Recently, a new critique was published by "Innovations: Technology|Governance|Globalization", a journal we have praised already here. The critique, entitled "The Fortune at the Bottom or the Middle of the Pyramid?" is authored by Anand Kumar Jaiswal, from the Indian Institute of Management in Ahmedabad.
As I read his paper, I found myself agreeing with many of his points, similar to when I read Karnani’s publication. This is because Jaiswal, like Karnani, doesn't refute BoP strategies as a means to approaching poverty problems, but rather contends that reality is sometimes more complex than theory, which is why I find it refreshing to read such articles.
Both Karnani and Jaiswal offer variations on and add complexity to BoP strategies. If doing business, anywhere in the world, was a sure bet with failsafe formulas, then we could be able to chart a strategy for any firm with perfect certainty – something that none of us can do.
The paper, in my opinion, is not a critique per se, but more a compendium of corrections and nuances to the theory originally outlined by Stuart Hart and Prahalad. In fact, many of the points that he mentions in his paper have already been taken into account by BoP proponents and formally included in the latest BoP works, including the recent Growing Inclusive Markets report, "Creating Value for All: Strategies for Doing Business with the Poor" and the "BoP Protocol 2.0" by Hart and Erik Simanis.
One of Jaiswal's criticisms is the one that gives title to the paper: whether the BoP is a 4 billion person market or not. Jaiswal then proceeds to attack some often quoted cases in the BoP arena, such as Hindustan Unilever's iodized salt and candy. He contends that the company's strategy was reactive rather than proactive and was actually responding to perceived threats. This does not surprise me and I expect to read many more cases of multinationals that respond to threats by engaging with the BoP.
Why? Firstly, many MNCs are entering BoP markets not because they want to, but because they have to. They have to keep growing through new customers and products. If the top of the pyramid is saturated, the only way to grow is through the base of the pyramid. Secondly, MNCs are rarely agile in their workings, so it is likely that a MNC would be faster in its decision-making when spurred by perceived threats, rather than by new opportunities or blue oceans. No one wants to be the first one to jump into the pool. I do not see why this is a problem – MNCs tend to be conservative and risk-averse and it is normal that entrepreneurs and/or innovative companies (which in this case might not be strictly for profits since they also try to increase social wealth and so can receive funding from external organizations) are the first ones to give it a try.
Jaiswal also criticizes the sachet system as nothing new, not as popular as it is widely believed and maybe not that good for a firm's profitability. Indeed, sachets have always been around – poor people have always bought a spoon or half a glass of this or that. In my opinion, many of the people who care to buy sachets are either testing the product rather than purchasing it, or buying it as a one-off expenditure (that is, they are too poor to buy it regularly). He also mentions that in healthcare, sachets have increased penetration but decreased overall consumption, which is an intriguing effect for which I wish more data was given (especially, since he mentions in his next paragraph that sales volume had increased because of sachets).
However, I disagree with sachets not making economic sense for firms. Jaiswal states that "though sales volume has risen because of sachets, the profits and revenues have dropped." An increase in sales volume and drop in profits and revenues in Indian healthcare firms might have different causes simultaneously. In the Indian case, I am not surprised that profits and revenues have fallen in the last years, but most probably due to increased competition – which again is a factor in pushing many of those same firms into the BoP and so starting to offer sachets to attract them. Increased competition and customer bases and falling prices might be the driving factors behind the increase in sales and the falls in profit and revenue.
In this line, Jaiswal notes that many successful BoP enterprises have taken advantage of enabling factors and preferential access to cheaper labor or the support of other organizations. This happens everywhere, not only in the BoP. In the United States, different regions compete for factories with the quality of their workforce, business friendly laws and tax exemptions, among other measures. It makes business sense that the most successful BoP firms have been able to use these factors in their favor. If they hadn't, then they would not be successful at all.
The article also argues that the BoP should not be viewed only as a customer repository. Low-income citizens are also producers and members of a community. Therefore, firms which do not take account of their social responsibility – he points out the case of Coca-Cola in Kerala – are asking for trouble.
Of course, maybe such a business is not a BoP business at all, but a business that happens to have a factory in a poor place. In this case, I would not call Coca-Cola's operations in Kerala a BoP business at all, as I mentioned in my previous post, "Defining a Base of the Pyramid Business".
As Jaiswal points out, it is not only about enabling consumption, but also about stimulating production. Nonetheless, in my opinion, Jaiswal goes too far in suggesting that we should "support them in selective consumption" and so help the BoP avoid harmful products. Why not? For me it is a case of humility. I have never had to live with less than $2 per day in a slum but people at the BoP do it every day. With which right should I judge what they choose or not to consume? Additionally, many people in developed countries smoke knowing that it is bad for their health. Why should we force, in what for me would be an unacceptable paternalistic attitude, rational consumption patterns on others when we ourselves are not fully rational either? After all, the BoP community can only stimulate growth, but not prescribe it.
A final criticism to Jaiswal interesting piece is the fact that he talks only about Indian cases, which, as he points out in the beginning of his paper, might not be a fully representative case for BoP business due to its fast economic growth. Additionally, I wish he had juxtaposed to the negative Indian cases some more positive ones.
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