BoP Strategies for Poverty Allevation

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http://jhv.sagepub.com/content/15/2/133The online version of this article can be found at:

DOI: 10.1177/097168581001500205

2009 15: 133Journal of Human ValuesSamir Ranjan Chatterjee

for Building Shared Commitmentultinational Firm Strategy and Global Poverty Alleviation : Frameworks and Possibili

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JOURNALOF HUMAN VALUES 15:2 (2009): 133152

SAGE Publications Los Angeles/London/New Delhi/Singapore/Washington DCDOI: 10.1177/097168581001500205

Multinational Firm Strategy and Global PovertyAlleviation: Frameworks and Possibilities

for Building Shared Commitment

SAMIR RANJAN CHATTERJEE

Bottom of the Pyramid (BOP) strategies recognize for thefirst time that global companies can contribute to

the alleviation of worldwide poverty by adopting non-traditional and mostly non-Western models of business

involvement. It is now widely accepted that poverty and hunger arise not because there are no goods or food,

but because billions of people lack income to purchase them. It is also a common belief that the private sector

can play a significant role in lifting the poor from the margins of the market system. This would require strategic

and mindset shifts in global companies leading to a very different path where their operations intersect with

the greater good of communities, societies, and nations. Successful engagement in the untapped market space

at the base of the global income pyramid calls for completely new capabilities, responsibilities, and values.

Alliance building with local and non-traditional partners, promoting bottom-up solutions and understanding

social sustainability are some of these new managerial challenges.

This article reflects on some of the critical challenges of global companies and global managers in their

strategic engagement at the BOP and explores how largefirms can become involved in the pursuit of social

capital acquisition and how new approaches of publicprivate partnerships in reformulating the profit-

performance links, the downscaling of products or services without compromising their quality and integrity,

the bridging of the information and infrastructure gap, educating, and empowering the poor, together with

innovations through technological adaptations can be managed through the embracing of new mindsets.

A number of frameworks are presented with a view to contributing to the debate and outlining new value

objectives for global companies.

Samir Ranjan Chatterjee is Professor of International Management at Curtin University of Technology, GPO Box U1987, Perth,Western Australia 6001. E-mail: [email protected]

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134 SAMIR RANJAN CHATTERJEE


Introduction

The phrase Bottom of the Pyramid (BOP)

refers to the lowest segment of the global incomepyramid where an estimated four billion people

survive at an income of about US$ 2 a day. A

body of literature initiated by C.K. Prahalad has

emerged that suggests that multinational com-

panies may find a challenging opportunity of

strategic revitalization and high ethical ground by

serving this BOP market (Gates 2008; Prahalad

2005; Prahalad and Hart 2002; Vichani and

Smith 2008). The idea emphasized by the BOP

theorists is to extend the strategic boundaries ofcorporate operations with a view to becoming more

inclusive and creative. This is in contrast to the

traditional emphasis of ethics and responsibility

focus. It is argued that large multinational firms

selling products and services appropriate to mul-

tiple contextualities and cultures outside their

income tier would generate a multiplier effect on

local business, job creation, physical, and social

infrastructure enrichment as well as improving

education, health, and other services.

Prahalads belief is that BOPs conserved

markets can not only become a source of innov-

ation but also provide a significant contribution

to the sustainability of the market system. Four

key elements need to be built as the foundation

for this. First, the creation of buyer power; se-

cond, shaping of aspirations through context

relevant products and service innovation; third,

building of consumerproducer and educational

links; and fourth, understanding and arbitraging

local solutions. Interestingly, Prahalad has beenconsistently rejecting social responsibility as the

basis of BOP initiatives by multinational com-

panies through such noble ideas that inevitably

emerge as outcomes for successful strategic ini-

tiatives (Gouillart 2008).

A number of interesting successes as well as

staggering failures have become well-known.

These cases of multinational involvement in

the BOP market attempt to respond to micro-consumption, collective consumption, and reci-

procal consumption of the clustered market base

of the poor. The potential of these low-resources,

localized, and diverse markets around the world

have a number of underlying assumptions. These

assumptions include ambitious ideas that the

poor can learn to manage and become self-

sufficient, and that capitalism can be extended to

adopt an idealism of inclusion and sharing in

a creative way. In contrast to the markers at thehigher segment of the income pyramids where

global strategies are focused on consumer de-

mand and competitive tactics, the challenge in the

BOP market is to understand the unique social-

cultural, institutional, and resource constraints

embedded in the context. BOP customers need to

be understood more as producers and innovators.

The companies serving them need to completely

re-orient their products, pricing, packaging, and

supply-chains.

The BOP concept offers an opportunity for

global companies to usher in a new era of growth

as well as for bridging the increasing economic

disparity. Linking the alleviation of global poverty

with strategic shifts is now not only being debated

in scholarly research but also providing excit-

ing examples of successful corporate ventures

around the world. Building of business models

to fundamentally re-orient the mindset of global

managers requires the acquisition and enrichment

of new competencies, the building of alliances, themobilization of resources, and new approaches to

shared learning in co-creating culture, services,

products, and mindsets. Obviously the success

of the BOP framework depends upon large

corporations being able to build capabilities for

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Multinational Firm Strategy and Global Poverty Alleviation135


grassroots solutions at the indigenous levels

around the world and has profound implications

for management education (Rosalie 2008).

