Developing Evaluation Frameworks for Business Models in China’s Rural Markets

Abstract

In rural China, successful and sustainable business model design has been viewed as an important strategy to achieve a win–win scenario in which rural poverty can be alleviated and enterprise profit can be improved. Although business model related literature is strong, it lacks a comprehensive framework for appraising business models in rural markets. As a result, entrepreneurs are facing significant challenges in implementing their market development centered business models or resource development centered business models. This study draws on case analysis to present two frameworks for evaluating the two types of business models, respectively. Through open coding and axial coding on eight Chinese cases, we identify the main components for the evaluation frameworks and critical factors within each component. Using the coding results as a lens, we apply a cross-case comparative data analysis to establish the multi-level evaluation systems. Finally, we provide suggestions for entrepreneurs and other stakeholders to better their business model design in China’s rural markets.

1. Introduction

Markets at the bottom of the pyramid (BOP) hold many potential advantages in terms of their size, rapid growth, less competitive environment, and opportunities Jun, et al. [1]. Offering products/services to the poor in these markets and partnering with them to build new resources and capabilities not only provide an effective way to fight poverty but also present profit opportunities for companies [2,3]. Unfortunately, expansion into these markets has been significantly more challenging than originally expected [4]. Bottom of the pyramid markets are characterized by low purchasing power, hostile distribution and logistics conditions, weak infrastructure, poor market power [5,6,7], underdeveloped human capital [8], and lack of contracting mechanisms [4], among others. In order to fight these constraints and prevent market failures, organizations are required to radically change their business models in top markets, and adapt their business models to BOP markets’ cultural, economic, institutional, and geographic features [9,10,11]. However, how to adjust their dominant business models from TOP markets, and how to build effective business models for low-income populations? These issues require organizations to identify the determinants of a successful and sustainable BOP business model, and understand how these determinants help entrepreneurs overcome constraints as well as create mutual value. In view of these concerns, there is a strong motivation for researchers to work out these issues and to construct a viable evaluation framework.

According to the Word Bank, most of the poor reside in rural areas [12]. For example, more than 80% of the BOP in China is rural residents (National Bureau of Statistics of China, Beijing, China, 2017). Therefore, access to rural markets is a major problem in China. Furthermore, rural BOP is different from urban BOP in terms of remote geographical location, high education cost, lack of information, market distortions, etc. [5,13,14]. These distinct differences suggest that undifferentiated business models to these markets will not work [5]. Consequently, this paper focuses on the analysis and evaluation of the business models in rural markets.

The business model evaluation domain is inherently complex [15], and it is further complicated by the unique characteristics of rural environments. As a result, little research has focused on this domain within the rural context. Absent a clear theoretical guidance, as many as 75% of all start-ups or development business models fails in rural markets [13]. The aim of this study is to develop a comprehensive evaluation framework especially suitable to China’s rural environment. For this purpose, we attempt to answer the following questions: What are the critical factors that support a successful and sustainable business model in China’s rural markets? How do the factors affect business model performance? What are the detailed criteria included in the evaluation framework? The contribution to entrepreneurs considering the evaluation framework is a synthesis of the factors that need to be considered in implementing their business models.

The next section reviews relevant literature. Section 3 describes the methodology of this study, including case selection, data collection, and coding procedure. Section 4 analyzes the coding results and constructs the evaluation frameworks. Section 5 discusses the research findings. In the last section, conclusions, managerial and theoretical implications, as well as limitations are illustrated. Future research directions are also discussed in this section.

2. Literature Review

2.1. Business Model Definition

The business model concept has become very popular within the business and management fields. Over a period of time, researchers have proposed various definitions. A business model is a method of doing business [16,17,18]. A business model is a system of interconnected and interdependent activities [19,20]. More specifically, Johnson, et al. [21] describe a business model as a series of elements: customer value proposition, profit formula, key resources, and key processes. The customer value proposition defines value for the customers, and the profit formula defines value for the companies; key resources and key processes describe how value will be delivered to customers and companies. Chesbrough [22] points out that a business model performs two important functions: value creation and value capture. Based on a wide range of literatures, Bocken, et al. [23] and Geissdoerfer, et al. [24] propose a consolidated view of the components of a business model as: value proposition, value creation and delivery, and value capture. Although a generally accepted definition of business model has not emerged, there is a general consensus that the term describes the business logic a company or network of companies used to generate revenue and create customer and network value [25]. Following Bocken, Short, Rana and Evans [23], in this paper, we define business model by three main elements: value proposition, value creation and delivery, and value realization. Value proposition defines value for customers, and it concerns providing products/services. Value creation is the heart of a business model. Businesses integrate key processes and resources to create value and then deliver value to customers and other partners in the business ecosystem. Value realization is about considering how to earn revenues.

2.2. Business Model Evaluation

It is important to evaluate business models [26]. Several scholars have previously attempted this. For example, Casadesus-Masanell and Ricart [27] discuss four related desirable criteria for business models: alignment to goal, reinforcement, virtuousness, and robustness. Osterwalder, et al. [28] propose a business model canvas intended for use in business model development and evaluation. The canvas charts nine blocks: key partners, key activities, key resources, value propositions, customer relationships, channels, customer segments, cost structures, and revenue streams. Allan and Christopher [17] believe that profitability is the most important indication to measure the performance of a business model. To measure the wealth potential of a business model, Hamel and Trudel [29] identify four factors: efficiency, uniqueness, fit, and profit boosters. Gordijn and Akkermans [30] evaluate the economic feasibility of a business model based on assessment of the net in and out flows of value objects (costs vs. benefits) to the participating actors. Sharma and Gutiérrez [31] propose a viable business model evaluation framework for m-commerce, the constructs selected are user-centric architecture, value propositions, organizing model, service offerings, return on investment arrangements, interface, scalability, responsiveness to market trends, collaborations and partnerships, and dynamicity. Al-Debei, et al. [32] address critical design factors for mobile business models: cohesion and explicitness are operator-oriented, whereas market-alignment, dynamicity, uniqueness, and fitting network-mode are industry oriented. Zografos, et al. [33] put forward a methodological approach for developing and accessing alternative transport system business models. This approach involves criteria in terms of market opportunities, legal, and regulatory framework, business vision, and business mission. Zhao, et al. [34] identify eight key performance criteria and 33 indicators for evaluating the performance of innovative business models. A business model must match the industry involved, external environment, and business conditions [35]. Correspondingly, evaluation criteria should be adjusted to suit different business models [36].The proposed criteria above do not aim at low-income markets, so they can be used for references but not appropriate for evaluating business models in rural markets.

