Initiative-taking, Improvisational Capability, and Business Model Innovation in Emerging Markets

Cao, Yangfeng Working Paper Initiative-taking, Improvisational Capability, and Business Model Innovation in Emerging Markets Copenhagen Discussion Papers, No. 2013-44 Provided in Cooperation with: Asia Research Community (ARC), Copenhagen Business School (CBS) Suggested Citation: Cao, Yangfeng (2013) : Initiative-taking, Improvisational Capability, and Business Model Innovation in Emerging Markets, Copenhagen Discussion Papers, No. 2013-44, Copenhagen Business School (CBS), Asia Research Centre (ARC), Frederiksberg, https://hdl.handle.net/10398/8814 This Version is available at: https://hdl.handle.net/10419/208643 Standard-Nutzungsbedingungen: Die Dokumente auf EconStor dürfen zu eigenen wissenschaftlichen Zwecken und zum Privatgebrauch gespeichert und kopiert werden. Sie dürfen die Dokumente nicht für öffentliche oder kommerzielle Zwecke vervielfältigen, öffentlich ausstellen, öffentlich zugänglich machen, vertreiben oder anderweitig nutzen. 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Editor of the Copenhagen Discussion Papers: Associate Professor Michael Jacobsen Asia Research Centre Copenhagen Business School Porcelænshaven 24B DK-2000 Frederiksberg Denmark Tel.: (+45) 3815 3396 Email: [email protected] www.cbs.dk/arc 1 Asia Research Centre, CBS, Copenhagen Discussion Papers, 2013-44 Initiative-taking, Improvisational Capability, and Business Model Innovation in Emerging Markets Yangfeng Cao Ph.D. Fellow Asia Research Centre Dept. of International Economics and Management Copenhagen Business School, Denmark Universe Foundation, Denmark [email protected] Abstract Business model innovation plays a very important role in developing competitive advantage when multinational small and medium-sized enterprises (SMEs) from developed country enter into emerging markets because of the large contextual distances or gaps between the emerging and developed economies. Many prior researches have shown that the foreign subsidiaries play important role in shaping the overall strategy of the parent company. However, little is known about how subsidiary specifically facilitates business model innovation (BMI) in emerging markets. Adopting the method of comparative and longitudinal case study, we tracked the BMI processes of four SMEs from Denmark operating in China. Using resource-based view (RBV), we develop one theoretical framework which indicates that initiative-taking and improvisational capability of subsidiary are the two primary facilitators of business model innovation in emerging markets. We find that high initiative-taking and strong improvisational capability can accelerate the business model innovation. Our research contributes to the literatures on international and strategic entrepreneurship. Keywords: business model innovation, subsidiary, entrepreneurship, initiativetaking, improvisation 2 Asia Research Centre, CBS, Copenhagen Discussion Papers, 2013-44 INTRODUCTION A recent global survey of more than 4,000 senior managers by the Economist Intelligence Unit found that the majority (54%) favored new business models over new products and services as a source of future competitive advantage (Amit & Zott, 2012). Small and medium-sized enterprises (SME s) assume that these firms face, to a higher extent than large companies, resource constraints in terms of finance, information, management capacity, etc. (Buckley, 1989), as well as external barriers such as market imperfections and regulations (Acs et al., 1997). The role of business model innovation in multinational SMEs (MSMEs) continues to be a big issue of great interest to international and strategic entrepreneurship researchers, and a matter of great importance to MSMEs executives. According to prior researches, business model innovation (BMI) is a process where a firm adopts a novel value proposition to explore and exploit its resources; both current and future (cf. Gambardella & McGahan, 2010; Nelson, 1993; Teece, 2007). Due to the large gaps or distances in the economic and institutional contexts between the developed and emerging markets, MSMEs who are from developed markets need to substantially innovate their prior business models designed for their home markets as the developed economies so as to adapt to the distinctive contexts in the host markets as the emerging economies (Cavusgil & Agarwal, 2002; Hansen et al., 2011; Khanna & Palepu, 2010). Business model can be only effective if it is designed properly for the specific local context. In the process of new business model innovation, the local subsidiaries of multinational SMEs definitely play a crucial role because the subsidiaries can tap into new ideas and opportunities in the local market, interact with other actors in the local environment, build unique capabilities on which the rest of the MNC can draw, and shape the overall strategy of the parent company (Bartlett & Ghoshal, 1998; Birkinshaw, 1997; Birkinshaw & Hood, 1998; Cantwell & Mudambi, 2005; Rugman & Verbeke, 2001; Ambos, Andersson &Birkinshaw, 2010; Birkinshaw et al, 2005). In keeping with Birkinshaw(1997), we define subsidiary as any operational unit controlled by the 3 Asia Research Centre, CBS, Copenhagen Discussion Papers, 2013-44 MNC and situated outside the home country. The purpose of this study is to explore how SMEs’ subsidiaries facilitate business model innovation. We conduct the method of case study for theory-building (Eisenhardt, 1989; Pettigrew, 1990). The theoretically sampled cases for our study are four MSMEs from Denmark, all of which have their subsidiaries that have engaged in BMI projects in China. The primary contribution of this study is the process framework where initiative-taking and improvisation capability of subsidiary serve as two salient facilitators of BMI. The rest of this study is organized into four sections. First, we will review the relevant literatures to seek for some theoretical guidance. Second, we will describe the method and the cases. Third, based upon the case evidence and comparing it with the extant literatures, we will present two sets of propositions about subsidiary’s facilitation of BMI. Finally, we will discuss the emergent theoretical framework with its critical implications for future research, and we conclude at the end. THRORETICAL BACKGROUND Our research focuses on how do multinational small and medium-sized enterprises which are from developed countries to innovate business model in emerging markets, and what core capabilities and drivers can facilitate the innovation process. There are three main literatures have the potential to provide needed insights into our research questions. First, the literatures on business model innovation are relevant to our research questions. Even though there is no widely accepted definition of business model, there is one common theme, i.e., value proposition (Amit &Zott, 2001; Zott & Amit, 2010; Chesbrough & Rosenbloom, 2002). Keeping with the prior researches, we define business model innovation as a value creation process where a firm adopts a novel value proposition to explore and exploit its resources, both current and future (cf. Gambardella & McGahan, 2010; Nelson, 1993; Teece, 2007; Chesbrough & Rosenbloom, 2002). Firms often introduce BMI due to contextual changes (e.g., competition or 4 Asia Research Centre, CBS, Copenhagen Discussion Papers, 2013-44 deregulation) or internal choices (e.g., to gain competitive advantages or to increase operating efficiency) (Wischnevsky et al., 2011), and always requires the special capabilities to manage ambiguity and uncertainty in the process. Because business model innovation may complement innovation in products and services, methods of production, distribution or marketing, and markets (Zott & Amit, 2009), MSMEs could face big challenge to innovate business model in host markets in which the culture, institute, competitive situation are different from their home country. However, there are few prior researches focus on what challenges and barriers the MSME has faced in the innovation process in host country. There are some researches that identify challenges in big firms and new small firms. For example, some scholars argued that managers readily recognized the right business model, but its development was resisted due to its conflicts with the prevailing business model, or with the underlying configuration of assets that support that prevailing model (Amit &Zott, 2001). Others argued that, by contrast, it is far from clear to managers even what the right business model ought to be (Chesbrough & Rosenbloom, 2002). Second, the literature on subsidiary entrepreneurship is very useful to this research. In the prior researches, subsidiary initiatives, defined as entrepreneurial activities that carried out by foreign subsidiaries outside the home country to tap into new business opportunities, are seen as an important prerequisite for subsidiaries to develop over time (Birkinshaw, 1997; Brikinshaw & Ridderstråle, 1999; Rugman & Verbeke, 2001; Do¨rrenba¨cher & Geppert, 2010). According to the initiative process model, initiative process is divided into three phases (1) conceived through the identification of an opportunity, (2) gathers support and impetus as it is pushed through the socio-political organizational system and (3) is implemented. At any stage along the way the initiative can fail to gather the necessary support or resource commitments, and hence fail (Birkinshaw, 1997). In order to expand internationally to exploit their assets in pursuit of growth and profitability in emerging markets by innovating business model, 5 Asia Research Centre, CBS, Copenhagen Discussion Papers, 2013-44 MSMEs which are from developed countries need to build entrepreneurial capabilities (EC) which is defined as their capacity to recognize, conceive, create, and exploit