ADB IB Workshop - EA LatAm Profile and Case Studies v4

East-Asia and Latin America market scoping studies and case studies
ADB-IDB Inclusive Business Workshop

Tokyo, Feb-Mar 2013
DRAFT - WORK IN PROGRESS
Which countries will we highlight in Asia?
PAKISTAN
INDIA
BANGLADESH
VIETNAM
SRI LANKA
PHILIPPINES
INDONESIA

3
Philippines
Market overview: Philippines

Population
38% 63%
96.5m
BOP OVERVIEW
Spending
50% 50%
$34.0B
Non-BoP
BoP
Current IB engagement (n=70)
Engagement model (n=70)

10% 11% Consumer
INCLUSIVE BUSINESS PROFILE
26% 49% 14%

11%
Agriculture Financial services Manufacturing Others
43%
Supplier Distributor Employee
36%
OPPORTUNITIES/ TRENDS
PHILIPPINES VITAL STATISTICS1 GDP per capita (PPP) USD 4,300 (2012 est.)
High-priority sectors include agribusiness, food manufacturing, design led manufacturing, BPO, tourism and mining sector One-third of the countrys population is engaged in agriculture, and 78% of companies currently engage small farmers and fishermen as suppliers The manufacturing sector has come up with innovative models such as using manpower labour cooperatives to hire labour which ensures fair wages, social benefits and longevity while avoiding restrictive labour laws
GDP composition Agriculture 12.4% Industry 31.3%% Services 56.4% Labor composition Agriculture 33% Industry 15% Services 52%
CHALLENGES
Difficult regulatory environment Lack of government initiatives Access to capital, specially for small companies Poor infrastructure, often leading to high cost of inputs
1.CIA World Fact book Source: ADB Market scoping studies; Dalberg research
NOT EXHAUSTIVE
Deep dive into selected IB sectors in the Philippines

KEY SECTORS MODE OF ENGAGEMENT RATIONALE
Agriculture/Agribusiness
Supplier
Source of livelihood and employment for 12 million rural workers Supply of raw materials, particularly coconut, fish, rice and seaweed
Design-based manufacturing
Employee
Filipino designers have advantage of cultural awareness and understanding of Western taste and aesthetics
Business Process Outsourcing
Employee
Existing employment in this sector is more than 1 million Largely English-speaking labor pool Well educated/qualified professionals in medicine, animation, programming and engineering
Source: ADB market scoping study; Dalberg research and analysis
ENCASH uses TECHNOLOGY and PARTNERSHIPS with rural banks to provide ATM services to rural CONSUMERS
WHAT WAS THE PROBLEM? Provision of ATM services to rural populations in Philippines was deemed unviable and expensive by commercial banks As a result, rural populations faced severe challenges to get access to cash HOW WAS IT SOLVED? Using partnerships with rural banks, cooperatives and MFIs and by innovatively using technology, ENCASH installs ATMs in remote, rural areas To keep costs down, ENCASH also outsources ATM processes
WHAT WERE THE OUTCOMES? With 337 ATMs installed and more than 140 partnerships as of 2012, ENCASH has the largest rural and cooperative banking network in Philippines Availability of cash in the villages has led to the emergence of micro-enterprises near the ATM as people spend the money in their own village
WHAT WAS LEARNT? Inclusive businesses can expedite and create greater impact by incorporating technology in business models Rural populations are fast at adopting new technologies that offer a strong value proposition
6
Photo courtesy www.images.google.com
Microventures provided access to finance and developed the capacity of a DISTRIBUTION network of retail stores in rural areas
WHAT WAS THE PROBLEM? Poor, low-capacity distribution networks for BoP good and services (including FMCG, energy products, medicines etc.) resulting in limited access Sari-sari stores owners (small, home-based convenience stores selling basic commodities) lacked capital for set-up and expansion
HOW WAS IT SOLVED? Microventures provided start-up and working capital to store owners Microventures aggregated 700K+ stores in order to facilitate bulk purchase discounts Technical and sales support was provided, as well as support for new businesses and additional revenue streams
WHAT WERE THE OUTCOMES? MicroVentures has improved businesses of ~180 community stores with extended reach to ~8000 10,000 stored and plan to reach 100,000 stores WHAT WAS LEARNT? Significant scale benefits and cost savings can be had simply by aggregating/organizing small retailers/distributors A little bit of capital can go a long way in substantially increasing BoP access to goods and services
7
Photo courtesy www.images.google.com

8
Indonesia
Market overview: Indonesia

Population
11% 89%
244.8m
BOP OVERVIEW
Spending
73% 27%
$214.9B
Non-BoP
BoP

37% 26%
Consumer
22% 50% 14%

13%
Agriculture
Consumer goods/retail
Manufacturing Others
Supplier
Distributor Employee
13%
24%
INDONESIA VITAL STATISTICS1 GDP per capita (PPP) USD 5,000 (2012 est.)
Agriculture, manufacturing and telecommunications are the most profitable for investors in terms of financial returns, while agriculture and consumer goods/retail sectors have been effective poverty reduction models Agriculture has traditionally been the Governments focus area to address poverty, with small holder farmers supplying to large manufacturing facilities Domestic demand drives Indonesias growing market, with consumption accounting for 55% of GDP in 2011
GDP composition Agriculture 14.3% Industry 46.9% Services 38.8% Labor composition Agriculture 38.3% Industry 12.8% Services 48.9%
CHALLENGES
Regulatory bottleneck make it difficult to invest in infrastructure/fixed assets Higher labor wages as compared to other SE Asian countries, and more unionized labor Informal businesses are unattractive to large companies, since they need strong legal basis
NOT EXHAUSTIVE
Deep dive into selected IB opportunities in Indonesia

KEY SECTORS
Tourism, hotels and restaurants
MODE OF ENGAGEMENT
Employee
RATIONALE
Employs a fifth of Indonesias work force
Agriculture/Forestry/ Fishery
Supplier
Largest employer, particularly of BoP populations Long track record on inclusive business models in which MNCs incorporate smallholder farmers as suppliers (e.g. Nestle, Unilever)
IT/Telecommunications
Consumer
TBD
10
P.T. Toarco Jaya is a subsidiary of a large Japanese coffee company and sells a brand of speciality coffee while engaging the BoP as SUPPLIERS
WHAT WAS THE PROBLEM? Coffee trees are grown in mountainous regions, where transport is difficult Coffee farmers are not aware of latest information on production and quality control mechanisms HOW WAS IT SOLVED? Toarco established purchasing stations close to farmers and offered premium prices for quality coffee Toarco engaged local collectors to play multiple roles including providing credit to farmers, buying coffee beans, transporting them to Toarco, and ensuring quality control for coffee Toarco also organized seminars for training farmers in cultivation and post harvest processing WHAT WERE THE OUTCOMES? P.T. Toarco Jaya now exports 200-500 tons of coffee beans per year It procures from 7,000 small-scale farmers , providing 53 full time and 900 temporary jobs at its Rainforest Alliance certified plantation WHAT WAS LEARNT? Incentives for quality produce can help increase adoption of training techniques provided to improved productivity Leveraging local capability to navigate difficult terrain can ensure greater reach and bring down transport costs
Source: Growing Inclusive Markets country case studies; Dalberg Research Photo courtesy www.images.google.com
11
RUMA is an IT and services firm that connects large companies to low income CONSUMERS though a network of BoP DISTRIBUTORS
WHAT WAS THE PROBLEM? The BoP population has limited access to value added services, and possess little information on market trends HOW WAS IT SOLVED? RUMA uses a network of micro-entrepreneurs to sell products such as prepaid mobile minutes, and prepaid vouchers for utility bills using mobile technology RUMA trains entrepreneurs provides them with marketing materials and supply of products RUMA provides market intelligence through contracts with multiple brands and local employment information for consumers
WHAT WERE THE OUTCOMES? Within 2 years of starting operations, RUMA managed to obtain 4000 active agents reaching million consumers Over 85% of the RUMAs costumers are women WHAT WAS LEARNT? Working with multiple brands can provide an important source of information Appropriate technology (mobile payments, etc.) can be used to reach remote consumers Customized products such as prepaid vouchers address cash flow issues for BoP consumers
Source: ADB market scoping studies; Dalberg Research Photo courtesy www.images.google.com
12

13
Bangladesh
Market overview: Bangladesh

Population 4%
96%
152.4m
BOP OVERVIEW
Spending
20% 80%
109.0B
Non-BoP
BoP

37% 26%
Consumer
Small/Small-medium
29% 49% 14%

9%
Medium
Large
Medium - large
DUMMY
Supplier
13%
24%
BANGLADESH VITAL STATISTICS1 GDP per capita (PPP) USD 2,000 (2012 est.)
Energy, Information Technology and Pharmaceuticals are the most attractive overall sectors Competitive labor rates and a growing working population can fuel growth in a variety of industry sectors including textiles and outsourcing Growing coverage of hospitals and increasing exports has helped the pharmaceuticals industry grow
GDP composition Agriculture 17.3% Industry 28.6% Services 54.1% Labor composition Agriculture 45% Industry 30% Services 25%
CHALLENGES
Lack of infrastructure Corruption, red tape and bureaucracy Internal crises such as the stock market crash in 2009 -11, bank loan scams in 2012 and huge energy shortage have been economic obstacles in the past Retail, forestry, education and water and sanitation have not seen much success
14
NOT EXHAUSTIVE
Deep dive into selected IB opportunities in Bangladesh

