1

Marcus Eduardo de Andrade Campos

Executive MBA 71th Class

“Is it worth using copycat as a strategy to build

profitable business?”

Projeto Final apresentado à Diretoria Acadêmica da Business School

São Paulo em cumprimento parcial às exigências para obtenção do

certificado de conclusão do MBA Executivo.

Orientador: Prof. Evandro Paes dos Reis

São Paulo

2013

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Este projeto final de MBA/(Executive MBA) está aprovado.

____________________________________

Prof. Armando Dal Colletto

Diretor Acadêmico

____________________________________

Prof. Evandro Paes dos Reis

Orientador

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Acknowledgement

For my family that always believed and support my actions.

For those who had the necessary tolerance and patience to deal in a daily basis with the

subject, during the constant conversations about the topic during the lunch time as Kelly

Fernandes, Rogerio Martins, Alexandre Rocco and Tercio Leal.

For friends that directly or indirectly made their contribution to the process like Roger Fratin,

Paulo Ahagon, Juliana Andrade, Daniela Guimarães (especially for the grammar review).

Especial thanks for new friend made during the research, as Joana Picq who shared her

entrepreneurship expertise exchanging long-and-late-e-mails.

I want to thanks Stelleo Tolda, who inspired my early professional initiatives and spend his

lunch time talking about the begging of MercadoLibre and for sharing essential evidences to

analyses.

Finally, my gratitude since 2000 for giving me insights and working as a mentor always

showing the right path.

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Resumo

Apenas nos últimos anos o mercado tecnológico Latino Americano ganhou relevância no

cenário internacional, startups locais apareceram no mapa dos investidores estrangeiros. Após

a ruptura causada pela Crise Econômica Mundial nos mercados Norte-Americano e Europeu e

impulsionados por mudanças demográficas ou econômicas tais como as crescentes taxas de

avanço populacional, os baixos custos de desenvolvimento, a ampliação da cobertura

territorial em serviços de acesso a internet banda-larga ou celular e o constante aumento na

oferta de talentos na região.

Analisando a Indústria da Internet nesta região, podemos afirmar que os líderes deste

Mercado são empresas que criaram o próprio sucesso sob os ombros de outros gigantes. Com

os mercados tão conectados como atualmente, é difícil evitar cópias mundo afora.

No mundo dos negócios e também na vida cotidiana esta prática é geralmente rotulada sob o

nome de “copycat”, mas quase instantaneamente surge uma pergunta: Para que copiar a ideia

de alguém? Esta prática é realmente capaz de criar valor suficiente ao negócio para sustentar

vantagens competitivas?

Para compreender se um modelo de negócio copiado cria tais vantagens competitivas, este

estudo analisa algumas estórias latino americanas de sucesso para entender se o produto da

cópia é suficiente e capaz de criar as necessárias barreiras de defesa ao negócio ante novos

entrantes, geralmente empresas igualmente clones ou mesmo, a entrada da própria pioneira, a

empresa que deu origem a ideia copiada, e ainda se possível desvendar as melhores práticas

para criação de um negócio baseado na imitação.

O modelo de cópia desenvolvido por Oded Shenkar e descrito em seu livro serve de suporte

para este estudo, mas a análise também faz uso de outras teorias estratégicas e diferentes

fontes de informação, incluindo artigos de revistas especializadas no mundo dos negócios e

entrevistas com alguns executivos pertencentes às empresas citadas ou ao Mercado de

Internet.

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Abstraction

Just a couple of years ago the Techno-Latin America’s EnvironmentI arose on the

International Business Scenario and finally, local startups appeared to the Venture Capitalist’s

map. After the disruptive effect caused by the Global Financial Crisis into the US and Europe

business systems, this projection was actually a consequence of a series of demographic and

economical changes in the area, including the rise of local population growth, lower costs of

development at the region, the rise of the broadband infrastructure availability for PCs or

mobile devices and the growing pool of talent available in the region.

Analyzing the Internet Industry in this region, it can be affirmed that the business leaders are

companies that built their success on giants’ shoulders. In the current connected environment

is getting harder to avoid clones overseas. The common name of that practice is “copycat”II

and instantly a question comes up: “Why copycat someone else’s idea? Is this practice

capable of creating enough value to sustain competitive advantages?”

To understand if an imitative business really creates competitive advantages, this study

analyzes some Latin America’s successful stories to understand their outputs under the

perspective of the generation of business barrier to defeat their business against new entrants,

other copycats or the pioneer copied company, and if its really possible, to find out which are

the best practices to build a business over imitation.

The Shenkar’s framework for copy described in his book became the support of the study, but

the analysis made use of several other strategy theories and different sources of information,

including specialized articles and interviews with some executives inside or outside the

mentioned companies.

I Williams, A., (2012) The Rise Of The TechnoLatinas: A Full-Fledged Startup Movement Emerges In

South America, 16 September, Available at: http://techcrunch.com/2012/09/16/the-rise-of-the-

tecnolatinas-a-full-fledged-startup-movement-emerges-in-south-america/ (Accessed: 9 March

2013) II Picq, J., (2011) Copycats Versus Innovation in the BRIC World, 25 May, Available at:

http://www.thenextwomen.com/2011/05/26/copycats-versus-innovation-bric-world (Accessed:

March 2013)

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Table of Content

1. INTRODUCTION: CONCEPTUALIZATION OF COPYCAT’S PRACTICES ............................. 7

1.1. WHAT IS A COPYCAT PRACTICE?.................................................................................. 7

1.2. THE LEGAL BOUNDARIES OF COPYCATS ...................................................................... 8

1.3. WHY SHOULD IT BE STUDIED? ....................................................................................... 8

1.4. METHODOLOGY .............................................................................................................. 9 1.4.1. SHENKAR, O., (2010) “COPYCATS HOW SMART COMPANIES USE IMITATION TO GAIN A

STRATEGIC EDGE” ................................................................................................................................ 9

1.4.2. OSTERWALDER, A. AND PIGNEUR, Y., O., (2010) “BUSINESS MODEL GENERATION: A

HANDBOOK FOR VISIONARIES, GAME CHANGERS, AND CHALLENGERS” .........................................11

1.5. NARROWING THE DEFINITION: THE SUBJECT OF STUDY ............................................12

2. LATIN AMERICA LOCAL CONTEXT (INTERNET ON THE EMERGING MARKETS) ...... 13

2.1. THE BEGINNING OF THE INTERNET INDUSTRY ...........................................................13

2.2. ROOM FOR OPPORTUNITY – DOES COMPANIES OMISSION THE REAL RESPONSIBLE

TO CREATE ROOM FOR COPYCAT PRACTICES, WHY DID THIS SCENARIO EMERGE? .........16

3. CASE STUDY MERCADOLIBRE VS. EBAY ................................................................... 17

3.1. WHERE TO IMITATE – THE SELECTION OF INDUSTRY OR DOMAIN FROM WHICH TO

DRAW THE IMITATION................................................................................................................17

3.2. WHAT TO IMITATE – DEFINING THE OBJECT OF IMITATION: A PRODUCT, A

PROCESS, OR AN ENTIRE BUSINESS MODEL ..............................................................................18

3.3. WHO TO IMITATE – DEFINING THE ENTITY BEHIND THE MODEL...............................18 3.4. WHEN TO IMITATE – THE TIMING: CHOOSING THE RIGHT STRATEGY OF COPYING

19

3.5. HOW TO IMITATE – THE FORM AND PROCESS OF IMITATION ...................................20 3.6. THE CORRESPONDENCE PROBLEM ..............................................................................20

