Access-based business model innovation in frontier markets: Case study of shared mobility in Timor-Leste

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Highlights

  • Contextual intelligence is key to business model innovation in frontier markets.

  • Framework developed captures information needs of decision makers in frontier markets.

  • Access-based business model innovation minimizes frontier market constraints.

  • Access-based mobility services in Timor-Leste will benefit from digitization.

Abstract

Despite the vast amount of research on business model innovation, little is known about what decision-makers must consider while innovating access-based business models in the context of frontier markets. To address this research gap, we develop a comprehensive framework for access-based business model innovation in frontier markets. A participative observation approach is adopted to collect the data on the case study of Microlets, a shared mobility service in Timor-Leste, for validating the framework. We successfully demonstrate the application of the proposed framework to show how access-based business model innovations can minimize issues such as accessibility and affordability, and spur economic growth by giving importance to the factors of contextual intelligence. Three different business model innovation options were compared across the differentiating factors surrounding the contextual requirements of the frontier market to validate the relevance of our framework. By examining factors such as the institutional environment, industry dynamics and infrastructural development, the proposed framework will guide decision-makers to cope up with the inherent uncertainty of frontier markets while developing access-based business models.

Introduction

Throughout history, frontiers stood for unexplored opportunities, untapped potentials and offered the chance to discover the unknown. For today's organizations, frontier markets are expected to offer all of the above and even more (Graham et al., 2013). Research does not offer an exact definition on frontier markets, yet describes them as pre-emerging or next-generation emerging markets (HSBC, 2012). Musacchio and Werker (2016) outlined three criteria to identify a frontier market – faltering prosperity, corruption, and arbitrary enforcements of rules and regulations. A frontier market possesses one or more of these three criteria. Prominent frontier markets include Bangladesh, Myanmar, Kenya, Uganda, Pakistan, Vietnam and Timor-Leste among others. All these markets possess at least one of the criteria defined by Musacchio and Werker (2016) (detailed description of the criteria is provided in Appendix A and comparison of different frontier markets with respect to the criteria is presented in Appendix B).

In recent years, the growth potential in most prominent emerging markets came under intense scrutiny as it started to slow down or even deteriorate (Redman and Sai, 2016). With respect to market growth, frontier economies are at a stage where emerging markets were 10–15 years ago and they are expected to follow a very similar path as their emerging market counterparts. Frontier markets are seen as a new source of economic growth with rewarding returns on investments in the long-run (Graham et al., 2013). This growth narrative makes frontier markets an extremely attractive place to conduct business.

At the same time, frontier markets present numerous challenges as large percentages of their populations are still at the base of the economic pyramid (BoP1) without access to basic services such as mobility, healthcare, education, and drinking water (Hill, 2002; Mair et al., 2012; Prahalad and Hammond, 2002). Addressing prevalent challenges of frontier markets constitute a wide array of profitable business opportunities. Simultaneously, it may help in lifting the poor out of poverty and enable the respective country to unleash its full economic potential (Alvarez et al., 2015; Anderson and Markides, 2007; Hart and Christensen, 2002; Si et al., 2015).

A possible way of dealing with these issues in frontier markets is through access-based business model innovation. Since many people in these markets are at the BoP, buying products and services can be a difficult undertaking (Anderson and Markides, 2007; Prahalad and Hammond, 2002). Moreover, the risks of owning a product (e.g., financial, performance, and social risk; Schaefers et al., 2016) are an additional disadvantage for BoP consumers. To overcome these chronic constraints for obtaining livelihood improvements, BoP consumers seek alternatives to conventional consumption strategies, such as “communities where sharing of possessions regularly occurs” (Hill, 2008, p. 82) through novel business models (George et al., 2015). Access-based business model innovation would enable people at the BoP to consume livelihood-improving products through temporary ownership by paying a usage fee, which is much lesser than the ownership price (Carroll and Buchholtz, 2012; Matzler et al., 2015).

In the context of frontier markets, access-based business model innovation can occur through the adoption or recombination of similar business models from the developed world to leapfrog evolutional stages (Anderson and Billou, 2007). However, operations in such environments are impeded by the lack of functioning institutions and country-specific factors that can create high uncertainty and ambiguity along the decision-process (Khanna et al., 2005; Parmigiani and Rivera-Santos, 2015). Thus, decision-makers must first gather reliable insights and be aware of the unique characteristics of the context they are operating in before innovating on access-based business models (Khanna, 2014; Kutz, 2017).

Arnold and Quelch (1998) argue that companies need to reconsider their frameworks before applying them to a different contextual setting such as frontier markets. Decision-makers often assume that frontier or emerging markets will follow the same development path as today's developed markets and try to apply the same framework-logic to any given situation (Arnold and Quelch, 1998). Oftentimes, that leads to unsubstantiated decisions that are only uncovered when it is too late. Khanna (2014) supports this hypothesis and explains that contextual intelligence is required when doing business in frontier markets. Therefore, the overarching research objective of this study is to investigate the “how” of access-based business model innovation by integrating it with the characteristics of frontier markets to determine the information needs of decision-makers.

