Short introduction
During the last 20 years there have been huge developments and progress globally in terms of income, health, and wealth resulting in a big shift from income levels 1 ($1/day or below) to levels 2 or 3. In 2040 it is expected that the majority of people earning money at level 4 ($32/day and above) will be so-called “non-westerns” (Rosling et al., 2018). However, today, there are still millions of people living in poverty. There are various differences between countries with higher levels of technology, education, expectation of life, basic services, food, etc., and countries with higher levels of poverty and specific diseases, less education, and limited basic services and expectation of life (Arnold, 2018). They differ in terms of technology, sustainability, business models, innovation, and networks, as well as cooperation in science (Rosca et al., 2016; Webb et al., 2010). While these differences exist, countries can be grouped together in terms of income. Rosling et al. (2018) argue for four levels of income—1 ($1/day), 2 ($2 to $8/day), 3 ($8 to $32/day), and 4 (more than $32/day)—which affect the way of living enormously. Although they have regional differences (e.g., concerning culture, products, food, etc.), the main goods and services are quite comparable (e.g., household products, furnishing, sanitary articles, etc.).
Likewise, comparing contexts of the Base of the Pyramid (BOP), Webb et al. (2010) recognised that BOP markets depend more on formal or informal market characteristics than on country boundaries; hence, the differences in market characteristics within the BOP should be stressed. Closely linked to poverty, BOP characteristics are: (a) low levels of education, skills, and capabilities, (b) weakly established infrastructure in urban areas, almost none in rural areas, (c) dominance of informal contracts and enforcement, including (d) minor property rights protection (Arnold and Sah, 2020). Currently, there are still massive variances in design processes comparing BOP and engineered markets (Jagtap et al., 2014; Silvestre and Silva Neto, 2014). BOP market innovations regularly do not cause technological breakthroughs driving innovation in engineered markets (Zeschky et al., 2014; Brem and Wolfram, 2014; Soni and Krishnan, 2014). BOP solutions are mainly characterised by unique combinations of existing knowledge and technologies on local scales (Govindarajan and Ramamurti, 2011), and BOP markets consider various market participants.
This chapter presents the results of three interviews with private sector experts in Latin America conducted in 2018. Our interviewed experts show the BOP contexts are widely spread and diverse in Latin America and the Caribbean. Their knowledge and understanding of, as well as experience with, BOP contexts in Latin America and the Caribbean are presented in the following interviews. The interviews give a vivid overview of how different BOP settings can be in Latin America and the Caribbean and what the main challenges and opportunities are that critically reflect BOP 1.0 to BOP 3.0 strategies and current realities.
In BOP research, three main perspectives are discussed. The BOP 1.0 strategies focus on selling to the poor. The main presumption was and is that multinational companies (MNCs) can reduce poverty by offering basic and functional goods and services at low costs to BOP markets. This operates as an effective way to combat poverty and social exclusion and increase the standard of living (Prahalad and Hammond, 2002). Yet, the pure provision of goods and services did not properly mitigate poverty and social exclusion (Papaioannou, 2014). Moreover, those practices and strategies were severely criticised by international aid agencies, non-governmental organisations (NGOs), and scientists (Shivarajan and Srinivasan, 2013), and led to BOP 2.0 strategies: Selling with the poor. This means BOP or low-income consumers need to be involved in value creation processes (Simanis and Hart, 2008). Inclusive approaches aim at participating, involving, and cooperating with diverse market actors along the whole value chain. The main presumption is that the employment of local people improves market success and meets the customers’ needs more precisely. In addition, according to the literature, BOP 2.0 markets are based on inclusive value creation and frugal innovation; these are narrowly linked. Frugal innovation is a flexible design and production concept based on reduced costs and complexity. In BOP 2.0 contexts, MNCs, NGOs, and small- and medium-sized companies are central players (Arnold, 2018). Casado Caneque and Hart (2015) go even further and argue for BOP 3.0 stressing a total conceptual shift: “Passing from standalone initiatives to innovation ecosystems, from extended distribution approaches to innovation for the last mile, from NGO engagement to cross-sector partnership networks and from poverty alleviation to sustainable development frameworks.”1 The following interviews were conducted in the summer and autumn of 2018 and provide deep insights into fundamental topics and current developments around BOPs in Latin America and the Caribbean. We present the interviews in detail and provide a few common traits in the discussion brought up by the experts that can be very distinct in the Latin American context. The remaining chapters presented in the book discuss specific cases and offer some theoretical perspectives that can be contrasted with the opinions offered here by experts to gain a full understanding of how companies are addressing BOP markets in this particular part of the globe.
