How to do Business in Africa:
The influence of environmental factors on the emergence and selection of specific
revenue models and distribution channels in sub-Saharan Africa.
Statement of originality
This document is written by student Maaike Drok,
who declares to take full responsibility for the contents of this document. I declare that the text and the work presented in this document is
original and that no sources other than those mentioned in the text and its references have been used in creating it.
The Faculty of Economics and Business is responsible solely for the supervision of completion of the work, not for the contents.
Business in Africa
University of Amsterdam | Amsterdam Business School | MSc Business Administration | Entrepreneurship and Innovation | Maaike Drok | 10025316 | Supervisor: dhr. drs. A.C.C. Gruijters | Second Supervisor: dhr. dr. G.T.Vinig |final version 29-06-2015
Table of Contents
1. Introduction
8a There is potential, only how to reach it
9b Business potential of BOP countries
10c Social Enterprise WakaWaka
12d Problem definition
142. Literature Review
16a Business model framework
17b Environmental factors
18c Revenue models
23d Value-based revenue model
26e Distribution channels
283. Conceptual Model and Research Question
304. Methodology
34a Research design
35b Validity and Reliability
36c Sample
36d Analysis of interviews
37e Open coding
38f Focus coding
39g Selective coding
405. Findings
41a Sub-question 1: Environmental factors
42b Sub-question 2: Revenue models
50c Sub-question 3: Distribution channels
53d Sub-question 4: Interaction
55e External Communication
57f Business model description
57g WakaWaka product
58h Area rather than country 58
6 Discussion 60
a Scientific implications 61
b Limitations and future research 66
7. Recommendations for WakaWaka 69
b Four general recommendations 72
c WakaWaka Africa branches 75
8. Conclusion 77
a Conclusion 78
9. References 80
a. Literature list 81
10. Appendices 84
a Appendix 1: WakaWaka products 85
b Appendix 2: WakaWaka foundation 87
c Appendix 3: List of interviewees 88
d Appendix 4: Codebook 89
e Appendix 5:Interview example 104
f Appendix 6:Business model of each company/project 106
ABSTRACT
Abstract
Previous scientific research has mentioned the untapped economic potential of countries that are currently at the ‘Bottom of the economic Pyramid’ (BOP). However, these studies hardly ever wonder how this potential should be reached. Studies mention the need for new business models that fit in specific BOP environments, but rarely examine the structure and content of these new business models. This research will therefore examine two important components of the business model: the revenue models and distribution channels and look for those models and channels that showed to be successful in BOP countries in sub-Saharan Africa.
The necessary information for this research is gained in collaboration with WakaWaka. WakaWaka is a Dutch social enterprise that sells her products in BOP countries all over the world including sub-Saharan African countries.
The central question in this research asks how the environment in BOP countries is influential in the creation and selection of revenue models and distrib ution channels. To answer this question, the environmental factors, revenue models and distribution channels in sub-Saharan Africa are analyzed in an inductive exploratory way, based on interviews with successful WakaWaka sellers. Next to environmental factors, revenue models and distribution channels, environmental aspects were found as the underlying building blocks of more abstract environmental factors.
Since the environmental factors turn out to be very influential in the choices or creation of successful revenue models and distribution channels, this research recommends every WakaWaka seller to base their revenue and distribution strategy on a thorough analysis of the specific environmental factors and aspects in their working area. Also, this research deduces four general recommendations for WakaWaka, concerning the variety of environmental factors, the costs of products, the sustainability of their business model and the need for a local communicator. Altogether, the different recommendations could be implemented by creating WakaWaka branches in Africa.
AKNOWLEDGEMENTS
Acknowledgements
At this final phase of the intense process of writing a thesis, I want to acknowledge the contributions of some people in special, who manifestly contributed to this thesis. First of all, I like to thank Ton Gruijters, my supervisor, who guided me into the world of qualitative research and provided me with all the knowledge and information that was needed to write this thesis.
Secondly, I want to thank WakaWaka and in particular Wouter Moll, who provided me with all the necessary information about their company and business model, the contact information of WakaWaka sellers and lots of inspiration. The flexible and open attitude of WakaWaka and Wouter made it a pleasure to work with them.
Lastly, I want to thank my family, boyfriend and friends for their continuous support, reviewing work and interest in my study for the last couple of years.
1. INTRODUCTION
Introduction
Africa beholds great business opportunities. This statement increasingly gained attention over the last couple of years. The multinational services network PwC recently stated: ‘From a business perspective, Africa is on the move. However, Africa is a complex and diverse continent requiring deep layers of insight. Still, its potential is unmistakable: a decade of sustained growth with several more to come’ (Broadman, n.d.). Likewise, Lilianne Ploumen, the Dutch Minister for Foreign Trade and Development Cooperation, recently announced that the Dutch trade relations with sub-Saharan Africa will be strengthened (Kansen voor Nederlandse bedrijven in Afrika, 2014).
These promising statements lead to an interesting question. How does one actually realize profitable business in sub-Saharan Africa?
Previous scientific research has focused on the untapped potential of sub-Saharan African countries but hardly ever wondered how this potential should be reached. This research will therefore examine which revenue models and distribution channels are successful in African countries and how environmental factors influence the creation and selection of these models. Sub-Saharan African countries are often considered as countries that are currently at the ‘Bottom of the economic Pyramid’ (Seelos & Mair, 2007).
The following paragraph will address the discrepancy between literature’s claim of business potential in BOP countries and the lack of literature describing how to reach this potential. The subsequent paragraph will expand on the factors that create this business potential in BOP countries, followed by a description of WakaWaka, the company with whom this research was accomplished. Hereafter, the problem definition will be discussed and the objective of this research will be explained.
There is potential, only how to reach it?
Developing countries at the ‘Bottom of the pyramid’ (also described as BOP countries) are increasingly mentioned as untapped market opportunities for companies to make a profit. The term ‘Bottom of the Pyramid’ refers to the group of consumers who live on the bottom layer of the pyramid of income distribution and earn less that 1.500 dollar per year in terms of income (Seelos & Mair, 2007). The income pyramid is used to segment
markets and multiple studies showed that it is time to focus at the bottom part of this pyramid since the middle and upper parts might be oversold (Prahalad & Hart, 2002 in Seelos & Mair, 2007).
