Ashridge Research Bottom of Pyramid FULL REPORT

8/6/2019 Ashridge Research Bottom of Pyramid FULL REPORT

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A ROLE FOR BUSINESS AT THE BOTTOM OF THE PYRAMID

Edgar Wille OBEKevin Barham

Ashridge Business School

JANUARY 2009


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Ashridge

All rights reserved. Except for the quotation of short passages for the purpose ofcriticism and review, no part of this publication may be produced, stored in a retrievalsystem, or transmitted, in any form or by any means, electronic, mechanical,photocopying, recording or otherwise, without the prior permission of Ashridge.

ISBN: 978-0-903542-73-9

AshridgeBerkhamstedHertfordshireHP4 1NSUnited Kingdom

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Registered as Ashridge (Bonar Law Memorial) TrustCharity number 311096


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CONTENTS

EXECUTIVE SUMMARY ........................................................................................ 1CHAPTER 1: OBJECTIVES AND METHODOLOGY OF THE STUDY ................................ 5

CHAPTER 2: LIVES AND LIVELIHOODS AT THE BOP ............................................. 13ANNEX TO CHAPTER 2: LIVES AND LIVELIHOODS AT THE BOP .............................. 25CHAPTER 3: PIONEER PERSPECTIVES ON THE BOP .............................................. 47CHAPTER 4: BUSINESS BEGINS TO TAKE AN INTEREST IN THE BOP ..................... 53CHAPTER 5: ACTION BEING TAKEN BY NON-INDIGENOUS COMPANIES ALREADYESTABLISHED IN THE DEVELOPING WORLD....................................................... 59CHAPTER 6: INDIGENOUS COMPANIES INVESTING IN THE BOP IN THEIR OWNCOUNTRIES .................................................................................................... 91CHAPTER 7: A COMPARISON OF MODELS FOR WORKING WITH THE BOP ............ 105CHAPTER 8: THE ROLE OF NGOs IN FACILITATING THE WORK OF COMPANIESAT THE BOP .................................................................................................. 111CHAPTER 9: KEY ISSUES REQUIRING RESOLUTION .......................................... 131CHAPTER 10: WHERE DO WE GO FROM HERE? ................................................. 145AFTERWORD ................................................................................................. 153APPENDIX 1: COMPANIES THAT HAVE SIGNED THE UK GOVERNMENTSBUSINESS CALL TO ACTION............................................................................ 157APPENDIX 2: THE BOP PROTOCOL PROCESS .................................................... 159BOOK REVIEWS AND THE ASHRIDGE VIRTUAL LEARNING RESOURCE CENTRE ...... 163BIBLIOGRAPHY .............................................................................................. 165ACKNOWLEDGEMENTS ................................................................................... 173THE AUTHORS ............................................................................................... 175

Chapters 1-4 outline the problem and solutions recently proposed.Chapters 5-8 give detail of what companies and NGOs are doing.Chapters 9 and 10 summarise the findings and make suggestions for action.


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A Role for Business at the Bottom of the Pyramid

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EXECUTIVE SUMMARY

This study considers how business can help to alleviate poverty at the bottom of theeconomic pyramid (BOP) in the developing world, while acting commercially andmaking a profit. In spite of the extreme nature of the poverty experienced byapproximately two thirds of the worlds population, CK Prahalad of the University ofMichigan and Stuart Hart of Cornell University have suggested that from the manysmall amounts of disposable income available a fortune could be made. To achievethis, companies are expected to base their strategy for BOP markets on large volumesof sales with small margins.

Other commentators have considered that, if business could offer the opportunity forcommunities at the bottom of the pyramid to expand their production activity andthus to increase their income, markets might be created and the BOP could becomelinked to the global market. Yet others believe that any progress by the BOP will onlycome about by an equal partnership with companies who are prepared to be involved

commercially, but would be satisfied with less than profit maximisation. They wouldsee their involvement as a contribution to society and as a means of reducing thedangers of unrest, war and terror that spring, it is suggested, from such vast numbersof people being so economically deprived. Successful businesses could even enableBOP communities to establish small businesses and learn to acquire what the ShellFoundation has called business DNA.

Needless to say, such ideas have spawned much debate as to practicality andappropriateness. Should business be involved in any activity that is not solelydevoted to wealth creation through profit for its shareholders or other owners?Prahalad, in particular, considers that profit for companies and benefit for the BOP arenot incompatible, though Nobel prize-winner Muhummad Yunus, founder of Grameen

Bank in Bangladesh, sees a place for a social business to combine a degree ofphilanthropy with business acumen.

This study, which Edgar Wille and Kevin Barham have carried out on behalf ofAshridge Business School, has examined the various perspectives and related activityby interviews, telephone discussions, and wide ranging internet and literature search,and has sought to identify working models by which progress could be made toalleviate the curse of dire poverty.

We have explored the extent to which companies have sought to work with the BOPand have examined the style of their approaches. Some companies have helped theBOP by employing them and bringing prosperity to whole areas as by-products of their

normal business, sensitively carried out as good citizens. Others have aimed to sellspecific products and services adapted to BOP needs at affordable prices and often insmall quantities to address the typically small daily wages of BOP customers. As aresult of commercial activity, local entrepreneurs have been encouraged to set upsmall businesses, often as part of the supply chain of the company; local stores havebeen franchised for the sale of a companys goods; local people have been trained assalespersons, and microcredit and savings group opportunities have been set up toenable people to afford products and services; agricultural and technological advicehas been proffered as part of an ongoing business relationship.

Non-governmental organisations (NGOs), both not-for-profit and those which engagein commercial activity to help fund their charitable activity, have had a significant partto play in opening up windows of opportunity for companies wishing to invest in thedeveloping world.


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The study is positioned within the wider efforts expressed by the United Nations in theMillennium Development Goals (MDGs) and by the British Government in its BusinessCall to Action of 2008 which draws attention to the unlikelihood of the MDGs beingachieved by the target date of 2015. The report makes a distinction, on the onehand, between the provision of emergency aid, and on the other hand, commercialapproaches that do not foster dependence on the part of the poor, but open up trade

opportunities. It discusses how companies can blend altruism and commerce. Thestudy does not consider the institutional and governmental attempts to deal with theproblems on a broad basis expressed in terms of GDP. Neither does it see much helpto the BOP in major business which aims at satisfying the elite and middle classes oftheir countries, nor the development of large mono-cultural plantations and extensivefactories for the purpose of large-scale export for the benefit of the prosperous.

Early in the report, a brief survey is undertaken of the many harrowing problemsfaced every day by the people at the bottom of the pyramid and the deprivations theysuffer in deficiencies in health, sanitation, availability of clean drinking water, food andagriculture, education, transport, communications, money, energy, shelter and legalarrangements. Research carried out by the Massachusetts Institute of Technology

(MIT) is referred to on how the poor earn and spend their money, their problems ofdebt, and the lack of sound infrastructure. It is noted that countries like India andChina which may have overall prosperity, nevertheless continue to have vast numbersof desperately poor inhabitants. The serious nature of the problems which face theBOP is illustrated by an examination of the impact of poor water supply and badsanitation on their lives, as chronicled by the charity WaterAid.

In addition to those of Prahalad and Hart, the writings of Karnani and Wilson andWilson also contribute to an understanding of the concept of business relationshipswith the BOP. The UNDP report of July 2008 Creating Value for Allshows how smalllocal companies in the developing world could make a valuable contribution, beingclose to the point of action. Together, these sources have provided a foundation for

our research. This considers more than 50 international companies involved withdeveloping countries who positively affect the BOP by their commercial activities in allthe fields in which the BOP suffers. A wide range of different relationships areinvolved and companies are, reasonably enough, guided by their core competencies indeciding the nature of their investments.

To these companies, the report adds another category that of some large and smallcompanies in the developing countries themselves who are taking the plight of theirpoverty-stricken fellow citizens seriously, combining philanthropy with commercialprinciples, sometimes charging the wealthy in ways that cover the costs of serving thedestitute, sometimes providing microcredit, and working through self-help groups.Some 50 examples of such small and local companies are given.