3.7. IMOVATION CONCEPT: FUSING INNOVATION AND IMITATION ..................................24

3.8. OUTSTANDING PERFORMANCE .....................................................................................27

4. CASE STUDY: PEIXE URBANO VS. GROUPON ............................................................. 27

4.1. COPY CONTEXT: THE ACCELERATING PACE OF IMITATION .....................................28

4.2. COPYCATS PROLIFERATION: ERODING THE BENEFITS ..............................................28 4.3. COPYCAT EVOLUTION: TRYING TO IMOVATE .............................................................29

5. CASE STUDY: COMPANIES DRAWN FOR COPIES? ..................................................... 30

5.1. SAMWER BROTHER’S AND THE ROCKET INTERNET. ..................................................30 5.2. WHERE, WHAT AND WHO TO IMITATE........................................................................31

5.3. WHEN TO IMITATE ........................................................................................................31

5.4. HOW TO IMITATE ..........................................................................................................31

6. CONCLUSION ............................................................................................................... 33

6.1. INSIGHTS TO SHENKAR’S FRAMEWORK EXECUTION .................................................33

6.2. FINAL CONSIDERATIONS ...............................................................................................35

7. BIBLIOGRAPHY ..................................................................................................... 37

8. NOTES ....................................................................................................................... 39

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1. INTRODUCTION: CONCEPTUALIZATION OF COPYCAT’S

PRACTICES

1.1. WHAT IS A COPYCAT PRACTICE?

A simplistic definition of Copycat is the behavior where someone copies someone else. Even

though it is simple, the definition varies for this interpretation depends on the level of

imitation applied in each analyzed context. For those variations, other words are commonly

applied to the subject for instance mimics, clones, emulations, reproductions and so on.

Psychologists, sociologists and zoologists have been discussing the subject and its

implications on human relationships for a long time. Morris, D. (1967)1 addresses the copying

behavior, no matter if it is related to thoughts, attitudes, styles or ideas, as a natural tendency

in human’s being. He underlined the importance of copying as part of human’s learning

process that developed our leadership regarding other animals and also vital to others species

survival. According to Shenkar, O. (2010)2 framework, the same behavior and correspondent

output are true for companies.

A shallow Google’s search provides a wide range of examples about how different

disciplinesIII

are dealing with the subject. Different professionals entities, books and blogs are

engaging into deeper discussions about the impacts of copied ideas within different business

systems. They all have its similarities and differences.

The context or cultural environment applied to analysis dramatically changes the acceptance

of those practices. Asian countriesIV

are probably the most known addicted culture of

“Copycats” and are usually mentioned as “a regular copyrights infringers”, but every culture

has its own degree of tolerance regarding the subject. In general, emerging countries are used

to import developed countries ideas for business models since they lived until shortly in

closed market environments, due to its history of dictatorship.

III

You can find debates about ethics, plagiarism or consumer mistaken or misled behavior inspired by

those practices. For instance, The British Alliance for Intellectual Property (Available at:

http://www.allianceagainstiptheft.co.uk/copycat.html, no date) describes the damages of copying branded

packages products in consumer’s buying behavior, another example given by Frank, M. et al. (2004) studies the

negative impact of copycat’s practices in the returns of Mutual Fund Industry, and Peterson & Gregor (2011)

discuss about lawyers common practices of copying each other and its outputs.

IV

Mente, B., (2004) in his book Japan’s Cultural Code Words, tells about Japanese social behavior

called Yokonarabi Syndrome since they first met and copy Korean’s and Chinese’s Technologies and its impact

over the European wave of innovation in the 1500s. China is also famous for its cheap products as well as for its

forgeries ones, Coghlan, T. describes at his fashion blog about Chinese learning system that are based on copy

and not on creativity. Samsung has expanded the concept of copycat as described by Hussain, T. (2006) in his

book Diamond Dilemma, but in 2012, the world follow the battle between Apple patent claims against Samsung.

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1.2. THE LEGAL BOUNDARIES OF COPYCATS

Copying practices are eligible for litigations or prosecution when it infringes over copyright’s

regulations. The problem is that not all innovative ideas are susceptible to a patent protection;

in addition to that, not every country is committed to follow those rules. The exclusive rights

vary from country to country accordingly to their own purpose.

US regulations also present a high volatility about the topic. From the establishment of United

States Patent and Trademark Office, at end of the sixteenth century, until nowadays the

appliance of the concepts changed from time to time. Started considering just manufacturing

objects, tried to extend to “new methods of doing business” but being hard to define it, they

retreated. In the 80’s and 90’s the subject emerges again after the raising wave of patent

applications regarding Internet methods of doing commerce.

The current definition, that “US patent system is limited to technology and therefore it

excludes trade and business expedients”V remains unclear.

Note that it’s quite easy when the subject is a manufactured object or a machine that

transforms the output but this doesn’t include a business model idea that corresponds to the

method of doing trade or business.

Back to 1994, members of the World Trade Organization try to define under the “Agreement

on Trade-Related Aspects of Intellectual Property Rights”3, rules that include a new set of

activities like content producers, industrial designs, and undisclosed or confidential

information.

As said by Quiros, C. (2012)4, “[if] you copy the idea of the iPad, you’ll be fine, legal or

otherwise, as you can see from the plethora of tablets crowding the market. You copy the

specific design of the iPad, you are going to have problems, as you can see in the legal battles

Samsung and others are fighting with Steve Jobs’ favorite company.”

Why reinvent the wheel? Its not allowed to copy a piece of software from another company’s

website but its possible to redevelop the same software doing the exactly same thing without

infringing a copyright or an issued patent.

1.3. WHY SHOULD IT BE STUDIED?

The assumption “An Innovative Company takes-all” is really right or people just have

V

Article I, section 8, clause 8 of the Constitution Gives Congress the power “To promote the Progress

of…useful Arts” by granting patents. The Supreme Court has held that the grant of power is also a limitation on

congressional power. Graham v. John Deere Co., 383 U.S. 1, 5–6 (1966).

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prejudice against the copy concept?

Go to a bookstore’s business section or read the syllabus of any MBA Program and compare

how many studies, frameworks, specialists are related to the word “Innovation” and how

many are related to “Imitation”, seems like the other I-word is excluded from the records.

The intuitive effort involved to develop innovation, which include researches, trials and

errors, measurements, proven track results and all costs related explain why people are

resistant to assume copy behaviors, it seems indolent and unfair to use it.

Even though, the same books and courses often mention industry standards or teaches how to

adapt business process or methods from other companies – which means copying someone’s

idea too under the name of “Benchmarks”.

From empirical evidence, digital companies, mostly Internet Business in Latin America

markets, every now and then made use in some level of “imitation”. Going from user

experience standards to entire business model. This study is trying to achieve answers for

questions like:

How hard it is to copy an entire business model from a foreign country and put it into work

inside a completely different environment?

Is there any valid standard in place that is easy to reproduce in order to structure a business

copy?

Does the output value enough to create profit and to build barriers not only to protect the

market share from the original idea’s owner and from further Copycats?

1.4. METHODOLOGY

The purpose of this study is the appliance of Shenkar’s framework on the context of

successful Latin American’s Internet companies, validating the model under the aspects of

adherence of the actions and requirement abilities of those entrepreneurs.

To support the rational, the use of Business Model Canvas helps to realize which components

of the business model needs more attention when the copying behavioral are in place.

1.4.1. SHENKAR, O., (2010) “COPYCATS HOW SMART COMPANIES

USE IMITATION TO GAIN A STRATEGIC EDGE”

The framework suggests that following a structured process that starts with a carefully

selection of the copy domain, working into deep reflection or cause-effect analysis around the

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competences and activities required to clone the model, providing the necessary adaptations to

find out the same favorable outcome to overpass the correspondence problem but also adding

same innovation around it, what he calls “Imovation: Fusing Imitation + Innovation” will

create the room for success. As said by the author:

“The great thing about being an imitator is the pioneer bears the costs of figuring out how to

make a viable product and seed a sizable enough market to make that product worthwhile.