The key issues involved in the BOP frameworkare the empowering and enabling of the poor in

making choices. Four billion people pay a Poverty

Penalty as they need to pay more for everything

from water to credit (Mendoza 2008). Most of

the economic life in the BOP markets around

the world is controlled by exploitative money

lenders (Patel and Arputham 2008). Therefore,

the exploitative potential of large multinationals

or national companies is only a moot point. It is

the mediating influence of the local communities,non-governmental organizations (NGOs), and

governments as well as the emboldening of the

poor, that can have a countervailing effect on the

exploitative potential of large corporations. On

the other hand, if more companies follow the

lead of the most creative organizations in their

industry, they will make a huge impact on some

of the worlds worst problems to help create a

world where no one has to live on a dollar a day

or die from a disease we know how to prevent

(Gates 2008: 3). In addition, BOP presents new

opportunities of privatepublic collaborations to

the advantage of each.

This article explores the shift needed in man-

agerial mindsets in understanding and engaging

with the BOP market. A strategic framework is

proposed for the creation of competencies that

lead to sustainable social development as well as

profitable economic outcomes. The experience

of MNC engagement in the BOP market over

the past decade demonstrates how multinationalscan learn to leverage and extend their global

capabilities. Not only do such strategic shifts

require innovations in business models but also

in the competencies for learning collaboration

and the building of multiple alliances.

BOP Strategy as an Opportunityfor Value-Creation

The proposition that global poverty can be alle-

viated by companies in partnership with national

or regional governments and a range of NGOs

has gained widespread credibility through many

successful case examples. These examples in-

clude the programme of Patrimonio Hoy by the

Mexican company Cemex, Grameen Telecom in

Bangladesh, Kick Start in Kenya, the alliance of

Starbucks with Conservation International and

Daimler-Chryslers Brazilian outreach alliance

called POEMA (Poverty and Environment inAmazonia Research and Development). Nestls

partnership with poor dairy farmers in India

is also an interesting example. The balancing

of Nestles need for reliability, quality, and the

exploitative distribution and information system

was collaboratively and innovatively resolved.

The bottlenecks of the complex distribution

system were overcome by supplying the rural

and mostly BOP farmers with equipment and

other materials needed to deliver quality milk.In addition, Nestl provided training to farmers.

Since its initiation in 1961, Moga project has now

grown to cover about 100,000 farmers.

The idea of helping the poor of the world

while ensuring corporate innovation, growth,

and profitability speaks to a completely new way

of viewing corporate globalization strategies.

The widely quoted BOP figures of four billion

people with per capita income below US$ 2,000

a year or $ 2.00 per day (Prahalad and Hart 2002)

represents a large portion of the global population.Engagement in this market cannot be contem-

plated with a globally standardized strategic

mindset. BOP engagement involves managing

substantial diversity in technical and economic in-

frastructure and cultural differences. Though the



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BOP market is predominantly non-urban and

spread through Asia, Africa, and Latin America, it

may also exist in the most economically advanced

countries. BOP is not a homogenous segment,and the particular model that would work best in

different regions and cultural contexts is a signifi-

cant challenge (Latelier et al. 2003).

A number of researchers have undertaken com-

prehensive and in-depth quantitative studies of

BOP spending on consumption (Hammond et al.

2007; Viswanathan 2007). These studies categor-

ize consumer spending in various sectors as pre-

sented in Table 1.

Subrahmanyam and Gomez-Arias developed adetailed set of 15 categories based on a study of

consumption patterns in the BOP market. These

15 categories are food and nutrition, energy,

housing, water/sanitation, transportation, health

services, finance, education, information-related,

personal care/hygiene, clothing, negative goods

(for example tobacco), cultural/sports, and durable

items (Subrahmanyam and Gomez-Arias 2008).

An example of how the BOP market may respond

to innovative consumption is the Columbian

energy company, Codensa. Legislative restrictionsprevented Codensa from exceeding 25 per cent of

the companys electricity market and it needed to

come up with an innovative solution. The company

launched an easy credit card that would enable its

current energy customers to buy useful electrical

appliances with repayments to be paid throughmonthly electric bills. A partnership with global

electrical goods manufacturers in redesigning their

products was also useful (Martinez and Carbonell

2007). Another example of BOP intervention may

be the example of the Honda Motor Company

in India. Honda in India organized its BOP

segment customers into groups of 20 people in

buying generators at US$ 400.00. Each member

of this group was required to make a payment of

US$ 20.00 each month into a common pool for20 months. A lottery system ensured that each

group member had an equitable turn in the

use of the generator for agricultural and other

purposes.

It has to be understood that the emergent

concepts of BOP do not consider a new, chal-

lenging, and unexplored customer base where

innovative products and services are delivered at

the end of a value chain, but as a process where

large corporations integrate this segment to learn

cooperative value-creation. For example, Nestleengineered a parallel distribution system that

corrected defects in the existing channel. It offered

Table 1

Consumer Spending Pattern of BOP

BOP Sectors Consumer Expenditure (Per cent) Nature of the Market

Food 58 National/localEnergy 9 GovernmentHousing 7 LocalTransportation 4 Government/private

Health 3 Government/privateFinance and IT information 1 Bank/private/local communityWater 0.4 Government/privateEducation 3 Government/privateClothing 2 PrivateOthers 12.6 Private

Source:Modified and adapted from available data of World Resources Institute, 2007.



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to pay for product at higher than currently available

market rates. Adding value, it arranged to supply

farmers with the supplies and materials needed to

work at lower than market rates. The company alsoprovided training that aided farmers in increasing

their milk yields (Wood et al. 2008: 421). ITCs

e-choupal in India has drawn global attention in

reforming Indian agribusinesss supply-chain

in order to bridge small rural farmers and big

companies. These ideas of dual value-creation

for MNCs included enriching BOP customers

as producers and not merely as customers, and

assisting poor producers to meet local or global

quality standards, as well as training them. Thisconvergence of doing well and doing good

brought about through the BOP framework

can only be continued when the managerial

mindset has undergone a quantum shift to the

view that sustainable measures lead to positive

social impacts. By means of the employment of

resources and competencies in up-skilling, and

including them in value-creation, a significant

contribution to social good can be achieved.