Energy
Supplier Consumer
Surplus demand exists only 67% of energy needs are currently met in Bangladesh Government of Bangladesh has provided incentives and risksharing to power companies (including mini-grid companies)
Textiles and garment manufacturing
Supplier Employee
Largest manufacturing sector in the economy, and fastest growing sector in Bangladesh, comprising more than 75% of exports Availability of cheap labor Government incentives, particularly for sourcing locally
IT data processing and software development
Employee
Availability of a substantial number of qualified/experienced professionals therefore low investment required in training Government has prioritized the sector and is investing IT infrastructure
15
Source: ADB market scoping study; www.ibfb.org; Dalberg research and analysis
Kik is a German retailer for textiles that incorporates BoP artisans into the international value chain as SUPPLIERS
WHAT WAS THE PROBLEM? The textile sector had been experiencing a 20% growth in Bangladesh, however a large pool of artisans were completely disconnected from this export-driven growth story HOW WAS IT SOLVED? Kik worked with local partners: Systain Consulting Ltd. & CARE to involve rural women in their supply chain Funding was provided to local entrepreneurs to set up venues for work and training Systain Consulting offered quality and monitoring control, while CARE was responsible for mobilizing rural women WHAT WERE THE OUTCOMES? Kik fulfills demand for 5 out of its 600 centers from Bangladesh and plans to scale up the model The enterprise has seen an average annual growth of 15% in production
WHAT WAS LEARNT? Partnering with local organizations can help international companies keep track of sector specific needs and provide operational support Investing in training facilities while mobilizing local work force can help ensure supply of skilled labour to drive scale
Source: Rug making Shaping lives on the road to export markets, CARE; Dalberg Research Photo courtesy www.images.google.com
16
BATA partners with CARE to train and engage rural women as door to door DISTRIBUTORS of company products
WHAT WAS THE PROBLEM? Rural Bangladeshis have limited access to consumer products, and have to travel large population centers investing time and money HOW WAS IT SOLVED? BATA works with a CARE initiative that selects women as sales representatives to sell multiple products BATA provides necessary trade credit, training support and delivery of products, while CARE provides credit guarantee, training and support services to the self-help groups
WHAT WERE THE OUTCOMES? Within 9 months of engaging with the model the program generated USD 300,000 in revenue Success of the program resulted in a 20-fold increase in women sales agents
WHAT WAS LEARNT? Existing programs can mitigate risks that working with low income consumer can bring in, while offering operational on-ground support Investing in training facilities while mobilizing local work force can help ensure supply of skilled labour to drive scale
Source: Bangladesh Social Enterprise Report 2010, FDC, LIBRA Advisory Group; Dalberg Research Photo courtesy www.images.google.com
17

18
India
Market overview: India

Population 6%
94%
1,258.3m
BOP OVERVIEW
Spending
49% 51%
$1,420.9B
Non-BoP
BoP

3% Consumer 10% Supplier Distributor Employee
25% 51% 13%

11%
Agriculture Energy Healthcare Others
24% 63%
INDIA VITAL STATISTICS1 GDP per capita (PPP) USD 3,900(2012 est.)
A booming services sector has led Indias growth story over the last decade, but a languishing agriculture sector has limited the inclusiveness of this growth India could take advantage of its favourable age demographics and develop a competitive advantage in possessing 25% of the worlds workforce; demographics in low-income states are particularly well positioned to drive growth. An increasing proportion of Indias labour force comprises casual labour, driven by the large shift in employment patterns from farm-based to non-farm based temporary or contractual jobs
GDP composition Agriculture 17% Industry 19% Services 28% Labor composition Agriculture 53% Industry 19% Services 28%
CHALLENGES
Challenges in land acquisition, poor energy and water infrastructure Poor enabling institutions and weak law enforcement Policy paralyses, lack of reforms & administrative obstacles with instances of large scale corruption raise concerns about Indias ability to sustain a high growth rate
19
NOT EXHAUSTIVE
Deep dive into selected IB opportunities in India

KEY SECTORS
Agriculture/Agribusiness
MODE OF ENGAGEMENT
Supplier Employee
RATIONALE
More than half of Indias population is dependent on agriculture for their livelihood
Energy
Consumer
Millions at the BoP seeking off-grid solutions for access to energy Significant renewable energy potential, particularly solar Huge consumer opportunity USD 2.04B/year in decentralized renewable energy services
Tourism
Employee
India has the 2nd fastest growing tourism market in the world One of the largest service industry employment sectors provides 9% of employment in India Sector employs people all over India, including a large percentage of women
Sanitation
Consumer
Huge need, as 65% of rural households and 11% of urban households do not have any latrine facility at home (2010) Government support and carrots for private sector investment in this sector in order to meet targets
20
Greenlight Planet offers affordable lighting to rural low income CONSUMERS while also engaging the BoP as DISTRIBUTORS
WHAT WAS THE PROBLEM? BoP households in India, especially in rural areas, do not have reliable access to electricity and instead must rely on kerosene lamps which can be costly, unsafe, and provide poor quality light HOW WAS IT SOLVED? Solar-powered, portable, LED household lighting products, some of which can double as cellphone chargers Innovative marketing and distribution channels such as the Saathi model that engages rural retailers and prominent community members such as teachers, village leaders, etc. as distributors WHAT WERE THE OUTCOMES? Over 100,000 villagers have adopted Greenlight solar lanterns and the company plans to expand to several states in India, after successful operations in 2 initial states
WHAT WAS LEARNT? Multiple distribution channels (e.g. shelf space in stores, door-to-door distribution agents) help in reaching potential BoP market Marketing strategies requiring physical presence (e.g. rural village road shows, meetings with local dealers) may be important in BoP markets where personal relationships are important
21
LifeSpring is an Indian hospital chain that uses a no-frills model to provide maternity and paediatric care to low income CONSUMERS
WHAT WAS THE PROBLEM? BoP households have high demand for quality hospital services, but existing hospital prices are out of reach HOW WAS IT SOLVED? LifeSpring has a narrow focus on child labor and delivery LifeSpring reduced costs by standardizing procedures, cutting unnecessary expenses (e.g. canteen), outsourcing pharmacy and lab, renting property, and increasing doctor and equipment utilization WHAT WERE THE OUTCOMES? LifeSpring averages five times the number of deliveries compared to private clinics and the cost of a doctor per patient is one fourth the cost in a private clinic LifeSpring has a 43% market share in its flagship hospital in the outskirts of Hyderabad LIfeSpring has delivered over 5,500 healthy babies WHAT WAS LEARNT? A narrowly focused business model (e.g. gynecology and obstetrics) can reduce costs and improve asset utilization Within the BoP market, it is critical to have a targeted marketing approach (e.g. LifeSpring focuses on husbands and mothers-in-law)
22

23
Vietnam
Market overview: Vietnam

Population
17% 83%
89.7m
BOP OVERVIEW
Spending
39% 61%
$36.9B
Non-BoP
BoP

Consumers
Manufacturing
37%
30%
Agricuture, forestry & fishing Financial services & insurance Others
42% 16%
31%
Suppliers Distributors Employees
14%
18%
12%
VIETNAM VITAL STATISTICS1 GDP per capita (PPP) USD 3,500 (2012 est.)
Employment presents the most immediate opportunity for social inclusion and economic growth, particularly in agriculture and manufacturing sectors Although agriculture and forestry has declined in overall GDP market share, it remains the largest employer employing 22 million people Manufacturing and real estate received as much as 75% of accumulated registered capital of FDI
GDP composition Agriculture 21.5% Industry 40.7% Services 37.7% Labor composition Agriculture 48% Industry 22.4% Services 29.6%
CHALLENGES
Vietnams rankings reflect challenges in starting a business, registering property, getting credit and paying taxes In spite of proactive Govt efforts, there is lack of infrastructure, specially electricity and a reliable road system Legal systems and real state ownership issues are other challenges investors are vary of
24
NOT EXHAUSTIVE
Deep dive into selected IB opportunities in Vietnam

