Shuan SadreGhaziShuan SadreGhazi

United Nations University-MERITUnited Nations University-MERITghazi@merit.unu.edughazi@merit.unu.edu

Serving Low-income Markets: Re-thinking Multinational Corporations' Strategies

Globelics PhD Academy , University of Tampere, Finland

June 2008

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Corporate approach to Development

Role of private sector in developmentRole of private sector in development• Multinational Corporations (MNCs)Multinational Corporations (MNCs)

Philanthropic / CharityPhilanthropic / Charity Corporate Social Responsibility (CSR)Corporate Social Responsibility (CSR) Market-based approachMarket-based approach

• Serving low-income communitiesServing low-income communities• Win- Win (?)Win- Win (?)

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Base of the Pyramid (BOP) debate

Population (millions)

Annual disposable income (Purchasing power parity $)

<$1,500

$1,500 – 10,000

> $10,000Advanced markets

Emerging Markets

Developing markets

500

1,500

4,000

Underserved markets

(Hart and Milstein, 1999, Prahalad and Hammond, 2002; Hart and Christensen, 2002; Prahalad and Hart, 2002; )

Corporate approach to development (cont.)

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Challenges of low-income markets

Purchasing PowerPurchasing Power• Fluctuating incomeFluctuating income• Access to credit Access to credit

InfrastructureInfrastructure• PhysicalPhysical• LogisticsLogistics• Education/SkillEducation/Skill

DiversityDiversity• locationslocations• CultureCulture

InstitutionsInstitutions• Different institutional structureDifferent institutional structure• Weak legal enforcementWeak legal enforcement• Intellectual property issuesIntellectual property issues

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Potential role of Multinational Corporations

ResourcesResources. .

• Handle resource- and management-Handle resource- and management-intensive task of building a complex intensive task of building a complex infrastructure. .

LeveragingLeveraging..

• knowknowledge transfer from one market to ransfer from one market to another and another and scale-up the solutions. the solutions.

BridgingBridging..

• Potential to act as catalysts for Potential to act as catalysts for cooperation

NGOs, communities, local NGOs, communities, local governments, entrepreneurs, and governments, entrepreneurs, and multilateral organizationis multilateral organizationis

Bringing development to Bringing development to underserved communities. underserved communities.

(Prahalad, 2005; Hart, 2005; UNDP, 2007)

Multi-sector partnership

Microfinanceetc

GovernmentalOrganizations

Private sector

NGOs

Civil society

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Received literature

Business & Management LiteratureBusiness & Management Literature• Focused on developed marketsFocused on developed markets• Limited Generalizability Limited Generalizability

(Busenitz et al., 2000(Busenitz et al., 2000). ).

Emerging Markets’ literatureEmerging Markets’ literature• Pre-occupied with strategies to Pre-occupied with strategies to

overcome the lack of a Western-style overcome the lack of a Western-style business environment (business environment (Peng, 2001Peng, 2001).).

• Targeting higher income customersTargeting higher income customers• the vast majority of the people are on the vast majority of the people are on

the outside looking in the outside looking in (de Soto,2000)(de Soto,2000)

Appropriate TechnologyAppropriate Technology• Technology-centricTechnology-centric• Scalability – diffusion ?Scalability – diffusion ?

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Research approach

QualitativeQualitative

• Secondary dataSecondary data Case studies, reports, etcCase studies, reports, etc

• semi-structured interviewssemi-structured interviews MNCs’ managers, NGOs, Multilateral OrganizationsMNCs’ managers, NGOs, Multilateral Organizations

QuantitativeQuantitative

• Survey Survey Managers involved with projects for low-income

markets

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Theoretical framework

Finance

Partner network Value

proposition

Revenue streams

Core Capabilities

Cost Structure

Distribution Channel

Customer Relationship

Target Customer

Value Configuration

INFRASTRUCTURE OFFER CUSTOMER

Source: Chesbrough, H. and Rosenbloom, R.(2002) The Role of the Business Model in Capturing Value

“The value a company offers to customers, and the network of partners for creating, marketing, and delivering this value” (Govindarajan and Gupta, 2001)

Business ModelBusiness Model

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Q & AQ & A

Thank You!Thank You!