This post is the third in a five part series on a radical new approach to scaling BoP business models, what we call a transformative sector strategy. In this segment, I describe how this strategy could transform the health sector in emerging economies.

Last Mile Health Care Delivery

Talk to people in the rural communities of southern Mexico, in the new urban communities on the southern edge of Bogota, or in almost any village in rural Africa about getting decent access to healthcare, and their answer is the same: it usually costs more to get to a clinic, a doctor's office, even a pharmacy, than the cost of the service itself. In Bogota, most of the government-supported health services are in the north of the city, such that it can cost people in these new refugee communities a day's work plus bus fare across town and back to get help. Lack of access defines part of the last mile health care dilemma, and that means distributional business models, such as franchising, can be important.

Talk to Health Stores in Kenya, an enterprise trying to staff small pharmacies with nurses, and another part of the problem becomes clear: the sheer lack of doctors, nurses, and pharmacists in emerging markets. There are not anywhere close to the number of skilled professionals needed to cover rural areas, and these health workers overwhelmingly refuse to live either in rural areas or in urban slums. So technologies, organizational models, and legal changes that enable local diagnosis and remote practice by doctors and pharmacists could play a critical role.

Still a third factor leaps out from the data in The Next 4 Billion report that shows clearly that low-income households spend between a third and a half of their out-of-pocket health care expenditures on drugs. They typically don't go to doctors or clinics or hospitals, but rather to pharmacies or some other source of medicines and seek to self-medicate. That means they often get a guess as to what's wrong with them instead of a diagnosis.

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This post is the second in a five part series on a radical new approach to scaling BoP business models, what we call a transformative sector strategy. In this segment, I tell the story of a rural connectivity pilot project; an example of this new model for development in action.

A Last Mile Model for Rural Connectivity

Son Tay commune, Quang Ngai Province. I was sitting across a table in a remote rural outpost of Vietnam, negotiating (via a translator) with the manager of a local radio station about access to his tower. He asked a series of technical questions and seemed satisfied with the answers, but then he wondered aloud: "Can we get Internet access here?" He didn't just want it for the radio station, it emerged, but for the surrounding small community - even though nobody there yet owned a computer. The manager understood that internet access could help transform their opportunities. And when we agreed to mount a small antenna to serve the community, the tower was ours.

The negotiation was part of a two year long process to pilot a novel approach to rural connectivity. It involved building an advanced, broadband network in three communes (groups of villages) in a very poor province in central Vietnam to provide Internet-based phone service and Internet access. Quang Ngai Province has no Internet access for its million-plus population outside of the provincial capital, and phone ownership is about 3 percent.

But the province does have an AUSAID-funded rural development project (RUDEP) that had built trust by doubling farmer's incomes in many communes, and optical fiber to every district capital (owned by the national electric utility, EVN, which also owns a mobile phone company, EVN Telecom). Ultimately all of these became partners in the effort, as did USAID's Last Mile Initiative, Intel and other equipment providers.

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This post is the first of a five part series on a radical new approach to scaling BoP business models, what we call a transformative sector strategy. In this segment, I introduce the conceptual framework for this innovative poverty-alleviation model.

"It doesn't exactly keep me up at night, but I do think about it a lot." Jacqueline Novogratz, head of Acumen Fund, and I were talking about getting to scale - about expanding private sector business development and investment aimed at empowering and providing basic services to the poor to the point of making a real impact.

I felt exactly the same, and I've had similar conversations with colleagues at Santa Clara University, at Ashoka, at private investment funds, and elsewhere. Ever since we finished our report on The Next 4 Billion, the numbers haunt me. How do you meet the unmet needs of four billion people?

Convincing a dozen multinational companies to take this market seriously isn't enough. Doubling or quadrupling the capacity of the organizations that mentor social enterprises and BoP-serving small and medium businesses won't do it either. Even investing hundreds of millions of dollars in individual enterprises in this sector doesn't guarantee success. I think the goal has to be to transform whole sectors in ways that catalyze mainstream investment in BoP economic activity and unleash market forces. To get there, I think we need a more systematic approach.

A Next-Generation BoP Approach: Transformative Sector Models

In this and subsequent posts, I'm going to suggest one such approach that I and my colleagues at WRI and elsewhere have been developing for several years, and that we are now starting to take into the field. I'm proposing this scaling model tentatively, and asking for feedback and for comparisons to other scaling models.

