The Bottom Of Pyramid Market Business Essay
This paper explores the theological roots of the BOP market theory and the current trends in multinational company to venture into these markets. Influenced by some ideas drawn from the work of Prahalad on Bottom of Pyramid, the author has tried to put in perspective the issue of innovation in developing countries. The BOP thesis states that multinational companies (MNCs) can reach profitability and help to eradicate poverty, by designing and implementing sustainable solutions for the BOP consumers. At the same time, numerous academics and business managers have suggested that rather than seeing on the poor as consumers, MNCs have to view the poor as producers, and started by increasing their income to reduce poverty.
However, multinational companies are currently unfamiliar with the BOP market and the tendency is that MNCs ignore the BOP market and prefers to focus on markets already developed. This gives an indication of the existence of a weakness that can potentially disrupt innovations in the BOP market.
Hence, the main objective of this paper is to identify the particular challenges that companies found in the BOP market and in what forms innovation thrives in BOP markets. The literature review of this paper is mainly based on journal articles published in peer-reviewed journals related to innovations at the BOP and on case studies of companies which have implemented BOP projects.
Keywords: Bottom Of Pyramid Market - Innovations at Bottom Of Pyramid - Sustainable Product Design
‘I declare that I have personally prepared this article and that it has not in whole or in part been submitted for any other degree or qualification. Nor has it appeared in whole or in part in any textbook, journal or any other document previously published or produced for any purpose. The work described here is my own, carried out personally unless otherwise stated. All sources of information, including quotations are acknowledged by means of reference.’
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Nottingham Trent University, UK
Since the mists of time many people have reflected and worked on the issue of poverty, Mandela (2005) argues that ‘like slavery and apartheid, poverty is not natural. It is manmade and it can be overcome and eradicated by the actions of human beings.’ Even earlier it has been argued that poverty was the worst form of violence (Ghandi, 1940). But the sentence ‘Bottom of the Pyramid’ (BoP) was first introduced by Roosevelt, on the 7th of April 1932 in his radio address: The forgotten Man. Later, in the late 1990s Prahalad and Hart have suggested that multinational corporation companies (MNCs) can help to reduce the poverty. They defend the idea that if MNCs create suitable and affordable product for the low-income people, they can both help reduce poverty and generate new benefits. Then, they have introduced the concept of "Bottom of the Pyramid" (BOP), which refers to the 4 billion people who live on an income of 3 US $ or less per day in purchasing power parity (PPP) (Prahalad, 2004). However, although this concept has generated a strong interest in the corporate world and in lot of academia, the reality of this idea remains controversial (Karnani, 2007).
Nowadays, the context in which the MNCs operate experiences important changes and the idea of the BoP as virgin market, easy to conquer by the company, has disappeared. The issues related to environmental sustainability and corporate social responsibility (CSR) are more and more ubiquitous (Diamond, 2005). Whether through consumer pressure or through government regulation, companies can no longer ignore these trends. In this context of questioning of the conventional business models, ideas of Prahalad and Hart around the wealth at the base of the pyramid have interested many multinational companies, and we have seen a proliferation of initiatives of these ones to attempt to penetrate this forgotten market. These initiatives have as the main objective to obtain knowledge of the market and to generate long-term benefits. They are also part of the issue of corporate social responsibility (CSR) aforementioned, because they incorporate social aspects to developing countries. Thus, in most cases the BoP initiatives use a social partner. However, we can separate the social businesses and the projects managed as usual projects of the company.
On one side, in Bangladesh, the Grameen Danone Food and Limited (GFDL) project aims to reduce poverty by providing access to healthy food, an innovative business model that relies on the creation of "health yogurt " micro-factories. The company Veolia have also created a project which consists in the selling of clean water in Bangladesh, where the water is naturally enriched in arsenic. Both projects are focused on the reputation of the business in question, and are directly related to consumers (B2C). They are defined as social businesses and they have received the support of Yunus, Nobel Prize for Peace in 2006 and known for having founded the first microcredit institution: the Grameen Bank.
On the other hand, some companies have developed new business models with local contractors. These projects are slightly more discreet, because companies are addressed to an intermediary and ask him to go out of his usual scope of action (B2B). In India, in 2004, the optical firm Essilor has established partnerships with local hospitals by financing other ophthalmic test series in landlocked regions, the company also offer eyeglasses for less than 5 euros in this area. In 2009, Schneider Electric, the world specialist in energy, has developed the BipBop Program (Business, Innovation and People at the Base of the Pyramid). This program aims to provide access to green energy to billions of people who use kerosene lamps in India, in developing more local and more individualized solutions.