opportunities for competitive advantage in selected foreign markets (Zahra et al, 2011). However, Compare to young born-global firms, mature and old MSMEs’ existing management systems, processes and practices may create hurdles to build entrepreneurial capabilities in international markets. For example, some scholars found that the rigid operate processes and existing practices in headquarter in home country limited subsidiary entrepreneurship, innovation and learning in host country (Cao et al., 2013), and that organizational memory might become a barrier to absorbing the new knowledge gained in international markets. Hence, MSMEs need to build the capability of organizational unlearning which refers to the intentional discarding of practices, such as abandoning a certain recruitment procedure (Tsang & Zahra, 2008). The dynamics of forgetting and especially unlearning come into play because the firm’s knowledge might be decaying, dated, or limited because of its local experiences (Zahra et al., 2011). Third, resource-based view (RBV) which is a major theoretical framework that addresses the source of interfirm performance differences is related to this study, because RBV is one of the primary theories for understanding the origins of competitive advantage and superior firm performance (Hoopes et al., 2003; Bingham &Eisenhardt, 2008) . In prior main researches, resources are defined as the tangible assets (e.g., location, plant, equipment), intangible assets (e.g., patents, brands, technical knowledge), and organizational processes (e.g., product development, country entry, partnering) from which managers can develop value-creating strategies (Bingham & Eisenhardt, 2008). According to RBV, firms create competitive advantage when they develop resource that are valuable, rare, inimitable, and non-substitutable (VRIN) in a given market and exploit them in additional markets (Barney, 1986,1991; Amit & Schoemaker, 1993; Bingham & Eisenhardt, 2008). However, on the one hand, it is well-established that SMEs differ from larger firms on the basis of available VRIN resources such as human capital and financial capital (Cooper et al., 1994; Forbes & Milliken, 1999), and on the 6 Asia Research Centre, CBS, Copenhagen Discussion Papers, 2013-44 basis of having limited managerial expertise (Forbes & Milliken, 1999; Pissarides, 1999) to effectively manage changing internal and external environments (Ebben & Johnson, 2005; Chang & Hughes, 2012), and to implement their strategy such as innovating new business model (Bingham & Eisenhardt, 2008). On the other hand, MSMEs also face other big challenges to exploit and leverage VRIN resources which have been developed in home markets to innovate their business model and create competitive advantages in host country due to contextual changes. In sum, although the extant literature can give us some useful insights, we fail to find the relevant theoretical guidance for our study on the drivers of MSMEs’ subsidiary to facilitate business model innovation in emerging markets. For top-down ventures engaged by MSMEs, the contextual gaps or distances between the developed and emerging markets provide both unique opportunities and unique threats (Hansen et al., 2011). To understand the specific drivers of subsidiary to maximize the opportunities as well as minimize the threats, we need to develop new theoretical constructs and a process framework to fill in the gap in the literature. METHOD Building new theories from one or more cases is a research strategy to develop new theoretical constructs, propositions, and/or mid-range theories from case-based empirical evidence (Eisenhardt, 1989). Further, creative insights often arise from the juxtaposition of contradictory or paradoxical evidence from cases (Pettigrew, 1990). In this research, we adopted the method of comparative and longitudinal case study for theory-building due to the lack of related theories and the specific focus on process issues which case study is best at (Eisenhardt, 1989; Pettigrew, 1990). A case study can involve either a single or multiple cases at various levels of analysis (Yin, 1994). Multiple cases are more effective than a single case because they enable collection of comparative data, and so are likely to yield more accurate and generalizable theory than a single case (Eisenhardt, 13 Asia Research Centre, CBS, Copenhagen Discussion Papers, 2013-44 MUP, High •Identify actively new opportunities. •Analyse actively competitors. •Develop actively new ideas. •Risk-taking •Get high commitment from general manager •Take action without waiting for HQ •Conduct experiments •Develop and launch new product for middle market. High •Flexible HR process •HR resource slack “…everything changes fast in China. You have to take action quickly. No time to wait for HQ”; “Entrepreneurship is very important for doing business”; “…we have never complained about HQ. it is not useful for BM”; “…action, action, and action