Rob Katz

BusinessWeek on BOP – A False Dichotomy?

The latest issue of BusinessWeek, available online, features two articles about “base of the pyramid” (BOP) strategy and practice.? I’m always encouraged when BOP ideas and practitioners make it in the mainstream media, and these articles are no exception.

I do wonder, however, if the reporter oversimplifies the definition of BOP strategy.? In the first article, “On Campus, a Different Pyramid Scheme,” base of the pyramid strategy is described as

…the core idea that companies can make money by selling products to the world’s estimated 4 billion poor people, while at the same time helping to wipe out global poverty.

Later, the author creates a (false?) dichotomy between BOP-as-consumer vs. BOP-as-producer when she describes criticism by Professor Aneel Karnani:

He [Karnani] believes the economic potential of this market has been grossly exaggerated and that the world’s poor should be producers, not consumers.

When I finished reading the article, I was left with a bad taste in my mouth, and a lingering question:? Is the BOP concept simply about selling to the poor?To me – and to many of my colleagues within the BOP community – this is a big issue.? When C.K. Prahalad and Stuart Hart first wrote about the “bottom of the pyramid” (later changed to “base”), they focused on both selling to the poor and “increasing the earning potential of the poor” (page 6).? Later, Allen Hammond and C.K. Prahalad co-authored an article in Foreign Policy inauspiciously titled “Selling to the Poor.”? But pre-publication drafts of the article didn’t hold that title – FP editors made the change, despite the authors’ objections.

Even so, these articles were early entrants in the BOP canon.? Things have changed substantially since then, with BOP strategies now focusing on enterprise development, investment in local industry, and job creation as well as serving BOP consumers.? Acumen Fund, a VC firm investing in start-ups serving and employing the BOP, was quoted in the BusinessWeek piece.? Is Acumen simply “selling to the poor”?? Absolutely not.

Acumen – along with World Resources Institute, Cornell’s BOP Learning Lab, the William Davidson Institute, and others – are in the business of addressing market failures through a BOP lens.? That means helping companies and development agencies recognize that BOP consumers and producers are often unserved or underserved by the existing market in which they live.? The poor pay artificially high prices for basic goods and services, if they have access at all.? BOP producers – farmers, merchants, factory workers, etc. – often live in a monopsony environment, where a single buyer or employer pays below-market prices or wages because he knows he’s the only option.

These and other market failures are at the core of the BOP hypothesis and strategy.? Business can address them – by creating new products and distribution models to break a monopoly’s hold on slums or rural markets.? Business can address them by integrating small enterprises in its value chain, either as distributors or as producers.? Or, simply enough, businesses can hire the BOP to work in a new low-income sales department or in a factory.

I won’t attempt to discuss every successful (or unsuccessful) BOP venture.? But I would like to try and move this discussion out of the producer-vs.-consumer construction.? At this point in the idea’s life cycle, it’s anachronistic, and simply wrong, to paint a pure dichotomy between two non-existent camps.? I hope that future articles will take the time to posit a more nuanced view of base of the pyramid strategy and practice.

Base of the Pyramid