2.3. BOP Business Model Evaluation

A decade ago, low-income markets attracted research attention [37,38]. Subsequent research highlights the need to introduce innovative business models for BOP markets [35,39]. Given the difficult and uncertain environment, some studies analyzing the success factors for BOP markets have been conducted. If firms want to reach the bottom of the economic pyramid, they need to focus on the 4As: availability, affordability, acceptability, and awareness [40]. To achieve the 4As, Ver Loren van Themaat, et al. [41] present a framework illustrating nine building blocks for designing a business model to target BOP population: customer, customer interfaces, value proposition, price, key resources, key activities, key partnership, channel, and cost structure. Based on case study, Van den waeyenberg and Hens [42] find that expansion of developed-country multinationals to BOP markets forces a firm to pay more attention to new capabilities, building collaboration with local partners and knowledge sharing. It develops success criteria that are especially suitable for determining business models in BOP markets. The proposed list of criteria consists of three clusters: product development, infrastructure, and customer service. Qualitative multi-case based analysis presents that key focus areas of the socially-embedded business model to success at the BOP markets include the focus on local capacity building, non-traditional partnerships, and grass-root learning based ecosystem [38]. Although recent work in BOP strategies has begun to examine the success factors of BOP business models, comprehensive evaluation framework has rarely been dealt with. Admittedly, there are some overlaps between rural markets and BOP markets. However, rural markets are different from urban BOP markets in the characteristics of spatial separation, informational separation, and informal market dominance. Therefore, it is necessary to build on and expand the existing work in the context of evaluating BOP business model.

Additionally, the market-oriented perspective on the BOP has encountered criticism. For example, Karnani [43] and Peredo, et al. [44] argue that the best way to alleviate poverty needs view the poor primarily as producers, not just as consumers. Simanis, et al. [45] expect BOP initiatives to engage the poor not just as recipients of existing products but also as co-inventors of BOP strategies. In this respect, entrepreneurs need design two types of business models for rural markets: market development-centered business models (MDCBM) and resource development-centered business models (RDCBM). Correspondingly, two evaluation frameworks are required. However, few researchers distinguish the two constructs from each other.

In summary, the evaluation framework domain of business models in rural areas remains an underexplored research area. Our study attempts to make several contributions to this emerging field. First, based on an in-depth case analysis of a sample including eight Chinese enterprises, we identify the critical components of a business model in rural markets and their sub-variables. Second, following a cross-case comparative data analysis, we develop the evaluation frameworks for MDCBM and RDCBM respectively. Third, we contribute to the guidance on entrepreneurial practices in China’s rural markets. Our work not only extends the research streams on business model evaluation and business model design, but also presents a new methodology. Although the sample represents Chinese enterprises, the findings may also provide value to multinational corporations that can use the insights for reference to guide their behaviors in global rural markets.

3. Research Methodology

Given the lack of prior literature, it is a challenging to construct the evaluation framework. A case study methodology is recommended when studying complex phenomena [46]. This methodology can help to find the hidden important variables through rich, empirical descriptions of particular instances of a phenomenon that are typically based on a variety of data sources (Yin, 1994). Additionally, multiple case designs tend to generate more evidence, and thus make the study more robust [47]. Therefore, a case study methodology using eight enterprises from China was adopted in this study.

3.1. Case Selection

The target sample included eight companies (see

Table 1. Profile of the eight companies in the sample.

Cases	Industry	Offering	Organization Format	Role of Farmers	Size	Location
Company A	Manufacturing	Household appliance sale	private	consumer	Large	Qingdao
Company B	Manufacturing	Household appliance sale	Joint venture	consumer	Large	Shenzhen
Company C	Telecommunication	Information service	State-owned	consumer	Medium	Wuhan
Company D	Retail	Rural supermarkets	private	consumer	Small	Nanjing
Company E	Agricultural product processing	Linwu duck breeding and processing	Joint venture	producer	Medium	Chenzhou
Company F	Agricultural chemical	Chinaberry biological pesticide R&D	Joint venture	producer	Small	Nanjing
Company G	Agricultural product processing	Soybean production and processing	private	producer	Small	Dalian
Company H	Biotechnology	Agricultural product sale	private	producer	Large	Hohhot

below) according to Eisenhardt [48] who advised the size of the sample was to be 4–8. We selected the specific organizations for several methodological and validity reasons. First, all eight companies continually carry out business transactions in rural areas, for example, selling productions/services to rural residents, employing farmers or buying goods from farmers. Second, seven companies as successful cases, and Company B on behalf of the failure case were chosen so that we could extract key variables from both positive and negative perspectives. Third, these eight companies are of representative cases in China, which are competing in different areas and managing different businesses. The size and organization format are also different from each other. Fourth, the detailed data of each organization are available for later coding. Finally, the eight cases can be divided into two groups. Farmers play their consumer roles in four case companies and producer roles in another four companies.

3.2. Data Collection

We conducted face-to-face interviews with executives and employees in sample companies about their business actions in rural areas. Our students assisted us to obtain interview data from farmers and rural consumers. This helped us know about rural production needs and consumption needs. Unfortunately, without adequate budget and time for travelling, it was not easy to get enough valid data from face-to-face interviews. More secondary data were collected from further companies’ documentation, such as articles, news report, annual reports, homepages, executive speeches, and other publications. This multi-level and multi-source data collection approach (see

Table 2. Summary of the data sources.