The activities of these two groups of companies are analysed and three workingmodels of how companies can engage with the BOP are noted, based on work carriedout by academics at Cornell University:

1. The provider model which works on normal business principles, where thecompany determines what products and services reflect their corecompetencies and offers them for sale.

2. The empowerment model, where the company listens to the interests of thepotential customers and adapts its products to the needs as seen by thecustomer, in this case the BOP. The small companies in developing countrieswho do business with the bottom of the pyramid would probably lie in thiscategory.


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3. The partnership model, in which the company enters into a joint venture witha BOP community to co-create a business to be decided upon by both partiesand to be run jointly until the community representatives are able to take fullcontrol, while ambassadors are sent out to co-create similar businesses inother communities. The area covered by the new businesses is secondary tothe fact that they are learning how to run a business any business. This

model, known as the BOP Protocol, is very appealing in its call for dialogue andjoint ownership of the outcomes, but the report raises the question as towhether enough companies would be able to put so much effort into such arigorous approach as to make a big enough difference in the short term to theplight of poor communities. Nonetheless, it recognises that companies maylearn some useful lessons from the open and sensitive mindset the modelrepresents.

The report devotes a chapter to the importance of the NGOs in enabling companies towork in line with any of these models. NGOs have the knowledge and experience towork within a variety of cultures. Companies need the help of the NGOs to opendoors in order to be successful in their relationships with the BOP. Some 25 NGOs

and the way they have cooperated with companies are discussed. Special attention ispaid to the project in Uganda in which the Guardian newspaper, Barclays Bank andthe African NGO AMREF are cooperating to improve life in Katine district, seeking tolearn from the experience and then to disseminate new knowledge.

On the basis of the study of this sample of companies and NGOs and the approachesthey have taken, we have identified some areas which need attention if wider businesssuccess is to be achieved in collaboration with the BOP in ways which benefit bothsides:

Greater emphasis could be placed, in literature, the financial press and othermedia and political speeches and action, on the potential for business of the

developing world, especially the vast bottom of the economic pyramid.Currently, the idea that business investment could be crucial to the emergenceof the BOP from extreme poverty receives relatively little coverage.

More thought should be given to whether businesses have a role in societyapart from wealth creation, because of the enormous power large companiespossess. If they wish to gain and maintain a good reputation, it is in theinterest of companies to be seen to be contributing to society. It is also in theself-interest of all businesses to have a stable world in which to operate.

A degree of altruism and philanthropy is not inconsistent with the profit motive.Awareness of this might assume greater significance if companies concludethat there is not a fortune at the bottom of the pyramid.

The increasing harmony and cooperation between NGOs and companies is tobe welcomed. Companies would do well to seek the advice and cooperation ofthe NGOs when they are thinking of getting involved in the BOP.

Individual companies should consider setting up a specific unit to engage inwork with the BOP and other needy populations, on a commercial basis, butwithout profit maximisation being insisted upon.

Companies could seek ways of coordinating their efforts in the BOP so that anumber of interwoven problems are addressed simultaneously. To correct oneserious problem, while leaving other equally life threatening problemsuntouched, is to develop a synergy of failure.


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To achieve such coordination a start could be made by the initiative of onecompany seeking out others who could complement their efforts. Equally, asimple system in the hands of one of the international institutions, foundationsor government departments could be developed, as long as it was kept simple

and bureaucracy was kept to the minimum.

Possibly, a government department could appeal for companies with differentcore competencies to form a coalition for dealing with the needs of specificcommunities.

Perhaps companies would like to contact the BOP Protocol team at CornellUniversity to understand the Protocolsystem better and to consider whether toadopt it in an area of their own interest in a community which would therebyacquire an understanding of business (business DNA).

Any company deciding to move towards working with the BOP would need to

recognise the need for careful and painstaking preparation; it would do nogood just to go in on impulse or intuition.

Companies in countries where there is a significant number of people living atthe bottom of the pyramid could, as some of them are already doing, recognisea special responsibility toward those in their own backyard living in direpoverty. The role of small local companies can be significant in its own rightand as a basis for the wider contribution from larger companies.

Our research has indicated that much good work is being done in many locations bybusiness using commercial approaches. But the overall global effect is still verylimited, given the scale of the need, and is not helped by the current world financial

and economic crisis. The small sample that we have reviewed of companies investingin the developing world and having a positive impact on the BOP, would suggest thatpessimistic lack of action is not an option. If the four billion people said to constitutethe BOP are to be left in their current state, business itself is likely to suffer from theconsequences in terms of instability and the depletion of vital natural resources

Our study is a pilot study. This has meant gaining a sample picture of what progress isbeing made toward the use by business of commercial methods to alleviate poverty atthe bottom of the economic pyramid in developing countries. By definition, a pilotstudy suggests what else needs to be done on a wider and more rigorous scale. Atthis initial stage, we believe that the most significant finding of this pilot study is thatinvestment in the BOP is currently too random to make the considerable integrated

changes that are needed by poor communities. Individual firms deal with a verylimited range of poverty-related problems at the BOP, which means that unless otherfirms complement their actions by investing in other areas of need, people willcontinue to suffer and die in large numbers, because the other areas of need havegone unaddressed.

We have also formed the impression that ultimately there is not a fortune to be madeat the bottom of the pyramid only a modest profit. It means that those companieswho decide to work with the BOP must inevitably do so with a measure of altruism. Inthe long term, however, this will make the world safer for future business activity andfulfilled living.


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CHAPTER 1: OBJECTIVES AND METHODOLOGY OF THE STUDY

The boundaries of this study

Somewhere between three and four billion of the earths six and a half billioninhabitants are mired in poverty at the bottom (or, as some term it, the base) of theeconomic pyramid (the BOP), many of them to an extreme degree. Purely from ahumanitarian point of view this must be a concern to all those who live in moreprosperous circumstances, but it is also of concern from a self-interested point ofview, for it is from such dire poverty that unrest, wars and terrorism often spring.We use the term bottom of the pyramid not out of disrespect for the poor, but todescribe their unhappy plight as it really is. We aim to discover ways where it couldbecome a base for upward movement as the base of the pyramid. The acronymBOP serves both meanings.

Poverty at the BOP is often described as affecting people who live on no more than

$1 a day or, say other experts, $2 a day. On that basis, it has been suggested thatfour billion of the earths inhabitants, perhaps two thirds of them, are in extremepoverty. All such figures are usually expressed in purchasing power parity (PPP)dollars to make them comparable, and the fact that some of the calculations resemble

back of an envelope arithmetic does not detract from their overall force.

The Next 4 Billion, a report compiled by the World Resources Institute and sponsoredby the International Finance Corporation (IFC), the Inter-American DevelopmentBank, Intel, Microsoft, the Shell Foundation and Visa International, suggests that the

4 billion members of the BOP should encompass all those whose income is less than$3000 per annum. This breaks down broadly (by reference to the pictorial charts inthe report) to the following categories of annual income:

$3000 11% of the 4 billion$2500 14% $2000 20% $1500 26% $1000 23% $500 6%

Though some commentators would restrict the term BOP to the two or three bottomcategories,anyone living in the developed countries would regard an income of $3000per annum as expressive of severe poverty and $500 as unimaginably extremepoverty.

But the analysis of the BOP market by income segments does mean that the slightlyless acute levels of poverty might have a greater investment appeal to thosebusinesses seeking a share in the BOP market which is valued in the report at $5trillion, including all the above segments. They might be inclined to show interest inthe top three segments rather than those in the deepest poverty, though it is notalways easy to identify the segments on the ground. Also, it is open to questionwhether income is really the best defining factor in identifying poverty this maybecome evident as we proceed.


