Inclusive Business competition: winners were announced

By Xavier Forneris

Last December, I mentioned a competition launched by the Group of 20 (G20) and IFC -full disclosure: IFC is my employer- to find the best examples of “Inclusive Businesses”, i.e., businesses that provide goods, services and livelihood opportunities to the poorest of the poor, those who live at the “base of the pyramid” (BOP).

The results have been announced a few days ago in Los Cabos, Mexico (June 18) and the winners are:

Agrofinanzas (Mexico)
Apollo Hospitals Group (India)
Bakhresa Grain Milling (Malawi)
Brilla, a program launched by Promigas (Colombia)
Corporación Universitaria Minuto de Dios (Colombia)
Ecofiltro (Guatemala)
Engro Foods Limited (Pakistan)
Jain Irrigation Systems Ltd. (India)
Manila Water Company (Philippines)
Millicom (Luxembourg)
Reybanpac Unidad de Lácteos (Ecuador)
Sustainable Harvest Coffee Importers (United States)
Tenda Atacado Ltda (Brazil)
VINTE Viviendas Integrales (Mexico)
Waterlife India Private Limited (India)

 

For more information on the competition go to: http://www.g20challenge.com/

To read about the winners, go to: http://www.g20challenge.com/winners/

And to learn about IFC’s Inclusive Business Models program and activities go to: http://www1.ifc.org/wps/wcm/connect/AS_EXT_Content/What%20We%20Do/Advisory%20Services/Inclusive%20Business

 

Morocco’s Success in the Aerospace Industry

 The Wall Street Journal ran a very interesting piece today on  Morocco’s success in developing its aerospace industry.

The story should inspire and give hope to many developing countries. It proves that advanced manufacturing is not totally out of the realm of possibilities for these countries. Manufacturing is generally not a big part of the economies of many developing countries – that tend to rely on agriculture, extraction of mineral resources, or light and basic manufacturing. Morocco is not the first developing country to foray into a sophisticated industry such as commercial aeronautics. The WSJ mentions, as prior examples, Brazil, Indonesia, Mexico and South Africa. Brazil is probably the most successful example, with its aircraft maker Embraer.

This story, as the story of Intel’s investment in Costa Rica in 1998, also shows what a powerful ‘game-changer’ foreign direct investment (FDI) can be. In the case of Morocco, there was clearly a strong resolve and policy drive by the Government, but it is FDI that helped achieve what probably appeared to many observers as a very ambitious, not to say utopic, objective a decade ago, bringing capital, technology, skills-building and market access. Over the past 10 years the country has managed to attract significant investments from aerospace leaders such as Boeing, Safran, United Technologies and Bombardier.

What is also interesting in the case of Morocco is that the success story started with a relatively modest operation. Around 1999-2001, Royal Air Maroc, the national carrier, managed to convince Boeing (a long-time supplier of RAM) to partner with it and a French electrical wiring company to start a small project preparing cables for Boeing 737 airplanes. The level of quality achieved by workers surprised everyone and…the rest is history.

The sector now employs almost 10,000 workers who earn about 15% more than the average monthly wage (which remains relatively low for Western standards at US$320/month). As the WSJ correctly points out, creating jobs is a strategic imperative for the stability of the country, in the aftermath of the Arab Spring. Morocco remains deeply affected by high unemployment, particularly in the young segments of the population.

In my line of work, I am well aware that there is much more to say in order to explain why Morocco succeded and why replicating this success story will be very difficult for many other developing economies, but as a development professional working on private sector development, I found the piece very interesting and encouraging and wanted to share it with you.

Source: Morocco’s Aviation Industry Takes Off, by Daniel Michaels, The Wall Street Journal, published in the U.S edition on 21 March 2012. Link to the WSJ article:

http://online.wsj.com/article/SB10001424052970204059804577226763868263758.html

Xavier Forneris.

Base of the Pyramid (BoP): the “must-reads”

In 2008, Stanford University’s Social Innovation Opinion Blog published a post by a Grace Augustine titled BoP 101: Essential Reading for Those Interested in the Base of the Pyramid” (Oct 07, 2008). I encourage everyone interested in this space to read this post, which can be retrieved at: http://csi.gsb.stanford.edu/bop-101-essential-reading-those-interested-base-pyramid

I’ll first summarize Augustine’s post and then complement it with some papers and books published both before and after her post. In the interest of brevity, the names of the publishers or journals where these papers appeared are omitted, but an internet search on the title and author will generally lead you to the relevant publication.

In her post Augustine does not just provide a list of “must-reads”; she offers a useful and short genesis of the BoP theory, summarizes what each of the papers added to the conversation, and also mentions key developments around the theory (e.g., UN Global Compact, Millenium Development Goals, the MNC’s quest for new markets in a slowing global economy, etc.), which provides useful context to understand why the theory emerged and gained traction.