The approach builds on the perception that there is a growing amount of public and private capital available to fund BoP strategies - almost every month now I hear about a new BoP private equity fund - and the conviction that the bottleneck is a shortage of solutions in the form of investable enterprises. In venture capital jargon, what's missing is the "deal flow." And I'm suggesting that the way to create that deal flow and unleash a rising tide of investment is to focus not on individual entrepreneurs, not on individual companies, but on economic sectors.

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All of us at NextBillion.net were both humbled and thrilled to see the New York Times Sunday Magazine draw on our work - and the work of many colleagues - to write an extended piece on the impact of cell phone usage in emerging economies.

Sara Corbett's article follows Nokia researcher Jan Chipchase as he navigates the human terrain of countries like Ghana, Brazil and Uzbekistan, trying to figure out why a farmer in Kenya or a prostitute in Brazil is finding unique value in their cell phone. The article uses Jan's experience as a device for sparking a broader discussion on the potential for the booming cell phone market to increase incomes and quality of life among the BoP.

What was most interesting about the piece is that the author poses her central theme as a question, not an assertion: "Can the Cellphone Help End Global Poverty?" In her narrative, while laying out the case that cell phones increase productivity, she does not present this technology as a silver bullet development solution.

Rather, we get a very rich, on-the-ground account of how technology is changing people's lives in BoP markets everywhere.

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So what does it take to supply millions of households in emerging economies with clean renewable energy? We often talk about finance, new models, willing entrepreneurs. Kenneth Westrick, CEO of energy consulting group 3Tier says it's information.

Really? Hard to believe this at a time when the development agenda is about doing, not thinking, and action over words. But in our conversation, Ken contended that what the renewable energy sector really needs right now to successfully tap BoP markets is a map. In particular, the online map that 3Tier launched on Monday - this technology will utilize the most recent available research to show in any given 5 km space anywhere in the world the viability of wind and solar energy based on how much sun or wind that area is exposed to on a regular basis.

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As Robert Katz posted last week, a BoP Conference entitled “How to do Business at the BoP” was held on February the 27th in Madrid. The conference had pretty impressive speakers and visitors, since it was mainly directed at the corporate world.

Robert was the first speaker of the day. He kicked off by explaining the reasons for BoP studies and briefly went through the three main penalties suffered by BoP customers: price, quality and access. After giving an overview of business strategies at the BoP, he presented “The Next 4 Billion” study and explained some of the most important conclusions that the study sheds light upon, such as the significant unmet needs in the ICT and Transport industries.

The second part of the conference introduced several BoP case studies from different industries, presented by members of the BoP companies themselves.

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In "The Next 4 Billion: Market Size and Business Strategy at the Base of the Pyramid," the authors analyzed several markets. However, only one market - financial services - was not estimated in terms of exact size and scope.

Financial services can be a fiendishly hard thing to measure, but is at the same time a crucial tool to develop markets for BoP customers. In fact, financial markets often help other BoP markets flourish. Data measuring access and efficiency in financial markets are notoriously hard to come across in emerging countries, because most of these markets lie under the cover of informal economies.

A new publication by the World Bank, Finance for All? Policies and Pitfalls in Expanding Access, tries to give an overview of the most recent advances and conclusions about the improvement of access to financial services for the poor. It is a superb report. Superb, but very hard to read. For those who want to avoid the econometrics and statistical analysis, I would suggest reading only the Overview.

The study analyzes how financial access provides opportunities for the poor and for small to medium sized enterprises (SMEs). Since a defining characteristic of BoP markets is their non-integration with global markets and their subjection to higher prices (monetary or not) for most of their goods, building inclusive financial systems means equalizing opportunities between BoP and non-BoP markets.

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I had an interesting meeting today, during which one of the people I was speaking with brought up a talk given by Jonathan Schwartz last August. Schwartz - the CEO of Sun Microsystems - delivers a fascinating talk over about 25 minutes during which he relates important demographic and development trends to Sun's need to develop and implement a "base of the pyramid" strategy.

(Full disclosure: during the speech, Schwartz mentions NextBillion writer and WRI Vice President Al Hammond by name, and cites data from The Next 4 Billion: Market Size and Business Strategy at the Base of the Pyramid. What can I say - I'm proud that Fortune 500 CEOs are looking to Al and to our report in support of their emerging markets strategies.)

