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Monday, December 15, 2008

Competition vs. Cooperation at the Base of the Pyramid (BoP)

By Grace Augustine

CompetitionThere are two competing philosophies that, at first glance, seem to both provide value to the base of the pyramid (BoP) approach ? competition and cooperation. In my mind, the BoP theory is as close as any to a "free-market" approach to development, as it promotes competition that will bring the best products and services to meet unmet demand. Competition is a part of a self-regulating market. It inhibits price-gouging, encourages multiple product and business model designs, and provides consumers with choice ? all key tenants of the BoP philosophy.

However, as organizations working at the BoP compete, their focus can shift ? from the customer to the competitor. If competition is not dealt with properly, it becomes a battle of resources and reputation, instead of a fight to serve the poor in the best way possible.

A similar phenomenon has plagued the NGO community over the years, and this is partially caused by serving two masters ? the "client" on the ground and the "donor" (agency, charity, government) in the developed markets. Were the NGO community unconcerned about serving the latter, we would probably not see as many fancy websites or media releases ? but the truth of the matter is that we need both constituencies.

I am not saying that we do not need BoP organizations to engage in competition on the ground, but rather that from what I have seen that is not where the battle has been waged. From my perch at the William Davidson Institute, I have seen that as competition heightens, resources and energy shift away from improving direct delivery of goods and services towards building legitimacy in established markets. Leaders tell their teams: we have to have a case study written about us; it is time to re-brand ourselves; our website needs a facelift; why don?t we try to co-brand with a company...

When it comes to organizations that are attempting to work at the BoP, but still reliant on legitimacy (i.e. funding and talent ) from developed markets, there may be value in cooperation ? a word that can leave free-marketeers shuddering with fears of inefficiencies.

Why cooperate? According to NextBillion.net?s Rob Katz, the base of the pyramid market is still largely a free-for-all.? The vast, untapped nature of the market means that it will require numerous organizations, working together, to spark more interest and investment in the BoP before the stakes are high enough to worry about stashing resources.

According to Katz,

I would note that no VC fund in its right mind cooperates with its direct competitors, but it is a testament to (a) the size of the market and (b) the sub-optimal state of the field that Acumen Fund and others are looking to cooperate as much as we are when it comes to supporting small and growing businesses at the BoP. If this were a truly commercial opportunity, we could not be working together as we do. The fact is, it is still VERY much a hybrid space, and we need to band together to create a commercially viable, investable asset class. That?s why there?s plenty of cooperation.
?

I?m not the only one who thinks so, either. Brian Trelstad at Acumen Fund and Willy Foote of Root Capital have both articulated these ideas to me recently, and each notes that the need to cooperate in a hybrid space is what?s driving the growth of the new Aspen Network of Development Entrepreneurs.

Think about how microfinance has grown ? 30 years ago, non-commercial, hybrid microfinance institutions were all banding together at conferences. Gradually, with a lot of philanthropic support, they?ve developed a real industry, and now microfinance is a commercial, investment-grade asset class. We need to do that with small and growing businesses serving the base of the pyramid market.

Despite the benefits of cooperation, and the numerous networks that have been established to promote cross- pollenization in the field, such as ANDE and PDMS/Pulse, BoP organizations, like any business or NGO, are concerned with their own growth and survival.

Take talent, for example. The war for talented individuals with the skills and the passion to work at the BoP is intense. If an employee at a U.S. intermediary organization were to decide that he or she may be better suited for a project on the ground, how likely is it that his or her employer would say, "Oh yes, that sounds great, we want you to have the greatest impact possible."

It is much more likely that the organization would do everything in its power to hold on to that highly-skilled person, regardless of whether or not it resulted in the greatest good for society. This is partially because we believe that our organization, and our cause, with which have sacrificed so much for, must be doing the most good.

Let?s take another salient example ? intellectual property and technology rights. In the field of transporting water, there are many competing designs. The producers of the Hippo Water Roller, a South-African based design, have chosen to not patent their technology. Co-founder Cynthia Koenig told me that this is because:
Rather than trying to control our design, we?d prefer to serve as an inspiration for similar tools. After all, we?re trying to solve a problem, and realistically, we won?t be able to distribute Hippos to all the 1.1 billion people who lack easy access to water.

Its main competitor ? The Q-Drum, which is also located in South Africa, has chosen to take out a patent for its similar design. I'm not saying that either approach is better. In fact, founders of both organizations may believe that their approach to competition vs. cooperation may result in the best outcome for the BoP.

Many staunchly believe that design for the BoP should be open source, but others point to the fact that patents can create incentives for innovation and result in better quality control. Which approach results in the greatest good for the greatest number?

Maybe the inherent enigma is tied to the fact that most BoP organizations are still serving the dual interests of talent, donors, and media in the developed world while providing on-the-ground services to customers that probably can?t even read their glossy English websites. However, there has certainly also been a push for greater cooperation in the BoP space, as we have learned from our NGO colleagues. In my mind, there is value in both cooperation and competition. I think that there is something to be found in the delicate balance of bringing together diverse perspectives on the back-end to establish a market of free competition that leaves the fate of the organization in the choice of the end-user.

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