Entrepreneurship at the Bottom of the Pyramid

Carol Dalglish, Marcello Tonelli

• Publisher: Routledge
• Year: 2016
• Print ISBN: 9781138846548
• eBook ISBN: 9781317539841
• Topic: Business
• Subtopic: Business General
• Index: Business

2017 Nautilus Book Awards: Silver Award Winner

2018 Great Northwest Book Festival: Winner

2018 Hollywood Book Festival: Winner

Entrepreneurship at the Bottom of the Pyramid seeks to demonstrate to students the range of entrepreneurial activities that can be implemented in developing countries to alleviate poverty.

The book blends theory, visual examples and practical learning activities to help students apply their knowledge and encourage thinking 'outside the box'. It begins by introducing the reader to two fundamental concepts - poverty and the bottom of the pyramid - so they have a solid grasp of the context in which the entrepreneurial activities are implemented. Next, the authors discuss the entrepreneurial process, highlighting the most relevant elements: risk, survival and growth, entrepreneurial actors, the informal sector and micro-credit. Finally, the book describes models to encourage entrepreneurial activities in developing countries.

Weaving a primary case study throughout so the reader can apply new knowledge incrementally while moving through the chapters, Dalglish and Tonelli also include several shorter case studies, presenting different problems and implemented solutions in several geographical areas. Students with an interest in entrepreneurship, poverty alleviation and development studies will find this an important read.

1
INTRODUCTION TO THE BOTTOM OF THE PYRAMID (BoP)

Introduction

Despite the growth in trade and international aid, the number of people living in poverty around the world is increasing, particularly in Africa. This book is about understanding that micro-entrepreneurial activities at the bottom or ‘base’ of the pyramid (BoP) offer a fundamental mechanism to assist with the survival and life improvement of many poor communities. Most of these micro-enterprises are to be found in the informal economy. They take many forms, often providing services to other poor people. They can be minor manufacturers, crafts people or retailers in a range of market settings.

In some respects, entrepreneurship at the BoP is not that different from what we witness in developed countries: there are few barriers to entry, there is fierce competition and only a few succeed whether based on either individual strengths and/or third party support. However, entrepreneurs at the BoP also face a range of other challenges that are not seen in the developed world. These challenges have often led to entrepreneurs in poor countries being excluded from entrepreneurial research because of lack of data and a different perception of those who enter business for survival reasons. This is what makes successful entrepreneurship at the BoP such an interesting topic.

There are important examples of organisations, public and private, large and small, established and new, that seek to promote inclusive entrepreneurship practices, specifically targeting those most in need. In order to disseminate the knowledge gained by these institutions and improve on their efforts, it is important to introduce books that explicitly address this subject into business libraries, university courses and aid agencies. This is not always easy because the data comes from communities that are not in a position to purchase any book and therefore success depends on interest from the developed world.

In this book, the authors constantly prompt the reader with activities and real examples to encourage him/her to evaluate how the learning of theoretical perspectives, originating largely in Western developed countries, can apply to entrepreneurs in much poorer economies and to promote thinking outside the box. One case, of a small, not-for-profit organisation in Mozambique, is woven throughout the text to show the relevance of many of the topics covered even to the smallest project. Mozambique is among the poorest and least well known of the developing countries in Africa but faces many of the same challenges as other countries on the continent. The authors are familiar with this project and had direct access to some of the world’s poorest people who see starting and growing a business as a means of escaping poverty and helping their children receive an education they themselves did not have access to. Despertai Mozambique supports these people, who are often illiterate and have had little access to examples of successful entrepreneurship, and the project shows the relevance, or otherwise, of applying theories and practices to the very poorest who face not only personal challenges but a lack of infrastructure and positive business examples.

The first two chapters aim to give the reader a good understanding of two fundamental concepts, the BoP and poverty, which provide the foundation for addressing the range of issues that follow. Here, the geography and nature of the BoP are outlined together with the nature and causes of poverty, and Despertai Mozambique and its context is introduced. In Chapters 3 and 4 the concept of entrepreneurship is explored. Here, the nature of entrepreneurship, the challenges for the entrepreneur and the barriers to successful entrepreneurship are investigated. A number of case studies are used to illustrate entrepreneurship at the BoP in different contexts. Chapters 5 and 6 examine issues that are specific to the BoP around the world. These include in particular the informal sector and its significance to the economies of developing nations, and micro-credit, a financial system that has been set up to assist the poor to access finance, very necessary to enterprise development.