Upon finishing The Power of Unreasonable People: How Social Entrepreneurs Create Markets That Change the World, three words came to mind: it's about time.  Lately, I've felt that the social entrepreneurship movement has grown too large, encompassing too many sub-topics that don't necessarily relate to each other.  With their new book, however, authors John Elkington and Pamela Hartigan manage to unite the wide-ranging discipline of social entrepreneurship, using sharp analysis, compelling anecdotes and an eye towards future study.  Simply put, this book is a must-read for the 'social entrepreneurship' crowd – one that transcends the aforementioned sub-topics.

As I read The Power of Unreasonable People, I decided to mark pages on which something unique appeared.  Rather than summarize the book – go to Amazon for that – my review will concentrate on these unique elements, listed in no particular order.

Page 2: A growing number of companies, like Accenture, say that offering the opportunity to work alongside accomplished entrepreneurs factors into staff retention.  This indicates a new trend among Generation Y employees (those born after 1982) – they want meaningful careers as well as well-paying jobs.  Can’t have your cake and eat it too?  Maybe you can – and companies need to get on board if they are to continue to attract top talent.

Page 11: The Schwab Foundation for Social Entrepreneurship has joined forces with the Lemelson Foundation to establish the Leapfrog Fund, designed to spur the transfer of successful innovations between entrepreneurs in different parts of the world.  I hadn’t heard about this, but it is long overdue.  The tools, models and ideas that work should be replicated – but that requires serious technical assistance and favorable financing.  Kudos to Lemelson in particular for stepping up on this.

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In a speech at Davos today, Bill Gates called for a more inclusive capitalism that "would have a twin mission: making profits and also improving lives for those who don't fully benefit from market forces." That is a major milestone in the evolving thinking of perhaps the most influential philanthropist of our time.

In 2000, I organized a conference in Seattle on Creating Digital Dividends at which Mr. Gates, in a keynote address, famously said that "poor people don't need computers" and rejected a business approach to alleviating poverty. Within a year, however, he had changed his mind, and Microsoft became a leader in seeking ways to provide affordable services to low-income populations—in some small measure with WRI's help.

The beginnings of a more full-fledged belief in inclusive capitalism, according to the WSJ today, came at a dinner in Seattle, organized by WRI, in which Mr. Gates spent several hours talking with BOP guru C.K. Prahalad (in his capacity as a WRI Board member). I was also at that dinner, and remember Mr. Gates saying to me that the question was how far towards the bottom of the pyramid could business approaches go—not too far, was his assessment. But again, his thinking evolved.

Now Mr. Gates is arguing that capitalism, appropriately pursued, is in fact the best hope to bring services and improve productivity and create opportunity for the world's 4 billion poor - and that, accordingly, the world needs to invest much more heavily in the micro, small, and medium-sized enterprises that are close to the poor. If Mr. Gates puts the muscle of his foundation behind such enterprise development - which we have long argued is the principal bottleneck to a successful BOP business approach - then perhaps the world will really change.

Update: The full text of Gates' speech is available over at Polity. Bruce Nussbaum at BusinessWeek also has some analysis, including kind words for NextBillion ally Acumen Fund and its CEO, Jacqueline Novogratz.

Two new papers exploring the 'base of the pyramid' concept crossed my desk recently. We posted both of them to the Newsroom, but they also merit a slightly longer discussion.

First, Jean-Louis Warnholz of the University of Oxford's Queen Elizabeth House has a new working paper out entitled "Poverty Reduction for Profit? A critical examination of business opportunities at the Bottom of the Pyramid." In his paper, Warnholz studies overarching BoP strategy and applies a new dataset - based on price survey data - to look deeply at the extent of a 'poverty penalty' at the BoP.

Warnholz's paper merits a close read, especially for academic members of the BoP community. I will hold off on giving my impression of his paper - other than to say that it's worthy of a close read - until I have had the chance to speak with the author himself (I have a request out to him - stay tuned to NextBillion.net.)

The second paper I recommend is David Lehr's just-posted "Going Wireless: Dialing for Development." (Full disclosure: I provided David with feedback on the initial drafts of this paper.) In it, Lehr - a 2007 Acumen Fund Fellow - examines the role of mobile devices in expanding economic opportunity at the BoP.

While "Going Wireless" is not the first examination of the role of technology for development, Lehr does an excellent job culling the best lessons and examples from the existing literature while offering his own keen insights and analysis. I highly recommend giving this paper a thorough read, and find it especially useful as an introduction/overview of the mobiles-for-development space.

If NextBillion readers have particular thoughts on these two papers, please post them in the comments section below.