However, as they still know little about the BOP market, large companies are few to engage in this type of large-scale projects and must continually learn to succeed in developing appropriate solutions. This subject of innovation at the bottom of the pyramid will be the focus of this journal article.
The starting point is the paradox which can be observed at the BOP between the real creation of suitable products and the return to more basic products. Thus, on the one hand, Schneider Electric has succeeded in developing a new LED lamp: In-Diya, for poor people who have little access to electricity in India, an innovative lighting solution which is reliable and affordable. But on the other hand, the Grameen Danone production unit in Bangladesh is based on plans that are no longer used since a long time in developed countries, therefore a solution that was not designed exclusively for the BOP market. The reality is more complex than this first observation. However it highlights the issue of the place and the form of innovation in the BOP strategies, topic that will be studied here.
To investigate this question, the author begins with some background by describing the key concepts of the base of the pyramid market and its main characteristics. The specific challenges that companies face which approach this market will lead the author to consider what forms of innovation are developed in this market. Having consider this, and to demonstrate that innovation is possible in these parts of the world, the author will draw on case studies of multinational companies, such as Danone or Schneider Electric which have implemented BOP projects, this will be the first part of the findings. Moreover, to put in perspective the issue of innovation in developing countries, the second part of the findings will present the link, which was found in this study, between innovation in developed and developing countries. Having shown this interplay between innovation in developing countries and developed countries the author will explain in a conclusion the issue of innovation in the world global economy.
This first chapter reviews the previous literature about the BOP Market and its main characteristics. Then, in order to have an accurate background, this first part also examines the principal underlying theories of this market. Finally, by relying on the case of companies such as Danone or Essilor, the Chapter 2 discusses the different types of innovation and the forms that it could take on the BOP market.
Chapter 1: The Bottom of Pyramid Market
1. Bottom of the Pyramid
The bottom of the pyramid represents the poorest part of the world population. However, the measurement of poverty differs between countries or international institutions. For example in the United States, the measurement is done via the possibility or not to purchase a set number of basic products, in Europe people earning less than 60% of the average income of the country are considered as poor (INSEE, 2010). In 2011, the World Bank has estimated that poverty begins below an income of $2 per day in purchasing power parity (PPP).
Prahalad and Hart (2002), who have developed the theory of fortune at the bottom of the pyramid, consider that it includes the population living on less than $ 4 per year in PPP, which represents 4 billion people (see Figure 1). One the other hand, it has been argued (Chen and Ravaillon 2008) that poverty stays at an unacceptable level across the globe with over 1.4 billion people living below the poverty line of 2.50 dollars per day in purchasing power parity (PPP). It also exist a big contrast with the approximately 500 million people who live at the top of the Economic Pyramid with an average purchasing power of more than US$ 10,000 per year (see Rocchi 2006).
Figure 1 The economic pyramid.
Source: Prahalad and Hart, 2002. The Fortune at the Bottom of the Pyramid, Strategy and business, 80(9), pp. 26
The estimates also vary to define the size of the market. While Prahalad and Hart (2002) evaluate the market at the base of the pyramid to 13,000 billion dollars in PPP, Karnani (2007) evaluates the BOP market, based on the threshold of $ 2 of the World Bank, only to 1200 billion dollars in PPP, so about ten times less.
So there is a question about the actual size of the market. But the main idea is the opportunity that represents the base of the pyramid for businesses (Hammond, 2007).
2. Bottom of the Pyramid Market
During the last twenty years, the economic debate on solutions to the problem of poverty in developing countries has left an increasingly important role for the private initiatives. Indeed, the private sector is seen as an entity that can play a key role in the social and economic integration of the poor in acting according to business logics, respecting the social responsibility but also not following the logic of charity.
Prahalad and Hart (2002) developed the idea of the existence of a fortune at the base of the pyramid. They believe that the BOP market is a very attractive potential market but largely ignored. At the heart of their theory is located the idea of a shared benefit for MNCs and poor population, if we consider them as consumers and not as individuals out of the economic cycle.
