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Tuesday, March 18, 2008

Continuing the Conversation on Scale: Strategic Alliances to Leverage Existing Capabilities

By Francisco Noguera

IFCMoses' last week post raised the very interesting discussion about the concept of scale in BoP business models. I enjoyed the read and, while I agree with his thoughts?about --and answer to-- the what is scale question, the article made me move on to one of my current research subjects, which is how to achieve and maintain scale.??

Well, just this morning I came across a fine essay on this matter. Professor Christian Seelos from IESE was awarded the Golden Prize in the Essay Competition sponsored by IFC and Financial Times, with his essay Corporate Strategy and Market Creation in the Context of Deep Poverty. The paper is refreshing for the BoP dialogue, as it introduces an interesting?framework for analyzing strategic alliances as an effective means for giving scale to BoP initiatives.

Through the presentation of two cases of alliances between companies and existing BoP initiatives, Professor Seelos shows companies may leverage their already existing capabilities and expertise to work with and provide scale to?existing organizations at the BoP level, thus creating new markets or expanding those already in place. This approach is complementary to the traditional --and often challenging-- recommendation for companies to enter low-income markets by redesigning their value chains and?business models?to address the needs of?a new?base of customers.

The following two?excerpts may provide a?feeling of what the new research is all about. ??

"Organizations such as the Grameen Bank and Waste Concern are part of a phenomenon described as ?social entrepreneurship'. They overcome significant hurdles in order to serve the poor, and to build resources and capabilities to achieve primarily social objectives. These resources and capabilities are relevant to the local BOP context and are often undervalued from an economic perspective. It is the latter point that makes them strategically important for companies, which are considering building a presence in those countries where such entrepreneurs operate."

"We see this as an extension of traditional BOP thinking with its focus on a fundamental change of existing business models and value chains, as well as a constructive reflection on the recent call for models that emphasize income generation opportunities for the poor as the basis for poverty alleviation efforts by companies. The necessity of companies to orchestrate multiple strategies aimed at different income levels is avoided by having two separate organizations operating the pro-poor business model and the higher-income business model respectively. Providing scale to existing BOP models and leveraging existing company capabilities avoids the dilemmas of having to access and configure multiple new resources and capabilities into value-creating models."

The essay is a must read?and can be downloaded here. Its clarity and conciseness will surely spark many ideas that will enrich our dialogue in NextBillion. I look forward to discussing?additional?cases that illustrate current or would-be strategic alliances?that successfully (or maybe not so)?scale impact and outreach at the BoP level.
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