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http://jhv.sagepub.com/Journal of Human Values
http://jhv.sagepub.com/content/15/2/133The online version of this article can be found at:
DOI: 10.1177/097168581001500205
2009 15: 133Journal of Human ValuesSamir Ranjan Chatterjee
for Building Shared Commitmentultinational Firm Strategy and Global Poverty Alleviation : Frameworks and Possibili
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SAGE Publications Los Angeles/London/New Delhi/Singapore/Washington DCDOI: 10.1177/097168581001500205
Multinational Firm Strategy and Global PovertyAlleviation: Frameworks and Possibilities
for Building Shared Commitment
SAMIR RANJAN CHATTERJEE
Bottom of the Pyramid (BOP) strategies recognize for thefirst time that global companies can contribute to
the alleviation of worldwide poverty by adopting non-traditional and mostly non-Western models of business
involvement. It is now widely accepted that poverty and hunger arise not because there are no goods or food,
but because billions of people lack income to purchase them. It is also a common belief that the private sector
can play a significant role in lifting the poor from the margins of the market system. This would require strategic
and mindset shifts in global companies leading to a very different path where their operations intersect with
the greater good of communities, societies, and nations. Successful engagement in the untapped market space
at the base of the global income pyramid calls for completely new capabilities, responsibilities, and values.
Alliance building with local and non-traditional partners, promoting bottom-up solutions and understanding
social sustainability are some of these new managerial challenges.
This article reflects on some of the critical challenges of global companies and global managers in their
strategic engagement at the BOP and explores how largefirms can become involved in the pursuit of social
capital acquisition and how new approaches of publicprivate partnerships in reformulating the profit-
performance links, the downscaling of products or services without compromising their quality and integrity,
the bridging of the information and infrastructure gap, educating, and empowering the poor, together with
innovations through technological adaptations can be managed through the embracing of new mindsets.
A number of frameworks are presented with a view to contributing to the debate and outlining new value
objectives for global companies.
Samir Ranjan Chatterjee is Professor of International Management at Curtin University of Technology, GPO Box U1987, Perth,Western Australia 6001. E-mail: [email protected]
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134 SAMIR RANJAN CHATTERJEE
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Introduction
The phrase Bottom of the Pyramid (BOP)
refers to the lowest segment of the global incomepyramid where an estimated four billion people
survive at an income of about US$ 2 a day. A
body of literature initiated by C.K. Prahalad has
emerged that suggests that multinational com-
panies may find a challenging opportunity of
strategic revitalization and high ethical ground by
serving this BOP market (Gates 2008; Prahalad
2005; Prahalad and Hart 2002; Vichani and
Smith 2008). The idea emphasized by the BOP
theorists is to extend the strategic boundaries ofcorporate operations with a view to becoming more
inclusive and creative. This is in contrast to the
traditional emphasis of ethics and responsibility
focus. It is argued that large multinational firms
selling products and services appropriate to mul-
tiple contextualities and cultures outside their
income tier would generate a multiplier effect on
local business, job creation, physical, and social
infrastructure enrichment as well as improving
education, health, and other services.
Prahalads belief is that BOPs conserved
markets can not only become a source of innov-
ation but also provide a significant contribution
to the sustainability of the market system. Four
key elements need to be built as the foundation
for this. First, the creation of buyer power; se-
cond, shaping of aspirations through context
relevant products and service innovation; third,
building of consumerproducer and educational
links; and fourth, understanding and arbitraging
local solutions. Interestingly, Prahalad has beenconsistently rejecting social responsibility as the
basis of BOP initiatives by multinational com-
panies through such noble ideas that inevitably
emerge as outcomes for successful strategic ini-
tiatives (Gouillart 2008).
A number of interesting successes as well as
staggering failures have become well-known.
These cases of multinational involvement in
the BOP market attempt to respond to micro-consumption, collective consumption, and reci-
procal consumption of the clustered market base
of the poor. The potential of these low-resources,
localized, and diverse markets around the world
have a number of underlying assumptions. These
assumptions include ambitious ideas that the
poor can learn to manage and become self-
sufficient, and that capitalism can be extended to
adopt an idealism of inclusion and sharing in
a creative way. In contrast to the markers at thehigher segment of the income pyramids where
global strategies are focused on consumer de-
mand and competitive tactics, the challenge in the
BOP market is to understand the unique social-
cultural, institutional, and resource constraints
embedded in the context. BOP customers need to
be understood more as producers and innovators.
The companies serving them need to completely
re-orient their products, pricing, packaging, and
supply-chains.
The BOP concept offers an opportunity for
global companies to usher in a new era of growth
as well as for bridging the increasing economic
disparity. Linking the alleviation of global poverty
with strategic shifts is now not only being debated
in scholarly research but also providing excit-
ing examples of successful corporate ventures
around the world. Building of business models
to fundamentally re-orient the mindset of global
managers requires the acquisition and enrichment
of new competencies, the building of alliances, themobilization of resources, and new approaches to
shared learning in co-creating culture, services,
products, and mindsets. Obviously the success
of the BOP framework depends upon large
corporations being able to build capabilities for
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grassroots solutions at the indigenous levels
around the world and has profound implications
for management education (Rosalie 2008).
