Excerpted from Knowledge at INSEAD, “Strong partnership key to success in bottom of the pyramid innovation”, by Grace Segran, August 26, 2008
For those at the ‘bottom of the pyramid’ (BoP), the four billion people or so living on less than two dollars a day, life is hard. Although collectively they have considerable combined purchasing power, they have up to now been traditionally overlooked by businesses.
However, major multinational corporations (MNCs) are now seeing opportunities in developing products for the BoP markets, while making a difference to the lives of the poor people.
“For this concept to work, there needs to be strong collaboration between firms, governments, NGOs (non-governmental organisations) and social entrepreneurs.”
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There is often a disconnect between multinationals and those at the bottom of the pyramid
The operations of firms – especially the MNCs – have become rather disconnected or disembedded from local economies.
NGOs tend to know more about the characteristics of local poverty and what is best for the poor people in a specific area, whereas large companies generally have a limited understanding of the situation on the ground.
If BoP products – that is, products specifically developed to address the needs of the low-income segments – do not take into account the local specificities of poverty, they may be useless for the people in a certain district or the project may even have a negative impact on their lives.
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Mainstreaming low-income projects and bringing them to a larger scale is one of the main challenges facing companies today.
Unilever’s ‘shakti’ project considered a leading BoP example . Unilever, developed a range of products for low-income households in remote areas of India. It packaged common household products like shampoo and soap in sachets and sold them door-to-door, helped by so-called ‘shakti ladies’ who make a living from this activity. The ‘shakti’ range now constitutes a significant part of Unilever’s Indian revenues – reportedly nearly 15 per cent.
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Bringing such projects to scale is a challenge for several reasons.
First, firms lack the internal capabilities to develop these projects as they require both strong entrepreneurial skills, as well as the ability to understand and address social issues such as access to water, energy, and housing.
Often the firm’s expectations for immediate profit goes against the development of successful BoP projects, the core of which aim to create mutual value for both the firm and the poor. [Economies of sca;e are slow to be realized — if they ever are.]
It requires a substantial amount of effort to transform a small pilot project into a large, mainstream activity. Among their portfolio of business development projects, companies often opt for more profitable projects that can deliver in the short term.
Since BoP projects have strong local links, firms may face difficulties in trying to replicate a successful business model in another geographical area of the same country or to export it to a different country.
“These projects should be local answers to local problems.”
Another challenge is for low-income projects is to demonstrate a significant impact on the lives of the poor. Does it really improve their living conditions? Are the poor getting a fair deal, while their bargaining power in their dealings with firms is rather limited?
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Full article:
http://knowledge.insead.edu/PartnershipBottomPyramidInnovation080803.cfm
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