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Business and the BOP

Many approaches have been adopted to try to make poverty history, but theproblem persists. Direct aid is provided by international effort, by individualgovernments, by non-governmental organisations (NGOs), by charitable donationsfrom individuals and bodies such as churches, and by charitable foundations. This aid

often has to be directed toward dealing with emergencies, such as famine or war, butit is recognised that effort is needed to tackle the underlying causes of the poverty bydevelopmental processes aimed at transforming the whole situation. And increasingemphasis has been placed on this need. All over the world, non-governmentalorganisations and foundations are at work seeking to alleviate poverty by tackling rootcauses and creating awareness of the needs and potential solutions, but it is thebusiness community that has the greatest power to change the situation, incooperation with the NGOs and foundations.

There is increasing discussion of the role that business could play, particularly thelarge multinational corporations (MNCs) which considerably influence the way in whichsociety operates. Small and medium-sized enterprises (SMEs) are also showing

interest, as part of larger supply chains or as companies able, because of their smallersize, to get closer to the action. The discussion aims to find ways whereby morecompanies could make an acceptable profit while helping to alleviate poverty by theiractivities. As it is often expressed, business has the capability to do well and dogood at the same time.

The aims of this pilot study

This pilot study aims to chart the course that further, more exhaustive research needsto take in defining the role that business might play in bringing the bottom of theeconomic pyramid (BOP) into the mainstream of economic activity, in a way that

would benefit the very poorest of the world, without deflecting from the profit-makingresponsibilities of a business. Business education and non-governmentalorganisations also have a significant role in helping businesses to identify theopportunities and challenges that investing in the bottom of the pyramid might createfor them.

On the basis of this study, we shall be looking for possible models by whichbusinesses might make the most effective contribution and we will also be seekingexamples of how companies are achieving it. These may help other companies todetermine their own initial steps towards becoming involved.

As this first stage is a pilot study, we have concentrated on distilling, from a variety of

sources, what we already know of the problems and the efforts that are being madeby business to address them as part of its profit-making responsibility. Gaps in ourknowledge, and in consequent action possibilities, will be identified to give a pointer tothe urgent and action-oriented research that needs to be undertaken. Ourinformation is derived from discussions with actors in the activity, and from aburgeoning literature, amplified by the internet and published reports.

With all the uncertainties surrounding climate change, the depletion of renewablenatural resources, and inevitable related changes in consumer demand, where cancompanies look for new markets? One answer may lie in the developing world at theso-called bottom of the pyramid where, as we have seen, something like two thirdsof the planets population live below the poverty line. Campaigns such as MakePoverty History have attracted much attention, but such remedies have tended tofocus on charitable aid.


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Until recently, little attention has been given to the possibility that business could helpto alleviate world poverty and at the same time make a profit through engagingwith this hitherto unpromising and virtually ignored segment of the world market. Asillustrated by the figures above, four billion people could be a potential market worthconsidering, although the challenges of accessing this market have tended todiscourage all but the most creative of business leaders. This large part of the worldpopulation could also play a greater part in the production of the worlds needs, aspart of the supply chain of businesses, and without being exploited.

Macro-investment in developing countries

In this study, we are concerned with investment in the developing world which canreally involve the BOP and benefit them. There is much investment in the developingworld which tends to concentrate on building up mass production, mainly for exportand for sale to the elite and middle classes of those countries. It does provide someemployment, largely at the low-paid labouring level, which in the case of somecompanies is the attraction, and there can be some trickle down effect to the BOP.

The large international institutions, such as the World Bank, the InternationalMonetary Fund (IMF) and the World Trade Organisation (WTO), tend to deal atgovernmental level, and to regard improvements to the overall Gross DomesticProduct (GDP) of a country as a key measure of success. Our concern in this researchis with initiatives which are likely in a more direct way to alleviate poverty at thebottom of the pyramid. It is not concerned with either of the following two macroapproaches to investment in developing countries:

Large-scale company interventions, such as the building of major plantsrequiring minimal labour or the development of vast mono-cultural plantations.These will have but little trickle down to the BOP, though they may look good inthe GDP figures. Damage is often done to the life of the BOP by such large-

scale activities. Big companies take over territory for their businessdevelopment, but can destroy the livelihoods of the poor, who may have only asmall amount of land, which they are tempted or forced to sell because of theeconomic impact of the intervention. The UK Guardian newspaper for 22November 2008 devotes two full pages to exposing the way in which moreprosperous states and corporations are buying up vast areas of land indeveloping countries to grow food to meet expected shortages in their owncountries. The head of the UN Food and Agriculture Organisation, JacquesDiouf, says that this rise in land deals could create a form of neo-colonialism,with poor states producing food for the rich at the expense of their own hungrypeople. Alex Evans of the New York Centre for International Cooperationconsiders that small farmers are losing out already. People without solid titleare being turfed off their land. Developing countries will d

erive some incomefrom these deals, but these will be at a macro level of little benefit to the BOP.There will be some job creation but much loss to peasant farmers.

Macro-policy as applied by institutions. Organisations like the IMF, World Bankand WTO tend to deal with macro-policy and often take a neo-liberal approach.In spite of the good they do, their Western mindset is not always appropriate tothe situations with which they deal and can even have harmful effects asexperts like the American economist Joseph Stiglitz have indicated.Governments of developing countries cannot be ignored; their cooperationshould be sought wherever possible. But to base investments on theassumption of close cooperation with them can often be a mistake, because ofgovernmental bureaucratic mentality, corruption and their pursuit of overalleconomic and political objectives that have little regard to helping the peoplewho really need it most.


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The Millennium Development Goals

The issues are serious and are well expressed in the Millennium Development Goals(MDG) agreed by the United Nations in 2000. These call for international action fromall sectors of society to meet a series of targets to drastically reduce extreme poverty.The eight goals are:

1. Halve the number of people living on less than $1 a day (then 1.2 billion people) by2015.

2. Achieve universal primary education, including the 113 million children with noaccess to primary schools.

3. Eliminate all gender disparities by 2015 e.g. literacy, refugees and employment.4. Reduce by two thirds the number of children dying before their fifth birthday (then

11 million a year) by 2015.

5. Reduce by two thirds the number of women dying in childbirth (then 1 in 48 indeveloping countries).6. Halt and begin to reverse the spread of HIV, combat malaria and other diseases.7. Reverse the loss of environmental resources by 2015, including halving the

population without access to safe drinking water.

8. Develop a global partnership for development, including an open tracking andfinancial system that includes a commitment to good governance and povertyreduction, tackling debt problems, provision of work for youth and access toaffordable drugs in developing countries, and make available the benefits of new

technologies especially information and communications technologies.All of these have a direct bearing on the needs of the BOP and add a sense of urgencyto the subject matter of this report, especially in view of the fact that 2015 is only sixyears away.

The global partnership of the last goal can be seen to include cooperation betweencompanies to ensure that there is some coordination between what they are all doing,leading to more integrated benefit to the BOP.

A review of progress that the United Nations has recently undertaken makes it evidentthat the progress so far is disappointing and that some really energetic action will be

called for.

The UK Business Call to Action

Because of the sluggish response so far, the UK Department for InternationalDevelopment (DFID) has initiated the Business Call to Action as the focal point in theUK for mobilising the expertise and efforts of big business to support growth indeveloping countries and contribute to the achievement of the MillenniumDevelopment Goals.


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On 6 May 2008, the British Prime Minister hosted a meeting attended by chiefexecutives and board chairs of some of the worlds largest and most prestigiouscompanies, by no means restricted to the UK. In introducing the meeting itsbackground and objectives were expressed as follows:

Business is an engine of growth and development and has the potential to

impact developing countries enormously. Increased investment, creation of jobsand the development of goods, new technologies and innovations can all resultfrom business activity and considerably improve quality of life and reduce

poverty in developing countries

The preamble goes on to stress that it is not a matter of philanthropy, but a challengeto companies to explore new business opportunities that harness their corecompetencies. Making a profit and doing the right thing are not mutually exclusive.Such efforts can help to make the world safer and more prosperous and at the sametime, says the call to action, help to secure future commercial success and build amore profitable environment.

