Insights about Service Business in Emerging Markets: China & India

(cc-by-sa) Tatu Tuohimetsä & Ville KeränenMonkey and Banana osk

4th of April 2013www.banana.fi

Table of Contents• Introduction

• Theories

• Insights on China

• Insights on India

• Invitation

• Contact Information

“Remember that your ideas are so big but your

mind so small.”

- President of China referring to an advice from Master Nan

Here is a picture of authors of this report with one of our hosts in the middle, Diana the director of the Taihu Great Learning Center. The sign that Ville on the right and Diana in the middle are showing is a traditional sign of the Taichi and the idea is to show respect and say thank you teacher. We want to acknowledge and say thank you to all people we met over this incredible journey to China and India in November 2012. Tatu’s sign is traditional too, and it’s about expressing enthusiasm.

Why This Report?This report is produced to foster your thinking and to help find right questions and understanding in order to design and run Service Business is Emerging Markets. Quotes and ideas are collected in Finland, China and India. And beautifully mixed in Vaajakoski.

The following insights are based on studies and learning journeys in three continents during year 2012 in Masters Program of Open Innovation and Intrapreneurship (MiNN), International Executive MBA -program of Mondragon University, Spain.

The content is created after the Learning Journey to China and India 8th to 24th of November 2012. Also we have been supported by many dialogues with several front runner thinkers and doers all around the world. Big thanks to all at MINN and everyone we have met on this journey.

Travellers of this report, Tatu Aktiivipoika Tuohimetsä and Ville Keksijä Keränen, are entrepreneurs in a Finnish Learning Design Boutique called Monkey Business.

Shanghai Pudong landscape. These buildings did not exist 20 years ago. Then the government decided we need something spectacular. And built Pudong on top of some wastelands just in to the center of Shanghai. Now Government has decided to take innovation on to their agenda.

Monkey BusinessMonkey Business is a learning design company. We do not believe in teaching or preaching, or ready made solutions and answers. We ask. We like to think together. We believe that people have the ideas and knowledge to solve their own challenges. Our work is to help to ask right questions in order to create something new. Sometimes knowledge from the past may be a problem. Our value is created through fun, being U.F.O. and experimenting. Learning is always connected with emotions, moreover only doing creates something new and changes the world. We define learning as a change of behavior and design as doing things that make sense.

“There are enough reports - do something.” -Prof. Bengt Holmström, MIT.

We Monkeys re-phrase that for you: “Dont just read reports, do something.”

Try things that have not been tried before. Do the Never! In the safety of Jyväskylä, 30.1.2013 Tatu Tuohimetsä and Ville Keränen

“Only failure is that we dont learn anything.”

Traffic in China can be very intimidating. Once we were stuck in a jam for about three hours on our way back to Shanghai in the afternoon. Something we are not used to in Finland. Also at the back you can see the gray sky. The sky was gray everyday because of the pollution and the humidity.

What are the right questions?“Emerging markets are not just possibility to try something new or different. They are markets to do everything differently.” -Anssi Tuulenmäki

What are the questions we really need to solve? What we know from past/west may be a problem?

How can we change our thinking and doing?

“There’s no better sign of insanity that doing the same thing and expecting different results.” “If I had one hour to save the world I would use 55 minuted to find the right question and then 5 minutes to solve it.”-Einstein

Some of the best food we ate was at the places where locals eat too. Freshly made, sometimes too greasy for our taste, but still good.

Theory-UFour Levels of Responding to Change

1. Reacting: quick fixes

3. Reframing: values, beliefs

2. Re-engineering: policies

4. Regenerating: sources of commitment

and energy

Source of energy, inspiration and will

Manifest action

Thinking

Process, structure

In order to enter the emerging markets, instead of quick fixes and re-engineering the current strategies that work in the developed economies, we need to reframe and regenerate our current ways of working and thinking. Theory-U opened us in India, Pune in dialogues with local consultants and entrepreneurs. It was their proposal for entering emerging markets:1. What works in Finland will not work in China or India. What might work in there?2. What do we need to understand about China and India in order to do business there?3. Ask your self why? And ask it five times.Above diagram is used under license from Presencing Insitute - Otto Scharmer

www.presencing.com/permissions/

Let go Let come

Mental ModelsMental Models are deeply held internal images and scripts about how the world works. ”The inner truths.”

They help us to deal with daily life but also at times constrain our thinking to old habits.

They are the box we are asked at times to think outside of.

”I had been many times in China. When staying first time a bit longer I realized - nothing works here like in Finland!”

Global growth depends on the east. Sun sets in the West. Due to the clouds we can see the sun as a red ball, something that is rarely seen back in Finland.

Experience Economy

Ref: Pine II & Gilmore - The Experience Economy - Updated Edition (2011). page: 245

Experiences

Services

Commodities

Goods

Transformations

Commoditization

Commoditization

Commoditization

Customization

Customization

Customization

Extract

Make

Deliver

Stage

Guide

Market PremiumPricing

Compe

tition

Same, sam

eUniqu

e

Progression of Economic Value Experience Economy is a new aspect into value creation compared to Porter’s classic value chain model. The idea is that for the higher profits and less competition we need customize more and more the service into an experience. Good example is coffee, how the price of a cup may vary a lot depending whether you drink it at home or in a cafe in Paris with a view to Eiffel tower. I think experience economy is more and more present in the developed world but only on it’s way to emerging markets.

How to read this report?

Report has two types of pages. One with a statement at the top of the page and a little story at the bottom. Important is to understand what is behind the quote.

Second type is with two boxes on the bottom. The box on the left elaborates the statement further. The box on the right has questions for you to think about.

Before You Start. Stop.• Take a deep breath. Maybe drink a glass of water. Empty your mind from the worries of the day.

• Imagine China. What do you know about China at the moment? How about doing business in China?

• Imagine India. Did you ever visit the country? Do you know how Kalkutta smells? Or Bombay feels?

“Why do you think there is emerging market for your company?

Taxis are a good way to move around. However the drivers do not speak English so you need to have the address in a picture written in Chinese with you. Or you can call help from a special number that’s attending you in English and guiding the driver in Chinese. That’s a great service.

“Number of Industrial plants in China will grow because consuming in China grows rapidly in following years.” -Carlos, Mondragon“There are no Chinese service companies good enough on the market.” -Liborio, Fagor In most of cases they train their own people to do the service.

“Why do you believe there is market for you in China?”“Have you got a China man, a person high enough in the hierarchy of the company, back home who understands China and is ready to speed up the decisions when needed?”

“China is one generation behind.

China is unpredictable. Maybe in the same way as Finland was in the times of cold war. But China’s economy grows super fast. But culture may not learn as fast. And even if it feels that China is one generation behind us now, they are likely to catch us in less than one generation of time. Currently the main business model is copy and survival.

From what decade or century should you benchmark the service business model? -70s, -80s, -90s?Where were we in Europe with service business models back in the 80s?

“Give and youll get.

“Understand the ecosystem and importance of guanxi.”“Some foreign managers and organizations think they know the answers and that China is part of their country.”“Some companies have innovation centers in China (and India). Rovio let the fake market to do the innovations and then they take benefit out of making best products official.”

Its prime mover market - what new you can bring?What is it that you can do and the Chinese cannot copy?What is your organizations contribution to China?Are you creating something with locals or trying to bring something ready from outside?

“Good enough quality.

Case Danone: They spent loads of money trying to educate Chinese people about their products’ quality. After changing the packaging they started to sell like hell. → Concentrate on the key product!“Chinese want service, but not to pay for it. They want something simple, safe and reliable - good enough. One button instead of 1000 buttons.” “Our service business is profitable, but small.”

Is your service simple enough? Cheap enough?Good enough?

“It’s forbidden to make mistakes in China.

I was very happy to find a bunch skateboarders in one square of Shanghai. Trends are born in the streets. And play is universal phenomenon.

Guanxi. From the moment you enter China, its all about the trust. How do you cultivate it? Proof that you are bringing better knowledge. Be transparent, so that everybody will benefit. Show importance - CEOs like to meet other CEOs etc.People is the key point, they need to feel what you say in true.Lobbying plays key role in getting the deal.

“It is forbidden to do mistakes in China. You lose your face. And you career. Thats why buying immaterial is hard.”How many people do you know from the local governments of the cities and regions where you aim to do business?

How do you show that not buying your service is a mistake?

“Infra is future.

We visited buildings that were over 30 floors high. They swung a little in the wind in order to be resilient. However, it made me sea sick.

Nobody wants a drill. Everybody wants service they need, i.e. a hole in the wall in order to place a painting there or things moved from place to another. In future Chinese wont pay for time or parts, they start to pay for value created.

Who could be the companies in China to start a joint venture with you? Is strategy to provide machines to a new factory? Or just service fee charged? Are you selling spare parts and maintenance or service?What is your value innovation? (According to Blue Ocean Strategy.)

“Digital Landscape is completely different in China.

The trendy fixed gear bikes could be also found in Shanghai right next to the skate boarders meeting place in a square on top of one shopping centre. But the reality in countryside is different.

Chinese version of eBay, Taobao or T-Mall, is bigger than eBay. Chinese are fast building their own web services. Usually very well equivalent to the Western ones. E.g. Renren is the local Facebook.To some extent we can also use Google Trends, Alerts and Insights to see whats cooking on the web, even in China.

What should you understand about Chinese internet and Social Media? Should you be there? When? How?

Chinese are practical.

In Shanghai, motorcycles are power by electricity. That’s good for the air quality. But problem is you cannot hear them coming. And that is a big problem because they do not obey the traffic lights and may drive on pedestrian ways, too. That is why we renamed them silent killers.

“Chinese like to call and chat. They may look up the product online but before buying they want to chat. Your service / webpage have to be usable in that sense.” -Heard at Web2Asia“Selling information is hard.”

Is your website fit for Chinese market? Have you got a chat option at your website?Chinese dont usually speak english. Are your materials and web visual as pictures are the universal language?

“Chinese are short time orientated - not willing to do long time investments.

