Getting to the bottom of this bottom of the pyramid

The term Bottom or Base of the Pyramid (BoP) is well-known and broadly used today. It has emerged as the more sophisticated term for poverty and is mainly used in business and management circles. At WECONNEX, we use the term regularly to describe the target group of our NEXUS Projects to indicate who shall benefit from our impact efforts. We decided to take a closer look at this ‘buzzword’ to define where the concept comes from and what we convey when using it.

The phrase Bottom of the Pyramid was initially used by former US President Franklin D. Roosevelt in his radio address “The Forgotten Man” in 1932. In his speech, Roosevelt emphasized the importance of taking into consideration “the forgotten man at the bottom of the economic pyramid”, who he believed to be an “indispensable unit of economic power”. While Roosevelt referred only to the Bottom of the Pyramid in the United States, his statement grew to the widely known BoP proposition as a market-based approach that views the poor like any other customer with needs. The term gained worldwide attention in 2006, when Muhammad Yunus received the Nobel Peace Prize for his work related to microcredits.

 

Why BoP is increasingly ‘replacing’ traditional poverty

The emergence and wide-spread usage of the term can be traced back to two main developments:

• The realization that development aid, to a certain extent, fails to achieve the desired impact. Development aid programs are increasingly under fire. Inefficiency, ineffectiveness, not economically stable, no long-term thinking, lack of exit options, limited impact and missing desirable sustainable changes are some points of the criticism. It is increasingly implied that donation-based programs and free goods and services inhibit the creation of industries and have negative effects on already existing ones.
• The fact that many of the world’s traditional markets are becoming saturated, while emerging countries, where BoP segments are predominant, are gaining in relevance. The saturation of traditional markets leads to companies looking for growth opportunities in other places. In the past, the private sector considered BoP markets to be inaccessible and unprofitable.

 

The BoP and innovative business models: Where WECONNEX steps in

The BoP is predicted to comprise of up to six billion people by 2040 due to the above average growth taking place in BoP markets. It is important to keep in mind that the BoP proposition is about more than addressing the extremely poor as defined by the international poverty line at USD 1.90 per day. Even above that threshold, people still remain beneath the radar of most conventional business models and are therefore excluded from the global market economy and its benefits. Our projects pursue a market-based approach, targeting the large percentage of the underserved rural populations. It is extremely hard to reach the very poorest,but our aim is to trigger economic development that eventually also stimulates the purchasing power of the very bottom.

Foreign aid, philanthropic contributions, donations and government subsidies need to be supplemented more strongly by market-based approaches. And successful market-based approaches require innovative business models. We at WECONNEX claim to develop and implement such innovative business models. We address the core income generating activities of smallholder farmers and fishermen in rural regions. These smallholders together with the investors and WECONNEX co-own the project and share the profits. We aspire to improve the value chain, product quality, access to market and transportation for the products, enable access to technology, know-how and education — and thus pave the way for stable and increased incomes for BoP markets.

Let us know what approach you believe in to target the BoP, we look forward to exchanging views!

 

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This Blogpost is based on the Master Thesis written by Pascal Mogy on Business Model Innovation for Infrastructure Projects at the Base of the Pyramid. Innovating the Business Model of WECONNEX.

The literature used is the following:

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Gebauer, H., Haldimann, M. & Saul, C. J. (2017). Business model innovations for overcoming barriers in the base-of-the-pyramid market. Industry and Innovation, 24(5), 543-568.

Gupta, V. & Khilji, S. E. (2013). Revisiting fortune at base of the pyramid (BoP). South Asian Journal of Global Business Research, 2(1), 8-26.

Hahn, R. (2009). Das Konzept “Base of the Pyramid”: Integrative Geschäftsmodelle in Entwicklungsländern. Wirtschaftswissenschaftliches Studium, 38(8), 402-406.

London, T. & Hart, S. L. (2004). Reinventing strategies for emerging markets: beyond the transnational model. Journal of International Business Studies, 35(5), 350-370.

McKrague, K., Wheeler, D. & Karnani, A. (2015). An Integrated Approach to Poverty Alleviation: Roles of the Private Sector, Government and Civil Society, The Business of Social and Environmental Innovation: New Frontiers in Africa.

Nakata, C. & Weidner, K. (2012). Enhancing New Product Adoption at the Base of the Pyramid: A Contextual Model. Journal of Product Innovation Management, 29(1), 21-32.

Peredo, A. M., Montgomery, N., & McLean, M. (2017). The BoP business paradigm: what it promotes and what it conceals. Oxford Development Studies. Published Online.

Prahalad, C. K., & Hart, S. L. (2002). The Fortune at the Bottom of the Pyramid. Strategy+business, (26), 1-14.

Simanis, E., Hart, S., & Duke, D. (2008). The Base of the Pyramid Protocol: Beyond “Basic Needs” Business Strategies. Innovations: Technology, Governance, Globalization, 3(1), 57-84.

United Nations (2017). The Sustainable Development Goals Report 2017. New York: United Nations.

WEF (2009). The next billions: Unleashing business potential in untapped markets. Geneva: World Economic Forum.