The key issues involved in the BOP frameworkare the empowering and enabling of the poor in
making choices. Four billion people pay a Poverty
Penalty as they need to pay more for everything
from water to credit (Mendoza 2008). Most of
the economic life in the BOP markets around
the world is controlled by exploitative money
lenders (Patel and Arputham 2008). Therefore,
the exploitative potential of large multinationals
or national companies is only a moot point. It is
the mediating influence of the local communities,non-governmental organizations (NGOs), and
governments as well as the emboldening of the
poor, that can have a countervailing effect on the
exploitative potential of large corporations. On
the other hand, if more companies follow the
lead of the most creative organizations in their
industry, they will make a huge impact on some
of the worlds worst problems to help create a
world where no one has to live on a dollar a day
or die from a disease we know how to prevent
(Gates 2008: 3). In addition, BOP presents new
opportunities of privatepublic collaborations to
the advantage of each.
This article explores the shift needed in man-
agerial mindsets in understanding and engaging
with the BOP market. A strategic framework is
proposed for the creation of competencies that
lead to sustainable social development as well as
profitable economic outcomes. The experience
of MNC engagement in the BOP market over
the past decade demonstrates how multinationalscan learn to leverage and extend their global
capabilities. Not only do such strategic shifts
require innovations in business models but also
in the competencies for learning collaboration
and the building of multiple alliances.
BOP Strategy as an Opportunityfor Value-Creation
The proposition that global poverty can be alle-
viated by companies in partnership with national
or regional governments and a range of NGOs
has gained widespread credibility through many
successful case examples. These examples in-
clude the programme of Patrimonio Hoy by the
Mexican company Cemex, Grameen Telecom in
Bangladesh, Kick Start in Kenya, the alliance of
Starbucks with Conservation International and
Daimler-Chryslers Brazilian outreach alliance
called POEMA (Poverty and Environment inAmazonia Research and Development). Nestls
partnership with poor dairy farmers in India
is also an interesting example. The balancing
of Nestles need for reliability, quality, and the
exploitative distribution and information system
was collaboratively and innovatively resolved.
The bottlenecks of the complex distribution
system were overcome by supplying the rural
and mostly BOP farmers with equipment and
other materials needed to deliver quality milk.In addition, Nestl provided training to farmers.
Since its initiation in 1961, Moga project has now
grown to cover about 100,000 farmers.
The idea of helping the poor of the world
while ensuring corporate innovation, growth,
and profitability speaks to a completely new way
of viewing corporate globalization strategies.
The widely quoted BOP figures of four billion
people with per capita income below US$ 2,000
a year or $ 2.00 per day (Prahalad and Hart 2002)
represents a large portion of the global population.Engagement in this market cannot be contem-
plated with a globally standardized strategic
mindset. BOP engagement involves managing
substantial diversity in technical and economic in-
frastructure and cultural differences. Though the
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BOP market is predominantly non-urban and
spread through Asia, Africa, and Latin America, it
may also exist in the most economically advanced
countries. BOP is not a homogenous segment,and the particular model that would work best in
different regions and cultural contexts is a signifi-
cant challenge (Latelier et al. 2003).
A number of researchers have undertaken com-
prehensive and in-depth quantitative studies of
BOP spending on consumption (Hammond et al.
2007; Viswanathan 2007). These studies categor-
ize consumer spending in various sectors as pre-
sented in Table 1.
Subrahmanyam and Gomez-Arias developed adetailed set of 15 categories based on a study of
consumption patterns in the BOP market. These
15 categories are food and nutrition, energy,
housing, water/sanitation, transportation, health
services, finance, education, information-related,
personal care/hygiene, clothing, negative goods
(for example tobacco), cultural/sports, and durable
items (Subrahmanyam and Gomez-Arias 2008).
An example of how the BOP market may respond
to innovative consumption is the Columbian
energy company, Codensa. Legislative restrictionsprevented Codensa from exceeding 25 per cent of
the companys electricity market and it needed to
come up with an innovative solution. The company
launched an easy credit card that would enable its
current energy customers to buy useful electrical
appliances with repayments to be paid throughmonthly electric bills. A partnership with global
electrical goods manufacturers in redesigning their
products was also useful (Martinez and Carbonell
2007). Another example of BOP intervention may
be the example of the Honda Motor Company
in India. Honda in India organized its BOP
segment customers into groups of 20 people in
buying generators at US$ 400.00. Each member
of this group was required to make a payment of
US$ 20.00 each month into a common pool for20 months. A lottery system ensured that each
group member had an equitable turn in the
use of the generator for agricultural and other
purposes.
It has to be understood that the emergent
concepts of BOP do not consider a new, chal-
lenging, and unexplored customer base where
innovative products and services are delivered at
the end of a value chain, but as a process where
large corporations integrate this segment to learn
cooperative value-creation. For example, Nestleengineered a parallel distribution system that
corrected defects in the existing channel. It offered
Table 1
Consumer Spending Pattern of BOP
BOP Sectors Consumer Expenditure (Per cent) Nature of the Market
Food 58 National/localEnergy 9 GovernmentHousing 7 LocalTransportation 4 Government/private
Health 3 Government/privateFinance and IT information 1 Bank/private/local communityWater 0.4 Government/privateEducation 3 Government/privateClothing 2 PrivateOthers 12.6 Private
Source:Modified and adapted from available data of World Resources Institute, 2007.
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to pay for product at higher than currently available
market rates. Adding value, it arranged to supply
farmers with the supplies and materials needed to
work at lower than market rates. The company alsoprovided training that aided farmers in increasing
their milk yields (Wood et al. 2008: 421). ITCs
e-choupal in India has drawn global attention in
reforming Indian agribusinesss supply-chain
in order to bridge small rural farmers and big
companies. These ideas of dual value-creation
for MNCs included enriching BOP customers
as producers and not merely as customers, and
assisting poor producers to meet local or global
quality standards, as well as training them. Thisconvergence of doing well and doing good
brought about through the BOP framework
can only be continued when the managerial
mindset has undergone a quantum shift to the
view that sustainable measures lead to positive
social impacts. By means of the employment of
resources and competencies in up-skilling, and
including them in value-creation, a significant
contribution to social good can be achieved.
