New Business Models – HBR #1

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Eyring, Johnson, and Nair (2011) presented their consideration about the reasons why multinational companies often fail once entering the emerging markets in the article “New Business Models in Emerging Markets”. The discussion included the suggestions of how the situation can be changed by offering to look into the innovative opportunities and finding exclusive solutions for each particular market. The article is a good example of how the situation of every market should be examined and what outcomes can happen. Additionally, the authors proposed the features of a customer value proposition (CVP) supported by their findings. Thus, in order to develop a CVP, companies have been offered to consider the strategy in terms of affordability and access. The components of a CVP are paramount for developing a new business model, which can be created on the basis of either price or differentiation. This is a part of the integration of components.

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The emerging markets can mainly be characterized by the following features. First is the availability of a mixed economy with different forms of ownership, ranging from the traditional economy to the public sector. Second is a low-end general level of the growth of powers of production. Third is a dependent position in the world economy due to the fact that the economic development of the colonies has not been determined by the needs of a country itself. For centuries it was decided by the needs of metropolitan areas. Today their development is highly dependent on foreign capital inflows. Fourth is predominantly agrarian and raw material orientation in economic development and monoculture of export. Fifth is low level of GDP produced, including GDP per capita and poverty of the majority of the population. From this point of view, it is relevant to conclude that the implementation of innovation to the development process can help in resolving the issues that emerging markets are faced with.

At the same time, the authors justify the chosen option byproviding successful examples of well-known companies in order not only to enter emerging markets, but to strengthen their positions in them. Thus, Godrej has designed a solution alternative to the refrigerators, which are expensive and unnecessary in some areas. For example, due to the issues with electricity and poverty in India, the decision to introduce the ChotuKool, an alternative solution to refrigerators that is less expensive and can keep production fresh for up to two days, has been successfully by the Indian audience. Another example is the development and integration of M-PESA, a low-cost mobile money transfer, presented by Vodafone to the audience of South Africa. It has become widely used among the customers of this area. In this case, the company has managed to examine customers’ potential needs by outlining the problems present in the market, test the development within Kenya, and spread it across the continent. Village Laundry Service has been offered to the Indian audience as an alternative solution to expensive laundry service for those who cannot afford a washing machine (Eyring, Johnson, & Nair, 2011). This is a good example of why innovation should be oriented to the middle market, as it has been pointed by the authors of the article. It emphasizes the problems of emerging markets and explains why the launch of expensive goods is not a solution for people with low salaries. The source of information seems credible and logical in this situation as it explains the necessity of using innovations and different approaches for such markets. It explains the reason why corporations often fail when only seeking for new markets and transferring the business models that work for already developed markets.

Additionally to the components of CVP presented in the article, the accent should also be made on the impairment of factors of production, such as in the example of the creation of Village Laundry Service. The company has not only offered the alternative service, but it also was applied for rent services creating a demand for job positionns in the area and protecting itself from the loses in the case of unsuccessful campaign. This is why it is also recommended to include the factors of production in the development of new business models. The reason is that it is only possible to develop and benefit from the market mechanism when there is public provision of means of production and labor. In order to restore the balance of supply and demand in the face of rising prices, not only additional capital is required for production. Additional factors of production, which need to be purchased with invested capital, are also needed.

The article presented by Eyring, Johnson, and Nair (2011) covers the necessity of creating a new product to the emergence of new and better offers. It also addresses the development of a deep understanding of consumer preferences for searching and offering new and better ways to meet customers’ needs. Each of the options requires significant investments, along with relevant competencies, including organizational ones. Additionally, a corporation can consider the development of a strategy of growth either through acquisition with other competencies or through the entry of new or adjacent markets, which also requires significant investment.  However, another opportunity for the growth a company has is the study and examination of alternative approaches to the creation of value. It is called analytical experimentation with business models. It can be done with the help of creation of a template business model and the change of one of the variables, a detailed study of supply, or the development based on the customers’ needs. All these options can be combined at different stages of the implementation process. It will allow to make informed decisions about where and how the company wants to compete, create more value for customers and the company itself, and make proper use of available resources, as well as extract the maximum potential growth from other types of activity by better understanding customer needs and making strategic efforts for development.

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