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Last fall, Business Strategy Review published an interesting piece by Juan Luis Martinez and Maria Carbonell called "Value at the Bottom of the Pyramid."  The article, available on the journal’s web site, warrants some serious discussion, especially in light of the recent profit versus social motives debates for businesses targeting the BoP.  I’m specifically thinking about microfinance institutions, where this has received a lot of media attention and heated discussion (Forbes and BusinessWeek both recently published a series of articles, available in the NextBillion Newsroom).

Martinez and Carbonell’s piece, however, is not part of the polemical debate at all. They set out to refute common misconceptions about doing business with the BoP.  They also propose that, by shifting perspectives about the capabilities of poor consumers, and by integrating openness to caring about society, companies can enhance their value chains.

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NextBillion.net, housed in the Washington, D.C.-based World Resources Institute, will not have any new content from December 24 through December 31, when most of our writers and contributors will be spending holidays with friends and family.  We'll be back in January, 2008.

Any story suggestions, new comments, or e-mails to the contact form will be replied to in a week.

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Julia Tran mentioned in a previous post some Boston Consulting Group (BCG) publications related with the “Next Billion”. Two more studies were published in November –“Decoding Next Billion Consumers” and “A Road Map to expanding Financial Inclusion in India” (this second one looks good and I am planning to read it soon).

Recently, NextBillion posted a news item published by The Economist related to the latest BCG publication about emerging markets called “The 2008 BCG 100 New Global Challengers”. This time, it referred to emerging countries’ multinationals and their international growth strategies as a means of becoming world leaders in their markets.

The rise of emerging market multinationals is of no surprise to anyone in the business world, especially in the case of large national firms based in Brazil, Russia, India and China –the BRIC economies.

The BCG Publication (this document is an executive report available on their webpage, I have ordered the full report, but have not received it yet) disappointed me in terms of their methodology and selection process for what they call the “Top 100 Global Challengers”. It does, however, give an interesting overview of these firms’ business models and their core strengths.

BCG selected their Top 100 from 14 countries. These 14 countries, or “Rapidly Developing Economies” (RDEs) as they call them, have been selected on the basis of their increasing share of global trade and their total GDP. However, the authors have given themselves ample space in selecting countries that are clearly not comparable to each other. Stating that Poland (member of the EU) and Hungary (to join the EU on 2008) are as “emerging” as Egypt (long time dictatorship and notorious human rights violator) or Indonesia (largest Muslim population in the world) seems a bit of a stretch. Likewise Chile has been included alongside Brazil and Argentina. I strongly doubt that companies from such different business environments can be compared and studied seamlessly.

Furthermore, the problem in selecting companies on the basis of their home country is that it neglects big companies which, due to their relatively small national markets, have been forced to grow their businesses in other countries. The most glaring omission was South Africa, and firms that work across boundaries, such as Celtel, were nowhere to be found. African or Middle Eastern countries were also totally absent, in spite of the growth of strategic consulting in places like Dubai or Abu Dhabi.

As a consequence of this methodology, mixing Hungary and Poland with China and India, it comes as no surprise that an overwhelming majority of the “Top 100” are Chinese (41 firms), Indian (20 firms) and Brazilian (13 firms). Of course, if the methodology was straightened out, these countries would also be in the forefront, but it might be found that they do not represent such a big portion of the pie (74 out of 100 firms).

Moreover, the most represented industries are industrial goods (34 firms) and resource extraction (17 firms). Nonetheless, these classifications are misnomers. Although companies are labeled according to industry for easy categorization, in reality, some companies are large conglomerates with diversified holdings that extend well beyond the industries with which they are identified. This is the case of Reliance Industries, whose range of goods includes, among others, petroleum products, petrochemicals, garments and, most recently, fresh foods.

In addition, the relative weight of different industries is biased in favor of the most relevant industries in China, India and Brazil. That is, the distribution and importance of the Top 100 companies’ industries will mostly be that of China, India and Brazil.

BCG then, from the selected sample, identifies the following companies’ globalization business strategies:

1. Taking brands global
2. Innovating globally often in partnership with other multinationals
3. Competing globally with other multinationals
4. Merging with or acquiring firms which have access to natural resources essential for their business interests
5. Acquiring and securing access to natural resources – a variation of the previous strategy (note that some Chinese, Indian and Russian firms are especially keen in these last two strategies, but not necessarily out of business interests only, but also due to political reasons)
6. Developing new business models in multiple markets

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I found Peter van Dijk's comments on Ana's report from the Mobile Banking Conference interesting but not convincing. Not surprisingly, the evolution of mobile phone banking has not been without false steps, fraudulent operators, and systems that have flaws. But evolution also tends to produce winners that survive because they solve those problems. And the experience with G-Cash and Smart Money in the Philippines, with M-Pesa in Kenya, and, yes, with Wizzit in South Africa is that customers on the whole find a significant value proposition.