The call to action aims to encourage such activity by giving publicity to some of thesuccessful business opportunities that have already been found in emerging marketssuch as India and Africa, in the hope that other companies will emulate them and thatsuch activity will be stepped up. The examples showcased at the meeting on May 6,encouraged the expectation that initiatives over the next five years would save almosthalf a million lives, create thousands of jobs, and benefit millions of poor people acrossAfrica, Asia and Latin America. The action is seen as a concerted push to enable poorpeople to access up to the minute information, money and business expertise as wellas creating new businesses and employment opportunities.

At the meeting in May 2008, companies signed a declaration which recognised thatseven and a half years after the MDGs were promulgated, the world is not on track to

meet the commitment expressed in them. The declaration affirms that to meet thegoals there were only seven short years to make the difference for millions of peopleon our planet between grinding poverty and the opportunity to learn, be healthy andmake enough to support their families. It speaks of the difference that will be made ifthe right policies can be combinedwith sufficient resources and appeals for theinternational mobilisation of the power of the private sector, individuals, consumers,faith groups, cities, civil society organisations [i.e. non-governmental organisations(NGOs)], as well as governments, north and south, to work together to achieve theMDGs.

The crucial resolution was expressed as follows:

So today, as leaders from the private sector, we declare our commitment tomeet this development emergency. We commit to action and because the scaleof the challenge means that no one acting alone can achieve the difference weneed, we call on all parties, including the private sector, governments, civilsociety and faith groups to play their part. It is only by acting together in a

genuine partnership that we can succeed.

The companies signing the declaration are listed in Appendix 1.

Much of what follows in our report is in harmony with the above declarations anddiscusses ways of making them a reality, while acknowledging the formidabledifficulties that will be encountered on the way.


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The structure of the pilot study

Chapter 2 follows this introduction by summarising, from many existing sources, themain problems facing those who live at the bottom of the pyramid. These problemsvary from place to place, but there are so many similar features in the impact ofpoverty on the life and livelihoods of the poor in developing countries, that we feel we

are justified, for the purposes of this study, in speaking of the bottom of the pyramidas if it were one, while recognising the implications of the segmentation set out in TheNext 4 Billion. We are looking at the issues from the perspective of business, but asfeeling human beings we must be appalled by the thought that fellow inhabitants ofthe earth have to live under such circumstances. Though we adopt a business stance,there will inevitably and rightly be more than a touch of altruism and human empathyinvolved in any discussion of how to alleviate the plight of the BOP.

Chapter 3 brings out the essence of four seminal contributions published in recentyears which make proposals about the role that business could play in alleviatingworld poverty.

Two leading North American business academics, CK Prahalad (University of Michigan)and Stuart Hart (Cornell University), suggest in two important recent books(respectively The Fortune at the Bottom of the Pyramidand Capitalism at theCrossroads) that there is a major opportunity for MNCs to address the needs of theworlds four billion poor the two thirds of humanity who live at the bottom of thepyramid in ways that are both environmentally sustainable and economicallyprofitable.

Prahalad, in particular, believes that there is a fortune waiting at the bottom of thepyramid for those MNCs with the necessary imagination and commitment to engagewith the BOP. Both Prahalad and Hart propose some general guidelines for such MNCsto follow when doing business with the BOP. Many others have joined in the

discussion, such as Craig Wilson and Peter Wilson and, in a paper very critical ofPrahalads approach, Aneel Karnani (a colleague of his at Michigan University).

In May 2006, CK Prahalad and Stuart Hart, along with Ted London and Bob Kennedy,were among the organisers of the first research workshop/conference at the Universityof Michigan Business School (William Davidson Institute) at Ann Arbor, Michigan, atwhich a group of academics met to discuss an agenda for developing further researchinto the BOP. The writers of this report were among those invited to take part. Thiswas followed by a second larger, public conference at Ann Arbor in September 2007.

At the first workshop, participants undertook to carry out research projectsinvestigating various questions concerning the BOP and its business potential. This

pilot study is our response. It builds on learning that was available at the workshopand later conference, where we benefited from discussions with CK Prahalad, StuartHart and their close associates.

Chapter 4 looks at how business is beginning to take an interest in the BOP. Itsummarises the recent United Nations Development Programme (UNDP) reportCreating Value for All: Strategies for Doing Business with the Poor(July 2008),especially where small indigenous companies are involved commercially with the BOP,a factor not prominent in Chapter 3. This chapter also introduces the detail ofsamples of business relationships with the BOP and the work of NGOs set out inChapters 5, 6, 7, and 8.


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Chapter 5 gathers a sample of current activities of international companies, to makea preliminary test of the perspectives these writers have presented, particularly theassertion that there are significant assets waiting to be activated at the BOP (where itis suggested that many small niche purchases can add up to as much or even moreprofit than the sales of a few blockbuster products in more prosperous societies, asdescribed by Chris Anderson in his book The Long Tail(Anderson, 2006).

Chapter 6 reviews the activities of indigenous companies in development in their owncountries to see how what they are doing can affect the BOP in their own backyard.We include companies that Prahalad highlights in his book The Fortune at the Bottomof the Pyramidand also some from the UNDP report Creating Value for Alland othersources.

Chapter 7 presents three proposed models of the working approaches of companiesthat are investing in the BOP. These include the BOP Protocol model fostered byStuart Hart and Erik Simanis at Cornell University which proposes a way of enablingBOP communities to help themselves without becoming permanently dependent onaid. It is a long-term project and we discuss some of the challenges it faces if it is to

achieve large-scale viability. We suggest that, while its pioneering work is veryvaluable, and could ultimately become a significant approach, the other two moreconventional models also have a major place in the alleviation of poverty, particularlyif they emphasise the need for partnership with BOP communities.

Chapter 8 seeks to clarify the role of non-governmental organisations in helpingMNCs and other companies to understand local conditions and achieve local co-operation. They can also help to determine how far to rely on a country governmentfor access to the BOP.

Chapter 9 gathers together the outcomes of the pilot study, seeks to identify howcompanies and NGOs could set about implementing the necessary action, along with

the suggested direction of further detailed study to ensure that the concept of businessmaking a major contribution to alleviating world poverty, while itself making a profit,remains high on the development agenda. Major problems are addressed, such ashow to secure a degree of integration in the development opportunities on offer to anyone BOP community, so that the absence of some factors will not nullify the good thatmight otherwise be achieved.

Chapter 10 will point to further actions to meet some of the difficulties and makesuggestions for the future direction of policy and some aspects of its implementation.Suggestions are made on how coordination might be achieved between companiesinvesting in the BOP so that their efforts complement each other.


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CHAPTER 2: LIVES AND LIVELIHOODS AT THE BOP

Introduction

The first requirement for this study is to have before us an overall summary of livingconditions at the bottom of the pyramid. We do this by describing conditions at theBOP under twelve headings, supported by book reviews on the accompanying CD.

The BOP is generally taken to mean people who live with an income of below $1 or $2a day. This, however, is open to debate as many such people do not rely primarily ona money income for their survival. They often work smallholdings and engage in someauxiliary hunter/gathering activities, mutual exchange or other cooperativecontributions to their livelihoods, but they are all very poor or extremely poor.

Twelve principal aspects of life at the BOP

There follows a summary of twelve aspects, as commonly perceived, of living at theBOP, most of them clearly detrimental to true human freedom and well-being. This iscompiled from personal interviews, the internet and the literature on the subject toprovide some context for later discussion and comments in this report.

1. HealthAvailable health services are usually very limited. Hospitals are often of a veryprimitive nature with a lack of equipment or qualified staff. Where facilities areavailable the cost is prohibitive for many people.

Distance is also a problem. Sick people may have to be carried on the backs ofrelatives or on bicycles and stretchers for many miles over several days throughrough terrain. Mortality rates are high, especially among children. Pregnancyis attended by considerable risks.