quickly” TEV, Low •Identify actively new opportunities on middle markets •Risk-averse •Compliance for the HQ No Low •Rigid HR process •lack of HR resource “We do not have the common goal on the project”; “HQ does not trust me”; “…the only one thing is waiting”; RAE, Low •Identify actively new opportunities on middle markets. •Risk-averse •Compliance and waiting passively for the headquarter •Complain about HQ No Moderate •Rigid HR process •Lack of HR resource “I have to wait because I have no power and resource”; “The HQ does not understand Chinese markets”; “…I have new ideas, but no opportunity to implement it”; “…HQ tries to control everything”. In the four cases, BAF and MUP have high initiative-taking motivation and obtained significant performance. All of them have not only identified the new opportunities on Chinese middle markets, but also converted their new ideas to product prototype, developed and lunched new products, and restructure its value chain. Based on these initiative activities, BAF and MUP have built its primary new business model for Chines middle markets in which they redefined their customer segments compared to old business model and value propositions for new customers. When we interviewed BAF’s top managers at headquarter and general manager and team members at subsidiary, and asked them what are the main 14 Asia Research Centre, CBS, Copenhagen Discussion Papers, 2013-44 factors to drive them to push the business model innovation procedure in China, all of them have mentioned the three key words and concepts: entrepreneurial spirits, entrepreneurial orientation, and entrepreneurial initiative. As the team leader said, “The competition in China is fierce. Entrepreneurial spirit is a key factor to design our new business model successfully because BAF is a small international firm. We do not have enough money and resource compare to those big multinational companies.” In MUP, the team leader has the same feeling as BAF’s leader. He also agreed that initiative-taking is the one important determinant for business model innovation. Compare to customers on high-end markets, customers on middlemarkets need good quality and lost price products. Due to MUP’s prior high price products only focused on high-end markets, it has faced big challenges since it began to develop new products for middle markets. In the process of designing new business model, initiative-taking is one driver. As the team leader mentioned, “It is not easy to design new product for middle markets because we have no experience on this area. In fact, we need to try and try. In the process, initiative-taking is very important factor because we have no time to wait. Marketing situation changes fast in China.” Based on our observation, MUP’s first new product which is special for Chinese middle-market was the result of initiative-taking of sales people. In the first quarter of 2011, two sales people visited their customers, got an idea from customers, and identified actively new opportunity for middle markets. In fact, at that time, nobody knew how to reduce the product cost and keep the product good enough quality to fit customers’ needs. Despite they lack of experience and resources, employees from sales and RD department worked together and took actively action to redesign their products, to conduct experiment. Almost 10 months later, MUP developed product prototype. By the end of April of 2013, MUP has got a contract with one Chinese big company and sold more than 30 product units. 15 Asia Research Centre, CBS, Copenhagen Discussion Papers, 2013-44 Compare to the strong initiative-taking behavior of the BAF and MUP, the two cases of TEV and RAE have showed weak initiatives to “innovate business model” and low performance of business model innovation. The common characteristics of business model innovation in the two cases are waiting, complaining, compliance, and risk-averse. Team managers both at TEV and RAE subsidiary complained that they have no power, no resource to try their new ideas. For example, the team manager from RAE said, “I have many new ideas about Chinese middle markets, but, HQ tries to control everything. I have no enough power and resource to try. The one thing is waiting. I have no choice.” Based on our data, in the first stage of initiative, team members of both RAE and TEV could identify actively new opportunities for middle markets, and they also had some good ideas for new business model. But, they are too dependent on headquarters and lack of initiative-taking. They took passively actions of compliance and waiting for the head office’s decision, and did not take key activities in the last two stages of getting support and commitment and implementing the opportunity. In sum, we found that initiative-taking is a key facilitator for business model innovation. Why is the initiative-taking very important to business model innovation at MSMEs? In other words, why can the initiative-taking