Karnani (2007) criticizes this theory and explains that the definition of poverty threshold is too vague and that the poorest cannot be seen as consumers because of their low incomes. Karnani also raises ethical questions, highlighting the fact that the poor do not have the same needs as high income people and that it is not ethical to sell unnecessary products and make a profit on basic commodities. Indeed, can we encourage poor customers to buy a television instead of food? This is the problem of free will, let everyone decide for his actions, says Prahalad (2002) reflect on what we propose to a vulnerable population, answers Karnani (2007).
Karnani (2007) also denounced the fact of considering the poor as consumers rather than considering them as producers. He explains that consumption alone does not reduce poverty in a sustainable manner; according to him the solution is to involve the poor as real actors of the economy to create wealth. Karnani calls into question the assumptions of Prahalad because he believes that the BoP strategies do not actually affect the poorest, but rather an emerging middle class.
Beyond the human stakes, the concept of the base of pyramid is also an economic challenge for companies in developed countries. It is important for MNCs to develop knowledge and expertise of the BoP market, which is considered as the market of the future thanks to its development perspective. Jean-Pascal Tricoire, CEO of Schneider Electric, has declared that his company knows how to compete against its traditional opponents, but must learn to compete with actors in developing countries, according to new rules in order to remain competitive. Indeed, if the MNCs wait too long to investigate the market the local businesses which have a better understanding of the market may take over the market in first.
There is a lot of social and economic implication in the BOP market. However, it is difficult to address because of its own characteristics that create many problems for the private sector.
3. Main Features and key challenges at the Base Of the Pyramid Market
The major specificity of the BoP market is the fact that the targeted populations have very little money available. However, it is difficult to speak of only one market at the base of the pyramid. As we have seen above, the definition of poverty is not obvious. While some areas are in strict survival, others manage to have a little rest for living once that the core expenses have been covered. The poor are not homogeneous in their income, in their cultures or in their languages and they cannot be considered as a single market.
Moreover, the poor in developing countries are majority present in rural areas (World Bank, 2010). There is no big unified market at the base of the pyramid but rather a multitude of micro local markets and this involves a wide geographical dispersion, which poses a problem of access and distribution. In addition, there is a lack of infrastructure that hinders the investment of the companies, which are not accustomed to address these issues. All this, raises the question of strategies and business models from one country to another.
The problem is that multinationals are accustomed to thinking in terms of costs (or economies of scale), but their traditional models cannot operate at the base of the pyramid because of the disparity and lack of infrastructure. Another important factor in the BOP market is the pervasiveness of the informal economy (illegal economic activities). The weight of this economy was estimated between 45% and 60% of total economic activity in developing countries (Prahalad and Hart, 2002). We can imagine that the poor depend completely from the informal economy to find products and employment. For multinational companies who want to reach this population it is a real problem because they usually operate within a legal framework based on contracts. This is one of the reasons why companies often create partnerships with local businesses or organizations (NGOs, local business, institutional structure). Among the examples mentioned in the introduction, Danone has partnered with the Grameen Bank of Yunus and Essilor with local hospitals.
Boyer (2003) argues that the large multinational companies, leaders in their sector, find themselves in the position of a new entrant in these markets, their models, skills, methods and means are not appropriate to the BOP market and they have to first develop an understanding of the market to operate there. The private sector now plays an important role in the fight against poverty and raises the question of the development of innovative solutions to meet the specific needs and demands of poor populations.
Chapter 2: Innovation at the Bottom of Pyramid Market
1. Various types of innovation
Birkinshaw (2008) defines innovation both as a process of change but also as the final result. The concept of innovation involves novelty and creativity. However, we can make a distinction between the breaking innovations, that revolutionize the economy and change lifestyles, such as the invention of the car by Joseph Cugnot, and the cumulative innovations, which are updates from the existing. For example, we can say that all the innovations that have been made around the car since its invention, such as radio, GPS, Abs and other new features, are cumulative innovations.
Teece (1980), Kimberly (1981) and Damanpour et al. (2009) were the first to distinguish different categories within the concept of innovation. Thus, according to Hamel and Breen (2007) innovation may relate to processes and target the operational excellence, or concern a product or services, in other words, concern new offerings that will be introduced on the market . Innovation may also be strategic and reshape an economic model. Finally, managerial innovation represents the combination of skills and resources which are unique to the company (see Figure2.1).
