Guest Post: What Defines a Base of the Pyramid Business?
Guest blogger Monica Touesnard is the Managing Director of the Base of the Pyramid Learning Lab, a program of the Center for Sustainable Global Enterprise at the Johnson Graduate School of Management at Cornell University. She is currently working to expand the scope and reach of the BoP Learning Lab through the creation of an international network of Learning Labs with academic partners in Brazil, Mexico, China, Canada, Spain, India, and South Africa. Monica earned a general management MBA from UNC’s Kenan-Flagler Business School with focus on Sustainable Enterprise and has a B.A. in East Asian studies from McGill University in Canada.
By Monica Touesnard
One can find various established economic activities within low-income communities: small shareholder farmers, moneylenders, microfinanciers, mom-and-pop shops, and many more. Though vital to base of the pyramid communities, these types of small businesses do not necessarily constitute BoP enterprises.In that light, determining the distinguishing characteristics of BoP enterprises became a key discussion topic at the inaugural BoP Learning Lab Global Network Director’s Summit this past June. This global network of institutions is actively engaged in generating knowledge about BoP enterprise development. As such, defining what it means to be a BoP enterprise is critical.
In recent years, use of the terms “base of the pyramid” and “bottom of the pyramid” have proliferated quite impressively; however, their use remains inconsistent. Technically, BoP is a socio-economic designation for the four billion people whose annual income is less than USD $3260 (purchasing power parity) or, more broadly, the impoverished communities in which those people live.
People increasingly rubber stamp these low-income or underserved communities as “BoP markets,” recognizing that there are business opportunities in these communities. Unfortunately, when organizations tout “BoP work,” or use the terms “BoP business” or “BoP enterprise,” it becomes unclear exactly what that means and how it is different from other business activity in low-income communities.
BoP enterprise development is, in many ways, a hybrid of traditional international development and business practices. International development organizations work to alleviate poverty in BoP communities using aid-based methods, while MNCs (multi-national corporations) conduct business in developing countries using proven methodologies for targeting the wealthy. Neither constitutes BoP business, although BoP enterprise development does indeed rely on elements of both, hence the philosophy ’creating businesses to alleviate poverty.’
The BoP Learning Lab Global Network has indentified several critical factors characterizing BoP businesses. First and primarily, BoP enterprises are based on private-sector business models that are locally transformational. In other words, these businesses create mutual value for both the community and the enterprise, such as capacity building and wealth creation. Implicit in this is the expectation that the business will be partner-intensive to achieve the greatest success. Therefore, an MNC merely selling a product in sachets at a lower price point would not qualify as a BoP enterprise nor would the business model of selling or donating products to a non-profit to distribute for free or reduced prices. On the other hand, non-profits using private-sector methodologies to develop economic activities in low-income communities could potentially create BoP enterprises.
Next, an element of the Triple Bottom Line must be embedded in the business strategy–consideration of the environmental, societal, and economic impacts of the business practice. There must be motivation to improve the quality of life for the community; simply creating economic activity without regard for the local environment, community, or cultural impact is not in the vein of a BoP enterprise. Merely establishing factories to take advantage of cheap labor in developing countries would not meet these criteria, nor would the presence of local moneylenders.
Third, there must be the aspiration and potential for scale and replication. Indeed, the inability to grow and expand a business fails to meet the objective of transforming the local society and economy. As a result, most mom-and-pop shops, while important to the local community, would not be considered BoP businesses.
Strategies for successful implementation of BoP enterprises are increasingly popular, but to do this one must first know what the term implies. The BoP Learning Lab Global Network considers these features essential in distinguishing BoP enterprises from other business and development activities in low-income communities, and core to the branding of the BoP philosophy.