BoP and MNCs: Where is the Market and Where the Source of Innovation? (original) (raw)
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Serving the world's poor: innovation at the base of the economic pyramid
T he market for products and services delivered to the poor people of the world is huge. Consumers at the very bottom of the economic pyramid – those with per capita incomes of less than 1,500–numbermorethan4billion.Formorethanabillionpeople–roughlyone−sixthoftheworld′spopulation–percapitaincomeislessthan1,500 – number more than 4 billion. For more than a billion people – roughly one-sixth of the world's population – per capita income is less than 1,500–numbermorethan4billion.Formorethanabillionpeople–roughlyone−sixthoftheworld′spopulation–percapitaincomeislessthan1 per day. The 20 biggest emerging economies include more than 700 million such households, with a total annual income estimated at some 1.7trillion,andthisspendingpowerisapproximatelyequaltoGermany′sannualgrossdomesticproduct(PrahaladandHart,2002).ThespendingpowerofBrazil′spoorest25millionhouseholdsamountsto1.7 trillion, and this spending power is approximately equal to Germany's annual gross domestic product (Prahalad and Hart, 2002). The spending power of Brazil's poorest 25 million households amounts to 1.7trillion,andthisspendingpowerisapproximatelyequaltoGermany′sannualgrossdomesticproduct(PrahaladandHart,2002).ThespendingpowerofBrazil′spoorest25millionhouseholdsamountsto73 billion per annum, while China's poor residents account for 286 million households with a combined annual income of 691billion.Indiahas171millionlow−incomehouseholdswithacombined691 billion. India has 171 million low-income households with a combined 691billion.Indiahas171millionlow−incomehouseholdswithacombined378 billion in income. But the success of multinational corporations in penetrating these low-income customers has been patchy at best, with most companies based in the developed world choosing to focus on the middle and upper income segments of the developing world. Why hasn't the business world seized the opportunity at the bottom of the economic pyramid? The explanations are familiar: corruption, poor infrastructure, non-existent distribution channels, illiteracy, lack of robust and enforceable legal frameworks, religious or racial conflict, and sometimes even war or violent insurgencies that stifle the enthusiasm of companies in serving people living in poverty. Indeed, most large firms have elected to leave these consumer segments to local companies or government agencies and focus on the ''low hanging fruit'' – the middle and upper classes. But while the vast majority of corporations have seen these challenges as insurmountable barriers, other have quietly pursued strategies of experimentation in developing unique product and service propositions for some of the world's most needy consumers. Our research has revealed that these companies are not exclusively those at home in countries such as India, China or the Philippines. We have also discovered multinationals that have accepted the challenge of serving the poor and have been able to do so profitably. At the heart of virtually all of these organizations' success has been the development of an approach that delivers the 4As – availability, affordability, acceptability and awareness (see Figure 1). Availability One of the biggest challenges of serving BOP markets is to ensure availability of products and services. Unlike in the developed world, distribution channels in these markets can be fragmented or non-existent and the task of simply getting products to people can be a major hurdle to overcome. Consider the challenge facing companies wishing to target low-income consumers in India's 627,000 villages, which are spread over 3.2 million square kilometers. In many parts of the country, roads are little more than rutted dirt tracks and in the monsoon season these can be literally washed away. In the north, roads to isolated villages cut across
Corporate Social Responsibility Boosts Value Creation at the Base of the Pyramid
Proceedings of the International Association for Business and Society, 2014
Multinational enterprises (MNEs) have embraced the possibility to find growth or strategic opportunities by targeting the Base of the Pyramid (BoP) segment, while contributing to alleviate poverty. Taking stock of the notorious early BoP initiatives shows that the bet made upon this responsible commitment is not yet won. Indeed, some were relegated to philanthropic programmes or simply dismantled, highlighting a tension to combine both societal and financial sustainability. The paper questions why and how MNEs reposition the value creation of their current BoP initiatives in regards of their Corporate Social Responsibility (CSR) strategy. We provide an empirical analysis of present BoP initiatives, based on an embedded multiple-case study of seven MNEs' initiatives and seventeen of their field projects. The paper highlights three levels of CSR engagement at the firm level, which will translate into different strategies, organisations and types of value creation for BoP initiatives. We deliver novel insights for the study of the "business cases" of BoP strategies, which aim at gaining legitimacy, incubating strategic change and reaching profitable growth.
Profit and Social Value: An Analysis of Strategies and Sustainability at the Base of the Pyramid
Academy of Management Proceedings, 2015
The last decade has seen a growing interest in market-based approaches to poverty reduction. Since the publication of Prahalad's Fortune at the Bottom of the Pyramid in 2004, businesses, entrepreneurs, and researchers have investigated ways to tap into this fortune. Many researchers have suggested that companies could both do well financially and contribute to social good by serving the bottom two-thirds of the global economic pyramid and effectively raising members of this rapidly growing base of this pyramid (BOP) out of poverty (
Business models represent the main innovation focus for companies that aim to expand their markets at the Base of the Pyramid. So far, one of the most critical challenges Base of the Pyramid business models face is sustainability. Different literature streams advocate that in order to achieve economic, social and environmental sustainability while contributing to local development, collaborative and participatory approaches known as value co-creation are needed. Additionally, two groups of stakeholders, namely customers and non-business actors, are the most relevant for the sustainable value co-creation mechanisms in Base of the Pyramid markets. In this sense, the overarching aim of this doctoral thesis is to investigate how co-creation mechanisms with customers and cross-sector actors affect the sustainability of business models at the Base of the Pyramid. The research process is guided by the theory of co-creation and borrows insights from several research streams, namely development cooperation and policy, sustainable business model and BOP innovation. The research design follows a deductive approach where hypotheses are formulated based on the review of the literature, case studies and expert interviews and tested through a large scale empirical study. This paper brings together insights from the aforementioned research streams and presents preliminary findings in the form of a conceptual framework based on literature review, expert interviews and case studies. Additionally, the design for the empirical testing of the framework through a large scale survey is described as research outlook.