Agriculture/Agribusiness/ Agri-inputs
Supplier
Global player in crops such as coffee Employs largest number of people in Vietnam
Light manufacturing
Supplier Employee
Significant anticipated short-term growth in manufacturing Opportunity to integrate millions of low-income people into the work force Existing capabilities due to diverse manufacturing base garments, textiles, shoes, electronics Scope for sourcing raw materials from low-income producers
25
Philips Electronics works with DISTRIBUTORS TO SPREAD AWARENESS about low energy lighting and sell technology to low income CONSUMERS
WHAT WAS THE PROBLEM? Low income households use inefficient fuel-based lighting which has negative health and environmental implications HOW WAS IT SOLVED? Philips sells energy saving light bulbs with 2 -3X the longevity of regular bulbs Philips increased product awareness and knowledge of long term benefits of low energy lighting though conventions and seminars for current distributors Philips also partnered with State Vietnam electricity to help distribute light bulbs at a subsidy to the poor WHAT WERE THE OUTCOMES? Increased revenues for Philips in Vietnam Increased awareness of negative effects of fuel-based lighting and increased access to clean lighting technologies among the BoP in Vietnam WHAT WAS LEARNT? Spreading awareness amongst distributors helps indirectly influence consumer decisions, as local distributor/retailers are closer and more credible to consumers Partnering with public organisations can help leverage Govt initiatives to make products affordable/accessible for the low income group
26
Coca-Cola uses an innovative grassroots approach engaging the BoP as DISTRIBUTORS in order to reach rural CONSUMERS
WHAT WAS THE PROBLEM? Rural population was hard to reach and penetration numbers for these regions was low DRAFT - WORK IN PROGRESS
HOW WAS IT SOLVED? The route to market model provided an opportunity for rural sellers to become distributors Hundreds of mini-distributors were engaged and women are trained to set up independent businesses Women are also provided discounted beverages to help get small mobile businesses started
WHAT WERE THE OUTCOMES? Over 50 million sales revenue from Vietnam in 2009, with 30% growth in 2010 Distribution networks in all small cities and towns in 64 province of Vietnam by 2014
WHAT WAS LEARNT? Rural sellers ensure wider coverage and are a source of competitive advantage for the company Training and other incentives can help set up businesses that will offer long term steady distribution networks for the company
27

28
Sri Lanka
Market overview: Sri Lanka

Population
33% 67%
21.2 mn
BOP OVERVIEW
Spending
49% 51%
$45.5 bn
Non-BoP
BoP

25% 51% 13%

11%
Agriculture Energy Healthcare Others
24% 63%
SRI LANKA VITAL STATISTICS1 GDP per capita (PPP) USD 6,100 (2012 est.)
Sri Lankas services sector is the engine of the countrys growth while construction and hospitality industries have grown significantly in the recent past Although overall unemployment is decreasing, there is a large need for skilled jobs among the educated youth Industry (i.e., manufacturing, mining, etc.) has been the fastest growing sector since 2004, with a compounded annual growth rate of 7.5% Sri Lanka is attracting an increasing number of tourists post war; the tourism industry will be an attractive opportunity for investment
GDP composition Agriculture 11% Industry 26% Services 60% Labor composition Agriculture 31.8% Industry 25.8% Services 42.4%
CHALLENGES
Tax policy, tax rates and regulations Macroeconomic stability, post conflict growth, high budget deficit and inflation rates have been causes of concern in the past
29
CIC Agri is a large conglomerate that engages BoP across the value chain as SUPPLIERS, EMPLOYEES and CONSUMERS
WHAT WAS THE PROBLEM? Lack of quality agricultural inputs for farmers, and inadequate information on effective production mechanisms HOW WAS IT SOLVED? CIC Agri provides small holder farmers with seeds and fertilizer and buys the harvested product back at fair prices It directly employs 2,500 BoP individuals in its factories, processing units and farms CIC Agri offers consultancy services for farmers on optimizing yields WHAT WERE THE OUTCOMES? CIC Agri directly impacts the lives of over 20,000 farmers CIC currently contributes to 6% of Sri Lankas total agricultural production and plans to grow 20% every year
WHAT WAS LEARNT? Offering integrated solutions across the value chain can help tap synergies in producing impact Working with a large number of small suppliers with effective techinical support can ensure scalability of model
Source: ADB market scoping studies; Dalberg research Photo courtesy www.cicagri. com
30
MAS Intimates is a manufacturer of intimate apparel and sportswear that engages the BoP as EMPLOYEES
WHAT WAS THE PROBLEM? Majority of the BoP labour force has minimal work experience and does not possess specialized skill sets High attrition rates are a major challenge for the textile sector HOW WAS IT SOLVED? MAS absorbs workers at entry level positions, and trains them in requisite skills A lot of emphasis is placed on career paths, employee interests and professional development In order to promote ownership, small teams have weekly meetings with employees to discuss challenges faced along production lines WHAT WERE THE OUTCOMES? MAS currently employs 50,000 individuals from BoP backgrounds, 80% of whom are women MASs strong reputation as a preferred employer has led to low attrition MAS has grown to 34 facilities in Sri Lanka and has now launched its own brand of clothing
WHAT WAS LEARNT? Providing employee benefits such as those provided by traditional office jobs, and promoting greater ownership of work can help ensure longevity of employee engagement
31
Source: ADB market scoping studies; Dalberg research Photo courtesy www.images.google.com
Country handout slides
32
Developing market profile: Philippines

BOP PROFILE
BOP BREAK UP (POPULATION IN MILLIONS) 62.5% of the population in Philippines lives under $3 a day
22.9 19.5 49% 51% 2010 50% 50% 2015 Urban Rural
INCLUSIVE BUSINESS LANDSCAPE

BREAK-UP OF INCLUSIVE BUSINESS BY TURNOVER AND ENGAGEMENT MODEL N = 70
14% 14%
27% < $1 mn 1 - 10 mn 10 - 50 mn
N = 70
10% 11% Consumer Supplier Distributor Employee
43%
44%
>50 mn
36%
BOP BREAK MARKET SPEND (USD BILLION) The BoP accounts for 50% of household expenditure in Non - BoP Philippines
BoP
34.0
50% 50% 2012
17.0
50% 50% 2012 Non - food Food
ENGAGEMENT MODEL ACROSS DIFFERENT SECTORS N = 70

Consumer Supplier Distributor Employee Financial services Manufacturing Agriculture 6% 17% 18 10 50% 8
BUSINESS ENVIRONMENT
LABOR FORCE BREAK-UP BY SECTOR (POPULATION IN MILLIONS)
40.7
100% 13% 33% 17% 33% 60% 100% 75% 100% 100% 100%
25%
38%
Majority of the BoP population works in the agriculture and informal sector
Food and beverage
67%
50%
6
6 5 5 4 3 3 2
33% 15% 56% 52%
12%
31%
Agriculture Industry Services Retail Energy Health
40%
CHALLENGES
Ease of doing business index 2012(World Bank) Philippines Indonesia Vietnam Thailand Malaysia
2012
Information technology Education Housing Tourism
18 12
East Asia and Pacific: 75
Difficult regulatory environment 138 Lack of Govt initiatives 128 Access to capital, specially for small 99 companies Poor infrastructure, often leading to high cost of inputs
33
Source: ADB Market Scoping studies; WRI; World Bank Data; Dalberg Research
Developing market profile: Indonesia

BOP PROFILE
BOP BREAK UP (POPULATION IN MILLIONS) 88% of the population in Indonesia lives under $4 a day
81.6 50% 50% 2010 92.4 Urban 54% 46% 2015 Rural

Small/Small-medium
N = 67
29%
Medium Medium - large Large
37%
26%
Consumer Supplier Distributor Employee
49% 14%
9%
13%
24%
BOP BREAK MARKET SPEND (USD BILLION) The BoP accounts for 57% of household expenditure in Indonesia
214.9
27% 73% Non - BoP BoP
ENGAGEMENT MODEL ACROSS DIFFERENT SECTORS N = 105 Agriculture 9%

Consumer Manufacturing Consumer good/Retail Housing material
30%
23 14
2012
14% 20% 43% 50% 8% 8% 100%

33%
Supplier Distributor Employee 15 7 12 4 8
LABOR FORCE AND GDP BREAK-UP BY SECTOR (POPULATION IN MILLIONS, GDP IN USD BILLIONS) 119.5 The Indonesian labor market is shifting from Agriculture 38% 14% agriculture to services, Industry 39% 13% however 6.6% of the Services population remains 47% 49% unemployed CHALLENGES
Ease of doing business index 2012(World Bank) Philippines Indonesia Vietnam Thailand Malaysia 2012 2012
Energy/Renewable energy Phramacy Tourism Education and training Finance services
20% 100% 67%
5 3
Healthcare products
Water & Sanitation Fishery Telecommunication Transportation Forestry
3
3
18 12
Regulatory bottleneck make it difficult to invest in infrastructure/fixed assets 138 128 Higher labor wages as compared to other SE 99 Asian countries, and more unionized labor Informal businesses are unattractive to large companies, since they need strong legal basis
33%
3 1 1
East Asia and Pacific: 75
33%
34
Developing market profile: Bangladesh

