Four billion people. Life on less than one or two dollars a day. Income under $2,000 a year. These are typical descriptions of the bottom of the pyramid in current literature.
While the origin of poverty can be traced back to the beginnings of civilization, the idea of using commercial strategies to alleviate poverty is recent in comparison.
To describe this market segment of poor people, so to speak, the term “bottom of the pyramid” or “base of the pyramid” is widely used. One may find fitting too as it reflects the largest horizontal layer on a pyramid and constitutes the majority of the population. Abbreviated BOP, it is a concept that is not uncommonly attributed to C.K. Prahalad and Stuart L. Hart for raising its profile with an article in 2002 about opportunities for multinational corporations’ (MNCs) involvement in bringing prosperity to the poor – the BOP – called The Fortune at the Bottom of the Pyramid.
Prahalad and Hart’s writings about the BOP philosophy called for MNCs to target the BOP in a way that would combine profit and poverty alleviation.
Now a decade later, whether the BOP is defined as those living in India on less than two dollars a day, or those living in Brazil earning below $2,000 a day, the interest remains, but the idea has evolved over time as revealed in a new publication reviewing a decade of research about the BOP concept.
Initiators are not MNCs, but small, local firms.
Often cited examples of MNCs’ involvement in the BOP include Hindustan Lever Limited (known today as Hindustan Unilever Limited) in India, Avon in South Africa, Cemex in Mexico, and SC Johnson in Kenya. While these examples are regularly mentioned and highly visible, they make up only a small portion of initiators of BOP initiatives.
In reality, small, local firms such as Thamel.com, an e-commerce venture that connects the Nepali diaspora with the poor in Nepal, are responsible for initiating many BOP initiatives, rather than multinational firms.
“The analysis can be seen to represent the end of the ‘fortune at the BOP’ as we know it as there is no real fortune to be found there for multinational enterprises,” said Ans Kolk, professor of sustainable management at the University of Amsterdam Business School and co-author of the publication.
“The main reason is that people are poor, and cannot spend much, and that local circumstances are difficult. This thus requires serious adaptations to local, often distant markets, and profitability is doubtful. Small entrepreneurial ventures, often wholly or partly funded by governments and/or international organizations, or in collaboration with nonprofit organizations, often emerge as a result to address the issues at stake.”
Initiators include nonprofit and government.
Although Prahalad and Hart presented an opportunity for MNCs to tap into a predicted multitrillion-dollar market, those who have undertaken BOP initiatives include nonprofit organizations and local governments. For example, Grameenphone is a joint enterprise created by a nonprofit organization, Grameen Telecom Corporation, and a for-profit company, Telenor, to bring universal mobile access throughout Bangladesh. The local Kerala government in India started the Akshaya project to ensure that every family has at least one member who is computer literate.
Co-creation in theory, not in practice.
A criticism of development aid and one of its weaknesses is that the lack of co-creation will result in a product or service that does not meet the needs of the recipients and is not used as a consequence. Many authors call upon MNCs to engage the poor as co-inventors, as well as alternative roles such as employees, partners, or entrepreneurs. While this is done in theory, it is not in practice.
In one initiative, SC Johnson had their employees live in a slum in Nairobi for three months to better understand the communities. Although this is different from SC Johnson’s traditional model, the initiative was later developed in partnership with U.S.-funded NGO Carolina for Kibera (CFK), rather than the local community at large. The initiative led to CFK providing cleaning services to residents using SC Johnson’s products.
Carlos R. Rufin, professor of the Global Business Program at Suffolk University and co-author of the publication, views co-creation with the BOP to be critical in some cases, while discretionary in others.
“There are certain products that we have seen that have been very well accepted by the BOP and have not required substantial adaptation of the product design or technology itself, for example cell phone products. But I would say it is very important to include the BOP in the process of co-creation for two reasons,” he said.
“The process of innovation is a fairly radical process as it requires a much lower cost of production and operation in a very different ecosystem from what companies find in other markets. Given the complex circumstances, if you do not involve the BOP and understand what works and what doesn’t, the chances of success are going to be much lower.”
“A much broader reason,” he added, “is that in the world of development and poverty alleviation, people have a concept of what the BOP is and how people live there. Then we develop products based on ideas with our views of what they need, and we try to push these products there. Often these initiatives fail because we simply push the products without taking into account the needs of the BOP, or the ecosystem, or the pieces of the puzzle that need to fit into place for a product or idea to work well.”
Professor Rufin explained that success or failure may not be in a financial sense, but whether or not a product or service actually makes a person better off.
Back in 2007, when Hindustan Unilever launched advertisements for its Fair & Lovely skin-lightening cream for women in India, there was nothing fair or lovely about the response. The skin-lightening product raised controversy and outrage over messages that depicted women with darker complexion less attractive than those with whiter skin. The company was forced to pull the advertisements, yet at the same time the product brought in $13 million in sales in 2008-2009 and holds a 70 percent market share in a Rs 3,000-crore skincare market in India. Advocates argue that the products are a form of empowerment, while critics – such as professor Aneel Karnani, who has rebutted Prahalad’s propositions by suggesting that the BOP market for MNCs is very small and that the way to alleviate poverty is to treat the poor as producers rather than consumers – believe the products perpetuate racism, do more harm than good, and actually make poor people worse off.
Recipients, not co-creators.
Instead of co-creation, many examples of BOP initiatives in the last decade were noted to have engaged the poor as recipients – or consumers – of either an adapted or non-adapted business model or product.
In Hindustan Unilever’s case, they offer existing products in smaller packaging leading to lower price points per unit for poor consumers. In the case of China’s Haier, their technology was modified so that washing machines were able to clean vegetables too.
The next ten years.
Despite the low levels of engagement from MNCs, it is expected that the next decade will see more involvement through partnerships and inclusive business.
“The good thing about the BOP thesis is that it has grabbed the attention of CEOs, helped the involvement of multinationals beyond a mere philanthropic approach, as well as proliferated partnerships,” said Kolk.
“I would expect to see more multinationals getting involved. Some of the successful local ventures will attract the attention of multinationals who will seek to enter into partnerships with these companies, buy them outright, or imitate their models,” said Rufin. “We’ll see a lot more emphasis on shifting from a view that had been focused on selling to the BOP to one that focuses on creating inclusive value chains where the BOP are providers, and on shifting from stand-alone efforts to BOP initiatives based on collaboration among companies, NGOs, public-sector entities, and local communities.”
Professor Kolk believes the next decade in the BOP will see continuous complexity. “Combating poverty is not easy, there is no quick fix, and it requires concerted and sustained efforts from many. That is what the next decade will look like I think. In some locations developments will go quicker than others, there may be lessons learned across locations, but there are also challenges related to the fact that the situation for some in developed countries has deteriorated recently.”
“Innovation is not easy, we have to try many different things to find solutions or approaches that work, but I think there’s great potential for collaboration across sectors and organizations,” added Rufin.
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