Cases	No. of Articles	No. of News Report	No. of Annual Reports	No. of Research Report	No. of Senior Exclusive Interview, Speeches, and Expert Comment (Secondary Data)	No. of Face-To-Face Interviews	Total Duration (Hours)
Company A	49	52	12	8	7	3	3.5
Company B	12	20	8	2	4	2	3
Company C	5	19	0 ①	2	4	6	9
Company D	12	27	0 ⑤	2	3	2	3
Company E	15	15	0 ②	3	4	2	2.5
Company F	10	16	0 ③	1	6	2	2
Company G	7	6	0 ④	3	1	2	1.5
Company H	13	56	7	2	4	3	3.5

Notes: ^① Company C is a subsidiary of China Mobile, without independent annual reports. ^②–^⑤ The four cases are unlisted companies at present.

below) is necessary for increasing the level of consistency and validity [49].

3.3. Data Analysis

Two coding technologies were applied to analyze the collected data. The first of these techniques is open coding which is an iterative process. For the case of Company A, initially, collected data were documented and labeled with coded name. By reading the labeled information, the concepts of each coded sentences were conducted. After determining all concepts, we reread the provided material and noticed some concepts were interrelated, thus we merged them into a new category. The same steps were applied to other interrelated concepts and we created a table to describe the coding results (see

Table 3. The results of open coding.

No	Coded Categories	Coded Concepts
1	Market research	Research target, research site, researcher, research way, research principle, research breadth, research depth
2	Market positioning	Market segmentation, market location, market level
3	Products/services	Function, quality, price, brand, affordability, practicability, suitability, convenience, ease of use, stability, security, hierarchy, richness, features, update speed, upgrade speed
4	Rural residents’ consumption needs	New needs, unmet needs, potential needs, personalized needs
5	Rural residents’ consumption trends	Urbanization, instant consumption, diversification, modernization, knowledge-based, technicalization
6	Rural residents’ consumption capabilities	Essentials consumption capability, education consumption capability, culture consumption capability, information consumption capability, poor, strong
7	Rural residents’ consumption characteristics	Conservative, cautious, seeing is believing, mass psychology, mass behavior, regional differentiation, cultural diversity, convergence
8	Rural residents’ consumption preference	Convenient, affordable, practical, durable, suitable, stable, safe, simple, enjoyable, confident, recreational, fashionable, blatant, interactive, knowledgeable, good value for money
9	Value network	Quantity of network entities, quality of network members, industries of network members, integration approach (vertical integration, horizontal integration, structural connection), integration depth, integration width
10	Distribution channel	Channel number, channel type, channel network, channel structure, channel mode, logistics and distribution, distribution standard
11	Relationship governance	Strategic cooperation, contractual cooperation, trust cooperation, loose cooperation, direct management and control, trust and contractual cooperation intertwined
12	Enterprise learning	exploitative learning, exploratory learning, learning by doing, learning by observation, learning by cooperation
13	Enterprise training	Training classroom, use manual, sci-tech guidance, sci-tech popularization, sci-tech consultation, sci-tech service, special lectures, field guide, science and technology training, further education
14	Farmers’ production capability	Education level, skill level, the depth of information held, the breadth of information held, opportunity, financing ability, learning ability
15	Farmers’ value-based production needs	Employment, skill improvement, information awareness, income increment, social participation, social status promotion
16	Rural credit system	Loan pattern, loan limit, capital enrichment, capital diversification, capital structure, capital optimization
17	Income model	Sources of income, the status quo of income, the way to increase income
18	Cost model	R&D cost, production cost, management cost, marketing cost, financing cost, cost structure, the status quo of cost, cost reduction method, cost optimization mode
19	Enterprise resources	Talents, capital, R&D bases, infrastructures, external resources
20	Enterprise culture	Respecting rural needs, serving rural markets, enhancing farmers’ ability, increasing farmers’ income, improving farms’ social status, motivating farmers’ social participation, repaying the society
21	Rural resources	Rural population, relational capital, natural environment, transportation, local regulations, local ability, productive resources (e.g., land, water, crops, etc.)
22	Policy environment	The attitude of state and local government, policy support, financial support, regulatory measures, the extent of media propaganda, taxes
23	Technology environment	Present development situation of emerging technologies (e.g., network technology, communication technology, cloud computing, AI, big data, biological engineering, etc.), last-kilometer connectivity and reach, present construction situation of technological infrastructure, quantity of the agricultural software, quality of the agricultural software, the popularity rate of cell phones, the popularity rate of computers, technology update speed

below). For the rest cases, the concepts and categories on the documented and labeled materials were conducted in the same way. By comparing them with the determined concepts, we added new concepts and new categories to Table 3. The process iterated until no new concepts emerged. Finally, all the concepts were compared to ensure the appropriate modifications to reach the final 166 concepts and 23 categories shown in Table 3.

Through open coding, 23 individual categories were established. The following process involves using axial coding to reassemble them into more abstract categories. By carefully analyzing and comparing the inter-relationships (e.g., cause-and-effect relations, semantic relations, similar relationship, etc.) between the 23 categories, four main categories and their properties (sub-categories) were identified (see in

Table 4. The results of axial coding.

	Market Development Centered Business Models (MDCBM)	Resource Development Centered Business Models (RDCBM)
Main-categories	Sub-categories	Sub-categories
Value proposition	Market research, market positioning, products/services, rural residents’ consumption capabilities, rural residents’ consumption needs, rural residents’ consumption trends, rural residents’ consumption characteristics, rural residents’ consumption preferences	Market research, market positioning, farmers’ production capabilities, farmers’ value-based production needs
Value creation and delivery	Value network, distribution channel, relationship governance, enterprise learning, enterprise training, rural credit system	Value network, relationship governance, enterprise learning, enterprise training, rural credit system
Value realization	Income model, cost model	Income model, cost model
Environmental support	Enterprise resources, enterprise culture, rural resources, policy environment, technology environment	Enterprise resources, enterprise culture, rural resources, policy environment, technology environment

). Among them, three categories met the business model concept and its main elements. The environmental support variables, including enterprise resources, rural resources, policy environment, and other environmental factors, also strongly affect the performance of the business models in rural markets. Thus, we identified environmental support as the fourth main categories. Additionally, we noticed that some categories (rural residents’ consumption needs, rural residents’ consumption trends, etc.) reflected the content of MDCBM and defined the value proposition for rural populations as customers, while other categories (farmers’ production capability, farmers’ production needs, etc.) reflected the content of RDCBM and defined the value proposition for farmers as producers. Furthermore, some categories, such as income model, cost model, environmental support, etc., also had different explanations in MDCBM and RDCBM. Therefore, we sorted the categories by distinguishing the two types of business models.