Prahalad has been arguing that the traditional

four P model has been inadequate in the creationof a sustainable society and needs to be replaced

by the creation of buying power among the bottom

tier consumers in a way that allows poverty

alleviation, sustainability, and infrastructural

amenities in creating positive influences of social

development. Prahalad strongly advocates moving

away from four Ps and embracing the four

AsAffordability, Acceptability, Awareness,and Availability (Prahalad 2005). Prahalads BOPmodel envisages a four A framework as opposed

to the traditional four P marketing gospel. Thesenew challenges are Affordability, Acceptability,Availability, and Awareness. The impact of theseelements on BOP may be summarized as follows:

Affordability: The basic character of the BOPmarket is the low disposable income of theconsumers and their high sensitivity to price,single-use packaging, or collaborative purchasing

schemes. Table 2 shows the 2008 unit price ofUnilevers consumer goods in Indonesia.

One of the more successful examples ofunderstanding the Affordability issue was the es-tablishment of the Patrimonio hoy programme

in Mexicos CEMEX company. This programmeallowed customers to buy cement through in-novative credit schemes and instalments.

Acceptability: This critical challenge reflects atrue bottom-up contextual understanding. It isessential that the managerial strategic mindset isre-oriented in the practice of deep listening and

collaborative development. An example of howwomens self-esteem and bounded indulgencein the BOP market was leveraged by HindustanLever may be relevant. The local cultural practiceof using a single soap for both body and hair

instead of using cheaper and harsh products ledthem to launch a very successful BOP productcalled Breeze 2-in-1 (Wood et al. 2008).

Table 2

Price of Unilever Indonesias Consumer Goods, Jakarta

Product Brand Size Price (in Rupiah) Price (in US Dollar

Shampoo Sunsilk 12 sachets Rp 4025 $0.40Soap Lux 90 g Rp 2150 $0.23Soap Lifebuoy 85 g Rp 1915 $0.20Toothpaste Pepsodent 75 g Rp 2590 $0.27

Source:Store visit.



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Availability: This challenge of establishing the

distribution system is the key foundation of

BOP. Economic, geographical, technological,

cultural, or political isolation often can beviewed as strong market participation barriers.

Prahalad contended that information inadequacy

often forced the local operators to work within

the span of bounded rationality. In spite of a

great process in the area of communication and

connectivity, half of the worlds population has

yet to make a single telephone call. The example

of NGOs in the provision of small-scale energy

solutions was specially commended by Bill Gates

(Gates 2008).Recent research has suggested lowering the

cost of distribution, reinventing the distribution

channel, and taking the long-term view of

investing for the future as creative market-based

alternatives in enhancing availability (Vachani

and Smith 2008). How a very simple mindset

re-orientation at Smart Communications in the

Philippines overcame the availability barrier

may be an interesting example. Recognition that

the replacement of prepaid telephone cards by an

over-the-air payment system can open up a newBOP market led to the minimization of physical

distribution costs and extended availability

beyond the physical location and regular store

hours (Anderson and Billou 2007).

Awareness: Consumer education and product

innovation on a global BOP scale can be shaped

by global companies. An example could be the

formidable attempt to encourage people who

formerly ate white rice to change to brown

golden rice, which had vitamin A added to it, in

a project to combat childhood blindness amongst

the rural poor. Innovation in electricity, water,

refrigeration, telephones, and health services are

all areas where significant contributions can be

made for profit by the private sector. Unilever

Indonesias efforts in the promotion of Black

Soy Bean not only ensured its brand visibility

but also ensured health awareness in Indonesia

(Hart 2007). It is important to understand thattraditional advertisement methods are usually

inappropriate in extending product or service

awareness. An example of how unusual methods

in brand building in rural BOP areas can be

achieved was demonstrated by Hindustan Lever

in India. The company tapped into the Indian

culture of love for music, drama, and village-

level performing arts. Local magicians, singers,

dancers, and other performers were employed

in the extension of awareness of their products.Table 3 outlines a number of basic needs and

possible product-offerings relevant to the BOP

market.

The most difficult challenge for multinationals

in the low-income consumer market is the ability

to innovate packaging. The bodegars in the street

markets throughout Latin America offer Nivea

shampoo in single-use plastic wraps, Colgate

has a macro-sized package and Unilevers soap

can be purchased in 20-gram packages. Intrigu-

ingly, these innovations have led to surprisinglevels of profit and the ability to reach a market

where these products never reached before for

these MNCs. Even though smaller packages

can create value by increasing convenience and

manage cash flow, it has been argued that they do

not increase affordability. The way to increase real

affordability is to bring a reduction in the price per

use (Karnani 2007). Sachets and small packages

do create value for the poor to an extent but they

also lead to undeniably promoting impulse buying.

Sachets and single-serve packages also create en-

vironmental problems such as how to recycle the

trash and plastic packaging.

As has been discussed earlier, non-access, non-

usage, poor quality, and other obstacles lead to

severe poverty penalty in the BOP sector. In many



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areas, non-consumption may not even be an optionresulting in exponential increases in this penalty.

Even the poor living in urban centres are victims

of weak regulatory and legal regimes.

