International Trade – Investigating a Potential Business Model

In my research on poverty I came across a poverty alleviation business model that is most commonly referred to as the BoP Perspective or BoP Ventures.  It was developed with the idea that new market entry strategies are needed, particularly in developing nations where there are large informal markets and implementing traditional formal business models create a host of socio-economic issues.

BoP stands for the Bottom of the Pyramid and refers to the 2/3 world or the impoverished population of the world that lives on the least amount of income.  Though there is varying thought as to where the income line is draw to say that you fit into this category it is clear that we are talking about the population of the world that is making $1-2 dollars a day or slightly more.  If that line is draw at $10 a day, as I mentioned in my last blog, that would account for 80% of the world’s population . . . so we are talking about a HUGE base.

The BoP model focuses on mutual value creation. It is a revenue generating enterprise that sells to, or produce goods for the poor.  It holds the following overarching measurement of success:

The greater the ability of the venture to meet the needs of the poor, the greater the economic return to the venture, the greater the venture.

This reminded me of a quote I heard from, I believe it was Henry Pinchot, Gifford’s father that said something to the effect of “Do the greatest good for the greatest amount of people for the greatest amount of time.”

BoP ventures have two main approaches as seen here:

The above is an excerpt from Ted London’s working paper on BoP Perspective on Poverty Alleviation.  It was a rich resource for understanding the fundamentals of this approach.

An article published call The Fortune at the Bottom of the Pyramid is thought to have provided inspiration to this BoP approach.  Since the publishing of the article a book with the same name has been released.

There are six BoP principles.  In more or less my own words, they are as follows:

DESIGN

1.    External Participation

Key Idea: Understand, leverage and build on existing social frameworks – partnership with “social embeddedness or “native capability”

Unique Approach: Non-local participation is involved which differs from Micro- and Small-Enterprise Development.

Measurement of Success:  A new non-locally owned or managed revenue-generation venture begins to serve BoP markets.

2.    Co-Creation

Key Idea: BoP active participation in designing the business model and conceptualizing any technological solutions.

Unique Approach: Each model is tailor made for the local BoP vs. a corporate or development sector strategy that relies on pre-existing “Western” business models and technologies that are brought into new market environments.

Measurement of Success:  The voices of the BoP are incorporated into the venture design.

IMPLEMENTATION

3.    Connecting Local with Non-Local

Key Idea: BoP products or consumers are connected to non-local markets that previously they were not able to access.

Unique Approach: Local intellect, perspectives and experience are engaged to create a new innovative venture with mutual benefits vs. being solely focused on creating jobs for those at the BoP.

Measurement of Success: Products/services from BoP reach non-local markets or non-local products/services reach BoP markets.

4.    Patient Innovation

Key Idea: The business model has a long-term orientation with the patience to scale only after demonstrating success.

Unique Approach: Starts small and scales based on success vs. immediate large-scale implementation with related economic returns or societal impacts.

Measurement of Success: Finances and resources are available to support the long-term objectives that are not strictly tied to short-term performance goals.

PERFORMANCE

5.    Self-Financed Growth

Key Idea: Profits from competitive advantage are the primary source of long-term growth of the business.

Unique Approach: The goal is to generate competitive advantage for a specific venture vs. dominating a particular industry.

Measurement of Success: Competitive advantage is achieved based on maintaining mutually beneficial partnerships with local entities.

6.    Focusing on What is “Right” at the BoP

Key Idea: The idea that there is intrinsic value and rationale to the informal economy and this undergirds the business strategy.

Unique Approach: The goal is not necessarily to formalize the informal market vs. approaching the venture with initiatives of creating an environment for formal economic growth.

Measurement of Success: Distinctive leverage points are identified by the BoP venture and it’s partners that enhance resources and capacities that currently exist at the BoP.

I would like to suggest that there is one more category and two more principles that need to be more directly stated to ensure the long-term mutual benefit of a BoP venture partnership.

EVALUATION

7.    Environmental Impact

Key Idea: Sustainable environmental practices are instituted to ensure the long-term benefit of the partnership.

Unique Approach: Zero impact practices are imbedded in the DNA of the business model vs. approaching resources with the idea that there is an unlimited supply and that waste has no residual effect on the environment.

Measurement of Success: Power, water and resources used or consumed are from renewable sources and result in zero waste.

8.    Social Justice

Key Idea: Human rights and principles of equality and dignity are engrained and promoted within the strategy of the venture.

Unique Approach: Local partners are deemed as equal collaborative partners with the focus on how we can help each other.

Measurement of Success: Fair trade principle are observed and the venture measurably narrows the gap of disparity within the local economy.

In Norms article Chocolate Versus Cocoa Will Reduce Poverty In Africa he shares a link to an article that argues that developing nations such that are in Africa must move up the value added chain by producing higher value commodities. 

While it may be true you can sell chocolate for more than coco and clothing for more than cotton, I’m not convinced that producing more processed goods for the sole motivation of profit is the best impetus.  The article sites a “successful” marketing campaign that persuaded 5 million Nigerians to consume an instant-noodle product, known as Indomie, instead of the popular more natural cassava product called Garri.  No consideration in the article was given to which was healthier for people or least damaging on the environment in it’s production . . . I’m noticing a trend that economists tend to all too quickly forget about the non-monetary factors such as quality of life, cultural heritage, health and happiness that inspire dignity and well-being.

The type of development the above article is describing, might lead one to believe, imposing Westernization on these countries with a formal market is the best and only way to bring them out of poverty. There are alternative possibilities however.  The BoP perspective focuses on a bottom up approach that respects the strengths and capabilities that already exist at the BoP vs. imposing a top-down more corporate design focus on overcoming weaknesses in the value added chain and “Westernizing” local business activities.

I’m very excited about what I have learned about this BoP business model however, if not just for marketing sake, I think it needs a better more catchy name.  Any ideas?