Figure 2.1: The innovation Pyramid
Sources: Hamel, G., (2006), The why, what and How of Management Innovation, Harvard Business Review, 84(2), pp. 72-84
Later, other categorizations have emerged. Prahalad and Mashelkar (2010) preserve the Process innovation and the Product innovations but added Price and Packaging innovations. Kaafarani and Stevenson (2011) identify different levels depending on the size of the innovation.
‘Transformation innovation’ is equivalent to a disruptive innovation as mentioned above, whereas innovation category will be done at the level of an industry. An ‘Operational innovation’, permit to do things faster and cheaper: Amazon, the American company, has gained in internal efficiency by reviewing its inventory management thanks to an operational innovation. Finally, a ‘Market innovation’ will involve a new use of an existing product: in France, the company Everytime Technologies has developed a new way of using its optimization system for the planning of medical teams.
Through these different theories it is clear that the concept of innovation is changing with time and with the new needs of consumers. In addition, some enterprises are not at all oriented to innovation it is why innovation is more or less easy to establish a company to another. Some classifications seems clearer and more appropriate for the BOP market, the author will therefore retain the classification of Hamel (2006) for the remainder of this report. The different types of innovation presented here allow a global view of the concept of innovation, but we will see that there are specific stakes concerning innovation at the base of the pyramid.
2. Innovation process, stakes and business speciﬁcations at the Bottom of Pyramid
Innovation has a very important role for MNCs in their strategic approach to BOP markets due to the specificities of these markets discussed above. As we have seen, MNCs need to develop their knowledge of the poor needs and on their strategies of production and distribution. They must be creative and change their business model, and it is difficult for large companies which have well-established procedures in developed markets. Companies like Schneider Electric, Danone, Essilor which have undertook initiatives in the BOP are confronted to these new features and need to redefine their key success factors in adapting to this new market.
Prahalad (2011) identifies the Bottom of the Pyramid market as a new source of radical innovation. Prahalad suggests that external constraints should be utilized to build innovative business models. The immersion in the environment of the BoP is the starting point of this thinking (see Figure 2.2)
Figure 2.2 The Process for Developing Business Speciﬁcations.
Source: Prahalad (2011) Bottom of the Pyramid as a source of Breakthrough Innovations, Journal of Product Innovation Management, 29(1), pp. 6-12
Anderson and Billou (2007) and Anderson and Markides (2007) have explored the success factors of strategic innovations and have identified four key factors in developing markets. According to them, the strategic innovations should be: affordable, acceptable, available and consumers should be aware (see Figure 2.3).
Figure 2.3 The 4A’s framework.
Sources: Anderson and Billou (2007) Serving the world’s Poor: Innovation at the base of the Economic pyramid. Journal of Business Strategy, 28(2), pp.14-21
Anderson and Markides (2007) believe that a special attention should be paid to prices because BOP consumers have little available money. Subsequently, the product must be adapted to the market, thus respecting the needs and culture of the targeted country. It must also be available and easily accessible, thanks to new methods of distribution for example. Finally, the consumer should be aware of the existence of the product that is why companies must develop alternative means of communication which are appropriate for the BOP.
Other thinks that it is necessary to rethink the price-performance equation (Prahalad, 2005). Indeed, the BOP market consumers do not necessarily need the same level of performance than expected in developed markets. Thus they can be satisfied with a less sophisticated but also much cheaper product, the affordability factor being the most important. Prahalad and Hart (2002) give the example of the company Hindustan Lever, which is the Indian subsidiary of Unilever. The company has encountered difficulties in the 1995s because of a local competitor: Nirma Company, which sold a less sophisticated but also much cheaper product, which made it affordable for the BOP market in India.
Furthermore, the lack of education in developing countries should also be taken into account. Indeed, it is important to have appropriate means to inform users about products. Written materials have such little impact on an illiterate population. For example Hindustan Lever uses street artists or actors to promote their products in India (Anderson and Markides, 2007).
Finally, one of the most important aspects in innovation at the base of the pyramid is the corporate social responsibility (CSR) of enterprises which represents the business contribution to sustainable development of companies issues (Payaud and Martinet, 2010). In view of the environmental and development questions, enterprises are encouraged to implement strategies friendly resources to not replicate the consumption patterns of developed countries, which are not sustainable in the long term. A virtuous approach to innovation at the base of the pyramid would incorporate so many social and environmental factors, in addition to technological and commercial settings. Moreover, in view of the link between competitive advantage and corporate social responsibility the CSR could be a good solution to penetrate the market (see Porter, 2006).