Alleviating the poverty penalty could be a

channel through which markets could be

made more inclusive for the poor and the vast

majority of the worlds low income population

and this is clearly an area where both the public

and private sectors need to collaborate not justin developing a deeper understanding of why

and how markets malfunction in ways that are

exclusionary, but also in order to link up with

practical and innovative solutions to address

this. (Mendoza 2008 online)

Multinational Companies andthe Bottom of the Pyramid

The emerging role of multinational companies in

markets where marginalized poor can participate

either as consumers or as producers can be of con-

siderable momentum in achieving global poverty

alleviation. As consumers, the poor pay the

poverty penalty in terms of quality, price, non-

access, and socio-economic burden. As producers,

they encounter this penalty in terms of low-pay,asymmetric information, and a number of other

obstacles. This advantage of the poor in terms

of poverty premium (the ratio of the price of a

product or service that the poor need to pay as

compared to the non-poor) has been illustrated

in various market areas like health services, edu-

cation, water, telephones, credit as well as basic

products such as rice, wheat, or meat (Prahalad

and Hammond 2002). In an empirical research in

this area of disadvantage of the tier four poor inmarket participation initiatives, Mendoza (2008)

contended that the Poverty Penalty Index (PPI)

can act as an indicator of where the needs of the

poor are more critical. He suggested:

Based on the data collected to calculate po-

verty premiums across different markets and

countries, it might also be possible to develop

consolidated country level indicators of the

price-related aspect of the poverty penalty.

One potential approach would be to construct

a poverty penalty index (PPI) which could

be used to track trends in the poverty penalty

premiums in certain markets over time and

across boundaries. It could also serve as a

bell weather indicator of how inclusive these

Table 3

Appropriate BOP Products

Need Relevant Product-offering

Necessities Basic food items, water and water puri fication systems, clothing, energy generation, and reliable

lighting such as solar cells, fuel cells, micro-turbines.Education Basic childrens school books and adult learning materials.Labour saving devices Water pumps.Energy-saving Reliable batteries, solar cookers, solar cells for small street side business (particularly running

food stalls).Productivity-enhancing Affordable micro-credit, 2 in 1 pcs, communication devices.Consumer goods Cooking utensils, basic microwaves.Mobility Bicycles, scooters.Health goods Mosquito nets, generic pharmacy items, spectacles, iodized salt, sterile medical items.

Source:Adapted from Elli (2008: 3).



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markets are (or could be) in different parts of

the world. (Mendoza 2008 online)

As the context of corporate imperialism be-comes an urgent global issue and leaders around

the world attempt to find a harmonious response

to an unprecedented global economic meltdown,

multinational corporations need to play their part

more imaginatively. Linkages, costs of market

building, product policy, design and packaging,

supply-chain, distribution systems, and many

other fundamentals are a pre-requisite for success.

Strategic platforms of acquiring and building

new resources, techniques and capabilities, andforging a multitude of local partnerships are the

primary pre-requisites of this new challenge.

Establishing meaningful relationships between

economic returns and social development of the

market is of paramount importance (Hahn 2009;

Perez-Alemand and Sandilands 2008).

Core beliefs and assumptions about tier four

customers and markets can change as the in-

novations and business designs are allowed to

blossom in a centripetal direction rather the trad-

itional centrifugal imperial mindsets. The typical

separation of production and consumption are

not relevant in the BOP context. Understand-

ing of market needs, possibilities of payment,

and potential partners is essential. The degree

of access to micro-credit and the developmental

potential in peoples standard of living can

guide global managers in their approaches to

BOP markets (Landrum 2007). Perhaps no other

multinational company has been as meticulous

in terms of its impact as a BOP market presenceamongst the local communities than Unilever.

The system of footprint evaluation of economic

and social impacts is a model for others to follow.

It has developed a number of value-adding col-

laborations with social entrepreneurs especially in

India, where it invests 1 billion a year in R&D in

new products. In South Africa, Unilever supports

100,000 jobs (although it only employs 4,000

people) and contributes to about 0.9 per cent ofthe countrys gross domestic product (GDP).

Learning to conceptualize challenges in a new

light may come from this new thinking. Investment

in a business ecosystem, contributing to the cre-

ation of market space and collaborations with

stakeholders like the government, NGOs, as well as

other MNCs are critical to success. The creation of

enabled consumer bases through increased access

to credit and income generation, understanding

local needs through innovation of sustainableproducts, and facilitating two-way distribution

systems where suppliers and customers work in

tandem are also crucial. The critical issue of the

price-performance lies in innovative distribution

and supply-chain arrangements where alleviating

poverty becomes the main goal. Views on quality

are understood in terms of durability and oper-

ational capability even in hostile geographic,

climatic, or other conditions. Profitability is meas-

ured not only by margins and volumes but also

by sustainable social development. It needs to be

understood that operating in the lowest income

segment (or BOP) is much more complex than

serving the high-income segments. Three key

platform shifts are needed by MNCs in making

their BOP engagements a success and are repre-

sented in Figure 1. The critical focus on mindset

and competency re-orientation leads to the lever-

age and arbitrage dividend, which in turn has

the potential to make a significant global dent on

poverty, unsustainability, and greed-based cor-porate strategies.

One of the most widely accepted global strategic

models popularized by Bartlett and Ghoshal

(1989), where a multinationals strategic success

depends upon its ability to balance its emphasis



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on global efficiency with its ability to adapt its

existing resources and capabilities to respond to a

range of national environments, may have a verylimited relevance in the BOP market (London

and Hart 2004). Bartlett and Ghoshals (1989)

transnational model relies on the existing product,

process, technology, and other related metrics with

the ability to adapt these elements to various local

environments. This top-down strategic approach

is not relevant in the BOP space as success in the

BOP market is dependent on bottom-up learning

where sharing existing knowledge without

grassroots learning would prohibit true absorption

of context-specific information and knowledge.