Corporate-NGO collaboration: Co-creating new business models for developing markets
Long Range Planning, 2010
Multinational enterprises (MNEs) face a range of challenges when entering developing countries, including the need to adapt their business models to local markets' cultural, economic, institutional and geographic features. Where they lack the tangible resources or intangible knowledge needed to address these challenges, MNEs may consider collaborating with non-profit nongovernmental organizations (NGOs) to help facilitate new modes of value creation. In such cross-sector partnerships, parties contribute complementary capabilities along each stage of the value chain to develop products or services that neither could produce alone, creating and delivering value in novel ways while minimizing costs and risks. Our conceptualization broadens the business model concept to incorporate cross-sector collaborations, arguing such partnerships can create and deliver both social and economic value, which can be mutually reinforcing. We highlight, in particular, the competencies and resources NGOs can bring to such partnerships, including market expertise, legitimacy with clients/customers, civil society players and governments, and access to local expertise and sourcing and distribution systems. Beyond contributing to particular value chain activities, NGOs and companies can offer missing capabilities to complete each other's business models, or even co-create new and innovative multiorganizational business models. We stress four strategic imperatives for the success of corporate-NGO developing market partnerships e innovative combinations of firm and NGO resources and skills; the importance of trust-building, and of fit between the two organizations' goals; and supporting and understanding the local business infrastructure and environment.
BOP 3.0 OPPORTUNITY IDENTIFICATION AND SUSTAINABLE BUSINESS MODEL INNOVATION CONCEPTUAL FRAMEWORK
IAEME PUBLICATION, 2020
Bottom of the pyramid (BoP) 3.0 aims to alter the socio-economic system affecting the poor with an inclusive approach. It seeks to promote holistic solutions by addressing sustainability in all its three dimensions ie economic, social and environmental. In order to reach these goals it calls for new business practices like open innovation, scalability, purpose and cross network partnerships. The article reviews literature over the past decade to understand the challenges of Bottom of the pyramid (BoP) and the new imperatives posed by BoP 3.0.In order to address the issues the researcher suggest the use of two frameworks for businesses. The researcher builds two conceptual models with the use of literature review. The first presents a simple way of examining companies on their focus on environmental and social sustainability outcomes. The other is a framework depicting a flow of activities that can help companies to tap BoP opportunities which can deliver sustainable outcomes. The first framework can be used for diagnostic purpose and the second can be used to drive the BoP 3.0 initiatives for businesses in an integrated way by starting with the opportunity, clarifying the target market needs and identifying the constraints in meeting these needs. The constraints then set the boundaries for generating innovations using sustainable business models and the 4 A’s framework. The study covers literature review, frameworks, discussions and conclusions. It explains how the frameworks suggested are derived from literature review and past research work and promotes its use by businesses to address inclusivity and other BoP 3.0 imperatives
Business & Society Special Issue New Perspectives on Bottom of the Pyramid Strategies Guest editors
A substantial part of the world population lives at the "bottom of the pyramid" (BOP). More than 700 million people, or 10.7% of the world population, live in extreme poverty, with an income of less than 1.9 USD per day (World Bank Group, 2016). When using a threshold income of 2.5 USD per day to define poverty, more than 3 billion people, or more than 40 % of the world population, can actually be considered as living below the poverty line. Poverty alleviation has been addressed by sociologists, political scientist and economists, but in his seminal work, CK Prahalad (2005), a strategic management scholar, developed an appealing new perspective to solve BOP problems. He called upon multinational enterprises (MNEs) to address the issues facing the poor and suggested that they could benefit from the market potential represented by the BOP's potential customer base. In addition to creating market potential, engagement with the BOP would supposedly lead to increased innovativeness inside the MNE (Hart and Sharma, 2005; Michelini, 2012). Unfortunately, in spite of this 'doing well by doing good' perspective, BOP markets have remained largely untapped by MNEs (Karamchandani et al., 2011). With the present call for papers, we would like to celebrate the upcoming 20th anniversary of the BOP conceptualization by Prahalad and Hart (1999), while at the same time inviting a variety of novel approaches to BOP poverty alleviation. Here, Kolk et al.'s (2014) literature review of the first decade (2000-2009) after Prahalad and Hart's (1999) work, suggested that the majority of initiatives at the BOP were initiated by entrepreneurs, NGO and governments, rather than by MNEs They explicitly call for a: