DLN Turning Poverty Into Opportunity - White Paper Final

Turning Poverty into Opportunity DLN White Paper – November 2005
IMD MBA 2005
Dynamic Learning Network
DLN White Paper

Turning Poverty into Opportunity
As a means for prosperity
Amy Bonsall
Anna Brown
Smita Choudhary
Roland Hengerer
Ariane Jaubert
Harald Joedicke
Priya Kalsi
Alex Osterwalder
Mark Williamson
Yassine Zaied
Professor Jean-Pierre Lehmann
Final Version
10 November 2005
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TABLE OF CONTENTS
1 FOREWORD.........................................................................................................4
1.1 FOREWORD BY JEAN-PIERRE LEHMANN .......................................................................4
2 EXECUTIVE SUMMARY ........................................................................................6
2.1 PURPOSE .........................................................................................................6
2.2 SUMMARY FINDINGS AND RECOMMENDATIONS ..............................................................6
3 OVERVIEW..........................................................................................................7
3.1 INTRODUCTION ..................................................................................................7
3.2 BACKGROUND ....................................................................................................7
3.3 STRUCTURE OF DLN PROJECT .................................................................................7
3.3.1 Launch and Road mapping ..........................................................................7
3.3.2 Active Investigating ...................................................................................7
3.3.3 Reflecting .................................................................................................7
3.3.4 Synthesizing .............................................................................................8
3.4 THE BOTTOM OF THE PYRAMID ................................................................................8
3.5 TYPES OF PROJECTS WHICH BENEFIT THE POOR ............................................................9
4 BENEFITS AT THE BOTTOM OF THE PYRAMID ...................................................10
4.1 INTRODUCTION ................................................................................................ 10
4.2 BUSINESS BENEFITS .......................................................................................... 10
4.2.1 Profit ..................................................................................................... 10
4.2.2 Developing New Markets .......................................................................... 11
4.2.3 First-mover Advantage ............................................................................. 11
4.2.4 Brand Building ........................................................................................ 11
4.2.5 Knowledge Transfer and New Skills ............................................................ 12
4.3 MARKET BENEFITS ............................................................................................. 13
4.3.1 Social .................................................................................................... 13
4.3.2 Economic ............................................................................................... 13
4.3.3 Infrastructure ......................................................................................... 14
5 CHALLENGES FOR BOP PROJECTS .....................................................................15
5.1 INTRODUCTION ................................................................................................ 15
5.2 CORPORATE CHALLENGES .................................................................................... 15
5.2.1 Market Size Estimation Methodology .......................................................... 15
5.2.2 Margin Threshold..................................................................................... 15
5.2.3 Risk-averse Decision Making ..................................................................... 15
5.2.4 Anxiety about Local Partners ..................................................................... 16
5.2.5 Short-sightedness ................................................................................... 16
5.3 GOVERNMENT AND INFRASTRUCTURE CHALLENGES ....................................................... 17
5.3.1 Regulation and Business Climate ............................................................... 17
5.3.2 Providing Essential Infrastructure .............................................................. 17
6 CREATING A NEW BUSINESS MODEL ................................................................19
6.1 INTRODUCTION ................................................................................................ 19
6.2 DEFINING “BOTTOM OF THE PYRAMID” BUSINESS MODELS .............................................. 19
6.3 BUSINESS MODELS, BUILDING BLOCKS AND PARTICULARITIES ......................................... 19
6.4 EXAMPLES OF BUSINESS MODEL INNOVATION ............................................................. 20
6.5 ROUTES TO BUSINESS MODEL INNOVATION ............................................................... 21
6.6 SHARING KNOWLEDGE ON BOP BUSINESS MODELS ...................................................... 22
7 CONCLUSIONS ..................................................................................................24
7.1 INTRODUCTION ................................................................................................ 24
7.2 POTENTIAL AT THE BOTTOM OF THE PYRAMID .............................................................. 24
7.3 APPROACHING BOP PROJECTS .............................................................................. 24
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8 NEXT STEPS ......................................................................................................25

8.1 PEER GROUP FOR ON-GOING DISCUSSIONS ............................................................... 25
8.2 EXTERNAL REFERENCES ...................................................................................... 25
9 APPENDICES.....................................................................................................26
9.1 REFERENCES ................................................................................................... 26
9.2 BOP OPPORTUNITY SELF-ASSESSMENT FRAMEWORK ..................................................... 27
9.3 LIST OF ACRONYMS ........................................................................................... 28
9.4 LIST OF KEY PROJECTS REVIEWED .......................................................................... 29
9.5 LIST OF PARTICIPANTS ....................................................................................... 29
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1 FOREWORD
1.1 Foreword by Jean-Pierre Lehmann

Technologies, policies, the overall environment and challenges may change, including
both threats and opportunities, but mentalities are much more difficult to change. For
all the rhetoric about “out-of-the-box” and lateral thinking, it is quite striking how
conventional and imprisoned by their preconceived paradigms people tend to be. This
has often been the key cause for the decline of civilisations, societies and enterprises.
The great and powerful empire of China in the mid-19th century is one of the most
egregious cases. But there are countless others.
To say that in the early twenty-first century the world is at a turning point would be
one of the great understatements. The world has changed a great deal. Who was
talking of China or India a decade ago? And it is poised to change a great deal more.
The biggest driver of change is demographics. In a nutshell, the rich will get far fewer
and much older, while people in the developing world, especially in Africa, the Middle
East, South Asia and Latin America, will get far more numerous. The median age in
Japan, Germany and Italy in 2025 will be 50; the median age in India in the same year
will be 30. In Africa it will be 20! The current population of the world at just over 6
billion counts about 3 billion below the poverty line of $2 per day and about 750 million
in the upper income bracket, with the rest in between.
All of this has immense implications for the future of business and global prosperity.
Although currently profits are mainly derived from the large OECD markets, growth lies
outside the OECD markets. The challenge of reducing poverty, hence enhancing
prosperity, in developing countries is not simply a humane endeavour, but is absolutely
vital for the future of business. To put it in perhaps crude terms, business in the 21st
century needs to expand its customer base.
Traditionally there has been an implicit division of labour between business that focuses
on consumers from which it derives its profits, and governments, international
government organisations and non-government organisations that focus on the poor
and provide aid and succour. The efforts of development, i.e. lifting people out of
poverty, has been mainly in the public domain and conducted on a top-down basis.
This policy, in existence for close to half-a-century, has, by and large, failed. There has
been, among development specialists, a growing recognition that the role of the private
sector in poverty alleviation might be much greater than was previously realised.
The two forces are therefore converging, or so one would think. There remain,
however, significant barriers on all sides. There is a suspicion in many government and
non-government organisations circles that business is by definition rapacious and hence
given a chance it will exploit the poor. Yes, there are cases of exploitation, but in the
long-term it is in business’s self-enlightened interest that the poor should cease to be
poor so that they might have the purchasing power to consume the products and
services that business has to offer.
There is also a strong barrier in business. Still today, all of the data and evidence to the
contrary notwithstanding, there is a view in business circles that the poor in developing
countries are very peripheral to core business strategy. This has much to do with lack
of familiarity and lack of education. A Belgian business executive intuitively
understands a Nigerian business executive, but cannot readily understand the life of a
Nigerian villager or urban slum dweller.
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The main thrust of the argument provided by this DLN is that efforts must be directed
at reducing poverty through market mechanisms and ones that allow firms to make
profits. This DLN is not about philanthropy. It is about seeking to identify “win-win”
solutions that will empower the poor and, at the same time, generate profits and
contribute to the maximisation of shareholder value. But this is an area where not just
angels get queasy. What, make profits from the poor? How despicable!
This is part of the mental frameworks that the authors of the DLN whitepaper urge
should change. The poor are human beings and, like for all human beings, dignity is
important. Dignity is not bolstered by being at the receiving end of alms and pity. For
the poor to become genuine citizens and consumers, this allows a big transition to
entering society.
The excellent work done by the DLN team and the participants who contributed their
thoughts and experiences is a pioneering effort at changing the business paradigm of
the 21st century by facing the biggest challenge of all: how to transform poverty into
opportunity. It is a right step forward in what will no doubt be a long and exciting
journey. Those firms that do not engage in the journey will in most likelihood find that
they will be the ones that will be marginalised over time. The concluding point to stress
is that this is a very exciting journey and good make the world a much more
prosperous and profitable place.
Professor Jean-Pierre Lehmann

November 2005
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2 EXECUTIVE SUMMARY
2.1 Purpose
The purpose of this White Paper is to draw together the key findings from our Dynamic
Learning Network (DLN) project carried out from August to November 2005.
The topic of the project was “Turning Poverty into Opportunity as a means for
Prosperity” and this paper highlights the key insights and recommendations from the
work carried out.
The project involved 135 registered participants from a range of backgrounds. In line
with the general aims of DLN projects at IMD, the project successfully enabled
participants to become familiar with the latest knowledge on this key issue and work
with colleagues around the globe to develop new insights and create new knowledge
via virtual teams and networks.
2.2 Summary Findings and Recommendations

