[MUSIC] In the previous part of the course, we've discussed the fundamental concepts that can be the basis for the business ideas in emerging markets. A business idea is the core of any venture, however, it needs proper organization and implementation. In this part, we're going to know how to design a coherent and efficient business model for your ideas. Let's get started. So what is a business model? You can find different definitions and approaches to business models, analysis, and creation. Basically a business model is a pattern of interactions between the company itself, its clients, and its partners. It answers the questions, what are we going to do? How we're going to do? Who should be involved? And in what way? It is the theory of your business. Presumably, one of the most popular way to answer those questions is to use business model canvas suggested by Alexander Osterwalder and Yves Pigneur. According to this model, there are nine key elements of any business that should correlate each other. There are value proposition, customers, customer relationships, channels, key activities, key resources, key partners, cost structure, and revenue streams. We're not going to discuss the model in detail. You can easily find its description on the internet. I use the business model canvass for many times to relegate existing businesses and to start the new ones. And I should say it's a brilliant tool, however, when applied to emerging markets it has some certain limitations. Let's see though. I'd like to remind you briefly the main particularities of emergent markets that we discussed in the part one. They are Market Heterogeneity, Sociopolitical Governance, Chronic Shortage of Resources, Inadequate Infrastructure and Unbranded Competition. So what is wrong with business model canvas in emerging markets? There are at least five important differences that limit the use of the model. Let's look at them. First, as we discussed before, the markets in emerging economies are too fragmented. That means it is extremely difficult to design a business model focused on a single or a few segments. As the client groups are too different in their needs and behaviors, operation of the emerging markets requires a much more flexible approach. Second, due to the sociopolitical governments and monopoly powers the customers often have limited ability to decide. Very often the key to success is not the interactive to customers rally proposition, but the ability to negotiate with the decision makers. Third, the supplies failures are common, so we need to take into account that they affect quality and costs. That means it is necessary to take the risks into account and make reserves for the risk management activities. Fourth, the channels for communication and distribution are often weak and cannot provide sufficient coverage, speed or volume. In practical sense, this means you need to use multiple channels, create your own ones, and establish non-traditional ways to communicate and distribute. And the fifth, be prepared that business models can be easily copied. Patents, unique products, or innovative ideas are most commonly not a significant barrier for the competitors and new entrance. A solid ground to protect business in emerging markets is to establish a unique network of partners and influencers. Truly the competition here is the contest of partner networks and the ability to negotiate. So we now see that building a successful business model in an emerging market requires special attention because of the differences mentioned about. What should we taken into account? How to develop a business model for emerging markets? I can give you five hints. Number one, find local partners. Connections are the cornerstone of success in emerging markets. No matter how good you are in quality cost reduction or service, you need someone, a person or a company, to guide you through the net of established connections. Number two, offer customized products. As far as the client preferences are diverse and are being changed unpredictably, you can never guess what set of product characteristics and options is optimal. Instead, offer an opportunity for clients to choose the available options for themselves. Thus, you diminish the risk and increase customer involvement. Number three, choose mass growing segments. The risks can be reduced if you enter mass growing segments. Happily, there are numerous in emerging markets. The incremental growth of large-scale sales is able to compensate the losses and unpredictable events in your business. Number four, focus on accessibility rather than quality. The quality standards in emerging markets are not established yet. So, the struggles for better characteristics is almost senseless, as the clients are not able to differentiate between something very good and perfect. Instead, focus on providing accessibility in terms of pricing and distribution. An excellent product that is not accessible will bring you less profit than just a good product that is widespread sold and bought. And finally, number five, focus on short term results. Business environment is changing quickly in emerging markets. Simply forget about long term strategic plans, focus on short term results. You can develop strategic collision statement for five years. A longer period of planning can be afforded only by huge companies that are able to dominate in the market. Detailed action plans can be developed and implemented for a one year period only. If you act as an investor, think of shortening the payback period. It is more than reasonable here. So, five hints are local partners, customized product, mass growing segments, high accessibility, and short-term results. When we design VBS business model, we tried to follow all the five. We attracted local partners to conduct markets and communications sales, and places for our consultant's sessions. We introduced a set of customized products, each of which consisted of several one day modules that could be easily added or removed from the program. We chose management skills training as this was the most attractive mass growing segment of corporate education market. Striving to reach accessibility, we offered a number of short programs at average local prices so that it could be affordable and accessible for many. At last, we offered ready to use methods and know-hows as the hallmark of VBS programs. This was a way to demonstrate short results for our clients, and to reach quick and short money for the school. This model proved to be a success. We easily penetrated the market and attracted the first clients. Many of them are still loyal to us. So, let's sum it up. A business model is a pattern of interactions between the company itself, its clients and its partners. Emerging markets are fragmented, consumers here have a limited ability to decide, the shortage of supply may cause problems with cost or quality. The established channels of communication and distribution are not very efficient. And the ideas may be easily copied. If you decide to enter an emergent market find local partners, offer customized products, concentrated mass growing segments, provide accessibility rather than quality, and focus on short-term results. This will help you to ascend the negative factors of emergent markets. [MUSIC]
