NextBillion - An Initiative of the William Davidson Institute at the University of Michigan

Friday, January 30, 2009

Davos-Klosters, Switzerland, 30 January 2009

Despite the economic downturn, companies can find growth opportunities among the 3.7 billion people at the “base of the pyramid” (BOP) by adopting innovative strategies that benefit local communities, according to two reports released today by the World Economic Forum. The companion reports, entitled The Next Billions, present examples of successful BOP business ventures based on a year-long survey – drawn from consultation with over 150 business leaders and stakeholders, and a review of over 200 case studies. The reports were developed by the Forum in partnership with The Boston Consulting Group and with support from the Bill & Melinda Gates Foundation.

One report, entitled The Next Billions: Unleashing Business Potential in Untapped Markets, outlines business strategies for effectively engaging the BOP across all industry sectors, noting the potential of a market that has seen 8% growth rates in recent years. The other, entitled The Next Billions: Business Strategies to Enhance Food Value Chains and Empower the Poor, focuses on business models along the food value chain – from agricultural production through food processing, retailing and consumption. Food value chains provide the main source of economic activity for 70% of the BOP, and capture the majority of spending (over US$ 1.3 trillion per year on food).

Innovative companies are finding new strategies to engage the BOP in their value chains – providing much-needed income and food security to poor communities. For example, when Nigerian food company Olam worked with local farmers to produce high-quality rice, farmers’ yields grew 75% and incomes grew 155% in the first two years. BT, Cisco and OneWorld developed a telecom- and Internet-based information service for farmers, Lifelines India, which has increased participating farmers’ productivity by 20-30%. Unilever and partners developed a new vegetable oil from Allenblackia seeds in Africa, and designed a supply and processing chain for the product that has offered income opportunities to small farmers in five countries.

“At a time when companies are looking to secure long-term growth strategies, we have to develop approaches that are sustainable in both business and societal terms,” said Michael Treschow, Chairman of Unilever. “By empowering the poor through working with small-scale farmers and entrepreneurs, Unilever aims to safeguard our supply chains and bring benefits to consumers while improving livelihoods.”

“We found substantial untapped opportunities for companies that are willing to think differently about how to approach this market,” said Hans-Paul Buerkner, President and Chief Executive Officer of The Boston Consulting Group. “Innovative companies are adopting new mindsets to effectively serve and engage the BOP as consumers, producers and entrepreneurs, which in turns helps raise the standards of living in developing countries.”

Companies can tap these opportunities by adopting new strategies to discover hidden value and new business partners at the BOP. The telecom sector, for example, has developed technologies that lower unit costs and enable service provision in remote areas; applications that provide cash transfer or information services to BOP customers; and sales strategies that expand usage in partnership with local entrepreneurs.

“By developing new products and applications suitable for lower-income customers, we have secured our position in increasingly competitive emerging markets,” said Vittorio Colao, Chief Executive Officer of Vodafone. “Just as importantly, we’re providing an essential service that improves the livelihoods and lifestyles of the poorer members of society.”

Companies often find success through working closely with local communities. “In working with small farmers in China, we addressed their needs for inputs, financing and guaranteed purchase – as part of developing a new supply base for our growing consumer foods business in the region,” said Kendall Powell, Chief Executive Officer of General Mills.

However, BOP markets present unique challenges. To overcome obstacles, companies can enter into new alliances with other industries or stakeholders. “By bringing different partners together, we can unleash potential that couldn’t be realized by groups working alone,” said Robert Greenhill, Managing Director of the World Economic Forum.