Archive for the ‘Mktg – Global – BoP’ Category

Has Starbucks cracked the code in China?

December 6, 2012

Punch line: Many Western retailers have attempted to cash in on China’s 1.3 billion consumers, with limited success.  Starbucks’s plan to localize the menu and experience might be the key to success.

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Excerpted from brandchannel.com’s, “Starbucks Incorporates Local Tastes with China Expansion”

Western retailers have been completely bombarding China with products and sales pitches in recent years.

Having more than 1.3 billion consumers living within its borders can make a country’s citizens targets of such things.

Starbucks is about to go overdrive in its efforts to get the Chinese populace as dependent on their brand as plenty of Americans are, but the sell may not be so coffee-driven, but leverage the brand’s tea drinks and food menu.

China is still a tea-drinking nation.

So Starbucks established a research-and-development unit in the country in order to figure out what it could do to attract a larger audience than those looking for a cup of joe.

Starbucks China is serving up localized beverage and food items including a red bean frappaccino, green tea tiramisu, a Hainan chicken and rice wrap, a shredded ginger pork panini, and a Thai-style prawn wrap.

image.axd

Here are some other winners & losers in the Chinese market.

(more…)

L’Oréal Wants to Give Brazil a Makeover

February 4, 2011

TakeAway: Brazilian women are among the biggest spenders on beauty products anywhere, but L’Oréal isn’t raking in reales. 

Brazilian women have traditionally bought their skin creams and mascaras from door-to-door sales representatives, not the shops where L’Oréal sells its brands. 

To compensate, L’Oréal is introducing personal beauty advisers at department stores and trying to tailor its makeup to the consumer.

For example, foundation, a strong L’Oréal category world-wide, isn’t a big seller in Brazil because women find it increases the oiliness of their skin, so the company has been charged with creating a foundation from natural ingredients.  

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Excerpted from WSJ, “To L’Oréal, Brazil’s Women Need New Style of Shopping” , January 21, 2011

For L’Oréal, winning over Brazilian women is crucial if it is to meet its goal of adding one billion consumers—a doubling of its current clientele—over the next decade. L’Oréal currently makes about a third of its €17.5 billion ($23.36 billion) in yearly sales from emerging markets, and it wants to increase that to half by 2020.

Getting Brazilians to alter their buying habits won’t be easy. The two major players who use the door-to-door method claim roughly 50% of all color cosmetics sales and 42% of skin-care sales. Natura Cosméticos, the market leader in beauty and personal care, has one million salespeople across the country, and U.S. cosmetics company Avon has built up a larger market share in Brazil than L’Oréal thanks to its expertise in direct sales.

L’Oreal’s challenge also reflects the rising competition that global consumer-goods companies face from local rivals who understand the tastes and peculiarities of their home markets. Door-to-door vending is a longstanding custom in Brazil that has ushered millions of Brazilian women into the middle class. Some 2.5 million women, out of a total female work force of 42 million, earn a living from direct sales in Brazil.

Two years ago, L’Oréal was looking for new ways to grow as the financial crisis hit its core European and U.S. markets, and Brazil, the world’s third-largest cosmetics market after the U.S. and Japan, seemed an obvious target. While it had been in Brazil for 50 years, it had mainly focused on hair products.  Combined, makeup and skin care account for less than 15% of L’Oréal’s sales in Brazil, a paltry amount compared with the nearly 50% of sales the two categories provide the company world-wide.

For L’Oréal’s makeup offensive, it is focusing on department stores like Lojas Americanas, which is similar to Kmart in the U.S. The company is currently negotiating with the chain to expand its makeup walls country-wide. For skin care, it is targeting pharmacies and drugstores.

Edit by AMW

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Tata Auto asks: What if the bottom of the pyramid thinks cheap stuff is, well, cheap stuff?

January 11, 2011

TakeAway: India’s middle class is enormous but still relatively poor.

With the world’s cheapest car, the Nano, Tata Motors thought that large segment was finally accessible.

But Tata forgot that the Nano comes with more than a low price, it also comes with the stigma of driving the world’s cheapest car.

