Putting the Poor First

How Base-of-the-Pyramid Ventures Can Learn from Development Approaches

Piera Waibel

• Publisher: Routledge
• Year: 2017
• Print ISBN: 9781906093747
• eBook ISBN: 9781351277709
• Topic: Business
• Subtopic: Business General
• Index: Business

In order to make progress toward the UN Millennium Development Goals – and particularly in terms of poverty alleviation – business has a pivotal role to play: in terms of core business; purchasing products from the poor; employing them; and selling them affordable services and products. Serving the global 4 billion people at the base of the economic ladder – the Base of the Pyramid (BoP) – with suitable products and services is a new but growing field in research and practice. In the initial years, the focus of BoP was very much on selling products and services to a huge untapped market. Practitioners and academics focused on developing new distribution channels to reach the low-income markets and new technological solutions to address their needs. These first-generation "fortune-finding" approaches are now described as "business to four billion". Over the last few years, however, new priorities have gained prominence. This new value proposition can be framed as "business with four billion" and is "fortune-creating". So-called Next Generation, or BoP 2.0, strategies can bring companies and their target groups closer together. The goal is to co-create new business models as well as product and service solutions together with the target group. Integrating BoP into the innovation process – be it in terms of idea generation, product/service development, production or distribution/marketing – is seen as way to increase not only the impact on poverty alleviation, but also the benefits to the company.

This paradigm shift – to co-creation or embedded innovation – in fact closely mirrors a shift previously made by development researchers who argued that the poor should no longer be viewed as the target of poverty reduction efforts, but as partners in, and an asset to, the development process. Bottom-up development approaches – such as Participation, Community-Driven Development, Empowerment, Asset-Based Community Development or Local Knowledge – emphasize the role of the poor and see them as central to the design and implementation of the development process.

Even though some BoP researchers consider selective parts of this knowledge in their research, a comprehensive study that rigorously examines BoP ventures from a bottom-up development perspective has not yet been completed. This book attempts to fill that gap. Putting the Poor First examines the applicability of different elements in the bottom-up development literature to the innovation process of BoP ventures. It unveils connections between the two approaches and builds a theoretical base for the case study research. With three in-depth case studies and eight companies participating in a survey, the current state and experiences of businesses applying a bottom-up development perspective with BoP ventures in Latin America and the Caribbean is analysed.

The elements of a bottom-up development perspective applied in BoP practice can be grouped into three categories: drivers for choosing a bottom-up development perspective in BoP ventures (e.g. such that products and services are more readily accepted); circumstances that help or hinder the application of a bottom-up development perspective in BoP ventures (e.g. the acceptance of the company by communities or previous experiences with poverty alleviation projects); and success factors when choosing a bottom-up development perspective in BoP ventures (e.g. the importance of power structures, pluralism and self-esteem). The many recommendations, such as empowering the poor by encouraging co-creation and outsourcing innovation, fill gaps in theory, support practitioners and lay the foundations for further research.

This will be a key book for BoP researchers and practitioners on the ground. The reconnection of development approaches with BoP strategies puts the poor first.

Part I
Introduction

Part I of this book gives an introduction to the research project and its problem focus, global poverty.

1
About the research project

After explaining the research context, the problem statement, research questions and objectives as well as methods applied are elaborated.

1.1 Research context: business and development

Since the turn of the millennium it has become strikingly evident that development aid, charity or ‘global business-as-usual’ will not deliver solutions to poverty as expected (Kandachar and Halme 2005). More and more companies try to link their business activities with a contribution to solving big global issues such as poverty or climate change. Economic development—from a long-term perspective—can go hand in hand with social and ecological development (Banerjee 2003).

We believe that the fundamental purpose of business is to provide continually improving goods and services for increasing numbers of people at prices that they can afford. [. . .] We see shareholder value as a measure of how successfully we deliver value to society, rather than as an end in itself (WBCSD 2006: 4).

This approach to the role of corporations is not new, but with globalised activities the value that can be delivered to society is based on different needs. These needs are often the barriers to worldwide sustainable development (Bansal 2002).