Chapters 7 to 10 examine various agencies and approaches that are used around the world to assist the growth of entrepreneurship among the very poor in developing nations. These include: a community-driven development approach where the community itself is deeply involved in the establishment and success of economic growth; the concept of corporate social responsibility (CSR) and the role of multinational corporations (MNCs) in stimulating entrepreneurial activity in the areas in which they operate; the role of aid and the work of non-government organisations (NGOs) whose primary objective is poverty alleviation; and the role of government in stimulating the economy and providing opportunities for the very poor to become economically active. Each of these chapters provides one or more case studies to illustrate what practice looks like in reality in a range of different countries. The final chapter brings all these various perspectives together to provide a summary of the current situation with regard to entrepreneurship at the BoP.

The Bottom of the Pyramid

In 1999 C. K. Prahalad and S. L. Hart brought a new term into common usage in the business literature, the ‘bottom of the pyramid’ (BoP). This concept took a different perspective on the poor of the world, seeing them as a potential market rather than irrelevant to the global business community. Prahalad and Hart’s main focus was on the individuals at the base of the economic pyramid, the 4 billion people who are surviving on less than $2 a day, and took the view that these were potential customers for goods and services. Because of the characteristics of this very large potential market, its distribution and its individual limited spending capacity, they saw the BoP as a market that would challenge MNCs to think innovatively about how they accessed new markets and this would have the advantage of bringing innovative thinking to all aspects of their business. They also suggested that this would help alleviate poverty.

Their work was, and continues to be controversial (Karnani 2011). It was a very different way of viewing the poor from the ‘development’ approach that was more common at the time. The BoP concept has evolved dramatically since then, thanks to the continuing work of Hart (2005) and others who have contributed with hundreds of publications on the topic, recognising the complexity of the issues raised by Prahalad’s early assertions.

Prahalad and his original colleagues viewed the poor through the lens of free market economics, rather than through development or entrepreneurship. They advocated a shift in the way the poor are perceived and argued that they should be considered as value-conscious consumers, rather than victims in need of assistance. For instance, BoP economics dictate small packages of goods with low margins and high volume with high return on capital: a single serve of a product that can be purchased by a daily wageworker who typically lacks the free cash to purchase a month’s supply – but nonetheless wants these products. The concept appears very simple on construct but proved far more complex in practice.

It is important to note the assumption here that those at the BoP being served are wage earners – which is seldom the case at the BoP, particularly in rural areas where there is barely a monetary economy at all (Salimath 2010). Also, while BoP strategies were originally defined as “selling to the poor and helping them improve their lives by producing and distributing products and services in culturally sensitive, environmentally sustainable, and economically profitable ways” (Prahalad & Hart 2002 p. 2), a persistent misinterpretation and misapplication of the BoP ideology has led to strategies that have a purely economic focus being shaped to reach new markets without taking into account environmental, ethical or cultural issues.

Prahalad believed that these BoP markets could become drivers of fundamental innovation as they make large companies look at the market differently. This is the reason why his original call was strongly directed towards MNCs, which we will look at more closely in Chapter 8. The call was to recognise a new market, not to encourage local entrepreneurship. The assumption...

Table of contents

• Cover
• Half Title
• Title Page
• Copyright Page
• Dedication
• Table of Contents
• List of Figures
• List of Tables
• 1 Introduction to the Bottom of the Pyramid (BoP)
• 2 What is Poverty?
• 3 Entrepreneurship
• 4 Factors Impacting Entrepreneurial Success
• 5 The Informal Sector
• 6 Micro-Credit
• 7 Models to Support Entrepreneurial Activities in Developing Countries: Community Development
• 8 Models to Support Entrepreneurship Activities in Developing Countries: The Role of Large Corporations
• 9 Models to Support Entrepreneurship Activities in Developing Countries: The Role of Aid Agencies and Non-Government Organisations (NGOs)
• 10 Models to Support Entrepreneurship Activities in Developing Countries: The Role of Government
• 11 Conclusions
• Index