The experts
- Jenny Melo is a Colombian researcher and consultant who focuses on the analysis of inclusive and green businesses. She combines an intersectional perspective with an understanding of implications and interactions of social, economic, and environmental dimensions of those market-based initiatives. In her more than 10 years of work, she has developed knowledge management processes for all sizes of companies, developmental organisations, NGOs, and small farmers’ organisations in Colombia, Ecuador, Argentina, and Spain. Jenny studied business administration and earned a master’s degree in social sciences. Since the fall of 2018 she has been living in the United States, pursuing a PhD in Rural Sociology and Sustainability.
- Daniel Buchbinder is the Founder and Director of Alterna, a social innovation platform inspiring change in Central America and beyond. Since Alterna’s conception, Daniel has led the launch of two social ventures, which serve rural populations at the BOP, and which bring together over 1,500 local entrepreneurs and SMEs, many of which have a significant social or environmental impact in Central America. He leads an international team of top-level professionals that share his passion to cultivate change from the ground up. During the first three years of Alterna’s business cultivation program, entrepreneurs and SMEs have improved the lives of more than 2 million people in Guatemala. Daniel holds a BA in Business Administration (ITAM, Mexico) and two MScs: One in Environmental Technology and Business (Imperial College, UK) and one in Environmental Geography (UNAM, Mexico). Daniel devoted the initial years of his career to the consumer market as a marketing executive at L’Oréal. This experience allowed him to understand the ins and outs of consumer marketing and to design customer-oriented solutions based on a deep understanding of customers. He also spearheaded brand and product management for a wide variety of customers in Latin America and Europe. He has consulted for private and public sectors in areas of tourism, mining, and the consumer market in Mexico, Guatemala, Spain, Germany, and the UK.
In 2013 Daniel’s expertise was enlisted by the Ministry of Economics in Guatemala to create the National Policy of Entrepreneurship. Daniel has been invited to participate in forums and events around the world to share his experiences of and views on social enterprise and impact investment. In 2013 he formed part of the Mexican Delegation that attended the G20 Young Entrepreneur Alliance in Moscow, Russia. In the same year, Daniel formed the first chapter in Central America for the Mexican Talent Network, an initiative from the Mexican Bureau of Foreign Affairs. Daniel was selected as an Ashoka Fellow in 2016. He has also been named Senior Skoll Fellow and in 2014 was awarded the Innovation for Sustainability Stephan Schmidheiny prize. Since 2016 Daniel has been Co-Chair of the steering committee for the Mexico and Central American Chapter of the Aspen Network of Development Entrepreneurs (ANDE), and he belongs to a range of boards in companies and social impact organisations. Daniel is deeply moved by the power of enterprise as a means to achieve optimal social and environmental balance. As an avid entrepreneur himself, he greatly enjoys engaging in conversations, planning, and, most importantly, executing the business model that will tackle the next tough challenge. - Laura Villa is a sustainability activist and entrepreneur. She has worked for the public and private sector, as well as for international cooperation organisations on social innovation projects. She currently lives in Medellin and works at the social organisation Comfama. Laura Villa holds a B.A. in Literary Hermeneutic from EAFIT in Colombia, a Master in Politics, Art, History and Literature form the Ludwig-Maximilians University at Munchen and is working towards a PhD in Philosophy at Pontificia Universidad Javeriana in Colombia.
We asked all experts the same questions and asked them to respond to several statements.
Interview with Jenny Melo
What are the main characteristics of BOP markets and contexts in Latin American and the Caribbean, in particular concerning innovation, business model, network, and challenges?
Jenny: In Latin America I see two particular trends. On the one hand, small farmers are trying to connect with big companies as a means to have a more stable connection with markets. And on the other, companies are developing new products and services for the so-called BOP.