Even though, various research has supported the claim that BOP markets might have untapped potential, there is hardly any research that investigates the way in which this potential should be reached. Even though business model creation, selection and implementation might be extensively researched in the developed world; these processes may be of a total different nature within a different environment such as in BOP countries.
A speaking example of this is the case of WakaWaka which will be analyzed in this research. WakaWaka is a Dutch company that successfully sells her products in BOP countries, however finding the most efficient and successful revenue models and distribution channels, turns out to be a challenge. Therefore this research will analyze the environmental factors that are of importance in the BOP countries in sub-Saharan Africa, in which WakaWaka is active. Subsequently, the revenue models and distribution channels that are used in these countries will be analyzed. Finally, this research will look for the influence of environmental factors on the creation and choice for specific revenue models and distribution channels.
Business potential of BOP countries
Literature that describes business opportunities and profitable markets, focuses mostly on markets that are located in developed countries or the ‘Western World’. However, since the term ‘Bottom of the Pyramid’ has entered the literature, this large and untapped market potential is increasingly promoted as a significant opportunity for companies to generate profit (Seelos & Mair, 2007). According to the definition of Prahalad and Hart (2002, in Seelos & Mair, 2007), the target group of consumers in BOP markets earns less than 1.500 dollar per year. Following this definition, these BOP markets create a market potential of 13 trillion dollar (Prahalad, 2004 in Seelos & Mair, 2007).
The remaining question might be: Why would companies need to enter this new potential market? The answer to this question is twofold. First of all, this new and untapped BOP markets can be of great importance for companies who are facing more saturated markets in the industrialized Western world, where consumers are unwilling to
pay a price that makes products and services profitable (Seelos & Mair, 2007). As Seelos and Mair (2005) state it: ‘Despite the seemingly unlimited nature of human needs, companies struggle to find new markets and value propositions, and for large corporations the quest for growth has become a holy grail’.
The second reason for companies to explore the potential of BOP markets is the increasing pressure and expectations from customers and government who demand companies to act responsible. An increasing customer demand states that a company should proactively engage in sustainable development. Sustainable development is defined by the World Commission on Environment and Development in 1987 as: ‘Development that meets the needs of the present without compromising the ability of future generations to meet their own needs’ (Seelos & Mair, 2005, p. 242).
The quest for unsaturated markets and consumer’s demand for sustainable development reveals only one side of this story. Doing business in BOP markets could not only be beneficial for companies, but can possibly create economic growth in the BOP countries as well. According to Prahalad and Hammond (2002), entrepreneurial development is extremely important to further grow the economies of BOP countries.
According to Ogbor (2009) entrepreneurial behavior can create small and medium sized businesses that are essential in BOP countries for several reasons. Firstly, small and medium sized businesses are the engine of any economy as they are seen as the ‘launching pad’ for entrepreneurship, business innovation and economic growth. In most developing countries the public sector does not have the financial possibilities to make large investment in innovations. Small and medium sized businesses do have the opportunity to invest in innovation which will enhance economic growth.
Secondly, according to Ogbor (2009) we are living in an era of privatization, downsizing and rightsizing, which means that many large firms in the public sector transformed into private firms. These private firms reduce the number of paid jobs significantly. In sub-Saharan Africa, privatization of public firms has evoked a rise in the trend of downsizing, which caused massive unemployment. Entrepreneurial behavior and new companies that enter the sub-Saharan African market are therefore necessary to offset this unemployment rate and achieve economic growth through innovation.
Despite the demand for sustainable development, BOP markets’ high potential, and the necessity of entrepreneurial behavior in BOP countries, the opportunity is not picked up on a large scale. Companies’ reluctance to invest may not be hard to explain since they tend to incorrectly assume that consumers with low incomes have little to spend on products and goods and that margins will therefore be low. Also, the assumption that these BOP markets in developing countries have multiple barriers to trade such as political corruption, inadequate infrastructure, instable currency and bureaucratic systems, provoke a reserved attitude when companies consider entering BOP markets (Prahalad & Hammond, 2002). However according to London and Hart (2004 in Seelos & Mair, 2007) multiple case studies showed that the BOP consumers are in fact willing to consume. Also Prahalad and Hammond (2002) describe these negative assumptions of BOP markets as outdated and too narrow. Since several companies are successfully doing business in BOP markets already, and positive trends such as openness to investment, political reform and the growing amount of wireless communication systems are developing quickly, the barriers might be lower than is commonly thought.
Social Enterprise WakaWaka
Even though there might be reluctance of companies to utilize the untapped markets of BOP countries, there are companies who see the opportunity. WakaWaka is one of those companies. This research will cooperate with WakaWaka to gather the necessary data. WakaWaka means ‘bright light’ in Swahili and was founded by Maurits Groen and Camille van Gestel in 2010. During their travels through South-Africa Maurits and Camille recognized the need for an off-grid lighting solution for families who live at the bottom of the pyramid, and have no access to electricity. They invented a sustainable solar light, named WakaWaka.
In 2012 the production of WakaWaka lights started, after a successful crowdfunding campaign. Six months later, worlds most efficient solar LED light was born. Nowadays the WakaWaka product line has extended and the products are available in more than 100 countries all over the world. In addition to the WakaWaka light, there is the WakaWaka Power which is not only a light but also a portable USB charger. The last extension of the WakaWaka product line is the WakaWaka Base. The
WakaWaka Base is a portable solar power kit with multiple USB chargers, multiple lights and a capacity of 5000 or 10000 mAh which is enough to charge several smart phones or provide light for an entire household for one week. Illustrations of the different WakaWaka products can be found in Appendix 1.