Augustine starts, logically, with what is widely seen as the seminal piece, the first article on the BoP: ”Strategies for the Bottom of the Pyramid: Creating Sustainable Development” published in 1999 by two academics: C.K Prahalad (University of Michigan Business School) and Stuart Hart (then at the University of North Carolina’s Kenan-Flagler Business School). Prahalad and Hart are often considered the “fathers” of the BoP theory, which they viewed both as a business strategy for transnational companies and as a potential tool for poverty alleviation.

This serves as a useful reminder that the BoP theory is rooted in the premise that traditional aid has had limited impact on poverty alleviation and that the time has come for a new strategy. This argument was not totally new. The same year as Prahalad and Stuart wrote their first article on the BoP, Amartya Sen published Development as Freedom (1999). The aid indictment was subsequently reinforced by influential development scholars who challenged the traditional model of development aid (Hernando de Soto’s The Mystery of Capital, 2000; Sachs’s The End of Poverty, 2005; William Easterly’s The White Man’s Burden, 2006). So Prahalad and Hart were not the first nor the last scholars to write about the shortcomings of aid as a way to alleviate poverty but they saw the BoP theory as a new avenue for tackling the poverty challenge.

The concept was refined in a second piece, published in 2002 by A. Hammond of the World Resource Institute (WRI) and the same C.K. Prahalad in the Harvard Business Review (HBR), titled Serving the World’s Poor, Profitably.

The “co-fathers” of BOP, Prahalad and Hart then separately published two books on the BoP theory:

  • The Fortune at the Bottom of the Pyramid: Eradicating Poverty through Profits, C.K. Prahalad (2004)
  • Capitalism at the Crossroads: The Unlimited Business Opportunities in Serving the World’s Most Difficult Problems, S. Hart (2005)

Augustine described both books as must-reads while summarizing their respective themes. She then mentioned a 2006 critique of the BoP theory posted by University of Michigan professor Aneel Karnani on NextBillion.net: Fortune at the Bottom of the Pyramid: A Mirage.

Finally, Augustine mentioned a few publications on sub-topics of the BoP theory:

BoP and Innovation:

  • The Great Leap: Driving Innovation from the BoP, S. Hart & C. Christensen (2002)
  • BoP Protocol, S. Hart (second version)

BoP and Economic Development:

  • Reinventing Strategies for Emerging Markets: Beyond the Transnational Model, T. London &  S. Hart (2004)
  • A Base-of-the-pyramid Perspective on Poverty Alleviation, T. London (2007)
  • The Next 4 Billion Report, WRI/IFC (2007) [which Augustine describes as the most comprehensive document for defining and understanding the BoP market].

BoP and Finance / Impact investing:

  • Meeting Urgent Needs with Patient Capital: an article by Jacqueline Novogratz, founder and CEO of Acumen Fund, one of the pioneering organizations in this field, published in MIT’s Innovations journal.

Unfortunately, Augustine’s overview ends in 2008, at the time of her post. I hope she has done or can do an update, for it was extremely clear and useful contribution. Here are some of the post-2008 reports and publications I would like to recommend, as well as some pre-2008 ones which were not on Augustine’s list:

  • Accelerating Inclusive Business Opportunities: Business Models that Make a Difference, B. Jenkins, E. Ishikawa, A. Geaneotes, P. Baptista, amd T. Masuoka. IFC (2011)
  • Creating Shared Value, M. Porter (2011)
  • Scaling Up Inclusive Business: Advancing the Knowledge and Action Agenda, B. Jenkins & E. Ishikawa. IFC and the CSR initiative at Harvard Kennedy School (2010)
  • The Next Billions: Unleashing Business Potential in Untapped Markets. World Economic Forum (2009)
  • Creating Value for All: Strategies for Doing Business with the Poor. UNDP (2008)
  • Make Poverty Business: Increase Profits and Reduce Risk by Engaging with the Poor, C. Wilson & P. Wilson (2006)
  • Developing Native Capability: What multinational corporations can learn from the base of the pyramid, S. Hart & T. London (2005)
  • Banker to the Poor: Micro-Lending and the Battle Against World Poverty, M. Yunus (1999)
  • Unleashing Entrepreneurship: Making Business Work for the Poor, UNDP, Commission on the Private Sector and Development (2004).

The Base of the Pyramid: An Overview of the Concept

By Xavier Forneris.

Yesterday, I wrote on a competition co-sponsored by IFC and the G20 on doing business at the “Base of the Pyramid”, or BoP. Some of you may wonder what is the base of the pyramid and if my eclecticism has now led me into Egyptian archeology.