According to the existing literature, innovation at the base of the pyramid incorporates many challenges that businesses face to successfully enter in this complex market. In the light of what has just been mentioned, in the first part of the findings, the author will return to the paradox mentioned in the introduction and will analyse the forms that innovation take in BoP market. Then, in the second part of the findings the author will try to demonstrate that it exist a link between innovation in emerging markets and innovation in developed countries.
The introduction and the literature review have let appear that the phenomenon of Bottom of Pyramid is a relatively new way of thinking. Eisenhardt (1989) explain that using qualitative case study rather than large survey is appropriate to understand the link between settings in an unknown context. Likewise, George and Bennett (2005) argue that an unfamiliar context needs a detailed review of background factors, thing which is hard to do in statistical studies, and easier in case study. In addition, it is very difficult to get interviews or appointments with managers of large multinationals companies and the rate of return of online survey is very low and sometimes could be unreliable. Consequently, the research is predominantly based on secondary data such as articles on websites, articles on databases and journal’s articles. According to Bell (1999) this approach is suitable to individual research and very relevant in case of short time scale.
To identify the main specificities of the Bottom of Pyramid, a "heuristic case study approach" was chosen by the author to explore the innovation processes in the BoP (George and Bennett, 2005, p.78). This study was also effectuated as a multiple case studies. According to Eisenhardt (1989) multiple cases allow you to see if the results apply to a single case or to multiple cases. The use of multiple case studies can also have a wider and fairer range of real situations at the BOP market (Eisenhardt 1989). In this research the use of a lot of case studies was requisite because the research aimed at showing the different types of innovation at the bottom of the pyramid market, which could not have been possible with only one case study. The literature review gives examples of suitable concepts which are useful to guide the research. Hence, the research method is also derived from the "grounded theory approach" (Glaser and Strauss, 1967). The grounded theorists do not test hypothesis, but try to find or create interplay between the collected data and analysis (Charmaz, 2006). As the main objective of this study is to put in perspective the issue of innovation in developing countries, and to find a link between innovation in developed and developing countries this approach appears to be suitable.
Therefore, the findings of the research were deductive, because the theory has not been developed from scratch and the results were found in testing existing theories. Nevertheless, the findings of this journal paper could be used to improve or expand the suggestions of the BOP market theory and literature.
Data collection and case study selection
Concerning the data collection, at the beginning of the study the author was focused on the collection of data from management books and journal articles to supply key theories. Gathering information from newspaper articles or academics articles has the advantage to base the final paper on recent information. Nonetheless, to be effective and to have a wide range of ideas about BOP, additional data were collected directly from the enterprise websites (enterprise which have implemented bop projects). However, the analysis of this type of data remained insufficient to extract the necessary information about sustainable innovation at the bottom of pyramid, consequently the author have choose to study specific case studies based on the experiences of companies in the BOP market.
The potential case studies were selected from various sources to minimise source-specific prejudices (Larsson, 1993). The first important criterion in the choice of case studies was that the company have developed a BOP project. The second criterion was to be able to find companies that had developed an innovation in the BOP market (innovation on the business model or on the product). For example, lot of case studies include enterprises with lot of partners, but only the cases where a company had a major role were considered. Moreover we had to find case studies with a lot of information to analyse the entire BOP project. Finally, potential case studies were tested and according to their relevance and to the amount of data have been chosen or have been excluded.
The selected cases come from different sectors, which allow generalizing the results. It should be noted that cases of local and foreign companies have been included, which allow to see the different forms of partnerships that companies use. The main case study which was used was the Grameen Danone-Shoktidoi project, an Indian joint venture which has developed in 2007 a yogurt which aims to provide vitamins for poor children in Bangladesh, while using the local milk suppliers and local distributors to increase the income and the standard of living of Bangladeshi. This case study is based on various sources such as Danone website, Yunus centre website (Grameen group), Social innovator website and on the work of Ardoin et al. (2008). The second main case study was about the Essilor Company which has partnered in 2003 with Sankara Nethralaya and Aravind (local Indian hospitals) to provide a free eye exam and glasses sold at affordable prices. This case study is mainly based on the work of Garette (2008), which has been realized with the collaboration of Essilor Company, and on the Essilor website.