This capability is also substantially different

from the ability to leverage worldwide learning,

which assumes that the appropriate knowledge

already exists within the firm, (London and

Hart 2004: 366). The challenge lies in inclusive

co-creation of lower costs on the one hand as

well as altering the concepts of producers, dis-

tributors, and supply-chain innovators on theother. Examples of the British company Cadbury

investing millions in small farming communities

or the Japanese company Sumitomo Chemicals

purchase of stakes in AZ Textiles in Tanzania to

produce millions of insecticide-treated mosquito

nets a year are relevant in understanding the

challenge. The example of the Indian Institute of

Management (IIM) Ahmedabads initiative in

exploring linkages between rural innovators and

Western business houses may also be of interest to

management educators (Gordon 2008). Reaching

out to co-create a new product or service through

local embeddedness and immersion rather than

integrating or adapting the core strategy is the key.

Ghemawats approach of Adaptation, Aggregation,

and Arbitrage may perhaps have more relevance

Figure 1

Framework for MNC Managerial Mindset Transformation



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here as value-creation continues to be the strategic

platform in any BOP commitment. As Ghemawat

(2007: 60) contends, Some companies are finding

large opportunities of value-creation in exploiting,rather then simply adjusting to or overcoming the

differences they encounter at the borders of the

various markets.

The initial idea of the creation of buyer

power was conceptualized around grassroots co-

operatives and micro-credit. A number of initia-

tives around the provision of small loans to get

the disadvantaged out of poverty and in many

instances to make them accept entrepreneurial

responsibilities were central considerations.The example of social business popularized by

Mohammad Yunus through the work of Grameen

Bank in Bangladesh has been powerfully con-

trasted by other models in microfinance in many

countries. SKS Microfinance led by Vikram Akula

is one such example. The Grameens approach of

social entrepreneurship aims at doing good rather

than making profit. Yunus is critical of modern

large corporations for not recognizing the multi-

dimensional nature of human beings and asserts

that social business fills this void (Yunus 2007).In recent times, four areas of attention for

global companies and global managers have em-

erged in this area. First, the unearthing of the real

needs of customers deep contextual probing of

the underlying issues of poverty and converting

that understanding to superior global-scale in-

novative processes of a multinational company.

Second, achieving a sustainable business model

by designing products, particularly packaging,

to minimize their ecological impact. Third, e-inclusion, whereby technology is used to achieve

subterranean goals to improve BOPs access to

both social and economic opportunities. The

South African HP i-community initiative is such

as example. Fourth, and most importantly, the role

of global companies in the BOP market is

increasingly seen in terms of their ability to

co-create a leading partnership platform. This

involves bringing together the government, thelocal community, local and international NGOs,

and political actors. Strong interests and com-

mitments from all these parties are the best

guarantee of long-term BOP performance. This

aligning of interests offers protection from the

risks associated with each stakeholders narrow

goals and information inadequacy. In short, BOP

value-creation can only be achieved when all the

stakeholders are aligned and their complementary

skills and resources are mobilized (Brugmann andPrahalad 2007; Rondinelli and London 2003).

The model presented in Figure 1 may be illu-

strated by the approach that PepsiCo is increasingly

adapting in China. The company is engaging ac-

tively in Chinas western and northern regions and

participating in environmental, social, and com-

munity projects. For example, it has injected 200

million yuan in potato farming projects throughout

China. Since 2007, more than 5,000 tons of

potatoes have been exported to Southeast Asian

countries. The Pepsi potato project in China hasbeen able to improve agricultural production and

assisted in their quality standardization. In June

2009, Pepsis CEO, Indra Mongolia, inspected the

transformation of 1,334 hectares of desert land

in farming and understanding the local culture

(Shambora and Kowitt 2009).

PepsiCo has also invested six million yuan

in establishing an agricultural research centre in

partnership with the Chinese Academy of Agri-

cultural Science. The project assists farmers inthe use of modern seed cultivation and farming

techniques in the low income agricultural regions

of the west (Ganso province) and the farmlands

around the southern city of Kunming in Yunnam

province. PepsiCo has been deeply involved in



12/21



every stage of this new potato growing culture

from seed development, irrigation, storage, bulk

transportation to market generation. In Inner

Mongolia, the benefit of this has flowed on toabout 1,100 poor farming families. In addition,

PepsiCo is collaborating with the University

of Traditional Medicine and dreams of one day

marrying traditional Chinese herbal drinks to its

portrait.

It is interesting to note that Chinese leaders

including the vice-chairman of the standing com-

mittee of the National Peoples Congress and

President of the All China Womens Federation

have been showering praises on PepsiCo andpublicly endorsing Indra Nuyi for her work in the

Chinese BOP sector.

In contrast, Coca-colas disastrous initiative

in manufacturing packaged water in Plachimada

village in Kerala demonstrated its failure in

understanding the model presented in Figure 1.

In spite of alarm from local villagers, the Kerala

State Pollution Control Board and the media,

the company pursued its old strategic mindset

rather than understanding and integrating the new

transformation.Jaipur Rugs, an Indian BOP company in the

state of Rajasthan, was cited as an example by

Prahalad in explaining how value adding can

occur through BOPs integration into global

supply-chains. They receive wool from as far as

Australia, New Zealand, China, and Argentina.

It is then blended with wool from Rajasthan in

India; 40,000 women in rural India create classical

and contemporary handmade carpets that are

then sold in United States. This is the ultimateglobal supply-chain, where the poor are woven

into the supply-chain (Gouillart 2008: 227).

The emergence of Grameen Phone and Grameen

Telecom in 1997 in Bangladesh through a joint

venture between the Grameen Bank of Bangladesh

and the Norwegian telecommunications company

Telenor is a staggering example of value-creation

at the grassroots level. While Grameen Telecom

was set up with an objective of providing an ad-ministrative interface to Grameen Bank, Grameen

Phone adopted the strategic objective of social

business. In 2009, Grameen Phone was one of

the largest private companies in Bangladesh and

possibly the largest private tax payer in the coun-

try (Prahalad and Lieberthal 2003; Seelos and

Mair 2007).

Approaches in Market

Engagement

In his recent book titled, Capitalism at the

Crossroads, Hart calls on global companies to

radically re-orient their conception of globaliza-

tion and strategy. He asserts that MNCs new

focus at the base of the global income pyramid

can not only lift billions of people out of poverty

and desperation but can also establish the creative

alignment of business, earth, and humanity

(Hart 2007). The potential of the low-resourced

and disorganized market of four billion people

with per capita equivalent purchasing power less

than US$ 2,000 per year living mostly in rural

areas or urban slums was explored by Hart and

Prahalad as the Bottom of the Pyramid (BOP)

market (Hart and Prahalad 2002). With earnings

less than US$ 2 a day, it was not surprising that

this particular market was ignored as a profitable

market space for MNCs. However, it has been

pointed out:

The spending power of Brazils poorest

25 million households amounts to $73 billion per

annum, while Chinas poor residents account for

286 million households with a combined annual

income of $691 billion. India has 171 million



13/21



low income households with a combined $378

billion in income. But the success of multi-

national corporations in penetrating those low

income segments has been limited at best, withmost companies based in the developed world

choosing to focus on the middle and upper

income segments of the developing world.

(Anderson and Billou 2007: 14).

In spite of this, a number of strategies arising out

of the four P framework have been successful

in redesigning and adapting products for the BOP

market. For example, washing machines designed

for the top of the pyramid by Haier were able tobe re-engineered to be useful as vegetable washers

and cheese makers in China (Anderson and

Billou 2007). Other examples include Nirma

washing powder, Danones yogurt, and HPs

South African i-community. The alignment of

the BOP market in uplifting poverty requires the

framing of a new network of stakeholders. There

is a need to learn from BOP entrepreneurs in

developing innovative products, pricing, pro-

motion, and distribution strategies. Nielson and

Samia (2008) focused attention to a number ofessential elements in preparing an organization

for successful BOP engagement. These essential

elements include an emphasis on economic op-

portunity, income generation, human capability

building, and community development. Wang

(2007) argued that privatepublic partnership

needed strong community support, stability in the

political context, as well as a regulatory frame-

work, which is followed and enforced. Govern-

ments and bureaucracies are increasingly findingthe for-profit sector attractive as it brings market

level innovations and administrative efficiencies. It

is also evident that many NGOs whose motives in

partnering with the for-profit may have doubtful

reasons, as in a number of countries local NGOs

are established by political interest in accessing

funding from the state or multilateral agencies.

In a recent study of the marketing of the low-

price car Nano by the Indian company Tata, itwas suggested that even an Indian company

entering its own bottom income segment had a

formidable economic distance to bridge in spite

of a negligible cultural distance. At the time of

its conception in 2003, Tatas Nano intended to

provide an affordable, fuel-efficient, safer, and

quality alternative to millions of low income

Indians using scooters and motor cycles. Though

Tata did not need alliances to become indigenous

or native capability as required in BOP markets,it still had a whole host of new learning to absorb.

In this instance, the competition for Nano came

from non-consumption or low-quality. The in-

novation was to fill a gap with a new product that

offered safety, functionality, and affordability. It

has to be remembered that consumers of Nano who

are moving up from their current two wheelers

would need to obtain driving licences where

a literacy barrier would act as an obstacle

(Waeyenburg and Hens 2008).

Actors in the BOP arena may include individualentrepreneurs, employees and enterprise partners,

small businesses, nationalfirms, NGOs, and multi-

national firms. The formidable opposition by

the traditional exploitative money lenders that

the grassroots entrepreneurial organization SKS

micro-finance in India overcame to become an

example of how a successful strategy of bypassing

the usual conventions of poverty alleviation that

benefit all (Akula 2008). The challenge of moving

away from the traditional underpinnings of cap-italism to a creative and inclusive capitalism needs

a change in mindsets. The one-way transfer of

low-cost imports into developing countries or the

use of outsourcing for a cheap talent pool cannot

be the content of true globalization, as serving



14/21



the poor presents the most complex of busi-ness operations, and this inevitably requires aquantum shift in strategic mindsets as well as

the competencies of global managers (Hart andSharma 2004; Jain and Vachani 2006).

Challenge of Implementation

The implementation challenges require a deeperunderstanding of the causes of poverty in a givencontext. A number of deficits or gaps tend to beevident in this understanding process. These may

include deficits in object gap or idea gap. Theobject identifies shortages in basic commodities

and infrastructure including roads and factories.The idea gap emphasizes the lack of access toinformation and knowledge. While detection of

these deficiencies is important, it fails to providea nuanced perspective demonstrating how theycome together and combine with other factors todisrupt the lives of various persons or support their

movement out of poverty across impacted nationsof the world (Hill and Rapp 2009: 40).