The imitator can save on research and development costs because no dead ends are pursued.

It’s also cheaper to market when customers are familiar with the product on offer. The benefit

of hindsight also means imitators can capitalize on the shortcomings of earlier generation

products and come to market with something which is demonstrably better and often cheaper

as well. Imitators are also aware of the need to differentiate so it’s not at all unusual for

imitators to bring several models to the marketplace which offer superior features.” –

Shenkar, O. (2010)

He defines six key competences in order to achieve success and describes what are necessary

steps in order to achieve it:

The complete view of the Imitation Strategy Framework:

The questions made on the first box, drives the analysis:

Where to Imitate5

refers to the sector, the domain of copy, this could be a new technology, a

marketing approach or an entire business model, always regarding to Patent and Copyrights

issues;

What to Imitate 6

is the decision about what to imitate, driven by strategic intent of the copier,

needs to consider potential key differentiators, defeat capabilities and possible contradictions

and conflicts inside the model;

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Who to Imitate 7

is the search for legitimacy on the copied-object, copying something that

already proves its value is especially important during times of high uncertainty but it is also

important to avoid products and process with universal applicability because using just

industry standards could erode the benefits;

When to Imitate 8

, drives the concern explicit about timing, the forth box describes the three

strategies related to this decision “The Fast Second”, “The Come from Behind” or the

“Pioneer Importer”. Our study explores just the Pioneer Importer Strategy which consist in a

late entrant that establishes itself as the first entrant in another region or product market and in

essence, explores asymmetry across markets but faces a higher degree of correspondence

problems to solve;

How to Imitate 9

is the execution and tactical plan demanded. The decision has to do with the

pattern, process and sequences by which a company identifies an imitation target and set up a

process for analyzing, adapting, and implementing the imitation, it’s time to act and create a

roadmap to accomplish the work done on the previews steps of the framework. It is also refers

to the second box which represent the challenge of finding solution for the correspondence

problem10

would make the imitation as relevant and meaningful as the original to fit into

another culture and system. To close the framework, there is an analysis of the value

preposition of the imitation, related to cost savings, risk and benefits that will appear once the

copy is started. Shenkar’s 10 Rules for Imovation, which helps to drive the third box above,

creating differentiation and building business defenses:

1.4.2. OSTERWALDER, A. AND PIGNEUR, Y., O., (2010) “BUSINESS

MODEL GENERATION: A HANDBOOK FOR VISIONARIES, GAME

CHANGERS, AND CHALLENGERS”

“A business model describes the rationale of how an organization creates, delivers, and

captures value.” 11

The “Business Model Canvas” method is a simple framework that divided a Business Model

into 9 blocks that drives all the effort required in a business development.

12

Once the objective is to understand how to put Shenkar’s Model to work, the Canvas method

helps to organize the observation process inherent into the copy process (benchmark,

mapping, seeking information), what represents the visible part of a Business Model, and

which blocks required a more cognitive work or a creative thinking process to understanding

the intrinsically part and the Business regarding the goal to deliver the same value in another

environment.

1.5. NARROWING THE DEFINITION: THE SUBJECT OF STUDY

The purpose of this study is not to discuss the willingness around copying practices but to

understand the process involved in a copy and its implications into business environment,

further the emergence of the Internet Industry and the shrinkage of markets as consequences

of globalization.

Shenkar (2010) 12

underlined companies’ approach to copy: “Some firms copy a model as is,

whereas others adapt it to their own circumstances or attempt to produce a marked

improvement on the original. A few attempt to understand how borrowed model will fit in,

but others are contented with replicating its most visible external feature.”

On the goal of reproducing the same outputs just imitating a innovative pioneer, just a few

companies understood that even when copying someone’s idea, to achieve consistent level of

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success to build endure copied-business, besides cognitive skills to decipher the model, it is

mandatory to have skills for innovation.

As mentioned before, this paper concentrates efforts in one particular copy-strategy described

by Shenkar, which is “The Pioneer Importer” 13:

“An important form of imitation involves the

importation of a model from one environment to another, usually across borders. […]

Although all imitators are subject to the correspondence problem, importers face a wider array

of challenges because they transplant a model in another soil and must consider differences

between the two environments”.

The studied start-ups took advantages of the pioneer staying out of their target markets,

establishing a leading position, but being aware of environment differences criticism they had

hard work to put on track their ideas.

2. LATIN AMERICA LOCAL CONTEXT (INTERNET ON THE

EMERGING MARKETS)

2.1. THE BEGINNING OF THE INTERNET INDUSTRY

Back to 1969, when Vint Cerf and Bob Kahn developed the TCP/IP technology, no one was

capable to forecast the impacts of this innovation at our lives or business systems. A new

channel called Internet emerges creating unprecedented changes and enabling new

opportunities to almost anyone. There was no prevailing company or competence in the first

years, the game rules and deeper impacts remain unknown for a long time, may be it persists

until today.

The lack of regulation presented on the Internet environment and the skyrocketed adoption

curve, enabled start-ups to take advantage of the new media while there were just non-

conventional brands forming around the web.

When the first entrants started to concentrate audience, the business model that submerged

was a copycat of a well-established business model from other communication channel. The

three-way market 14,

which consists in a cycle among three entities:

1. Producer: the one that provide a content or a service free for customers, looking to hub

a lot of eyeballs (called “Unique Visitors”);

2. Customer: the Internet user, who consume content and services for free, once that

“seems” to be the nature of the Internet;

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3. Advertiser: the one who pays for CPM (banners impression on a webpage);

Inheriting this practice, while the network was acquiring new adopters and behavioral

measurement technologies were under development, a new gold rush started.

Who will be the main eyeballs hub? It was a very simple mathematical expression which

sustain the earliest Startup Business Plan: Increasing numbers of eyeballs (translated into

customer’s attention) + qualification profile (means segmentation) + measurable results =

revenues. This was used for every kind of business that relies on views for success.

The dot-com bubble’s burst in March of 2000, relied on the lack of confidence of investor on

the Internet Business Model, proved that the simple copy of model from other channels failed

that time. It is crucial to understand that it was not a consequence of underdeveloped potential

or misunderstood of behavior, what really happened was that it was hard to sell advertising

when less than 1% of your audience is clicking into a banner. The main issue here was the

inability to turn “eyeballs” into revenue.

The new infant industry had to face a lot of challengers until proving it was capable of

produce profitability.

Just a few months after that, on the opposite side of these controversy, companies like

Amazon and Google emerged from the bubble’s burst enhancing their business model

reaching revenues. For instance, Google launched their “AdWords platform” just in

September of 2000 15

and until nowadays, this remains the product that generates most part of

the company revenues.

Instead of generating revenue, companies like Napster created disruptive changes in the music

industry revenues providing a free exchange platform for music. Empowering end-users to

share digital music files, the negative effect at the Music Industry Profitability attracted

15

attention under the act of copyrights prosecution from the “offline” companies but even after

closing doors on 2002, the heritage of the revolutionary software remains causing changes in

other types of content (i.e. movies, books, etc.) based industries.

The decentralized nature of the web innovates again in January of 2001 16

. Jimmy Wales

proves (in its second try) that even unknown people could collaborate in order to produce

content: the Wikipedia came alive and after that, “The Web2.0” concept, coined by O’Reilly,

T.17

in 1999 reinforces customers’ power, that they can start creating, rating and sharing

content. That was possible because the Internet cut costs of product, make feasible to

unknown people collaborate together.