Prahalad has been arguing that the traditional
four P model has been inadequate in the creationof a sustainable society and needs to be replaced
by the creation of buying power among the bottom
tier consumers in a way that allows poverty
alleviation, sustainability, and infrastructural
amenities in creating positive influences of social
development. Prahalad strongly advocates moving
away from four Ps and embracing the four
AsAffordability, Acceptability, Awareness,and Availability (Prahalad 2005). Prahalads BOPmodel envisages a four A framework as opposed
to the traditional four P marketing gospel. Thesenew challenges are Affordability, Acceptability,Availability, and Awareness. The impact of theseelements on BOP may be summarized as follows:
Affordability: The basic character of the BOPmarket is the low disposable income of theconsumers and their high sensitivity to price,single-use packaging, or collaborative purchasing
schemes. Table 2 shows the 2008 unit price ofUnilevers consumer goods in Indonesia.
One of the more successful examples ofunderstanding the Affordability issue was the es-tablishment of the Patrimonio hoy programme
in Mexicos CEMEX company. This programmeallowed customers to buy cement through in-novative credit schemes and instalments.
Acceptability: This critical challenge reflects atrue bottom-up contextual understanding. It isessential that the managerial strategic mindset isre-oriented in the practice of deep listening and
collaborative development. An example of howwomens self-esteem and bounded indulgencein the BOP market was leveraged by HindustanLever may be relevant. The local cultural practiceof using a single soap for both body and hair
instead of using cheaper and harsh products ledthem to launch a very successful BOP productcalled Breeze 2-in-1 (Wood et al. 2008).
Table 2
Price of Unilever Indonesias Consumer Goods, Jakarta
Product Brand Size Price (in Rupiah) Price (in US Dollar
Shampoo Sunsilk 12 sachets Rp 4025 $0.40Soap Lux 90 g Rp 2150 $0.23Soap Lifebuoy 85 g Rp 1915 $0.20Toothpaste Pepsodent 75 g Rp 2590 $0.27
Source:Store visit.
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Availability: This challenge of establishing the
distribution system is the key foundation of
BOP. Economic, geographical, technological,
cultural, or political isolation often can beviewed as strong market participation barriers.
Prahalad contended that information inadequacy
often forced the local operators to work within
the span of bounded rationality. In spite of a
great process in the area of communication and
connectivity, half of the worlds population has
yet to make a single telephone call. The example
of NGOs in the provision of small-scale energy
solutions was specially commended by Bill Gates
(Gates 2008).Recent research has suggested lowering the
cost of distribution, reinventing the distribution
channel, and taking the long-term view of
investing for the future as creative market-based
alternatives in enhancing availability (Vachani
and Smith 2008). How a very simple mindset
re-orientation at Smart Communications in the
Philippines overcame the availability barrier
may be an interesting example. Recognition that
the replacement of prepaid telephone cards by an
over-the-air payment system can open up a newBOP market led to the minimization of physical
distribution costs and extended availability
beyond the physical location and regular store
hours (Anderson and Billou 2007).
Awareness: Consumer education and product
innovation on a global BOP scale can be shaped
by global companies. An example could be the
formidable attempt to encourage people who
formerly ate white rice to change to brown
golden rice, which had vitamin A added to it, in
a project to combat childhood blindness amongst
the rural poor. Innovation in electricity, water,
refrigeration, telephones, and health services are
all areas where significant contributions can be
made for profit by the private sector. Unilever
Indonesias efforts in the promotion of Black
Soy Bean not only ensured its brand visibility
but also ensured health awareness in Indonesia
(Hart 2007). It is important to understand thattraditional advertisement methods are usually
inappropriate in extending product or service
awareness. An example of how unusual methods
in brand building in rural BOP areas can be
achieved was demonstrated by Hindustan Lever
in India. The company tapped into the Indian
culture of love for music, drama, and village-
level performing arts. Local magicians, singers,
dancers, and other performers were employed
in the extension of awareness of their products.Table 3 outlines a number of basic needs and
possible product-offerings relevant to the BOP
market.
The most difficult challenge for multinationals
in the low-income consumer market is the ability
to innovate packaging. The bodegars in the street
markets throughout Latin America offer Nivea
shampoo in single-use plastic wraps, Colgate
has a macro-sized package and Unilevers soap
can be purchased in 20-gram packages. Intrigu-
ingly, these innovations have led to surprisinglevels of profit and the ability to reach a market
where these products never reached before for
these MNCs. Even though smaller packages
can create value by increasing convenience and
manage cash flow, it has been argued that they do
not increase affordability. The way to increase real
affordability is to bring a reduction in the price per
use (Karnani 2007). Sachets and small packages
do create value for the poor to an extent but they
also lead to undeniably promoting impulse buying.
Sachets and single-serve packages also create en-
vironmental problems such as how to recycle the
trash and plastic packaging.
As has been discussed earlier, non-access, non-
usage, poor quality, and other obstacles lead to
severe poverty penalty in the BOP sector. In many
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areas, non-consumption may not even be an optionresulting in exponential increases in this penalty.
Even the poor living in urban centres are victims
of weak regulatory and legal regimes.