If these systems didn't work, didn't protect their customers' money, and didn't deliver value, they would hardly be growing at the rate they are. M-Pesa already has over 1 million customers (in 9 months), and the buzz on the street is very positive. But let's not pretend that these services are perfect, yet, but rather ask: What is the alternative for the several billion people who are unbanked?

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When I first read the seminal article "Serving the World's Poor, Profitably" in HBR, I found the direction it pointed to elusive. Instead of tugging at sympathy, the paper pointed to an exciting and fast growing market - the immense collective entrepreneurial capabilities and buying power of the world's poor. Looking back, made easy by NextBillion, I wonder how organizations are using different approaches (read - for profit and non-profit) to social innovation.

According to Prof. Reuben Abraham at the Indian School of Business, Hyderabad, the first step to understanding BOP Markets is to "Forget the Moral Imperative".

Point number one is forget the moral imperative. Let’s look at the economic imperative of why this market is important. Everybody tends to emphasise the moral imperative of why economic growth needs to spread, but I think there is a strong economic imperative why growth needs to expand beyond the 15 per cent, say, in India that actually enjoy the fruits of the current economic growth. Because ultimately, if there are a billion people and only 150 million people are participating, that is not sustainable. That is not sustainable for a bunch of reasons because there will ultimately be saturation, and there will also be all sorts of political ramifications to this as there is a disconnect between aspirations of people who live in these markets and the elite in these countries. So, there is definitely an economic reason for why we should look at these markets.

The questions are: Are we doing this? And indeed, should we? After all, some organizations might pride themselves on their non-profit approach - right?

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Position: Junior Equity Analyst

Location: New York, NY -- USA

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The results are out for first annual BoP e-Journal competition organised by the Center for Sustainable Global Enterprise at Cornell University’s Johnson School. We have recently blogged about how Cornell's BoP Learning Labs are moving the discussion to developing markets, and gaining live insights from BoP experiences gleaned from around the world.

The competition was developed to highlight the challenges of doing business in underserved markets and identify innovative business experiments or solutions to those challenges.

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I am sure that few of you are strangers to Amy Smith’s work at MIT’s D-Lab. After all, the D-Lab has been profiled several times here at NextBillion, most recently in an article featured in the news room via GOOD magazine. The article aptly describes D-Lab’s current crop of appropriate technologies, developed with the needs and constraints of the end user in mind.

"Designs are more likely to be successful if they’re not complicated and requiring all sorts of support and infrastructure," says Smith. "But simple doesn’t mean easy. It’s a challenge to get to those ‘simple’ solutions."

(Read the full article)

The five innovations profiled: a water chlorination controller (to reliably regulate the addition of chlorine to a stored water supply), a screen-less hammermill (to churn grain into flour), low-cost water test (to test drinking water safety), phase change incubator (low-cost incubator), are definitely simple, rugged, cheap, and replicable. But are they scalable? The answer is "they could be."

"We’re not as well-equipped to do dissemination as we would like," says Smith, who notes that D-Lab only has about 30 students at any one time. "We’re interested in finding the right partners to move the technologies forward." Scale and dissemination determine where "the rubber meets the road" in a university-based system of innovation.

One has to wonder what the best mechanism for sharing these innovations is. Should development projects be built around them? Can they support small businesses like the ones conceived by the Appropriate Infrastructure Development Group? Or might they spawn full scale enterprises, like d.light design, which grew out of the class project at Stanford? Regardless, I truly appreciate the notion of starting a "design revolution" that will encourage engineers to create strictly for challenging environments, and expand the field of appropriate technology design.

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Position: Research Assistant

Location: Washington, DC -- USA

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"I'm giving away 2 percent of my net income every month... I don't think Bill Gates is doing that." So says Turkish billionaire Husnu M. Ozyegin in an interview for a New York Times piece last Friday about the philanthropy of individuals who have recently achieved phenomenal levels of wealth in "once destitute countries."

Sounds very impressive, but I've also been perusing another report of interest today about what some other individuals are doing with their money that really knocked my socks off - and I can guarantee that they are passing on more than 2%!

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