Business model innovation in EM: towards a BRICS+ business model

In the discussions on the future evolution of the BRICS+ format the macro perspective as well as the geo-political/geo-economic view frequently overshadow the micro-level discussions regarding new business models and firm-to-firm modes of cooperation to be employed by entrepreneurs. In reality, the BRICS+ construct as a macro-level concept that envisages various forms of international cooperation across the Global South may quickly lose momentum without the support from the “bottom-up” impulses emanating from the business sector. One area that may be quite promising in exploring the possible modalities of business cooperation across the developing world is business model innovation (BMI), an exciting and actively developing branch of business studies. One of the definitions of business model innovation is “the discovery of a new business model that is new to the world or new to the industry in which it is being introduced”[1].

BMI hence deals with the modalities of how new business models emerge and are developed, with the key dimensions of business models innovation (the “magic triangle” of business models) being formed by what is offered to the customer; how is the value proposition created; who is the target customer and why does the model generate value[2]. To qualify as business model innovation at least 2 of these four dimensions of business model development need to be transformed and innovated. And while there are dozens of business models that can be combined with each other in coming up with new innovative approaches and strategies[3], there does appear to be a lack of business models that target explicitly sales and production of goods and services in emerging markets. Among the few business models that do so is the “reverse innovation” model in which simple and inexpensive products designed and manufactured in emerging markets are also sold in advanced economies[4].

On the basis of the existing business model innovation framework it may then be expedient to develop a number of business models with a particular focus on emerging markets. One possible version could be a BRICS+ business model that is based on the production/sale of goods in the core BRICS-5 economies (China, India, South Africa, Brazil and Russia) – these are the economies with the largest economies and consumer markets in their respective regions. Furthermore, each of the BRICS-5 economies has a regional free-trade arrangement (MERCOSUR in the case of Brazil, Eurasian Economic Union in the case of Russia, the Bay of Bengal Initiative for Multi-Sectoral Technical and Economic Cooperation (BIMSTEC) in the case of India, the Regional Comprehensive Economic Partnership (RCEP) in the case of China and the African Continental Free Trade Area (AfCFTA) in the case of South Africa) that can facilitate the sale of products manufactured in core BRICS economies to their respective regional partners.

Accordingly, within a BRICS+ business model the goods are initially produced in the core BRICS-5 economies and are then sold to the respective regional markets as a further stage of product development that is tailored to consumer preferences and logistical conditions in these economies. Adapting sales and products to local conditions in the regional partner economies may be facilitated via employing such business models as “no frills” (value proposition kept to a minimum with cost savings passed to consumers in the form of lower prices), “white label”, “franchising” or “affiliation”[5]. There may also be further extensions in the BRICS+ model life-cycle, whereby after the stages of core BRICS-5 and BRICS regional partners, the goods are also sold in advanced economies as part of the “reverse innovation” model. This would in effect represent an expanded BRICS++ business model that covers not only emerging markets, but also a further development or sale of products in developed economies. Apart from “reverse innovation” some of the business models that may be employed at this BRICS++ stage include “add-on” (extra options/offerings that are priced higher than the core offering) or “experience selling” (the value of the product or service is increased by the experience offered with it)[6].

Within the “magic triangle” of business model innovation the BRICS+ business model addresses the “How?”, the “Value” and the “Who?” dimensions. With respect to the Value dimension, profit generation is attained via taking advantage of the regional free trade agreements within the BRICS+ platform. Greater value generation is also achieved through using core BRICS economies as a base for sales and production as these markets have some of the largest pools of “middle class” consumers, qualified labour and research and development (R&D) financing in the developing world. In terms of the market segments (the “Who?” dimension), the model presents a staged process in product sales/production, with sales in core BRICS economies being followed by their regional partners as well as advanced economies. In terms of its operational modalities (the “How?” dimension), the model focusses on exploiting the regional integration linkages across developing economies to advance product sales across the BRICS+ space with lower costs. The latter concerns lower import duties paid in selling goods from the regional BRICS core hub to regional partners as well as lower production costs in terms of labour, materials and energy compared to advanced economies.