The key focus of our DLN project has been on the opportunities at the “Bottom of the
Pyramid” (BOP). The project involved a wide range of participants from various
geographies and industries and included case study investigations into numerous
successful BOP initiatives as well as interaction with leading pioneers of BOP business
models. The key findings and recommendations can be summarised as follows:
• There is considerable potential for businesses to target consumers at the so

called “Bottom of the Pyramid”. Such businesses not only provide significant
new potential revenue streams for companies, they can also bring a range of
benefits to the poorest consumers and their communities, including sustainable
economic, social and infrastructure enhancements. BOP initiatives clearly have
the chance to create genuine “win-win” outcomes.
• A range of highly innovative and successful BOP projects have been investigated
during this project but in reality the number of BOP projects undertaken is tiny
in proportion to the scope of opportunities available. Companies need a
fundamental change of mindset in order to acknowledge the potential
opportunities and be willing to make the capital investments required to gain
access to exciting new markets.
• Companies must give careful consideration to the overall business model used
for their BOP initiatives, focussing in particular on obtaining the necessary local
partnerships and ensuring access to the required local skills. For any BOP
initiative it is vital that companies have access to sufficient local knowledge in
order to make the project a success. Companies must also recognize that
significant innovation in the business model and potentially in the product itself
must be undertaken in order to successfully capture the BOP market.
• The impacts of BOP initiatives are significantly enhanced when the business is
“fully-integrated” into the local environment, thus bringing benefits across the
regional supply chain.
• By turning their attention to BOP initiatives, multinational corporations not only

have access to new market opportunities, they also have the potential to
address and resolve some of the conflicts between proponents of global
capitalism and advocates of environmental and social sustainability.
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3 OVERVIEW
3.1 Introduction
This section provides an overview of the DLN project as a whole, its high-level aims,
scope and structure. It then introduces the core concept of the “Bottom of the Pyramid”
(BOP) and explains the different types of BOP initiatives which take place and why.
3.2 Background
“Globalisation” has witnessed an unprecedented growth in the number of global citizens
engaged in the global market. The transformation of India, China, the former Soviet
Union, Brazil, and other developing countries has provided corporations with new
strategic horizons. However, globalisation has also witnessed the marginalisation of
hundreds of millions of people and rising inequality. The business world has focused on
those already integrated into the global market economy, leaving international agencies
and NGOs to “cope” with the excluded. This DLN proposed that corporations are
missing huge opportunities by not paying sufficient attention to this substantial market
potential. Our objective was to focus on profit-making business activities that created
tangible benefits for poor consumers while contributing to the corporate bottom line.
We wanted to learn about what works (and what doesn’t), why and how.
3.3 Structure of DLN Project

This DLN was a web forum that allowed interested participants to share their
knowledge, opinions and experience on how poverty could be turned into opportunities.
We had around 135 registered participants that included employees of large multi-
national corporations, NGO workers, entrepreneurs and academics besides the MBA
team. The discussion approximately spanned across 3 months and was structured into
four key phases.
3.3.1 Launch and Road mapping
Dates: Aug 15 – Aug 28

In this phase we created a picture of the learning needs and a planned route to address
them. We also explored our current awareness level about the topic by reading articles
and discussing with each other, and created a plan for filling in the gaps.
3.3.2 Active Investigating
Dates: Aug 29 – Oct 2

In this phase participants provided input to the knowledge creation process by actively
gathering information in their own work environments and then contributing this
feedback to the DLN seminar. The idea here was to use the distributed, virtual network
to investigate the topic. One of the key highlights of this phase was our interview with
Mr. Iqbal Quadir, the founder of Grameen Phone in Bangladesh.
3.3.3 Reflecting
Dates: Oct 3 – Oct 30

The Reflecting phase involved following up on the activity and information collected in
the previous stage. By this stage each person in the seminar had access to the
experiences of others and they jointly discussed the patterns, exceptions, and insights.
We also outlined the structure of the white paper and sub-divided it to teams who
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would work on specific sections. The overall aim of this white paper was to synthesize
the learning from the discussions and information sharing on this DLN forum.
3.3.4 Synthesizing
Dates: Oct 31 – Nov 10

The final stage of the learning cycle was about consolidating the new knowledge in
form of a white paper. The participants read the initial draft of the white paper and
contributed insights to revisions and communication. An updated version was then
posted on the DLN forum after incorporating the team feedback. This white paper
therefore synthesizes the discussion on the DLN forum.
3.4 The Bottom of the Pyramid

Our discussion primarily focussed on exploring various profit-making business activities
that created tangible benefits for poor consumers as well as contributed to the
corporate bottom line. We defined our poor consumers to be part of the “Bottom of the
Pyramid” (BOP), an influential phrase coined by C.K. Prahalad1.
The “Bottom of the pyramid” refers to the potential market of four billion people in the
developing countries living on less than $1,500 per year (in US$ purchasing power
parity figures). The opportunities for companies getting involved in business at the BOP
are immense. The World Bank estimates that this population could reach 6 billion
people in the next 40 years. In contrast, the rest of the world’s population is currently
about 2 billion people. The BOP portion of the population is therefore the most
significant, and likely to increase faster than the rest due to higher birth rates.
In their seminal paper, Prahalad and Hart described the opportunity as follows:
“The real source of market promise is not the wealthy few in the developing world, or
even the emerging middle-income consumers: It is the billions of aspiring poor who
are joining the market economy for the first time.”
Investing in BOP market opportunities has the potential to lift billions of people out of
poverty and desperation, whilst also preventing social decay, political chaos, terrorism,
and environmental meltdown that is expected to continue as the gap between rich and
poor countries continues to widen.
Figure 1 shows the “World Economic Pyramid” as presented by Prahalad and Hart, with
the BOP consumers indicated in Tier 4.
Figure 1 – The World Economic Pyramid
1
Prahalad, C.K. and Hart, Stuart L., “The Fortune at the Bottom of the Pyramid,” Booz Allen Hamilton Inc
Strategy+Business, Issue 26, Q1 2002.
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In this paper, we have explored the potential offered by BOP markets, pre-conditions
for successful business ventures targeting BOP consumers, features of the new
business models needed for successful BOP initiatives and the impact of such initiatives
both on the corporations and the BOP consumers and their communities.
3.5 Types of Projects Which Benefit the Poor

There are various different types of initiatives which provide benefits to the world’s
poorest consumers and these can be characterised generally as being non-market
based or market-based, as illustrated in Figure 2.
Non-market Market-based
mechanisms mechanisms
Government Entrepreneurs
Focus of
Charities SMEs
this DLN
NGOs MNCs
AID TRADE
“Bottom of the Pyramid” Consumers
Figure 2 – Non-market and Market-based mechanisms for targeting BOP Consumers
The focus of this project has been on market-based initiatives to target BOP
consumers in a profitable and sustainable way. Programmes and initiatives to provide
aid from governments, charities or NGOs are outside the scope of this paper.
In general the types of BOP projects can be broadly characterised by the two distinct
categories of businesses which undertake them, as follows:
• Entrepreneurs and Local SMEs2 – here initiatives are launched initially in a

specific and normally localised market by entrepreneurs or small businesses
with a strong local market knowledge and understanding of what it takes to do
business in that environment. Here the motivation is normally to form a
“sustainable business” – clearly this implies profitability but it will also bring
clear benefits to local BOP consumers and is often motivated by the strong belief
in the importance of bringing these benefits.
• Multinational Corporations (MNCs)– here initiatives are launched based on

maximising market potential, often with a view to gain first-mover advantage in
a new market. However, the motivations, whilst always fundamentally profit
based, are also increasingly driven by the Corporate Social Responsibility (CSR)
agenda, with MNCs wanting to enhance brand perception, customer loyalty and
staff retention in developed markets, in addition to exploiting new business
opportunities.
One recent development in this area has been the growing emphasis given to Public-
Private Partnerships (PPP) in BOP markets, with the World Bank and the IFC in
particular having recently taken steps to promote these. However, it should be noted
that such partnerships have not been investigated in detail as part of this study.
2
SME: Small/Medium Enterprise
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4 BENEFITS AT THE BOTTOM OF THE PYRAMID
4.1 Introduction
In this section, we explore the range of benefits which accrue to businesses delivering
products and services to BOP consumers, the potential benefits to the consumers and
their communities, and the relationship between the two.
Cases of successful BOP initiatives, whether undertaken by entrepreneurs or by MNCs,

show that the more an initiative is embedded in the local economy, the greater the
benefits to the local community. More jobs are created, investment attracted,
infrastructure put in place, and so on. To embed the project in the local economy
means different things for different types of business, but is likely to include
establishing a locally based supply chain and/or retail network, particularly one that
supports the growth of local SMEs. Creating more wealth in a BOP community creates,
in turn, more potential consumers for the product or service on offer, builds loyalty to
the brand, and ultimately enables the business to deliver additional profit. This is a
‘virtuous circle’ in which greater benefits for the community lead to greater benefits
for the company.
4.2 Business benefits