BOP PROFILE
BOP BREAK UP (POPULATION IN MILLIONS) 96% of the population in Bangladesh lives under $4 a day
48.0 28% 72% 55.4 30% 70% Urban Rural

Small/Small-medium
N = 67
29%
Medium Medium - large Large
37%
26%
Consumer Supplier Distributor Employee
49% 14%
9%
2010
2015
13%
24%
BOP BREAK MARKET SPEND (USD BILLION)

109.0
The BoP accounts for ~80% of household expenditure in Bangladesh
21% 79%
Non - BoP BoP
ENGAGEMENT MODEL ACROSS DIFFERENT SECTORS N = 105 DUMMY Agriculture 9%

Consumer Supplier Manufacturing Consumer good/Retail Housing material
30%
23 14
14% 20% 43% 50% 8% 8% 100%

33%
LABOR FORCE AND GDP BREAK-UP BY SECTOR (POPULATION IN MILLIONS, GDP IN USD BILLION) Bangladesh has the lowest labour costs in the world, which could help fuel growth in a range of industry sectors CHALLENGES
Ease of doing business index 2012(World Bank)
15 7 12 4 8
77.0
45% 30% 54%
Energy/Renewable energy
17%
29%
Agriculture Industry Services
Phramacy Tourism Education and training Finance services
20% 100% 67%
5 3
25%
2012 2012
Healthcare products
Water & Sanitation Fishery Telecommunication Transportation Forestry
3
3
Lack of infrastructure Corruption, red tape and bureaucracy Philippines 138 Internal crises such as the stock market crash Indonesia 128 in 2009 -11, bank loan scams in 2012 and Vietnam 99 Thailand 18 huge energy shortage have been economic Malaysia 12 obstacles in the past Retail, forestry, education and water and East Asia and Pacific: 75 sanitation have not seen much success Source: ADB Market Scoping studies; WRI; World Bank Data; Dalberg Research
33%
3 1 1
33%
35
Developing market profile: India

BOP PROFILE
BOP BREAK UP (POPULATION IN MILLIONS)
422.7 468.6 33% 67% Urban Rural 9%

19% 63% 28%
2010 2015 < $1 mn 1 - 10 mn 10 - 100 mn >100 mn
N = 67
94% of the population in India lives under $4 a day
31%
69%
24% 63%

1,420.9 692.0
26% 74%
The BoP accounts for 49% of household expenditure in India
Non - food Food Non - BoP BoP
51% 49% 2008
Segregate India Sri Lanka ENGAGEMENT MODEL ACROSS DIFFERENT SECTORS

N = 120
Consumer Supplier Distributor Employee Energy Healthcare Agribusiness
23% 38% 69% 15% 25% 50% 60% 50%

0% 17%
27%
30 16
2008
LABOR FORCE AND GDP BREAK-UP BY SECTOR (POPULATION IN MILLIONS, GDP IN USD BILLION) 498.4 The growth in the service sector is Agriculture 17% 53% primarily led by Industry private enterprises, 18% Services 19% 65% has led to massive job creation and 28% catalysed urbanisation 2009 2011 CHALLENGES Challenges in land acquisition, poor energy and water infrastructure Philippines 138 Poor enabling institutions and weak law Indonesia 128 enforcement Vietnam 99 Thailand 18 Policy paralyses, lack of reforms & Malaysia 12 administrative obstacles with instances of large scale corruption raise concerns about Indias East Asia and Pacific: 75 ability to sustain a high growth rate
Ease of doing business index 2012(World Bank)
31%
13
Telecom, BOP, IT
Retail Water and sanitation Education Real estate and construction Textiles, garments and handicrafts BFSI Hospitality and tourism 0%
15%
13
12 12 10 6 4
25%
25%
100%
3 1
36
Developing market profile: Vietnam

BOP PROFILE
BOP BREAK UP (POPULATION IN MILLIONS) 82.6% of the population in India lives under $4 a day
29.0 30% 70% 2010 33.0 34% 66% Urban Rural

25%
15%
< $10 mn $10 - 25 mn
N = 76
Consumers
63%
42% 16%
31%
Suppliers Distributors Employees
$25 - 50 mn >$ 50 mn 12%
2015
25%

36.9 14.0
40% 60% 2012
The BoP accounts for 39% of household expenditure in Vietnam
61%
39% 2012

Number of companies Manufacturing
23 14 11 8 6
LABOR FORCE BREAK-UP BY SECTOR (POPULATION IN MILLIONS, GDP IN USD BILLIONS) In spite of a shift towards non-farming jobs, agriculture remains the largest employer of Vietnamese population CHALLENGES
Ease of doing business index 2012(World Bank) Sri Lanka Pakistan Bangladesh India
Agriculture, forestry, fishing Financial services and insurance Construction
49.2 48%
38% 22% 30% 2012 41%
22%
Agriculture Industry Services
Other Wholesale and retail trade Transportation and storage Information and communication technology Education Real estate Electricity/gas Water and waste management
Break up not 5 available

3 2 1 1 1 1
Vietnams rankings reflect challenges in starting a business, registering property, getting credit 81 and paying taxes 107 In spite of proactive Govt efforts, there is lack 129 132 of infrastructure, specially electricity and a reliable road system Legal systems and real state ownership issues South Asia: 121 are other challenges investors are vary of
37
Developing market profile: Sri Lanka

BOP PROFILE
BOP BREAK UP (POPULATION IN MILLIONS) 67.3% of the population in Sri Lanka lives under $4 a day
6.7 15% 85% 7.6 16% 84% Urban Rural 9%

19% 63% 28%
2010 2015 < $1 mn 1 - 10 mn 10 - 100 mn >100 mn
N = 67
24% 63%

45.5 23.0
57% 43% 2009- 10
The BoP accounts for 51% of household expenditure in Sri Lanka
49%
51% 2009 - 10

Consumer Supplier Distributor Employee Energy Healthcare Agribusiness
23% 38% 69% 15% 25% 50% 60% 50%

0% 17%
27%
30 16
LABOR FORCE AND GDP BREAK-UP BY SECTOR (POPULATION IN MILLIONS, GDP IN USD BILLIONS) The services sector is the engine of the countrys growth while the industrial sector has grown rapidly since 2004 CHALLENGES
Ease of doing business index 2012(World Bank) Sri Lanka Pakistan Bangladesh India
31%
13
8.2
32% 26% 58% 30%
Telecom, BOP, IT
15%
13
12 12 10 6 4
12%
Agriculture Industry Services Retail Water and sanitation Education
25%
25%
42%
2012 2012
Real estate and construction Textiles, garments and handicrafts BFSI Hospitality and tourism 0%
Tax policy, tax rates and regulations 81 Macroeconomic stability, post conflict growth, 107 high budget deficit and inflation rates have 129 132 been causes of concern in the past
100%
3 1
South Asia: 121
38

39
Extra
DIRECTIONAL
Which inclusive business sectors have attracted the most funding?

SECTOR DISTRIBUTION OF INCLUSIVE BUSINESSES Survey of 2213 total investments (2011); Value of investments in billion USD
Water & Sanitation Education Healthcare Housing Other Clean energy and tech Cross sector Food & Agriculture
2,213 2% 3% 7%
12% 13%
4B
1%
0%
2%
3%
100%
21%
10% 6%
13% 15% 15% 6%
Microfinance
34%
37%
Number
Value
40
Source: JP Morgan/ GIIN survey of impact investors in Insight into the impact investment market, (JP Morgan, 2011); Dalberg research
More case studies from Asia and Latin America
41
CONSUMER: AMANCO (MEXICO)

What is the BoP Model? What is the product? What was the problem or opportunity? What was the solution?
Consumer basic product or service Irrigation systems and equipment Many small-scale farmers are located near water sources, but cannot afford irrigation equipment and thus struggle to achieve high levels of productivity Amanco standardized basic, small-scale irrigation systems to make them more affordable Amanco offers basic, small-scale systems at wholesale prices to social entrepreneurs who can then pass them on to farmers at a lower price; social entrepreneurs also help farmers access microloans to purchase equipment Small-scale farmers using Amanco irrigation systems have been able to increase their productivity up to 22%, while reducing labor costs by up to 33% and saving significant quantities of water Businesses can use social entrepreneurs to aggregate demand, as well as act as sales agents and distributors to BoP consumers Product demonstrations may be necessary to convince BoP customers to make larger investments DRAFT - WORK IN PROGRESS
What was the result?
What can we learn from Amancos experience?
Source: Supporting Entrepreneurship at the Base of the Pyramid through Business Linkages, IFC, Harvard Kennedy School, International Business Leaders Forum, June 2008.
42
SUPPLIER: AMUL (INDIA)