Data Analysis and limitations
Grounded theory proposes to begin analysing data during the data collection. Hence, during the data collection, data was analysed to find basics concepts and appropriate companies for the innovation at the BOP. After that, the analysis of each case was conducted to see the individual cases as separate entities as explained Eisenhardt (1989).
This has been done by reading the information collected on each case and trying to understand the shape that innovation can take at the base of the pyramid.
Concerning the reliability of data, the uses of secondary data have some advantages and disadvantages. The first advantage is that the data has already been reviewed and analysed by the original authors. However, in most of the case the subject of innovation was not the main purpose of the case study so the information was not very clear.
Furthermore, the information on the case studies could have been obsolete in some cases. But, it was not really important for the findings of the study to be sure that the data were not obsolete, since they can give good examples of how innovation can be used in BOP market.
The data which was directly found from company websites were mostly reliable, because companies have accurate information about their innovation or projects on the BOP. The information provided by the companies on their website is obviously in line with the company: with no negative point, but the information that the author want was more fact-based, this was not considered a major problem.
Findings and Analysis
Result 1: The forms taken by innovation at the base of the pyramid
The case of Grameen Danone was mentioned in the introduction, the Danone production factory in Bogra in Bangladesh is made on plans that seem obsolete in developed countries. This factory of ‘Shoktidoi yogurt’ has been developed in order to reduce fixed costs and to benefit from the low cost of work in Bangladesh. The production factory is really simple and represents only one element of the global project. Grameen Danone has decided to invest in a local and sustainable market; it involved reinventing and rethinking traditional business models to adapt it to BoP market conditions. Regarding raw materials, Danone has developed a system of support for local farms (also for be sure to have sufficient milk to produce yogurt). For the distribution process, the company has developed a network of women entrepreneurs who manage the sale of yogurt and receive a commission: they are named 'Shokti-ladies'. Environmental factors were also considered since the volumes of packaging sold have been reduced. The Grameen Danone project therefore falls within the logic that has been mentioned above, the company adapts itself to local conditions in developing innovative production and distribution methods. Concerning the factory, which was the starting point for the reflection, it fits into the idea of simplifying processes and the development of new equations of price and performance as suggested by Prahalad (2005).
The case of the company Essilor falls within the same issues. Essilor has developed a new business model in partnership with local hospitals in India specialize in eyes. The project consists in going to meet the poor, for who travelled to the city to see an ophthalmologist is too expensive. Thus, there are minibuses which come in the villages to provide a free consultation in the first instance. Then if the patient needs glasses, the glasses are made directly on the spot. The glasses are entry-level models and are very affordable between 1.7 and 5 dollars (equivalent to four or five working days). In addition, patients receive help from an advisor who explains why they must wear appropriate eyewear, how to wear them and how wear them will improve their living conditions. Again, Essilor does not provide a product innovation, but the company has developed a very different model in comparison of its model in developed countries, since it does not sell glasses integrating advanced technology in India, in fact these advanced technologies would not be appropriate to the needs of poor consumer.
The paradox which has been raised in the introduction concerning the real Creation of suitable products or the return to more basic products at the BOP, can be explained by the fact that innovation at the base of the pyramid is not necessarily base on products and does not necessarily include a new technology. As in the case of Danone and Essilor, innovations at the base of the pyramid are often in terms of business model and organization. Thus, companies are developing new proposals and profit equation. They also develop more entrepreneurial models, which will be generalized later if they are effective. However, we can find product innovations such as the In-Diya lamp which was developed by Schneider Electric to allow people not connected to the electricity to benefit from artificial light that can function with solar energy, in this case the innovation is based on a new technology.
The concern of finding a need and not to create it
The most important thing in the innovation at the BOP is that there must be a real need. This concern also combines with the fact of not to seek sophistication for the products but just a product with correct performance that is suitable for BOP market.
If we take the case of Essilor, we see that the French company has followed a logic quite common among multinational which is to downgrading its existing products to sell it to the poor population. But the real need in India is for reading glasses, the problem here is that the business logic in developed countries lead to create needs in existing markets, while the situation is not the same in emerging markets, where it the company should create markets from existing needs.
