Global companies recognise the potential of emerging markets in their growth plans but many remain deterred by the challenges such markets offer to businesses. But few realise that these very challenges — ranging from inimical government policy to infrastructure gaps — combined with fragmented consumer segments offer the best environment for helping companies to be inventive, create new strategies and go-to-market approaches. Indeed, emerging markets such as India with their vast consuming classes — including the millions in low-income groups — should be viewed as crucibles of innovative business models and growth for most global companies.
Innovative business models are the need of the hour in a world where disruptive changes can blindside industries into oblivion overnight. As we all know, that’s the nature of change these days — too fast paced for businesses to depend on setting up skunk works to innovate and adapt. The high frequency of what we call “big-bang disruptions” is the reality today in the information technology and communications businesses where they are often born as fun ideas at Silicon Valley “Hackathons”. These innovations (Twitter, Netflix, Hulu, Skype, for example) cost little to develop. Such innovations are also happening in other sectors — and seemingly, through random experiments on popular technology platforms. As the disruptors could emerge from anywhere – even from a totally unrelated business — bold new thinking and business models are required.
Innovative business models will also be increasingly based on collaborative “ecosystems” made up of mutually supportive companies from multiple industries. The future of the telecom industry, for example, may depend on how different players from media, advertising, device manufacturers, service providers, banking and technology areas collaborate with each other.
And collaboration can be expanded beyond more obvious industries such as telecom and information technology services to include non-corporate organisations — essentially, participants from the social sector, local entrepreneurs and even governments. This form of social business is already happening in pockets in the high-growth markets of Asia, Latin America and Africa in the form of large-scale innovations that boost profitability in markets for low-income consumers. We call these inclusive business initiatives (IBIs). IBIs offer a good potential for organisations and companies to team up to harness a new market segment at scale. In fact, scalability is an essential feature of IBIs.
Examples of inclusive innovations that target low-income communities are multiplying and evolving — from the early Internet kiosks in India which provided updates on weather and crop prices for farmers in remote villages to new business models that help thousands of rural women to become effective sellers in new markets; from current low-cost cars that are shifting an entire class of buyers to new levels of mobility to mobile technologies that allow consumers without bank accounts to pay for goods with their mobile phones.
Take the example of an IBI such as Project Shakti by Hindustan Unilever Ltd (HUL), which provides women in rural areas with income-generating opportunities, health and hygiene education, and access to information through an Internet portal; or another HUL initiative that led to the invention of a low-cost water purifier that works without electricity or pressurised tap water. Both examples reinforce the IBI approach of achieving scale to create the right business and social impact.
Other examples include a rural initiative by YES Bank focused on bringing banking services to low-income communities in India and Idea Cellular’s approach of partnering with local grocery stores to overcome poor sales infrastructure in rural markets. These are the success stories of innovative models that could scale up to provide both social and business benefits while overcoming institutional and infrastructure gaps in the economy.
Companies balk at the challenges in launching, localizing and scaling such initiatives should take a cue from these examples of successful IBIs. Indeed, a recent study we conducted at Accenture looking at IBIs reveals that the secret sauce for success includes three key elements: sustained support from top management (which means that there is a stronger focus on long-term goals rather than the short-term bottom line), collaboration with governments (that is, matching business opportunities with government goals for inclusive growth) and partnership with effective local NGOs and entrepreneurs (to build franchises, for example). When these three elements are working, IBIs can be commercially viable at scale.
IBIs need to be encouraged because they provide large companies new business opportunities for long-term investments that, among other things, can help consumers in low-income markets enter the middle class. Additionally, their importance lies in the fact that innovations for low-income consumers are increasingly seen as the key to growth for many companies even in mature markets. IBIs could also be the prelude to creating more avenues for growth through reverse innovation — by re-packaging and redesigning products developed for low-income consumers as products for cost conscious consumers in mature markets.
Emerging markets such as India, therefore, could be just the place for global organisations to develop and refine innovative business models or products/services. With its massive consumer markets, political diversity, wide range of NGOs and a strong entrepreneurial spirit, India creates the perfect backdrop for MNCs to experiment and innovate with these types of models.