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Excerpted from Washington Post, “India’s Tata Nano, ‘the world’s cheapest car,’ struggles to move ahead,” by Emily Wax, January 3, 2011

When the Tata Nano – known as the world’s cheapest car – zipped out of factories in 2009, it was praised as an example of Indian innovation in cost-cutting. It quickly became a cult hit … [b]ut today, sales are so slow that the $2,200 Nano is barely seen on Indian roads. …

The podlike vehicle dubbed “the people’s car” has also suffered from … poor marketing and competition from a flood of slightly more expensive cars made by companies such as General Motors India and Maruti Suzuki. Those companies have launched aggressive campaigns aimed at India’s growing young families and call-center workers, with claims that their cars are better made and more reliable.

… the low sticker price, which was predicted to be Nano’s selling point … has also contributed to its downfall.

For India’s newly middle class, owning a car is the ultimate sign of status, and the Nano is synonymous with something cheap, said Ashish Masih, assistant editor of India’s edition of What Car? Magazine. …

Many of the top-selling automobiles fall into a sweet spot of under $7,000, industry experts say. …

… at the Nano factory in India’s western state of Gujarat, about 7,000 cars are parked in the open, and just 509 cars were sold from the plant to dealers in November, according to the Society of Indian Automobile Manufacturers.

The lagging interest in the Nano comes at a time when India’s auto industry as a whole is enjoying record sales, with a reported a 33 percent growth from April to October 2010, compared to the same period in 2009, according to a study by SIAM.

Tata Motors is trying to revive the Nano’s fortunes. Debasis Ray, head of corporate communications for the company, said it has launched a comprehensive marketing push and added a free four-year manufacturer’s warranty. …

Edit by DMG

 

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Full Article
http://www.washingtonpost.com/wp-dyn/content/article/2011/01/03/AR2011010302721.html

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Indonesia begs reconsideration as a top emerging market

April 16, 2010

TakeAway:  The unfortunate truth about emerging markets is that companies cannot make market entry decisions based only on traditional variables such as consumer wealth and spending. 

A country’s operating environment (i.e., the political environment) is a key decision making variable and one that often causes companies to turn away from otherwise appealing markets. 

The good news for Indonesia is that companies are forgiving and are willing to reconsider markets that they previously declined to enter. 

Indonesia’s improved political environment and booming consumer spending will likely put the country back on the radar screens of many large companies.

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Excerpted from WSJ, “Brands Bet on Indonesia as Spending Booms,” By Patrick Barta, April 8, 2010

International companies are betting Indonesia will become Asia’s next big consumer market after China and India—in part because of booming jungle outposts like this one.

Here in Samarinda, a coal-mining center on the far eastern edge of Borneo, the population has more than tripled since 2000, and incomes are rising rapidly. Ford has added its first dealership and Honda motorcycle salesmen say they can’t get motorbikes fast enough to keep up with demand.

Variations of that pattern are being repeated across this vast nation … Ford dealers are adding a new showroom nearly every six weeks … CVC Partners agreed to pay more than $770 million for a controlling stake in one of country’s largest retailers, PT Matahari Department Store, which plans to add 150 new outlets …

H.J. Heinz said that Indonesia played a major role in pushing Asia sales, including chili sauces, up 41% last year. It also recently predicted a 23% increase in packaged food spending in Indonesia between 2009 and 2011—a faster rate of growth than India and China, which were expected to grow 20% and 14%, respectively.

With 240 million people, the world’s fourth-largest population behind China, India and the U.S., Indonesia has long promised to be one of the world’s biggest consumer markets. But it has lagged behind other developing nations because of political instability and disappointing growth after the Asian financial crisis of 1997-1998.

That has started to change in the past several years … with a democratically elected government and surging sales of commodities such as coal, natural gas and palm oil to China.