WakaWaka’s mission is clear, with the WakaWaka products they aim to enlighten the off-grid world and fight energy poverty. At this very moment 1.2 billion people around the globe have no access to electricity and another million people are confronted with power outage every day. This shortage of light creates various problems and kerosene lights are used as source of energy even though they are inefficient, dangerous and expensive. That is why WakaWaka developed, produced and sells high-tech lights and chargers that work on solar energy. Their business model is based on selling WakaWaka lights in the western world as well as in developing countries. They work with a Buy-one Give-one strategy, in which every sale of a WakaWaka product in the Western World guarantees a donation of a WakaWaka product for people in emergency situations. Furthermore, WakaWaka partners up with independent entrepreneurs who are willing to sell WakaWaka products all over the world. As of now these entrepreneurs will be referred to as WakaWaka sellers. Also WakaWaka cooperates with several NGO’s who help to spread the products through the off-grid world.
Apart from the WakaWaka company, there is the WakaWaka foundation, a Dutch NGO that is involved in developing strategies to get the WakaWaka lights to people who live in extreme poverty, remote areas or people that are victims of natural disasters, war or forced migration. More information about the foundation can be found in Appendix 2. WakaWaka is a social enterprise and their mission and values are based on the rationale of social and sustainable entrepreneurship. The terms social and sustainable entrepreneurship have not yet found a universally accepted definition. According to Tan, Williams and Tan (2003) social entrepreneurship is: ‘A legal person engaged in the process of entrepreneurship that involves a segment of society with the altruistic objective that benefits accrue to that segment of society.’ (Tan, Williams & Tan, 2003, p.360). Hockerts and Wüstenhagen (2010) base their definition on the Schumpeterian notion of entrepreneurship as innovative process that creates market desequilibria which eventually leads to imitations. They define sustainable entrepreneurship as: ‘the
discovery and exploitation of economic opportunities through the generation of market disequilibria that initiate the transformation of a sector towards an environmentally and socially more sustainable state’ (Hockerts & Würstenhagen, 2010, p.482).
These definitons do not rule out the possibility for social enterprises to create economic value next to the social value they create. According to Porter and Kramer (2011) the concept of ‘shared value’ is booming and beholds the creation of both societal and economic progress. Also Prahalad and Hammonds (2002) describe the possibilities for companies to engage in a win-win situation in which entrepreneurial activity in BOP countries creates revenue for the company and simultaneously creates jobs, wealth and economic and social stability. Therefore, there must be possibilities for WakaWaka to simultaneously create profitable sustainable business models and local value.
Problem definition: A different environment requires a different strategy
Even though the literature described above shows that there are business opportunities in BOP countries, for WakaWaka (sellers) this turns out to be slightly more complicated than it appears. Within their current business model, it shows difficult to define the most effective and efficient revenue models and distribution channels in specific BOP countries and environments. This is in line with the research of Seelos and Mair, (2007) who found that the real challenge in doing business in BOP markets is the need to rethink every component of the business model. Londen and Hart (2004, in Seelos & Mair, 2007) agree with this and believe that in order to successfully pursue BOP markets, companies should fundamentally reconsider their current business strategies. According to Dahan, Doh, Oetzel and Yaziji (2010) companies face different challenges when they decide to do business with BOP markets in developing countries. These challenges include the need to adapt to the local culture, economic, institutional and geographic features. According to them, a company might lack the tangible resources or intangible knowledge to face these challenges and might therefore be better off when they decide to work together with non-profit/ nongovernmental organizations.
For WakaWaka (sellers) it turns out that different and new revenue models and distribution channels will be necessary to structure and scale their business in BOP markets. Even though WakaWaka is represented in almost all African countries, has a lot of key partnerships, all necessary resources, a clear value proposition and a segmented
customer target group, they indicate themselves that they are still looking for the best ways to make revenue and to distribute the WakaWaka products efficiently throughout sub-Saharan African countries. Therefore, revenue models and distribution channels are two elements of their business model that demand further investigation.
Since sub-Saharan Africa ‘s environment differs largely from environments in the Western world, the revenue models and distribution channels that are used and known to be successful in the Western world might turn out not to be as successful in sub-Saharan Africa. That is why this research will determine the different environmental factors that can be distinguished in sub-Saharan Africa and the different distribution channels and revenue models that can be successful in these environments. In addition, this research will also examine the influence of the different environmental factors on the creation and choice of specific revenue models and distribution channels. Since WakaWaka (sellers) aims at creating profitable and sustainable business models, in this research ‘successful’ will be defined as the amount of WakaWaka products that are sold or distributed in a specific time period by a specific WakaWaka seller.
Research objective: This research will analyze the specific case of the company WakaWaka and aims to create a clear overview of the different revenue models and distribution channels that WakaWaka uses in sub-Saharan Africa. Furthermore, this research aims to explain which environmental factors can be distinguished in sub-Saharan Africa and how these factors are influential during the process of emergence and selection of specific revenue models and distribution channels. With this knowledge specific recommendations about the revenue model and distribution channel creation and selection will be made for WakaWaka. These recommendations take into account the area’s specific environmental factors and environmental aspects.
2. LITERATURE REVIEW
Literature review
To research the problem of WakaWaka concerning their choice for revenue models and distribution channels in BOP countries, a thorough analysis should be done of the existing literature on environmental factors, revenue models, distribution channels and broader business models. The following paragraph will provide insight into the current literature of business model frameworks and will describe how multiple studies have various explanations of how a business model should be built up. Thereafter, the existing conceptualizations of environmental factors will be discussed, followed by literature explaining the various definitions and forms of revenue models and value based revenue models. Finally, an analysis of multiple distribution channels will provide insight into the current researched distribution channels.
Business model framew orks
Business model frameworks have been researched extensively. According to Johnson, Christensen and Kagerman (2008) a business model consists of four elements: Customer value proposition, profit formula, key resources and key processes. According to them a company is only capable of creating a radical new business model when they fully understand all of these elements and when they find out what the customer considers as important. According to Osterwald who is known for his business model ontology and business model canvas, a business model can be defined as: ‘A conceptual tool that contains a set of elements and relationships that allows expressing a company's logic of earning money. It is a description of the value a company offers to one or several segments of customers and the architecture of the firm and its network of partners for creating, marketing and delivering this value and relationship capital, in order to generate profitable and sustainable revenue streams’ Osterwald (2004, p. 15).