4. Evaluation Frameworks Development

The major findings came out to be the four main categories and their critical factors shown in Table 4. Using the coding results as a lens, we read the coded materials again and further classified the critical factors according to their impacts on the organization offering the services. The following section explains how these factors affect business model performance in combination with case facts and literature reviews. This cross-case comparative data analysis, taking the coded concepts in Table 3 as a story line, is a useful tool for working out the detailed evaluation criteria for RDCBM and MDCBM respectively. Appendix A and Appendix B present the summarized case descriptions.

4.1. Critical Factors within Value Proposition Category

4.1.1. Market Research

Consumer behaviors in rural areas are basically different from urban regions [50]. To meet rural residents’ consumption needs and offer them decent value, it is necessary to study their consumption habits, consumption preferences, consumption abilities, as well as rural infrastructures. For example, in 2008, Company A set up 12 rural project teams and organized them to more than 9000 villages located in Shandong, Henan, Anhui, and other provinces for refrigerator market research. Company C and Company D also formed high quality investigation teams for the in-depth research in rural markets. However, Company B overlooked market research. Without an adequate understanding of the rural consumption markets, Company B suffered a huge loss caused by products unsalable.

The production conditions in rural areas are also quite different from urban regions. On the one hand, enterprises will face the challenges related to the rural frustrations, literacy, and local institutional environment [14]. On the other hand, they will benefit from the advantages related to local natural resources and local capabilities. To overcome the constraints and make full use of the local advantages, the four agri-business enterprises all conducted in-depth and extensive investigation on rural regions and made an effort to understand the resource market.

4.1.2. Market Positioning

The regional disparities and cultural differences in China’s rural areas lead to consumption regionalization [51]. The wealth gap and age gradient incur consumption level diversification. Whether enterprises appropriately perform the market segmentation in rural China directly affects the accuracy of their market positioning, which ultimately influences the success of MDCBM. Company A supplied bubble washing machines for northern regions to fight against the hard water, while it provided a composite washing machine functioning as a washing machine, a dehydration machine, and a drying machine for Southern Yangtze regions where “plum” rains occur frequently. Company C provided the rural residents with differentiation information by dividing them into five types: rural landowners, rural specialized households, rural civil servants, rural entrepreneurs, and peasants.

The performance of RDCBM has a close relationship with local natural resources, so proper location selection is the basis for RDCBM success. For example, Company E is located in Linwu County where is known for its unique natural mountains, rivers, and ecological environment. These geographic advantages help farmers farm out tender and tasty Linwu ducks. Company F is located in Qiaoli, Gaochun County. The reason is that this field with large idle land cannot grow crops but is suitable for planting chinaberry. Company G is located in Northeast China, one of the best zones for planting soybean.

4.1.3. Products or Services Innovation

The development of markets at the BOP is not just about serving an existing market. It is often about creating a new market [5]. Creating a new market not only means roughly dismembering the functions of products/services in the urban market, but also means a breakthrough innovation on products/services. Only through innovation, can the consumer-oriented products be practical, durable, cheap, multi-functional, and then better service rural markets. For example, Company A developed an innovative washing machine not just to wash clothes but also to clean sweet potatoes, a novelty refrigerator that could continue work well for two days despite electricity failure, a wide voltage power-saving computer, and other innovative home appliances. Company C supplied rural consumers with innovational cells while at a low-price level.

4.1.4. Local Capability Understanding

After fully understanding rural populations’ consumption capabilities, enterprises can then effectively set targets for product/service innovation in rural markets. In this respect, understanding consumption capabilities is essential for supplying the affordability and acceptability. For example, both Company A and Company C recognized that the market obstacles and constraints in terms of low-income level, poor technical operation ability, and low education level (below junior school) led to a low consumption ability in rural markets. Whereas, Company D found that the rural populations surrounding Nanjing city had a higher consumption capability and a stronger consumption potential comparing with rural consumers in other areas.

By inviting farmers to participate in their production system, agri-business enterprises extend their industrial chains. However, farmers as co-inventors are required to improve their productivity capabilities and skill sets for the success of the whole ecosystem [52]. Only after fully understanding farmers’ constraints as well as local knowledge and capabilities can enterprises adopt effective methods to empower them. For example, the four agri-business cases all recognized the hindrances on RDCBM, such as low literacy level, unskilled labor, lack of information, and low financial ability. At the same time, they learned the advantages existing in China’ rural production markets. That is, rural residents have accumulated experiences in raising Linwu duck, or have accumulated experiences in planting chinaberry, soybeans, and crops. Based on the knowledge about rural production markets, the four enterprises trained farmers effectively and assisted them progress from traditional peasants to modern farmers.

4.1.5. Rural Needs Identifying

Rural populations’ current income is low and expected income is uncertainty. What’s more, they generally do not have enough productive assets and second-hand goods to be included in market mechanism. That is to say, they cannot obtain the temporary income through mortgage. As a result, rural consumers prefer to be conservative in their product choices and show higher price sensitivity. They believe seeing is believing, favor high quality but low price, pursue affordable and practical experiences, and prefer goods to be convenient, easy to use, and simple. In addition, rural consumers with limited knowledge generally cannot accurately perceive or judge the detailed differences across the products/services, so they are often to be passive receivers of these goods. Moreover, as rural markets have long been excluded from the formal market and stayed in a closed system, rural consumers cannot explicitly express their consumer demands in a larger marketplace, and thus tend to be constricted as potential consumers owning narrow experiences. Finally, rural populations as a whole represent multiple culture, ethnicity, literacy, age, and capabilities. Their consumption needs and consumption habits vary considerably across China. Hence, rural consumers welcome the goods that can satisfy their personalization choices. For example, due to the rapid development of information technology and more frequent rural-urban linkages, richer rural consumers or younger farmers show new consumption trends in terms of diversification, modernization, knowledge-based, and technicalization. If enterprises ignore these unique preferences, habits and trends of rural consumers, just like Company B, which simply copied and transited goods popular in urban markets to rural areas, they may encounter immediate market failure. To explore rural residents’ consumption needs, Company A turned its organization structure into “inverted triangle” where one class management body was composed of front-line staff directly responsible to the user [53]. By doing this, it successfully established a customer-centric business model that turned push-type system to pull-type system. Company C met rural residents’ culture needs by fusing Internet of Things technology into broadcasting.