Alleviating the poverty penalty could be a
channel through which markets could be
made more inclusive for the poor and the vast
majority of the worlds low income population
and this is clearly an area where both the public
and private sectors need to collaborate not justin developing a deeper understanding of why
and how markets malfunction in ways that are
exclusionary, but also in order to link up with
practical and innovative solutions to address
this. (Mendoza 2008 online)
Multinational Companies andthe Bottom of the Pyramid
The emerging role of multinational companies in
markets where marginalized poor can participate
either as consumers or as producers can be of con-
siderable momentum in achieving global poverty
alleviation. As consumers, the poor pay the
poverty penalty in terms of quality, price, non-
access, and socio-economic burden. As producers,
they encounter this penalty in terms of low-pay,asymmetric information, and a number of other
obstacles. This advantage of the poor in terms
of poverty premium (the ratio of the price of a
product or service that the poor need to pay as
compared to the non-poor) has been illustrated
in various market areas like health services, edu-
cation, water, telephones, credit as well as basic
products such as rice, wheat, or meat (Prahalad
and Hammond 2002). In an empirical research in
this area of disadvantage of the tier four poor inmarket participation initiatives, Mendoza (2008)
contended that the Poverty Penalty Index (PPI)
can act as an indicator of where the needs of the
poor are more critical. He suggested:
Based on the data collected to calculate po-
verty premiums across different markets and
countries, it might also be possible to develop
consolidated country level indicators of the
price-related aspect of the poverty penalty.
One potential approach would be to construct
a poverty penalty index (PPI) which could
be used to track trends in the poverty penalty
premiums in certain markets over time and
across boundaries. It could also serve as a
bell weather indicator of how inclusive these
Table 3
Appropriate BOP Products
Need Relevant Product-offering
Necessities Basic food items, water and water puri fication systems, clothing, energy generation, and reliable
lighting such as solar cells, fuel cells, micro-turbines.Education Basic childrens school books and adult learning materials.Labour saving devices Water pumps.Energy-saving Reliable batteries, solar cookers, solar cells for small street side business (particularly running
food stalls).Productivity-enhancing Affordable micro-credit, 2 in 1 pcs, communication devices.Consumer goods Cooking utensils, basic microwaves.Mobility Bicycles, scooters.Health goods Mosquito nets, generic pharmacy items, spectacles, iodized salt, sterile medical items.
Source:Adapted from Elli (2008: 3).
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markets are (or could be) in different parts of
the world. (Mendoza 2008 online)
As the context of corporate imperialism be-comes an urgent global issue and leaders around
the world attempt to find a harmonious response
to an unprecedented global economic meltdown,
multinational corporations need to play their part
more imaginatively. Linkages, costs of market
building, product policy, design and packaging,
supply-chain, distribution systems, and many
other fundamentals are a pre-requisite for success.
Strategic platforms of acquiring and building
new resources, techniques and capabilities, andforging a multitude of local partnerships are the
primary pre-requisites of this new challenge.
Establishing meaningful relationships between
economic returns and social development of the
market is of paramount importance (Hahn 2009;
Perez-Alemand and Sandilands 2008).
Core beliefs and assumptions about tier four
customers and markets can change as the in-
novations and business designs are allowed to
blossom in a centripetal direction rather the trad-
itional centrifugal imperial mindsets. The typical
separation of production and consumption are
not relevant in the BOP context. Understand-
ing of market needs, possibilities of payment,
and potential partners is essential. The degree
of access to micro-credit and the developmental
potential in peoples standard of living can
guide global managers in their approaches to
BOP markets (Landrum 2007). Perhaps no other
multinational company has been as meticulous
in terms of its impact as a BOP market presenceamongst the local communities than Unilever.
The system of footprint evaluation of economic
and social impacts is a model for others to follow.
It has developed a number of value-adding col-
laborations with social entrepreneurs especially in
India, where it invests 1 billion a year in R&D in
new products. In South Africa, Unilever supports
100,000 jobs (although it only employs 4,000
people) and contributes to about 0.9 per cent ofthe countrys gross domestic product (GDP).
Learning to conceptualize challenges in a new
light may come from this new thinking. Investment
in a business ecosystem, contributing to the cre-
ation of market space and collaborations with
stakeholders like the government, NGOs, as well as
other MNCs are critical to success. The creation of
enabled consumer bases through increased access
to credit and income generation, understanding
local needs through innovation of sustainableproducts, and facilitating two-way distribution
systems where suppliers and customers work in
tandem are also crucial. The critical issue of the
price-performance lies in innovative distribution
and supply-chain arrangements where alleviating
poverty becomes the main goal. Views on quality
are understood in terms of durability and oper-
ational capability even in hostile geographic,
climatic, or other conditions. Profitability is meas-
ured not only by margins and volumes but also
by sustainable social development. It needs to be
understood that operating in the lowest income
segment (or BOP) is much more complex than
serving the high-income segments. Three key
platform shifts are needed by MNCs in making
their BOP engagements a success and are repre-
sented in Figure 1. The critical focus on mindset
and competency re-orientation leads to the lever-
age and arbitrage dividend, which in turn has
the potential to make a significant global dent on
poverty, unsustainability, and greed-based cor-porate strategies.
One of the most widely accepted global strategic
models popularized by Bartlett and Ghoshal
(1989), where a multinationals strategic success
depends upon its ability to balance its emphasis
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on global efficiency with its ability to adapt its
existing resources and capabilities to respond to a
range of national environments, may have a verylimited relevance in the BOP market (London
and Hart 2004). Bartlett and Ghoshals (1989)
transnational model relies on the existing product,
process, technology, and other related metrics with
the ability to adapt these elements to various local
environments. This top-down strategic approach
is not relevant in the BOP space as success in the
BOP market is dependent on bottom-up learning
where sharing existing knowledge without
grassroots learning would prohibit true absorption
of context-specific information and knowledge.