The business model canvas works with nine different elements to form a business model: key resources, key partners, key activities, cost structure, revenue streams, value propositions, distribution channels, customer relationships and customer segments. All of these elements fit under four general areas that were also defined in the balanced score card: product (key resources, key activities, value propositions), customer interface (customer relationships, customer segment), infrastructure management (distribution
channels, key partners) and financial aspects (cost structure, revenue streams) (Meertens, Iacob, Nieuwenhuis, Van Sinderen, Jonkers & Quartel, 2012). Even though multiple authors define multiple different business model frameworks, the components have a lot in common. The relations between the concepts of business model frameworks are described and analyzed comprehensively. For the Business Model Canvas a broad overview into the underlying relationship between elements would show that key resources, key partners and key activities are strongly related and need to fit together, that the value proposition of a company is the origin from where customer relationships and distribution channels influence the choice for a certain customer segment, and that revenue streams and costs are standing on their own (Osterwald, 2004).
Conclusion business model framework:
Even though the relationships between the components of business model frameworks have been researched extensively, in this research I will focus mainly on the revenue models and distribution channels as independent components of the larger business. Current literature concerning business models describes the components of business models as seen from a Western world perspective. This research will focus on two dimensions of the larger business model: revenue models and distribution channels and analyze them in a BOP environment. However, since these two dimensions are parts of the larger business model, a short summary of the complete business models of each organization that participated in this research can be found in Appendix 6.
Environmental factors
For a long time environmental factors were neglected in the research of operations strategies but for the last couple of years multiple papers have showed empirical evidence of the link between environment and a firm’s strategy. A variety of definitions describing what environmental factors are and how they should be defined came into being (Badri, Davis & Davis, 2000). According to Kim and Lim (in Badri et al., 2000) the external business environment, in which firms operate and have to compete with other firms, changes continually. Therefore it is crucial for an organization to adapt to that environment continually. In the research of Badri et al. (2000) multiple different environmental factors definitions of different authors are summarized. According to
Krajewski and Ritzman (in Badri et al., 2000,p. 156) environmental concerns have to include: economic trends, political conditions, technological changes, social changes and the availability of resources. A broader perspective on what environmental factors are, is given by Heizer and Render (1993 in Badri et al., 2000,p. 156). They define environmental factors as economic, cultural, technological, demographic and political-legal. Kotler (1994, in Blery, Katseli, & Tsara, 2010) defines 4 different external macro-environmental factors in his PEST analysis. The P.E.S.T. analysis consists of Political, Economic, Social, and Technological environmental factors.
Duncan’s specification of the concept of environment is one of the first in this field (Duncan, 1972). He defines two dimensions of environment: the simple-complex dimension and the static-dynamic dimension. The simple-complex dimension is defined as the number of factors that are taken into consideration within the decision making process. The static-dynamic dimension takes a more longitudinal approach and looks at the degree to which environmental factors change over time. Environment is defined by Duncan (1972) as: ‘the totality of physical and social factors that are taken directly into consideration in the decision making.’ (Duncan, 1972, p. 314). He makes a clear distinction between internal and external environment by stating that the internal environment consists of physical and social factors within the boundaries of the organization and that they can be taken into the consideration in the decision making behavior of an organization. The external environment on the other hand consists of the physical and social factors outside the boundaries of the organization. To identify the components that are important to measure the environment, a semi-structured interview among 19 individuals was held focusing on the nature of decision unit’s environment and the decision making process. A list of environmental factors was created out of this research including the internal and external environmental factors, see table 2.
Badri et al. (2000) took all of these existing frameworks into consideration and extended the existing literature by looking at the link between environmental factors and operations strategies in developing countries rather than in developed countries. The developing countries they analyzed were all located in the United Arab Emirates. An important note they made is the importance of industry effects on environmental factors. According to them, research that is limited to a single industry means that the outcomes
of the important environmental factors will also only be limited to that industry. This accurate remark is important for this research since I will only analyze one specific industry, the solar light retail industry.
Badri et al. (2000) conclude their research with defining seven environmental components: business cost, telecommunication cost, labor availability, competitive hostility, government laws, political environment and dynamics in the market. These components include several sub-codes within the broader variable as can be seen in table 1. The operationalization of these environmental factors is done by asking questions based on the factors described in table 1, and noting participants’ answers on a five point Likert scale. For environmental factors the respondents are required to indicate the degree to which the factors are a current concern to their firm. The scale ranged from 1, indicating high concern, to 5, indicating low concern. By measuring the environmental factors in this way, a Cronbach’s alpha can show the reliability of the scale. Badri et al. (2000) used structural equation modeling to test their propositions and the interrelationship among variables.
They conclude that environmental factors in mature and emerging industries are significantly different and are therefore important to take into consideration when making operation strategies or a business plan in a specific industry. They show that environmental factors have a substantial impact on the chosen operation strategies and that companies that are successful, defined as high performers, adopt different operation strategies depending on the environmental stimuli than the less successful firms (Badri et al. 2000).
In addition to Badri et al. (2000) and Duncan (1972), Osterwald (2004) also pays attention to the environmental factors in his thesis by describing the social environment, legal environment, competitive forces, technological change and customer demand as being of influence on the business model framework, as shown in Figure 1.
Table 1, Environmental concerns, Badri et al. (2000) Environmental concerns
Business cost Government laws and regulations
Rising labour costs Complexity of government regulations and procedures Rising material costs Unclear government laws and regulations
Rising transport costs Government delays in finalizing or finishing transactions Rising telecommunication costs (i.e. fax, phone Government strategies in protecting industrial activities Rising utilities costs (water, gas, electricity etc.) Government strategies in developing industrial
infrastructure
Rising rental costs (housing) Government strategies with regard to its investments Rising health care costs
Strength or weakness of the Duram Political environment
Attitude of government toward foreign investment
Labor availability UAE balance of payment status
Shortage of managerial and administrative staff Type of agreements and contracts with other governments Shortage of technicians Stability of political system in the UAE
Shortage of clerical and related works Laws and regulations regarding investment protections Shortage of skilled workers Type of military alliances with other countries
Shortage of production workers
Governmental regulations regarding length of shifts
Dynamism in the market
Rate at which products become outdated
Competitive hostility Rate of innovation of new products
Keen competition in local market Rate of innovation of new processes of production Keen competition in foreign market Rate of change in taste and preferences of customers Low profit margins
Declining demand in local market Declining demand in foreign market Unreliable vendor (supplier) quality Producing to required quality standards
Table 2, Environmental components, adopted from Duncan, 1972 p. 315
Internal environment External environment
Organizational personnel component
Educational and technological background and skills
Previous technological and managerial skills Individual member’s involvement and commitment to attaining system’s goals Interpersonal behavior styles
Availability of manpower for utilization within the system
Organizational functional and staff units component
Technological characteristics of organizational units
Interdependence of organizational units in carrying out their objectives
Intra-unit conflict among organizational functional and staff units.
