Design leaps: business model adaptation in emerging economies
| DOI | https://doi.org/10.1108/JABS-01-2015-0009 |
| Pages | 105-124 |
| Published date | 03 May 2016 |
| Date | 03 May 2016 |
| Author | Sunil Sharma,Mukund R. Dixit,Amit Karna |
| Subject Matter | Strategy,International business |
Design leaps: business model adaptation
in emerging economies
Sunil Sharma, Mukund R. Dixit and Amit Karna
Sunil Sharma is Associate
Professor at the Indian
Institute of Management,
Ahmedabad, India.
Mukund R. Dixit is
Professor at the Indian
Institute of Management,
Ahmedabad, India.
Amit Karna is Associate
Professor at the Indian
Institute of Management,
Ahmedabad, India.
Abstract
Purpose –Firms take design leaps when they imitate an established business model developed either
by another firm or in another market to create business opportunities. While recent research has
suggested the use of contextual intelligence for imitation, the exact process of adaptation of a business
model is not fully understood. The purpose of this paper is to outline the process through which an
emerging market firm adapts a developed market business model for creating business opportunities
in the local market.
Design/methodology/approach –This paper investigates the journey of Air Deccan, the pioneer
low-cost airline in India, from its founding until its successful adaptation of a (Western) business model
and eventual failure. The authors use a qualitative case-based approach to study business model
adaptation.
Findings –The authors find that adaptation involves the incorporation of following design features:
novelty to overcome problem of institutional voids, elasticity to exploit unexpected increase in demand
and efficiency to serve large volumes. Based on the evidence, the authors suggest the introduction of
global efficiency measures as the boundary conditions of business model adaptation in emerging
markets.
Research limitations/implications –The paper contributes to the literature on business models by
suggesting elasticity as a unique design feature relevant for emerging markets. This paper provides
granular understanding of business model toxicity.
Practical implications –Entrepreneurs and managers – looking to enter emerging markets through
opportunity creation – should focus on providing contextually novel design features in the adapted
business model. The authors also caution practitioners against the perils of toxicity arising out of
combining contextual novelty with efficiency.
Originality/value –Recent literature suggests that multinationals need contextual intelligence to
successfully monetize their investment in emerging economies. This paper provides rich description of
the challenges faced by entrepreneurs in emerging markets, local innovations used to overcome them
and boundary conditions.
Keywords Emerging markets, Adaptation, Business models, Contextual novelty
Paper type Research paper
Introduction
As emerging markets are increasingly becoming centers of global growth and are
expected to drive further growth in the future, interest in research on success factors/
impediments of doing business in these markets is also increasing (Wright et al., 2005;Xu
and Meyer, 2013). For example, the degree of difficulty of doing business in emerging
markets is considered to be higher than in a developed market because of weak
institutional environments, lack of infrastructure (Khanna and Palepu, 1997;Khanna and
Palepu, 2010), underdeveloped strategic factor markets (Hoskisson et al., 2000) and the
prominence of deeply embedded networks and personalized exchanges (Li et al., 2008;
Zhou et al., 2008).
Received 25 January 2015
Revised 12 March 2015
15 June 2015
31 August 2015
Accepted 9 September 2015
DOI 10.1108/JABS-01-2015-0009 VOL. 10 NO. 2 2016, pp. 105-124, © Emerald Group Publishing Limited, ISSN 1558-7894 JOURNAL OF ASIA BUSINESS STUDIES PAGE 105
While several handicaps characterize the institutional environment of emerging markets,
the emergence of globally successful companies from these markets indicates that the
challenges of doing business are not insurmountable. A recent article by Khanna (2014) on
“contextual intelligence” being a key determinant of success in an unfamiliar environment
has kindled further interest in this topic. There is a clear need to investigate the process of
entrepreneurial opportunity creation in emerging market environments to understand how
entrepreneurs can use contextual intelligence to create business opportunities by
leveraging business models of existing developed-market firms.
Emerging markets, while promising for entrepreneurial opportunities, especially at the
bottom of the pyramid (Prahalad, 2004), remain underexplored and underexploited. For
several companies, including multinationals, they remain an enigma to be solved.
Therefore, not all entrepreneurs in this context have succeeded. While some fail to enter,
others enter but fail to sustain their initial success. A strategy in these markets poses
significant uncertainties (McMullen and Shepherd, 2006) and requires novel ways to
overcome challenges to the firm’s prospects of success. In line with that thought, Luo et al.
(2014) have also emphasized the importance of business model innovation for
multinationals to respond to “emerging opportunities, including those at the middle income
level and bottom of the pyramid in developing countries”. We argue that for domestic firms
and entrepreneurs in emerging markets, these opportunities at the middle and bottom of
the pyramid represent a vast untapped possibility that can be realized using business
models from developed markets. For example, a low-cost model that relies on economies
of scale will gain immediate traction in emerging markets. However, much to our surprise,
we found that the discussion on the opportunity creation experiences of emerging market
companies that borrow and adapt developed market business models is sparse. Keeping
this in mind, we formulate our research question to investigate how firms from emerging
economies adapt developed market business models to create opportunities in their
domestic market.
We analyze the case of Air Deccan, an airline startup that introduced the concept of a
low-cost airline in India in 2003, using a model already prevalent in the developed markets.
The company, with its catchy tagline “Simplifly”, not only emerged as the largest player
within a short span of three years but also changed the landscape of the Indian civil aviation
industry. It adapted the “low-cost carrier model” from the Western markets to become the
market leader in the Indian civil aviation market. While the company could successfully
maneuver the initial challenges through several innovations to adapt the developed market
business model, it failed to sustain momentum and was eventually sold to a rival firm.
Through a case study of Air Deccan, we examine the topic of imitation and adaptation of
developed market business models by firms from emerging markets.
Overall, this study contributes to the extant understanding of how a business model from
developed markets is adapted for an emerging market. Our data show that successful
adaptation requires three elements or components:
1. innovative design features to overcome the problem of institutional voids;
2. elasticity to exploit demand spurts; and
3. efficiency to serve large volumes at a lower cost.
We also present propositions to suggest the boundary conditions for the adaptation of
business models from developed to emerging markets.
This paper is organized as follows. We first highlight some important theoretical work that
not only highlights business model design as a critical entrepreneurial activity but also
delineates the challenges in designing successful business models, as well as their
adaptation in the emerging market context. We then describe our research methodology,
followed by a brief description of Air Deccan’s groundbreaking journey, in summation and
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