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Paper info: Imagining and Realizing Network-based Business Models for BOP Markets: The Case of Grundfos Lifelink

Title


Imagining and Realizing Network-based Business Models for BOP Markets: The Case of Grundfos Lifelink

Authors


Poul Houman Andersen

Place of Publication


The paper was published at the 27th IMP-conference in Glasgow, Scotland in 2011.

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Abstract


There is an increasing focus on the development of sustainable business models for the so-called base of the pyramid (BoP) markets in developing countries1. Apart from a small group of idealists, business actors in the developed world had not shown much interest in this issue until recently. However, more companies seem to be realizing that BoP markets represent a possibility for growth and for proliferation of positive values to core stakeholders such as customers, investors, current and future employees. At the same time, the increasingly widespread standards for the exchange of digital information among users and producers have boosted global integration. It has lessened the organizational hassle of coordinating business activities across vast socio-economic distances. This has thrown open a range of new possibilities and spurred interest in exploring BoP business opportunities, hitherto seen as impossible or prohibitively expensive.
The development of business solutions for BOP markets ties in with sustainability concerns in several ways: Firstly, sustainability in the so-called survival economies is necessary imperative because these economies typically build on exploitation of fast deterring natural resource reserves – with limited renewal possibilities (Hart, 1997). Secondly, in poor economies resources are relatively costly, and one important source of growing prosperity in these economies is better resource utilization and renewal such as in the case of agroforestry (Nair, 1989). Thirdly, a business model’s economic prosperity in a BoP context typically involves some element of social empowerment building in order to create a future customer base. Thus, concerns over sustainability tie in with profitability in BoP business models.
For a firm accustomed to a radically different conception of markets, developing value-creating business in developing economies represents a task of an almost overwhelming complexity. First of all, business proposals aiming at BoP markets are complex and their yield is often inferior to products and services based on conventional technologies. Secondly, replacing a conventional technology often calls for a systemic change involving an entire business net of co-specialized business actors including retailers, suppliers and providers of complementary services and products (Lubin & Esty 2010). Thus, very few firms can cope with this change alone. To meet these challenges, business actors prospect for globalization strategies in networks that may help them not only mobilize local partners linking these into collaborative forms, but also seeking to develop partners that are useful in this sense (Mattsson et al. 1998; Wilkinson et al. 2000).
I pose the research question: How do business actors envisage network-based business models for BoP markets and how do they realize them? My primary interest in this paper is to uncover how a business enterprise designs and enters a BOP market with a network-based business model. I investigate this issue further using a detailed case study of Grundfos water system’s international expansion efforts. Grundfos is a multinational producer of pumps based in Bjerringbro, Denmark. The case study shows that businesses can adapt their business models to successfully meet the challenges of such environments. They must utilize the existing activities and resources but they have to invest considerable effort in shaping this context through the mobilization of relevant actors as well as by developing new business actors through supporting entrepreneurs. As pointed out by others, building partnerships with local resources which are
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aligned with local trust and buy-in is critical for business success (London & Hart, 2004; Anderson et al 2010).
This case study may teach business actors operating in developing countries valuable lessons on how to transfer business models as well as how to mobilize actors and establish business nets that allow for the creation and appropriation of value from sustainable business activities. The paper is structured as follows: First, using a business network perspective on internationalization, I discuss the concept of network-based business models and systemic challenges of internationalization. I start out by defining the business model concept and linking it to that of network pictures. I then present the case of Grundfos LIFELINK to reflect and further develop on these issues. In the final part of the paper, I discuss the learning points from the case study with respect to envisaging and realizing sustainable network-based business models for BoP markets and their possible implications to management and theory.
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