Inter-unit conflict among organizational functional and staff units.
Organizational level component
Organizational objectives and goals
Integrative process integrating individuals and groups into contributing maximally to attaining organizational goals
Nature of the organization’s product service
Customer component
Distributors of product and services Actual users of products and services
Suppliers component
New material suppliers Equipment suppliers Product parts suppliers Labor supply
Competitors component
Competitors for suppliers Competitors for customers
Socio-political component
Government regulatory control over the industry
Public political attitude towards industry and its particular product
Relationship with trade unions with jurisdiction in the organization
Technological component
Meeting new technological requirements of own industry and related industries in production of products or services
Improving and developing new products by implementing new technological advances in the industry
Figure 1: Environment and business models, adopted from Osterwald, 2004, p.16
Conclusion environmental factors:
The current literature operationalizes multiple definitions and frameworks to analyze environmental factors. By comparing one of the oldest in its kind, the definition of environmental components by Duncan (1972) with the newer definitions of environmental factors by Badri et al. (2000), the similarities in the operationalization of environmental factors becomes evident. However, Duncan (1972) makes a distinction between internal and external environmental factors while Badri et al. specify the environmental factors that are effective in a specific BOP environment. Regardless of the environment in which environmental factors are distinguished, Badri et al. (2000), Duncan (1972), Osterwald (2004) and Krajewski and Ritzman (in Badri et al., 2000) all underline the importance of economic trends, political conditions, technological changes, social changes and customers demand. This research will distinguish the environmental factors that turn out to be of importance in sub-Saharan Africa and compare them with the existing factors. It will be interesting to see if Badri et al. (2000) turn out to be right and if the environmental factors that we will find in BOP environments will indeed differ significantly from factors in mature environments.
Revenue models
be turned into value. The deployment of the goods and services that are created with these resources form the basics of economic activity. One of the first indirect notions of what a revenue model is, could be the statement of Adam Smith in 1776 in which he proposes that the wealth of nations is built on the ability of a country to produce goods and export this goods to generate wealth. According to Vargo and Lusch (2004, in Bonnemeier, Burianek & Reichwald, 2010), traditional revenue models are models in which the value proposition of the offering is based on the product or service that is supplied by the provider. More innovative revenue models are models in which the focus lays on actual input or output of the consumer himself according to the service-dominant logic of marketing. According to Johnson, Christensen, and Kagermann (2008), revenue models can simply be defined by: How much money can you make: price x volume.
In the research of Bonnemeier et al. (2010) seven different revenue models are operationalized: four traditional models and three innovative models. The four traditional models they describe are operationalized as follows: 1) A revenue model called ‘product sales’ is used when a property transfer for the products components is included. 2) However, if the supplier only transfers possession rights to a customer, the revenue model is called ‘rent, leasing or licensing’. For service components specifically two traditional revenue models are described named, 3) the ‘fixed-fee model’, when both parties agree upon a fixed price, and 4) the ‘cost-plus model in which the supplier charges only for his amount of work.
These traditional models believe there are three basic elements that affect the consumer’s decision behavior: competition, customer’s willingness to purchase and costs of the product or service. However, for more modern and innovative revenue models the last element ‘cost’ is approached differently. For innovative revenue models price setting is no longer related to supplier’s internal variables, but rather to the performance of a specific solution in the environment the customer is in. The real value that a supplier can create, lays in the integrated customer solution that he can offer.
Therefore the innovative revenue models that are described are: 5) the’ usage-based model’ in which customers pay a pre-negotiated fee to the supplier of the customized solution. 6) The ‘performance-based model’ in which a certain level of performance is guaranteed by the provider and on that performance a pre-negotiated
price is made. If the supplier does not live up to this performance this can result in penalties for the supplier. Lastly number 7) the ‘value based model’ is described, in which the provider of the solution tries to deliver ‘optimization’ or ‘productivity’ for the consumer.
Bonnemeier et al. (2010), write about the importance of creating a customized solution for your customers by integrating product and services. However, most companies aren’t able to extract value from their customers. Therefore they claim that innovative price solutions in which the customer pays a price depending on the amount of customized value that is created, will be the next trend. Since the pricing is based on the amount of increased productivity for example, the supplier directly benefits from the value that the client experiences through the solution. This value-based revenue model makes pricing decisions more complex but makes it possible for companies that create customized solutions to use this as a competitive advantage. Since WakaWaka does integrate products and services and creates customized customer solutions, this value-based revenue model might be of interest in this research and will be discussed more extensively later on.
Even though these revenue models seem to cover a good amount of possible options, the variety of revenue models is large and each revenue model might be beneficial in another situation, another combination or might be altered and changed until it fits the current situation. By analyzing literature, research papers and websites that write about revenue models, we can find some reoccurring and renowned models. According to Laniado (2013) there are nine major categories under which several known revenue models can be gathered. These are: The commercial and retail model, subscriptions and usage fees, licensing, auctions and bids, advertising, data, transactions/intermediation, freemium model, revenue model types common in financial service industry. Within these nine categories, multiple revenue models can be distinguished, varying from affiliates programs, to rental and daily deals. Since WakaWaka is selling an offline physical product, we will not specifically dive into the literature about the trends in online revenue streams.
