Bottom of the pyramid - AbsoluteAstronomy.com

In economics, the bottom of the pyramid is the largest, but poorest socio-economic group. In global terms, this is the 2.5 billion people who live on less than $2.50 per day. The phrase “bottom of the pyramid” is used in particular by people developing new models of doing business that deliberately target that demographic, often using new technology. This field is also often referred to as the "Base of the Pyramid" or just the "BoP".

Several books and journal articles have been written on the potential market by members of business schools offering consultancy on the burgeoning market. They include The Fortune at the Bottom of the Pyramid
The Fortune at the Bottom of the Pyramid
The Fortune at the Bottom of the Pyramid is a book by C. K. Prahalad that discusses new business models targeted at providing goods and services to the poorest people in the world. It makes a case for the fastest growing new markets and entrepreneurial opportunities being found among the billions...

by C.K. Prahalad of the University of Michigan

University of Michigan

The University of Michigan is a public research university located in Ann Arbor, Michigan in the United States. It is the state's oldest university and the flagship campus of the University of Michigan...

, Capitalism at the Crossroads by Stuart L. Hart

Stuart L. Hart

Stuart L. Hart is an American academic, writer and theorist. He is author of the book Capitalism at the Crossroads: The Unlimited Business Opportunities in Solving the World's Most Difficult Problems as well as several scholarly articles and publications...

of Cornell University

Cornell University

Cornell University is an Ivy League university located in Ithaca, New York, United States. It is a private land-grant university, receiving annual funding from the State of New York for certain educational missions...

and the first empirical article, Reinventing strategies for emerging markets: Beyond the transnational model, by Ted London

Ted London

Ted London is a well-known scholar and teacher on Base of the Pyramid issues. London is a senior research fellow at the William Davidson Institute at the University of Michigan. He is also on the faculty at the Stephen M...

of the University of Michigan

University of Michigan

and Hart. London has also developed a working paper, commissioned by the United Nations Development Programme, that explores the contributions of the BoP literature to the poverty alleviation domain.

History

The phrase “bottom of the pyramid” was used by U.S. president Franklin D. Roosevelt

Franklin D. Roosevelt

Franklin Delano Roosevelt , also known by his initials, FDR, was the 32nd President of the United States and a central figure in world events during the mid-20th century, leading the United States during a time of worldwide economic crisis and world war...

in his April 7, 1932 radio address, The Forgotten Man, in which he said “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 more current usage refers to the billions of people living on less than $2 per day, as first defined in 1998 by Professors C.K. Prahalad and Stuart L. Hart. It was subsequently expanded upon by both in their books: The Fortune at the Bottom of the Pyramid by Prahalad in 2004 and Capitalism at the Crossroads by Hart in 2005.

Prahalad proposes that businesses, governments, and donor agencies stop thinking of the poor as victims and instead start seeing them as resilient and creative entrepreneurs as well as value-demanding consumers. He proposes that there are tremendous benefits to multi-national companies who choose to serve these markets in ways responsive to their needs. After all the poor of today are the middle-class of tomorrow. There are also poverty

Poverty

Poverty is the lack of a certain amount of material possessions or money. Absolute poverty or destitution is inability to afford basic human needs, which commonly includes clean and fresh water, nutrition, health care, education, clothing and shelter. About 1.7 billion people are estimated to live...

reducing benefits if multi-nationals work with civil society

Civil society

Civil society is composed of the totality of many voluntary social relationships, civic and social organizations, and institutions that form the basis of a functioning society, as distinct from the force-backed structures of a state , the commercial institutions of the market, and private criminal...

organizations and local governments to create new local business models.

However, there is some debate over Prahalad's proposition. Aneel Karnani, also of the Ross School

Ross School of Business

The Stephen M. Ross School of Business is the business school of the University of Michigan. Numerous publications have ranked the Ross School of Business' Bachelor of Business Administration , Master of Business Administration and Executive Education programs among the top in the country and the...

at the University of Michigan, argued in a 2007 paper that there is no fortune at the bottom of the pyramid and that for most multinational companies the market is actually very small. Karnani also suggests that the only way to alleviate poverty is to focus on the poor as producers, rather than as a market of consumers. Prahalad later provided a multi-page response to Karnani's article. Additional critiques of Prahalad's proposition have been gathered in Advancing the 'Base of the Pyramid' Debate.

