategic location in establishing various functions
of the Value Chain puts our company in a strong competitive position
Additional Factors – Location
Careful consideration of strategic objectives that account for capability, capacity, and risk
can go a long way in choosing the right location.
Emerging market strategy begins and ends when deciding where to establish the various functions
of the Value Chain. As one of the most complex decision our business can make, it needs to be aligned
with the strategy rather than country rankings by macro-level indicators.
Investments may also
be spread across
multiple locations to
diversify investments
across geographies.
Our company needs to do more with less to stay competitive and improve
products and speed to market. Our strategic objectives must be aligned with
the capabilities and market potential that locations can offer.
Companies are beginning to establish operations in other emerging markets
that better address the new challenges and complexities of off shoring
options.
Companies can tweak our strategies to create new value in emerging
markets or strategize to protect value. Multiple locations for product
development and manufacturing may be established to reduce development
time and access a wider range of talent.

Getting the operating model right provides the basic framework in
achieving an effective strategic expansion in emerging markets
Additional Factors – Selecting the Right Operating Model
Either way, due diligence must be applied in choosing which operating model is most
effective for our company.
As our company deepens our business activities in low-cost centers and incorporate our endeavors
into global Value Chains, our existing operating model may cease to be effective.
A review of the right operating model suited in keeping our competitive
position is necessary. Key determinants of operating model in emerging
markets are the type of business activities, market opportunities, country
regulations, tax advantages, and experience in emerging markets.
Wholly owned subsidiaries are selected when companies require a
significant level of control over strategic business activities. Companies are
allowed to take advantage of global brands and existing business processes
and protects intellectual property by keeping development effectively in-
house.
More experienced companies in emerging markets normally choose wholly
owned subsidiaries to expand their presence.
Joint ventures are
selected by
companies that need
access to deeper
knowledge of local
customers, support
networks, distribution
and advertising.
Joint ventures are
normally forged with
experienced players
in the local market.

Contents
Templates
Overview
Other Factors

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Capacity Capability
Risk

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Risk
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Flevy (www.flevy.com) is the marketplace
for premium documents. These
documents can range from Business
Frameworks to Financial Models to
PowerPoint Templates.
Flevy was founded under the principle that
companies waste a lot of time and money
recreating the same foundational business
documents. Our vision is for Flevy to
become a comprehensive knowledge base
of business documents. All organizations,
from startups to large enterprises, can use
Flevy— whether it's to jumpstart projects, to
find reference or comparison materials, or
just to learn.
Contact Us
Please contact us with any questions you may have
about our company.
• General Inquiries
support@flevy.com
• Media/PR
press@flevy.com
• Billing
billing@flevy.com

Business Model Design: Emerging Markets

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Business Model Design: Emerging Markets