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According to the Bottom of the Pyramid (BOP) theory, multinationals can serve the world's poorest and also grow profitably. To do so, they need new business models, resources and capabilities, and are usually urged to partner with various local organizations. However companies have been told little about how to actually take this complex and costly step into the unknown.
In their award-winning paper “Profitable Business Models and Market Creation in the Context of Deep Poverty: A Strategic View," Seelos and Mair use two case studies to show how to assemble existing building blocks into new business models. The following are examples of companies leveraging their corporate capabilities to provide scale to proven organizations at the BOP and together serve the poor, increase their incomes and create profits.
Mobile Mobilization
The banking industry believed it was impossible to make money through the provision of micro-loans to the poor, but Grameen Bank, founded by Professor Muhamad Yunus in 1976, proved the industry wrong. In 2006, Yunus and his bank were awarded the Nobel Peace Prize for their contribution to social entrepreneurship.
In the 1990s, when the telecom industry believed it was impossible to make money serving poor customers customer in Bangladesh, the Norwegian telecom business Telenor (which faced saturation in its home market) banded together with Yunus to prove the industry wrong again. Yunus' support was critical for Telenor's reputation and reduced the possibility of corruption. The joint venture also gave Telenor important local knowledge.
They formed two separate organizations:
- GrameenPhone, a commercial company, was operated by experienced Telenor managers with the aim of maximizing financial returns.
- GrameenTelecom was set up to translate Grameen’s successful microfinance system to the phone venture while maximizing jobs for the rural poor.
Grameen Phone began operating in 1997, by 2000 was profitable and by 2006 had passed 6 million subscribers and held 60 percent of market share. It is now one of Bangladesh’s biggest private companies. Meanwhile, by 2006, GrameenTelecom had created more than 250,000 jobs for microentrepreneurs that it calls “Village Phone Ladies," poor rural women who generate income from a mobile phone, such as through providing a village phone service.
Waste Not, Want Not
In Dhaka, the capital of Bangladesh, the city council was spending a quarter of its budget on waste removal but able to deal with less than half the rubbish. Odorous trash piled up in the streets and landfill sites, creating serious social threats including disease. Meanwhile, Bangladesh had a seemingly unrelated problem with overuse of chemical fertilizers. Two entrepreneurs, Maqsood Sinha and Iftekhars Enayetullah, saw a link. In 1994, they launched Waste Concern, based on turning waste into compost to replace chemical fertilizers. They soon saturated the home garden market and eventually persuaded the largest fertilizer company, Map Agro, to sign a "trial contract" that guaranteed sales of 200 tonnes of compost. Demand quickly pushed this figure up to 50,000 tonnes.
The new value chain created jobs for the poorest in the community and lowered their exposure to health threats. And since Waste Concern helped the government deal with a serious problem, in return, the government donated the land needed for the compost plants. The profits generated for Map Agro were so impressive that three other fertilizer companies went on to compete with Map Agro for a partnership with Waste Concern.
Recommendations
Based on their study, Seelos and Mair offer some advice for companies to increase their chances of successful entry in an under-developed market:
- Scan prospective countries or regions for organizations with business models able to serve the poor.
- Understand the strategic objectives, culture, and organizational structures of these organ-izations.
- Build relationships with a number of organ-izations as early as possible. Adequate BOP partners may be scarce. Identifying them early may reap first-mover advantages.
- Identify important bottlenecks in the model of local partners that prevent them from achieving strategic goals; build your business models around providing the missing element.
- Design your business model by thinking about replicating your existing competencies to support building markets in foreign countries, or redeploying competencies by existing country organizations to build new product markets.
- Ensure that the business model supports an increase in the real income of people.
- Monitor the dynamics of the environment and/or the development of your partner's overall model and strategic objectives.
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