This capability is also substantially different
from the ability to leverage worldwide learning,
which assumes that the appropriate knowledge
already exists within the firm, (London and
Hart 2004: 366). The challenge lies in inclusive
co-creation of lower costs on the one hand as
well as altering the concepts of producers, dis-
tributors, and supply-chain innovators on theother. Examples of the British company Cadbury
investing millions in small farming communities
or the Japanese company Sumitomo Chemicals
purchase of stakes in AZ Textiles in Tanzania to
produce millions of insecticide-treated mosquito
nets a year are relevant in understanding the
challenge. The example of the Indian Institute of
Management (IIM) Ahmedabads initiative in
exploring linkages between rural innovators and
Western business houses may also be of interest to
management educators (Gordon 2008). Reaching
out to co-create a new product or service through
local embeddedness and immersion rather than
integrating or adapting the core strategy is the key.
Ghemawats approach of Adaptation, Aggregation,
and Arbitrage may perhaps have more relevance
Figure 1
Framework for MNC Managerial Mindset Transformation
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here as value-creation continues to be the strategic
platform in any BOP commitment. As Ghemawat
(2007: 60) contends, Some companies are finding
large opportunities of value-creation in exploiting,rather then simply adjusting to or overcoming the
differences they encounter at the borders of the
various markets.
The initial idea of the creation of buyer
power was conceptualized around grassroots co-
operatives and micro-credit. A number of initia-
tives around the provision of small loans to get
the disadvantaged out of poverty and in many
instances to make them accept entrepreneurial
responsibilities were central considerations.The example of social business popularized by
Mohammad Yunus through the work of Grameen
Bank in Bangladesh has been powerfully con-
trasted by other models in microfinance in many
countries. SKS Microfinance led by Vikram Akula
is one such example. The Grameens approach of
social entrepreneurship aims at doing good rather
than making profit. Yunus is critical of modern
large corporations for not recognizing the multi-
dimensional nature of human beings and asserts
that social business fills this void (Yunus 2007).In recent times, four areas of attention for
global companies and global managers have em-
erged in this area. First, the unearthing of the real
needs of customers deep contextual probing of
the underlying issues of poverty and converting
that understanding to superior global-scale in-
novative processes of a multinational company.
Second, achieving a sustainable business model
by designing products, particularly packaging,
to minimize their ecological impact. Third, e-inclusion, whereby technology is used to achieve
subterranean goals to improve BOPs access to
both social and economic opportunities. The
South African HP i-community initiative is such
as example. Fourth, and most importantly, the role
of global companies in the BOP market is
increasingly seen in terms of their ability to
co-create a leading partnership platform. This
involves bringing together the government, thelocal community, local and international NGOs,
and political actors. Strong interests and com-
mitments from all these parties are the best
guarantee of long-term BOP performance. This
aligning of interests offers protection from the
risks associated with each stakeholders narrow
goals and information inadequacy. In short, BOP
value-creation can only be achieved when all the
stakeholders are aligned and their complementary
skills and resources are mobilized (Brugmann andPrahalad 2007; Rondinelli and London 2003).
The model presented in Figure 1 may be illu-
strated by the approach that PepsiCo is increasingly
adapting in China. The company is engaging ac-
tively in Chinas western and northern regions and
participating in environmental, social, and com-
munity projects. For example, it has injected 200
million yuan in potato farming projects throughout
China. Since 2007, more than 5,000 tons of
potatoes have been exported to Southeast Asian
countries. The Pepsi potato project in China hasbeen able to improve agricultural production and
assisted in their quality standardization. In June
2009, Pepsis CEO, Indra Mongolia, inspected the
transformation of 1,334 hectares of desert land
in farming and understanding the local culture
(Shambora and Kowitt 2009).
PepsiCo has also invested six million yuan
in establishing an agricultural research centre in
partnership with the Chinese Academy of Agri-
cultural Science. The project assists farmers inthe use of modern seed cultivation and farming
techniques in the low income agricultural regions
of the west (Ganso province) and the farmlands
around the southern city of Kunming in Yunnam
province. PepsiCo has been deeply involved in
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every stage of this new potato growing culture
from seed development, irrigation, storage, bulk
transportation to market generation. In Inner
Mongolia, the benefit of this has flowed on toabout 1,100 poor farming families. In addition,
PepsiCo is collaborating with the University
of Traditional Medicine and dreams of one day
marrying traditional Chinese herbal drinks to its
portrait.
It is interesting to note that Chinese leaders
including the vice-chairman of the standing com-
mittee of the National Peoples Congress and
President of the All China Womens Federation
have been showering praises on PepsiCo andpublicly endorsing Indra Nuyi for her work in the
Chinese BOP sector.
In contrast, Coca-colas disastrous initiative
in manufacturing packaged water in Plachimada
village in Kerala demonstrated its failure in
understanding the model presented in Figure 1.
In spite of alarm from local villagers, the Kerala
State Pollution Control Board and the media,
the company pursued its old strategic mindset
rather than understanding and integrating the new
transformation.Jaipur Rugs, an Indian BOP company in the
state of Rajasthan, was cited as an example by
Prahalad in explaining how value adding can
occur through BOPs integration into global
supply-chains. They receive wool from as far as
Australia, New Zealand, China, and Argentina.