2. SanitationSanitation is closely linked to health issues. Clean latrines of even a primitiveconstruction are the exception rather than the rule. Squatting in fields,scrubland or even behind homes and in other public places is the norm in manyplaces. Privacy is difficult to come by, even in schools. The latter is keenly felt

by girls who sometimes stay away from school to avoid embarrassment.Walking through faeces-polluted ground and paths gives rise to manyunpleasant and even fatal diseases, caused by worms and parasites. Urbanslum areas have open rivulets of human and animal waste products flowingdown the street.

3. Food and AgriculturePeople produce food on small holdings and small farms, often without adequateagricultural knowledge on matters like irrigation and soil conservation. SomeNGOs make agricultural advice their main focus. This has, for example, led toimproved irrigation by delivering water, not to whole areas, but to the actualplants at the point of need. The cost of food beyond what people are able to


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grow themselves is prohibitive and this is responsible for much malnutrition aswell as outright starvation. The use of land for growing bio-fuels is responsiblefor much of the costliness of food, together with the consolidation of peasantfarms into large plantations.

Slash-and-burn methods of creating new agricultural land contribute to the

disappearance of forests with attendant effects on climate change. Anotherproblem is the failure to conserve the fertility of soil by overusing it or relianceon chemical fertilisers (although these are often too expensive to purchase).Greater use of composting, including the use of animal and human manure,could alleviate the soil fertility problem and again some NGOs have providedvaluable guidance, along with help with better terracing of land. Gathering wildfruits and herbs has created income in some rural areas.

4. WaterThe water situation is closely associated with sanitation. Clean water is of

limited availability in much of the BOP. Many wells are polluted and much ofthe drinking water is collected from unhygienic sources, such as streams andponds or even mere pools, polluted by human and animal faeces and otherrubbish. Women and children usually go to fetch the water and this can take anumber of hours each day, because it is often some distance away. Even so,the water spreads all kinds of diseases from the parasites, microbes andbacteria contained in it. It is estimated that nearly 6,000 people mainlychildren die each day by consuming unsafe drinking water.

Water, even bad water, is often in very short supply, due to low rainfall,drought, poor water management, and inadequate irrigation methods. Theunderground water supply may run low and wells run dry or become polluted.

The expense of new wells may be prohibitive and the introduction of modernpumps is costly. Filtration technology exists, but it too, is costly, unlesscommunities can cooperate to share the cost.

One of the benefits that has come from the NGOs is the provision of educationon water management, such as irrigation which feeds the plants directly andrain harvesting from roofs and other surfaces. Modern storage equipment oreven primitive means can help to eke out the water supply.

5. Education

Most education after primary school is not free and millions of children receiveno more education after this level because their parents cannot afford it. Evenat primary level, there are costs which can create great difficulty, such asuniforms, books, paper and pens which may not be provided by the school.Because of these expenses, plus frequent ill health, attendance is oftenirregular. Equipment is limited and pupils do a lot of work sitting on the floor;they often have no food all day. Buildings are often in a poor state of repair,even crumbling away in some cases. Sanitation is frequently limited or non-existent.

It is difficult to recruit effective staff and their pay is often low and sporadic.Quality of teaching is variable and literacy levels are often low.


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6. TransportThere are hardly any motor cars, even for officials. Some people have motorcycles, which are usually very old. Bicycles are a luxury for the more

prosperous poor. Administrative, health and local government offices and

hospitals are often far away and people without any kind of transport are thusobliged to walk to secure any services they need. Many small farmers have towalk to distant markets to sell their meagre products, though the advent ofmobile phone, even in poor villages, has begun to help here. (These aresometimes hired out by small entrepreneurs financed by microcredit loans, asdiscussed in Chapter 5.)

7. RoadsIn many rural areas, where a large proportion of the BOP lives, roads arevirtually non-existent. Mere tracks are the best available routes; these are very

hard on motor cycles and bicycles and even harder on those carrying sickpeople on stretchers to a district hospital many miles away. The poverty of theroad infrastructure hinders the transport of goods to markets and ports and thecarriage of essential imports.

8. EnergyFew villages at the BOP have electricity from the grid. Some have localisedprovision. Cost is always a consideration. In the cities, amateur electriciansenable many slum inhabitants to steal electricity from the mains (evidenceperhaps of the ingenuity that exists among the population at the BOP). Wind-

power, sun-power and water-power are used in low-tech ways in some places.But the main source of fuel is still wood. This, of course, is a major source ofdeforestation and has an impact on climate, soil fertility and water retention. Amajor enemy of good health is the wide use of wood stoves and inhalation fromthe smoky atmosphere they create in small dwellings. A number of largecompanies have invested in the provision of low-tech wood burning stoves toobviate this danger (some are mentioned in Chapter 5).

9. CommunicationsThe poor state of roads and transport inhibit all forms of communication and

the provision of landlines for phones is in short supply. A notable developmentis the growth of mobile phone usage in many areas at the bottom of thepyramid. This has been made possible by providing microcredit toentrepreneurs who rent out time on a mobile phone (see Chapter 5). Computerkiosks are also beginning to make an appearance. This means that farmers cando deals on the phone or find reliable information. They can now interrogatedatabases for themselves, or speak to impartial sources of information. Thishas cut down the amount of working time lost when away at market.

10.MoneyThe BOP is largely a non-money economy. A large subsistence economy stillexists with people working on smallholdings, sometimes little more than a backyard, growing a few crops for consumption, along with a few chickens, or


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hacking away at the edge of the forest (and contributing to the deforestationproblem). Such money as people have they tend to spend at the little localstores for food, toiletries and possibly tools. Many women in the BOP earn alittle money by craft activity for sale to tourists or through trader middlemen.Many former small farmers have been forced into day labouring at largeplantations or factories, even at the cost of having to be away from home for

long periods.

Foreign remittances can be a significant contribution to cash transactions,where family members are earning money in other countries and sending itback home. (As noted in Chapter 5, some mobile phone providers haveidentified this as an opportunity to provide services that assist with therepatriation of remittances.) Some members of the family may seek income inurban centres and contribute to the lives of their families from their earnings.

The absence of banking for a large part of the BOP is an impediment to buildingsavings or setting up entrepreneurial activity. Barclays and other banks areseeking to change this in Africa. In India, national banks are trying to extend

their presence. The Grameen Bank of Bangladesh has been active in providingmicrocredit small loans to the poor. Founder Muhammad Yunus received theNobel Prize for this work.

Development theory holds that, if a country has income through foreign directinvestment (FDI) due to foreign ownership of large mono-cultural plantations orindustrial complexes, the financial benefit will trickle down to the BOP.Whether this actually happens is open to doubt, however, and the largeenterprises so established tend to disrupt the subsistence mode of living, byencouraging smallholders to sell some of their land for temporary gain. Often,they cannot sell the land they occupy because they have no legal title deeds.As squatters, even after a number of generations, they could still be turned off

their land by bureaucracies bribed by powerful companies or people.

11.LawPeruvian economist Hernando de Soto has written powerfully on the parlousstate of legal rights in many parts of the territory occupied by the BOP. (Seethe review of de Sotos book The Mystery of Capitalon the accompanying CD.)Written documentation is often unavailable to prove right of ownership, so thatthere are no assets to offer as collateral for loans to start up businesses andfind a way out of poverty. Where rights are provable it may take a long time towork ones way through the bureaucracy and obtain registration, if such

provision exists. Often, bribing officials is the only way to succeed. Poorgovernance means that, even where corruption is not rife, sheer inefficiency willdeprive people of their rights.

12.ShelterHousing is a problem in many areas, particularly where traditional skills havebeen lost. Mud thatch and corrugated iron are principal building materials. Aconcrete floor is a luxury, and brick homes are rare. Most BOP homes are smalland cramped, with all the members of a family often sleeping in one room,which is used for cooking, eating and living in the daytime. Animals may sharethe living quarters.


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The cooking arrangements depend all too often on inefficient and smoky stoveswhich produce indoor air pollution (IAP) and cause respiratory disease. Somefirms such as Philips, DuPont and BP have entered the market with new stovedesigns, which, where installed, have greatly reduced the health problem andimproved the general ability of families to cope with life (see section 8 above).