In the article of Ng (2010) the future trends in revenue models and pricing are discussed. They show that the price people are willing to pay for a product is depending
or influenced by co-creation possibilities. More interesting for my research are the trends in revenue models that they predict. These trends show that complex service systems, payments for right rather than ownership and context will become determinants for revenue models in the future. These predictions are based on what they expect to see in developed markets. It can be interesting to see to what extent these revenue models are also seen as potential trend in developing markets in sub-Saharan Africa.
Froelich (1999) defines three revenue strategies for non-profit organizations. Since WakaWaka is not a non-profit organization but does have partnerships with multiple NGO’s and the WakaWaka Foundation, these revenue models might be interesting. First there is the classical fundraising revenue model in which money comes from individuals and corporations. A second revenue strategy is the pursuit of grants and contracts from foundation and government sources. A third and more controversial approach is that of commercial activities such as selling products or charge customers with a fee to get specific services. Each of this revenue models has its own opportunities and risks concerning the autonomy of the organization.
Conclusion revenue models:
The definition of revenue models vary from simple models that state that revenue is build out of price x volume, to more complex models in which the importance of value creation is incorporated. Of the seven revenue models that are operationalized by Bonnemeier et al. (2010) especially the innovative revenue models can be interesting for this research since they state that the real value lays in the customer solution of a product or service. Since WakaWaka’s products bring real customer solutions, these innovative revenue models might come forward in the results of this research. Since there are so many different concepts and revenue models defined, I will keep these existing models in mind but work from an inductive approach by analyzing the data to see if there are new or different revenue models that turn out to be important in BOP countries.
Value-based revenue
Since revenue can only be created by selling a product to a customer to whom this particular product has a certain value, the concept of revenue models is always partly attached to the concept of value creation (von Martens & Hilbert, 2008). Proof of this fact
is the definition of Ng (2010) described above, in which revenue models are based on the process in which resources have the potential to be turned into value. Clemons and Lang (2003) underline the difference between the terms value creation and revenue sources by stating that value creation is: ‘a concept that measured to what degree a given market activity is creating value.’ While a revenue source: ‘measures to what degree an activity is revenue producing’ (Clemons & Lang, 2003, p. 263).
As can be seen in the research of Bonnemeier et al. (2010) the next trend in revenue models will be value-based revenue models, based on the amount of created value for a customer. They also underline the difficulty companies experience in creating real value to their customers and being able to catch this value in their revenue models. To do this, it is necessary to create customized customer solutions. Also von Martens and Hilbert (2011) underline the potential importance of a value-based revenue model. In the article of von Martens and Hilbert (2011), the differences between transaction-based revenue models and value-based revenue models is analyzed and customer-value-based revenue models turn out to aim at utilizing capacity efficiently as well as on establishing profitable customer relationships. They conclude that the traditional transaction-based revenue models are outperformed by the value-based revenue models as it comes to long-term success potential, since value-based revenue models establish long-term customer relationships. Both of these articles emphasize how intertwined value creation and revenue models might be.
According to Porter and Kramer (2011) the concept of ‘shared value’ has the potential to create a new wave of global growth. In this concept the connection between societal and economic progress is made which will eventually result in greater innovation and growth for companies and greater benefits for society. For every company their competitiveness and the health of the communities they are operating in, are closely intertwined. The community needs to be healthy enough to create demands, provide public assets and a supportive environment. Therefore a rather more sharp focus on the effect environment and location can have on productivity and innovation, might come with great opportunities. Companies do have the possibility to create economic value by creating societal value as well. Porter and Kramer (2011) define three ways in which this can be done: ‘by reconceiving products and markets, redefining productivity in the value
chain, and building supportive industry clusters at the company’s locations. Each of these is part of the virtuous circle of shared value;’ improving value in one area gives rise to opportunities in the others’ (Porter & Kramer, 2011, p. 4).
Conclusion value-based revenue and shared value:
As can be concluded from the literature described above, the concepts of revenue models and value creation are closely intertwined. Porter and Kramer emphasize the opportunities of shared value creation. They highlight the potential successful strategy companies can implement in which they focus on creating revenue as well as value for their customers. Since WakaWaka’s core mission is to enlighten the off-grid world and fight energy poverty, it might be interesting to see if the value-based revenue model turns out to come forward in the interviews.
Distribution channels
Distribution channels are just as revenue models large in number and shape and dependent on the specific situation in which they are executed. According to Osterwald (2004) a distribution channel is a means of getting in touch with the customer. According to Lines (1996) distribution models can simply be defined as the route to get products conveyed from manufacturer to user.
Lines (1996) did a comprehensive research on how to distribute mosquito nets in developing countries. He tried multiple distribution systems and kept track on what turned out to be effective and what did not. According to him, the most important factor in distribution is affordability.
Furthermore he distinguishes several distribution models that describe the distribution possibilities from manufacturer to users. These distribution possibilities include: Hawkers, small unlicensed retailers, licensed retailers, ministries, NGO’s and local teams. Also he describes precisely the different distribution models that he used in different countries. For example: In Ghana, unpaid village health workers are trained to distribute the nets and payments are gathered on the spot or paid in advance. In East-Africa, the nets were distributed with some help from UNICEF, selling them for subsidized prices to public and local traders to assist in the distribution to remote
villages. The choice between the different distribution models should not only be based on operational issues but also on technical considerations of effectiveness and safety. Timing for example could be crucial. It is interesting to see if this research distribution models have a lot in common with the ones mentioned by Lines (1996) and if there are some similarities in certain countries/regions.
According to Porter and Kramer (2011) distribution channels need to be reexamined when companies decide to create shared value, such as WakaWaka is doing. They state that the opportunities for profitable new distribution models might be even greater in nontraditional markets, such as BOP markets. They support this statement by showing the example of Unilever who has more than 45.000 entrepreneurs working for them throughout India, simply because they provided microcredit and training to get these entrepreneurs started. This is an example of how different distribution models might have great potential in the hard-to-reach consumer areas.
Conclusion Distribution channels:
Both definitions of Lines (1996) and Osterwald (2004) define distribution models as the way in which the producer of the product can get in touch with the customer. Distribution models itself are multiple in their varieties and by analyzing the interviews that were done in this research, the distribution models that are found will be compared to the definition of both Lines (1996) and Osterwalder (2004). I will analyze the interviews in an inductive way to find the distribution channels that are mentioned by the WakaWaka sellers in sub-Saharan Africa.