Traditionally, MNCs have downplayed the potential value that could be extracted from
BOP consumers, thinking that consumers who earn barely enough to survive do not
have money to spend. This is short-sighted thinking. Sure, there is no patented model
of how to do business with this ‘new’ market, but MNCs that concentrate part of their
efforts on the needs of the BOP market will be able to find a multitude of possibilities to
do profitable business.
Successful BOP-focused projects, whether undertaken by entrepreneurs or by MNCs,

can deliver major benefits to the business. Some of the most significant benefits are
highlighted in the following sub-sections.
4.2.1 Profit
The following are examples in which companies managed to address the needs of a
BOP market and in turn earn healthy profits:
• Ultra cheap cell phones by Nokia with basic features tailored to the needs of the
populations in Africa or China
• Ruf n Tuf Jeans kits provided for a few dollars by local tailors
• Unilever shampoo in single use packages catering for a population that could not
afford larger package sizes
In each case the business model applied differed radically from standard models used
by MNCs in developed countries (see Chapter 5 below). Customers in this segment are
more price-aware, and more discriminating in their search for quality products that can
add real value to their lives. These issues have to be addressed in a different manner
than in conventional developed markets. Margins are often smaller than for products
targeted at middle class consumers, but this is offset by the potential to operate at
very high volumes.
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4.2.2 Developing New Markets
While most MNCs still concentrate on gaining market share in the hard-fought markets
of the first world, the potential of many BOP markets has hardly been tapped. These
markets in many cases present additional advantages that can be used to develop new
business.
The very rapid development of cell phones companies in some BOP markets, was very
much helped by the fact that there has never been an effective telephone system
before. While in every developed nation cell phone operators have to compete with
fixed lines, this competition is nearly non-existent in many of these new markets.
Telephone companies not only find a huge potential market but also a place where
there is no established incumbent.
Within a few years GrameenPhone in Bangladesh was able to acquire 3 million

customers, overtaking the state owned phone company by a factor of 10 terms of
number of subscribers. Despite this phenomenal success the potential still remains
huge given Bangladesh’s population of 144 million. For the Norwegian telephone
company Telenor, a major shareholder in GrameenPhone, the Bangladeshi company
still only represents a small (but growing) part of its income, but its potential is
enormous when compared to the saturated home market of the company.
Critical to this new market for the MNC is to bear in mind that, in their simplest forms,
developing markets present two types of consumers: wealthy and poor. Many MNCs
focus their efforts at targeting the wealthy in developing markets, but the real value for
market development is in targeting the poor. However, there are greater challenges in
terms of distribution and reach, as poor consumer needs are often significantly
different from those of the wealthy. For example, laundry soap might need to be
modified for hand washing, repackaged for lower-income consumers and distributed via
a more complex array of wholesale and retail channels. MNCs must therefore commit to
rethinking their products and business models but, if they do so successfully, the
potential rewards promise to be significant.
4.2.3 First-mover Advantage
MNCs that take the lead in addressing BOP markets will have the opportunity to
entrench themselves in the market and win a clear position in consumers’ minds. First
movers can develop the market to a much larger extent than would be possible in the
existing developed markets, where most ‘innovations’ are only minor changes in a
crowded marketplace. In BOP markets most new products represent a disruptive
change as nothing similar has been available before. By introducing products or
services for a new consumer base, businesses have the chance to define how in the
future large classes of products will be perceived and consumed.
In some cases first movers, often local companies, have very much profited from the
fact that developing countries just do not appear on the radar screen of the MNCs. In
India for example Cavincare was able to grab 50% market share of shampoo from
Unilever, by proposing a Rs. 1.00 shampoo sachet package, before the multinational
was forced to reply with its own sachet product in an attempt to regain market share.
4.2.4 Brand Building
Brand building in BOP markets means creating loyalty among customers whose buying
power will increase year-on-year. Unlike in the developed world where citizens,
bombarded with publicity, are saturated and hard to impress, brands that are serving
the specific needs of the poor, in a new and relatively untouched market, have a good
chance of establishing a permanent place in the customer’s mind.
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An extraordinary example of brand building identified during this DLN is India’s AMUL.
India was a country with milk shortfall. With seed capital from the Swiss government,
Dr Kurien started AMUL, and today his company the lives of numerous farmers in India
by creating a huge milk industry from nothing. AMUL products are now found on the
shelves of Walmart in the USA and many other retail giants in the world. It also created
a mega food brand which in India is now synonymous with butter, milk and milk
products. AMUL provides an income for millions of farmers, collects millions of litres of
milk every day and touches the lives of millions of consumers worldwide.
Ruf n Tuf jeans is another example made by Arvind Mills, the fifth largest exporter of
denim in the world. The jeans are specifically made of high quality since, in addition to
price, durability is an important purchase criterion for BOP customers. Ruf n Tuf
products come both as ready-made jeans and ready-to-stitch kits, and both are highly
successful. Arvind Mills managed to create a new brand through their marketing
strategy. In India, the concept of ready-made clothes is not very prevalent especially in
men's clothing, with the majority of the population still preferring to get have clothes
made according to their own preferences. Using the strategy of ready-to-stitch kits,
Arvind Mills not only managed to lower the price but also allowed consumers to get
jeans of their choice made in their own way. Whether or not these consumers are
aware of Lee or Levis, Ruf n Tuf is now firmly positioned as their brand of choice.
In addition to building brands in BOP markets, MNCs can also gain a significant positive
brand impact in their existing developed markets by virtue of their involvement in
socially responsible projects in developing countries. Society is becoming increasingly
global and the actions of the MNCs around the world are watched closely by their
customers and shareholders ‘at home’. Any action perceived to be irresponsible, for
example Nike’s involvement with child labour, is likely to lead to sanctions in their core
markets. However, by demonstrating benefits for poor communities via sustainable
engagement in developing markets, MNCs will create a positive brand impact.
Companies that are perceived as good world citizens attract employees, partners,
investors and consumers alike.
4.2.5 Knowledge Transfer and New Skills
Engagement in BOP markets requires skills that are often lacking in the MNCs. BOP
markets demand a non-traditional approach to the business model and to
communication channels, particularly with respect to receiving and interpreting market
information from ‘the field’ at the decision-maker level. In many of the examples sited
in this DLN, opportunities have been realised by local companies (sometimes with the
financial help of MNCs), or directly by MNCs that have developed specific, detailed local
market knowledge.
Companies engaged in these BOP markets must go through a learning curve in order to
establish a profitable business. However, the knowledge acquired now will also offer
additional competitive advantage in the future, just as the investment in a new
technology would.
New skills that are acquired sometimes also impact the overall competitive strength of
the company. New methods of production, promotion and distribution have to be found
in order to deliver good quality products at lower prices. The know-how acquired in this
process in turn leads to more effective ways to produce goods for developed markets.
Surprisingly the experience and skills acquired in successfully addressing these markets
is in many cases not transferred to other BOP countries, even if they would in principle
present similar opportunities. This might be due to the fact that the original initiative
was local and that the firm has little interest in becoming international. MNCs could be
a formidable vehicle to transfer these skills to other places and to implement them.
While this could be a remarkable competitive advantage, it is rarely realized.
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For MNCs, BOP markets present a good opportunity to diversify their business in new
ventures and new locations with significant potential for increasing revenue streams.
However a change of mindset is needed to address these markets successfully.
4.3 Market benefits