Mosquito nets are too expensive for many families, though aid bodies havemade considerable progress in providing them. Where they are used there is aconsiderable reduction in the incidence of malaria which is a killer among youngchildren.

The building of storage areas free from rodent depredation is an area of need,along with methods for catching and storing rainwater.

Urban housing is often built with the ingenious use of waste materials fromindustrial and wealthier areas. It sometimes involves scavenging materialsfrom unhealthy waste heaps.

The economic lives of the poor as described by MIT

Many of the issues set out in the previous pages are well brought together in a paperentitled The Economic Lives of the Poor, published by the Massachusetts Institute ofTechnology (MIT) in October 2006, written by Abhijit V. Banerjee and Esther Duflo.This concerns the living arrangements of the poor and extremely poor, how theyspend their money and how they earn it. Any company considering investment indeveloping countries, and in particular in the BOP, would benefit from studying thispaper, with its detailed tables concerning various aspects of life and livelihoods1.

The report covers 13 countries; Cte dIvoire, Guatemala, India, Indonesia, Mexico,

Nicaragua, Pakistan, Panama, Papua New Guinea, Peru, South Africa, Tanzania andTimor Leste. Associate researchers looked at two areas in India in some detail: a poorrural area in Udaipur District, Rajasthan, and the slum area of Hyderabad, one ofIndias boom-towns.

The poor and the extremely poor defined

The MIT research concentrates on the extremely poor, which are defined as thoseliving in households where consumption per capita is less than $1.08 per person perday, as well as the merely poor, defined as those who live under $2.16, using PPP(purchasing power parity), with 1993 as the benchmark. Thirteen pages of tablesgive the detail on which the main report is a commentary. Some of the statistics,

particularly where reference is made to published sources, are not completely up-to-date, but it is unlikely that what they reflect has materially changed in the meantime.

This information gives further illustration to the fact mentioned in our first chapterthat the BOP is not a totally homogeneous concept. For example, the fraction ofindividuals living at under $1 a day in the survey varies from 2% in Panama to 47% inUdaipur, and the fraction living at under $2 a day varies from 6% in Panama to 86%in Udaipur. It is not possible to arrive at completely precise accuracy in these figures,but they do reflect the backcloth to life at the BOP. Misclassifying some families wouldnot materially alter the broad picture and the findings of the report do not show amaterial difference between the under 1% and under 2% categories.

1

The paper is accessible on the MIT website at http://econ-www.mit.edu/files/530


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All these people belong to the long-term poor in the sense that their permanentincome is dangerously close to their consumption. Of all the countries and districtsexamined by the researchers, 40% had incomes under $2 a day, which rose in certainidentifiable cases to 70%.

Families vary in size but it tends to be, according to the researchers, between seven

and eight people, augmented sometimes by the presence in the homes of non-directrelatives and others, whose contribution to meeting expenses may help to spread thefixed costs over a wider number of people. The number of children under18 in ahousehold tends to be six compared with one in the USA.

How the poor spend their money

How the poor spend their money does suggest that they do have some choices (whichCK Prahalad emphasises in seeking to interest MNCs and similar companies toconsider investment at the BOP). But these choices are often not made wisely,possibly because of insufficient information. The calorific value of food seems to belittle considered and expenditure on food varies from half to three quarters of

expenditure on average through all the areas surveyed. The rural poor spend lessthan half their budget on food. But the point made by the researchers is that there ismoney to be used on items which can be the subject of choice, which presumablycould be spent on new products brought in by Western investing companies. Ofcourse, some money has to go on treatment for illness and to a limited extent oneducation beyond the primary level.

(Incidentally, we queried with CK Prahalad the ethics of a cosmetics company whichseeks to persuade poor women to buy anti-wrinkle cream instead of spending theirmoney on more essential products. CK responded that the essence of capitalism waschoice and that everyone at some stage makes bad choices. That was theirprerogative. We were unconvinced by this answer.)

Non-food spending

The survey had other examples of how the money not spent on food was used. Littleof it went on furniture; most homes in Udaipur had only a bed or cot; only 10% had astool or chair; only 5% a table. But most households in the same area spent moneyon festivals, funerals and weddings. This might seem disproportionate, but with hardlyanyone owning a television, they would feel that they must have some entertainingrespite from the hardness of life. Also, the culture would shame anyone whoneglected these expensive occasions. Television ownership across the areas surveyedvaried considerably, high in some Central American locations, but low in India.

Available cash was spent on tobacco and alcohol throughout the areas and on otherintoxicants in Central and South America. The researchers sum up by saying that thepoor do see themselves as having a considerable amount of choice and choose not toexercise it in more spending on food. This could lead to some companies takingadvantage of this freedom of choice to sell products which would worsen the overallsituation of the poor.

Ability to save

The paper discusses the limited assets held in the BOP. Apparently, those on under$2 a day own more televisions than those on the $1 level. It is difficult to establishthe level of land ownership, because of the parlous state of the legal system in mostof the countries (see de Soto, 2003). But of the under $1 people in Mexico, 4% ownsome land, 30% in Pakistan, 50% in Indonesia, 63% in Cote dIvoire. In Udaipur,


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nearly everyone owns some land but this is usually a small yard round their houseswith minimal cultivable potential.

Health statistics reveal, for example, that in Udaipur, body mass index (weight relatedto height) shows 65% of men and 40% of women with a sub-standard weight. Inmost areas people report sickness that has left them bedridden and/or requiring

medical attention at some time in every year. This is apart from the generalweakness that militates against the capacity for hard work at the level that highproductivity would need. Many of those surveyed reported having to reduce the sizeor frequency of meals, especially at times when their harvests were poor oremergency expenditure arose.

The comment in the report that the BOP in the areas they considered, even inUdaipur, could save a bit more to meet emergencies and to avoid the need to cutdown on meals seems open to question. People in the West who are far from well off,rarely give up drink, smoking and entertainment to avoid their financial problems.Who are we to expect the BOP to do without their festivals, tobacco and alcohol?Amartya Sen has a better perspective of the need for a more rounded life as the aim

of development.

How the poor earn their money

The section of the report on how the poor earn their money provides detail which fillsout our picture of the way many in the various types of BOP live. Women in everysixth house in one particular Indian village make rice and bean pancakes and sellthem from the front of their meagre homes for 15 rupees to their neighbours andpassers-by. After breakfast, they move on to other jobs such as crafts,ornamentation of saris and similar jobs.

There is much of this small entrepreneurship occurring, but the assets employed and

the return on investment (the investment is mainly of effort rather than things) islimited. It is a little extravagant perhaps to describe them as businesses. A largefraction of the rural poor can regard themselves as self-employed in agriculture oragriculture-related pursuits, but profitable outcomes are small.

Many households have multiple income-yielding occupations. Small farms tend totake up perhaps half of peoples time, but a large amount of time is also spent ongathering fuel and, in the case of women, in fetching water. Much useful descriptiveinformation is given of these activities (some of which are avowedly undertaken topass the time away rather than to earn money).

Lack of skills and specialised knowledge also impedes a more ambitious approach to

employment. In the slums of Hyderabad, a greater range of small businesses werefound. 11% of these were tailors, 8% were fruit and vegetable sellers, 17% smallgeneral stores, 6.6% telephone booths with time for hire, and 6.3% were milk sellers.Except for tailoring, the skill needs were minimal and most of the entrepreneurs didnot operate out of a room separate from the family dwelling area. The small scale ofthese businesses prevents them from being developed significantly further. (In viewof the evidence presented in the recent UNDP report Creating Value for All, however,perhaps CK Prahalad is justified in saying that the many small businesses that existindicate that investing MNCs would find a ready reservoir of entrepreneurial talent inthe BOP.)