Meanwhile, Hart and his colleague Erik Simanis at Cornell University's Center for Sustainable Global Enterprise

Center for Sustainable Global Enterprise

The Center for Sustainable Global Enterprise is one of two centers of research, learning, and practice in the Samuel Curtis Johnson Graduate School of Management at Cornell University.-History:...

advance another approach, one that focuses on the poor as business partners and innovators, rather than just as potential producers or consumers. Hart and Simanis have led the development of the Base of the Pyramid Protocol, an entrepreneurial process that guides companies in developing business partnerships with income-poor communities in order to "co-create businesses and markets that mutually benefit the companies and the communities". This process has been adopted by the SC Johnson Company and the Solae

Solae

Solae may refer to:*Solae , an elevator testing tower in Inazawa City, Japan*Solae , Solae LLC, a joint venture between DuPont and Bunge Limited...

Company (a subsidiary of DuPont

DuPont

E. I. du Pont de Nemours and Company , commonly referred to as DuPont, is an American chemical company that was founded in July 1802 as a gunpowder mill by Eleuthère Irénée du Pont. DuPont was the world's third largest chemical company based on market capitalization and ninth based on revenue in 2009...

).

Furthermore, Ted London

Ted London

at the William Davidson Institute at the University of Michigan

University of Michigan

focuses on the poverty alleviation implications of Base of the Pyramid ventures. He has identified the BoP Perspective as a unique market-based approach to poverty alleviation. London has also developed the BoP Impact Assessment Framework, a tool that provides a holistic and robust guide for BoP ventures to assess and enhance their poverty alleviation impacts. Companies, non-profits, and development agencies in Latin America, Asia, and Africa have implemented this framework.

Another recent focus of interest lies on the impact of successful BoP-approaches on sustainable development

Sustainable development

Sustainable development is a pattern of resource use, that aims to meet human needs while preserving the environment so that these needs can be met not only in the present, but also for generations to come...

. Some of the most significant obstacles encountered when integrating sustainable development at the BoP are the limits to growth that restrict the extended development of the poor, especially when applying a resource-intensive Western way of living. Nevertheless, from a normative ethical perspective poverty alleviation is an integral part of sustainable development according to the notion of intragenerational justice (i.e. within the living generation) in the Brundtland Commission

Brundtland Commission

The Brundtland Commission, formally the World Commission on Environment and Development , known by the name of its Chair Gro Harlem Brundtland, was convened by the United Nations in 1983...

's definition. Ongoing research addresses these aspects and widens the BoP approach also by integrating it into corporate social responsibility

Corporate social responsibility

Corporate social responsibility is a form of corporate self-regulation integrated into a business model...

thinking.

Microcredit

One example of "bottom of the pyramid" is the growing microcredit

Microcredit

Microcredit is the extension of very small loans to those in poverty designed to spur entrepreneurship. These individuals lack collateral, steady employment and a verifiable credit history and therefore cannot meet even the most minimal qualifications to gain access to traditional credit...

market in South Asia, particularly in Bangladesh

Bangladesh

Bangladesh , officially the People's Republic of Bangladesh is a sovereign state located in South Asia. It is bordered by India on all sides except for a small border with Burma to the far southeast and by the Bay of Bengal to the south...

. With technology being steadily cheaper and more ubiquitous, it is becoming economically efficient to "lend tiny amounts of money to people with even tinier assets". An Indian banking report argues that the microfinance network (called "Sa-Dhan" in India) "helps the poor" and "allows banks to 'increase their business'".

Market-specific products

One of many examples of products that are designed with needs of the very poor in mind is that of a shampoo that works best with cold water and is sold in small packets to reduce barriers of upfront costs for the poor. Such a product is marketed by Hindustan UNILever.

Venture capital

Whereas Prahalad originally focussed on corporations for developing BoP products and entering BoPmarkets, it is believed by many that SME might even play a bigger role. For LPs, this offers an opportunity to enter new venture capital markets. Although several social venture funds are already active, true VC funds are now emerging.

Business and community partnerships

As Fortune reported on November 15, 2006, since 2005 the SC Johnson Company has been partnering with youth groups in the Kibera

Kibera

Kibera is a division of Nairobi Area, Kenya, and neighbourhood of the city of Nairobi, located from the city centre. Kibera is the largest slum in Nairobi, and the second largest urban slum in Africa...

slum of Nairobi

Nairobi

Nairobi is the capital and largest city of Kenya. The city and its surrounding area also forms the Nairobi County. The name "Nairobi" comes from the Maasai phrase Enkare Nyirobi, which translates to "the place of cool waters". However, it is popularly known as the "Green City in the Sun" and is...

, Kenya

Kenya

Kenya , officially known as the Republic of Kenya, is a country in East Africa that lies on the equator, with the Indian Ocean to its south-east...

. Together SC Johnson and the groups have created a community-based waste management and cleaning company, providing home-cleaning, insect treatment, and waste disposal services for residents of the slum. SC Johnson's project was the first implementation of the Base of the Pyramid Protocol.