Farmers are geographically dispersed residents and have operated in an economically self-sustaining manner for a long time [51]. Due to the lack of a reliable networks of electricity, road, technology, information, and transportation across rural areas, they cannot directly access relatively more mainstream buyers and social interest groups, and are unfortunately deprived of their earnings by intermediaries. As a result, their income generation prospects are limited [54]. Once joining the RDCBM innovation, farmers pay considerably more attention to the realization of self-interest. To attract farmers participating in business model innovations and gain their loyalties, entrepreneurs need to identify farmers’ value-based needs. These needs include income increase, capability improvement, and social status advancement. Case data indicate that income improvement is generally the most direct return. It can be realized via more employment opportunities and value sharing. Farmers are also eager to increase their productivity level at planting, feeding, fertilizing, and other fields. After acquiring more skills and thus gaining increased-income, farmers look forward to joining the formal markets and raising their social status. For example, women staying at home in Gaochun County experienced deep gender discrimination. They were eager to participate in market economies, contribute their earning for families, and then achieve a higher social status. Company F exactly identified the need of local women and benefited from inviting those women to play important roles in its RDCBM.

4.2. Critical Factors within Value Creation and Delivery Category

4.2.1. Value Network

To create a new consumer market in rural areas, enterprises will face various forms of market failures and high transaction costs owing to the geographic obstacles, low-income environment, and lack of formal market actors within the value chain including supplies, distributors, agencies and dealers [55]. Collaborating with non-profit organizations, government, civil society, and other informal market entities can combine complementary capabilities along each stage of the value chain to create and deliver value in a novel ways, while minimizing costs and risks [9]. Collaborative business models are the forces that enable switching benefits to surpass switching costs [56]. For example, Company A has established good cooperative relationships with county-level shops, village-level service stations, and village-level retail stores. Company C has established close cooperative relationships with information service providers. Company D has built up extensive strategic alliances with commodity suppliers. Beyond contributing to particular value chain activities, multi-stakeholder partnerships can contribute to particular value network activities. In such cross-sector partnerships, partners contribute missing capabilities and complementary human capital for product/service development. Just like Company A and Company C, both set up long-term collaborations with universities and academic organizations. The growing and ambitious talent pool offer higher capabilities in developing new products/services better adapted to the local rural market.

To utilize rural resources and build local capabilities, agri-business enterprises have to challenge the absence of property right system, credit rules, and other formal enforceable legal frameworks, while at the same time map the diverse social norms, customs and habits, and religious beliefs that have profound impacts on farmers’ production and life. Under such a market environment dominated by informal institution, agri-business enterprises are required to focus on establishing partnerships with multi-stakeholders to form a complex value network. In such a value network, besides that parties contribute missing capabilities including capital, talents, and techniques to succeed the RDCBM, trust constraints, and win–win principles can also be built up to overcome policies failing. For example, Company E transferred their business model from “company plus farmers” into “company plus production bases plus farmers,” and then into “company plus associations plus farmers.” At last, it created a value network comprising farmers, local government, breeding companies, breeding associations, colleges, and research institutes. Company G adopted a novel business model as “company plus third party plus farmers” and constructed a value network including the six stakeholders: company, Chinese academy of agriculture sciences, local government, soybean association, and soybean farmers. Company F and Company H also actively recruited widely diversified stakeholders to join their own value network.

4.2.2. Relationship Governance

Stakeholders in the value network not only share risks but also compete against each other for interests allocation. Case data show that under the competitive environment without perfect contract governance and other formal governance policies, opportunism and interest conflicts often occur. Especially when entrepreneurs carry out RDCBM, conflicts between parties become more intense. To ensure the overall performance of the whole network and prevent violation of any entity’s interest, entrepreneurs can rely on appropriate relationship governance modes to reach a mutual trust, information sharing, and symbiotic win–win cooperation relationship. For instance, Company A established a trusting partnership with retail stores, a friendly partnership with research institutes, and a loose partnership with local government, while it directly managed and supervised the county-level exclusive shops and the village-level service junctions. On the contrary, Company B completely depended on McKinsey and blindly followed McKinsey’s business strategies. This wrong relationship governance mode dramatically incurred the failure of Company B’s business models in rural areas.

4.2.3. Distribution Channels

Rural individuals are often geographically dispersed and often live in physically inaccessible places having poor transportation facilities [57] while far from urban production bases. The geographic obstacles not only invalidate the urban distribution model of hypermarket format but also inflate distribution cost and after-sale cost. For the success of MDCBM, setting up distribution channels for rural faster delivery and greater accessibility while aggressively reducing marketing costs is a key capability. By the end of December 2014, Company A had set up a distribution network involving 2.6 million rural stores to directly sell products/services to village individuals, a logistic network involving more than 2800 county-level distribution stations to provide home delivery services, and a service network involving more than 20,000 village-level junctions to offer household services. Company C had established a multi-level stereo distribution network involving over 30,000 physical channels to achieve full market coverage from the cities, counties, townships, administrative villages to remote areas.

4.2.4. Enterprise Learning

To create value for rural consumers and then win enterprise value, there is a need for entrepreneurs to setup the bottom-up learning mechanism, which ensures adapted products/services as well as learns from cooperative partners to enhance enterprise capability (e.g., R&D capability, production capacity, marketing ability, cost control ability, innovation ability, etc.). For example, Company A learned from end users and identified their needs. Company C learned from farmers so as to better rural information services. Additionally, product development activities in rural markets not only mean disrupting existing capabilities but also mean relying on existing capabilities. Exploitative learning can encourage team members to deepen the current knowledge set and achieve incremental development and continual improvement of existing solutions [58]. For example, Company A leveraged exploitative learning to speed up the development of household appliances by sharing, transferring, and deepening knowledge from urban markets.