BOP projects create benefits on many levels for the individuals and communities in
developing countries who make up the BOP market. Direct impacts include
improvement in social and economic conditions and opportunities. In addition to these
direct benefits, a major initiative, such as Grameen Bank or GrameenPhone, has knock-
on effects such as infrastructure improvements and an uplift in general market
conditions, paving the way for additional projects and new investments.
4.3.1 Social
The most obvious social benefit is the increased availability and affordability of desired
products that in turn, improve the hygiene, health and quality of life of people living
on very low incomes.
Hindustan Lever Limited (HLL) has been proactively engaged in rural development in
India for nearly 30 years and set up Project Shakti in 2001. The objective was to create
income-generating capabilities for underprivileged rural women, by providing a
sustainable micro enterprise opportunity, and to improve living standards through
health and hygiene awareness. This project is a good example of how such businesses
can help people (especially women) to get a foot on the social ladder and improve their
status. Moreover, it gives them a purpose other than just being mother/wife and
increases their independence. It also gives new skills to these women, and increases
their general level of education.
4.3.2 Economic
Additional benefits, in the case of a service such as GrameenPhone, are time and
efficiency savings, leading to greater productivity. Consider the farmer who is trying
to sell his crops. He needs information about competitors’ prices for crops, the market
price, and whether there is a shortage or overcapacity of his particular product. He will
gladly spend money on a mobile phone that would get him this information quickly.
With this information he can make more informed decisions about his production and
shipments. He can price his products more competitively, raising prices when there is a
scarcity of product, lowering prices when there is overcapacity.
BOP projects create jobs locally, in the company itself and across the entire supply
chain. A project delivering products or services to BOP consumers often delivers
significant economic benefits by supporting local businesses in the supply chain or
via retail and service channels. A project originating from an MNC or an entrepreneur
can have a huge impact on the local economy by creating demands to be filled by
locally-based SMEs. Iqbal Quadir, founder of GrameenPhone, noted that as a result of
his initiative, “all sorts of businesses have started – there’s a huge industry in
Bangladesh now, selling handsets, repairing them, selling pre-paid cards.”3
Stimulating the growth of BOP market can, in time, attract additional investment by
creating a space for competition.
3
Interview with Iqbal Quadir, founder of GrameenPhone, on Turning Poverty into Opportunity as a means for
Prosperity website, www.imd.ch/dln, 4 October, 2005.
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4.3.3 Infrastructure
Business needs infrastructure, and a major project targeting BOP markets will often
provide or spur infrastructural development, including investments in ICT, transport,
financial and educational infrastructure. The presence of better infrastructure, in turn,
opens up new business opportunities.
This “snowball” effect has already been demonstrated with GrameenPhone, the creation
of which was only made possible by the presence of an existing banking infrastructure
(Grameen Bank). This in turn provided the communications infrastructure necessary to
increase productivity in rural communities in Bangladesh. Access to information can
also be improved with the Simputer, a very cheap computer ($200) that can connect to
the internet. MIT is trying to build an even cheaper notebook computer for under $100.
Another good example of a BOP project which provides essential infrastructure is Soluz
Inc. in Honduras and the Dominican Republic, which sells decentralized solar power
units for households, stores, and street vendors in rural areas.
Page 14 of 32
5 CHALLENGES FOR BOP PROJECTS
5.1 Introduction
It has become clear through discussion on the DLN forums that there are major
challenges for an entrepreneur or a multinational corporation interested in serving the
market at the Bottom of the Pyramid. In this section, we highlight some of the key
challenges, both internal and external to the firm.
Internal or corporate level issues are most relevant to multinational corporations, for
whom a change in mindset is required before BOP projects will be approved,
supported and delivered. Our strong recommendation to companies considering BOP
projects is to develop partnerships with local companies, governments and NGOs.
Knowledgeable partners will help communicate the opportunity and mitigate risk.
External challenges, regulatory restrictions and infrastructure issues are faced equally
by entrepreneurs and MNCs. Private sector actors working in partnership with
developing country governments can push for (and help to create) better regulation,
improvements in infrastructure, training programmes, etc. As argued in the previous
section, we believe that the more a BOP project is embedded in the local environment,
and the deeper the web of partnerships with local organizations, the greater the
opportunity to create benefits both for the market and for the company.
5.2 Corporate Challenges

In order to develop serious, sustainable projects addressing the demands of BOP
markets, multinational corporations need to address a range of internal issues, some of
which can act as ‘show stoppers’, whilst others are more likely to undermine the
project slowly over the longer term. We highlight the most prevalent of these issues
below.
5.2.1 Market Size Estimation Methodology
Most successful BOP projects are opening up new markets by introducing products
which were previously unavailable. If decision-makers rely on current estimates for
market size to evaluate potential revenues, they may reject opportunities at first
glance. However, if estimates are based on assumptions about creating demand
through introduction of innovative products, the scale of the opportunity will be readily
become apparent. The difficulty lies in making credible assumptions regarding market
penetration, and determining the time-frame over which demand can be created.
5.2.2 Margin Threshold
Companies like Unilever, Nestlé and Procter & Gamble have struggled with and solved a
common problem. Products targeted at BOP markets must be priced low and therefore
generate a lower margin than the company’s ‘mainstream’ products. However, if the
distribution network is fully developed to meet demand, these low margin products can
generate higher absolute returns due to achieving unusually high sales volumes.
5.2.3 Risk-averse Decision Making
Real and perceived risks include dealing with developing country governments and
regulatory bodies (see the following section), currency exposure and general
uncertainty around the status of a new venture in a developing or transition economy.
Page 15 of 32
This group of risks is associated with any business activity outside of familiar markets,
and must be managed through applying financial controls, hiring experienced
government liaison personnel, etc.
Risk is also associated with the potential for negative press in the MNCs core markets.
The perception of this danger is fuelled by well-known events such as Nestlé’s milk
powder debacle in Africa. The multinational is painfully aware that its greatest asset is
its brand, and quite rightly worries that the brand will be tarnished by any association
(however inadvertent) with exploitation of the poor in developing countries.
Some of the best risk mitigation strategies, particularly with respect to public relations
risk, involve partnership with NGOs. For example, a knowledgeable NGO partner can
be asked to perform a ‘due diligence’ exercise on the project, including supply chain, in
order to highlight any areas of ambiguity which need to be resolved.
5.2.4 Anxiety about Local Partners
Many MNCs lack awareness and experience with localized suppliers, distributors,
marketing and retail channels in BOP markets. This is particularly of concern in projects
which are focused on serving BOP consumers in rural areas, where the most effective
business model is often based around local suppliers and distribution networks (as will
be discussed in the next section of this paper).
Perhaps more important than the concern about logistics is a deeper anxiety on the
part of managers, likely to be personally unfamiliar with the market and the geography
under discussion, about the idea of negotiating with SMEs and micro-businesses in
developing countries.
Partnership with a well-established local firm or an entrepreneur with a strong track

record can provide a multinational with necessary local knowledge and networks.
Another useful method for dealing with this issue is to start with a small pilot project
which can be rolled out in later phases over a wider geographical area. This approach
gives the corporation a chance to experiment with a new business model at relatively
low cost. A well-managed pilot project can also serve an important purpose as part of
an internal communication strategy, helping to build awareness, interest and
commitment across the corporation.
5.2.5 Short-sightedness
Some MNCs fail to consider longer-term benefits associated with developing brand
loyalty in BOP markets, as discussed in Chapter 4. Corporations may pay lip service to
a long-term global strategy with an emphasis on establishing a brand presence in China
(for example), but actually fail to establish decision-making criteria on the basis of this
strategy. The possibility of developing brand-loyal customers, whose disposable income
will increase significantly year-on-year, should ultimately yield benefits far greater than
the immediate returns from a BOP-focused project. However, many corporations are
unable to take into account these potential long-term benefits in their financial analysis
of project feasibility.
Page 16 of 32
5.3 Government and Infrastructure Challenges
5.3.1 Regulation and Business Climate
Many developing country governments have some way to go in establishing a business

environment that will not only attract MNCs but will also encourage domestic
entrepreneurs to invest and serve the BOP markets. What can governments do to
support the creation and expansion of companies that are financially, economically,
socially, and environmentally sustainable? Besides improving health care, education,
and macroeconomic conditions, and encouraging competition, governments can
undertake institutional reforms that, over time, lower the costs of doing business and
thus create a more favourable business environment. Such reforms encourage
activities not only by foreign investors but also, and more importantly, by the
thousands of local entrepreneurs who want to start or expand small businesses in
agriculture, services, and manufacturing.
Developing country governments need to tackle obstacles that reduce the volume of
private sector activity at any level of economy. These obstacles can be identified as
excessive taxes, limited or too strict regulations, financing difficulties, high inflation,
and political instability or uncertainty. In addition, the private sector is faced with
issues such as corruption and exchange rate problems. Reforms could include
developing Regulatory Bodies that not only establish the rules of the industry, which
creates transparency and diminishes the perceived risk for the private sector investor,
but also protects the interests of the poor against being exploited.
The small companies—and start-up firms, in particular—that are crucial to long-term

economic and social development are especially vulnerable to bad government
practices. Poor policies and weak institutions hurt these companies more than they do
others. Larger firms can better afford to protect themselves, even though protection
comes at a cost. There is no doubt that there are strong links between positive
government reforms aimed at creating a better investment climate and the level of
investment and economic growth.
5.3.2 Providing Essential Infrastructure
Developing country governments could adopt ‘output based aid’ initiatives and utilize
donor funds by compensating companies on the cost of selling a product or service and
the ability of customers to pay. Such initiatives would reduce risk for the private sector
but would only be practical in the provision of public goods like electricity, water and
telecommunication services. However, is the provision of such aid sustainable? The
case of the pilot project in rural Bangladesh for the provision of electricity to the BOP
illustrated that while local communities wanted electricity, they were unable to pay for
the service even though the rates were a fraction of what was paid in the more urban
areas. The provision of output based aid provided a short term solution but was not
feasible in the long run.
In order to enable companies to reach consumers, particularly at the BOP level, further
government action may be needed to develop infrastructure, such as railways,
telecommunications and electricity. By ensuring that there is adequate provision of
infrastructure services, such as reliable transport or electricity, the government
minimizes the perceived risk that a number of private sector companies sense when
investing in unfamiliar markets and areas. Furthermore, the provision of infrastructure
services generates economic activity by enabling factories to produce and distribute
goods, create employment and generate income for the government.
Page 17 of 32
Increasingly, new infrastructure facilities are not only being built in partnership with the
private sector but services are also being operated by the private sector. These are
areas of opportunity for MNCs interested in reaching the BOP markets and entrenching
themselves in developing countries. Private sector involvement in infrastructure
provision both reduces risk for the public sector and frees up scarce public funds for
investments in sectors were private investment is impossible or inappropriate (e.g.
educational or social services).
Page 18 of 32
6 CREATING A NEW BUSINESS MODEL
6.1 Introduction
Some companies have succeeded in doing business at the bottom of the pyramid and
have improved the lives of many people while making a profit at the same time. Among
them are large multinationals, SMEs, local companies and micro-enterprises. This
section aims to understand how these companies have turned environments which
many perceive as uninteresting, unprofitable or too risky into opportunities and
sometimes even little goldmines. We propose to use the concept of business models as
a unit of analysis to better grasp how businesses have succeeded at the bottom of the
pyramid. This will allow us to better describe, communicate and analyze BOP success
stories.
6.2 Defining “Bottom of the Pyramid” Business Models

A model is a simplified description and representation of a complex real world object. A
model describes the original in a way that we understand its essence without having to
deal with all its characteristics and complexities. In the same line of thought we can
define a business model as a simplified description of how a company does business
without having to go into the complex details of all its strategy, processes, units, rules,
hierarchies, workflows, and systems. Regarding our subject of study, this will allow us
to describe the essence of how companies succeeded at the bottom of the pyramid.
However, now that we know that the business model is a simplified representation of
how to do business, we still have to decide which elements to describe. A synthesis of
literature shows that we could use the following building blocks to help us describe a
BOP business model:
1. The value proposition of what is offered to bottom of the pyramid markets;
2. The target customer segments and their needs addressed by the value
proposition;
3. The communication and distribution channels to reach bottom of the pyramid

customers and offer them the value proposition;
4. The activities and skills needed to make the BOP business model possible;
5. The partnerships and their motivations of coming together to make a BOP

business model happen;
6. The revenue streams generated by the BOP business model;
7. The cost structure having to be supported to implement the BOP the business
model.
6.3 Business Models, Building Blocks and Particularities

During the investigation phase of our DLN on we described a number of BOP business
cases by applying the above business model framework. By using the same structure to
put the examples onto paper we were able to compare them and better understand
their particularities. What came out of the analysis was that businesses that
successfully addressed the bottom of the pyramid were innovative in one or several of
the business model building blocks. Moreover, often it was not only a product or service
tailored to the needs of the BOP that led to success (i.e. the value proposition), but it
Page 19 of 32
was the fit between different building blocks and their innovative combination that
helped success.
For example, to sell their products some companies designed innovative distribution
channels to reach the poor: they affiliated with poor local entrepreneurs who would sell
in their neighbourhood. Who would better know how to market to the bottom of the
pyramid than members of the BOP themselves? Other successful companies combined
micro-finance or revenue-generating projects to create a better market for their value
proposition. In general we can say that many companies who flourished at the bottom
of the pyramid not only found products to satisfy consumer needs, but found
innovative business model designs adapted to the realities of BOP environments.
6.4 Examples of Business Model Innovation

Businesses that succeed at the Bottom of the Pyramid are champions of business
model innovation.
There are examples of business model innovations in each building block. The most
obvious is innovating in the value proposition. When mobile phones appeared in the
market they offered a completely different value proposition than fixed line phones.
Particularly in developing countries where fixed telecom infrastructure is weak and
waiting lists for phone lines unbelievably long, mobile services were destined to thrive.
In Nigeria MTN, a South African Telco set up a successful venture to tap into the 130
million person market.
Regarding target customer segments and distribution channels, Arvind Mills Ruf n
Tuf Jeans (www.arvindmills.com) is a particularly interesting case. The entrepreneur
Arvind Mills saw a niche market in stylish jeans at an affordable price that was not
being filled by any company. Target customers are Indians who cannot afford
conventional jeans but still wish to purchase them. So Ruf n Tuf offers a jeans kit at
$6/pair to local tailors who function as a distribution channel to reach the final local
customers. Due to the large scale Arvind Mills manages to make a profit on the low
margins per jeans. (Check out Yahoo! Finance for more information.)
Anand Milk Union Limited (www.amul.com) is an interesting case of how a business

innovation can change the fortunes of the poor in a developing country like India by
integrating local skills and local activities into its business model. India was a country
with milk shortfall and imported milk every year in form of milk powder. Then AMUL
built up a huge milk industry from scratch together with local farmers. Today India is
the world's largest milk producer and it even exports milk. AMUL products are found on
the shelves of Walmart in the USA and many other retail giants in the world.
A nice example of how partnerships can lead to BOP success is the case of
GrameenPhone (www.grameenphone.com) in Bangladesh. Its founder, Iqbal Quadir,
realized that if a woman could be given a micro-credit to buy a cow and sell milk then
the same could be done for phone services. GrameenPhone was born. Supported by
the multinational company Telenor he bought a mobile network license and set up a
mobile phone network. Then he partnered with Grameen Bank, an established micro-
credit institution in Bangladesh who brought in the knowledge on credits and a
database of potential customers. The bank started offering women in villages a credit
to buy mobile phones, which they used to sell phone calls to the villagers, repay their
debts and make a daily living. Grameen Bank expanded its lending and GrameenPhone
harvested a network of women reselling phone calls through their network.
Hindustan Lever Limited (www.hll.com) has been able to create new revenue streams
by being proactively engaged in rural development in India for nearly 30 years. It set
up Project Shakti (www.hllshakti.com) in 2001 with the objective of creating income-
generating capabilities for underprivileged rural women, by providing a sustainable
Page 20 of 32
micro enterprise opportunity, and improving rural living standards through health and
hygiene awareness. With working capital provided by HLL, Shakti women entrepreneurs
sell HLL products to their local village. This gives HLL access to large markets that
would not otherwise be easily accessible. 70% of the Indian population lives in villages,
of which there are around 627,000.
Regarding the cost structures of BOP business models there is often a huge pressure
to produce extremely efficiently, because products usually have to be cheap enough for
Tier 4 customers. In general BOP cost structures are kept low by selling very large
volumes and thus profiting from economies of scale. In addition many of the BOP
business models described above make use of affiliation and entrepreneurship to shift
parts of the costs to other partners in the business model. GrameenPhone, Arvind Mills
and Project Shakti are just three examples of how tapping into local entrepreneurship
by promoting micro business ownership can give access to powerful free distribution
networks of incredible reach. This could have never been achieved by the companies
themselves.
6.5 Routes to Business Model Innovation

As outlined, businesses that succeeded in addressing Tier 4 markets are characterized
by innovating in the way they design their business model for the realities of BOP
business environments. They have shown that there is a whole range of creative ways
to design business for such unknown territories as BOP markets. They have shown that
this can be done profitably.
Companies that try to understand the realities of the BOP, that thoroughly understand
their business model and know how the building blocks relate to each other, will be
able to constantly rethink and redesign these blocks and their relationship so that they
can succeed in addressing Tier 4 markets.
We mentioned above that business model innovation in BOP markets can happen in all
the nine described business model building blocks or in the way they are configured.
We can distinguish between supply driven BOP business model innovation and
demand driven BOP business model innovation.
1. Supply-driven innovation is for example achieved by doing things in a new way

or by applying new technologies to an existing business model in order to address
BOP markets.
Example: E-Choupal (www.echoupal.com) is an Internet based system that gives

close to a million Indian farmers access to real-time market information, and
agricultural information. It was launched by the Indian conglomerate ITC at
substantial investments but gives them access to a large number of potential
customers for their agribusiness.
2. Demand-driven innovation is characterized by a customer drive based on new

or changing needs of Tier 4 markets.
Example: The emigration of many Africans to Europe created a large need for
money transfers back to their families which Western Union was very quick
materialize on.
Furthermore, we can distinguish between innovative BOP business models where

companies do similar things as in traditional markets in a slightly new way and
change industries as a consequence, extended business models where companies
build on the existing conventional business models and companies that create entirely
new BOP business models for the BOP market.
Page 21 of 32
1. Doing similar things differently mostly means offering similar value

propositions in an entirely new fashion.
Example: Big companies selling beauty products were surprisingly slow to