BoP conferences

There have been a number of academic and professional conferences focused on the BoP. A sample of these conferences is listed below:

Sankalp Conference - May 2012 in Mumbai, India - hosted by the Intellecap.
Eradicating Poverty through Profit - December 2004 in San Francisco, CA - hosted by the World Resources Institute(WRI)
World Resources Institute
The World Resources Institute is an environmental think tank founded in 1982 based in Washington, D.C. in the United States.WRI is an independent, non-partisan and nonprofit organization with a staff of more than 100 scientists, economists, policy experts, business analysts, statistical analysts,...

.
Business Opportunity and Innovation at the Base of the Pyramid - August 2005 in São Paulo, Brazil, September 2005 in Mexico City, Mexico - two sister conferences co-hosted by WRI, the Multilateral Investment Fund
Multilateral Investment Fund
The Multilateral Investment Fund is an independent fund administered by the Inter-American Development Bank , created in 1993 to support private sector development in Latin America and the Caribbean...

and Ashoka
Ashoka: Innovators for the Public
Ashoka: Innovators for the Public is a nonprofit organization based in Arlington, VA, supporting the field of social entrepreneurship. Ashoka was founded by Bill Drayton in 1981 to identify and support leading social entrepreneurs through a Social Venture Capital approach with the goal of...

.
Research at the Base of the Pyramid - May 2006 in Ann Arbor, MI - co-hosted by the William Davidson Institute (WDI) and the Ross School of Business
Ross School of Business
The Stephen M. Ross School of Business is the business school of the University of Michigan. Numerous publications have ranked the Ross School of Business' Bachelor of Business Administration , Master of Business Administration and Executive Education programs among the top in the country and the...

at the University of Michigan
University of Michigan
The University of Michigan is a public research university located in Ann Arbor, Michigan in the United States. It is the state's oldest university and the flagship campus of the University of Michigan...

.
Business with Four Billion - September 2007 in Ann Arbor, MI - co-hosted by WDI and the Center for Sustainable Global Enterprise
Center for Sustainable Global Enterprise
The Center for Sustainable Global Enterprise is one of two centers of research, learning, and practice in the Samuel Curtis Johnson Graduate School of Management at Cornell University.-History:...

at Cornell University
Cornell University
Cornell University is an Ivy League university located in Ithaca, New York, United States. It is a private land-grant university, receiving annual funding from the State of New York for certain educational missions...

.
Sustainable Innovations at the Base of the Pyramid - September 2008 in Helsinki, Finland - hosted by the Helsinki School of Economics
Helsinki School of Economics
The Aalto University School of Economics , known as Helsinki School of Economics until 2009, is the largest and leading business school in Finland and one of the most renowned in Europe...

.
"The Bottom of the Pyramid in Practice" - June 2009, hosted by the Institute for Money, Technology and Financial Inclusion at the University of California, Irvine, and sponsored by Intel Research, the UC Discovery program, and the Center for Research on Information Technology and Organizations at UC Irvine.
"Impact of Base-of-the-Pyramid Ventures" - November, 2009 in Delft, the Netherlands - hosted by the Delft University of Technology
Delft University of Technology
Delft University of Technology , also known as TU Delft, is the largest and oldest Dutch public technical university, located in Delft, Netherlands...

.

External links

Grassroots Business Fund
Grassroots Business Fund
The Grassroots Business Fund is a non-profit based in Washington, DC. It has field offices in Ghana, Kenya, and India. Their mission is to build and support high-impact enterprises that provide sustainable economic opportunities to thousands of people at the base of the economic pyramid...
http://www.nextbillion.net
http://bop-protocol.org/
http://www.wdi.umich.edu/ResearchInitiatives/BasePyramid
http://ifmr-cdf.in/mod/file/pdfFiles/The_Base_of_Pyramid_Distribution_Challenge.pdf
http://www.bop2007.org/
http://www.wdi.umich.edu/NewsEvents/Conferences/BoPConf2006
http://www.inclusivebusiness.org
http://brinq.com/about/bop.html
for more see http://www.changemakers.net/library/
Telecom use at the Bottom of the Pyramid in Emerging Asia: http://lirneasia.net/projects/2006-07/bop-teleuse
also see http://lirneasia.net/projects/2008-2010/bop-teleuse-3

Student organisations:

http://www.netimpact.org/
http://www.oikosinternational.org/
http://webuser.bus.umich.edu/Organizations/EmergingMarkets/Index.html

The source of this article is wikipedia, the free encyclopedia. The text of this article is licensed under the GFDL.

History

Microcredit

Market-specific products

Venture capital

Business and community partnerships

BoP conferences

Further reading

External links