NextBillion.net - Development Through Enterprise - Mirage at the Bottom of the Pyramid - Comments

Toby, By anychance are you

Nat — Wed, 20 Dec 2006 05:43:30 -0500

Toby, By anychance are you Tobias Richter from Germany and the one who graduated from GSB, in Bristol, UK??

Paper request

Tobi — Sun, 17 Dec 2006 10:05:48 -0500

Dear Victor, can you please send me the mentioned paper. I am an exchange student from Germany in Mumbai, India, conducting my thesis here. The idea is to have a CSO, Social entrepreneurhip's view of the BOP proposition, and rather develop citizenship than consumerism. I think the discussion in this page is very valuable. Kindly regards, Tobias

Critique for adding value and not scoring points

Kanishk Negi — Fri, 10 Nov 2006 08:17:01 -0500

None of the models or prepositions (including CK's BoP) would be fullproof. The role of critique is to highlight scope of enhancement/add value and should be taken in that spirit only. It is not important whether the no. of people at BoP is 4 billion or less or what methdology is used to calculate it (one of the points raised by AK). The reality is that there are large number of people and they would be helped in a dignified way if innovative ways could be devised for engaging them. ITC's e-choupal has helped the soya farmers in central India. But that has been the story of one company and one crop only, what if other companies evolve similar ways for other crops, all along involving BOP in business opportunity giving them dignity and choice. And when that happens it would be the starting (and not the end) of process of development. Once people start feeling empowered and have resources, other ways and means need to be planned to develop other markets and consuption of services and goods which can be consumed either by poor or well off.

Is it doing good, or doing good while do well?

Johan Horak — Wed, 08 Nov 2006 06:30:16 -0500

And it's not right or wrong. For the last 50 years we could do nothing to help the 4 billion at the BOP. Because most of the effort was focused on doing good. No dignity and no choice for the BOP. And there will always be people who will screw you over even if you are not poor. Ask any person from a developing country. Let's not focus on right or wrong. Let's focus on doing good while doing well. Johan Horak

Please start doing...

Sam — Wed, 04 Oct 2006 08:59:21 -0500

I have enjoyed reading this thread. It is important to follow Victor's advice. The importance of the BOP as a concrete image of the social issue and as a market opportunity should not be diminished. For many coporations to now understand what the BOP is and to be seeking to do business in this segment is a huge step-change. These conversations never took place before the mid 1990's because the metaphors had no value to enterprise. Now with all the work that has been done in the area, the BOP is a valid market segment to be considered in strategic business planning. Our business has been ravaged by globalization and we have learned that to enter emerging markets, one must go local and build markets, products and the infrastructures locally. The product may or may not be produced locally but the relationships (market) must be local due to the cultural differences between the southern poor and the the west. The product - service value proposition is simply different in the BOP, and is very similar to western, local markets. To be is to do, and all the talk and experiments are only worth anything to enterprise if they can create the customer.

Please Start Doing and Stop Debating

_Graham Douglas — Thu, 31 Aug 2006 17:46:26 -0500

Victor, after listening to the debate for over forty years as a practitioner I could not agree more with your general view. Most of the debating points have not changed much in that time while the problems have grown and led to an unsustainable world. At the same time, our scientific understanding of the human mind and behaviour and of our world has improved immensely. Surely it is time we applied that understanding very widely through education and training. With this in mind I am collecting relevant tools and research to advance the diffusion, refining and implementation of Integrative Improvement: Sustainable Development as if People and Their Physical, Social and Cultural Environments Mattered. May I please have a copy of the paper you mentioned? Graham Douglas Integrative Federation™ www.integrative-thinking.com

