We believe in diligent, for-profit entrepreneurship as a sustainable approach to many issues of development.
In an interview, Robert S. Katz, an Associate with the Markets and Enterprise Program of Washington DC-based think-tank World Resources Institute, shared with us the philosophy behind a for-profit approach to development. Rob is the co-founder and Managing Editor of NextBillion.net, which analyzes sustainable business models that are Eradicating Poverty Through Profit.
What is the BoP opportunity? What is the size of the BoP market?
The base of the pyramid (BoP) is a concept that was first developed by Professors C.K. Prahalad and Stuart Hart. Jointly, Professors Prahalad and Hart proposed that business could address the world’s most pressing problems – environmental degradation and persistent poverty – whereas traditional development assistance could (and would) not. The initial Prahalad/Hart hypothesis became a white paper and then an article, published in the journal strategy+business, in 2002.
Following the publication of the article, entitled “The Fortune at the Bottom of the Pyramid”, other academics, business leaders, researchers, and development agencies began to explore a business-driven approach to environmental and social problems. After many iterations, the BoP opportunity came to represent the fact that the world’s poorest citizens are subject to a ‘poverty penalty.’ This penalty can be described in three vectors: price, quality and access. That is, poor people generally pay artificially high prices for goods and services (or receive artificially low prices for goods and services they produce); second, that poor also tend to have access only to low-quality goods and services; and finally, that the poor generally have little or no access to basic goods and services at all. Ultimately, this is what the BoP means – subject to a penalty, which presents an opportunity for businesses to step in and deliver where no one is now.
Based on empirical research, World Resources Institute calculates the base of the pyramid market to be 4 billion people who make less than $3000 (purchasing power parity) per year. The collective spending power of these 4 billion people is $5 trillion (purchasing power parity) per year – a massive, untapped market.
Why a for-profit approach?
BoP thinkers advocate a for-profit approach because a non-profit approach – aid – has not worked and is not showing signs of working any better. The poor are willing and able to pay for services, and companies are better incentivized to serve these needs when there are profits to be made. It is a win-win situation.
What is the role for entrepreneurs?
Entrepreneurs are a primary source of innovation at the BoP – in terms of new products, services, business models, financing schemes – everything. Local entrepreneurs are also the best suited to understand and tap into a market – unlike large, multinational companies, whose research and development teams may not be well suited to understanding the intricacies of a low-income village.
Could you point me to more resources?
If you are interested in the BoP concept, do be sure to read that original strategy+business article. It is a little out of date, but it is still important to know where the idea came from. I would also recommend checking out NextBillion.net (full disclosure – I am the Managing Editor of NextBillion.net), a web site and blog about how business drives positive social and environmental change in low-income communities. We serve as a discussion forum, networking space and knowledge base for individuals and organizations interested in the "next billion" – the next billion people to rise from the base of the economic pyramid, and the next billion in profits for businesses that strive to fill market gaps by integrating the BoP into healthy economies. Our goal is to promote the development and implementation of business strategies that open opportunities and improve quality of life for the world’s 4 billion low-income producers and consumers.
What are the opportunities for me, an undergraduate student, to make an impact in the development sector?
First of all, learn all you can about ‘development’ and keep an open mind. There is no ‘right answer’ to the questions of poverty and the environment.
Second, study economics and finance – it is important if you are interested in business and development to have a strong understanding of the empirical nature of the arguments.
Third, stay current on the latest thinking – do not let your professors be the only source of information in your learning – keep an eye on the latest news, ideas, and analysis out there.