A number of critics have argued that BOP ismore a theoretical hype than reality as the severelyconstrained low-income base cannot make any

product or service viable except some basic sur-vival products. In contrast, optimists contend thatthe BOP model presents a real roadmap for pov-erty alleviation through the extension of creativecapitalism at the grassroots. A number of case

studies have demonstrated that the generation of anew group of micro-producers, micro-consumers,and micro-innovators can at least signal a globalmove to bridge the poverty gap (Mendoza and

Thelen 2008). One powerful critic of this BOPconcept described it as at best a harmless illu-sion and at worst a dangerous delusion. Hecriticized multinationals for attempting to viewthe poor as potential customers rather than pro-

ductive partners. He contended:

The private sector can help alleviate poverty by

focussing on the poor as producers. One way

to do this is to make markets more efficient

such that the poor capture more of the valueof their outputs. Certainly the best way for the

private forms to help eradicate poverty is to

invest in upgrading the skills and productivity

of the poor and to help create more employment

opportunities for them. (Karnani 2007: 109)

Karnani argued with considerable conviction that

the challenge of inequality of income or gender

imbalance is deeply entrenched in the BOP mar-

ket and it is almost impossible to make a differencewithout a very deep and shared commitment. He

argued that 79 per cent of Indians are below the com-

monly defined $2 per day poverty line. He claimed

that 39 per cent of adults in India are illiterate.

Ten per cent of boys and 24 per cent of girls

have no opportunity of schooling. Forty-nine per

cent of the children are underweight for their

age (Karnani 2007). Except the action agenda

initiated at the Cornell University called, The

Base of the Pyramid Protocol, existing researchdoes provide a blueprint on how all elements like

capabilities, resources, and collaborators could

be managed to achieve local embeddedness for

a multinational company. Figure 2, drawn from

the BOP protocol documentation, shows how the

logic of co-creation initiates the strategic intent

for multinationals as they build deep dialogue and

establish new capabilities.

As Hart (2007: 220) suggested, Competitive

advantage based upon a deep understandingof and integration with the local environment

companies earn it by creating a web of trusted

connections with a diversity of organization and

building on the available social infrastructure.

For a multinational company, the mirage can



15/21



become a reality if global managers are able to

understand the limitations in the environmental

infrastructure and institutional support base such

as the existence of distribution networks or the

rule of law, and creatively craft strategies that

build, extend, and enrich indigenous capabilities

and resources (Varadarajan 2009).

Case studies of multinational companies

serving the lower segments of the income pyra-

mid can provide generalized implementation

guidelines for others. The key parameters of

this guideline assume the ability of the MNCs

to arbitrage information technology, innovate

supply-chain and logistics, bring in new mindsets

in product or service design, being creative in

deploying and training local people, and building

and maintaining communication and trusting

partnerships. The features of the implementation

common to most cases of successful BOP are as

follows:

Figure 2

Agenda for Managerial Action

Source: The Base of Pyramid Protocol, 2009.



16/21



1. Profit performance ratio through low margin

high volume product or service.

2. Establishment of context relevant packag-

ing and distribution.3. Combining features and benefits to

generate sub-optimized quality with fun-

ctionality. Features need to be simple and

benefits need to be durable, low-cost, and

culturally relevant.

4. Achieving supportive clustering of the local

community, NGOs, municipal authorities,

and so on.

5. Building of feedback mechanisms in con-

tinuous improvement.6. Generating local human capital usage, con-

textualized training, and building of trust.

7. Leadership role in innovation in sustainable

improvement in poverty alleviation.

The BOP Protocol Project launched in 2003 byCornell University and a number of multinational

corporations crafted a radically new business

process as a special kind of research and develop-

ment. As with traditional R&D, the potential

for innovation is greatest when the initiative is

supported by patient capital, has full license

to experiment outside of the current corporate

modus operandi, and is evaluated against long

term milestone that emphasize learning (BOP

Protocol 2009: 13).The framework presented in Figure 3 explores

the reshaping of the managerial landscape needed

Figure 3

Embedding a Global Company to a Global Context: Managerial Frame



17/21



for BOP engagements by multinationals. Thekey here is the search for ways and means ofindigenous embeddings. As the extending of

strategic scope, development of new models, andenrichment of the corporate purse open up a newhope for the marginalized people at the bottom

of the pyramid.

Figures 1 and 2 highlight the need for a

paradigm shift from the top-down approach

endemic in large global corporations. The unique

exposures of partnering range of other constituents

present opportunities for grassroots earning. An

example of how such opportunities are missed

due to entrenched corporate mindsets can beseen in the case of HPs South African venture.

As aptly summed by McFalls (2007: 9596),

At the level of MNCs, in spite of the original

high level of commitment from HP executives,

the company was ultimately not prepared to in-

corporate the notion of breakthrough models of

sustainable development into its core strategy,

as it cost products, programmes, and people in

pursuit of business-as-usual quarterly profits.

The introduction of the HP multi-user 441 was a

prominent example of genuine breakthrough insustainable development, yielding environmental

and social benefits, and marked a brief success in

the HPi-community story, before it was pulled

from the market as a threat to entrenched corporate

interests.

London (2009: 107) contends that imple-

mental measures for BOP ventures are universally

inadequate. They just their success at alleviating

poverty on the basis of tasks completed and

milestones achievedamount of money invested,quantity of products distributed, number of inter-

ventions initiated, and so onrather than on how

well their activities translate into changes on the

ground. He recommends a framework called

The Base of the Pyramid Impact Assessment

Framework that can measure these changes on

the ground in terms of their economic situation,

their capabilities, and their relationships. Londons

framework involves a systematic analyticalassessment of the positive and negative impacts

of BOP initiatives on their critical constituents.