What is the BoP Model?
What is the product? What was the problem or opportunity? What was the solution?
Supplier BoP-owned cooperative Milk and other dairy products, including yoghurt, buttermilk, cheese, ice-cream, soups, and beverages There was no effective and efficient way to collect milk from the thousands of small-scale dairy farmers in rural India An extensive dairy cooperative structure to collect milk, including village-level producer societies, district-level dairy unions, and an overall cooperative body Individual farmers did not become large integrated dairies; rather, the number of farmers within the cooperative structure grew Generates annual revenues of over $1.5 billion Produces 2.3 billion liters per year Sources from 2.79 million dairy farmers Cooperative structures utilizing BoP producers can be reliable and scalable sources of inputs, but require upfront investments in network infrastructure BoP business models may want to utilize soft funding when available; Amul used government grants to develop extensive collection infrastructure DRAFT - WORK IN PROGRESS
What can we learn from Amuls experience?
Source: www.amul.com, Emerging Markets, Emerging Models, Monitor Group, March 2009.
43
EMPLOYEE: ARAVIND EYE CARE (INDIA)

Employee deskilling Consumer basic product or service Low-cost eye screening and surgery Lack of high skilled resources, such as doctors, made eye screening and surgery expensive High cost of eye screening and surgery limited the potential market, excluding the BoP as a possible consumer End-to-end business model that divided operations into simple, discrete, assembly-line like tasks using less-skilled professionals Division of labor allowed for greater utilization of doctors, while still providing low-cost, high-quality, high patient throughput Aravind grew from one hospital with 11 beds in1976 to seven hospitals with 3,590 beds $2.5 million patients screened per year Over 300,000 eye surgeries per year Profitable, even though two thirds of surgeries are to the BoP Division of operations into simple, discrete tasks can optimize scarce resources and allow for high-quality, high-volume services Longer investment horizons may be required to achieve scale; Aravind took a decade to perfect operating model DRAFT - WORK IN PROGRESS
What can we learn from Aravinds experience?
Source: www.aravind.org, Emerging Markets, Emerging Models, Monitor Group, March 2009.
44
CONSUMER: CAIXA ECONOMICA (BRAZIL)

What is the BoP Model? What is the product?
Consumer new or customized product Banking services (opening of checking and savings accounts, debit card transactions) Other financial services such as payments, credit cards, etc DRAFT - WORK IN PROGRESS The poor are often unable to access conventional bank branches branch penetration averages only two branches per 100,000 people in the poorest country quintile Agent banking: delivering financial services through retail agents including post offices, local shops, and lottery kiosks, already prevalent in previously unbanked communities Households in all of Brazils more than 5,600 municipalities can access banking services including deposits, payments, transfers and, in some cases, credit, through 95,000 non-bank agents - between 2002 and 2004, more than 9 million bank accounts were added to the existing 45 million Of clients who use Caixa Economicas correspondent banking services, 88% earn below the national poverty line Sharing point-of-sale (POS) terminals with retailers allows for significant reduction of the fixed costs associated with building service outlets in remote areas
What was the problem or opportunity? What was the solution?
What can we learn from Caixa Economicas experience?
Source: Expanding Bank Outreach through Retail Partnerships, World Bank, 2006.
45
SUPPLIER: CALYPSO FOODS (INDIA)

Supplier direct purchase Specialty fruits and vegetables, including gherkins, pineapples, mangoes, and jalapenos Cost of production is high due to need for leasing or purchase of land, hiring of workers, and management of production Contract production of fruits and vegetables with 5,000 small-scale farmers organized into clusters of several hundred farmers Calypso provides initial inputs (e.g. seeds, fertilizer, pesticide) to farmers on affordable credit as well as technical assistance Farmers paid every two weeks for produce DRAFT - WORK IN PROGRESS
Calypsos cost of production are 30-40% lower using contract production with small-scale farmers Farmers incomes rise by an average of 125% Contract production agreements can be used to overcome barriers to initial investment by BoP suppliers Businesses engaging in contract production agreements with BoP suppliers should carefully consider downside risk of fluctuations in market prices and demand
What can we learn from Calypso Foods experience?
Source: www.calypsofoods.net, Emerging Markets, Emerging Models, Monitor Group, March 2009
46
CONSUMER: CASAS BAHIA (BRAZIL)

Consumer purchase financing Diversified household goods, including appliances and electronics BoP consumers have high demand, but insufficient income to purchase household appliances and electronics DRAFT - WORK IN PROGRESS Casas Bahia created passbooks that allow BoP customers to make small installment payments for merchandise Credit analysts at each store evaluate credit requests and build longterm relationships with customers Credit analysis system also evaluates existing clients for potential new purchases and facilitates cross-selling Casas Bahia is the largest retail chain in Brazil, with annual revenue of 4.2 billion real, 330 stores, 10 million customers, and 20,000 employees 77% of clients are repeat purchasers Low default rate for sector of 8.5% Businesses can tap the purchasing power of the BoP by offering microcredit for product purchases Tracking of client information (e.g. payment histories) can be utilized to strategically cross-sell and increase revenue
What can we learn from Casas Bahias experience?
Source: The Fortune at the Bottom of the Pyramid: Eradicating Poverty Through Profits, C.K. Prahalad, October 2009
47
CONSUMER: CEMEX MEJORA TU CALLE (MEXICO)
Consumer purchase financing Cement Low-income neighborhoods have difficulty paving streets as municipalities are typically short of funds Residents receive individual microloans and then pool resources to finance half the cost of street pavement for the neighborhood, with the municipality contributing the other half of the cost The initial phase of the program is being implemented in 12 cities, with 35,000 families expected to benefit from microloans The second phase will extend to a total of 60 cities Public-private partnerships can be effectively incorporated into BoP business models DRAFT - WORK IN PROGRESS
What can we learn from CEMEXs experience?
Source: www.iadb.org, The Fortune at the Bottom of the Pyramid: Eradicating Poverty Through Profits, C.K. Prahalad, October 2009
48
SUPPLIER: COLINEAL (ECUADOR)

What is the BoP Model? What is the product? What was the problem or opportunity?
Supplier direct purchase Household furniture There are 50,000 small woodworkers in Ecuador whose businesses are characterized by low profitability and obsolete or home-made machinery Small woodworkers present an opportunity for low-cost outsourcing of manufacturing, but require technical assistance Colineal developed a program to source furniture from woodworkers in Azuay and San Antonio de Ibarra, where there was a high concentration of skilled woodworkers Colineal provides clearly defined specifications, technical assistance and, in some cases workshop space, to improve quality and reduce manufacturing costs
What was the solution?
Small producers have benefited from more secure markets, better prices, and access to knowledge and innovation Products reach market through 17 megastores and express shops owned by Colineal
Working with fragmented, small-scale suppliers is facilitated when suppliers are located in the same geographic area Upfront investments, especially in manufacturing technology, may be required to help small-scale suppliers become more productive
What can we learn from Colineals experience?
Source: Inclusive Business: Profitable business for successful development, SNV-WBCSD, March 2008.
49
SUPPLIER: FABINDIA (INDIA)

Supplier BoP-owned cooperative Retail clothing and home decor Difficult to engage unorganized craft artisans productively as many change jobs frequently in search of a better deal and have difficulty honoring agreements Fabindia set-up 17 Community Owned Companies that coordinate supply from 13,000 individual artisans who make products according to Fabindia specifications Fabindia co-owns COCs with supplier artisans themselves; ownership provides incentives for artisans to join and honor commitments with COCs Fabindia is Indias largest private platform for products made from traditional techniques Fabindia grew from 65 in 2007 to 95 stores in 2009 Cooperatives can be an effective way to organize and aggregate individual BoP suppliers Co-ownership structure can help create long-term stable relationships with individual BoP suppliers
What can we learn from Fabindias experience?
Source: www.fabindia.com, Emerging Markets, Emerging Models, Monitor Group, March 2009.
50
CONSUMER: FINCOMUN (MEXICO)

Consumer new or customized product Microcredit loans Fincomun wanted to grow its client base, but lacked information about the payment patterns of its potential clients Fincomun created a partnership with Grupo Bimbo and sent its loan agents on delivery runs with Bimbo supply trucks Fincomun gained access to potential customers, as well as information about their payment patterns Bimbo customers learn about Fincomun products and can sign up for further consultations Within two years of the partnership, 20% of Fincomuns business originated through Bimbo As its clients gained access to microcredit, Bimbo reduced its amount of bad debt and its customers loan payback period Mutually beneficial strategic partnerships can be developed around BoP consumers and products
What can we learn from Fincomuns experience?
Source: Emerging Markets, Emerging Models, Monitor Group, March 2009.
51
EMPLOYEE: GUANGSHA CONSTRUCTION (CHINA)

Employee demand-led training Construction services
What was the problem or opportunity?