In the same degree, each initiative on the early stages of the Internet was just copycatting old

ideas and behaviors, adapting them to a new online community behavior and attracting more

people’s attention. For instance, as described by Jenkins, H. (2006)18

in his book, the

Blogging Era was the adaptation of a used offline practice named “Fanzines” that consists in

people, creating Fan-Magazines to discuss its personal (and segmented) interest, bypassing

traditional media.

The Internet Industry was maturing so in 2006 Anderson, C. 19

coined the theory of the long

tail and driven by tools like Google that organize the uncountable amount of content dispersed

on the network, making use of people’s production in simple and short tasks like tagging and

rating built relevance to niches. The Recommendation Era takes place.

Indeed, to get there, first the customers had to be familiar with the ideas and concept behind

the new medium, the graphical evolution make it more user friendly which helps to boost its

participation and generate the “momentum for change”. This is called as the “Network Effect

or Network Externalities” of the Internet.

Every new user on the Internet brings more value to the whole networks, interested on the

interactive activities available in there, new people increases the Internet attractiveness which

bring more people to joining the Industry. This effect was responsible to surpass the gap

between the Innovators-First Adopters (who are, in majority academics) and then, the Early or

Later Majority achieving what Gladwell, M. (2000) of “Tipping Point”20

, when the level of

interest increases so much that becomes unstoppable.

Every Internet successful story achieved in different degrees its effect, that is why the idea

behind the model, proves its viability and attractiveness so the company could generate the

profitability required to sustain their growth. For instance that is what eBay’s and its copycats

made by creating a marketplace where the demand and the offering started to push it other.

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2.2. ROOM FOR OPPORTUNITY – DOES COMPANIES OMISSION THE

REAL RESPONSIBLE TO CREATE ROOM FOR COPYCAT PRACTICES,

WHY DID THIS SCENARIO EMERGE?

Design an innovative business requires: time, money and a lot of effort to put on track the

new idea. The company is trying to prove its concept, not only regarding customer’s interest

but also economical feasibility, trying to gain scale and build defense barriers.

Right after the business reach much attention, the company immediately needs to wrestle

against local followers or even already established organizations that had their markets under

attack. Even conscious that time to market is important, the company needs to focus on its

local-primary market to develop and defeat its market share in order to reach financial results.

Do this movement at the beginning requires a lot of resources while they need to prepare itself

for scalability and cost efficiency. Each external initiative to enlarge focus could generate

waste of resources that will make harder to defend the core market.

According to Anthony, S. (2012)21

article, the emergence of a new trend is shifting the way

innovation happens inside companies. One argument that perfectly fits into the issues

analyzed by this study is “The increasing ease and decreasing cost of innovation mean that

start-ups now face the same short-term pressures that have constrained innovation at large

companies; as soon as a young company gets a whiff of success, it has to race against dozens

of copycats”. He explains the hypercompetitive environment we are living, coupled with

shortening development cycles are making harder than ever for start-ups to create enduring

competitive advantage.

Latin America has historical of political and economics instability, adding to this the lack of

infrastructure and people’s qualification it is a lot of complexity to consider if the decision is

to entry in those markets.

At the period where the new Internet Industry was growing up, deep changes were happening

in Latin America. The governments started to open its markets trying to ride the Globalization

wagon.

Latin Americans executives and entrepreneurs are used to those environments22

, a trial and

error cultural tolerance emerged from that experience. To survive in a high unstable scenario

they need to develop sharp abilities like mapping cause-effect and being flexible about plans

once is no longer possible to follow long terms plans.

Shenkar’s Theory considers execution and implementation capabilities essential to companies

that are planning to imitate: “[Imitation] ... Must be weighed in terms of underlying context

17

and capabilities [flexibility + creativity + execution] ... Establishing the balance between

innovation and imitation is challenging, because this kind of balance is a moving target.”23

“[...] Implementation benefits from the formation of interdisciplinary teams, each one

bringing its own perspective into the mix.”24

Shenkar (2010, p.134)

The journalist Williams, A.25

explains the current trend in Latin American’s Business of

“[…] A growing pool of talent is emerging who are helping companies from South America

and the rest of the world create a new generation of startups”, most of them, went abroad to

study in leader business schools and brought back not just advanced management skills but

also innovative business models to their homeland.

The World’s Technical evolution is lowering some of the mains gaps between the countries

and eliminating classical entry barriers to new comers, for instance the Cloud Computing

ServicesVI

and SaaSVII

practices not only make it cheaper but give worldwide access to

leading technologies, removing most part of the infrastructure issues in almost every part of

the world.

Shenkar points that explaining how less technological countries take advantage of developed

ones: “New technologies are less expensive to maintain and easily combined with older

technologies. Once a technology has been obtained, newcomers overcome entry barriers by

leveraging low wage, lax regulation, a growing and protected domestic market, and a

tendency of local authorities to turn a blind eye to intellectual property rights violation”.26

3. CASE STUDY MERCADOLIBRE VS. EBAY

Following the Shenkar’s Framework this chapter applied into MercadoLibre business

development.

3.1. WHERE TO IMITATE – THE SELECTION OF INDUSTRY OR DOMAIN

FROM WHICH TO DRAW THE IMITATION

Back to 1999, Marcos Galperin and Hernan Kazah, founders of MercadoLibre (NASDAQ:

MELI) were in US since 1997 having a MBA at Stanford. Immersed in the culture of Silicon

Valley, Marcos and Hernan developed a passion for the Internet while attending business

VI

Cloud Computing is the practice of using a network of remote servers hosted on the Internet to store,

manages, and process data, rather than a local server.

VII

SaaS (Software as a service) is a delivery model enable by Cloud Computing in which the software is

typically hosted on remote Internet servers and accessed by users using a web browser.

18

school.

It was time for the Internet Golden Rush in US and they follow closely the rising of Internet

industry during their studies. They watched the flood of almost 500 IPOs27

of Internet related

companies and became enthusiastic about the possibilities.

3.2. WHAT TO IMITATE – DEFINING THE OBJECT OF IMITATION: A

PRODUCT, A PROCESS, OR AN ENTIRE BUSINESS MODEL

But it is easy to understand that the object of imitation will be an entire business model due to

the local industry was just beginning. Everything that they choose to imitate will be entirely

new in Latin America’s Market.

The concern here was to select the right model, the one that represents the less effort to

introduce due to the challenge of surmount the correspondence problem.

3.3. WHO TO IMITATE – DEFINING THE ENTITY BEHIND THE MODEL

Immersed in the Silicon Valley culture what Marcos and Hernan need to do is to choose the

right model.

Looking for the leaders at that time, it was available a broad spectrum of Business Models to

choose from. Starting from the three-way market (based on advertising) model to e-commerce

initiatives.

EBay Inc. (NASDAQ: EBAY) was founded in 1995 in San Jose, CA and today is the world’s

largest online marketplace, utilizing PayPal to ensure secure transactions. The company

operates specialized marketplaces such as StubHub, the world’s largest ticket marketplace,

and eBay Classifieds sites, which together have a presence in more than 1,000 cities around

the world.28

The story started as an academic game, the founders were trying to create a perfect market

economy where individuals could freely trade each other then almost by accident they created

the giant29

.

Two relevant points at eBay’s Business Model are (1) the fact that eBay bypass a huge issue

about e-commerce at that time, which is deliver logistics (by the nature of business, who are

responsible for that is the seller, not the company) and (2) when they went public on 1998 (for

instance, at the time of Amazon’s IPO in 1997, the company presents around 19% of losses –

approximately US$3 million) they were already profitable, which means that the model

19

proved itself30

.

The innovative model, was based on an auction tool that enhances person-to-person e-

commerce based on placement fee and a successful sale commission fee:

In May 1999, Marcos obtained financing for the project, and together they launched

MercadoLibre.com (NASDAQ: MELI), emphasizing local content and regional best practices

to outperform its nine rivals in the market.