For example, the manufacturer of washing machine: Haier realized that many people living in rural areas using the washing machine to wash vegetables and not the clothes. This may seem strange, but Haier has made an opportunity of that and have developed a washing machine that a pipe does not clog up due to vegetable peelings. Altman (2009) recommends using the method of ‘design thinking’ created by the U.S. firm Ideo. The different phases of this idea are to understand, gather information and observe users to be able to develop appropriate solutions. The company Hindustan Lever request for example to its managers to live six weeks in rural areas in order to gain knowledge about the needs among the poor population. This period of immersion in the field aims to raise awareness of the real needs and not unnecessary needs. In developing a closer relationship with local communities, managers can better understand the real needs.
By studying the different forms that can take innovation at the base of the pyramid, we have seen that innovation was not necessarily made in terms of products and does not necessarily need to develop new technologies, even if they are essential in many cases to solve specific problems. It heavily relies on different uses or commercialization of existing products, adapted to the needs. It also relies on new processes, whatsoever the "ladies Shokti" of Grameen Danone or street performers of Hindustan Lever. Observation and understanding of users is a crucial factor to success in an innovation. This pushes companies to think outside their tradition and be innovative and creative, but also curiosity, passion, and humanity. The efforts of research and development of MNCs are likely to turn increasingly towards emerging markets.
Result 2: The link between innovation in emerging markets and innovation in developed countries
The phenomenon of reverse innovation
Govindarajan (2009) identifies the concept of reverse innovation as a new phase of globalization. The concept of reverse innovation, which has emerged since recent years, is the fact to develop innovations in emerging markets and transpose it into developed countries. The first step of this movement is to develop products in a market: specifically for this market, instead of importing concepts for other markets and adapt it. The second step is to bring the developed innovations in emerging markets to the developed markets. Emerging markets are no longer seen only as reserves or resources or manpower, but also increasingly as future markets, real land of business opportunities. Moreover, many MNCs develop research and development, to expand their areas of expertise and to create future products. The poor populations, nowadays, have access to innovations which are developed according to their own needs and not just from technologies already proven elsewhere. Among the results of reverse innovation, which were found in the case studies, one of the best known is the ultra-portable electrocardiogram machine developed by General Electric. Originally intended for doctors in China and India, it is now also sold in developed markets. Indeed, it is particularly well suited to travel to sites of accidents or emergency room for example, and sold much cheaper.
We had long time considered that emerging countries would follow the same pattern as developed countries. However, the current issues of sustainable development and responsible consumption greatly change the situation of development. The second assumption that was found is that products developed in developing countries would no find market in developed countries. However, there are rather new markets to explore. Consumers in developed countries are also seeking new price-performance equation, especially since the financial crisis. They are willing to buy less sophisticated but basically meet the specification if it means a significant reduction in price.
Innovations which are based in emerging countries allow the development of solutions less expensive but appropriate. Beyond the benefits for the consumer and for the company in terms of costs, there is a competitive aspect that should be taken into account. Multinationals know how to compete with their traditional competitors, but they must learn to compete with local competitors in emerging markets, otherwise they will eventually get forestall. Multinationals must address the reverse innovation as an opportunity, but also as a defensive position. The concept of reverse innovation thus disrupts the usual reports between developed and developing countries, and has strategic implications for businesses. However, to return to the innovation process itself one may wonder if it differs between markets more or less mature.
The process of innovation in the BOP, a well-specific process
As we have seen above, there are specific issues concerning innovation for the poor. If questions arise differently at the base of the pyramid, the process itself tends to stay the same (Anderson and Markides, 2007). The major stake is to identify a gap to see an opportunity to seek to exploit it and apply the strategy. The change does not happen really at the level of innovation process, but in the capacity to innovate and to identify opportunities. The problem then is to manage to broaden horizons and perspectives of the company in order it identifies possible opportunities on the base of the pyramid. We can think to the concept of ‘Radical Transactiveness’ developed by Hart and Sharma (2004), which focuses on corporate engagement with stakeholders. Finally, the innovation does not fundamentally change between developed and developing countries in terms of process and in terms of attention to users. However, developing the capacity for innovation is a central challenge in the BoP strategies. Moreover, the relationship between innovation in developed markets and innovation in emerging countries evolve towards a greater appreciation of the emerging countries for example through the concept of reverse innovation.