materialize on the opportunities of BOP markets. They maybe realize that the poor
were longing for nice perfumes, sophisticated soaps, shampoos and other
cosmetics, but they didn’t realize that these Tier 4 markets were willing to spend a
big proportion of their small incomes for this but simply couldn’t afford the
traditional package size. So the first beauty companies that offered tiny packages
of shampoo to the BOP market in India were really successful. While the margins
were very low per package this was easily compensated by the large scale.
2. Extending an existing business model means building on the current building

blocks of the conventional business by adding new ones.
Example: Vestergaard Frandsen (www.vestergaard-frandsen.com), a 50-year-

old family enterprise that started out in labour clothing managed to transform
itself into a designer of high-tech bed-nets and emergency sheeting. The company
successfully extended its value proposition of selling conventional textiles to
selling special bed nets protecting from malaria and emergency sheeting for
disaster recovery. Innovating in the business model required extensive R&D and
participating in a public-private partnership initiated by the “Roll Back Malaria
Partnership (RBM)” of the World Health Organization (WHO). Vestergaard brought
in the in-depth knowledge of textiles, the money, the logistical background, and a
production set-up in Vietnam, while WHO gave an official stamp of approval,
which was crucial to winning large contracts.
3. Sometimes entirely new BOP business models pop up and create new
markets.
Example: A number of companies and research institutes are aiming at offering

developing countries low cost computing devices, for example to access the
Internet. A well known project is the Simputer (www.simputer.org) which was
launched by the Indian Institute of Science (IIS) and Encore Software (formerly
Ncore technologies). However, the project yet failed to succeed for the lack of a
sustainable business model. Similarly, Nicholas Negroponte, founder of MIT's
Media Lab, wants to design a 100 US dollar laptop computer for BOP markets. Like
the Simputer, Negroponte is betting on an innovative product rather than a BOP
compatible business model. Whether either will succeed remains to be seen.
6.6 Sharing Knowledge on BOP Business Models

Some companies have managed to thrive at the bottom of the pyramid. It is from them
that we must learn how to successfully transform our business model to generate
revenues at the bottom of the pyramid. Many of these companies are actually willing to
share how they succeeded. What is lacking is an effective way of how to nurture this
sharing so we can learn from their example.
One such way of nurturing sharing is outlined in this section. It is based on a particular
approach of knowledge management practiced at BP. This approach shall help us
assure transferability of BOP business model knowledge within and between
organizations.
It follows three steps that lead to increased sharing and crystallization of common
knowledge in how to build BOP business models.
Page 22 of 32
1. Self-assessment: In a first step a company or a unit conducts a self-assessment to

identify its strengths and weaknesses in materializing on bottom of the pyramid
business opportunities. Each group ranks itself on a scale of 1-5 on a number of
different issues regarding bottom of the pyramid opportunities.
2. Sharing and Learning: Based on the self-assessment a company or a unit knows its
strengths and weaknesses on each issue evaluated. Hence, if we have a group of
companies or units they can share their strengths on a particular issue while they can
learn from others on issues where they are weak.
3. Knowledge Assets: Based on the learning and sharing the different groups can
identify the communalities of success in addressing bottom of the pyramid
opportunities and build so-called knowledge assets.
Self-Assessment Connecting
Companies or Companies or Companies and According to their Companies and

business units are business units go units become assessment the units connect,
isolated in their through a self- aware of their actors seek to share and learn
desire to address assessment strengths and connect where in a peer-to-peer
BOP opportunities regarding 9 issues weaknesses in they have manner.
to decide how it addressing BOP strengths to Strengths are
scores from a level opportunities share or where share and gaps
of 1-5 (strong) they want to
learn
We have designed a draft self-assessment framework with 9 issues of bottom of the

pyramid opportunities (see Appendix, Section 9.2. For each issue there are 5 levels of
competence. A company or business unit can thus evaluate how it performs on each of
the following 9 issues:
1. Recognizing bottom of the pyramid opportunities
2. Integrating bottom of the pyramid aspects into our business model
3. Understanding the bottom of the pyramid and Tier 4 customer needs
4. Reaching Tier 4 customers through distribution channels
5. Activities and Skills to make bottom of the pyramid business models possible
6. Partnerships to address bottom of the pyramid opportunities
7. Revenue streams from the bottom of the pyramid
8. Adapting the cost structure to bottom of the pyramid offers
9. Learning and transfer
For example a company that is very weak in recognizing BOP opportunities may learn
from a company that reflects on and discusses about BOP opportunities as a part of
their daily life. Or a company that doesn’t know how to reach Tier 4 customers despite
having a promising product may get knowledge from a company that has strong BOP
distribution channels.
Page 23 of 32
7 CONCLUSIONS
7.1 Introduction
This final section of the White Paper draws together some of the key learning points
which have been identified during the course of the Turning Poverty Into Opportunity
DLN project.
7.2 Potential at the Bottom of the Pyramid

It is clear that there is a great potential at the “Bottom of the Pyramid”. First and
foremost BOP initiatives allow access to new markets, revenue streams and profits for
companies willing to make the required investments, take the associated risks and act
with a long-term view. However, they also have the potential to bring a wide range of
short-term and long-term benefits not only to the consumers targeted, but also to the
communities in which the BOP businesses are active.
In this paper we have seen clear examples of benefits from BOP initiatives. These
include economic benefits such as job creation and demand for new services, social
benefits such as empowerment and improved quality of life and infrastructure benefits
such as enhanced transport and communications. In addition, within the context of a
profitable enterprise these benefits can also be sustainable. When coupled with the
bottom-line benefits, plus the additional potential factors for companies such as
enhanced brand perception and staff retention it is clear that BOP initiatives have the
chance to create genuine “win-win” outcomes.
However, a clear observation from this DLN project has been that, despite the range of
highly innovative and successful BOP projects we’ve discovered, it appears that in
reality the number of BOP projects undertaken is tiny in proportion to the scope of
opportunities available. Many MNCs need a fundamental change of mindset in order to
acknowledge the potential presented by BOP markets and to understand the flexibility
required in order to make them a success. We hope that this study and other similar
initiatives will bring the potential benefits of BOP projects to the attention of executives
and managers currently unaware of the opportunities available.
7.3 Approaching BOP Projects

When undertaking projects to target “Bottom of the Pyramid” markets, companies need
to give careful consideration to the overall business model, focussing in particular on
the local partnerships required and availability of the required skills, in addition to the
value proposition, revenues streams and so on. The focus should be on both demand-
driven and supply-driven innovation to identify new ways of addressing consumer
needs.
For any BOP initiative to succeed, it is vital that companies have access to sufficient
local knowledge in order to make the project a success, understanding the local supply
chain, Government regulations and operating models. There are various ways this local
knowledge can be accessed – for example via local entrepreneurs, joint business
ventures, or partnerships with NGOs. However, without sufficient integration with and
understanding of the local environment we believe BOP initiatives will fail to be
successful in the long-term.
Finally, and most importantly, the benefits that can be brought by BOP initiatives are
significantly enhanced when the business is “fully-integrated” into the local
environment – bringing benefits across the regional supply chain.
Page 24 of 32
8 NEXT STEPS
8.1 Peer Group for On-going Discussions

This DLN has brought together a group of people who are very motivated by
understanding the business opportunities at the BOP. We have begun a very fruitful
and useful discussion through our three months together. This paper is one result of
that discussion. But the challenges of understanding how best to target and serve the
BOP cannot be solved in 12 weeks. This will take years of experimenting and refining
before solid best practices can truly emerge.
In order to continue our discussions and learning Alex Osterwalder has created a
Google Group for on-going dialogue on the subject. This can be access as follows:
http://groups.google.com/group/Bottom-of-the-Pyramid
In addition, related issues are discussed by several forums in existence currently, such
as The Evian Group (www.eviangroup.org) and its associated Open World Initiative
(www.eviangroup.org/events/young.php). Both of these offer continued readings and
updates on progress being made in BOP opportunities, among other topics.
This DLN will continue until the 11th of November as a forum for discussing the
generation of a more permanent place for dialogue.
8.2 External References

There are a number of external web resources which provide excellent information
regarding the latest news on BOP initiatives worldwide. We recommend that those
interested in pursuing this topic further refer in particular to these sources.
World Bank Blog

http://psdblog.worldbank.org
Next Billion - Development through Enterprise

http://www.nextbillion.net
Africa: Open for Business

http://www.africaopenforbusiness.com
Digital Solidarity Fund

http://www.dsf-fsn.org
Page 25 of 32
9 APPENDICES
9.1 References
[1] Buckman, ‘Cellphone Game Rings In New Niche: Ultracheap --- Chip, Gadget
Firms Stand To Gain From an Initiative Set for Developing Nations’, The Wall
Street Journal, 18 August 2005, p. B4.
[2] Gomes, ‘Engineers Modify High-Tech Devices for World's Poorest’, The Wall Street
Journal, 1 August 2005. pp. B1
[3] Lehmann, ‘A shift away from opacity’, Financial Times, 2 June 2005.
[4] Lehmann, ‘A New Form of Colonialism’, The Globalist, 1 January 2000.
[5] Roy, ‘Why the millennium goals won’t work’, International Herald Tribune, 14
September 2005.
[6] Business and Development Special, Financial Times, 14 September 2005.
[7] Scheeres, ‘Sunny Isles Seizing the Power’, Wired.com, 5 July 2001.
[8] Sharma, ‘Is a $20 cell phone on the horizon?’, CNET News.com, 8 August 2005.
[9] Hart, S. ‘Beyond Greening – Strategies for a Sustainable World’, Harvard Business
Review, January-February 1997.
[10] ‘Bottom up Economics’, A Conversation with Iqbal Qadir, Harvard Business