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Debt, saving and insurance

The MIT report deals with the all-pervasive presence of debt in the BOP. In ruralUdaipur, at the time of the survey, two-thirds of the poor had a loan at the time, 23%from a relative, 18% from a money lender, 37% from a shopkeeper and only 6.4%from a formal source such as a commercial bank or a cooperative. In the city of

Hyderabad, among households living on below 2% a day, 52% primarily borrowedfrom moneylenders, 24% from friends or neighbours, 13% from family members, andonly 5% from banks. (This is in spite of the impact of microcredit schemes.) Therates of interest from moneylenders and other informal sources is as high as 4% permonth, which at compound rates grows to a situation where many never escape fromdebt.

The researchers point out that such saving as does take place is insecure, sometimesstashed away in a mattress, all too available if not to theft, then to taking byspouses or older children. The default rate is low, but this is partly explained by thereluctance of the moneylenders to lend to really poor who have no collateral. Self-help groups and savings clubs do provide some routes to saving or members lending

rotationally to one another, particularly in India.

Formal insurance arrangements are limited, and informal insurance is mainly throughsocial networks, but it is unreliable because it depends on the willingness of thefortunate to take care of those less favoured. Government schemes of healthinsurance are in the main ineffective, though are some food for work programmesrelated to public works, financed by government.

Infrastructure

The report also discusses infrastructure issues such as the availability of tap water,electricity and basic sanitation. This confirms our earlier comments. It makes the

point that, while most Indian villages, for example, have a primary school or healthcentre within a kilometres distance, the quality of provision is not high. Staff absencerates are high and some medical practitioners are so unqualified as to do more harmthan good. There is also a correlation between the death rates of babies and youngchildren and the effectiveness of the health centres in many parts of the developingworld. Infant mortality is as high as 16.7 % in Pakistan.

Planning and initiative

Ability to plan is said to be largely lacking in the BOP and is part of the cause of theirsmall entrepreneurial businesses having little influence on the poor being lifted out ofpoverty. The vulnerability of the poor to temptation to spend on things not conducive

to health and well-being is commented on. It is suggested that they lack the self-control to say no to their childrens demands for sweets or other pleasant means ofimpeding health. This sounds rather patronising, as if such temptations are notequally present in the West.

In the same mood, the authors ask why small entrepreneurs dont save to buy themachines that would enhance the productivity of their businesses. They ask why thesmall farmers dont buy fertiliser in small packages, instead of neglecting it as tooexpensive and why dont members of the household migrate for longer periods tobring income into the family?

However, in spite of what seems to be a certain lack of sympathetic understanding forthe people at the bottom of the pyramid, the information in this report is invaluableand fills out the summary we have given above of BOP conditions. The lack ofinitiative for which the authors criticise many members of the BOP, probably stems,


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where it is true, from the lassitude that flows from poor health, hunger and acontinual struggle with near disaster. Companies that want to succeed in findingsome of that fortune at the bottom of the pyramid will need to acquire a deeper senseof what makes the members of the BOP tick than the report suggests. After all, thepoorest of the poor, through sheer initiative and determination, do survive in largenumbers, in spite of their heavy losses.

A suffering BOP in a prosperous country

A significant observation suggests itself from studying this MIT report. Any picture ofthe BOP and its needs has to distinguish them from the elite and middle classes indeveloping countries. Where MNCs tend to make assessments of potential markets,they will often do so on the basis of the economic position of a country as a whole.Unfortunately, statistics often present total figures that make a country look as if it isescaping from poverty. The figures from a relatively few firms investing in large-scaleoperations, and indigenous company successes like the Tata Group and RelianceIndustries in India, can misrepresent the situation by augmenting the countrys GrossDomestic Product (GDP), which as the sum of all revenue-earning activity, often hides

poverty under the figures of overall wealth for a country.

The MIT report suggests a series of important questions which lie at the heart of ourreport:

Do conditions in the BOP lend themselves to the countries and people therebecoming part of the world market?Do they appear to offer a worthwhile target for Western investment?Are they a practical market for Western products and services?Could they be more fully used as producers for large companies?Could larger companies build on the work of small companies in partnership toachieve greater results?

Water and sanitation at the BOP as described by WaterAid

WaterAid is one of the largest NGOs with a wide coverage of water issues in thedeveloping world (this is recorded in the organisations magazine Oasis during theperiod 2002-2007). WaterAids aim is to ensure worldwide access to safe water andsanitation. The following sub-section picks out some of the main areas of concern. Inaddition to the information below, there is a fuller review on the accompanying CD.

The material summed up below and in the fuller review provides a realistic picture ofthe kind of life we are talking about when we speak of extreme poverty afflicting as

much as two-thirds of the worlds population. (Copies of the Oasis magazine itself canbe downloaded from the WaterAid web site: http://www.wateraid.org/uk/) Forexample, we read of:

Families who have no alternative but to drink water from sources which havebeen contaminated by human and animal faeces, and who have to walk milesto collect even this health-endangering liquid.Unsanitary latrines.Open sewers running down the middle of the street.People having to defecate in the open where others can see them.Diseases which create blindness.Worms which painfully emerge through the skin having often been picked upthrough the bare feet.


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How the sicknesses promoted by unclean water and unsanitary conditionsgenerally undermine health, impede education, and reduce the opportunity toearn even the small income otherwise possible.

The magazine Oasis also shows what happens when the poor are helped to liftthemselves out of these conditions. In some cases, educational opportunity is

improved and a little money becomes available to support small plots of cultivatedland. The magazine also discusses ways in which the rich nations and theircommercial organisations could use their vast resources to contribute to improvementby investing in the bottom of the pyramid in ways which would also make profit forthemselves.

World poverty and sustainable development

It is helpful to place the problems of the BOP in the context of sustainabledevelopment economic development that meets the needs of the present withoutcompromising the ability of future generations to meet their own needs. This is a

topic which, like global poverty, is also currently receiving increasing attention. Theworld, rich and poor alike, will all suffer from the over-use of resources many of whichare non-renewable once they are used, they cannot be replaced. This situationbears particularly on the very poor in that world economic trends bring furtherimpoverishment to them. In their search for survival, they inevitably contribute to theusing-up of scarce resources, to pollution and deforestation, and other actions withpotential for affecting the way of life for human society in general. This will occurthrough contributing to climate change worldwide, in which the poor themselveswould suffer most.

Two books are particularly useful in understanding the links between poverty andsustainable development:

Earth Odyssey(Hertsgaard, 2006). Mark Hertsgaard tells how he spent sixyears going round the world gaining first-hand knowledge of its problems andneeds, especially of the poorest of the earth.

Confessions of an Eco-sinner: travels to find where my stuff comes from (Pearce, 2008). Fred Pearce provides another useful perspective on the BOP.He relates how he travelled to 22 countries to identify his own personalsustainability footprint. Pearce investigates the appalling working conditionsunder which some people in distant lands are providing our luxuries ordisposing of them, yet often feel rich compared with their poorer fellowcitizens.

Voices of the poor

The aim of this chapter has been to give just enough information about life at thebottom of the pyramid to enable the reader to enter into the debates on how businessmay alleviate poverty. The reviews on the CD will fill out the picture in many of itsvariations. The BOP is not, of course, a homogeneous entity; but the twelve areas ofpoverty we have discussed, as expanded by MIT, WaterAid and other sources will givean idea of the depth of suffering that people there incur and will hopefully set thereaders mind working out ways of dealing with it, particularly from the standpoint ofbusiness.


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To gain an even more detailed picture of life at the bottom of the pyramid, we wouldrecommend three large volumes published by Oxford University Press for the WorldBank. These volumes supplement the broad picture given in this chapter and can bedownloaded from the World Bank website2:

Voices of the Poor

Vol. 1 Can anyone hear us?(1999)Vol. 2 Crying out for change (2000)Vol. 3 From many lands (2002)

The intensity of the poverty in the Third World and the misery it brings are themotivating forces behind the production of our report. Business is so powerful, evenin times of financial crisis, that if it cannot do anything about these worldwide issues,who can?

