Understanding Low-Income Market Business Models: Process Development and Main Components

John Paul — Wed, 07 Dec 2005 17:00:51 -0500

Session Title:
Civil Society & Social Entrepreneurship

Date of talk or publication:
2005

Speaker Name / Title:
Pablo Sánchez, Joan Enric Ricart, Miguel Ángel Rodríguez

Organization:
IESE Business School

Description:
Current business activities address mainly the needs of premium markets. Because basic needs of the poor population remain largely unsatisfied and unattended by the private sector, most MNCs ignore the reality of low-income markets and the development of business models that satisfy the real needs of poor people in a profitable manner. A framework for understanding the development process and components of business models in this context was conceived by analyzing and contrasting two ventures, Amanco Guatemala and Philips India, both of which recently inaugurated projects at the base of the economic pyramid. Corporations that change their current dominant logic have been observed to be in a stronger position to start new ventures in these markets and companies that have embedded the sustainable development concept into their corporate culture and values to be better able to effect this change. Top executives should lead this process to achieve the deepest possible influence in the organization. Finally, MNCs must develop learning processes that foster understanding of the cultures and social and economic contexts of these markets. Among the sources of learning that can generate knowledge and understanding of local landscapes are market research activities, experimentation during pilot projects, and knowledge shared by partners and social networks. Three elements that seem to be especially critical to business models for profitably serving the underserved poor are the use of new and advanced technologies adapted to local contexts and customers’ needs, pursuit of partnerships; and integration of the corporation into local social networks. In the cases of Amanco and Philips, all of these elements have contributed to the development of innovative business models that radically reduce MNCs’ traditional cost structures even as they increase customer value.

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Understanding Low-Income Market Business Models: Process Development and Main Components