Please Srart Doing and Stop Debating

_victor — Thu, 31 Aug 2006 08:57:12 -0500

I just enjoy this long thread, mostly from academics like myself. When will we ever realize that the bulk of our so-called "disputes" center on a predilection to stake a "one or the other" kind of position? We know from astute observation and experience that 'taint so. I posit that ALL consumption AND production AND distribution AND finance AND behavior ought to be harnessed and be made to work together for real incomes to increase and improve the lot of the world's poor. Seems like this empty discourse is only made to score one over another. Who cares about whose view is correct, anyway, if the poor remain poor? That I why I opted for an approach that harnesses all of them within a contractual type of environment. If I may suggest (hopefully not immodestly) please check the blog on COMMUNITY BASED ENTERPRISE (OR CBED) STRATEGY, for an exposition. I can send the entire parpe for those who are interested, keeping in mind that I do not need accolades or brickbats as much as actual hands and resources to make it work. We just finished prototyping, am already in process of raising resources to implement it. It may not be theoretically rigorous but our experiment seem to have worked. I suspect that a few years from now when we have improved the lives of the communities we will serve, these debates will still be here. Human nature? Please, we have enough work ahead of us. Spare the academe from more insults like - if we can't do, teach. Let's teach what we know works first hand.

Re Lance and Mirage at the BOP

MachariaW — Tue, 29 Aug 2006 14:52:56 -0500

Dear Lance,

Thanks again for the deep and detailed look at the paper. I mentioned Peter Senge's (1990) work in this conversation because of his focus on Systems, rather than parts of Systems. My biggest contention with C.K.'s BoP proposition is the lack of consideration of the ecoSystem in the BoP, and it only based on snapshots of a bigger system. Indeed, at a deepest level, Aneel Karnani's argument insists on the need for systems view, and consideration to ensure balance, and perhaps sustainability. While it is not possible to take care of all the (lose) ends, as they were, a conceptual model such the C.K.'s BoP Proposition must provide a means of dealing with all contingencies in a system. C.K.'s Proposition leaves out way too many important issues, in the BoP. Karnani helps to point out some big omissions, such as the role of the government, leadership, and so forth.

Stu Harts argument in the Capitalism at the Crossroads provides the second step towards completing the fortune at the BoP. However, Stu's argument is will need Hernado de Soto's concept for us to realize the full capacity for the fortune at the BoP. At the most basic level de Soto's extensive work in Peru, and many other developing countries, continually provide illustrative examples of much dead capital in all developing countries. De Soto has worked out the mechanism that would communities, and governments to turn dead capital into live capital.

The fortune at the BoP (Prahalad), is the first step in announcing responsible investment; capitalism at the crossroad (Hart), as the mechanism of mutual value creation at the BoP; and turning dead capital to live capital (de Soto) is the ultimate mechanism of fixing wealth at the BoP. In my mind, a combination of the three concepts provides a systems-based conceptual model for finding, creating value, and fixing the fortune at the BoP.

Macharia

macharia, i'm blessed to

lance durham — Sun, 27 Aug 2006 00:30:30 -0500

macharia,

i'm blessed to know both texts quite well. in my opinion, dr hart's main contribution is to point out that BOP consumption, in the long term, must be sustainable. dr senge's point is well taken, but the difficult thing is to see that 'the fix will fail' ahead of time; even dr senge's fixes can fail.

there's so much i'd like to say...but i'll contain myself to just look at the paper. let's begin at page 23 - "the poor as producers".