It is then blended with wool from Rajasthan in
India; 40,000 women in rural India create classical
and contemporary handmade carpets that are
then sold in United States. This is the ultimateglobal supply-chain, where the poor are woven
into the supply-chain (Gouillart 2008: 227).
The emergence of Grameen Phone and Grameen
Telecom in 1997 in Bangladesh through a joint
venture between the Grameen Bank of Bangladesh
and the Norwegian telecommunications company
Telenor is a staggering example of value-creation
at the grassroots level. While Grameen Telecom
was set up with an objective of providing an ad-ministrative interface to Grameen Bank, Grameen
Phone adopted the strategic objective of social
business. In 2009, Grameen Phone was one of
the largest private companies in Bangladesh and
possibly the largest private tax payer in the coun-
try (Prahalad and Lieberthal 2003; Seelos and
Mair 2007).
Approaches in Market
Engagement
In his recent book titled, Capitalism at the
Crossroads, Hart calls on global companies to
radically re-orient their conception of globaliza-
tion and strategy. He asserts that MNCs new
focus at the base of the global income pyramid
can not only lift billions of people out of poverty
and desperation but can also establish the creative
alignment of business, earth, and humanity
(Hart 2007). The potential of the low-resourced
and disorganized market of four billion people
with per capita equivalent purchasing power less
than US$ 2,000 per year living mostly in rural
areas or urban slums was explored by Hart and
Prahalad as the Bottom of the Pyramid (BOP)
market (Hart and Prahalad 2002). With earnings
less than US$ 2 a day, it was not surprising that
this particular market was ignored as a profitable
market space for MNCs. However, it has been
pointed out:
The spending power of Brazils poorest
25 million households amounts to $73 billion per
annum, while Chinas poor residents account for
286 million households with a combined annual
income of $691 billion. India has 171 million
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low income households with a combined $378
billion in income. But the success of multi-
national corporations in penetrating those low
income segments has been limited at best, withmost companies based in the developed world
choosing to focus on the middle and upper
income segments of the developing world.
(Anderson and Billou 2007: 14).
In spite of this, a number of strategies arising out
of the four P framework have been successful
in redesigning and adapting products for the BOP
market. For example, washing machines designed
for the top of the pyramid by Haier were able tobe re-engineered to be useful as vegetable washers
and cheese makers in China (Anderson and
Billou 2007). Other examples include Nirma
washing powder, Danones yogurt, and HPs
South African i-community. The alignment of
the BOP market in uplifting poverty requires the
framing of a new network of stakeholders. There
is a need to learn from BOP entrepreneurs in
developing innovative products, pricing, pro-
motion, and distribution strategies. Nielson and
Samia (2008) focused attention to a number ofessential elements in preparing an organization
for successful BOP engagement. These essential
elements include an emphasis on economic op-
portunity, income generation, human capability
building, and community development. Wang
(2007) argued that privatepublic partnership
needed strong community support, stability in the
political context, as well as a regulatory frame-
work, which is followed and enforced. Govern-
ments and bureaucracies are increasingly findingthe for-profit sector attractive as it brings market
level innovations and administrative efficiencies. It
is also evident that many NGOs whose motives in
partnering with the for-profit may have doubtful
reasons, as in a number of countries local NGOs
are established by political interest in accessing
funding from the state or multilateral agencies.
In a recent study of the marketing of the low-
price car Nano by the Indian company Tata, itwas suggested that even an Indian company
entering its own bottom income segment had a
formidable economic distance to bridge in spite
of a negligible cultural distance. At the time of
its conception in 2003, Tatas Nano intended to
provide an affordable, fuel-efficient, safer, and
quality alternative to millions of low income
Indians using scooters and motor cycles. Though
Tata did not need alliances to become indigenous
or native capability as required in BOP markets,it still had a whole host of new learning to absorb.
In this instance, the competition for Nano came
from non-consumption or low-quality. The in-
novation was to fill a gap with a new product that
offered safety, functionality, and affordability. It
has to be remembered that consumers of Nano who
are moving up from their current two wheelers
would need to obtain driving licences where
a literacy barrier would act as an obstacle
(Waeyenburg and Hens 2008).
Actors in the BOP arena may include individualentrepreneurs, employees and enterprise partners,
small businesses, nationalfirms, NGOs, and multi-
national firms. The formidable opposition by
the traditional exploitative money lenders that
the grassroots entrepreneurial organization SKS
micro-finance in India overcame to become an
example of how a successful strategy of bypassing
the usual conventions of poverty alleviation that
benefit all (Akula 2008). The challenge of moving
away from the traditional underpinnings of cap-italism to a creative and inclusive capitalism needs
a change in mindsets. The one-way transfer of
low-cost imports into developing countries or the
use of outsourcing for a cheap talent pool cannot
be the content of true globalization, as serving
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the poor presents the most complex of busi-ness operations, and this inevitably requires aquantum shift in strategic mindsets as well as
the competencies of global managers (Hart andSharma 2004; Jain and Vachani 2006).
Challenge of Implementation
The implementation challenges require a deeperunderstanding of the causes of poverty in a givencontext. A number of deficits or gaps tend to beevident in this understanding process. These may
include deficits in object gap or idea gap. Theobject identifies shortages in basic commodities
and infrastructure including roads and factories.The idea gap emphasizes the lack of access toinformation and knowledge. While detection of
these deficiencies is important, it fails to providea nuanced perspective demonstrating how theycome together and combine with other factors todisrupt the lives of various persons or support their
movement out of poverty across impacted nationsof the world (Hill and Rapp 2009: 40).