Conceptual model and Research Question
Overall, the current existing literature provides several definitions of what business model frameworks, environmental factors, revenue models and distribution channels behold and how they can be operationalized. However, almost all of these conceptualizations are created in or based on the Western world and developed countries. In this research we will define the environmental factors, revenue models and distribution channels that show to be relevant in BOP countries rather than in developed industrialized countries.
Even though most existing literature is based on research done in developed countries, there are several outcomes that could be interesting for this research in BOP countries. Based on the literature several propositions are made. During the interview and analysis process we will bear these propositions in mind. They can provide some guidance by steering the direction of supplemental questions that might arise organically during the interviewing process. These propositions are only used as background information and will not be tested specifically.
The following propositions are derived from the existing literature:
Proposition 1: Badri et al. (2000) state that in developing economies that have not yet reached full maturity, the influence of political and government law and regulations is of significant importance. Therefore a proposition to keep in mind during this research will be: Political and governmental law and regulations are influential in the process of the emergence and selection of certain revenue models and distribution channels in sub-Saharan Africa.
Proposition 2: Since Seelos and Mair (2007) and Londen and Hart (2004, in Seelos & Mair, 2007) state that the real challenge in doing business in BOP markets is the necessity of rethinking the whole business model and have to come up with new ones, I expect to find new revenue models and distribution channels in the interviews.
Proposition 3: According to Dahan, Doh, Oetzel and Yaziji (2010) companies might lack the tangible resources and intangible knowledge to be able to adapt to the local culture, economy, institutions etc. Therefore making connections with local non-profit and non-governmental organizations can be helpful and might be something we
can expect to hear in the interviews.
Proposition 4: Badri et al. (2000) conclude that environmental factors in mature and emerging industries are significantly different and define six environmental factors: business cost, labor availability, competitive hostility, government laws, political environment and dynamics the market. Since this research is conducted in developing countries we can expect to find environmental factors that have something in common or can be compared to the six factors defined by Bari et al. (2000).
Proposition 5: Since WakaWaka’s core mission is to enlighten the off-grid world and fight energy poverty, they can be named a social enterprise and it might be interesting to see if they apply the social value strategy as described by Porter and Kramer (2011) and if value-based revenue models turn out to come forward in the interviews.
Proposition 6: Since Porter and Kramer (2011) state that distribution channels need to be reexamined when companies decide to create shared value and when they work in non-traditional countries, we can expect to find new and creative distribution models in the interviews.
With these propositions in mind an inductive research will be conducted. This inductive approach will use these propositions as background information and create the first foundation for new theories concerning the environmental factors and business model decisions in BOP countries. Also the existing definitions of environmental factors, revenue models and distribution channels will be compared with the description of these concepts that will derive from this research’s analysis. The aim of this inductive research is to analyze the influence of environmental factors on the creation and choice for specific revenue models and distribution channels. In order to properly analyze this, defining the environmental factors, revenue models and distribution channels that are mentioned by interviewees as being important in sub-Saharan Africa, is essential. Therefore the following research question will be the leading question in this research:
Research question: How are environmental factors influential in the process of the emergence and selection of different revenue models and distribution channels in sub-Saharan Africa?
To answer this question properly, four sub-questions will together lead to the answer of the research question:
Sub-question 1: What are the environmental factors that are mentioned by interviewees as being important in sub-Saharan Africa?
Sub-question 2: What are the revenue models that are mentioned by interviewees as being important in sub-Saharan Africa?
Sub-question 3: What are the distribution channels that are mentioned by interviewees as being important in sub-Saharan Africa?
Sub-question 4: How do the defined environmental factors influence the creation and choice for defined revenue models and distribution channels?
Methodology
This section describes the method that was used to conduct this research. The research design shows the inductive and exploratory nature of this research, followed by the validity and reliability issues that are handled with. Hereafter, the selection process of the interview sample is discussed together with the analysis strategy. The last part of this section describes how open coding, focus coding and selective coding led to the findings of this research.
Research design
This part of this paper will give a description of the research design and methods that were used to acquire the relevant data for this research. Given the fact that there is little theoretical and empirical background on the relation between environmental factors and the selection of revenue models and distribution channels in sub-Saharan Africa, this research will make use of qualitative and inductive research approach. The inductive approach moves from specific observations towards broader generalizations, and consists of a more flexible process to permit changes during the research process (Saunders & Lewis 2012). I choose to do qualitative research because of its richness of data, its flexibility and its ability to include and understand the full range of factors and activities that are important when doing business in sub-Saharan Africa (Strauss & Corbin, 1990). This research is exploratory since it explores a relatively new research field that deals with new questions in a new environment.
The data of the observations will be gathered by doing interviews. Interviews provide more general information about a topic of which it might not be possible to create a full-scale research since there is not enough prior information to inform your research design. To ensure flexibility and rich data, semi-structured interviews will be held. Semi-structured interviews are useful when one is not sure about the answers the interviewee will give, when the questions are complicated and when the order of questions or the actual question should be able to vary depending on the answers of the interviewee (Saunders & Lewis 2012). Since multiple project leaders will be interviewed in different countries in sub-Saharan Africa, this will be a multiple case study design.
An example showing the transcript of an interview and the open coding/memos that were assigned to this transcript can be found in Appendix 5.
Validity and reliability
To enhance the rigor of this study, multiple actions will be done to ensure the validity and reliability. To ensure the construct validity, multiple sources of evidence will be used such as the interviews and the sales data of each selected project. Also, to ensure the coding and creation of categories will be valid, I will ask a classmate to peer review the coding of some of my interviews.
Matches between the observed patterns in my interviews and the theoretical patterns already described in literature about the influence of environmental factors, will be made to ensure internal validity. The external validity of this research will be ensured by its multiple case studies, done on actual projects with local project leaders in sub-Saharan Africa.