Review, August 2003
[11] ‘Doing Business with the Poor – a Field Guide’, World Business Council for
Sustainable Development, 2005.
[12] ‘Rigid Rules and Double Standards’, Oxfam, 2002.
[13] Burgmans, A, 2005, ‘Doing business with the poor’, World Economic Forum
Magazine, vol 4, pp. 4.
[14] Lehmann, J.P. 2003. ‘Corporate Governance and Sustainable Global Capitalism’,
Journal of Japanese Trade & Industry, pp.1-4.
[15] Prahalad C.K. and Hart S.L., ‘The Fortune at the Bottom of the Pyramid’,
Strategy+Business issue 26, first quarter 2002
[16] Hammond A.L and Prahalad C.K., ‘Selling to the Poor’, Foreign Policy Journal
May/June 2004
[17] Prahalad C.K. and Lieberthal K, ‘The End of Corporate Imperialism’, A Changed
World, August 2003
[18] Dawar, N and Chattopadhyay, A., ‘Rethinking Marketing Programs for Emerging
Markets’, Long Range Planning Journal, No. 35, 2002
[19] Prahalad C.K and Hammond A, ‘Serving the World’s Poor, Profitably’, Harvard
Business Review, September 2002.
Page 26 of 32
9.2 BOP Opportunity Self-Assessment Framework

As discussed in Section 6.6, this Appendix contains a Self-Assessment Framework for companies to use as a tool to assure
transferability of BOP business model knowledge within and between organizations.
ITEM 1 LOW 2 3 4 5 HIGH

We know enough about We regularly discuss how we could
Recognising bottom of We know that there are Reflecting on and discussing about
We have never heard about the opportunities at the bottom of the address opportunities at the bottom
the pyramid opportunities at the bottom of the opportunities at the bottom of the
bottom of the pyramid pyramid to integrate them into our of the pyramid and add them to our
opportunities pyramid pyramid is part of our daily life.
business model business model
Integrating bottom of
We have never included a bottom We know that there are bottom of We occasionally include bottom of We systematically integrate bottom
the pyramid aspects bottom of the pyramid aspects are
of the pyramid aspect into our the pyramid aspects that we could the pyramid aspects into our of the pyramid aspects into our
into our business central to our business model
business model include into our business model business model business model
model
Understanding the
We regularly integrate Tier 4 Tier 4 customers drive our product
bottom of the pyramid It never came to our mind to try to We have already talked to Tier 4 We occasionally interview Tier 4 to
customer in the design of how we design for bottom of the pyramid
and Tier 4 customer understand Tier 4 customers customers understand their needs
address the bottom of the pyramid markets
needs
Bottom of the pyramid

Reaching Tier 4 We dispose of distribution that
Our distribution channels do not We have reflected on how we Some of our distribution channels entrepreneurs successfully
customers through successfully sell our products to
address Tier 4 customers could reach Tier 4 customers are reaching Tier 4 customers promote and sell our products to
distribution channels Tier 4 customers
Tier 4 customers
Activities and Skills to We have never reflected on what

We know what it would take to We know where to find the skills to We do some activities and have We master activities and skills to
make bottom of the activities and skills would be
succeed at the bottom of the succeed at the bottom of the some skills to succeed at the successfully implement a bottom
pyramid business necessary to succeed at the
pyramid pyramid bottom of the pyramid the pyramid business model
models possible bottom of the pyramid
Partnerships to We have never reflected on We have been thinking of who We have already partnered with We regularly enter into Partnerships are essential for our
address bottom of the possible partners for bottom of the could help us succeed at the others to address bottom of the partnerships to work on bottom of success at the bottom of the
pyramid opportunities pyramid opportunities bottom of the pyramid pyramid opportunities the pyramid opportunities pyramid
Revenue streams from It never occurred to us that one We think it could be possible to We have substantial revenue
We earn some money at the Revenue streams from the bottom
the bottom of the could make money at the bottom of generate revenue streams at the streams from the bottom of the
bottom of the pyramid of the pyramid are our livelihood
pyramid the pyramid bottom of the pyramid pyramid
We have been working on how to
Adapting the cost We think it is impossible to lower Our cost structure allows us to Our costs are so low that we can
lower our cost structure to be lean Our costs are low enough to break
structure to bottom of our costs enough to address generate an income at the bottom easily earn money from bottom of
enough for the bottom of the even at the bottom of the pyramid
the pyramid offers bottom of the pyramid opportunities of the pyramid the pyramid markets
pyramid
We continuously learn how we can
We sometimes exchange our view We learn, share and apply what we
We appreciate the need to learn We adopt good bottom of the integrate bottom of the pyramid
Learning and transfer points on the bottom of the pyramid learn regularly, and seek people
about the bottom of the pyramid pyramid practices from outside. aspects to our business model and
to draw lessons from our actions with relevant experience to help us.
share our experiences with others
Page 27 of 32
9.3 List of Acronyms

Acronym Meaning
BOP Bottom Of Pyramid
CSR Corporate Social Responsibility
DLN Dynamic Learning Network
FDI Foreign Direct Investment
FMCG Fast-Moving Consumer Goods
GP Grameen Phone
GPRS General Packet Radio Service (phone standard)
ICT Information & Communications Technologies
IMD International Institute for Management Development
MBA Masters of Business Administration
MNC Multi-national Corporation
MOP Middle of Pyramid
NGO Non Governmental Organisation
OECD Organisation for Economic Co-operation and Development
PPP Public-Private Partnership
PSD Private Sector Development
RFID Radio Frequency Identification
SA South Africa
SME Small/Medium Enterprise
TOP Top of Pyramid
T4 Tier 4 consumers
UNDP United Nations Development Programme
UNICEF United Nations Children's Fund
UNIDO United Nations Industrial Development Organization
VSO Voluntary Service Overseas
WAP Wireless Access Protocol (phone standard)
WRI World Resources Institute
WWF World Wildlife Fund
Page 28 of 32
9.4 List of Key Projects Reviewed

The following case studies were discussed and developed in the forums.
Project/Company Sector Location

Amul Food and drink India
Arvind Mills Ruf n Tuf Jeans Retail India
Cavincare Consumer goods India
DSM Food Fortification Food and drink China
E-Choupal IT India
Grameen Bank Banking Bangladesh
Telecommunication
Grameen Phone s Bangladesh
HLL Project Shakti Micro-credit India
Telecommunication
MTN Limited s Nigeria
Telecommunication
Nokia cheap cell phones s China
Rural Houses Industry Construction Venezuela
Simputer IT India
Soluz Inc Energy Honduras, Dominican Republic
Unilever detergent Consumer goods Brazil
Vestergaard Frandsen Consumer goods Vietnam
Wizzy Digital Courier IT South Africa
9.5 List of Participants
Last Name First Name Email

Agrawal Manish agrawam@wyeth.com
Aksakal Ozgur ozgur.aksakal@accenture.com
Alfaro Cesar cesar.alfaro@kattangroup.com
Almenberg Erik erik@imagegami.com
Ampuero Jaime jaime.a.ampuero@che.dupont.com
Anyakora Chimezie chimezie@email.com
Arante Anderson aarante@deloitte.com
Baroncelli Arturo baroncelli@comau.com
Barraza Harry harry.barraza@unilever.com
Bartsch Torsten bartsch_torsten@cat.com
Bhatnagar Pratik pbhatnagar@gmail.com
Bonino Ivan ibonino@hotmail.com
Bonsall Amy amy.bonsall@imd.ch
Borrell Leo lborrellvc@hotmail.com
Boucher-Dakroub Kelly kelly.boucher@tetrapak.com
Briseno Mariana Mariana.Briseno@pmintl.com
Brown Anna anna.brown@imd.ch
Bui Minh minh_hung_bui@hotmail.com
Capel Manuel manuel.capel@eu.altria.com
Chauca Jorge jorge.chauca@gmail.com
Chien Eddie chieneddie@hotmail.com
Chong Su Lee su_lee.chong@cibasc.com
Choudhary Smita smita.choudhary@imd.ch
Page 29 of 32