Last year, Indonesia posted the second-highest personal spending growth in Asia, behind China. Private consumption climbed 5.1% compared with 0.4% growth in Asia excluding China …

Unilever’s Indonesian arm, which sells soaps, ice cream and other consumer goods, said in March that 2009 sales shot up 17%—well above previous years and among the fastest rates in the world for Unilever …

Indonesia’s resurgence as a consumer market is the latest evidence that developing Asia, which for years relied primarily on exports for growth, is becoming more self-reliant as it develops a bigger middle class and its own domestic demand.

Indonesia still rates poorly in international indexes measuring corruption and ease of doing business, and many foreign companies remain wary. Income levels are low compared with other emerging markets, with GDP per capita of just $4,000, less than half the level of Brazil—though more than India.

The country also isn’t industrializing as rapidly as China and other emerging markets, which could limit its growth in future years … Even so, “it’s a very strong market” for consumer-spending gains

Powering the rebound, analysts say, is surprising strength in once-ignored second-tier cities, which in some cases are posting growth rates approaching 10% a year, on par with China …

These areas are also benefiting from political reforms after the fall of former dictator Suharto in the late 1990s aimed at decentralizing the country. Such “regional autonomy” reforms, which return more tax revenue to local governments and give them more authority …

Edit by TJS

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Full Article
http://online.wsj.com/article/SB20001424052702303591204575169704072987766.html#mod=todays_us_marketplace

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Japanese food companies look to spice up sales overseas

April 14, 2010

Takeaway: When you’re bored with the game at home, take your show on the road.

This strategy has worked well for Japanese companies for decades. However, foreign markets typically expect high tech products from Japan.

Recently, Japanese food companies have focused their efforts outward as their domestic consumer market stagnates.

As is expected in Japan, these companies face relatively high labor costs, and limited agricultural resources, so will this strategy bring home the bacon, or be put out to pasture?
 

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Excerpt from New York Times, “Japanese Food Companies Seek Growth Abroad” by Miki Tanikawa, April 2, 2010.

As birth rates and the consumer market shrink at home, food companies in Japan are increasing the pace of their overseas expansions and trying to improve promotion of their brands.

Analysts say that increasing sales abroad is crucial for manufacturers. To do so, the companies are combining, undertaking joint ventures, cutting production costs and creating strategies for new markets.

“The domestic market is shrinking, deflation is cutting into sales and the sense of crisis is looming stronger and stronger,” said a senior economist at Norinchukin Research Institute in Tokyo.

The sector’s strategy has been twofold. First, Japanese companies have been infiltrating the health food and condiment categories overseas with soy-based products like tofu in countries where few domestic companies can compete.

Second, Japanese producers capitalize on cute Asian-themed characters like koalas and pandas and apply technology to make amusingly shaped treats to attract snack-happy consumers.

The Japanese confectioner Ezaki Glico says its Sofyl yogurts and Yakult fermented-milk drinks contain bacteria that aid digestion, now draws 25.7 percent of its 293 billion yen in annual revenue from overseas units, thanks to 38,000 “Yakult women” who sell the products door to door in Asia and Latin America.

The company says it sells 6.5 billion units of Yakult and Sofyl a year outside Japan. “We want our product to be available virtually everywhere, like Coca-Cola, and make a contribution to the health of people around the world,” said the director for the international department.

Ajinomoto, a leading Japanese food company, with about 1.2 trillion yen in annual revenue, has increased its overseas sales ratio to 31.8 percent, from 22.8 percent, in eight years.

In terms of expansion, Japan’s Asian neighbors offer the biggest opportunities. Countries like Thailand already embrace a Japanese food subculture, and in China, growing numbers of upwardly mobile workers are increasingly inclined to purchase prepared foods and snacks.

The international survey firm Euromonitor says that the Lotte Group, a company in Tokyo that sells products in more than 70 countries, is the leading Asian-owned confectioner, with a 10.3 percent market share. The company, maker of Koala’s March — chocolate-filled koala-shaped cookies — ranks fourth in terms of sales among global companies in the Asian sector excluding Japan — ahead of Nestlé but behind Mars, Perfetti Van Melle and Cadbury.

Despite quality concerns raised by the recent recalls by Toyota Motor, a scandal caused by the sale of expired dairy products and eggs at Fujiya confectionery in 2007 and the Snow Brand food-poisoning fiasco in 2000, Japanese food manufacturers express pride in the country’s technological expertise.

