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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, September 03, 2013

Moving from the What to the How of BoPBiz

By Lina M. Salazar Ortegón

Close to 1,700 people attended the BASE II Forum International that the Inter-American Development Bank celebrated in Medellín on June 6-7. This represented an increase of more than 50 percent compared to BASE I, which took place in São Paulo, Brazil in 2011. The number of participants, the massive media coverage before, during and after the event, the 19 sponsor companies, as well as the quality of attendees—CEOs of national companies, multinationals, financial institutions, international organizations, investment funds, entrepreneurs, government representatives, investors, media and academics from the region and the world—illustrate that the business leaders of the region, Colombia in particular, are interested in penetrating market segments that have been traditionally underserved, but possess a latent purchasing power.

The massive interest and the multi-sectorial participation indicate that the field of base of the pyramid business models has matured. They indicate that the debate has reached another level where the questions and issues turn around the how, not the what. It is not new that the BoP in Latin America and the Caribbean is comprised of 400 million people. It´s not new that this segment — two thirds of the region´s population — represent over $500 billion every year. It´s not new to say that serving the BoP isn’t an exclusive responsibility of the state and that what at first sight seems problematic and lacking potential is, quite the opposite: a field full of business opportunities and development in which only the ones that are innovative enough with accomplish success. It is not new to say that the BoP has unattended needs in health, housing, education or infrastructure and that the provision of goods and services to this segment is a business opportunity.

None of this is new. It´s been presented (with different names) by academics such as R. Edward Freeman, Michael E. Porter, C.K. Prahalad, and Stuart L. Hart, among others. All of them have called attention to the role that the private sector can play in development without affecting—rather positively impacting—its financial goals.

The main goal of the forum was to go beyond the things we already know and answer to more complex questions related to the how, when and where of the business models that aim to serve low-income markets without putting commercial viability at risk. It proved to be an effective platform to discuss and socialize successful experience among those who are active in the field and have knowledge to transmit, and those with a solid interest in serving these populations.

The forum developed through four plenaries and 12 concurrent sessions where more than 90 panelists from all around the world shared their experiences. There were a wide variety of conclusions drawn from the panels, which besides the opportunities for networking and interaction, the attendees brought home with them:

1.     Unlike markets at the top of the pyramid, where the objective is to create need, at the BoP the challenge is responding to existing ones facing market failures that make products or services inefficient.

2.     The success of these business models depends on sales volume, which can only be accomplished with enough capillarity and penetration.

3.     Successful business models have been sustainable because they exploit the natural human desire of improve one’s life conditions.

During his presentation as a keynote speaker, Hart, professor at Cornell’s business school and co-creator with C.K. Prahalad of the ‘base of the pyramid’ notion, highlighted the importance of not assuming that serving the BoP is just a matter of lowering prices of adapting products to low-income populations. The real challenge is to solve market failures that have undermined efficient supply. The challenge is to “create markets with existing needs, not create needs in existing markets,” he said. Serving the BoP requires innovatively dealing with challenges in infrastructure, logistics, transportation, and consumer education, among others.

Another lesson was related to scale. The most successful business models are those that have managed to scale or achieve high levels of capillarity. Bad infrastructure and lack of communication channels with consumers are elements that undermine the capacity to penetrate the market. Those who believe the only challenge is product innovation are mistaken. In top of the pyramid markets, Muhammad goes to the mountain. In BoP markets, the mountain goes to Muhammad.

The idea of scale for success and of distribution platforms was highlighted by Iqbal Quadir, a keynote speaker at BASE who in the 90s created Grameenphone, a mobile phone operator that today provides the service to more than 41 million people in rural areas of Bangladesh under the premise that technology and connectivity should be tools for prosperity and inclusion. In the process of structuring Grameenphone, Quadir tackled the lack of infrastructure by partnering with Grameen Bank, the bank of the poor of Muhammad Yunus that already had the capacity to achieve profits and a major impact. Today, company’s current income is $4 billion).

Finally, a less evident but valuable lesson is the idea that these models can be sustainable and successful when they manage to crack the consumer code: every person’s desire to improve his or her own quality of life. If the good or services provided to the BoP improves their quality of life and triggers a spiral of positive social consequences, success is assured.

According Quadir, Grameenphone's success is that the provision of cell makes people more productive, which in turn helps to increase their income and thus to acquire or allocate more resources in education, housing, or health. This idea was complemented by Deepa Prahalad’s (C.K.’s daughter) assertion, also speaker at the forum, that those who want to serve the BOP cannot forget the aspect of marketing and consumer experience design.

These are some of the many conclusions derived BASE Forum. This is just the beginning of a regional discussion that the IDB is leading and that’s maturing at a rapid pace. It is clear that employers are moving from mere philanthropy or corporate social responsibility, to think about how to take advantage of a segment of the population that has been neglected, but one that presents business opportunities that have a high impact on development. This market-based vision has proved to be successful and promises great advances for its ability to generate returns as more people gain access to basic services and quality products.

 

Editor’s Note: A version of this article was published in Spanish in Huella Social, a printed publication that circulates with the Colombian newspaper El Tiempo, and also was posted on NextBillion en Español. 

 

Lina M. Salazar Ortegón is a research fellow at the Inter-American Development Bank’s (IDB) Opportunities for the Majority Initiative (OMJ). 

 

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