Cracking the BoP code
Monday, June 30, 2008
Pointing towards the slide of an elephant carrying electronic voting machines in Assam, C. K. Prahalad quipped, “Don’t focus on the face of poverty. Tap the technology.”
Conventional management wisdom had yet again been questioned by the strategist at a conference focusing on the ?Bottom of the pyramid’ market segment at the Maastricht School of Management in The Netherlands, one of the premier business sc hools in Europe. Knowledge-intensive multinationals and work process innovations are no longer exclusively confined to industrialised economies, management gurus such as Prahalad concur. (The BoP, which is the worldwide population living on less than $2 a day is a promising market segment worth $5 trillion for MNCs.) “The good news for consumers worldwide is that the BoP market will drive down prices,” said Prahalad.
Market-based eco-systems have changed rapidly with the advent of public-private partnerships. Interestingly, the strained relations between MNCs and NGOs are increasingly becoming pass?. More companies are partnering NGOs to uplift the 4-billion strong BoP segment and social activists for their part are also evolving into social entrepreneurs.
MAKING INCLUSIVE CAPITALISM WORK
While the win-win stories of BoP businesses in India have been frequently quoted, not much has been documented about the African scenario. However, in recent times, the remote corners of the sub-Saharan region have begun witnessing an inflow of social entrepreneurs who advocate a more inclusive form of capitalism. Take for instance, Terry Rhodes, the co-founder of Celtel. Rhodes’ vision was to create a pan-African telecom network across countries such as Congo, Gabon, Niger, Chad and Burkina Faso. Celtel, according to Rhodes, was foraying into countries, which were at the bottom of every index – be it human development or transparency in business. He wanted to make Western technology affordable to the poorest countries even before the intellectual framework for the BoP was developed. Dubbing “roaming charges” as a rip-off, Rhodes defied mobile telephony norms by providing uniform mobile charges across all African countries. “Africans do not recognise national boundaries created by the colonials,” he told a mixed audience, consisting of African researchers and government officials as well as the EU business community. African farmers can obtain information on the price of goats through text messaging. There are more cellphones than bank accounts in Africa, pointed out Rhodes.
Clearly, Prahalad’s BoP model resonates with the core values of Celtel. The company had gone a long way in immersing itself in the lifestyle of African consumers whose socio-economic background diverged completely from that of the EU. African farmers also had better access to market information through low-cost mobile services. Prahalad emphatically referred to a cellphone as “a productivity tool” in the BoP context. (Celtel was headquartered in The Netherlands and it was sold by Rhodes and other co-founders for $3.4 billion to a Kuwaiti company.)
According to Prahalad, managers operating in emerging markets and LDCs of Africa need to “embrace constraints to enhance innovations.” The psychological motives for managers/ social entrepreneurs to innovate for the poor may be: a sense of moral obligation towards the less fortunate; intellectual excitement (which is usually evinced by young business school students); the urge to tap a business opportunity.
THE SECOND SCRAMBLE FOR AFRICA
The academic community in the EU is also realising the significance of the BoP market. The Maastricht School of Management set up the African Round Table wherein research projects have been undertaken by partnering business communities as well as NGOs across the African continent. The bottom of the pyramid market segment, public-private partnerships and sustainable development are some of the core focus areas of the round table group.
“We need to co-create, along with local business communities and NGOs, an educational experience which is relevant for managers in emerging markets and developing countries,” explained Prof Ronald Tuninga, the Director and Dean of the Maastricht School of Management (MSM). The booming bio-fuel market has spurred a lot of interest amongst businesses to set up BoP-related ventures in Africa, as per studies of African researchers at MSM. They allude to this as “the second scramble for Africa.”
When asked by the African audience about the difficulties their region may face in order to catch up with emerging economies in Asia, Prahalad pointed out that a forget-it curve is far more necessary than a learning curve. African nations do not have to go through the same developmental processes of the West. “Don’t pollute first and then clean up. Move beyond DDT and asbestos,” cautioned Prahalad.
The de-layered organisational models of Amul, the Velugu project and the Dabbawallahs’ cooperative are extremely replicable in Africa. Clean energy solutions for the poor, which fulfil the triple bottom line of people, planet and profits can be implemented across various developing countries.
For instance, British Petroleum, the NGO Swayam Shikshan Prayog (SSP) and Prahalad were involved in developing a biomass-based chula for rural women in India. Following a favourable response in the Indian market, the project gained momentum in South Africa.
The critical success factors for BoP-oriented companies would be highly decentralised innovation and a strong focus on tasks, scale and efficiency. Product-centric firms are turning more customer-centric, as a customer and a firm can co-create value of a product.
Prahalad alluded to the build-a-bear toy outlet in the US, wherein children stuff their own bears and give them birth certificates! Such an experience-driven approach can also be emulated in a BoP market. The core mother industries in a BoP milieu would include connectivity (such as mobile phones), micro-finance, and access to energy, education and healthcare.
Elaborate market research studies are not always pre-requisites to break the BoP code or to tap other low-income groups. A family of five jostling on a scooter, which is an extremely familiar sight in Asia, can be an eye-opener for automobile companies. The Tata Nano, in such a context, would improve the quality of life of millions of such families.
When questioned about the environmental impact, Prahalad pondered aloud, “If there is human ingenuity to create a Nano, why can’t the same ingenuity be used to combat pollution?”
Corporations can benefit from cost arbitrage by operating in industrialised as well as BoP markets. Yet in a flat world where markets and technologies converge, would high cost economies remain forever cocooned? The future of competition and innovation is getting more tantalisingly complex by the minute.