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

    Tel: +44 (0) 1442 841178Fax: +44 (0) 1442 841181Email: eileen.mullins@ashridge.org.ukwww.ashridge.org.uk/research-bop

    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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    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...