3.4. WHEN TO IMITATE – THE TIMING: CHOOSING THE RIGHT

STRATEGY OF COPYING

As said by Shenkar, they explore the asymmetry across markets and tried to expand to

different countries as soon as possible.

After opened the first office in Argentina in May of 1999, they expand business to Brazil 2

months later and until the end of 1999 had add Mexico to the list. At the end of 2000, they

were established in Colombia, Chile, Spain, Uruguay, USA and Venezuela as well.

But an important advantage for a pioneering copycat, which is to stay out of the target market

of the pioneering (eBay in this case) didn’t work for MercadoLibre. The problem was that

other imitators were playing the same game at the same time. Still in 1999, at least 3 other

companies (equally copycats inspired in eBay success) were running the same business in

Latin America:

iBazar - an European Company with office in Brazil;

Lokau – a Brazilian Company that operates also in Mexico;

DeRemate – another Argentine Company also focusing on Latin America region

20

In order to structure the business, they ran to define “How to imitate” and put effort in order

to develop the market.

3.5. HOW TO IMITATE – THE FORM AND PROCESS OF IMITATION

One advantage that MercadoLibre had at the time was the fact of being a start up. Shenkar

describes in his book the core competences that one company need to have in order to copy an

entire business model. Going from an open-minded value avoiding the negative connotation

of imitation, from the mirroring skills.

Even using the same core application over all countries (which means the same development

effort easily scales from country to country) they start with a road map based only on the

visible part of the eBay’s Business Model.

Described below, using the business model canvas (what was visible from the model used by

eBay at that time) we can see there is a lot of empty spaces in the model that requires a lot of

cognitive work to solve:

3.6. THE CORRESPONDENCE PROBLEM

Considering that Internet Industry had only 4 years old in US, the evolutionary stage outside

its original country were very low.

Each initiative to run that business in developing countries, prevailing situation at Latin

America Countries, in general had to deal with huge constraints that were outcomes of

“Closed Market Cultural” likes:

Infrastructure Capabilities: limitations on Information Technology Framework and

Networks, a bunch of companies licensed to provide infrastructure, few competitors

21

means low quality and high prices;

Qualified Human Resources: the Industry itself were suffering for non-experienced

people in order to develop business, no one foresee how the market will work even in

US, in addition to that, Latin America’s Countries still had scarcity of related

professionals or even academics like Telecom Engineers/Software

Developers/Marketing or Business Specialists, etc.;

Language: the languages spoken in Latin America are Spanish (around 60% of

population) and Portuguese (around 34%). At that time, English-based web sites had

limited attraction to these population creating a natural language barrier to foreign

companies but remains difficult to overcome the linguist asymmetry when you are

trying to create a Brand Name or make your concept well-know;

Economic and Political Differences: each Latin American Country was in a different

level of economical or political stability. Understand the particularly cycle, handle

investments and define prioritizations were a hard work.

MercadoLibre, in particular had to deal with its own sort of constraints to develop locally the

business like:

Local Buying Behaviors: a local assumption in Latin America was that e-commerce fit

well in US because people were already used to buy for catalogs. Latin Americans

were not addicted to that, which made people skeptical about the practical adoption of

the system;

E-commerce reliability: At that time, a huge obstacle to overcome in Latin America

Market was not safety, but the lack of trust. Everyone who was running e-commerce

business needed to overcome buyers’ unsafe feeling. Overcome the resistance to put

credit card numbers into a website once people feared frauds everywhere in the

medium (Internet);

Internet Usage: At that time, in Latin America the Internet Industry was just crawling.

Argentina had 7% (2.5 million) of Internet population reach at that time followed in

Latin America for Brazil with just 3% (5 million) and Chile with 16% (1.7 million),

while in the US already counts for 44% (124 million)31

.

Feedback Systems implementation: it was a capital correspondence problem to solve,

for the company success was in building anti-fraud systems that could mitigate that

risk caused by the nature of being a C2C marketplace. MercadoLibre needed to solve

the contradiction of avoided complex logistic system management, a key activity to

22

other e-commerce companies that must manage inventories and delivering systems to

overcome the cognitive dissonance barrier inside buyer’s mind that was receiving the

right product at his/her house (it was considered not only time to receive but also the

seller quality promised);

Key Partnership: Commission Junction was an important partner to eBay to spread its

business capillary over the Internet. As an important Marketing tool, it drove eBay’s

products and brand across other web sites (vertical communities or site contents) with

a rational cost rate. In Latin America, not only the Web Master’s communities were

tiny, but there was no hub business that could help them to achieve the

correspondence;

Small and medium seller business awareness of Internet benefits: persuade local

sellers to invest time and resources into the business, given the promise that they were

building for them a profitable sale’s channel.

To build value, adapt and execute the Copied Business Model, MercadoLibre faced hard

challenges, not just investing energy at cognitive and thinking work but also creating an

entrepreneurship internal culture.

Once there was not experienced person on Internet Industry, MercadoLibre searched for

people who have entrepreneurship skills that could motivate a trial and error learning process,

necessary to the early initiatives related to business development and E-Commerce. The more

people who had the ability to observe the environment and create hypothesis, adapt ideas, test

it, learn from the experience and change the business overcoming the knowledge constraint.

According to the COO of MercadoLibre, Stelleo Tolda32,

there were no prevalent country

responsible for success achievement, actually acting in several countries with different

economic, political and cultural environments, which helped MercadoLibre not only

mitigating risks but also building complex and enhanced professional networks, using

workshops and internal seminaries across the company.

Another capital competence developed inside the company was data analysis. The all-able-to-

measure characteristic of the Internet, made feasible not only to create and test a sort of

assumptions and hypothesis, but also to discover what really works at this new industry.

Looking to internal data makes possible trend detection, new assumptions and further tests

and theories to solve essential problems.

The scenario also propitiates the triumph over other key activities to run the business, Fraud

and Costs. Collection of enough data across different regions, they could define an average

23

conversion-rate benchmark, no matter if the subject was sales transactions, customer

registration into the web site or customer acquisition costs, it helps to drive strategically

decisions and control financial resources.

To overcome cultural barriers, MercadoLibre started its own “University course”, performing

seller’s meetings where they could teach not only how to increase attractiveness of their

products inside the company’s marketplace but also some business competences like customer

relationship, inventory management and sales techniques.

It was time to improve demand for MercadoLibre’s sellers and due to internal cost policies the

company was not able to invest in marketing for customers acquisition (buyers) at the current

advertising model: CPM (cost per mille attention). The early conversion rates for the first

trials discourage the company to follow this road. The opposite of US market happens in

Latin America, where a leading company called CJ.com33

(Commission Junction) was

spreading the concept of Affiliate MarketingVIII,

but there was not a similar service running

here. The Webmaster communities did not exist and the only option presented was to build

internally the necessary expertise to start the capillarity system that would provide the costly

efficiency demanded for business so, they built their own, called MercadoSocios.

MercadoLibre had to develop competencies and complementary business to achieve the same

output of eBay, for instance, to drive the issue of customer acquisition costs, possible through

a partner Commission Junction that was absent in Latin America they developed its own

solution – MercadoSocios – to retain the same output. The same happens to PayPal, bought

by eBay and responsible for the increasing safety and accountability in online transactions,

MercadoLibre has to develop internally a similar solution, called MercadoPago to preserve

the favorable output.

Below, how MercadoLibre’s Business Model Canvas was created in its 14 years of business

development:

VIII

Affiliate Marketing at is very core is about relationship between three parties:

1. Advertiser, who are ready to pay other people that helped to sell or promote their business;

2. Publisher, who is an individual or company that promotes advertiser’s product or service in

exchange for earning commission;

3. Consumer, who is actually the one’s who sees the Ad and then makes an action (either by

clicking, submitting registration or buying products or services)

24

3.7. IMOVATION CONCEPT: FUSING INNOVATION AND IMITATION

Shenkar values the Imovators benefits of its framework: “Imovators understand that imitation

is not contradictory to, but rather supportive of, innovation34.

