BoP Strategies For Poverty Allevation

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Multinational Firm Strategy and Global Poverty Alleviation : Frameworks and Possibilities for Building Shared Commitment
Samir Ranjan Chatterjee Journal of Human Values 2009 15: 133 DOI: 10.1177/097168581001500205 The online version of this article can be found at: http://jhv.sagepub.com/content/15/2/133
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Multinational Firm Strategy and Global Poverty Alleviation: Frameworks and Possibilities for Building Shared Commitment
SAMIR RANJAN CHATTERJEE
Bottom of the Pyramid (BOP) strategies recognize for the rst 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 signicant 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 reects on some of the critical challenges of global companies and global managers in their strategic engagement at the BOP and explores how large rms can become involved in the pursuit of social capital acquisition and how new approaches of publicprivate partnerships in reformulating the protperformance 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: samir.chatterjee@cbs.curtin.edu.au
JOURNAL OF HUMAN VALUES 15:2 (2009): 133152 SAGE Publications Los Angeles/London/New Delhi/Singapore/Washington DC DOI: 10.1177/097168581001500205
134 SAMIR RANJAN CHATTERJEE
Introduction
The phrase Bottom of the Pyramid (BOP) refers to the lowest segment of the global income pyramid 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 companies may nd 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 of corporate 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 rms selling products and services appropriate to multiple 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 innovation but also provide a signicant 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; second, 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 been consistently rejecting social responsibility as the basis of BOP initiatives by multinational companies through such noble ideas that inevitably emerge as outcomes for successful strategic initiatives (Gouillart 2008).
JOURNAL OF HUMAN VALUES 15:2 (2009): 133152
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 microconsumption, collective consumption, and reciprocal 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 selfsufcient, and that capitalism can be extended to adopt an idealism of inclusion and sharing in a creative way. In contrast to the markers at the higher segment of the income pyramids where global strategies are focused on consumer demand and competitive tactics, the challenge in the BOP market is to understand the unique socialcultural, 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 exciting 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, the mobilization 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
Multinational Firm Strategy and Global Poverty Alleviation 135
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 framework are 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 inuence 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 managerial 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 protable economic outcomes. The experience of MNC engagement in the BOP market over the past decade demonstrates how multinationals can 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 Opportunity for Value-Creation

The proposition that global poverty can be alleviated 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 include 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 in Amazonia 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 protability speaks to a completely new way of viewing corporate globalization strategies. The widely quoted BOP gures 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 contemplated with a globally standardized strategic mindset. BOP engagement involves managing substantial diversity in technical and economic infrastructure and cultural differences. Though the
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 signicant challenge (Latelier et al. 2003). A number of researchers have undertaken comprehensive and in-depth quantitative studies of BOP spending on consumption (Hammond et al. 2007; Viswanathan 2007). These studies categorize consumer spending in various sectors as presented in Table 1. Subrahmanyam and Gomez-Arias developed a detailed 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, nance, 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 restrictions prevented 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 through monthly 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 for 20 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, challenging, 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, Nestle engineered a parallel distribution system that corrected defects in the existing channel. It offered
Table 1 Consumer Spending Pattern of BOP BOP Sectors Food Energy Housing Transportation Health Finance and IT information Water Education Clothing Others Consumer Expenditure (Per cent) 58 9 7 4 3 1 0.4 3 2 12.6 Nature of the Market National/local Government Local Government/private Government/private Bank/private/local community Government/private Government/private Private Private
Source: Modied and adapted from available data of World Resources Institute, 2007.
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 also provided 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. This convergence 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 signicant contribution to social good can be achieved. Prahalad has been arguing that the traditional four P model has been inadequate in the creation of 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 inuences of social development. Prahalad strongly advocates moving away from four Ps and embracing the four
AsAffordability, Acceptability, Awareness, and Availability (Prahalad 2005). Prahalads BOP model envisages a four A framework as opposed to the traditional four P marketing gospel. These new challenges are Affordability, Acceptability, Availability, and Awareness. The impact of these elements on BOP may be summarized as follows: Affordability: The basic character of the BOP market is the low disposable income of the consumers and their high sensitivity to price, single-use packaging, or collaborative purchasing schemes. Table 2 shows the 2008 unit price of Unilevers consumer goods in Indonesia. One of the more successful examples of understanding the Affordability issue was the establishment of the Patrimonio hoy programme in Mexicos CEMEX company. This programme allowed customers to buy cement through innovative credit schemes and instalments. Acceptability: This critical challenge reects a true bottom-up contextual understanding. It is essential that the managerial strategic mindset is re-oriented in the practice of deep listening and collaborative development. An example of how womens self-esteem and bounded indulgence in the BOP market was leveraged by Hindustan Lever may be relevant. The local cultural practice of using a single soap for both body and hair instead of using cheaper and harsh products led them to launch a very successful BOP product called Breeze 2-in-1 (Wood et al. 2008).
Table 2 Price of Unilever Indonesias Consumer Goods, Jakarta Product Shampoo Soap Soap Toothpaste Source: Store visit. Brand Sunsilk Lux Lifebuoy Pepsodent Size 12 sachets 90 g 85 g 75 g Price (in Rupiah) Rp 4025 Rp 2150 Rp 1915 Rp 2590 Price (in US Dollar) $0.40 $0.23 $0.20 $0.27
Availability: This challenge of establishing the distribution system is the key foundation of BOP. Economic, geographical, technological, cultural, or political isolation often can be viewed 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 new BOP 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 signicant contributions can be made for prot 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 that traditional 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 villagelevel 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 difcult 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. Intriguingly, these innovations have led to surprising levels of prot 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 ow, 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 environmental problems such as how to recycle the trash and plastic packaging. As has been discussed earlier, non-access, nonusage, poor quality, and other obstacles lead to severe poverty penalty in the BOP sector. In many