Even though a lot of frameworks and tools have been developed to support executives in their decision-making, there is no framework to the best of our knowledge that addresses the challenges decision-makers face in the context of frontier markets when they want to innovate existing business models – particularly in the case of access-based solutions. Although a vast amount of research on business model innovation in the sharing economy has been conducted, little is known about it in the context of frontier markets. Therefore, this research attempts to answer the following specific research questions:

RQ 1

What are the information needs of decision-makers when innovating access-based business models in frontier markets? How should a decision-maker go about innovating the business model for frontier markets?

RQ 2

How valid is the developed framework when applied to a shared urban mobility solution in Timor-Leste? What are the possible business model options for the city mobility in Timor-Leste?

The research setting of this study embedded with the research questions are presented in Fig. 1.

Section snippets

Literature background

In this section, we establish the key aspects of business model research, its foundations in theory and the link to the concept of access-based business model innovation. Subsequently, further background on frontier markets is provided by specifically focusing on the challenges in doing business.

A framework for access-based business model innovation in frontier markets

The framework developed in this section combines business model innovation architecture with contextual intelligence by including unique characteristics of frontier markets. Gassmann et al. (2014) established a business model architecture in the form of a triangle covering all aspects of a business model in four pillars – who (centroid), what (node 1), how (node 2), and why (node 3) (Table 3). Such business model architecture provides a holistic view by combining internal and external factors

Case study context and data collection: Microlets in Timor-Leste

In order to validate the practicability of the proposed framework, the case study method is chosen as it is known for its relevance in examining real-life situations by conducting an empirical enquiry to investigate a particular phenomenon within its context (Yin, 2013). The developed framework is tested on a case study dealing with Microlets, a shared mobility service provider solution in Dili, the capital of Timor-Leste, with an objective to develop options of improved access-based business

Case study analysis & results: using access-based business model innovation framework

In this section, we present the analysis and innovation of access-based business model that can be deployed for Microlets in Dili by applying our proposed framework.

Discussion

Existing research on access-based business model innovation is relatively scant and most of them focus on developed markets. This scarcity of literature in frontier market context leaves the information requirements unidentified and impedes the decision-making process. In this research, we address these gaps by making three broad contributions. The first contribution concerns the identification of decision-makers' information needs for access-based business model innovation in a frontier market

Acknowledgements

We thank Scope Asia Ltd. for helping us in conducting the field study in this research.

David Wiprächtiger is a double degree master candidate in international management and finance at the University of St. Gallen and the Hong Kong University of Science and Technology (HKUST). He has gained professional experiences from working in consulting roles including digital transformation projects in financial services as well as strategic projects for industrials in Asia-Pacific. His key area of interest lies in growth markets, market entries, access-based business models and

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  • Cited by (0)

    David Wiprächtiger is a double degree master candidate in international management and finance at the University of St. Gallen and the Hong Kong University of Science and Technology (HKUST). He has gained professional experiences from working in consulting roles including digital transformation projects in financial services as well as strategic projects for industrials in Asia-Pacific. His key area of interest lies in growth markets, market entries, access-based business models and applications of machine learning in business.

    Gopalakrishnan Narayanamurthy is a Lecturer in the Department of Operations and Supply Chain Management at the University of Liverpool Management School, UK. He is also an External Research Partner at the India Competence Centre in University of St. Gallen, Switzerland and a visiting faculty at LM Thapar School of Management, India. He completed his doctoral studies from the Indian Institute of Management Kozhikode, India. During his doctoral studies, Gopal has been a Fulbright-Nehru Doctoral Research Fellow at Carlson School of Management, University of Minnesota. He researches in the area of transformative service research, operational excellence, healthcare process improvement, and sharing economy. His research has been accepted for publication in Journal of Service Research, International Journal of Operations and Production Management, Journal of Business Ethics, International Journal of Production Economics, and Computers & Operations Research among others.

    Roger Moser is Assistant Professor of International Management with a focus on India and Director of the ASIA CONNECT Center at the University of St. Gallen, Switzerland. Dr. Moser is also Adjunct Professor of Strategic Management at the Indian Institute of Management Udaipur. His research focuses on access-based infrastructure solutions in rural and semi-urban India as well as market entry and expansion strategies in Asia. He has published in Journal of Operations Management, Journal of Service Research, Journal of Supply Chain Management, Journal of Business Research, Technological Forecasting and Social Change, International Journal of Production Economics and European Journal of Operational Research among others.

    Tuhin Sengupta is a doctoral student in the area of Operations Management & Quantitative Techniques at Indian Institute of Management (IIM) Indore. He has published research papers in international journals such as Journal of Cleaner Production, Operations Management Education Review, Journal of Global Operations and Strategic Sourcing, etc. He has also published teaching cases in Ivey Publishing, The Case Journal, Emerald Emerging Markets Case Studies and European Case Clearing House among others. His current research interests include sustainable supply chain and retail supply chains in unorganized markets.

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