2

http://web.worldbank.org/WBSITE/EXTERNAL/TOPICS/EXTPOVERTY/0,,contentMDK:20622514~menuPK:336998~pagePK:148956~piPK:216618~theSitePK:336992,00.html


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ANNEX TO CHAPTER 2: LIVES AND LIVELIHOODS AT THE BOP

The photographs that follow seek to give an impression of life at the bottom of thepyramid, its problems and the beginning of solutions. So you will see unhygienicvillage streets, but also signs of improvement in new boreholes yielding clean water.Different types of housing are shown, often ugly on the outside but still home inside.Some of the pictures give a sense of the hum of activity in villages and towns; othersportray the daily hard work of the people. Education is becoming more available insome places though facilities are limited. Village stores and entrepreneurial activityare featured. The difficulties of health care and shortage of hospital provision arenoted but healthy children are here as well. We have tried to give a balanced picturebut there is no escaping the fact that its a hard life.

Pictures from Kenya

We are grateful to Jo Graveley for permission to use some of the pictures she took inKenya while working on an assignment with S C Johnson (see reference in Chapters 5and 7).

A healthy baby


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A happy schoolteacher

The village expects visitors


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A busy day in shanty town

A village street scene


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Stepping through the muck

At home - indoors


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Outside in the street

At home the view outside


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Mother and child at home

Schoolchildren in uniform


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Looking down the street

Shopping Centre


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Learning at school

Repairing the mud wall


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The dress shop

Family in their shop


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Pictures from India

We are grateful to Jo Graveley for permission to use some of the pictures she took inIndia while working on an assignment with Solae Company of India, a subsidiary of

DuPont (see Chapters 6 and 7).

Downtown

A general store


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The dishwasher

Collecting clean water


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Taking a shower

A taxi service


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Firewood collection

Back to the farm


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Produce for sale

Gleaning hard work


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Gleaning success

A textile worker


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Cooking

Herding cattle


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Protein today

Better housing


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Good clean water

Homeward bound


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Pictures from Uganda - The Katine Project

We are grateful to the Guardian newspaper for permission to use photos taken inconnection with the Katine Project undertaken with Barclays Bank, with localmanagement by AMREF and FARM AFRICA. The project is discussed in detail in

Chapter 8. Further information and how to contribute will be found on the web site,www.guardian.co.uk/katine.

Clean water and a new school have already arrived, but the scene at a hospital showsthat there is more to be done.

Street trader

A person collecting water from a boreholePhoto: Guardian/Dan Chung


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Pupils at Tiriri Primary School in KatinePhoto:Guardian/Martin Godwin

A woman lies on the floor in the maternity ward at

Sororti Hospital, the nearest town to KatinePhoto: Guardian/Martin Godwin


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Josephine Achen, a traditional birth

attendant, attends to a pregnantwoman in KatinePhoto: Guardian/Dan Chung

Rose Amuo, a widow with six children sells tomatoes at Katine

Photo: Guardian/Martin Godwin


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Women attend a Village Savings and Loans Association meetingPhoto: Guardian/Martin Godwin

Man drinks water from a boreholePhoto: Guardian/Martin Godwin


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CHAPTER 3: PIONEER PERSPECTIVES ON THE BOP

This chapter provides a summary of the perspectives of the academics and othercommentators who first set out the proposal that multinational and other firms couldcontribute to the alleviation of world poverty while still making a profit for theircompanies.

These views were set out in the following books and journal articles:

Prahalad, C.K., The Fortune at the Bottom of the Pyramid: Eradicating Povertythrough Profits, 2005.

Hart, S. L., Capitalism at the Crossroads: The Unlimited Business Opportunitiesin Solving the Worlds Most Difficult Problems, 2005 (second edition 2007).

The Mirage of Marketing to the Bottom of the Pyramid: How the Private Sector

Can Help Alleviate Poverty, Aneel Karnani, California Management Review,Volume 49, no. 4, Summer 2007.

Craig Wilson and Peter Wilson, Make Poverty Business: Increase Profits andReduce Risks by Engaging with the Poor, 2006.

(Reviews of each of these will be found on the accompanying CD.)

The idea of business corporations contributing to the alleviation of poverty in thedeveloping world by extending their commercial activities to them and bringing theminto the market economy was first brought to the fore in management thinking bythese writers. Indeed, it was reading the works of CK Prahalad and Stuart Hart that

initiated our own interest. We felt there was a need to bring together a wide varietyof views on their proposals and make some assessment of their validity. It thereforemakes sense to set out their perspectives after delineating the needs of the bottom ofthe pyramid in Chapter 2. We look first at the writings of Prahalad and Hart, becauseit was essentially their work that started the whole debate.

C K Prahalads groundbreaking work

Prahalads book describes how large firms can help to eradicate poverty in thedeveloping world, while at the same time making a profit for themselves. CK, as heis known, concentrates on the poorest in the poor countries, amounting, according to

his statistics, to some 4 billion people worldwide, representing some 70% ofhumanity. His book is one of the first mainstream publications to refer to them as thebottom of the pyramid.

Prahalad argues that large companies could co-create the largest and fastest growingmarkets in the world, developing solutions in cooperation with local people toencourage, invest in and help the development of large-scale entrepreneurship. Heclaims that these billions of poor people have immense entrepreneurial capabilitiesand when considered en masse they have immense buying power. He sees them aspotential consumers, joining the world market place for the first time. He believesthat there is money to be made at the bottom of the pyramid.

Prahalad doesnt ignore the many difficulties to be encountered in implementing sucha policy. Companies must not approach the BOP with a Western mindset, he argues,but must be ready to exercise the utmost creativity in learning from the local people


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and to change their corporate assumptions on the basis of what they learn from them.Some of the resultant innovations may be transferable for use in more conventionalmarkets. The size and know-how of large multinational corporations could overcomemany of the difficulties of access, such as distribution problems and the role of localintermediaries, such as exorbitant moneylenders, especially in rural areas.

CK is actually proposing a different policy from the conventional one where a companyenters a struggling country and buys up large tracts of land for large farms, growingmainly one crop a kind of agricultural mass production, which may disrupt the wholeway of life in a locality, without much benefit trickling down to the BOP. The sameapplies to the establishment of large industrial plants on conventional Western lines,mainly to take advantage of low labour costs and inexpensive supply chains. Suchcompanies tend to sell to the countrys upper and middle-income consumers, and thento export the majority of the produce. The author is not talking about merely servingan existing market more efficiently. He is talking about creating a situation where thereally poor segment is served by business.

Reference is made in our review to the case studies with which he illustrates his

theme. These companies are included here among the descriptions of indigenouscompany initiatives at the BOP in Chapter 6. Prahalads book is a challenge for radicalchange and may prove to be a landmark on the path to reducing world poverty. Timespent in CKs company at the workshops at the University of Michigan convinced us ofthe passion that he felt about the possibility of transforming the situation of the ThirdWorld poor.

A Timemagazine article entitled Selling to the poor, however, had this to say:

Not everyone agrees with Prahalad's theory that the lower classes willbenefit from being part of mainstream global trade. To suggest this is a

panacea for poverty reduction is really not justified, says Ashvin Dayal,

East Asia director for the anti-poverty group Oxfam UK. Selling to thepoor and serving the poor are not exactly the same thing. Oxfam iswary that aggressive corporate marketing might displace existing local

products or encourage overspending by those who can least afford it. Hecites potential for harm, for example, in unhealthy but heavily marketed

candy and sodas replacing juice and fruits as children's snacks.Companies have power to create needs rather than respond to needs,Dayal says.

Prahalad calls those arguments patronising. The poor are very valueconscious. They have to be, he says. If people have no sewerage anddrinking water, should we also deny them television and cell phones?

And if companies bolster the bottom line in the process, so much thebetter. It's absolutely possible to do very well while doing good, hesays.3

3Kay Johnson & Xa Nhon, Selling to the poor, Time, 17 April 2005.


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Stuart Hart expands the theme

Stuart Harts book shares CKs theme of enabling the BOP to become a functioningpart of the world market. In 2002, they co-authored a well-known article which fi

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