Table 3 Appropriate BOP Products Need Necessities Education Labour saving devices Energy-saving Productivity-enhancing Consumer goods Mobility Health goods Relevant Product-offering Basic food items, water and water purication systems, clothing, energy generation, and reliable lighting such as solar cells, fuel cells, micro-turbines. Basic childrens school books and adult learning materials. Water pumps. Reliable batteries, solar cookers, solar cells for small street side business (particularly running food stalls). Affordable micro-credit, 2 in 1 pcs, communication devices. Cooking utensils, basic microwaves. Bicycles, scooters. Mosquito nets, generic pharmacy items, spectacles, iodized salt, sterile medical items.
Source: Adapted from Elli (2008: 3).
areas, non-consumption may not even be an option resulting 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 just in 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)
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, education, 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 in market 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 poverty 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
Multinational Companies and the 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 considerable momentum in achieving global poverty alleviation. As consumers, the poor pay the poverty penalty in terms of quality, price, nonaccess, and socio-economic burden. As producers,
markets are (or could be) in different parts of the world. (Mendoza 2008 online) As the context of corporate imperialism becomes an urgent global issue and leaders around the world attempt to nd 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, and forging 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 innovations and business designs are allowed to blossom in a centripetal direction rather the traditional centrifugal imperial mindsets. The typical separation of production and consumption are not relevant in the BOP context. Understanding 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 presence amongst 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 collaborations 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 of the 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 creation 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 sustainable products, 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 operational capability even in hostile geographic, climatic, or other conditions. Protability is measured 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 represented in Figure 1. The critical focus on mindset and competency re-orientation leads to the leverage and arbitrage dividend, which in turn has the potential to make a signicant global dent on poverty, unsustainability, and greed-based corporate 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