--micro-finance. yes, micro-finance is enabling many of the 'poor' to produce, to become entrepreneurs. but my bank charges me interest on my loans...trust me, they do indeed see me as their customer. now, microfinance may not be profitable all around yet (not all 1st world banks are, either), but that's really a business model problem that people are trying to work out, it is not an indication that it's impossible to make a profit there.
--create efficient markets. yes, the poor do suffer from gross market inefficiencies; it's a huge problem. but, i enjoy an 'efficient' market because companies compete for my business....it's the competition that delivers the efficiency. 'amul' is competition for the middlemen. 'e-Choupal' has provided a service to farmers and has helped to increase farmer profit (by reducing middleman profit); but improved market efficiency would be better characterized by a second, third and forth middleman moving into the neighborhood and competing against one another/ innovating to improve their operations.
--job creation. yes, job creation is great, and it is generally done by smaller firms in this context, currently, that is. but why? because it is mostly done this way now is not a convincing argument that MNCs should not try. indeed, isn't prahalad saying that MNCs should begin trying?
--role of the government. yes, the government has an important role. unfortunately, many governments don't do that great a job. ...don't MNCs have a remarkable way with changing government policies when they have an economic interest to do so?
--economic growth. yes, trickle down economics can be too little and too slow. but how about 'consumer surplus'? isn't that immediate and potentialy substantial?
--non-economic development. yes, poverty is more than economics. but aren't MNCs primarily economic entities? what does 'non-economic development' really have to with the MNC? if you're the CEO of a MNC, are you charged with bringing democracy and freedom to the world or with creating wealth for your owners?
--government failure. why, why, why is water, sewage, education, roads and agricultural technology a government responsibility? there is no supporting argument within the text for the statement made here. ...frankly, if the state IS failing to provide, i would much rather have a business provide these things than not to have them at all.
--finally, the doctor-good samaritan-band aid analogy is not accurate, because it implies (1) that the good samaritan is incompetent, just as the doctor was, and (2) that the good samaritan is not self-interested. first, the competent good samaritan and the competent consultant will give that patient the band-aid, then an operation, then a recovery ward, then occupational therapy and then regular checkups. second, the good samaritan will charge for services rendered...while 'the good samaritan' is common parlance is actually hurt economically, the MNC as 'the good samaritan' must make a profit.

'beyond the hype' began with:
"The BOP proposition is characterized by much hyperbole and very weak research methodology. The fortune and glory at the bottom of the pyramid are a mirage. The fallacy of the BOP proposition is exacerbated by its hubris."
....strong words deserving serious skepticism; i would encourage everyone to really put this paper under a microscope before buying into it. or, even better, go do something practical to prove this paper correct or incorrect.

Dear Lance, You state that

_macharia — Fri, 25 Aug 2006 14:16:48 -0500

Dear Lance,

You state that the poor cannot eat money, and I agree. The rich cannot eat money either, as the product is not edible to human. Money is not to be confused with productivity. Productivity means the capacity to create value at the local level, so that the local people can leverage what they have to gain access to “penicillin” for example. Trying to sell things to people does not increase their leverage to obtain those things. Indeed this approach produces a typical fixes-that-fail scenario in Systems Thinking (Senge, 1990, 2006).

I think that the word that we are looking for is LEVERAGE…And the question for an MNC becomes, How does an MNC create leverage among the local people so that they can gain access to products that the MNCs is distributing? Creating local leverage, or the capacity for productivity, per se, will result in sustainable symbiosis between the MNC, and the local people. This concept is very well addressed by Hart (2005), who in my view serves to complete the BoP Proposition by C.K. Prahalad (i.e., Prahalad’s argument needs Stu Hart's argument to make sense, for to the MNC, and people in the BoP).

macharia Waruingi

www.kdnc.org

Hart, S. L. (2005). Capitalism at the crossroads. Unlimited business opportunities in solving the world's most difficult problems. Philadelphia, PA: Wharton School Publishing.

Senge, P. M. (1990, 2006). The fifth discipline. The art and practice of the learning organization. New York: Doubleday.

........and the "poor" will buy what the "poor" produce

_macharia — Fri, 25 Aug 2006 13:44:00 -0500

Dear Lance, It is not good to expect America, and Europe to consume what the poor produce. It is this expectation that, in the first place, created the Third World, as we know it today. For over a hundred years, the poor produced the coffee, tea, pyrethrum, gold, diamond, and many other things, which were immediately shipped abroad for consumption by Westerners.

The fallacy in the reasoning that the Western consumption can support global economy is obvious today, since we know that neither America, nor Europe can absorb all the global commodities. The "poor" will consume what other "poor" will produce. That is exactly how the market for electricity was created, when the locals were enabled to both produce, and consume. Any sustainable market is created in this way: by enabling locals to both produce, and consume.

The real question is, how can MNCs help unleash capacity for local market creation at the BoP? Such capacity would help the local people to participate in production, and consumption, thereby giving rise to new, and real market.