One huge need is poverty alleviation, as for example demonstrated and addressed by the Millennium Development Goals (MDGs) of the United Nations (UN). The eight goals related to poverty reduction were agreed upon by all member states.¹ They are the only common ground for development goals at a global level (Kuhn and Rieckmann 2006; Unmüssig 2006). Five years away from the deadline of achieving the goals, the UN MDG Report 2010 and the summit on the MDG held in New York in September 2010² concluded that far greater effort is required to reach the goals by 2015. Some countries have made progress in some areas. First and foremost East Asia and South-East Asia have made the most progress in poverty reduction over the last few years. In contrast, in Sub-Saharan Africa and Latin America absolute poverty is stagnating or even increasing. Especially remote rural areas are struggling to reach the development goals (UN 2010a).

Figure 1.1 Context

Thus far it has been chiefly the responsibility of governments and civil society organisations to contribute to the achievement of the goals. Companies, however, also have an important role (e.g. Gradl 2010a; Engel and Veglio 2010; Nelson and Prescott 2003; Poole 2005). Corporations consider themselves important partners in reaching the goals for the following reasons:

• Business has global reach, scale and power
• Business has a lot to contribute (e.g. know-how)
• Western markets are often saturated. Therefore, new markets need to be developed (Neath 2006)

When, at the launch on 25 July 2003 of the Commission on Private Sector and Development within the UN Development Programme (UNDP), former UN Secretary-General Kofi Annan announced that ‘. . . we cannot reach these goals without support from the private sector’,³ he was pointing out the pivotal role of local entrepreneurs in developing countries. At the summit of the MDG 2010 in New York, the private sector forum attracted many prominent representatives of corporations and business organisations. In his welcome note, UN Secretary-General Ban Ki-moon issued a strong call to global businesses to support the MDG, acknowledging that ‘. . . business is a primary driver of innovation, investment and job creation. There is no longer any doubt that business plays an integral role in delivering economic and social progress’.⁴ Through global market activities in developing and emerging countries, companies have a substantial influence on private sector development in poor areas.

Business, as an engine of growth and development, has a critical role to play in accelerating progress towards the MDGs through increasing investment, creating jobs, increasing skills, and developing goods, technologies and innovations which can make people’s lives better (Engel and Veglio 2010).

So, business is seen as a major driver for poverty alleviation.

On the other hand, corporations based in developed economies face stagnating, shrinking or saturated markets. To grow further, they need to penetrate new markets. Many companies are already engaged with developing and emerging economies through sourcing activities and production facilities or by selling their products and services to the rich buyer segment of those countries. However, the poor5 are often not yet considered as an important market. Developing and emerging economies are low-income, rapid-growth, and companies need to develop unique strategies to cope with the broad scope and rapidity of economic and political change in those countries (Hoskisson et al. 2000). Western-style patterns of economic development may not occur in these local business environments (London and Hart 2004: 350).

The need for corporations to find and develop new markets on the one hand, and the important role that business plays in reaching the MDGs on the other, have led to a growing set of new concepts: ‘inclusive business’ (World Business Council for Sustainable Development [WBCSD], SNV); ‘growing inclusive markets’ (UNDP); ‘opportunities for the majority’ (Inter-American Development Bank [IDB]); ‘business for development’ (Organisation for Economic Cooperation and Development [OECD]), ‘pro-poor business’ or serving the ‘base of the pyramid’ (BoP)⁶ (Prahalad and Hart 2002) are only some of the concepts and buzzwords that have emerged over the last ten years. The different concepts frequently overlap but they are all aimed at making the economy more inclusive for the poor, be it as suppliers, employees or customers. This research corresponds to the BoP concept as it has emerged with a focus on the poor as consumers. The poor may not, however, be seen solely as customers. In very recent BoP literature (e.g. London and Hart 2010) the role of the poor as producers is emphasised as well. Furthermore, a BoP venture can include the poor as producers only, meaning that they move in a similar direction to inclusive business concepts. Nevertheless, the majority of researchers in the BoP field consider the poor as customers.

1.2 Problem statement

The main development problem addressed is poverty, with a focus on the issue in Latin America and the Caribbean (LAC). Poverty goes hand in hand with malnutrition, health problems, child mortality, delinquency, low education and so on. Even though the region has the highest income per capita among developing regions, it lags behind in achieving the poverty goal detailed in the MDGs, mainly due to the existence in this area of the world’s largest income inequalities.