[…] Innovators must focus their

efforts on a few core features, and even then they may produce a novel and creative

recombination of imitated and innovative elements. […] It is a fusion we have called

Imovation, and it is already practiced though not yet perfected, by companies ranging from

IBM to Apple35

.”

As explained by Schwartz, E. in his book36

, it is more common to find more similarities than

differences applying biological theories into business. The Darwin’s theory of mutation and

adaptation of species work form business too. When copying someone else idea or business,

due to the not visible part of the business or the trials to solve the correspondence problem,

little parties of the copy could intentionally change if you were looking for differentiation, or

caused by fortuity, accidentally changing some of the characteristics by misunderstanding the

model.

Growing in a already competitive environment, where there were other three players (iBazar,

Deremate and Lokau) MercadoLibre deliberately choose a little chance in eBay’s Business

Model: not to charge a placement fee, which could scare new sellers to come and try the

company system.

They are not the only one. Deremate and Lokau follow the same road and just Ibazar (the

European Company with a branch only in Brazil) made a more aggressive change: putting the

25

service for free, trying to apply the three way market business model.

This differences, made in Brazil Ibazar the leading company (in audience measurements) but

also, the one who presents most ratio of claims related to fraud.

MercadoLibre knows that somehow, the revenue streams will come from placements fee.

They were just charging for sale’s commission what was hard to produce considerable

revenues. The feedback system (Seller’s Reputation) was crucial to guarantee this revenue

stream.

At that time there was a few of people talking about crowd participation (web 2.0 standard

flag), eBay, MercadoLibre and Deremate are already using the wisdom of crowds to put its

business model to work. To overcome the cognitive dissonance of being a trustful seller, the

sellers of those companies were motivated by rating the transaction positively, which means

not just close deals with buyers inside the platform but also inviting the buyer to write a

positive that feedback for their own.

MercadoLibre created the MercadoLíderes Group, the Top Sellers who bear stars that shows

they are trustful and offering exclusive visibility (partners placement of products) in return.

But MercadoLibre (and eBay and Deremate and Lokau) still had this business based in an

auction online tool, which provides just one unit of product to be sale per time. Trying to

improve revenues and ratio of sales, MercadoLibre introduced some changes expecting to

increase revenues and test acceptance of placement fees – what they called “Reserved Price”.

Some time thereafter, trying to shorten auction period and improve its sales volume they

launch the “Immediate sale”. How it worked:

Traditional Auction System: the seller set a period (number of days) for the auction

and the initial bid value, at the end of the period he is forced to sell the item for the

ending price – the cost involved was only the successful sale commission;

Reserved Price Auction System: the seller set a period (number of days) for the

auction, the initial bid value and the reserved price value, at the end of the period if the

bid value don’t achieve or surpass the reserved price value he is not forced to sell the

item – to use this method, if the reserved price value isn’t achieved he pays a fee and if

it is achieved pays only the successful sale commission;

Immediate Sale Auction System: the seller set a period (number of days) for the

auction, the initial bid value and the immediate sale price, when the bid value is equal

to the immediate sale price the auction ends – to use this method, the seller pay a

placement fee plus successful sale commission;

26

What came next was the accidental innovation that created value to MercadoLibre and

skyrocket sales ratio. They launched a sale method called Fixed Price that enables Sellers to

sell several units in the same listings. Tolda, S.37

explains that eBay already had this insight,

but remains resistant based on the traditional auction model created by the company.

Looking into internal data, MercadoLibre realized that its customer sellers were adopting an

unpredicted behavior. They were using the Immediate Sale method but setting up the same

value to the initial bid and immediate sale price38

, which gives birth for the “Buy it now”

method, before eBay, the Pioneer of the market.

In February 21, 2001 eBay acquires iBazar S.A trying to solidify its position in Europe and

significantly strengthen eBay’s global marketplace39

. Ibazar had already operations in Brazil,

a secondary market to eBay’s at that time.

In September 2001, eBay and MercadoLibre closed a Strategic Alliance Agreement wherein

eBay’s purchased of Series E-l Preferred Stock and Series E-2 Preferred Stock of

MercadoLibre, and sold iBazar Com LTDA (Brazilian subsidiary) to MercadoLibre. They

also established a strategic relationship in which eBay promoted MercadoLibre on eBay's web

site and eBay assisted MercadoLibre in developing its operations in Latin America.”40

In January 2002IX

MercadoLibre assumed operations of iBazar (Brazil) and started close

meetings to exchange experience with eBay’s employees.

So, MercadoLibre a former Copycat of eBay now has access to inside information to follow

its development in Latin America.

As described by Tolda, S.41

, at that time MercadoLibre was already a sustainable company

(generated revenues to support its operations) but were pursuing profitability in order to

advance strategically.

The capital advice, gave by eBay to MercadoLibre was to maintain investments in business

development and do not concern profitability. They show to MercadoLibre’s executives that

the company was doing an astonishing work regarding customer’s acquisition (the average

cost was lower than any country where eBay was operating) and that the Internet penetration

rate at that time, stills very low. If they make the right investments and maintain the cost

controls, naturally they will achieve profitability when the market expands.

MercadoLibre follow the advice, restructured their internal systems, review its software and

company architecture and when the market expanded they collect the earnings.

IX

According to Registro.br, website that monitor Domains Properties in Brazil, MercadoLibre assumed

the domain property in January 16, 2002. More on https://registro.br/cgi-bin/whois/?qr=ibazar.com.br

27

The following years for MercadoLibre started to consolidate its leading position acquiring

Lokau in November 2002, 8 of DeRemate’s operations (including Brazil) in November 2005

and the last ones (Argentina, Chile, Colombia and Mexico) in August 2008.

In 2008, two years after expired the strategic alliance between eBay and MercadoLibre,

MercadoLibre launched its IPO.

3.8. OUTSTANDING PERFORMANCE

Today, MercadoLibre is positioning itself as an IT E-commerce Service Provider42

and is the

leading online marketplace for Spanish speakers.

While most of its competitors have gone out of business, MercadoLibre continues to thrive.

The company expanded to 9 countries in the Americas and Europe, and in 2002, eBay bought

a stake in the company, making MercadoLibre its official partner in Latin America. In the

summer of 2007, the company went public on the NASDAQ with a US$400m IPO,

Endeavor’s first US IPO. In 2011, MercadoLibre’s market cap reached US$3 billion. The site

has over 50 million registered users.43

4. CASE STUDY: PEIXE URBANO VS. GROUPON

To explore other points of Shenkar’s theory, this study analyzed another well-known case of

Copycat, not only in Latin America, but in a Global Market basis: Groupon, the faster

growing company in history (the business that reaches 1 billion dollars sale quickest) and

probably the most copied idea as well.

The concept born on previous community based web site launched in 2007 called The Point.

The web site lets people start a campaign asking people to give money or do something as a

group. By delaying action until enough people come together to have a real impact, The Point

helps consumers, employees, citizens, activists, parents — or anyone — come together and

solve problems that they couldn't solve alone44

.

In November 2008, as an evolution of The Point, its owners built a daily-deal-bases web site

that uses the same mechanics under the name of Groupon. If a certain number of people sign

up for the offer, then the deal becomes available to all, if the predetermined minimum is not

met, no one gets the deal that day. This reduces risk for retailers, who can treat the coupons as

quantity discounts as well as sales promotion tools. Based on scarcity and impulsiveness, the

28

service clashed the social networks and becomes almost immediately a success.

Groupon turned down a Google’s acquisition proposition of 6 billion dollars45

in October

2010.