In fact, the sales and marketing strengths of Western food companies far outweigh those of the Japanese. Kraft, for example, has gross sales of $50 billion a year, nearly 10 times as much as Lotte, which grossed about $5 billion in sales in its 2008 financial year.

Analysts and management consultants said that the struggle of the Japanese food companies to keep up with their Western rivals in overseas territories sounded familiar: Japanese companies that have higher-quality products are still sometimes hampered by weak marketing and brand strategies.
 

Managing director in Tokyo for the Boston Consulting Group, said: “Japanese firms may say, ‘We have superior products.’ That alone won’t do. You need sales and personnel who understand the trends of the local market, developers who will take the local taste into account and marketers who can explain the product to the locals on their terms.”

“You need the whole package in order to win,” he said.

Edit by BHC

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Full Article:

http://www.nytimes.com/2010/04/03/business/global/03food.html?pagewanted=2&ref=business

 

P&G going after the bottom of the pyramid

December 15, 2009

TakeAway:  The bottom of the pyramid represents two-thirds of the world’s population yet only a fraction of the world’s income. 

But don’t be fooled, this market can be very profitable. 

With the right combination of volume and capital efficiency, and a focus on economic profit, companies will be rewarded.

P&G has a bullseye on the BOP

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Excerpted from NYTimes, “P.& G. Sees the World as Its Client,” By Leslie Wayne, December 12, 2009

Add close to 548,000 new customers a day. Every day. For the next five years.

That is the goal Procter & Gamble’s new chief executive, has been promoting in recent weeks and that will be an important benchmark for his tenure …

The consumer products giant has to keep expanding its reach beyond its core markets of the United States, Western Europe and Japan, and start winning over new customers in places like Nigeria, India and Somalia, and is taking on steep challenges.

One is that its rivals Unilever and Colgate have long had a presence in many of these far-flung countries, so much so that they are called walled cities within the industry because of the difficulties new competitors face in penetrating these new markets.

“It will be a knife fight, it will be brutal,” said an industry analyst … “It will be fought in shampoo, detergent, deodorant, and Unilever and Colgate won’t roll over.”

The other big challenge is how a company that built itself on selling premium products at premium prices can shift to selling an array of low-priced products for consumers who often live on only a few hundred dollars a month or less.

In some cases, potential customers do not use many of P.& G.’s products and may even have to be taught how to do so …

Sales from developing countries are doubling every four years. Today, sales from developing markets represent 32 percent of P.& G.’s $78 billion in annual revenue, up from 23 percent four years ago.  Unilever and Colgate, though, already get about 45 percent of their sales from emerging markets.

Today, P.& G. has annual sales of $25 billion from developing countries, compared with $8 billion eight years ago. Procter already operates in 80 countries, selling its wares everywhere — large superstores in cities and tiny storefronts in remote villages …

The pitch from P.& G. executives … Americans spend about $110 a year per capita on Procter’s products. The worldwide per-capita figure is $12. In Mexico, the number is $20; it’s less than $3 in China and less than $1 in India.

The goal is to get the per-capita numbers in China and India to look like Mexico’s. If that were to happen … sales at P.& G. would increase by $40 billion …

Of course, customers in developing countries have little money to spend. And getting Procter’s goods to small towns and villages is a difficult logistical challenge …

Products, too, have to be adjusted. P.& G. has had to break down products like shampoos and soaps into smaller and less expensive sizes …

“There may be one billion new customers,” said Deutsche Bank. “But it is a question of the price per customer and what they can buy. How can you maintain profit margins when you are trying to sell small shampoos or little bars of soap in deepest India or sub-Saharan Africa?”

Procter has come up with marketing efforts that are decidedly different than those in the United States and other more developed countries.

Many infants, for instance, simply go without diapers, which means that P.& G. goes to hospitals and mobile clinics to demonstrate the use of diapers. Because the cost of diapers are often an issue and because children and parents often share the same family bed, P.& G. is promoting diaper use only at nighttime …

Edit by TJS

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Full Article
http://www.nytimes.com/2009/12/12/business/global/12procter.html?_r=1&scp=3&sq=procter&st=cse

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GE’s “Reverse Innovation” … no, it doesn’t mean going retro.