Conclusion and Limitations (1200words)
The main objectives of this paper was firstly to identify the particular challenges that companies could find in the BOP market and secondly to discuss the issue of innovation in the Bottom of Pyramid. Although these two issues were closely related, for reasons of clarity, the author has chosen to split the conclusion into two main parts. In addition, the relevance of the following written conclusions should be taken with a certain distance. For starters, because the findings are based on relatively few case studies. The results could be more accurate if failure cases were also studied in more depth. Indeed, innovation at the base of the pyramid can be very dependent on the country in which it is implemented as the requirement differs in function of the geographical location. This study would be more accurate if it had been conducted in different countries for example. Based upon the limitations of this journal article, future research should be done on more case studies, among which: stories of success but also failure and originating from various types of cultures and countries. In addition, it could be a greater analysis of the current literature. Especially in the analysis of business cases and new developed models, this could lead to interesting new perspectives.
The particular challenges of the Bottom of Pyramid Market
The author of this journal article concludes that, as regards to the results of research undertaken, the bottom of the pyramid represents a very large and attractive market with significant but specific needs and challenges. In order to successfully penetrate the BOP markets, multinational must develop new and innovative approaches in a heterogeneous market.
Indeed, the BOP has a range of very different cultures with different a lot of different levels of income, it is difficult to develop comprehensive strategies in such a specific market. To successfully overcome these specificities, as we have seen in the majority of case studies, many companies create a local partnership and succeed in adapting themselves to local queries.
But this local presence, in addition of the high cost for initiating a BOP project, is very difficult to develop because the local company does not have confidence in large corporations; they think that they want the profit at any cost without worrying about the poor. Therefore, the development of BOP strategies is a major concern for multinationals and some strategies are already implemented in rural areas. According to author, to replicate and extend the innovation strategies locally integrated, multinational have to use a propagation process based on local entrepreneurship, such as the 'Shokti-ladies' of Danone for example. Innovation is therefore essential in the designing of new business models and partnerships. Regarding the work of Prahalad, we must have a prudent approach of the Bottom of the Pyramid theory because we don’t know how the ideas developed by Prahalad will function; and he is vague in his explanation. Moreover Prahalad present only success stories in his work, and he perhaps overestimates the potential of adaptation of businesses in its markets. The author would like to draws attention on problems that BOP initiatives can create. For example, the presumed role of Coca-Cola in the depletion of groundwater resources in India shows that the involvement of multinationals in BOP s can also be an issue. It is also necessary to try to find BOP initiatives that can actually help the poor to raise their standard of living and provide a product that is a real need. Indeed, it is very important to find a need and not to create one as in the developed markets. The author also argues that the advantage of the critical of Karnani (2007), which refutes the thesis of Prahalad, is to consider the poor as producers and to involve them as real actors of the economy to create wealth. As the concept of BOP is a relatively new concept, only few people have considered the model of Prahalad to exploit these low-income markets, and ‘this fortune’. Nevertheless the author believes that it is important to stop talking about the fortune at the base of the pyramid but maybe to think about the fortune for the base of Pyramid.
This theory has not yet really been proven and has to be tested to confirm the existence of a real market at the Base of the Pyramid. The limits of the model of Prahalad should be overcome by conducting a research work on the successes and failures of companies which have implemented BOP projects. This analysis, close to the ‘field’, will help to develop a well-defined framework for private sector companies wishing to engage in BOP markets.
The preponderant role of innovation at the base of the pyramid
The company have evolved gradually in recent years towards a greater recognition of the corporate social responsibility and the role of the private sector in the sustainable fight against poverty. The idea of fortune at the base of the pyramid developed by Prahalad made its way and attracts the attention of large multinationals to the poor and their integration into the economic circuit.
In this approach of markets to which the whys and wherefores are little or no known by enterprises, innovation plays a central strategic role. To respond appropriately to the real needs of the poor in emerging countries, companies are developing new business models and re-examining their traditional ideas. They should especially rethink their assumptions concerning price-performance equation and keep in mind the need to put their innovations in a perspective of responsible development. This new attention given to developing markets also changes the economic organization between developed and emerging countries.
Indeed, at the beginning poor countries were seen as a means to sell the products unsold or obsolete of developed countries, but nowadays developing countries are becoming more and more a land for innovation. Innovation for themselves, but also for the world since we are witnessing a phenomenon of reverse innovation where solutions developed for the poor at the beginning are re-adapted for the developed countries. However, the innovation process itself does not change too much, the thing which is crucial is rather the innovative capacity, so manage to identify opportunities and develop appropriate answers for a need. No matter how the question of innovation is posed, whether in developed or developing countries, it is at the heart of the future perspectives and future developments of the economy.