The debate on bottom of the pyramid : devising the right strategies for inclusive growth

Abstract

The strategy of profitably serving the ‘Bottom of the Pyramid’ was first envisaged by Prof. C.K. Prahalad of the University of Michigan. He proposed that tremendous profitable opportunities exist for the multinationals if they envision the poor as value demanding customers and tailor their products to the needs of the poor. Dr. Aneel Karnani argues that “the market at the BOP is generally too small monetarily to be very profitable for most multinationals”. He proposes that the companies should view the poor as producers rather than consumers. According to him, Prahalad’s approach will not be able to alleviate poverty as it suffers from several shortcomings. With the objective to identify the optimal set of strategies for BOP markets, we have studied BOP markets across geographies though numerous examples and case studies, identifying the strategies used by successful organizations. We have also identified the constraints faced by MNCs in BOP markets. One aspect where the existing literature lacks is the analysis of failed BOP ventures. We have hence studied several examples of failures of BOP initiatives to identify a set of criteria which can lead to failure of most promising businesses. These are identified as prohibitive costs, adverse external climate, flawed design and execution, overall financial system and lack of understanding about the product among the users. As the source of data for subsequent analysis, we have used the 50 case studies prepared by UNDP Growing Inclusive Markets Initiative in 2008. The cases follow a common structure and are drawn from multiple industries across the world. We have done a rigorous analysis of case studies to draw common themes and draw suitable inferences. We have concluded that neither MNCs nor SMEs are suited to cater to BOP markets individually. BOP markets are extremely challenging and partnerships are the way forward. Each of the 50 cases we analyzed involved some kind of partnership. We also found that Governments and NGOs are the preferred partners for most organizations, due to their respective power to make changes and strong local networks. The motivations for partnerships vary through the cases, but the most important ones are funding, capacity building and access to local people. In the case of SMEs, we found that they are often driven by the strong commitment of a single person. Another common theme which emerges from the cases is that a strong commitment and patience are required for success in BOP markets, as the structure of BOP markets is such that new developments take significant time to percolate through the system.