The Base of the Pyramid –some call it the “Bottom of the Pyramid” but I prefer the term ‘base’-, or BoP, is simply used to describe the very large segment of the population who lives (or survives) on a low income. If we organize the world’s population according to income levels, it takes a pyramid shape, with few people at the top of the pyramid (mostly living in developed economies) and a majority of people at its base (mostly living in developing economies), as represented here:

There is no consensus on how many people live at the BoP because economists, governments and development institutions define poverty in different ways. Depending on whether one places (rather arbitrarily) the poverty line below $1 a day, $2 a day, or $10 a day, the BoP will include more or fewer people.

A 2005 World Resources Institute (WRI)/International Finance Corporation (IFC) study estimated the BoP population at about 4 billion people by defining the BOP population segment as those with annual incomes up to $3000 per capita per year (2002 PPP).

But whether it’s 3, 4 or 5 billion people, everyone agrees that the BoP hosts a very large population, mostly residing in Africa, Asia, Eastern Europe and Latin America.

The term is not new. According to wikipedia the term was used by President Franklin Roosevelt in a 1932 radio address during which he stated:

These unhappy times call for the building of plans that rest upon the forgotten, the unorganized but the indispensable units of economic power…that build from the bottom up and not from the top down, that put their faith once more in the forgotten man at the bottom of the economic pyramid.

The term resurfaced at the end of the 1990s when two professors of management and corporate strategy, the late C.K. Prahalad (Michigan’s Ross School of Business) and Stuart Hart (then with the University of North Carolina’s Kenan-Flagler Business School) published what is viewed as the first paper on the BoP: ”Strategies for the Bottom of the Pyramid: Creating Sustainable Development” (1999). Prahalad (who is known for his HBR paper on “The Core Competence of the Corporation” co-authored with Gary Hamel) and Hart are often considered the “fathers” of the BoP theory and essentially wrote about the BoP as a new strategy for multinational companies.

Before them, many development economists focused on the same socio-economic segment, without using the term BoP. For instance, when Hernando de Soto, the famous Peruvian economist (not to be confused with the Spanish conquistador!), wrote about “dead capital”, i.e., the $10 trillion in informal assets that are in the hands of the world’s poor (e.g., land without legal property titles) but cannot be mobilized to borrow money from financial institutions, he was concerned with the lowest echelon of the global socio-economic pyramid. And when Muhammad Yunus pioneered micro-credit with Grameen Bank in Bangladesh around 1983, what was he trying to do if not expand access to credit for people at the base of the pyramid?

As a concept, the BoP has gained traction with both the business and development communities over the past decade.

Multinational corporations which for a long time have been focusing on the middle and the top of the pyramid, i.e., people who could afford buying their products and services, are seeking new markets in a context of global economic crisis and this quest led them to pay attention to the BoP. What is interesting is that they are not only looking at the BoP as a source of new customers but also as a source of supply, partnership, and innovation. This is part of the notion of “inclusive business” (IB) which I will address in a forthcoming post.

And development economists and institutions whose primary concern is poverty alleviation are also very interested in the BoP approach for they have been looking for ways to offer targeted support to those at the base of the pyramid, the ‘poorest of the poor’.

The BoP as a framework thus offers a unique opportunity for these two worlds (the private sector, on the one hand, and development institutions, on the other) to collaborate and search for solutions to their respective challenges.

When I was introduced to the BoP concept in 2009 during a seminar given to our MBA class at UNC by prof. Ted London (University of Michigan’s Ross Business School), I was struck by how he summarized the key challenge for he private sector and development instiutions in one sentence:

How can business motivations for growth and profits be aligned with the development’s community’s effort to alleviate poverty?

I let you reflect on this question. In addition to further explaining the concept of Inclusive Business, I’ll prepare a list of ‘must-reads’ for those of you who are interested in further exploring the concept of BoP.

Sources:

BOP News: G20 and IFC launch competition

By Xavier Forneris

The purpose of my blog is not to promote the activities of the organization where I work – IFC ( a member of the World Bank Group)- but I’m starting a new series of posts on doing business at the “Base of the Pyramid” (BOP) and IFC happens to be the co-sponsor of an interesting competition launched in that field, last month, by the Group of 20 (G20). It is an online competition to find the best examples of ventures in developing countries that provide critical goods, services, and livelihood opportunities in financially, environmentally, and socially sustainable ways to those living at the base of the pyramid, what I will refer to in the forthcoming BOP posts as ‘Inclusive Businesses’. Launched as part of the G20 Leaders Summit in Cannes, France on November 3-4, 2011, the G20 Challenge on Inclusive Business Innovation seeks to recognize businesses with innovative, scalable, and commercially viable ways of working with low-income people in developing countries. Winners of the competition will be announced in Mexico (country hosting the G20 meeting) in June 2012. Stay tuned.