Rob Katz

Wal-Mart’s Base of the Pyramid Play

WalMart Mexico CityThere are skeptics in any field–base of the pyramid business is no different. Over the years, however, the nature of BOP skepticism has changed. At first, many questioned whether low-income, emerging markets really mattered to businesses’ bottom lines and growth strategies. While there are those who still argue that BOP markets are best left to development agencies and charity, the general feeling is that business has a role to play in these markets. Instead, skeptics now ask: if business has a role to play, where are they? According to base of the pyramid champions, there are massive, untapped markets out there–so why haven’t there been associated investments geared towards tapping the opportunity?

There’s no simple answer. Business opportunities don?t materialize overnight; firms need time to establish relationships, map out strategy, and pilot new models–especially in the unfamiliar territory of developing economies. Still, many critics rightly point out that 4 years have passed since Prahalad and Hart introduced the bottom of the pyramid hypothesis. In a business world fixated on quarterly earnings reports, 4 years is a lifetime. Show me the money, they say.I’ll take the liberty of answering–by showing them Wal-Mart’s money. The Bentonville, Arkansas-based retailer is not shy about its expansion plans. Recent articles in the New York Times, BusinessWeek, and the Associated Press detail Wal-Mart’s ambitious moves into the Mexican and Indian consumer markets. No, they’re not just trying to sell more stuff, although that’s an obvious goal. Rather, Wal-Mart is looking to compete against entrenched domestic businesses that aren’t fulfilling local demand.

In Mexico, Wal-Mart is moving into the retail banking sector. As the New York Times reports, most Mexicans have little or no access to competitive financial services, which presents Wal-Mart with an ideal entry point. The company is already Mexico’s largest retailer and private employer. Why banking? As many as eighty percent of Mexicans don?t have a bank account, and those that do pay high fees and interest rates. In keeping with company tradition, Wal-Mart aims to be a low-cost option that attracts un-banked and under-banked customers. According to the Times:

The Wal-Mart bank will start modestly with an initial investment of $25 million, offering bare-bones savings accounts and simple personal and consumer loans, Mr. Arg?elles said. It may also lend money to small suppliers and to business owners who shop at Sam’s Clubs, Wal-Mart’s discount warehouse chain. He said it might take as a long as five years to start making mortgage loans…”We are a low-cost company”, Mr. Arg?elles added. “We will look for a very austere bank that is very focused on the customer.”

Where else is Wal-Mart investing in BOP opportunities? How about India, where the firm announced today a multi-million dollar joint venture with Bharti Airtel? Details are still sketchy, but it is clear from the AP report that Wal-Mart is targeting the growing retail opportunities at India’s middle and lower-middle classes.

Is Wal-Mart a base of the pyramid success story? Not yet. In the four years since The Fortune at the Bottom of the Pyramid came out in strategy+business, there haven’t been grand-scale successes. But we’ve learned that operating at the BOP takes time, experimentation, and ingenuity. Don’t all start-up businesses? I’d suggest that critics hold back for now, and keep track of companies large and small as they increase their base of the pyramid operations.

Update: Today’s Wall Street Journal covers the story, noting that only 3 percent of India’s retail market is taken up by chain stores – therefore giving the Walmart-Bharti deal an almost unlimited ceiling for expansion.

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