December 7, 2009

TakeAway: For decades, GE has sold modified Western products to emerging markets. Now, to preempt the emerging giants, it’s trying the reverse.

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From WSJ:” GE CEO Touts ‘Reverse Innovation’ Model”, Sept 22, 2009 

To better compete in emerging markets and elsewhere, General Electric is is changing its method of innovation and developing products in low-cost countries, such as China and India, then distributing them worldwide.

Two products – a $1,000 handheld electrocardiogram device and a portable, personal-computer-based ultrasound machine that sells for about $15,000 – are examples of GE’s “reverse innovation.”

They were originally developed for markets in emerging countries and are now being sold in the U.S., a contrast from the past when GE and many other industrial companies created products in the U.S., then adapted them for global sales.

The new business model allows the company to expand into emerging countries and keep firms there from creating similar products, then expanding sales to the U.S.

“Success in developing countries is a prerequisite for continued vitality in developed ones.”

For reverse innovation to work, product developers must be based and managed in the local market, and when the products are sold globally, they may need to be sold at lower prices even if they cannibalize higher-margin products in rich countries.

GE now has more than a dozen “local growth teams” in China and India.

Full article:
http://online.wsj.com/article/SB125364544835231531.html?ru=yahoo&mod=yahoo_hs

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From the HBS article:

Two myths must be shattered:

Myth #1: Emerging economies will largely evolve in the same way that wealthy economies did.

The reality is, developing countries aren’t following the same path and could actually jump ahead of developed countries because of their greater willingness to adopt breakthrough innovations.

With far smaller per capita incomes, developing countries are more than happy with high-tech solutions that deliver decent performance at an ultralow cost—a 50% solution at a 15% price.

Myth #2: Products that address developing countries’ special needs can’t be sold in developed countries because they’re not good enough to compete there.

The reality here is, these products can create brand new markets in the developed world — by establishing dramatically lower price points or pioneering new applications.  And, technology often can be improved until it satisfies more demanding customers.

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Local Growth Team (LGT) model,  is based on five critical principles.

1. Shift power to where the growth is.
Without autonomy, the LGTs will become pawns of the global business and won’t be able to focus on the problems of customers in emerging markets. Specifically, they need the power to develop their own strategies, organizations, and products.

2. Build new offerings from the ground up.
Given the tremendous gulfs between rich countries and poor ones in income, infrastructure, and sustainability needs, reverse innovation must be zero-based. These wide differences cannot be spanned by adapting global products.

3. Build LGTs from the ground up, like new companies.
Zero-based innovation doesn’t happen without zero-based organizational design. GE’s organizational “software”— its hiring practices, reporting structures, titles, job descriptions, norms for working relationships, and power balances between functions—all evolved to support glocalization. LGTs need to rewrite the software.

4. Customize objectives, targets, and metrics.
Innovation endeavors are, by nature, uncertain. It’s more important to learn quickly by efficiently testing assumptions than to hit
the numbers. So the relevant metrics and standards for LGTs—the ones that resolve the critical unknowns—are rarely the same as
those used by the established businesses.  The new business model emphasized training, offered online guides, designed simpler
products, created built-in presets for certain tasks, and tracked customer satisfaction to gauge success.

5. Have the LGT report to someone high in the organization.
LGTs cannot thrive without strong support from the top. The executive overseeing the LGT has three critical roles: mediating conflicts between the team and
the global business, connecting the team to resources such as global R&D centers, and helping take the innovations that the team develops into rich countries. Only a senior executive in the global business unit, or even its leader, can accomplish all of that.

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How do you say “Mmm, Mmm, Good” in Russian ?

November 5, 2009

TakeAway:  As the simple meals category grows, soup faces greater competition for a share of your plate.  Campbell’s is making important changes to its products to adapt to consumer needs and win your loyalty (when your budget is not your key decision factor).