These aresellers who may be local distributors

or producers, buyers who may be local agents or

customers, and communities. Each of these three

categories of constituents is then evaluated in

terms of its potential cross impacts on economics,

capabilities, and relationships.

ConclusionThe United Nations Millennium Development

Goals of 2015 have been actively co-opting

the leadership role of major multinational cor-

porations in promoting a more equitable world.

The opportunities of social partnerships and

privatepublic collaborations are some of the new

areas through which the millennium goals can

create exciting possibilities. The models presented

in this paper highlight the need for the building of

social capital as a pre-requisite of BOP success.The richness of this capital allows the essential

precondition of bottom-up-learning in innovating

at the grassroots levels. As has been pointed out

earlier, multinationals like Unilever and P&G

have demonstrated their willingness to commit to

social embeddings in countries like Vietnam and

India and to perform quite well in the market. In

contrast, the global agricultural giant Monsanto

was unable to understand the value of locality and

embeddedness in its business model and thereforefailed. Monsantoas strategic platform did not

have sufficient mindset re-orientation to understand

the main theme. Though there is a debate on the

speed, efficiency, and approaches that the private

sector can adopt in poverty alleviation, there is



18/21



certainly less agreement that global companies

can indeed become active partners in poverty

alleviation.

Amartya Sen, Nobel Prize winning economist,has been emphasizing the need for nations, or-

ganizations, and managers to understand and

enrich the means and ends conundrums. Sens

widely known idea is that the most important

thing for humans is their capacity in real-

izing their potential and not income or consum-

ption. The end according to Sen is in achieving

what they truly value as individuals or groups.

Sen has consistently argued his central point

of removal of unfreedoms that is, obstaclesthat stop people from fulfilling their potential.

Income or consumption, are not denied but

are considered more as means (Sen 1993).

There are vast differences in the aspirations of

people with less than $2.00 day income and

people with $10.00 a day income. The former

struggle to survive while still possessing a dis-

cretionary consumption or savings capability.

As capability has been interpreted to be the

functional alternative to the economic notion of

opportunities expressed through commoditiesspace, its managerial expression may be reference

to persons skills and empowerment that lead to

the core competencies (Gasper 2007). It can

be argued that the extension of market reach has

the possibility of generating a momentum to the

capability of a vast majority of marginalized popu-

lation. Additionally, the possibility of building

and strengthening corresponding institutions that

contribute to human dignity also become stronger

with this new reach. The countervailing forces ofsuch institutions are critical as different cultures

and different societies manifest capabilities in

many different ways.

It has to be understood that the role of global

companies in the BOP context can only be of

relevance when other stakeholders have the

ability and conviction of performing at their

peak levels. The synergy with the competency

and commitment of co-actors, especially localand national governments, is critical to its suc-

cess. The provision of basic education, healthcare,

infrastructure, and public security are precondi-

tions for the BOP idea to be of any significance.

In spite of wide discussions on the rise of

micro-entrepreneurship in Mumbais slum areas,

the BOP market potential is limited by a very

limited availability of education, healthcare, and

infrastructure. It is reported that there is only one

toilet facility for about 800 people. The presenceof such basic human services and a clear and

powerful human value watch by NGOs are pre-

requisites for the generation of employability and

productivity at the BOP level (Chesbrough et al.

2006).

The role of large corporations and the new

generation of global managers in BOP offer a

new possibility of a dramatic increase in the

living standards of four billion people. The triple

p bottom-line of people, planet, and profit needs

to become a stronger motivation in widening thehorizons of the market system. Imaginative man-

agerial ideas and methods need to be expanded to

include the hopes, fears, aspirations, and doubts

of lower income segments. Firms around the

world need a new urgency in this transformational

engagement. This subject is going to become

increasingly dominant in management education

and needs more thoughtful and vigorous scholarly

attention. As has been pointed out:

Although a lot of research has been done in eco-

nomics, sociology, and political science in this

area, this is still an emerging area of research

for international business scholars. A lot more

work needs to be done to fully understand the



19/21



impact of MNCs on host country living stand-

ards and on society in general. Even though

poverty seems to be a main concern for the

developing would, poverty is a widespread phe-nomenon that affects the entire world (Kedia

et al. 2006: 79).

As environment or sustainability has become

important for management education in recent

years, it is also evident that the challenges of

poverty and social inclusion need to be one of

the central concerns in management education.

Business schools around the world have treated

issues of sustainability, poverty, or social inclusion

as peripheral issues and emphasized more ontechnical, economic, and strategic subjects that

lead to career success. Interestingly, a number

of US-based influential management schools are

increasingly giving legitimacy to the challenge of

poverty alienation. Conservative institutions that

use American Management education as the gold

standard should take a closer look at what many of

the best of these organizations are actually doing

(Dart 2008: 735).Market development and social development

can become a symbiotic link as has been demon-

strated by the recent rise of social business from

a humble beginning of village based micro-credit.

Bridging of the poverty gap is central to the

sustainability of economic, social, and cultural

life of any society and a new mindset of creative

engagement is an urgent imperative. In the past

two decades, global firms have become more

powerful and have generated a worldwide fieldof low wage labour, unemployment as well as

environmental damages. The BOP engagement

offers them an opportunity to make amends and

become entities larger and more meaningful than

mere profit seeking firms.

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Yunus, M. (2007), Creating a World without Poverty: Social

Business and the Future of Capitalism (New York:Public Affairs).

Documents

BoP Strategies for Poverty Allevation