Profitable Business Models and Market Creation in Deep Poverty
I recently had the opportunity to read an IESE occasional Paper, “Profitable Business Models and Market Creation in the Context of Deep Poverty: A Strategic View” by Christina Seelos and Johanna Mair of the IESE Business School–University of Navarra.
What makes the paper refreshingly different is that it moves beyond the “why” BoP debates to focusing on “How to do it” from the perspective of corporate and competitive strategy. The paper aims at providing insights into how business models can be structured to generate profits to justify investments, while integrating and serving the needs of the poorest citizens.According to the authors, corporates looking beyond their existing markets, keen to gain a foothold into underdeveloped markets would do well to work in tandem with local entrepreneurial organizations to achieve multiple strategic objectives. The paper uses 3 cases of successful partnerships (2 from Bangladesh, 1 from India) to show how local entrepreneurs provide important resources and capabilities, both of which take time to create.
The first example is of Telenor’s partnership with Grameen Bank. The Norwegian telecommunications company has succeeded in Bangladesh largely because it’s local partner brought to the table impeccable credibility, coupled with strong capabilities and access at a grassroots level.
Again in Bangladesh, non-profit Waste Concern had an outstanding business model of disruptive innovation by selling compost (from waste) as an alternative to chemical fertilizers. It succeeded in achieving scale through partnering with fertilizer giant Map Agro. What worked – complementary models of maximizing waste removal and maximizing profits.
In India, Aurolab shared with partner Aravind an integrated model aimed at maximising the number of people treated, without compromising quality. This helped it drive highly aggressive pricing for its intra-ocular lenses used in eye surgery.
The paper helps move the BoP discussion to an analysis of what works, and why. Of course, much of these ideas call for patience of execution and be more feasible for large corporates.