Jeff Finkelman

Guest Post: Hybrid Value Chains and the Base of the Pyramid in Africa

As a 2009 Global Graduate Research intern, I’ve had the opportunity to join the efforts of one of the leading social entrepreneurship organizations in action today. It has been a refreshing break from the abstraction of classroom discussion and has exposed me to some of the fascinating fieldwork being done at the “base of the pyramid.” The focus of my work with Ashoka has been to catalogue and analyze social-business collaborations targeting the BOP in Africa. While I haven’t yet completed my research, I thought I would take some time to share my impressions of this realm of BoP activity in Africa with the rest of the community. I will look forward to reading your comments.

Ashoka has been active in the BoP space for quite some time. Much of their efforts have been devoted to the development of the Hybrid Value ChainTM (HVC), a concept Ashoka has put into practice since 2003. HVCs are “…business models for commercial partnerships between businesses and citizen sector organizations that leverage the critical strengths of each actor to transform markets” and meet the needs of BOP producers and consumers through increased market access. Unlike some social-business collaborations, which may be purely contractual in nature, HVCs have mutual value creation at their core.

The goal of my research on Africa has been to identify these types of collaborations and learn what made them work (or what caused them to fail). So far, I have been able to find about 67 cases and while there’s still more work to be done, two clear trends seem to have emerged.

First, is the dearth of true HVCs in Africa. On their own, large multi-national corporations, national firms, and CSOs alike, engage the BoP both through sales and sourcing models. Zain’s M-Pesa, Vodafone’s Community Service Phone Franchises, and KickStart’s (formerly ApproTEC) Super MoneyMaker are all good examples. It is much harder to find cross-sectoral partnerships that fall outside of the traditional corporate social responsibility framework and involve the kind of mutual value creation characteristic of HVCs.

Secondly, where partnerships do occur between CSOs and large private firms, they tend to be based on sourcing, rather than sales models. CSO’s bring to these kinds of collaborations their expertise in building supplier capacity or training farmers, allowing private firms to diversify their supply chain and gain valuable PR. Examples of these kinds of arrangements might include Cadbury’s Cocoa Partnership in West Africa, Nestle’s sourcing programs in West Africa, Unilever’s Allanblackhia project or CARE and SABMiller’s partnership in the Eagle Beer Project. In many cases, these arrangements are formed around the principles of “FairTrade.”

SMEs have engaged CSOs in a similar sourcing pattern. Chardust, Ltd of Nairobi, a 2005 winner of a World Bank Development Marketplace grant, collects charcoal dust from wholesale vending sites and manufactures it into new briquettes for sale to institutional consumers as well as individual, middle-class buyers. To grow their dust supply, they partnered with MUUM, a local CSO, to develop a manual collection program capable of gathering dust from the thousands of scattered retail charcoal sales points across Kibera. Only in later stages of the business’ development did they begin selling briquettes back to the people of Kibera.

So what can be learned from these trends? Is it bad if CSOs and private firms engage the BOP on their own rather than in partnership? Should we worry if they focus on sourcing rather than selling?

On the question of partnerships, the advantages of collaboration are well articulated in the literature, going back to the original Prahalad & Hart “Fortune at the Bottom of the Pyramid” article. Other work, namely Prahalad (2007), London and Hart (2004), and the recently updated BOP Protocol (2.0), have highlighted the importance of engaging “non-traditional” partners in order for businesses to gain the local knowledge needed to form successful business models.

Much as Ashoka’s own experience facilitating HVCs around the world has convinced them of the value of collaboration, the few African HVCs I have found lead me to a similar conclusion. For example, the well-documented case of Honey Care Africa strikes me as a success story that has produced a win-win-win situation: benefiting the private company, CSO, and producers at the BoP. Each actor brought to the table its own unique skills and worked together to generate value at each step along the supply chain.

The question of sales vs. sourcing is far more complicated and the debate does not seem to be settled. While the original conception of BoP market opportunities focused on meeting the needs of consumers, others like Karnani (2006) make impassioned cases for engaging the poor as producers. In the context of cross-sectoral partnerships, I don’t feel that either model is categorically better than the other. Instead, partners should work together to develop creative ways to meet the needs at the BoP, whether it involves buying or selling.

As my research continues, I am eager to delve deeper into some of these cases and learn more about the dynamics of each partnership. But in the meantime I am eager to hear from you. Do you feel my impressions are truly reflective of the state of social-business collaboration in Africa’s BoP markets, or just evidence that I have more work to do? What has been your experience? What cases do you look to as representative? Have you encountered HVCs worthy of examination? I’ll look forward to your comments!