The Next Wave of Business Models in Asia 01-03

There’s a new generation of sophisticated entrepreneurial growth companies in Asia — and they’re competing by  reconfiguring business models. 

Image credit : Shyam's Innovation Library

THE SOUTH KOREAN television drama “My Love From the Star” features a dashing, 400-yearold alien who falls in love with an actress. The plot isn’t difficult to grasp. It’s essentially a boy-meets-girl story with an interstellar twist. The global appetite for such Korean entertainment — movies, TV shows, and music videos — has exploded in recent years. For non-Korean-speaking viewers, subtitles are crucial to the experience. Enter Viki Inc., a company that hosts content for streaming and provides subtitles and closed captions. Viki both eliminates language barriers and introduces the content to an otherwise unserved audience. Traditionally, subtitles are created by a bilingual translator hired by the producer or broadcaster. But the process is expensive and slow to scale. To overcome these challenges, Viki developed a business model leveraging a community of more than 150,000 volunteers.

This model allows Viki to crowdsource subtitles for Asian content in numerous languages.1 Viki rewards volunteers with gamified badges, the ability to view videos not otherwise available in their region, early access to new shows, and an advertising-free, high-definition experience of the content. As it happens, the market is ripe for services like Viki’s. In fact, the combination of rapidly increasing internet video adoption rates and a greater appetite for foreign content — both in Asia and globally — has become a big opportunity for Viki, which was acquired by Tokyo-based Rakuten Inc. for a reported price of $200 million in 2013.2

Two Business Model Waves From our perspective, as a consultancy that analyzes business model innovation across the globe, Viki’s story exemplifies a larger trend playing out in Asia. We see Viki as an archetype of a new generation of companies emerging in Asia and leveraging business model innovation to drive growth in the region. But to understand this type of business model innovation in its proper context, it’s important to understand Viki’s forerunners. Our research into business model innovation in Asia uncovered two distinct, yet overlapping, waves of innovation: one decades old and still going, and one that includes Viki and is evolving now. (See “About the Research.”) The first wave, as we call it, primarily exploited differences in labor and other input costs between developed and developing markets. By contrast, 

the second wave is driven primarily by business model innovation and typically leverages new technology. These companies are characterized by extensive and often radical reconfigurations of the profit formula, resources, processes, and relationships within a broader stakeholder ecosystem. They may have a sophisticated global orientation from the start; for example, in Viki’s case, the company was “born global,” beginning as a class project by graduate students who were studying in the United States but who later moved the company to Singapore.3

The First Wave The first wave of contemporary business innovation emerged in Asia during the post-World War II era. It became a tidal wave from China following Deng Xiaoping’s 1978 “open door” policy, which changed the competitive landscape of global manufacturing. Another sea change involved opening and deregulation in India in the 1990s, which transformed the global services industry. These changes have been explored before. For example, C.K. Prahalad and Stuart L. Hart pioneered research on the opportunities at the “bottom of the pyramid” in emerging markets.4 John Seely Brown and John Hagel III also investigated product and process innovation practices from Asia.5 In a similar vein, Vijay Govindarajan and Chris Trimble’s

ABOUT THE RESEARCH To chart the emerging wave of business model innovation in Asia, we applied a four-step process. First,  we reviewed 27 lists of the most innovative global companies, compiled during the past year in publications such as Forbes, MIT Technology Review, and Fast Company. These lists emphasize measures such as  patents filed, revenues, and spending on research and development. To complement the lists, we sought input from our venture capital arm, Innosight Ventures, on relevant startups. In addition, we reached out through our networks to identify other innovative companies.

All told, this resulted in a list of roughly 200 companies operating in Asia. In step two, we filtered this list based on business models. We evaluated the business models on several parameters, including the extent to which they address important and unmet customer jobs to be done; the complexity of resource and process configuration; the novelty of the profit model; the leveraging of technology; the reduction of barriers to adoption through simplicity, convenience, accessibility, and affordability; and the applicability to emerging market circumstances.

We also gauged the business models by the companies’ demonstrated growth so far and by their potential, in our view, to become globally disruptive. In step three, we synthesized these findings and categorized the companies based on their business models. In step four, we selected representative companies for both waves, and we interviewed company executives to develop further insights into their business models. An overwhelming majority of the companies we reviewed were incumbents or low-cost innovators that we categorized as first-wave innovators. However, we saw evidence of a distinct category that we subsequently labeled second-wave innovators. The success of these companies is built upon the reconfiguration of their business model components. From the second-wave companies, we selected two illustrative examples out of a handful.