Guangshas constructions were poorly trained, which led to a number of costly on-site accidents
Guangsha created free-tuition vocational schools at each construction site of more than 50,000 meters Semi-permanent day laborers are required to pass four training exams in order to get official GuangSha contracts Training certificates are only valid for one year and must be renewed annually or at the start of each project, whichever is sooner In 2005, Guangsha had net profits of $19 million and an output value of $670.7 million 90% of students receive training certificate on their first attempt Providing training for BoP employees can reduce costs, mitigate risks, and improve employee retention Training programs for BoP employees often require large upfront investments (e.g. Guangsha invested $3.65 billion to start schools)
What can we learn from Guangshas experience?
Source: Emerging Markets, Emerging Models, Monitor Group, March 2009.
52
DISTRIBUTOR: HOLCIM APASCO (MEXICO)

What is the product? What was the problem or opportunity?
Consumer last mile to BoP Cement and other essential home building material Housing shortage is high and rising, especially among the BoP, thus stimulating demand for construction materials Points of sale are currently far from BoP households, requiring 2-3 intermediary distributors to reach consumers BoP households lack technical construction knowledge Creation of Mi Casa building material depots which are located closer to BoP households Holcim reduced prices at Mi Casa depots by removing distribution intermediaries Architecture and civil engineering students placed in Mi Casa depots provide BoP consumers with practical advice There are 120 Mi Casa centers around the country Mi Casa has supported the construction or improvement of 400,000 homes Close proximity of distribution outlets to BoP consumers can both increase sales and reduce costs by eliminating intermediary distributors Combination of technical knowledge and high quality products are attractive to BoP consumers
What can we learn from Holcim Apascos experience?
Source: www.wbcsd.org , The Inclusive Business Challenge Presentation, WBCSD, December 2009.
53
CONSUMER: ING VYSYA BANK (INDIA)

What is the BoP Model? What is the product or opportunity?
Consumer new or customized service Basic banking services, including wage and pension disbursement Rural BoP households have limited or no access to organized banking services BoP households must go to post offices, which are few and often far away, present documents, take fingerprints, and fill out paperwork to receive wage and pension disbursements ING Vysya employees identify villagers with the help of government officials and enroll them in INGs banking system Enrolled villagers receive a personalized smart card that carries information from personal records ING Vysya employees visit villages on specific days and disburse funds when villagers present smart cards 55,000 people received smart cards in first pilot project ING hopes to expand the function of the smart card to include micro savings, investment, and insurance Innovative technologies (e.g. biometric cards) can overcome challenging characteristics that make it difficult to reach the BoP as consumers (e.g. illiteracy) Businesses have opportunity to use technology to distribute multiple products (e.g. disbursements, savings, insurance) to the BoP
54
What can we learn from ING Vysyas experience?
Source: The Fortune at the Bottom of the Pyramid: Eradicating Poverty Through Profits, C.K. Prahalad, October 2009.
SUPPLIER: INTERFACEFLOR (INDIA)

Supplier third party aggregator Flooring of all types, including tile and carpet InterfaceFLOR did not have products to satisfy its customers demand for socially-conscious products InterfaceFLOR partnered with the Indian social enterprise Industree to develop and bring to market a new product line called FairWorks Industree works with skilled artisans in India to produce flooring tiles with traditional textile designs made from locally available materials Industree aggregates and sells products to InterfaceFlor The first product in the FairWorks line, Just, was launched in 2008 Over 150 families in three villages are involved in FairWorks and many artisans have tripled their income over a three year period Partnerships with organizations already working with the BoP can be an effective way to begin BoP engagement Traditional designs from BoP suppliers can be modified to appeal to consumers in developed countries
What can we learn from Reuters experience?
Source: www.interfaceflor.eu, The Inclusive Business Challenge Presentation, WBCSD, December 2009.
55
SUPPLIER: ITC E-CHOUPAL (INDIA)

Supplier direct purchase Soybean, wheat, rice, pulses, and other agricultural commodities Fragmented farms, weak infrastructure, and the involvement of numerous middlemen made it costly to source agricultural products from rural farmers Poor information caused rural farmers to accept low prices from middlemen, who could then resell at a high margin Village level e-Choupal internet kiosks provide information on crop prices, weather forecasts, and farming techniques, improving production and effectively reducing the power of middlemen ITC purchases produce from farmers at central collection hubs Rural farmers receive higher prices for crops and ITC pays less for crops as mark-up from middlemen is eliminated Four million farmers access e-choupal services through a network of 6,500 internet kiosks and 180 collection hubs Direct purchasing from the BoP can reduce input costs by eliminating costly intermediate transactions An alternative to centrally organizing suppliers into cooperatives is to give producers good information and allow them to self-organize
What can we learn from ITC E-Choupals experience?
Source: www.itcportal.com , www.echoupal.com , Emerging Markets, Emerging Models, Monitor
Group, March 2009.
56
SUPPLIER: JAIPUR RUGS (INDIA)

Supplier direct purchase Traditional artisan rugs Jaipur Rugs wanted to scale production quickly without having to make large upfront investment and management costs DRAFT - WORK IN PROGRESS Production processes are contracted out to local artisans, thus making labor and raw material costs variable Purchases from BoP suppliers also reduces capital equipment needed for washing, dyeing, etc Lean management staff structure oversees contractors Jaipur Rugs is the largest manufacturer and exporter of Indian handknotted rugs, with fiscal year revenue of $21.2 million Compound annual growth rate of 38% from 2005 2008 40,000 contract BoP employees (e.g. weavers) Use of BoP suppliers enables businesses to shift fixed costs to variable costs and thus improve profitability Technological innovations (e.g. rug construction maps) can facilitate greater utilization of the BoP as suppliers
What can we learn from Jaipur Rugs experience?
57
EMPLOYEE: LABOURNET (INDIA)

Employee outsourcing Contract-basis blue collar workers from the unorganized sector Demand and supply of unskilled workers exist in India, but businesses have difficulty identifying appropriate unskilled workers and vice versa LabourNet registers and collects data on businesses, as well as workers, foremen, and contractors Businesses notify LabourNet of unskilled worker requirements and LabourNet announces openings to its registered workers LabourNet provides basic training, as well as accident and health insurance for its registered workers Over 6,000 unskilled workers have registered with LabourNet Half of all business inquiries result in immediate referrals to crew that meet criteria for location, skill, and availability BoP workers are interested in entering organized employment supply chains, provided appropriate incentives are in place (e.g. stability of work, insurance) DRAFT - WORK IN PROGRESS
What can we learn from LabourNets experience?
Source: www.labournet.in, Emerging Markets, Emerging Models, Monitor Group, March 2009.
58
CONSUMER: LIFESPRING HOSPITALS (INDIA)

Consumer basic product or service Employees deskilling tasks Hospital focusing on maternal and child health, particularly labor and delivery BoP households have high demand for quality hospital services, but existing hospital prices are out of reach No frills hospital with narrow focus on child labor and delivery Reduced costs by standardizing procedures, cutting unnecessary expenses (e.g. canteen), outsourcing pharmacy and lab, renting property, and increasing doctor and equipment utilization LifeSpring averages five times the number of deliveries compared to private clinics and the cost of a doctor per patient is one fourth the cost in a private clinic LifeSpring has a 43% market share in its flagship hospital in the outskirts of Hyderabad Delivered over 5,500 healthy babies A narrowly focused business model (e.g. gynecology and obstetrics) can reduce costs and improve asset utilization Within the BoP market, it is critical to have a targeted marketing approach (e.g. LifeSpring focuses on husbands and mothers-in-law)
59
What can we learn from LifeSprings experience?
Source: www.lifespring.in, Emerging Markets, Emerging Models, Monitor Group, March 2009.
SUPPLIER: MUNDO VERDE (BRAZIL)

Supplier direct purchase Health and wellness products, including food Mundo Verdes customers want a diverse selection of health conscious products and respond to products that are marketed as locally and sustainably produced, but it is difficult to work with many small informal suppliers Mundo Verde actively built relationships with small suppliers, including many small and micro enterprises that started in the informal sector; franchises can source 30% of products locally Mundo Verde requires suppliers to incorporate with the national small business association and facilitates purchases by allowing supplier to bring products to a central distribution hub Mundo Verde has 127 stores serving 45,000 clients daily 1,200 current suppliers with approximately three new suppliers added each day Companies can enhance the sustainability of their BoP suppliers by encouraging them to formalize as businesses Internal regulations (e.g. allowing 30% of products to be sourced locally) can be used to encourage businesses to engage more with local BoP suppliers
What can we learn from Mundo Verdes experience?
Source: Supporting Entrepreneurship at the Base of the Pyramid through Business Linkages, IFC, Harvard Kennedy School, International Business Leaders Forum, June 2008
60
SUPPLIER: NATURA (BRAZIL)

Supplier direct purchase Skin care, cosmetics, perfume, and hair care products Natura did not have a product line that met demand for sustainable and environmentally-friendly products from Brazil Natura wanted to improve brand value and growth Source inputs from low-income communities in the Amazon, ensuring that materials are extracted or planted sustainably Develop a Relationship Quality System to assess Naturas links with the communities it sources from Create a new line of products (EKOS) marketed for its use of sustainable and environmentally-friendly materials The EKOS line accounts for 10% of Naturas sales Natura has 56 natural asset supply agreements in Latin America, 19 of which are with traditional communities and local providers of raw materials Use of BoP suppliers can contribute to new product development and increased brand value BoP suppliers may need initial support from companies to become part of the supply chain (e.g. Natura acted as a guarantor for micro-medium loans)
What can we learn from Naturas experience?
Source: www.natura.net, The Inclusive Business Challenge Presentation, WBCSD, December 2009.
61
DISTRIBUTOR: NESTL AT VOC (BRAZIL)