Developing rural resource markets require organizations to build new capabilities and innovation management. Exploratory learning emphasizes the acquisition of new knowledge, skills, and technologies [59]. This can increase creative thinking and innovative ideas [60]. Therefore, it is necessary for entrepreneurs to pay more attention to exploratory learning. For example, Sample enterprises all gained innovative business ideas and strategies in virtue of learning by doing, learning by observing, and learning by cooperating.

4.2.5. Enterprise Training

If an organization cannot provide the poor with the products and services that fulfill the 4A’s (acceptability, awareness, affordability, availability), its business model is not viable [41]. Skill-building and awareness oriented training programs for the local individuals and institutions are key strategic actions to tackle the challenges pertaining to the 4A’s at rural markets [38]. For example, to help rural consumers better operate household electrical appliances, Company A provided training classrooms. To help consumers skillfully retrieve information, Company C offered use manuals for user training.

Farmers may have accumulated primitive production skills, but generally at a low level. Training and guidance are also the key strategic actions to upgrade their primitive production skills and enhance their competitiveness. As shown in Appendix B, agri-business enterprises equipped and empowered farmers with science and technology popularization, training seminars, and other training programs.

4.2.6. Rural Credit System

To rural residents, low- and irregular-income flows prevent them from undertaking lumpy investment or consumption. Using borrowed funding can be helpful to overcome this obstacle as well as enable production or consumption expansion. However, under the conditions of incomplete credit market and information asymmetry, banks and microfinance organizations lack fundamental trust in farmers’ abilities to repay loan. They worry about the high transaction costs and default rates when offering credit to them. Consequently, they refuse to offer even a small account loan. In order to reduce the financial separation between farmers and financial organizations, enterprises are expected to play the role of guarantors, just like Company E, and then leverage credit guarantee system to help the rural poor access to credit markets.

4.3. Critical Factors within Value Realization Category

4.3.1. Revenue Model

Entrepreneurs need draw on breakthrough innovation to ensure products/services affordable and fulfill rural consumers’ value proposition [5]. Most often, this is a very difficult problem because innovation will bring massive R&D expenditures but cannot be offset by market revenues in China. To target the business model success and enterprise value realization, it is essential to create flexible revenue patterns and develop multi-dimensional revenue sources matching the rural context. For example, Company C flourished its two-sided platform and achieved revenues by providing diverse value-added services for loyal rural consumers, while attracting the masses with free agricultural information. Additionally, rural consumers are likely to buy products/services that are already used by someone else and likely to adopt the products/services recommended by friends or relatives. Understanding this mass psychology and neighborhood effects in rural markets, Company A set a low price to attract the early customers and then rapidly led rural appliance market.

As for RDCBM, the sales capability greatly influences how much a company can earn. Therefore, it is essential to improve firms’ sale skills.

4.3.2. Costing Model

Value realization not only needs to increase revenue, but also needs to bring cost down [61]. First, to challenge the high distribution cost when entering rural consumption markets, entrepreneurs can build up distribution channel network and standard logistics system in small areas at the very beginning, and then expand the channel network and logistics system via the parallel replication strategy. Case data highlight that this cost model corresponding with rural geographical conditions leverages economy of scale and economy of scope. It is very critical for marketing cost reduction. Second, rural consumers tend to show group convergence and regional homogeneity when making consumption choices. If entrepreneurs have established a positive image and reputation for their products/services, they can rely on word-of-mouth recommendation to quickly access to rural markets with a low entrance cost. Third, the business behaviors of Company A, Company C, and other sample enterprises confirm that setting up a value network not only help knowledge sharing but also achieve cost sharing among entities. However, cost sharing is not bound to succeed because of the hindrances of inter-entity competitive relation. In other words, cost sharing capability influences R&D cost and operation cost.

Not only should agri-business enterprises reduce R&D and operation cost by leveraging value network when engaging farmers as co-inventors of RDCBM initiatives, they should also focus on reducing other expenditures including land rent, farmers’ salaries, and acquisition fees. Employing local idle labor forces and using local land resources are key strategies to achieve manufacturing cost reduction and labor cost saving. For example, by hiring local unemployed women and rending local idle land, Company H brought cost down dramatically.

4.4. Critical Factors within Environmental Support Category

4.4.1. Enterprise Resources

According to the open innovation theory proposed by Reference [62], valuable ideas come from inside or outside the company [63]. In this respect, the utilization of different external and internal resources can facilitates collaboration between network entities in their business model innovation activities [64] and increase a company’s capacities and performance [65]. Indeed, in a rapidly changing environment, entrepreneurial resources, including internal (e.g., talents, capital, infrastructures, etc.) and external (i.e., partners), directly influence entrepreneurial performance via dynamic capabilities [66]. Naturally, continually improving the resource base is extremely important for the continued success of business models in rural market. For example, Company A, Company C, and other sample enterprises integrated cooperative resources and internal excellent R&D teams for collaborative innovation. Furthermore, Company G fulfilled the role of being biggest soybean cultivation base in China for improving R&D capability.

4.4.2. Enterprise Culture

Many companies assume that the rural population with little income only allocate their spending to basic needs, making it impossible to for them do business profitably in rural regions [67]. To alleviate rural consumption poverty as well as release the huge rural consumption potential, case data imply that entrepreneurs need to correct their traditional prejudices first, and then build a new enterprise culture, in terms of serving rural market, respecting rural residents’ needs, serving agriculture, rural areas and farmers, and repaying the society.

Agri-business enterprises perceive market risks and uncertainties arising from the imperfections in term of low literacy levels, poor skills, insufficient infrastructure, inefficient resources, and capabilities in rural area. They refuse to accept farmers either as producers or as entrepreneurs. Consequently, farmers have long been excluded from the formal production system and experienced capability poverty and income poverty. To empower farmers and alleviate rural poverty, case data imply that it is needed to discard the misguided impression and build a novel business philosophy, described as serving farmers, win–win, and common development.

