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This blog explores insights for multinational corporations, NGOs, academics, social entrepreneurs and others working at the Base of the Pyramid.

Tuesday, May 31, 2011

Why Should Your Company Engage the BoP?

By Josh Cleveland

Why do corporations engage with the base of the pyramid (BoP)? There appear to be several distinctly different answers to this question. My conversations with corporate leaders hoping to pursue social impact and new market growth in BoP markets reveal a frequent lack of clarity about not just how to do it, but more importantly, why they should do it.

In this article, I want to share my emerging framework for corporate BoP decision making, in the hope that it can both help inform business decision-making, as well as help social entrepreneurs make choices about how to partner with corporations on this work. Understanding the nuances of why MNCs have engaged the BoP to date can create new opportunities for corporate leaders and social intrapreneurs seeking to enter BoP markets as well as for social enterprises and development practitioners seeking to amplify their social impact.

My experience has been that corporations pursue BoP engagement to accomplish three different kinds of objectives. A different set of business objectives and operational circumstances supports each of these choices.

These three motivations for pursuing BoP include the following:

  • Market focused approaches seek to build new demand in specific product categories and geographic markets.
  • Brand equity focused approaches seek to use BoP engagement to build an overall brand image for the corporation that is not linked to any one product category or geographic market.
  • Organizational development focused approaches use BoP engagement primarily to build internal staff loyalty, engagement and professional development.

Below I provide a bit more detail on each of these categories, include sub-motivations within each. The case studies and approaches will be explored in further depth in upcoming posts.

1.     Market Focused BoP Approaches

a.     Demand-based entry. Several sectors are experiencing demand significant enough to produce real financial opportunity for large multinationals. This sector is growing fast as more companies prove the viability of doing business at the BoP. These sectors include: construction, low-income housing providers, healthcare suppliers, fast-moving consumer goods companies, and the myriad mobile providers.

b.     Long-term strategic investment. These companies know that BoP investment will pay off in the long-run and justify their commitments as such. Some leaders in this category include companies that are private or family-owned and able to plan for the longer-term.

c.     Emerging market multi-nationals. Companies that are born in BoP markets often understand better than their developed market counterparts how to apply their model in new BoP contexts. (This report by Accenture provides some deeper detail on EMMs.) Companies like Tata understand what it takes to operate at the BoP and their success leads to their spread.

2.     Organizational Development Focused Bop Approaches

 a.     Staff development and social impact. On-the-ground engagement with BoP organizations and markets provides a powerful source of staff development and social impact. Programs like IBM's Service Corps take corporate leaders to base of the pyramid markets for service trips, which provide unique leadership development opportunities.

b.     Innovation. Companies that design any program to reach BoP markets generally seek returns related to product and process innovation that will be applicable in other parts of their company.

3.     Brand equity focused BoP approaches

 a.     Philanthropic efforts linked to new market growth. These companies employ philanthropic efforts to help support their exploration of emerging markets. Programs often send products, processes, and people to BoP markets as charity with the hope that lessons learned may someday spawn real, profitable business. Examples of companies who have done this well include healthcare giants such as Pfizer and GE.

b.     License to operate. These companies need to go to where the land and resources are. Agriculture and natural resources extraction are two leading sectors in this category. Social impact goals revolve around the desire maintain a license to operate.

Of course many companies engage in the BoP for reasons that span all three major categories. That is a good sign and demonstrates the multiplicity of benefits corporations can reap from BoP engagement. It is my hope that this framework starts a conversation that moves us towards more informed and deep discussions around why companies enter these markets and how they do so effectively.

So where does your company fit in?

By looking at the trends in corporate engagement in base of the pyramid markets, social enterprises, impact investors, and development practitioners can better understand opportunities for growth as well as potential partnership.  

There are market leaders that have demonstrated "best in class" performance in each of these categories. Looking for a way to link your philanthropic goals to new market growth? Look at GE's work. Have a leadership development program in the works that needs an on-the-ground component? IBM has built a foundation that you can learn from.

What does your BoP development organization need?

Noting that companies enter these markets for different reasons, we also can say that they partner and support social enterprises for different reasons.

For example, a company focusing on staff development will seek capable, well-establish networks and organizations that can provide reliable, positive experiences for diverse employees. A company focusing on philanthropic efforts will likely be most interested in partnering with an organization whose mission strongly aligns with their capabilities. By understanding why a company is engaging in BoP activities, social entrepreneurs and social "intrapreneurs" can make better decisions about how to shape partnerships to support and influence this work.

What's next

Over the next few months, I'll be working on building out this framework and populating it with the latest and greatest case studies and guiding principles to share with the NextBillion community and beyond. If you have feedback on the framework or would like to discuss it, shoot me an email and we can find a time to chat. We'll look forward to sharing our thinking on this important topic. Understanding differing motivations, needs, and capabilities of corporate players will help investors make smarter investments, social intrapreneurs build support for internal programs, and social enterprise leaders cultivate stronger partnerships. 

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