Distributor last mile to BoP Distributor increasing points of sale Household packaged food products Nestl could not reach BoP consumers because its typical distribution model using a full truck would not work in favelas with narrow streets Nestl identified a network of distributors and micro-distributors who would buy products and assemble assortments appropriate for distribution to micro-retailers in favelas Distributors also assembled pre-packaged kits for direct sales to families in their homes, using trusted direct sales agents from local communities Nestl increased sales among BoP consumers in favelas Nestl created jobs by recruiting informal workers to become direct sales agents and micro-distributors BoP can be effective distributor of products to Hiring local staff (e.g. direct sales agents) with relationships of trust within the community can increase direct sales to BoP consumers DRAFT - WORK IN PROGRESS

What can we learn from Nestls experience?
62
SUPPLIER: NESTL (PAKISTAN)
Supplier direct purchase Milk and dairy products Nestle needed a reliable supply of milk, but large dairy farmers were expensive due to their significant bargaining power Nestle set up its own supply chain by setting up Village Chilling centers where local individual farmers could deposit milk Nestle hires a Village Milk Collection Agent who is responsible for overseeing milk collection, quality assurance, cash payment to farmers, and organizes extension services (e.g. veterinary) Nestle collects milk directly from 160,000 farmers, taking in 50 million liters per year and earning a profit of $20.7 million on revenues of $456 million Organizing BoP suppliers can be an effective way of building a low cost and reliable supply chain, but initial set-up of infrastructure is time and cost-intensive Finding high quality staff who can interact effectively with individual BoP suppliers (e.g. VMC agent) is critical to the success of supply chains incorporating the BoP DRAFT - WORK IN PROGRESS
What can we learn from Nestles experience?
Source: www.nestle.pk, Emerging Markets, Emerging Models, Monitor Group, March 2009.
63
CONSUMER: PROCTER & GAMBLE (VENEZUELA)

Consumer small unit size product Consumer products such as shampoo, detergent, and diapers P&G wanted to increase sales to BoP consumers, but knowledge of consumption habits and distribution channels among BoP was limited P&G products were often too expensive and inaccessible to BoP consumers P&G began selling shampoo, detergent, and diapers in bulk to buyers clubs that could then reduce the unit price sold to BoP consumers in smaller quantities P&G complimented sales with community activities, such as training of hair stylists, which further increased revenues Sales and affordability of shampoo, detergent, and diapers increased, leading to the creation of beauty salons, laundry facilities, and child care services Bulk sales to an intermediary is a strategy to improve product affordability for the BoP BoP businesses can have second order social impact by creating jobs related to BoP products (e.g. beauty salons)
What can we learn from P&Gs experience?
Source: Corporate Social Responsibility in Latin America: Responsible Solutions to Business Problems, IDB, December 2005.
64
SUPPLIER: PRONACA (ECUADOR)
Supplier direct purchase Wide variety of household processed foods Pronaca faced challenges in terms of the stability and price of maize, a key input in its supply chain Pronaca integrated local small-scale maize producers into the companys supply chain Pronaca offered farmers training, access to credit, and new technology to increase productivity and develop an additional crop rotation Pilot has grown from 80 small maize producers to 200, with plans to increase to 650 Productivity increased by 20%, which has raised farmer income from $0.63 to $2 per capita per day 234 new jobs created Integrating local, small-scale suppliers can decrease production costs and improve stability of critical inputs Working with small-scale producers at the BoP requires capacitybuilding in addition to financial assistance DRAFT - WORK IN PROGRESS
What can we learn from Pronacas experience?
Source: www.pronaca.com, The Inclusive Business Challenge Presentation, WBCSD, December 2009.
65
CONSUMER: REUTERS MARKET LIGHT (INDIA)

What is the product? What was the problem or opportunity?
Consumer new or customized product Fee-based mobile service providing Indian farmers information about commodity price, crop, and weather data via SMS Nearly two-thirds of Indias population depends on agriculture for a living, but poor irrigation and distant markets mean that farmers are vulnerable to shifts in prices or weather conditions DRAFT - WORK IN PROGRESS
Reuters Market Light provides farmers with weather reports over a 50mile radius and local crop prices within a 5-hour journey via SMS and in a subscribers local language Reuters Market Light develops its own content using hundreds of fulltime professionals, covering news and data on over 250 crops, 1,000 markets, and 2,000 weather locations in 11 states
In two years, Reuters sold 300,000 quarterly subscriptions to nearly 135,000 farmers in over 15,000 villages Some farmers have increased revenue by $8,000 using the service which costs only $5 per quarter BoP will pay for high-quality information and content, especially when it directly relates to their livelihood Products distributed through platforms with deep penetration (e.g. mobile phones) can be quickly rolled-out and adopted by the BoP
Source: www.reuters.com, The Inclusive Business Challenge Presentation, WBCSD,December 2009.
66
CONSUMER: RURALFONE (BRAZIL)

Consumer new or customized product Distributor increasing points of sale Telecommunications services Consumers were charged high monthly rates, even though they rarely called people outside of their village Consumers did not always purchase refill cards immediately after finishing another card Ruralfone launched a tailored product consisting of unlimited voice minutes at a low monthly fee for calls within ones village Ruralfone hired local residents as sales coordinators and delivery personnel; customers call sales coordinators when they need a new card and sales coordinators send a delivery person on motorbike to deliver the card 2,600 subscribers have signed up in area of Quixada with EBITDA greater than 50% Ruralfones subscriber acquisition cost is only $5 as compared to $60 for other Brazilian operators Although most BoP business models are high volume, low margin, it is possible to have successful low volume, high margin businesses by carefully tailoring products to target markets When selling to the BoP in rural areas, customers may respond well to relationship-oriented sales and customer services
67

What can we learn from Ruralfones experience?
SUPPLIER: SABMILLER (INDIA)

Supplier third party aggregator Beer By sourcing barley from only large scale commercial farmers or large intermediaries, SABMiller faces greater pricing risk, availability risk, and costs from intermediate transactions Small-scale farmers were uninterested in producing barley because they were familiar with feed-grade barley that could not command a good price In partnership with Cargill, SABMiller is supporting the development of a high-quality local barley malt industry by offering small-scale farmers certified seeds and agricultural skills training Hybrid model where SABMiller may purchase from a third party contractor, but still provides inputs and supervision support directly to farmers Initiated in 2005, participating farmers increased from 1,574 in 20052006 to 6,024 in 2007-2008 Quality and consistency of barley has improved, allowing SABMiller to increase brewing efficiencies Incorporating large numbers of BoP suppliers into a supply chain can help reduce price risk, availability risk, as well as costs Education and outreach to agricultural BoP suppliers is important, especially when promoting adoption of new crops
68
What can we learn from SABMillers experience?
Source: www.sabmiller.com, Supporting Entrepreneurship at the Base of the Pyramid through Business Linkages, IFC, Harvard Kennedy School, International Business Leaders Forum, June 2008.
SUPPLIER: STARBUCKS (LATIN AMERICA)

Supplier direct purchase Coffee Consumers demand coffee with various combinations of the following characteristics: high quality, sustainable production, fair trade, traceability, and improved social conditions in farming communities. Starbucks created the C.A.F.E. practices, which guide farmers to produce higher-quality, environmentally friendly, sustainable coffee Conservation International and other agencies help farmers implement C.A.F.E. practices Starbucks commits to purchase coffee from farmers who have a sufficiently high C.A.F.E. score By fiscal year 2007, Starbucks made 65% of its purchases from C.A.F.E. approved suppliers and hopes to increase that percentage to 80% by 2013 Even without greater interaction, a commitment to purchase can serve as a powerful way to engage BoP suppliers Consumers in developed countries are increasingly interested in products that engage the BoP in sustainable ways
What can we learn from Starbucks experience?
Source: Supporting Entrepreneurship at the Base of the Pyramid through Business Linkages, IFC, Harvard Kennedy School, International Business Leaders Forum, June 2008
69
CONSUMER: SUNLABOB RENEWABLE ENERGY (LAOS)
Consumer pay-per-use service Consumer new or customized product Solar lanterns with rechargeable batteries that provide light for up to 10 hours at a time BoP households in rural Laos prefer electric light to petrol lamps and candles, but cannot afford it Sunlabob rents out solar-recharging stations to village franchises Village franchises purchase lanterns and rent them out to villagers Lantern rental fees cover cost of renting solar-recharging stations and provide additional income for village franchises Villagers save up to $3 per month by using solar lanterns instead of kerosene lamps Village franchises that rent solar lanterns earn profit between $20 - $50 per month Rental schemes can access BoP consumers who might otherwise be inaccessible BoP products can create intermediary business opportunities for BoP households (e.g. village franchises)
What can we learn from Sunlabobs experience?
Source: www.sunlabob.com, Emerging Markets, Emerging Models, Monitor Group, March 2009.
70
EMPLOYEE: TEAMLEASE (INDIA)