4.4.3. Rural Resources

As a critical rural resource, relational capital in rural consumption markets built up via the large rural population provides basic support for the success of business models in rural markets. Case data verify the idea and indicate that relational capital helps avoid market entry risks and speed up market expansion at low cost.

In rural areas, farmers have accumulated a broad range of skills and knowledge during their long-term work. In addition, geographical positions and climate conditions are the inimitable natural forces for agri-business enterprises. Case data highlight that local natural resources and local capabilities are important factors for RDCBM. All of the four agri-business cases fulfilled rural resources to create unique value.

4.4.4. Policy Environment

Although business models design in rural markets is based on private ordering, government support and protection are absolutely necessary [68]. Case data show that the implementations of support policies (i.e., home appliances going to the countryside, serving agriculture, rural areas and farmers, balancing urban and rural development, agricultural informatization, rural modernization) and corresponding measures (i.e., fiscal incentives, tax deduction) motivate enterprises access to rural markets as well as boost the success of business models in rural areas.

By inviting farmers to join their production system, agri-business enterprises are likely to face many tough problems related to start-up capital, production license, produce legitimacy, and even conflicts. These problems are not easily resolved owing to the imperfect market system. Case data highlight that government support and protection are essential for overcoming capital shortage, ensuring legal production, and mediating conflicts among stakeholders. For example, local government helped Company F survive capital shortage at its set-up stage.

4.4.5. Technology Environment

Spatial separation between rural consumers and urban producers or rural producers and urban consumers incurs high logistics and distribution cost, and thus hinders consumers’ access to products/services, or products/services reaching consumers. Based on case analysis, we find that emerging technologies can bridge the separation and then lead to the success of rural market development. For instance, network technologies overcome information asymmetry and supply the product/service awareness. Logistic technology and e-commerce reduce marketing cost as well as supply the product/service availability. Big data help better suit rural residents’ value propositions.

Furthermore, computer-aided farming can improve farming efficiency. Bioengineering can speed up research and development. Case data highlight the technologies’ contribution to the business models in rural markets. Therefore, it is very necessary to evaluate the support capability of technology environment for a successful business model design in rural areas.

The ultimate goal of this paper is to develop evaluation framework for MDCBM and RDCBM. Four main components and their critical factors were initially identified. Afterwards, the critical factors were grouped further and used as themes to conduct the cross-case comparative data analysis. The discovered sub-factors from the analysis can assess the feasibility and profitability of a business model in rural markets.

Table 5. Evaluation framework for MDCBM.

Categories	Critical Factors	Sub-Factors or Description
Value proposition	Market research	The depth of investigation
		The breadth of investigation
	Market positioning	Target market regional segmentation capability
		Target market consumption level segmentation capability
	Product/service innovation	The extent of innovating product/service for rural consumers
	Rural consumption capability understanding	The extent of full understanding of rural residents’ consumption capability (involving commodity consumption, education consumption, cultural consumption, and information consumption)
	Rural consumption needs identifying	Rural residents’ consumption characteristics identification capability Rural residents’ consumption trends identification capability Rural residents’ consumption preferences identification capability
		Rural residents’ potential needs identification capability
		Rural residents’ personalized needs identification capability
Value creation and delivery	Value network	The quantity of collaboration entities
		The quality of collaboration entities
	Relationship governance	The reasonability degree of relationship governance modes
	Distribution channel	Distribution channel building capability
	Enterprise learning	The capability of learning from rural residents
		The capability of learning from cooperative partners
		Exploitative learning capability
	Enterprise training	The extent of providing training to rural consumers
	Rural credit system	The extent of providing financial support to rural consumers
Value realization	Revenue model	The quantity of revenue sources
		The ways of revenue increment
	Cost model	Cost reduction capability leveraging scale and scope economies
		Cost reduction capability leveraging word-of-mouth
		Cost reduction capability leveraging value network
Environmental support	Enterprise resources Rural resources Enterprise culture Policy environment	The contribution of internal resources
		The contribution of external resources
		The contribution of rural relational capital
		The level of enthusiasm and willingness to serve rural consumers
		The contribution of government policy support
	Technology environment	The contribution of technology support

and

Table 6. Evaluation framework for RDCBM.

Category	Critical Factors	Sub-Factors or Description
Value proposition	Market research	The depth of investigation
		The breadth of investigation
	Market positioning	Target market exact positioning capability
	Farmers’ production capability understanding	The extent of full understanding of farmers’ production capability
	Farmers’ production needs identifying	Farmers’ economic needs identification capability
		Farmers’ skill needs identification capability
		Farmers’ relation needs identification capability
Value creation and delivery	Value network	The quantity of collaboration entities
		The quality of collaboration entities
	Relationship governance	The reasonability degree of relationship governance modes
	Enterprise learning	The capability of learning from cooperative partners
		Exploratory learning capability
	Enterprise training	The extent of providing training to rural producers
	Rural credit system	The extent of providing financial support to rural producers
Value realization	Revenue model	Products/services sale capability
	Cost model	Cost reduction capability leveraging cost-sharing
		Cost reduction capability leveraging local resources and abilities
Environmental support	Enterprise resources	The contribution of internal resources The contribution of external resources
	Rural resources	The contribution of local natural resources The contribution of local human resources
	Enterprise culture	The level of enthusiasm and willingness for serving rural producers
	Policy environment	The contribution of government policy support
	Technology environment	The contribution of technology support

show the multi-level evaluation frameworks.

5. Discussion

This study focuses on developing a scientific and reasonable evaluation framework for business models in China’s rural markets. Based on collected data from eight case companies, we used the open-coding and axial coding techniques to conduct a cross-case comparative data analysis. The evaluation system is discussed as follows incorporating comparison with previous literatures.

First, this study establishes two evaluation frameworks for the business models in China’ rural markets. In order to alleviate rural poverty as well as improve company profits, rural markets cannot only be viewed as consumption markets but also as producer markets. Thus, to develop an evaluation framework for MDCBM and RDCBM, respectively, it can better agree with China’s rural market reality and also better guide enterprises’ business model design in this market. The research results extend extant literature that tends to concentrate on the single evaluation framework, that is, the evaluation framework for MDCBM [1,40,41]. In addition, previous literature aims to help multinational corporations design viable business model for urban BOP markets [1,7,68]. Our research contributes to these literature streams by focuses on business model design domain in rural markets.