Macharia Waruingi

www.kdnc.org

yes, the BOP idea is offensive, isn't it?

lance durham — Fri, 25 Aug 2006 11:09:15 -0500

regardless, 'poverty' is more defined by the inability to consume than anything else. we say a person is poor because they cannot consume - electricity, clean water, sewage treatment, health care, schooling, housing, clothing, heat, etc.

therefore, the only solution to poverty is, in fact, consumption. you may look to production as the enabler that helps people consume, but it's only an enabler.

if you're a company, an MNC for instance, and you care about the poor, you have to find a way to help the poor consume. if you find ways to help them produce, that's fantastic. but, somebody's got to market products and service to them ... otherwise they'll never consume, and they'll always be poor.

the BOP idea is simple: develop, market and distribute products and services that actually make poor peoples' lives better. the BOP idea is to make it possible for poor people to receive more "consumer surplus" than they ever have before.

for instance, microfinance creates "consumer surplus" by offering lower prices than local, monopolistic moneylenders. safebuoy creates "consumer surplus" by helping people avoid food-borne illnesses such as diarrhea. [you know what else would help? 'silverware'. a silverware company could really help people.]

remember, it doesn't matter how much the poor produce or how much money they make. they can't eat money, and money doesn't stop an infection. somebody has got to go in there with real products and sell them.
...or maybe we should just let each village discover penicilin on their own.

skill building & employability

meera shenoyAnonymous — Fri, 25 Aug 2006 06:40:30 -0500

I agree with Karnani that the best win-win for companies and the communities of the poor is in the field of skill building and employability/employment. I began work in the field of Private Sector linkages with the poor exploring various models in plantations, commodities etc. The issues however are so complex and in many cases getting the win on both sides is a challenge. Now, as head of the Employment Generation Mission in Andhra Pradesh India, I work in building models with govt, private sector and really poor and vulnerable socially and economically underpriveleged youth as stakeholders and the program works on scale. Meera Shenoy, India

the production side

_ruddyconsult — Wed, 23 Aug 2006 03:46:01 -0500

I found Aneel Karnani's paper to have put forth some challenges to BOP proponents that should be addressed by the initiators of this Website, www.netxbillion.net

Personally I am in the process of writing a paper over the course of which I too have realized that more emphasis is needed on the production side. The United Nations, for instance, has been working for 10 years on an integrated concept called "Sustainable Consumption and Production" (SCP), http://www.un.org/esa/sustdev/sdissues/consumption/conprod.htm

I think that more discussion is needed on microfinance as a means of boosting the production side of the equation. Likewise other production-side factors such as entrepreneurship deserve exploration. The International Labor Office (ILO) has a long history of promoting its agenda of "decent work" and employment for poverty reduction. The UN's Industrial Development Org. UNIDO and the World Bank have models.

Aneel Karnani's conclusions reminded me of Global Value Chain Analysis (GVCA) which prescribes upgrading of skills and advises enterprises in developing countries to use strategies to capture more of their due "rent" (i.e. share of profit), www.globalvaluechains.org

Thomas, Switzerland

Collecting cases - poor as producers and integrative approaches

_Graham Douglas — Tue, 22 Aug 2006 22:16:27 -0500

Beth, Have you seen this interview? http://www.nextbillion.net/search/node/david+wheeler It was indicative of an integrative approach. Graham Douglas Integrative Federation™ www.integrative-thinking.com

Mirage at the Bottom of the Pyramid

_Aneel Karnani — Mon, 21 Aug 2006 09:36:32 -0500

Poor people – at the bottom of the pyramid (BOP) – represent a very attractive market opportunity. The ‘BOP proposition’ argues that selling to the poor can simultaneously be profitable and help eradicate poverty. This is at best a harmless illusion and potentially a dangerous delusion. My recent paper shows that the BOP argument is riddled with fallacies, and proposes an alternative perspective on how the private sector can help alleviate poverty. Rather than focusing on the poor as consumers, we need to view the poor as producers. The only way to alleviate poverty is to raise the real income of the poor.