Groupon faced several copies following its launch that fits in the strategically timing theory of

Shenkar’s Model. Going from the Fast Second to the Pioneer Importer throughout the Come

from Behind. The focus here is to understand the competition implications of being a Pioneer

Importer (meaning, importing the idea to a new Market) in a context where the next round of

imitators eroded the benefit.

4.1. COPY CONTEXT: THE ACCELERATING PACE OF IMITATION

Took from the other studied case, MercadoLibre vs. eBay, from eBay’s launch in 1995 and its

Latin Americans Copycats in 1999, 4 years had passed. Groupon was found in November

2008 and Peixe Urbano, the first copycat in Latin America’s Market was launched in January

2010, a little more than 1 year after the original.

At this time, Groupon was entering into the European Market but they decided to copycat its

own copycat Peixe Urbano in Brazilian market prior to exploring their normal brand in the

country46

using another brand called Clube Urbano. After they understood the

correspondence problems that they would have to face to explore the market, they finally

launch the service using the regular Brand in 2011: Groupon.

This occurs because of several changes that happen in the Internet Industry during the 10

years gap observed between the cases.

The early Infrastructure constraints are not just solved but with costs failing down due to the

current global access to cloud computing. Ten years late, it is easy to find professionals

already experienced in the Internet Industry and familiar with technical and related skills and

concepts of e-commerce. Besides that, Latin America reached on average 40% of population

usage of Internet what leverage business scale. Not to mention that the Social Trend, drawn

by Facebook and other social web sites success, became known to almost everyone the

Internet capabilities.

4.2. COPYCATS PROLIFERATION: ERODING THE BENEFITS

In Brazil, just 5 months after Peixe Urbano launched it accounts more than 10 other copycats

running similar business and by the end of 2011 it counts almost 1,00047

.

The capital correspondence problem faced by Peixe Urbano, was the hyper-local dependence

29

of the business model nature that creates the opportunity to other copycats entry into the

business and erodes the benefits. [When] “The Fast second enters on the heels of the pioneer

before the latter has had an opportunity to establish a solid monopoly and before other

imitators - sometimes called "rabbits" to denote the speed at which they multiply - erode the

benefits.”48

As an indicator of the business reputation shutting down, in November 2012 PROCONX

released a list of 200 collective salesXI

not recommended web sites for consumers to trade

with.

Nowadays Groupon drives more traffic than Peixe Urbano but the model denotes to be

fatigued after much adaptation and different applications overs the last years. See the traffic

data available about the last 6 months on Alexa‘s Web SiteXII

.

Source: http://www.alexa.com/siteinfo/groupon.com.br

4.3. COPYCAT EVOLUTION: TRYING TO IMOVATE

After opening operations in other Latin America countries like Argentina, Chile, and Mexico

Peixe Urbano bought49

in March 2012 Groupalia, another Latin America Copycat of Groupon

and consolidated its leading position at the local commerce market.

X

PROCON plays in Brazil the same role as consumer defense organization as the Federal Trade

Commission in the US.

XI

Local denomination of Brazilian’s web sites which follows Groupon business model.

XII

Alexa is the Web Information Company. Since our founding in 1996 we've been committed to

providing free website analytics for all websites. Today, millions of people from across the globe visit

Alexa.com each month to access our web analytics and other services.

30

Pursuing the maintenance of its business, the company continues to develop its business based

on the main assets conquered the relationship with local merchants. They made other

acquisitions to add the company’s portfolio other services like online reservations50

and food

delivery solution51

searching for new revenues stream.

5. CASE STUDY: COMPANIES DRAWN FOR COPIES?

5.1. SAMWER BROTHER’S AND THE ROCKET INTERNET.

Rocket Internet is a German startup incubator focused on transaction-based markets in online

and mobile environments. The founders, three German brothers named Alexander, Oliver and

Marc, known as the Samwer Brother’s, began its operations back in 1999 but since 2007,

under the name of Rocket Internet has been building copycats online business in developed

and emerging markets. Nowadays, they count for more than 100 businesses in more than 40

countries52

.

In 1999, the Samwer Brother’s took the same steps as Marcos Galperin and Hernan Kazah did

in the Latin America at that same year. They cloned eBay’s business model in German under

the brand of Alando and just four months after the launch, eBay paid US$53 million to

acquire it. The transaction made the Samwer Brother’s the first Internet millionaires in

Germany.

The declared but unpopular Copycat Strategy applied by the company, made their brand

frequently mentioned in international sites and online or startup specialized media53

and

definitely puts Berlin’s startup scene on the international business map.

The company built an internal culture that promotes entrepreneurship behaviors that meet the

list of competences required into Shenkar’s framework for copy companies. For instance, see

how the Rocket’s web site describes the company’s culture: “We are passionate entrepreneurs

and focus on performance. We remain humble, and we understand that success is a result of

hard work. We want to learn every day and share our knowledge with each other. We focus

on the details and always try to solve problems ourselves.

We want to be selfless and pragmatic and have no time for politics. We value intelligence

more than experience. We believe that anything is possible. We move as fast as we can and

take risks. We like to get and give autonomy and responsibility. We are flexible and tolerant

towards ambiguity and uncertainty. And above all: we are always looking for great people.”54

In the next sections, the study applied Shenkar’s Framework to analyze the company

31

evolution.

5.2. WHERE, WHAT AND WHO TO IMITATE

Rocket Internet focuses on online industry, defining clearly the method applied in order to

decide the domain of its activities:

The object of imitation: “Our primary focus is on building proven, transaction-based business

models in the online and mobile space. We are however not limited by such parameters and

seize other attractive opportunities whenever they arise. 55

”

5.3. WHEN TO IMITATE

Rocket Internet applies the Pioneer Importer Strategy, identifying successful Internet ideas

usually from the US, and replicating them in several countries distributed in all continents:

Africa, Asia, Australia, Europe, North and South America.

This strategy enabled the company to explore the option of selected exit from a bunch of its

copies. Selling their own copycats initiatives to the original company or other players still

adding value, not to mention cash into the company’s portfolioXIII

.

For instance, the Samwer Brother’s sold the Alando website, the Germane eBay clone, to

eBay just four months after its launch and the CityDeal website, a European Groupon clone

built by Rocket Internet and sold to Groupon in May 201056

.

Those two selected examples reinforce not just their capacity to create successful copies but

also the plan to sold it for the original one, what instead of making the company weaker, helps

to extend its reputation and either helped eBay and Groupon to start its own international

expansion.

In the case of Groupon acquisition, they decided to hire the two older Samwer Brother’s as

consultants to guide them in its international expansion plan57

.

5.4. HOW TO IMITATE

Consciously decided to be a Pioneer Importer and never an “Innovative Company”, the

brothers explored the asymmetry between markets to develop its business empire.

Rocket Internet needed to build up internal competences to make it possible before they

XIII

To see a complete list of Selected Exit Business of Rocket Internet, visit its own Web Site at the page

http://www.rocket-internet.de/ventures

32

spread its business globally. Aiming it, the Samwer Brother’s put emphasis on executing

capabilities into the business development process, as said by Groupon CEO Andrew Mason

(2012) in a interview: “What people have to realize is the idea is the easy part, and that

execution is the hard part, and Marc and Oli are the best operators I’ve ever seen in my life”58

.

The same steps followed by MercadoLibre to create an internal capacity to adapt business

requirements and overcome the correspondence problem in distinctive countries at the same

time, Rocket Internet played the same game, developing a complex and intrinsic professional

network to drive its decisions and exchange its own best practices across its companies and

across boundaries.

After spending some time playing this role in so different regions, they accumulated a deep

understanding about technology adoption cycles and local culture differences, what makes

them capable of creating its own recipient’s to drive in global scale the correspondence

problem. They have learned where to put substitute elements in the imitated model and where

to find local or global partners to fit the model and the environment.