A number of critics have argued that BOP ismore a theoretical hype than reality as the severelyconstrained low-income base cannot make any
product or service viable except some basic sur-vival products. In contrast, optimists contend thatthe BOP model presents a real roadmap for pov-erty alleviation through the extension of creativecapitalism at the grassroots. A number of case
studies have demonstrated that the generation of anew group of micro-producers, micro-consumers,and micro-innovators can at least signal a globalmove to bridge the poverty gap (Mendoza and
Thelen 2008). One powerful critic of this BOPconcept described it as at best a harmless illu-sion and at worst a dangerous delusion. Hecriticized multinationals for attempting to viewthe poor as potential customers rather than pro-
ductive partners. He contended:
The private sector can help alleviate poverty by
focussing on the poor as producers. One way
to do this is to make markets more efficient
such that the poor capture more of the valueof their outputs. Certainly the best way for the
private forms to help eradicate poverty is to
invest in upgrading the skills and productivity
of the poor and to help create more employment
opportunities for them. (Karnani 2007: 109)
Karnani argued with considerable conviction that
the challenge of inequality of income or gender
imbalance is deeply entrenched in the BOP mar-
ket and it is almost impossible to make a differencewithout a very deep and shared commitment. He
argued that 79 per cent of Indians are below the com-
monly defined $2 per day poverty line. He claimed
that 39 per cent of adults in India are illiterate.
Ten per cent of boys and 24 per cent of girls
have no opportunity of schooling. Forty-nine per
cent of the children are underweight for their
age (Karnani 2007). Except the action agenda
initiated at the Cornell University called, The
Base of the Pyramid Protocol, existing researchdoes provide a blueprint on how all elements like
capabilities, resources, and collaborators could
be managed to achieve local embeddedness for
a multinational company. Figure 2, drawn from
the BOP protocol documentation, shows how the
logic of co-creation initiates the strategic intent
for multinationals as they build deep dialogue and
establish new capabilities.
As Hart (2007: 220) suggested, Competitive
advantage based upon a deep understandingof and integration with the local environment
companies earn it by creating a web of trusted
connections with a diversity of organization and
building on the available social infrastructure.
For a multinational company, the mirage can
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146 SAMIR RANJAN CHATTERJEE
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become a reality if global managers are able to
understand the limitations in the environmental
infrastructure and institutional support base such
as the existence of distribution networks or the
rule of law, and creatively craft strategies that
build, extend, and enrich indigenous capabilities
and resources (Varadarajan 2009).
Case studies of multinational companies
serving the lower segments of the income pyra-
mid can provide generalized implementation
guidelines for others. The key parameters of
this guideline assume the ability of the MNCs
to arbitrage information technology, innovate
supply-chain and logistics, bring in new mindsets
in product or service design, being creative in
deploying and training local people, and building
and maintaining communication and trusting
partnerships. The features of the implementation
common to most cases of successful BOP are as
follows:
Figure 2
Agenda for Managerial Action
Source: The Base of Pyramid Protocol, 2009.
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1. Profit performance ratio through low margin
high volume product or service.
2. Establishment of context relevant packag-
ing and distribution.3. Combining features and benefits to
generate sub-optimized quality with fun-
ctionality. Features need to be simple and
benefits need to be durable, low-cost, and
culturally relevant.
4. Achieving supportive clustering of the local
community, NGOs, municipal authorities,
and so on.
5. Building of feedback mechanisms in con-
tinuous improvement.6. Generating local human capital usage, con-
textualized training, and building of trust.
7. Leadership role in innovation in sustainable
improvement in poverty alleviation.
The BOP Protocol Project launched in 2003 byCornell University and a number of multinational
corporations crafted a radically new business
process as a special kind of research and develop-
ment. As with traditional R&D, the potential
for innovation is greatest when the initiative is
supported by patient capital, has full license
to experiment outside of the current corporate
modus operandi, and is evaluated against long
term milestone that emphasize learning (BOP
Protocol 2009: 13).The framework presented in Figure 3 explores
the reshaping of the managerial landscape needed
Figure 3
Embedding a Global Company to a Global Context: Managerial Frame
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for BOP engagements by multinationals. Thekey here is the search for ways and means ofindigenous embeddings. As the extending of
strategic scope, development of new models, andenrichment of the corporate purse open up a newhope for the marginalized people at the bottom
of the pyramid.
Figures 1 and 2 highlight the need for a
paradigm shift from the top-down approach
endemic in large global corporations. The unique
exposures of partnering range of other constituents
present opportunities for grassroots earning. An
example of how such opportunities are missed
due to entrenched corporate mindsets can beseen in the case of HPs South African venture.
As aptly summed by McFalls (2007: 9596),
At the level of MNCs, in spite of the original
high level of commitment from HP executives,
the company was ultimately not prepared to in-
corporate the notion of breakthrough models of
sustainable development into its core strategy,
as it cost products, programmes, and people in
pursuit of business-as-usual quarterly profits.
The introduction of the HP multi-user 441 was a
prominent example of genuine breakthrough insustainable development, yielding environmental
and social benefits, and marked a brief success in
the HPi-community story, before it was pulled
from the market as a threat to entrenched corporate
interests.
London (2009: 107) contends that imple-
mental measures for BOP ventures are universally
inadequate. They just their success at alleviating
poverty on the basis of tasks completed and
milestones achievedamount of money invested,quantity of products distributed, number of inter-
ventions initiated, and so onrather than on how
well their activities translate into changes on the
ground. He recommends a framework called
The Base of the Pyramid Impact Assessment
Framework that can measure these changes on
the ground in terms of their economic situation,
their capabilities, and their relationships. Londons
framework involves a systematic analyticalassessment of the positive and negative impacts
of BOP initiatives on their critical constituents.