motivation facilitate the business model innovation? The first reason is that initiative-taking is very important if the subsidiary lack of resource. For example, related findings indicate that entrepreneurial initiatives are particularly important when an MNC subsidiary lacks of manufacturing competence or experiential knowledge in the foreign market (Lee and Chen, 2003, see Jones et al, review, 2011). For MSMEs, it is well-established that they differ from larger MNEs on the basis of available resources such as human capital and financial capital, and on the basis of having limited international expertise to effectively manage changing internal and external environments (Chang & Hughes, 2012). The second reason is that the subsidiary needs to get headquarters’ attention and increase their influence through taking initiatives. Based on these 16 Asia Research Centre, CBS, Copenhagen Discussion Papers, 2013-44 activities, subsidiary can get more resources, knowledge, and other support from headquarter. For example, subsidiary initiatives have a direct effect on subsidiary autonomy (Ambos et al., 2010). The third reason is that, for most firms, business model innovation rarely happens automatically. It always requires the special capabilities to manage ambiguity and uncertainty in the process. More specifically, BM design process has five phases: mobilize, understand, design, implement, and manage (Osterwalder & Pigneur , 2010). Building new business model includes a set of key activities. Across the entire process, Zott and Amit (2010) identified two sets of salient parameters for BMI are design elements (e.g., content, structure and governance that describe the architecture of BMI) and design themes (e.g., novelty, lock-in, complementarities, and efficiency that describe the sources of BMI). No doubt the MSMEs could face different big challenges in different phases of business model innovation. In the uncertain environment, the entrepreneurial spirit or initiative-taking of managers is one important determinant for achieving high performance. Overall, these observations lead to our proposition. Proposition 1: For SMEs, the high initiative-taking motivation of subsidiary will accelerate business model innovation for top-down SMEs in the host emerging market. Improvisation capability and business model innovation In the prior research, improvisation is defined as the degree to which composition and execution converge in time (Moorman & Miner, 1998). Based on this definition, the more proximate the design and implementation of an activity in time, the more that activity is improvisational. Some scholars have found that improvisation plays an important role in innovation processes such as new product development (Eisenhardt & Tabrizi, 1995; Kamoche & Cunha, 2001), and improvisation always leads to rapid adaptive processes, positive outcomes and better performance (Vera & Crossan, 2005). 17 Asia Research Centre, CBS, Copenhagen Discussion Papers, 2013-44 For MSMEs, developing new business model includes a set of innovational activities. Based on the prior researches, we argue that the subsidiary improvisation capability is the one key driver for business model innovation. In this research, we observed how the four Danish MSMEs’ subsidiaries improvisation capability facilitates the business model innovation. Based on the organizational improvisation theory (Moorman & Miner, 1998), improvisation introduces the notion that the composition and execution of plans occur simultaneously. The closer the time gap between planning and implementation, the more an action can be considered to be improvisational (Poolton &Ismail, 1999). We measured subsidiary improvisation by using subsidiary actions and the timing of milestones occurred in different initiative phases, and rated the subsidiary improvisation capability as high and low levels. At the same time, we compared the four cases and analyzed the relationship between improvisation capability and the performance of business model innovation. Table 4 summarizes our assessment of improvisation capability and provides representative informant quotes. Table 4: Improvisation Capability and the performance of Business model innovation Firms and BMI performance Description of Opportunity Identification Timing and Milestones in Implement stage Improvisation Capability Rating Representative Informant Quotes BAF, High •New fabric for middle markets •Product Prototype: 3 months •Zero Series product: 5 months •Final product:5 months High “…the situations change fast. …. We need real data and improvisation to adjust our solutions” ; “…improvisation is central capabilities for us”; “…improvisation is a key factor to adjust situation”; MUP, High •New CC pump for middle markets •Product Prototype:2 months •Final product: 5 months •Launch product: 1 month High “Fast decision needs improvisation….”; “….based on real time data, we could adjust our solutions quickly…”; “…improvisation