“They are short of cash even if they are willing to invest long term.” It may be also about trust to the future, as they do not trust future as much as we do in the West. China feels very uncertain and unpredictable.S.K.F and Bao Steel have a “joint venture” where S.K.F benefits more if bearings last longer.

Is it true that Chinese are not willing to invest in long term? What kind of business models you should use to enable Chinese to invest long term?Who makes the final decision about investments?

China does not exist i.e. There are many Chinas

One interesting service model was the WIFI that was offered in the photo booths. We did not try that or actually, did not see anyone use it either. But still could be handy in case of need.

“There is no one China.” “China is huge!” “Its very diverse.” “Every company is a different.” “No 1 China, so many differences.”“Making mistake in China is forbidden.” “China is a developing country - and it changes a lot.” “China’s GDP grows about 9% every year.”In China everything is possible for someone - no one rule.

What is your focus in China?Where do you concentrate?

How do you support customers’ trust for the future?“Incredible India. 32 states and all different.

In India cars and busses are packed to the full. On the road drivers use the horn a lot for example to give a sign of taking over another car on the road.

India is even more diverse than China. “When we entered Indian market there was 5000 competitors all ready.” One Strategy is not enough. No central control like in China. Over 1 billion people live there. Many many religions. Really diverse.“You have to stay here for 5-10 years to understand the cultures even a little.”

”China is one generation behind.” So where is India? And all it’s different states? In which city and region do you want to start your operations?What markets are rising and what are going down?What if Chinese and Indian businesses enter your market at homeland?

“Everything works in India.

In India we found people very friendly in all levels of the society starting from the slum Dharavi in Mumbai to the consultants in Pune and PhD students of IIT Kharagbur.

”Electricity cuts last a day or so in Incredible India.””When you come to India - come with open mind.””In the morning about 80% of the workers appear to work. When we started it was less” “Sometimes I receive a post card or a fax even if the matter could have been taken care of with email or phone.”

If electricity breaks down for a day maybe thinking about the machine is the last thing to think about?What is the value you are offering?Do you understand the local reality/culture/needs/mindset?

“We have been fooled so long.

”We have been fooled so long.” said Manish an experienced consultant who’s been living in and out of India based on his experience with many different companies coming to India, as well as reflecting back to the British Empire. Indians want to fix it themselves. “For Indians it very difficult to say, NO.”

How do you build the trust and a win - win business model?How do you help your customers out of the “short cash cycle”? How do you support customers’ trust for the future?

“Bottom of the Pyramid is the source of radical innovation

What is your Mental Model about slum in Bombay? We visited Dharavi, one of the most dense slums in the world with 1 million people living within 2sq km of space. It was cleaner than Kalkutta. There were over 10 000 enterprises with over 600 million $ of turnover.

“Radical Innovation Week in Shanghai was nice, but it was Finnish people speaking to Finnish people.” -Student at Aalto Tongi Design FactoryIndian Institute of Technology (IIT) Kharagbur asked us (Monkey Business) to do proposal about shared actions. They accept only 0,1% to the applicants to IIT. They will start an international R&D center at their campus to work with their students.

How about collaborating with IIT for R&D and Innovation?What is the value we Finns get e.g. from the Aalto Tongji Design Factory in Shanghai compared to local initiatives?”Bottom of The Pyramid is the real source for radical Innovation in the Future.”

“The most local is the most systemic.

Entrepreneurial systems are sustainable. Many of the biggest business in India is family business e.g. Tata, Mahindra, Wipro, Reliance Industries etc. “The Oldest man influences the decision making process even when there is a board and CEO appointed.”

Systems Thinking - who makes the decisions? Whom do you need to convince? With whom you should co-create? Whom should you listen to?

How would your Service Business look like if based on entrepreneurial system? What about if locals would create it for local markets?

“Innovation is more about empathy than engineering.

What empathy means in our service business?Who are your key partners in the service business ecosystem?

“The only way that companies can prosper in these markets is to cut costs relentlessly and accept profit margins close to zero.”“Prototype is the spirit of innovation.”“India is a land of opportunities. We are open to outsiders to come and do business in here. But together!”

Further Reading and Ideas• Trendwatching: http://www.trendwatching.com/trends/madebetterinchina/

• McKinsey: http://solutions.mckinsey.com/insightschina/

• Harvard Business Review:

• Business Model Innovation in Emerging Markets: New Opportunities and Challenges

• New Business Models in Emerging Markets

• Finding Great Ideas in Emerging Markets

• Economist Special Report: Innovation in Emerging Markets

• Exolus on the Future of China 2020

• FinNode China - Threats and Opportunities in Chinese Social Media

Do you want to organize a participative workshop about doing Service Business in Emerging Markets?

Get in touch with Tatu Tuohimetsä+358 40 831 8118 or tatu@banana.fi

or twitter.com/tantourist

AktiivipoikaTatu Tuohimetsä+358 40 831 8118tatu@banana.fitwitter.com/tantourist

Monkey Labs Ville Keränen

+358 40 731 2084ville@banana.fi

twitter.com/villemonkey

Questions, comments, anything? Please connect!

”To change the way of thinking and doing is hard. You really have to want it. More than anything else.”