I think these two arenas are different and need to be addressed analytically with different approaches. I have [been] paying more time in the first one, involved in some initiatives trying to develop inclusive value chains. And in this case, I think we are still in a very initial phase, because we still have the traditional business models that incorporate small farmers in a traditional place in the value chain. Let’s think in big companies trying to source from small farmers: They are offering fair price and guarantee in the buy; however, small farmers are just located in the first step of the value chain, so for them there is not much room to earn more money or to develop some innovation. This is the case for the big companies in soft drink and food sectors. There is no transformation there, in terms of status quo.
But in Latin America there are social entrepreneurs developing new business models in order to change the status quo of the small farmers and to bring other kind of commercial relationship. This is the case, for example, of FRUANDES. It’s a social entrepreneurship, and they do the same; they source from small farmers. But they changed the business model and try to be closer to them, being more transparent in terms of price and market. And the asymmetry in the relationship is less than in the case, for example, of big companies in Colombia and in Latin America. These examples make evident.
I think that we have different players in this ecosystem and that the approach of each player is different. However, the big actor, of course, are the big companies, in this moment. And it’s so traditional, but this is the current trend. From my observation, I consider that BOP markets from the customer’s perspective are characterised mainly by financial services; that’s the most developed section. Services in education and health exist, but they are small and struggle to scale. The issue with the financial services is that the banks are usually charging high fees for these services, which often turns out badly for the people in the long run.
Which main drivers and barriers do you see in BOP contexts?
Jenny: One barrier is that big companies are averse to take the necessary risks for innovation and change in the business models in BOP markets. The BOP communities are taking the big part of the risks, and this is unfair considering the position of each actor in the social structural and its access to conditions to exert agency. All actors in the field of BOP markets are risk averse. I think in order to answer this question, you need to think in the BOP context through the ecosystem lens and see all the different actors and the intersections between them.
One common barrier is the risk feeling aversion. The risk aversion is more present in big companies, not in the social entrepreneurs or in the customers. I think these two actors are open to explore this kind of risk. But big companies and medium-sized companies need to do a lot of investment and to do a lot of efforts in order to create the possibility conditions for this kind of business.
Creating infrastructure will be too much for some companies, because developing this kind of business requires so many things: Flexibility and money and time, but also empathy, but also design thinking … It requires a lot, and I think the companies are not fully aware about what it means, because is it not an easy market. It can take 4 to 6 years to reach a point earning some financial return.
A driver is market development. In this sense you can explore new markets, other possibilities. This is interesting because you can create differential business models in which the source from small farmers in fair conditions become a value proposition. With this you can [get] access to other kind[s] of financial resources—for example, impact investing companies.
Another driver is the expertise and knowledge on BOP markets. In Colombia, for example, we have been working on BOP for the last 10 years. So, there is a bigger group of people understanding what’s happening and what is needed in terms of ecosystem to boost this kind of business models. This is a two-sided thing. It is a good thing now, but can turn into a bad thing. I consider that, in the BOP market, the main unattended issues are the ethical questions, specifically the attention to the asymmetry of the relationship between BOP markets and big companies. This lack of perspective is a barrier for more ethical and more win-win business models here. Because now everybody’s doing BOP business or inclusive business, but when you are going to analyse these cases, I’m not sure whether they are really inclusive.
How are BOP value co-creation and cross-sector collaboration characterised?
Jenny: These days you can find big and small organisations working on this topic, and some of them are able to do cross-sector collaboration. For example, we have the World Business Council for Sustainable Development (WBCSD) in all regions in Latin America working in inclusive business. This is like a club for big companies. They are able to speak with financial institutions such as the Inter-American Development Bank (IDB) and can create cross-sectorial initiatives. They have this sphere of influence. However, there are also other smaller emerging actors trying to support special projects, for example, MinkaDev in Colombia and Spain, or Alterna in Guatemala, and others in Mexico, Chile, and Argentina. These actors are working on these topics in Latin America in different roles trying to improve and expand knowledge about inclusive business in several companies. There are others trying to [an] build inclusive business, for example MinkaDev and Alterna. One issue is that there is only limited financial support for smaller organisations and inclusive business. Five years ago, we had other financial possibilities, for example from the IDB. They had a particular line of work on inclusive business. During this time, it was possible to access resources specifically for inclusive business models. But now, this...