Adding to that knowledge, an internal adjusted framework to replicate and adapt key activities

required to build up digital-based businesses, Rocket Internet made possible to create a startup

assembly line, cutting costs and time in each new business they plan to launch.

Another capital output of this approach is the complementariness effect over future initiatives,

not only leveraging results based on the previews outcomes, including built sectorial

relationships, vendor’s network or revenue streams, but also helping to generate bargaining

barriers to other copycats or blocking the original company to entry in its regional markets.

The value projected from this behavior is the proved shortcut-knowledge to achieve financial

results in a new business or market.

Minimizing failures and reducing risks involved from the conception of a business until its

productive stage, cutting researching and development costs, it is possible for them to better

manage their key resources and support a variety of simultaneous initiatives across

boundaries.

They also put pressure under innovative startups, once they quickly copy a good idea into

other markets, conquering and retaining value being the first what leaves them the opportunity

to sell the business to the original or proceed to collect profits itself.

According to a news published by Bloomberg Businessweek at the end of 2012, the

companies founded by the Samwer Brothers worth around US$1 billion59

.

33

6. CONCLUSION

6.1. INSIGHTS TO SHENKAR’S FRAMEWORK EXECUTION

Evaluating the Shenkar’s Model and comparing it to Traditional Business Strategies Theories,

it is possible to realize the same degree of correlation between the decisions and the

requirement in order to develop a business plan.

Observation denotes that the culture required in order to create the environment for copy,

often relies on entrepreneurship competences presented in startups. The experimental

environment facilitates the copycat strategy in startups rather than the appliance of the same

model in existing companies.

Indeed, the capital weakness inside existing companies to apply the model is the disruption

caused by controversial competences to drive the current model and the cloned one. Once

they try to match the pieces, the dynamic differences between the models clash against each

other generally making the company lose track of core competences.

Execution abilities, shown up frequently as an essential contributor to the success of the clone

initiatives studied in this paper. According to Black, S. (2013)60

the adoption of a Lean Start-

up Process, a method that “[…] favors experimentation over elaborate planning, customer

feedback over intuition, and iterative design over traditional ‘big design up front’

development”. The prior statement meets the advices given by Tolda, S., COO of

MercadoLibre (2013)61

in its interview.

Based on the lack of disciplines or subjects in Business Schools that teach those competences,

there are other subjects on more traditional disciplines that could be applied to facilitate the

analysis. To find more direct correspondences, see the table.1.

34

Note that the model doesn’t differ too much from a traditional Business Plan. Actually, it

demands the same degree of cognitive effort required to build a business related to innovation.

What the framework really adds to this journey are the right questions to solve the common

challenges.

To select the right model or just a fraction of it, it is required to determine the same basis that

in a regular business: a mission statement.

The strategic decision related to timing, the “When to imitate question”, requires a deep

understand about potential entrants (monitoring other copycats) or the original company intent

to entry in the same market region (for pioneer importer strategy) evaluations, presented in

Porter’s theory. The decision of using a “The Fast Second” strategy or to be “The Comer from

Behind” enables the use of McCarthy’s Marketing Mix Strategy to set the positioning or

differentiation based on the Marketing Mix.

To overcome the Correspondence Problem, its essential to make an external environment

analysis to run the “Pioneer Importer” and find out the differences related to regulations,

35

cultural behaviors, technology adoption or development level, etc., to adapt the model. The

Business Model Canvas helps to define the internal set of competences of a company in a

simple framework whether to clone an entire business or just a part of it. It will be easy to find

the controversies when the pieces are together, trying to create the puzzle, which means the

entire business system. This is the Business Model Canvas, with the selected subjects most

influenced by the “Correspondence problem into a Pioneer Importer Strategy”:

To “Imovate” or create value, a crucial part of the copying model regarding the innovation

from the inspired model, use techniques like the “Blue Ocean”, The Marketing Mix analysis

or the Competition Strategy of Porter’s.

Besides that, trying to accelerate the erection of barriers to defeat a business, it is possible to

take into account Porter’s evaluation or make a Risk Assessment, to found the most sensitive

activities of your model and creating a plan to mitigate it.

6.2. FINAL CONSIDERATIONS

Shenkar’s Framework helps to prove that Copycat initiatives could create value, innovate to

differentiate the business and build barriers to defeat the business. The framework also helps

to plan a copy, from the selection of a copy domain to drive the correspondent problem, the

invisible part of the business system.

In his book, Shenkar (2010) writes its conclusions appointing that: “Having observed Market

reaction, imitators can better calibrate a product, positioning it where returns appear more

secure and promising, […] lowering cost and shortening time to market62

. […] New entrants

from emerging markets rely heavily on imitation to compensate for their lack of capital and

know-how, and cost saving they reap - by skipping R&D while adopting preexisting but new-

36

to-market or new-to-the-firm technologies - is crucial to their competitive advantage63

. [...]

Successful firms are chosen not only on the assumption that following them will produce

better results but also as a way to obtain a measure of legitimacy, something that is especially

important during times of high uncertainty64

.”

It’s important to notice that the use of copycat strategy could reduce risks but it’s not enough

to build companies to last.

MercadoLibre was required to deal not only with the institutional voids in Latin America, but

also with missing parts of the business environment. The absence of Commission Junction

and PayPal in Latin Markets create additional demand to the Argentine’s entrepreneurs, at

least they had much more time to defeat its local position before the pioneer express any

intention to entry into the region.

Compared with Peixe Urbano’s case, that had short time to develop its business before

entered in dispute, yet in the early stages, not only with Groupon, but also against a wide

range of local copycats.

Rocket Internet, on the contrary, took advantage of its position in a more mature market. Just

5 months after the launch of their first copycat in German, the acquisition made by the same

pioneer imitated by MercadoLibre, eBay, they realized the potential of the copying as a

business strategy and start to develop international skills (knowledge about foreign markets)

so they just copy another business and copy its own business across the globe.

The difference among the perspective of how pioneers saw Latin America’s market

comparing to the European’s market dramatically changed after the world’s financial crisis.

Not only the requirement of find other options, but also the evolution over the tech –industry

of the region, alter the pace. The stability lived inside this countries reduce the institutional

voids and diminish uncertainty and fear, for the pioneer’s expansion to those markets.

Disregarding the invisible part of the Business Model, that add to the copycat applicant the

complexity to analyze and discover, the secrets of success of the pioneer company, both need

to deal with the correspondence problem, either considering institutional voids or missing

parts of the environment, in order to implement the business into those emerging markets.

The difference remains on the local knowledge and at the execution capability of both, to

define which one will win the adventure of opening business.

37

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8. NOTES

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Business Press: pp. 140 – 142

6 IBIDEM p.144

7 IBIDEM p.118 and p.147

8 IBIDEM pp. 155 - 157

9

IBIDEM p.158 10

IBIDEM pp.159-160

11

Osterwalder, A. and Pigneur, Y., O., (2010) Business Model Generation: A Handbook for Visionaries,

Game Changers, and Challengers, Self Published Publication: p.12

12

Shenkar, O., (2010) Copycats: How Smart Companies Use Imitation to Gain Strategic Edge, Harvard

Business Press: p.65 13

IBIDEM p.84 14

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Anderson, C. (2006), A Cauda Longa [in Portuguese] [The Long Tail: Why the Future of Business Is

Selling Less of More]. Translated by Afonso Cunha Serra. Ed.: Campus, 2006.

40

20

Gladwell, M. (2000) O Ponto da Virada: Como Pequenas Coisas Podem Fazer uma Grande Diferença

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IBIDEM p.134

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IBIDEM

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IBIDEM

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