capability is very important for innovation”; TEV, Low •No special idea for middle markets •No special product for middle markets Low “We work on business model innovation slowly…. One main reason is we lack of autonomy 18 Asia Research Centre, CBS, Copenhagen Discussion Papers, 2013-44 to test and try”; “We lack of real data…”; “…the gap between planning and actions is big” RAE, Low •Targeting one new market segments •No special product for middle markets Low “…intuition and flexible are very important because we have no prior experiences in this new area”; “I have no autonomy to test my idea…”; “…how to fit the gap between planning and implementation is big challenge”; “…no choice to develop improvisation”; In the four cases, BAF and MUP have high improvisation capability and obtained significant performance. We record the two cases’ milestones and their timing in the process of business model innovation. BAF, for example, spent 3 months on converting new ideas to product prototype, 5 months on Zero Series product development, and 3 months on final product. In other words, within 11 months, BAF developed and launched its new final products for Chinese middle markets. MUP has also the fast process of new products development. It spent 2 months on converting new idea to product prototype, and 5 months on final product. Within 8 months, MUP launched its new product for Chinese middle markets. The common characteristics of BAF and MUP are fast pace and quick adaptation in each stage of product development. At the same time, they have carried out a large number of tests at every stage. Based on our observation, extensive testing accelerates the two cases’ understanding and reconceptualization of the products through trial and error learning. The team members made fast and flexible decisions to adjust their solutions based on their real-time experiences from the tests. As one team member in BAF said, “…the situations change fast. They are not predictable. So we cannot plan and organize our actions to rely on prior routines from HQ. We need real data and improvisation to adjust our solutions. Fast pace and quick adaptations are central, competitive capabilities for us.” 19 Asia Research Centre, CBS, Copenhagen Discussion Papers, 2013-44 By confronting real data about actual results, such as some aspect of the design that does not work or works differently than anticipated, the product teams are firmly forced out of faulty preconceptions. The prior study found that testing increased development speed because it builds developers’ confidence. When product teams test particular designs, the development process becomes more concrete and believable (Eisenhardt &Tabrizi, 1995). We found that developers gained confidence because they have proactively engaged in a concrete action in unpredictable process. As one manager in MUP mentioned, “The setting is turbulent and uncertain. We need confidence to overcome this challenge. The business model innovation is unpredictable process. Nobody knows what is right, what is wrong. In fact, we lack of information for the future. So, we need special actions to test our ideas.” Based on our data, one key insight is that the business model innovation is a process in which developers are likely to update and improve their thinking frequently throughout the design process in response to concrete results. In this process, the capability of improvisation is very important for developers to make decision and to adjust their solutions quickly, and accelerates the process. In contrast, we did not find significant milestones in the business model innovation in TEV and RAE. For example, although the team manager at TEV tried to identify new opportunities on Chinese middle markets, TEV has no clear ideas and solutions for designing new business model because managers at HQ are more inclined to use the original products and business model which developed in home country. Concerning the new business model, the general manager of RAE subsidiary has one primary solutions to target one new market segments, but the HQ are not willing to change their prior business model, not open to development of localized products that are very relevant in China. The common characteristics in the two subsidiaries are “wait and see” because they do not have autonomy and flexibility to conduct test, and to develop their improvisation. As one team member from RAE said, “I believe that intuition and flexible are very important because we have no prior experiences in this new area. They can help me to cope with an unclear 20 Asia Research Centre, CBS, Copenhagen Discussion Papers, 2013-44 setting. But, now, I face a big challenge that HQ asked me to submit report based on data. If I have no chance to try, how I can get data.” The team manager at TEV has the same feeling, “Designing new business model in China is very difficult. My feeling is that HQ people are resisting this, as they may lose