The BRICS+ and BRICS++ model in some respects combines elements of the “reverse innovation” business model (in the BRICS++ stage) and Vernon’s product cycle theory (in the BRICS+ stage with respect to core BRICS markets vs their regional partners), in which “products should be developed in knowledge- and capital-intensive higher income countries and then produced in low-wage countries”[7]. The sequencing in the implementation of the BRICS+/BRICS++ model may have the benefit of giving companies a sufficient presence in the most populous economies of the developing world before making further inroads into the more sophisticated and competitive developed markets. It also allows companies to secure presence in those markets of the world economy that are likely to witness the highest levels and growth rates in the ranks of the “middle class” as well as in the “consumption-driven” younger generation cohorts (given the demographic trends in the world economy that favour the developing nations).

The use of the BRICS+ business model would generate more returns and would take on greater prominence across the corporate world of the Global South in case the BRICS+ economies develop a platform for the main regional integration blocs of BRICS economies that involves greater liberalization of trade and investment flows across such regional integration arrangements. Stronger impulses towards regional integration, trade liberalization and the harmonization of technical standards in the main regional blocs of the developing world would also contribute to a greater propagation in the use of the BRICS+ business model.

Overall, the BRICS+ business model may be employed to advance sales across a range of products and services. Perhaps some of the more promising venues in terms of the “What?” dimension of the business model innovation triangle could be ecological/green products that are likely to find not only growing demand within the developing world, but that could also be adapted to the market preferences and standards in advanced economies. Another trajectory for the BRICS+ model is the segment of digital platforms in the consumer and financial sectors that could exploit network effects built in the emerging market space to subsequently expand presence in the advanced markets. In the latter case, companies could make use of platform business models such as “get the big shots” (attracting key users who can also bring their own networks to the platform), “subsidize the sensitive” (subsidizing the highly price-sensitive users that are crucial to the growth of the platform), or “piggyback” (connecting with an existing user base from a different platform and leveraging its assets) to scale up their market share[8]. Companies pursuing such business model strategies with the aim of increasing sales across the BRICS+ and BRICS++ space would need to develop BRICS+ ecosystems and partnerships that facilitate the possibility to leverage the resources that local producers and distributors have in the respective regions of the BRICS+ world.

Yaroslav Lissovolik, Founder, BRICS+ Analytics

Image by ds_30 via Pixabay

[1] Constantinos Markides. Business Model Innovation. Cambridge Elements. Business Strategy. Cambridge University Press.  2023, p. 4

[2] Oliver Gassman, Karolin Frankenberger, Michaela Choudury. The business model navigator. The strategies behind the most successful companies. Second edition. FT Publishing. Pearson. 2020, p. 7-8

[3] There are various schools of thought on the creation of new business models: from the technology-driven school (University of California, Berkeley) to Strategic Choice School (Harvard Business School). The one that is employed in the discussion on BRICS+ business model is the Recombination School (University of St. Gallen) that presents business models as a recombination of existing models and patterns – see Oliver Gassman, Karolin Frankenberger, Roman Sauer. Exploring the field of business model innovation. New Theoretical perspectives. Pelgrave Macmillan. 2016, p. 19

[4] Oliver Gassman, Karolin Frankenberger, Michaela Choudury. The business model navigator. The strategies behind the most successful companies. Second edition. FT Publishing. Pearson. 2020, p. 275

[5] Oliver Gassman, Karolin Frankenberger, Michaela Choudury. The business model navigator. The strategies behind the most successful companies. Second edition. FT Publishing. Pearson. 2020, p. 327, 97

[6] Oliver Gassman, Karolin Frankenberger, Michaela Choudury. The business model navigator. The strategies behind the most successful companies. Second edition. FT Publishing. Pearson. 2020, p. 149

[7] Oliver Gassman, Karolin Frankenberger, Michaela Choudury. The business model navigator. The strategies behind the most successful companies. Second edition. FT Publishing. Pearson. 2020, p. 275

[8] Felix Wortmann, Sven Jung, Oliver Gassman. The platform business navigator. The strategies behind the most successful platform companies. First edition. FT Publishing. Pearson. 2024, p. 178, p. 179, p. 185