The reliability of this research will be ensured by executing the concept of triangulation implying that multiple date sources will be analyzed such as the WakaWaka seller’s sales data, WakaWaka seller’s website and the interviews with the WakaWaka sellers.
Sample
To start off this research, I will dive into the data that WakaWaka can provide me with about their sales and WakaWaka selling projects in Sub-Saharan Africa. The first analyses will be done by looking at these data and see if there are specific countries or WakaWaka sellers that sold outstandingly well, or extremely bad. This data will provide enough information to choose 10 till 12 WakaWaka sellers for further analysis. The WakaWaka sellers who are working in sub-Saharan Africa can provide us with the right information and knowledge about the local environmental factors, revenue models and distribution channels. These WakaWaka sellers are individual retailers who sell WakaWaka products as part of their own project or business in sub-Saharan Africa.
The WakaWaka sellers will be selected by the non-probability sampling technique ‘purposive sampling’. By selecting a homogeneous case sample, consisting of sellers who
sold outstandingly well, the variation in this sample will be minimized which will allow me to analyze the different revenue models and distribution channels that these sellers used that turned out to be successful.
A more in depth analysis has to be done into the selected sellers: Are these sellers still working and selling WakaWaka products, for how long have the sellers been active in sub-Saharan Africa, what is known about their distribution and revenue models etc. This information will be available through WakaWaka. By using this specific information about the selected sellers and the information that will be gathered from the interviews, triangulation can be applied. The exact number of interviews depends on the number of WakaWaka sellers that respond and on the occurrence of data saturation: the stage where additional interviews provide few if any new insights.
In total 12 WakaWaka sellers were contacted who fitted the sampling criteria which were: being a WakaWaka seller in sub-Saharan Africa who sold WakaWaka products outstandingly well. The sellers were contacted by email to ask for their participation in this research. In this email I mentioned the possibility of personal confidentiality and provided them with short information about the research. When the contacted seller agreed to the interview, I called them via Skype, a video dialing program, and record the interview on my computer. Before the official interviews started, I did a pilot test to see if the questions were not leading and likely to be understood, and if these questions provided me with all the data that I needed. During this research eight WakaWaka sellers were willing to do the interview. Three of them were interviewed twice since more information was needed and new questions came up during the other
interviews. A list of interviewees can be found in Appendix 3. Analysis of interview s
The qualitative data analysis that is executed in this research is based on the concept of segmenting and reassembling in which chunks of data are segmented into categories based on codes and in the reassembling phase the categories are related to one another to create theoretical understanding (Boeije, 2005). Since a qualitative research approach does not follow a linear course, the sampling, data collection and data analysis were done simultaneously to ensure a cyclical process and work from the theory of constant comparison. Constant comparison ensures the use of progressive insights which makes it
possible to alter or improve questions depending on the analysis of the earlier interviews. The analysis of the interviews was done by using a transcript of the audio records that were recorded during the interviews. Since the transcription of the recorded data created some loss of the non-verbal behavior of the interviewees, memos were created to capture these impressions, expressions and observational information (Boeije, 2005). Next to these descriptive memos I also used memos to create insights in relations and interactions between codes. For example: I created a memo after the second interview stating that it seemed that the product was two expansive to sell in the rural areas, since both interviews had mentioned that.
Open Coding
Data analysis in qualitative research starts with coding. Coding is seen as a crucial step in qualitative research. During the coding process a researcher is looking for descriptions and theoretical statements that go beyond the concrete observation in the interview. A code can represent a theoretical concept, it could be practical and descriptive or it could simply mean ‘Interesting stuff, I should keep this in mind’ (Boeije, 2005). The data analysis strategy for this research was inductive since no initial coding themes could be deducted from earlier research. Therefore I will start with open coding which is defined by Strauss and Corbin as: ‘the process of breaking down, examining, comparing, conceptualizing and categorizing data’ (Strauss & Corbin,2007, in Boeije,2005, pp. 96). With open coding I summarize a phrase or a chunk of text by giving it a code that expresses the meaning of the fragment. By using this thematic approach I break down the text in pieces, compare them and assign them to groups that refer to the same theme.
Next to open codes, memos were created to write down little notes during the interview or during the analysis that could be useful in creating theory or recommendations. Multiple forms of memos were used, from practical memos to remember important lines or comments, to methodological memos that show some first signs of connections between codes or fragments.
To use the strategy of open coding and to ensure the use of constant comparison I transcribed every interview after it was recorded and started with open coding and writing down memos in Atlas Ti. After I read the text completely, I started to read it line
by line and looked for lines or fragments that belong together. With my research question in mind I decided whether this fragment is relevant to the research and assigned it a meaningful name which became the code for this fragment or line. If I came across ideas, patterns or explanations that did not fit into codes, I created a theoretical or operational memo to remember it. After I coded a complete interview I compared the different fragments and codes to see if there were double codes or repeating ideas. I checked if repeating ideas and similar looking codes could be grouped together into relevant categories and named the categories. Since open coding demands examining the text in detail, the result of the open coding process is a large codebook consisting of around 120 open codes that are divided to 34 focus codes. This codebook can be reviewed in Appendix 4.
To ensure that fragments are assigned to the correct codes, I asked a friend to code one of the interviews using my coding scheme. About 80% of the transcript was coded in the same way. We spoke through the differences and based on this conversation I changed several code names such as ‘price important’ into ‘Importance of price of WakaWaka products’, to make them clearer.
Focus coding
After the open coding process I started creating focus codes. During the open coding process I created a first broad structure by dividing the open codes in activities, results, context and actors. Even though focus coding is based on the results of open coding, more concepts can be added when necessary through the process of continued open coding. During the focus coding phase I added for example the open codes ‘trust in local partner’, ‘need for WakaWaka base’ and ‘need for WakaWaka light’ to create more specificity. Focus coding or axial coding refers to a process in which data are combined in new ways by making connections between categories (Boeije, 2005). By analyzing the fragments I created definitions for each category and decided if they were dominant or less important elements to my research question. I reorganized the data set by deleting redundant codes and selecting the most relevant codes. I combined the codes ‘Need for WakaWaka’ and ‘Why WakaWaka is necessary’ and deleted the code ‘Working with