decision power and control. HQ is not willing to let China setup be more autonomous. They want to control China subsidiary and its strategy.” Based on our data, one key observation is that people often procrastinate in the face of uncertainty in unpredictable situations. The two subsidiaries of TEV and RAE have wasted lots of time on waiting for decision from HQ. There is a big gap between planning and implementation. That means the improvisation capability is weak. They lack of resource and autonomy to conduct test because HQ reluctant to see their failures. In fact, small, frequent failures are very motivating and create particularly rapid learning because they capture people’s attention but yet are not so large as to raise denial or blocking defenses (Sitkin, 1992). Due to lack of prior experiences and routines, they are not confident enough to act in highly uncertain situations. In sum, we found that improvisation capability is a key facilitator for business model innovation. Why is improvisation capability very important to business model innovation at MSMEs? In other words, why can the improvisation capability facilitate the business model innovation? The first reason is that improvisation capability plays very important role in capturing attractive, fleeting market opportunities for creating new business model and profits sooner, faster and more effectively than competitors (Eisenhardt & Martin, 2000). Although there are huge opportunities in emerging markets, the competition is very fierce. For SMEs who are from developed countries, they need to develop strong improvisation capability to compete with local competitors in emerging market which are characterized by abundant flows of unpredictable, often fast-moving and ambiguous opportunities of unclear durations (Davis et al., 2007). 21 Asia Research Centre, CBS, Copenhagen Discussion Papers, 2013-44 The second reason is that improvisation capability enables SMEs fast adaptation in business model innovation. The situations in emerging markets are highly uncertain, and the fast adaptation is a pivotal strategic competence for SMEs to design new business model. The people involved in the business model innovation rely on highly experiential and real-time information in the context of uncertain to achieve fast pace. Some researchers have showed that successful business model innovation is a continuous process that involves an initial experiment followed by continuous reassessment and modification to suit changing conditions (Sosna et al., 2010). In other words, successful business model innovations were designed to be adaptable (Giesen et al., 2010). That means SMEs can achieve fast pace of business model innovation by relying on iterative experiences, flexibility, and improvisation (Eisenhardt & Tabrizi, 1995). Overall, these observations lead to our proposition. Proposition 2: For SMEs, the high improvisation capability of subsidiary will accelerate business model innovation for top-down SMEs in the host emerging market. DISCUSSION AND CONCLUSION Business model innovation plays a very important role in developing competitive advantage when SMEs from developed country enter into emerging markets because of the large contextual distances or gaps between the emerging and developed economies (Cuervo-Cazurra, 2012; Ghemawat, 2001). But, there is little research focus on the facilitators to accelerate the business model innovation, especially what facilitators in subsidiary because the foreign subsidiaries play important role in shaping the overall strategy of the parent company. To fill this gap, the primary contribution of this study is a novel process framework based on resource-based view (RBV). 22 Asia Research Centre, CBS, Copenhagen Discussion Papers, 2013-44 A Process Framework for subsidiary facilitators on business model innovation A primary contribution of this study is an emergent process framework for subsidiary to facilitate BMI of SMEs. Figure 1 represents this framework with three sets of interrelated constructs. Figure 1: A Facilitator Framework on Subsidiary’s Business Model Innovation First, our framework shows the initiative-taking will facilitate business model innovation. Some studies have shown that though taking initiative subsidiary may enhance its technological and managerial capabilities (Sargent & Matthews, 2006), maximize its value to the parent corporation and deepen its relationship with the headquarters (Delany, 2000; Gupta & Govindarajan 2000). Our finding is that subsidiary managers who have high initiative-taking motivation can response to the threats and opportunities to secure the subsidiary’s innovation performance. Capability Resource HR slack Initiative-taking Business model innovation Motivation Resource Autonomy Improvisation + + + + Performance 29 Asia Research Centre, CBS, Copenhagen Discussion Papers, 2013-44 Birkinshawa JM, Ridderstråle J.1999. 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