These aresellers who may be local distributors
or producers, buyers who may be local agents or
customers, and communities. Each of these three
categories of constituents is then evaluated in
terms of its potential cross impacts on economics,
capabilities, and relationships.
ConclusionThe United Nations Millennium Development
Goals of 2015 have been actively co-opting
the leadership role of major multinational cor-
porations in promoting a more equitable world.
The opportunities of social partnerships and
privatepublic collaborations are some of the new
areas through which the millennium goals can
create exciting possibilities. The models presented
in this paper highlight the need for the building of
social capital as a pre-requisite of BOP success.The richness of this capital allows the essential
precondition of bottom-up-learning in innovating
at the grassroots levels. As has been pointed out
earlier, multinationals like Unilever and P&G
have demonstrated their willingness to commit to
social embeddings in countries like Vietnam and
India and to perform quite well in the market. In
contrast, the global agricultural giant Monsanto
was unable to understand the value of locality and
embeddedness in its business model and thereforefailed. Monsantoas strategic platform did not
have sufficient mindset re-orientation to understand
the main theme. Though there is a debate on the
speed, efficiency, and approaches that the private
sector can adopt in poverty alleviation, there is
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certainly less agreement that global companies
can indeed become active partners in poverty
alleviation.
Amartya Sen, Nobel Prize winning economist,has been emphasizing the need for nations, or-
ganizations, and managers to understand and
enrich the means and ends conundrums. Sens
widely known idea is that the most important
thing for humans is their capacity in real-
izing their potential and not income or consum-
ption. The end according to Sen is in achieving
what they truly value as individuals or groups.
Sen has consistently argued his central point
of removal of unfreedoms that is, obstaclesthat stop people from fulfilling their potential.
Income or consumption, are not denied but
are considered more as means (Sen 1993).
There are vast differences in the aspirations of
people with less than $2.00 day income and
people with $10.00 a day income. The former
struggle to survive while still possessing a dis-
cretionary consumption or savings capability.
As capability has been interpreted to be the
functional alternative to the economic notion of
opportunities expressed through commoditiesspace, its managerial expression may be reference
to persons skills and empowerment that lead to
the core competencies (Gasper 2007). It can
be argued that the extension of market reach has
the possibility of generating a momentum to the
capability of a vast majority of marginalized popu-
lation. Additionally, the possibility of building
and strengthening corresponding institutions that
contribute to human dignity also become stronger
with this new reach. The countervailing forces ofsuch institutions are critical as different cultures
and different societies manifest capabilities in
many different ways.
It has to be understood that the role of global
companies in the BOP context can only be of
relevance when other stakeholders have the
ability and conviction of performing at their
peak levels. The synergy with the competency
and commitment of co-actors, especially localand national governments, is critical to its suc-
cess. The provision of basic education, healthcare,
infrastructure, and public security are precondi-
tions for the BOP idea to be of any significance.
In spite of wide discussions on the rise of
micro-entrepreneurship in Mumbais slum areas,
the BOP market potential is limited by a very
limited availability of education, healthcare, and
infrastructure. It is reported that there is only one
toilet facility for about 800 people. The presenceof such basic human services and a clear and
powerful human value watch by NGOs are pre-
requisites for the generation of employability and
productivity at the BOP level (Chesbrough et al.
2006).
The role of large corporations and the new
generation of global managers in BOP offer a
new possibility of a dramatic increase in the
living standards of four billion people. The triple
p bottom-line of people, planet, and profit needs
to become a stronger motivation in widening thehorizons of the market system. Imaginative man-
agerial ideas and methods need to be expanded to
include the hopes, fears, aspirations, and doubts
of lower income segments. Firms around the
world need a new urgency in this transformational
engagement. This subject is going to become
increasingly dominant in management education
and needs more thoughtful and vigorous scholarly
attention. As has been pointed out:
Although a lot of research has been done in eco-
nomics, sociology, and political science in this
area, this is still an emerging area of research
for international business scholars. A lot more
work needs to be done to fully understand the
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impact of MNCs on host country living stand-
ards and on society in general. Even though
poverty seems to be a main concern for the
developing would, poverty is a widespread phe-nomenon that affects the entire world (Kedia
et al. 2006: 79).
As environment or sustainability has become
important for management education in recent
years, it is also evident that the challenges of
poverty and social inclusion need to be one of
the central concerns in management education.
Business schools around the world have treated
issues of sustainability, poverty, or social inclusion
as peripheral issues and emphasized more ontechnical, economic, and strategic subjects that
lead to career success. Interestingly, a number
of US-based influential management schools are
increasingly giving legitimacy to the challenge of
poverty alienation. Conservative institutions that
use American Management education as the gold
standard should take a closer look at what many of
the best of these organizations are actually doing
(Dart 2008: 735).Market development and social development
can become a symbiotic link as has been demon-
strated by the recent rise of social business from
a humble beginning of village based micro-credit.
Bridging of the poverty gap is central to the
sustainability of economic, social, and cultural
life of any society and a new mindset of creative
engagement is an urgent imperative. In the past
two decades, global firms have become more
powerful and have generated a worldwide fieldof low wage labour, unemployment as well as
environmental damages. The BOP engagement
offers them an opportunity to make amends and
become entities larger and more meaningful than
mere profit seeking firms.
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