As we have seen, companies can support poverty alleviation in several ways. The concept of serving the BoP seeks to see the poor as a market whereby companies develop services, products and business models that are appropriate for the poor’s resources and needs. One important factor for succeeding in finding new strategies to develop suitable services, products and business models for the BoP is engaging the target group itself in the innovation process. Local know-how of the poor has to be integrated and can then deliver new capacities for creating new competencies. This means that the poor are not only seen as (potential) customers, but play a more important role in the whole business model. So-called BoP 2.0 strategies bring the companies and the target group closer together. ‘Proceeding with a bottom-up approach’ (Hart 2005; Hart 2007), ‘listening to fringe stakeholders’ (Hart and Sharma 2004), ‘becoming indigenous and developing native capability’ (Hart 2007; Simanis and Hart 2008), ‘engaging the BoP and gaining access to knowledge’ (Prahalad 2006) or ‘co-creation’ (Gardetti 2009; London 2007) are some of the expressions used in literature to describe this paradigm shift which emphasises the role of the target group as partners in the process.

Development researchers made this paradigm shift around 30 years ago (Oakley et al. 1991; Simon 1997). The terms ‘development cooperation’ or ‘development partnerships’ are used instead of ‘development aid’. Also here, the poor are seen as vital partners in the development process instead of the target in poverty reduction efforts. There are different approaches that can be summarised under the term ‘bottom-up development’ figure in this research area, such as, for example: ‘participation’; ‘community-driven development’; ‘asset-based community development’; or ‘local knowledge’. More responsibility is given to local partners in the developing/emerging countries and institutions/organisations in the developed world figure more frequently (‘only’) as enablers and facilitators (e.g. Deza 2004; Obrovsky and Six 2005; Roselli 2006; Tembo 2003). Many BoP studies also claim that a bottom-up approach must be taken in order to tackle the new market at the BoP. Some aspects of the bottom-up development literature have even been considered by some BoP researchers (e.g. Simanis and Hart 2008); their application, however, has not been verified. At this exact point lies a research gap—the consideration of bottom-up development research in BoP literature seems random, and a comprehensive study that examines BoP ventures under the perspective of bottom-up development approaches is not available. There is a need for more cross-fertilisation between BoP literature and development studies literature in general, as was also pointed out at the 2009 BoP conference in Delft, the Netherlands.⁷ It is assumed that integrating bottom-up development knowledge into the BoP concept leads to a greater development impact of those ventures. But companies can also benefit by learning more about how to act in these unfamiliar terrains. Which of the vast knowledge of bottom-up development can be applied and how it can be integrated in BoP 2.0 ventures is, for the first time, comprehensively unveiled in this book.

1.3 Objectives and research questions

The fundamental assumption is that a bottom-up perspective in BoP ventures leads to better results for development and corporate goals, as the poor are an important link in the process. They are not only viewed as consumers but rather gain value during the entire innovation process. Hence, learning from bottom-up development approaches can help companies to engage with new partners at the BoP.

This book focuses on the following research questions:

• What are the drivers in choosing a bottom-up development perspective in BoP ventures?
  • -Companies can choose a bottom-up development perspective in their BoP ventures for various reasons. Is the application of this perspective driven by development goals or corporate goals? Are the reasons of companies the same as those of development organisations? What are the motives of companies? Why are they choosing such strategies?
• Which circumstances help or hinder the application of a bottom-up development perspective in BoP ventures?
  • -Depending on company characteristics and the environment that surrounds companies, it is easier or more difficult to apply a bottom-up development perspective in BoP ventures. Which internal (corporate) factors help or hinder the application of a bottom-up development perspective? Which external (environment) factors help or hinder the application? Under which conditions is a bottom-up development perspective favourable, and under which conditions is it less favourable?
• What are the success⁸ factors when choosing a bottom-up development perspective in BoP ventures?
  • -Depending on strategies, processes and activities implemented by companies, BoP ventures can perform better or worse when a bottom-up development perspective is applied. Which strategies work out ...

Table of contents

• Cover
• Half Title
• Title
• Copyright
• Dedication
• Contents
• Foreword
• Acknowledgements
• List of abbreviations
• Part I: Introduction
• Part II: Theoretical foundation: serving the base of the pyramid and bottom-up development
• Part III: The bottom-up development perspective in BoP practice
• Part IV: Framing the bottom-up development perspective in the innovation process of BoP ventures
• Part V: Final conclusions and reflections on further research
• References
• Annex
• Index