D'Haenens An an.d-haenens@bel.dupont.com
Das Abhik abhik.das@credit-suisse.com
Demir Elma elma.demir@parlament.ba
Desai Darshan darshan.d.desai@gmail.com
Disu Tunde tdisu@yahoo.com
Dudchenko Igor mise@bigmir.net
Dunphy Sean sdunphy@deloitte.com
Esselinckx Bernard b.esselinckx@worldonline.be
Faraz Hasan hfaraz@yahoo.com
Fircks Inga inga.fircks@uniqema.com
Fjalldal Jóhann Bragi johann.fjalldal@imd.ch
Frey Jana jana.frey@imd.ch
Frigerio Fabrice fabrice.frigerio@citigroup.com
Galvez Ivan ivan.galvez@corporate.ge.com
Ge Harry harry.ge@ssmc.siemens.com.cn
Gomes Alessandro acdgomes@odebrecht.com
Gounder Mary mgounder@za.safmarine.com
Gruber Gerald gruber.gerald@bcg.com
Gupta Manish manish_gupta2000@yahoo.com
Hengerer Roland roland.hengerer@imd.ch
Hug Paul hug.paul@bcg.com
Jaberg Thomas thomas.jaberg@straumann.com
Jaubert Ariane ariane.jaubert@imd.ch
Joedicke Harald harald.joedicke@imd.ch
Joedicke Jamorski Christine jamorski_joedicke@yahoo.fr
Kalsi Priya priya.kalsi@imd.ch
Karkera Ashvini ashvini.karkera@tcs.com
Katsaounis Alexia alexia.katsaounis@gmail.com
Kilasara Joseph sabasjoe@yahoo.com
Kode vinay vinaykode@gmail.com
Kohn Philipp philipp.kohn@deu.dupont.com
Kourkoulakos Dimitris kourkoulakos.dimitris@bcg.com
Kram Raymond rgkram@gmail.com
Lam Jade jadelam@gmail.com
Lenzmann Frank lenzmann@ecn.nl
Leonhardt Ana aleonhardt@leonhardtyasoc.com
Leroux Karine karine.leroux@che.dupont.com
Li Richard rs_tzu89@yahoo.com
Lienhard Christophe christophe.lienhard@orange.ch
Luick Albrecht albrecht.luick@deu.dupont.com
MacEachern Erik erik@mitigators.com
Magowan James magowan66@hotmail.com
Maguna Aitor amaguna@epo.org
aitor.magunacelaya@daimlerchrysler.co
Magunacelaya Aitor
m
Mani Anbarasan anbarasan.mani@wartsila.com
Marangos Ioannis john.marangos@accenture.com
Marostica Sandro sandro_marostica@hotmail.com
Mascaray Victoria victoria.mascaray@imd.ch
Mbamba Juste Cabrel jmbamba@yahoo.fr
McKeown Philip philip.j.mckeown@unilever.com
Page 30 of 32

Menchaca Eduardo eduardo.menchaca@dupont.com
Mercado Dennis dtmercado@yahoo.com
Michel Pascal michelpascal@club-internet.fr
Mohamed Ahmed ahmedh@dubal.ae
Morris-Cotterill Nigel nigelmc@antimoneylaundering.net
Mungatana Edward ndumari_mungatana@yahoo.com
Noal Jonathan jonathan@boilerroom.com.au
Nouti Idar idarnouti@hotmail.com
Novosel Christian novosel.christian@bcg.com
Nwobodo Patricia pat@rowet.com
O'Halloran David david.ohalloran@aes.com
Ogunsanya Muraino mogunsanya@deloitte.com
Osterwalder Alexander alex@businessmodeldesign.com
Pahladsingh Perry ppahladsingh@deloitte.nl
Pande Deepti deeptipande@gmail.com
Pasic Edin edinpasic@yahoo.com
Perry Verna vernaperry@cs.com
Planche-Popke Gerard gerard.planche@fr.gm.com
Plykine Sergey serguei.plykine@imd.ch
Portal Sebastien portal.sebastien@free.fr
Prevljak Dzenan prevljak@yahoo.com
Quaranta Anna anna.quaranta@it.nestle.com
Rasetti Helena helena.rasetti@adecco.com
Reeves Simone simone.reeves@esp.dupont.com
Regli Bernhard bernhard.regli@dsm.com
Riedener Micha micha.riedener@hilti.com
Salawu Adesina adesalawu@yahoo.com
Salzmann Alexander salzmann.alexander@bcg.com
Sankar Parvathy sankar_parvathy@yahoo.com
Santos Dimas dimasps@yahoo.com
Srivastava Madhur madhur_sriv@yahoo.com
Stadelmann Daniel daniel.stadelmann@imd.ch
Suri Munish suri.munish@gmail.com
Taori Harish harish.taori@tcs.com
Townsend David david.townsend@dsm.com
Tsai George george.tsai@imd.ch
Ursprung Jolanta jolanta.ursprung@swissonline.ch
Uttam Nitesh nitesh_uttam@yahoo.com
Uttamchandani Satish santinoxx@excite.com
Vaidyanathan Vijay vijay@myemailforever.com
van der Kaaij Jan jan@between-us.nl
Venter De La Rey delarey.venter@shell.com
Wadkar Anant anant.wadkar@gmail.com
Wang Ying ying_ann_wang@unc.edu
Williamson Mark mark.williamson@imd.ch
Wong Sam 888samwong@gmail.com
Yorke Peter yorke.p@pg.com
Zaied Yassine yassine.zaied@imd.ch
Zamora Luisana lzamora@ve.groupeseb.com
Zarranz Nora nzarranz@yahoo.com
Zetterqvist Henrik henrik.zetterqvist@hilti.com
Page 31 of 32

Zhi Yanping bellazhi@swissinfo.org
Zuleta Carlos c_zuleta@hotmail.com
Page 32 of 32

DLN Turning Poverty Into Opportunity - White Paper Final

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DLN Turning Poverty Into Opportunity - White Paper Final

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Turning Poverty into Opportunity DLN White Paper – November 2005

IMD MBA 2005

Dynamic Learning Network

DLN White Paper

Professor Jean-Pierre Lehmann

8 NEXT STEPS ......................................................................................................25

1.1 Foreword by Jean-Pierre Lehmann

Professor Jean-Pierre Lehmann

2.2 Summary Findings and Recommendations

• There is considerable potential for businesses to target consumers at the so

• By turning their attention to BOP initiatives, multinational corporations not only

3.3 Structure of DLN Project

3.3.1 Launch and Road mapping

Dates: Aug 15 – Aug 28

3.3.2 Active Investigating

Dates: Aug 29 – Oct 2

Dates: Oct 3 – Oct 30

Dates: Oct 31 – Nov 10

3.4 The Bottom of the Pyramid

Figure 1 – The World Economic Pyramid

3.5 Types of Projects Which Benefit the Poor

“Bottom of the Pyramid” Consumers

Figure 2 – Non-market and Market-based mechanisms for targeting BOP Consumers

• Entrepreneurs and Local SMEs2 – here initiatives are launched initially in a

• Multinational Corporations (MNCs)– here initiatives are launched based on

4 BENEFITS AT THE BOTTOM OF THE PYRAMID

Cases of successful BOP initiatives, whether undertaken by entrepreneurs or by MNCs,

4.2 Business benefits

Successful BOP-focused projects, whether undertaken by entrepreneurs or by MNCs,

4.2.2 Developing New Markets

Within a few years GrameenPhone in Bangladesh was able to acquire 3 million

4.2.3 First-mover Advantage

4.2.4 Brand Building

4.2.5 Knowledge Transfer and New Skills

4.3 Market benefits

5 CHALLENGES FOR BOP PROJECTS

5.2 Corporate Challenges

5.2.1 Market Size Estimation Methodology

5.2.2 Margin Threshold

5.2.3 Risk-averse Decision Making

5.2.4 Anxiety about Local Partners

Partnership with a well-established local firm or an entrepreneur with a strong track

5.3 Government and Infrastructure Challenges

5.3.1 Regulation and Business Climate

Many developing country governments have some way to go in establishing a business

The small companies—and start-up firms, in particular—that are crucial to long-term

5.3.2 Providing Essential Infrastructure

6 CREATING A NEW BUSINESS MODEL

6.2 Defining “Bottom of the Pyramid” Business Models

1. The value proposition of what is offered to bottom of the pyramid markets;

3. The communication and distribution channels to reach bottom of the pyramid

5. The partnerships and their motivations of coming together to make a BOP

6. The revenue streams generated by the BOP business model;

6.3 Business Models, Building Blocks and Particularities

6.4 Examples of Business Model Innovation

Anand Milk Union Limited (www.amul.com) is an interesting case of how a business

6.5 Routes to Business Model Innovation

1. Supply-driven innovation is for example achieved by doing things in a new way

Example: E-Choupal (www.echoupal.com) is an Internet based system that gives

2. Demand-driven innovation is characterized by a customer drive based on new

Furthermore, we can distinguish between innovative BOP business models where

1. Doing similar things differently mostly means offering similar value

Example: Big companies selling beauty products were surprisingly slow to