Second, this study develops a two-level evaluation system for MDCBM, as show in Table 5. Admittedly, some scattered success factors have been present in the existing BOP literature. However, considering the complexity of business model evaluation, few literature have dealt with BOP business model evaluation explicitly so far. Compared to the listed factors, the criteria in our evaluation system may be more systematic, scientific, and comprehensive. The first level of the evaluation system contains four components: value proposition, value creation and delivery, value realization, and environmental support. These components perfectly meet the business model concept. The second level includes 18 concrete critical factors, and the third level decomposes or describes the critical factors. These detailed indictors indicate that market positioning, rural consumption identify, collaboration, channel construction, learning, revenue model, cost structure, key resources, enterprise culture, and environment support jointly influence the performance of MDCBM. Some findings are similar to the arguments in prior research. For example, Jun, Lee and Park [1] suggest that to reach the BOP markets, multinational companies need offer innovative products or services. Kuo, Shiang, Hanafi and Chen [7] argue that collaborating with local entities in BOP markets and improving the ineffective distribution channels are important business strategies for multinational enterprises entering the BOP markets. Marconatto, Barin-Cruz, Pozzebon and Poitras [68] suggest that government programs may provide incentives to create business models targeting the low-income level.

Third, this study also develops a two-level evaluation system for RDCBM, as shown in Table 6. Though the resource-oriented perspective on low-income markets has begun to receive attention in recent years [44], up to now, little research has focused on the evaluation domain for RDCBM. When enterprises engage rural residents as producers to their business models, understanding farmers’ production capability and production needs are found to positively influence the performance of value proposition. In addition, rural credit system plays an important role in RDCBM. This finding confirms that adequate access to credit is necessary to promote a sustainable development for non-capitalist economies [44,69]. Certainly, other indictors in term of collaboration, training and learning, key resources, enterprise culture, and environment support are found to affect the performance of RDCBM as well.

Finally, to our knowledge, this paper is among the first efforts to introduce cross-case comparative data analysis combining open-coding and axial coding techniques, to develop business model evaluation framework. This paper is of strong significance for both empirical methodology and theoretical analysis. Contrast to the existing literature, research results may be more favorable and effective.

6. Conclusions, Implications, and Future Research

The issue of how to design viable and sustainable rural market-oriented business models is becoming significant for both entrepreneurs and researchers. Due to the poor economic base and infrastructure, scarcity of human capital endowments, lack of funds, market distortions, and poor geographical location in rural China [14,70], it is destined to be a challenging issue. A scientific and reasonable evaluation framework is an essential guideline for working out this important issue. However, business models in rural markets is a young field, and the business model evaluation domain is inherently complex [15]. Prior literature has neither explicitly focused on this field nor explored it in detail. As a result, entrepreneurs lacked a methodology for measuring their business model design with a high degree of granularity. By employing open-coding and axial coding, we analyzed the collected case data in depth. This allowed us to identify the main components and critical factors within each component of the business models in rural markets. Combining cross-case comparative data study and case material classification, we developed the comprehensive evaluation framework that can be more generally applied and helpful for measuring enterprises’ business model design in rural markets. In addition, we noticed that rural residents participate in industrial chains either as consumers or as producers. Correspondingly, we presented different evaluation frameworks for MDCBM and RDCBM. Based on our research results, we offer the following suggestions.

First, it is suggested that entrepreneurs need fully understand rural residents’ consumption characteristics, consumption habits, consumption preferences, consumption psychology, consumption capability, and consumption trends. This can ensure entrepreneurs accurately define value propositions for rural consumers and offer them products/services accessible, available, and affordable. In order to achieve the success of RDCBM, entrepreneurs also need to fully understand the rural resource endowment in terms of land, water, climate, and human resources. Then they can create and deliver satisfying value proposition to farmers, including income growth, skill improvement, and social inclusion.

Second, it is suggested that entrepreneurs need include diversified super quality entities in value networks, and design a reasonable and flexible model of relational governance. In the network system, enterprises play a core role and farmers are indispensable entities. Therefore, entrepreneurs and managers not only should take effective measures to train farmers for both consumption capability and production skill improvement but also should achieve self-development in virtue of learning by doing, observing, and cooperating. In addition, to challenge the imperfect financial credit system, organizations are advised to play the role of guarantors and help farmers get the necessary loans. This will further ensure that the value-creation processes run smoothly and the overall competitiveness of the network system improves.

Third, it is suggested that entrepreneurs should explore income increasing methods as well as cost reduction models well adapted to the rural markets. For example, taking advantage of rural residents’ social nature, leadership effects, and word-of-mouth to rapidly earn market share and reduce costs as well; developing innovative revenue models including value-added services to offset cost and earn payoff for two-sided markets; leveraging rural resources and local capabilities to reduce production cost, etc.

Finally, it is suggested that entrepreneurs view environmental support as the critical success factor for rural market-oriented business models. They can advocate a business philosophy described as serving rural areas, farmers, and agriculture at first. Then they are advised to actively interact with government for financial support, tax relief, production, and business operation license. Joining the regional innovation system to obtain these policy supports is a good idea [71]. They are also advised to make full use of the increasingly developed technologies to optimize product/services design, and establish modern logistics and distribution channels. In addition, it is suggested that dynamic business model is appropriate for rural areas. This requires entrepreneurs to evolve their business models to match the rural environment of continual change. By doing this, companies can develop their dynamic capabilities, and thus, enhances its competitive advantage [72].

The results of this study hopefully help policy makers, entrepreneurs, and other stakeholders work together to develop a viable and sustainable business model in rural markets so as to achieve win–win or multi-win outcomes. Nevertheless, this study has its limitations. The selection of these evaluation factors is based on data analysis. Unfortunately, data limitations prevent us from engaging in a comprehensive analysis of the business model evaluation in rural markets even though we endeavor to select representative cases in different areas. Therefore, this study might not capture all variables of the evaluation systems. We look forward to future research efforts to this intriguing issue. We also encourage further research to use and test the frameworks.