Gaining a competitive edge

Is business model innovation an effective way?

The growing importance of emerging markets

Belief that emerging markets can provide a rich source of opportunities has increased
significantly over the last decade or so. Consequently, expanding into such markets is now
integral to growth strategies pursued by many leading organizations.
The potential within these markets is readily apparent. In 2010, annual consumption in
emerging markets was $12bn. This figure is scheduled to reach $30 by 2025. More than
160 countries are now categorized as ‘emerging’ and these nations account for some 85
percent of the world’s population. Brazil, Russia, India and China are the four largest
emerging economies. Of these so-called BRIC nations, China and India comprise almost a
third of global population.
Contribution of emerging markets to the world economy is rising exponentially. Based on
purchasing power parity (PPP), such countries now account for 59 percent of global
gross domestic product (GDP). World Bank statistics show robust growth in BRIC
economies that ranges between 8 and 10 percent annually. It is predicted that their
collective GDP will reach half that of G7 nations by 2025 and surpass it altogether before
around 2040.

The rise and rise of India

India’s emergence on to the global economic stage over the last few decades has been
well-documented. The country has posted average growth in excess of 5 percent and by
2030 analysts expect India to become the world’s third largest economy. Based on PPP, it
is predicted to reach second place a decade later.
Much of India’s growth is attributed to rapid increase in urbanization that is characteristic
in many emerging markets. Population is soaring in a number of Indian cities to the extent
that Delhi and Mumbai are on course to be two of the five largest cities in the world by
2030. The predicted scale of urban transformation in India will have only been surpassed
by China.
Population demographic is another notable feature of the Indian context. Its median age of
27 years makes it more youthful relative to other emerging markets. Not surprisingly,
younger people strongly influence consumption behavior and make a substantial
contribution to India’s GDP growth.
India is an emerging market that attracts huge interest from multinational corporations
(MNCs) from the developed world. However, many firms are finding emerging markets like
India tough nuts to crack. With most MNCs, only a small proportion of total revenues are
accrued from business in such markets.

DOI 10.1108/SD-03-2021-0022 VOL. 37 NO. 5 2021, pp. 11-14, © Emerald Publishing Limited, ISSN 0258-0543 j STRATEGIC DIRECTION j PAGE 11
 Not surprisingly, younger people strongly influence
consumption behavior and make a substantial
contribution to India’s GDP growth.

Why business models are important

There are clearly no easy pickings from emerging markets like India. If companies are to
succeed, various challenges need to be addressed. Organizations should therefore focus
on key factors that include:
䊏 making the effort to better understand Indian consumers;
䊏 not assuming strategies which have worked in developed nations will prove similarly
effective in this context; and
䊏 creating a business model that is tailored appropriately for local needs.
The latter is especially significant as each emerging markets has its idiosyncrasies. It would
be highly risky to adopt a one-cap-fits-all approach to all emerging markets where choice of
business model is concerned.
While research into business models is plentiful, debate about a general definition persists.
One of the more popular definitions regards business models in holistic terms, with greater
emphasis on ‘how’ business is done that the ‘what, when or where’ aspects. From this
perspective, the model incorporates various activities designed to meet perceived needs of
the target market. It likewise delineates links between these activities and that all
participants play a role in value creation.
The important role of business models has given rise to the concept of business model
innovation. This new form of innovation has been enthusiastically across the business world,
not least because of its potential to generate more benefits than innovations relating to such
as products or processes. Different researchers point to:
䊏 increase in sales;
䊏 higher profit margins;
䊏 improved cash flows;
䊏 stronger growth and long-term prosperity; and
䊏 improved value of company offerings.
Leaders are so convinced about business model innovation it is now regarded as the most
critical factor in securing a competitive edge. Evidence has already emerged to confirm that
companies prioritizing business model innovation are outperforming those where the focus
is minimal.

Case study and findings

Saqib and Satar (2021) illustrate the powerful scope of business model innovation within an
emerging market, somewhat ironically with a case analysis of domestic firm OLA Cabs.
The Indian company was founded in late December 2010 In Mumbai by two
entrepreneurs and has gone from strength-to-strength since. It began life as an online
cab aggregator that offered trips during the Commonwealth Games in Delhi that year.
With the expansion that has subsequently taken place, the firm now offers taxi

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services in 169 cities and towns across India. Various acquisitions have strengthened
OLA’s place as leader of the taxi rental market. It now also operates in several other
countries, with its important Australian market signaling the first overseas venture in
early 2018.
Business model innovation clearly enabled OLA to successfully compete within an already
established market and stay ahead of rivals like Uber. Historical analysis highlights how the
disruptive nature of the firm’s model was especially influential. It enabled OLA to create a
new market niche by offering a taxi-service that was app-based. Taking this approach
allowed the firm to buck convention as it essentially removed the need for the normal trade-
off between cost and differentiation.
Previous research has identified several factors that can help transform an industry. The
innovative business model adopted by OLA appears to reflect such features.
Arguably the most critical is providing a more personalized service. The company achieves
this through:
䊏 increased flexibility and convenience in how customers can order cabs. App ease-of-
use helps in these respects;
䊏 strong emphasis on safety; and
䊏 round-the-clock customer service.

Asset sharing is another way in which OLA goes against the crowd. Many companies
believe owning assets is a fundamental requirement. Cars are key assets here but their
infrequent use makes ownership less financially viable. Therefore, the OLA model permits
drivers with a ‘qualified vehicle’ to offer a taxi service under their name to hence create a
shared assets scenario.
The firm likewise ticks the right boxes for usage-based pricing that is both competitive and
transparent. Not owning vehicles is a key enabler here as it shifts the burden of
maintenance on to the owner-drivers. Cost savings from this provide further value to the
customer as fares can be up to 25 percent cheaper than rival cab firms.
Having a ‘more collaborative ecosystem’ is another important feature noted in past
research. Here, mobile technology utilized by OLA makes this possible by minimizing the
uncertainty that drivers face about securing custom.
Another aspect of the business model is the company being ‘agile and adaptive’.
Technology is again central as it permits decisions to be made in line with the real-time
needs of customers. Flexibility is further evident in the capacity of OLA to direct drivers to
appropriate locations in the search work.
The emphasis on a ‘sharing economy’ is a striking characteristic of OLA. One manifestation
of this is the opportunity for customers to share cabs with others for local journeys. A simple
smartphone app facilitates a service that helps more efficiently match supply with demand.
The obvious payoff for taxi customers is even cheaper fares.

However, many firms are finding emerging markets like India

tough nuts to crack.

VOL. 37 NO. 5 2021 j STRATEGIC DIRECTION j PAGE 13

 It would be highly risky to adopt a one-cap-fits-all approach
to all emerging markets where choice of business model is
concerned.

Comment
The review is based on: “Exploring business model innovation for competitive advantage: a
Keywords: lesson from an emerging market” by Natasha Saqib and Mir Shahid Satar, published in
Business model innovation,
International Journal of Innovation Science. Business model innovation can help
Innovation,
Competitive advantage, international firms struggling to make an impact within emerging markets. By tailoring their
Emerging markets, models to meet the unique demands of each specific markets, such organizations should
India be better placed to improve performance and secure a competitive edge.

Reference
Saqib, N. and Satar, M.S. (2021), “Exploring business model innovation for competitive advantage: a
lesson from an emerging market”, International Journal of Innovation Science, ISSN 1757-2223.

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