Employee outsourcing Temporary workers, primarily for formal sector clients in services industries (e.g. banking, IT) Formal sector clients have difficulty identifying qualified workers and vice versa TeamLease takes requirements from employers and identifies and recruits individuals to fill positions TeamLease administers payroll and benefits for duration of contract with employer and also provides employee training TeamLease charges recruiting, training, and placement fees to employers TeamLease is second largest private employer in India, with 1,000 clients, 80,000 employees, and over 600 locations Places 10,000 employees a month By acting as an intermediary without major upfront infrastructure and investment requirements, BoP businesses can scale quickly Technology platforms (e.g. TeamLease portal for employers and employees) can be an efficient and cost-effective way for interacting with BoP clients and employees DRAFT - WORK IN PROGRESS
What can we learn from Team Leases experience?
Source: www.teamlease.com , Emerging Markets, Emerging Models, Monitor Group, March 2009.
71
CONSUMER: TECNOSOL (NICARAGUA)

Consumer small unit size product
What is the product?

Solar photovoltaic, wind, and hydroelectric power systems, as well as accessories such as lighting systems, refrigerators, and fans
91% of the population in Tecnosols target market does not have access to electricity The government does not have the capacity to make sufficient investments to bring electricity to all rural populations of Nicaragua Tecnosol offered prepackaged systems at many different levels of affordability, including a small 14-watt PV system for poorer people Full-service installation of all energy systems and high quality follow-up customer service Over 50,000 energy systems have been installed and Tecnosol now has 17 branches throughout the country Sales have doubled each year of operation Businesses may want to target specific brackets within the BoP (e.g. high end vs. low end) through differentiated product offerings and market strategies Product quality and service satisfaction are critical because word of mouth through existing customers is a primary driver of business among rural BoP consumers DRAFT - WORK IN PROGRESS
What can we learn from Tecnosols experience?
72
CONSUMER: UNILEVER ANNAPURNA (INDIA)

Consumer small unit size product Annapurna, Hindustan Unilevers brand of iodized salt BoP households do not consume iodized salt because it is more expensive than non-iodized salt and because there are a large number of imitation products on the market Only about 25% of edible salt in India is iodized, which can lead to iodine deficiency disorder 200g and 500g low-unit-price packs to appeal to BoP consumers with lower price points Roll-out of a direct-to-home sales force through Project Shakti, which utilizes women from self-help groups to sell Hindustan Unilever products and educate other women about their benefits Use of trains in order to get Annapurna to market faster 45,000 Shakti entrepreneurs now cover more than 135,000 villages across 15 states Low-unit-price packs are an effective way to make products more affordable for BoP consumers, but small packaging typically results in increased costs and lower margins Aggressive marketing required to differentiate generic products (e.g. salt) in saturated markets with many competitors
What was the result? What can we learn from Hindustan Unilevers experience?
73
CONSUMER: UNILEVER LIFEBUOY(INDIA)
Consumer basic product or service Lifebuoy hand soap Many BoP consumers in India are not familiar with health and hygiene education, and thus purchase less hand soap Unilever launched a hygiene education program called Swasthya Chetna (Health Awakening) that promoted basic hygiene habits, including hand washing with soap Launched in 2002, the hygiene education campaign has reached 120 million people in nearly 51,000 villages Sales of lifebuoy hand soap have increased in districts where the campaign has been run Tailored marketing and consumer education may be required to increase sales of BoP products BoP products and affiliated services can not only increase revenue, but also brand value by being seen as a sign of corporate social responsibility DRAFT - WORK IN PROGRESS
Source: www.unilever.co.id, WBCSD The Inclusive Business Challenge Presentation, December 2009.
74
CONSUMER: UNION FENOSA (COLOMBIA)

Consumer pay-per-use service Electricity Union Fenosa had high energy losses and lower than expected revenues in Colombia, partly due to the illegal electricity connections of 269,000 families at the BoP Innovative collection method that established local enterprises to measure usage, collect payments, and provide customer and repair services Using community knowledge, these local enterprises were able to establish collective billing systems Recruited former illegal electricity connectors (maraneros) to become utility contractors within local enterprises 60% increase in revenues from billings ($2.9 billion) after implementing changes Regulation changed to allow for more flexible payment periods in order to take into account BoP income patterns Business should develop strategies for engaging the BoP as consumers, not only to increase revenues, but also to minimize downside risks and costs (e.g. electricity losses) Strong understanding and inclusion of all relevant stakeholders (e.g. maraneros) is critical, especially given complex social dynamics within the BoP
75
What is the product?

What was the problem or opportunity? What was the solution?
What can we learn from Union Fenosas experience?
Source: Corporate Social Responsibility in Latin America: Responsible Solutions to Business Problems, IDB, December 2005.
SUPPLIER: WAL-MART (NICARAGUA)

Supplier BoP-owned cooperative Fruits and vegetables Wal-Mart wanted to diversify its supply chain to include local suppliers and rely less on imports Many small-scale local farmers did not have the capacity to supply produce to Wal-Mart Wal-Mart, through its affiliate Hortifruti, instituted the Tierra Fertil program which provided technical assistance and support to small fruit and vegetable producers Wal-Mart began sourcing fruits and vegetables from local suppliers, such as BoP-owned cooperatives Partly as a result of Wal-Marts efforts, Nicaraguan imports of fruits and vegetables have fallen from 50% to 10% (from $40 million to $6 million) and Nicaragua now exports paraffin-dipped yucca, cucumbers, and bananas to neighboring countries BoP suppliers can play an important role in creating a stable, diversified supply chain By incorporating the BoP in supply chains, large corporations are able to have a significant impact on the lives of local producers
What can we learn from Wal-Marts experience?
Source: Inclusive Business: Profitable business for successful development, SNV-WBCSD ,March 2008; Cuenta Reto del Milenio, Issue No. 273, www.cuentadelmilenio.org.ni, April 2010
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ADB IB Workshop - EA LatAm Profile and Case Studies v4

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East-Asia and Latin America market scoping studies and case studies

ADB-IDB Inclusive Business Workshop

DRAFT - WORK IN PROGRESS

Which countries will we highlight in Asia?

DRAFT - WORK IN PROGRESS

DRAFT - WORK IN PROGRESS

Market overview: Philippines

DRAFT - WORK IN PROGRESS

Current IB engagement (n=70)

Engagement model (n=70)

INCLUSIVE BUSINESS PROFILE

26% 49% 14%

Agriculture Financial services Manufacturing Others

Supplier Distributor Employee

Deep dive into selected IB sectors in the Philippines

DRAFT - WORK IN PROGRESS

Business Process Outsourcing

Source: ADB market scoping study; Dalberg research and analysis

DRAFT - WORK IN PROGRESS

Photo courtesy www.images.google.com

DRAFT - WORK IN PROGRESS

Photo courtesy www.images.google.com

DRAFT - WORK IN PROGRESS

Market overview: Indonesia

DRAFT - WORK IN PROGRESS

Current IB engagement (n=105)

Engagement model (n=67)

INCLUSIVE BUSINESS PROFILE

22% 50% 14%

Deep dive into selected IB opportunities in Indonesia

DRAFT - WORK IN PROGRESS

Source: ADB market scoping study; Dalberg research and analysis

DRAFT - WORK IN PROGRESS

DRAFT - WORK IN PROGRESS

DRAFT - WORK IN PROGRESS

Market overview: Bangladesh

DRAFT - WORK IN PROGRESS

Current IB engagement (n=53)

Engagement model (n=67)

INCLUSIVE BUSINESS PROFILE

29% 49% 14%

Deep dive into selected IB opportunities in Bangladesh

DRAFT - WORK IN PROGRESS

Textiles and garment manufacturing

IT data processing and software development

DRAFT - WORK IN PROGRESS

DRAFT - WORK IN PROGRESS

DRAFT - WORK IN PROGRESS

Market overview: India

DRAFT - WORK IN PROGRESS

Current IB engagement (n=120)

Engagement model (n=67)

INCLUSIVE BUSINESS PROFILE

25% 51% 13%

Agriculture Energy Healthcare Others

Deep dive into selected IB opportunities in India

DRAFT - WORK IN PROGRESS

Source: ADB market scoping study; Dalberg research and analysis

DRAFT - WORK IN PROGRESS

DRAFT - WORK IN PROGRESS

DRAFT - WORK IN PROGRESS

Market overview: Vietnam

DRAFT - WORK IN PROGRESS