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Excerpted from BusinessWeek, “Campbell’s: Not About to Let the Soup Cool,” By Matthew Boyle, September 17, 2009

In tough times, comfort sells. And few brands evoke a warm and fuzzy feeling more than Campbell’s … The cost-conscious climate has been a boon for soup sales, which rose 5% in the U.S. in fiscal 2009 … That performance launched Campbell Soup into the ranks of the top 100 brands, where it joined food giants Kellogg, H.J. Heinz, and Nestlé.

But as the recession recedes, Campbell’s will need to prove that its name still resonates with American consumers, many of whom will venture back into restaurants once the economy improves. To stay on top, Campbell’s is launching new products, recasting old favorites, and aggressively pushing into emerging markets …

Consider Campbell’s Chunky line of soups. Last year the company neglected the brand, focusing instead on Select Harvest … Select Harvest became one of the top food launches of 2008. But Chunky suffered as a result … Now Campbell’s is revamping Chunky … the company wants to make the soup more nutritious without sacrificing its perceived heartiness …

China and Russia present a bigger opportunity and challenge for Campbell’s. The two countries account for more than half the world’s consumption of soup. But nearly all of it is homemade. If the company can capture just 3% of the at-home consumption … the size of the business would equal that of the U.S. …

To break into those markets, Campbell’s has been conducting extensive on-the-ground research over the past few years, interviewing thousands of consumers in Russia alone … Their findings led them to develop a broth-like product that Russians can use as a base for their own soups. Next year the company will sell 14 different soups in the country, up from three this year

Edit by TJS

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Full Article
http://www.businessweek.com/magazine/content/09_39/b4148060517726.htm

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Extreme Entrepreneurship: Products for Bottom of Pyramid

April 15, 2009

Excerpted from Fortune, “Products for the other 3 billion” By Michael V. Copeland, April 1, 2009

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Jim Patell … operates out of Stanford’s design school, where he teaches a class called Entrepreneurial Design for Extreme Affordabilitythe class mission: to teach a new generation of entrepreneurs to use their business and engineering smarts to design and sell products – profitably – for the developing world.

Some of the students – a mix of would-be MBAs, engineers, and designers – truly are do-gooders, but a fair number think building good, cheap products is a skill any corporation would value.

“We can fill a gap, with an approach that goes beyond a fast profit motive.”

For the smart, ambitious students in his classes  …professional success and saving the planet aren’t mutually exclusive.

Two such budding entrepreneurs … make cheap, solar-powered lights to replace the kerosene and diesel lamps so common in the developing countries of Asia and Africa.

 

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Often the approach involves combining cutting-edge technology with widely available products that are moving down the cost curve.

One application … make cheap, solar-powered lights to replace the kerosene and diesel lamps so common in the developing countries of Asia and Africa.

D.light, for example, marries next-generation light-emitting diodes (LEDs), proprietary power-management tools, and increasingly cheap solar panels. As a result, D.light is able to offer poor communities an affordable alternative to kerosene, which is ubiquitous but hazardous … The D.light lamps sell for about $25, steep for someone earning $1 per day, but … the quality of light was so good that people with the D.light lamps were able to do more work at night and increase their income.

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Empowering would-be customers is one of the mantras of Patell’s class … Patell doesn’t expect every student to start a company, but he does demand that every product in the class offer poor consumers tools for their own microenterprises.

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Capitalists in Silicon Valley are starting to take notice of the projects coming out of the Stanford course. In November, D.light secured $6 million in funding from … venture capital firms, to ramp up production and get its lamps into markets, initially in India and Africa … the financiers think D.light can model itself after another successful enterprise in the developing world: the cellphone industry.

Device manufacturers … are selling millions of handsets in rural parts of India, China, and Africa, places that in many cases don’t have centralized electricity. But even some of the poorest of the poor will pony up several months’ salary for the benefits of connectivity …

Edit by SAC

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Full Article:
http://money.cnn.com/2009/04/01/technology/copeland_developing.fortune/index.htm

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Succeeding at the Bottom of the Pyramid …

September 4, 2008

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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