Figure 1 Framework for MNC Managerial Mindset Transformation
on global efciency with its ability to adapt its existing resources and capabilities to respond to a range of national environments, may have a very limited 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-specic 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, distributors, and supply-chain innovators on the other. 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
here as value-creation continues to be the strategic platform in any BOP commitment. As Ghemawat (2007: 60) contends, Some companies are nding 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 cooperatives and micro-credit. A number of initiatives 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 contrasted by other models in micronance in many countries. SKS Micronance led by Vikram Akula is one such example. The Grameens approach of social entrepreneurship aims at doing good rather than making prot. Yunus is critical of modern large corporations for not recognizing the multidimensional nature of human beings and asserts that social business lls this void (Yunus 2007). In recent times, four areas of attention for global companies and global managers have emerged 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 innovative processes of a multinational company. Second, achieving a sustainable business model by designing products, particularly packaging, to minimize their ecological impact. Third, einclusion, 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, the local community, local and international NGOs, and political actors. Strong interests and commitments 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 and Prahalad 2007; Rondinelli and London 2003). The model presented in Figure 1 may be illustrated by the approach that PepsiCo is increasingly adapting in China. The company is engaging actively in Chinas western and northern regions and participating in environmental, social, and community 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 has been 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 Agricultural Science. The project assists farmers in the 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
every stage of this new potato growing culture from seed development, irrigation, storage, bulk transportation to market generation. In Inner Mongolia, the benet of this has owed on to about 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 committee of the National Peoples Congress and President of the All China Womens Federation have been showering praises on PepsiCo and publicly 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 ultimate global 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 administrative 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 country (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 globalization 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 protable 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
low income households with a combined $378 billion in income. But the success of multinational corporations in penetrating those low income segments has been limited at best, with most 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 to be 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, promotion, and distribution strategies. Nielson and Samia (2008) focused attention to a number of essential elements in preparing an organization for successful BOP engagement. These essential elements include an emphasis on economic opportunity, 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 framework, which is followed and enforced. Governments and bureaucracies are increasingly nding the for-prot sector attractive as it brings market level innovations and administrative efciencies. It is also evident that many NGOs whose motives in partnering with the for-prot 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 lowprice car Nano by the Indian company Tata, it was 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-efcient, 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 innovation was to ll 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 individual entrepreneurs, employees and enterprise partners, small businesses, national rms, NGOs, and multinational firms. The formidable opposition by the traditional exploitative money lenders that the grassroots entrepreneurial organization SKS micro-nance in India overcame to become an example of how a successful strategy of bypassing the usual conventions of poverty alleviation that benet all (Akula 2008). The challenge of moving away from the traditional underpinnings of capitalism 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
the poor presents the most complex of business operations, and this inevitably requires a quantum shift in strategic mindsets as well as the competencies of global managers (Hart and Sharma 2004; Jain and Vachani 2006).
Challenge of Implementation
The implementation challenges require a deeper understanding of the causes of poverty in a given context. A number of decits or gaps tend to be evident in this understanding process. These may include decits in object gap or idea gap. The object identies shortages in basic commodities and infrastructure including roads and factories. The idea gap emphasizes the lack of access to information and knowledge. While detection of these deciencies is important, it fails to provide a nuanced perspective demonstrating how they come together and combine with other factors to disrupt the lives of various persons or support their movement out of poverty across impacted nations of the world (Hill and Rapp 2009: 40). A number of critics have argued that BOP is more a theoretical hype than reality as the severely constrained low-income base cannot make any product or service viable except some basic survival products. In contrast, optimists contend that the BOP model presents a real roadmap for poverty alleviation through the extension of creative capitalism at the grassroots. A number of case studies have demonstrated that the generation of a new group of micro-producers, micro-consumers, and micro-innovators can at least signal a global move to bridge the poverty gap (Mendoza and Thelen 2008). One powerful critic of this BOP concept described it as at best a harmless illusion and at worst a dangerous delusion. He criticized multinationals for attempting to view the poor as potential customers rather than productive 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 efcient such that the poor capture more of the value of 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 market and it is almost impossible to make a difference without a very deep and shared commitment. He argued that 79 per cent of Indians are below the commonly dened $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 research does 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 understanding of 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

Figure 2 Agenda for Managerial Action
Source: The Base of Pyramid Protocol, 2009.
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 pyramid 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:
1. Prot performance ratio through low margin high volume product or service. 2. Establishment of context relevant packaging and distribution. 3. Combining features and benefits to generate sub-optimized quality with functionality. Features need to be simple and benets 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 continuous improvement. 6. Generating local human capital usage, contextualized training, and building of trust.
7. Leadership role in innovation in sustainable improvement in poverty alleviation. The BOP Protocol Project launched in 2003 by Cornell University and a number of multinational corporations crafted a radically new business process as a special kind of research and development. 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
for BOP engagements by multinationals. The key here is the search for ways and means of indigenous embeddings. As the extending of strategic scope, development of new models, and enrichment of the corporate purse open up a new hope 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 be seen 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 incorporate 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 in sustainable development, yielding environmental and social benets, 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 implemental 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 interventions 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 analytical assessment of the positive and negative impacts of BOP initiatives on their critical constituents. These are sellers 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.
Conclusion
The United Nations Millennium Development Goals of 2015 have been actively co-opting the leadership role of major multinational corporations 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 therefore failed. Monsantoas strategic platform did not have sufcient mindset re-orientation to understand the main theme. Though there is a debate on the speed, efciency, and approaches that the private sector can adopt in poverty alleviation, there is
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, organizations, 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 realizing their potential and not income or consumption. 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, obstacles that stop people from fullling 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 discretionary consumption or savings capability. As capability has been interpreted to be the functional alternative to the economic notion of opportunities expressed through commodities space, 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 population. Additionally, the possibility of building and strengthening corresponding institutions that contribute to human dignity also become stronger with this new reach. The countervailing forces of such 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 local and national governments, is critical to its success. The provision of basic education, healthcare, infrastructure, and public security are preconditions for the BOP idea to be of any signicance. 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 presence of such basic human services and a clear and powerful human value watch by NGOs are prerequisites 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 prot needs to become a stronger motivation in widening the horizons of the market system. Imaginative managerial 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 economics, 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
impact of MNCs on host country living standards and on society in general. Even though poverty seems to be a main concern for the developing would, poverty is a widespread phenomenon 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 on technical, economic, and strategic subjects that lead to career success. Interestingly, a number of US-based inuential 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 demonstrated 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 rms have become more powerful and have generated a worldwide eld of 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 prot seeking rms.
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134 SAMIR RANJAN CHATTERJEE

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BOP Strategy as an Opportunity for Value-Creation

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Multinational Companies and the Bottom of the Pyramid

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Approaches in Market Engagement

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Source: The Base of Pyramid Protocol, 2009.

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Figure 3 Embedding a Global Company to a Global Context: Managerial Frame

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