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The Next Billions: Unleashing Business Potential in Untapped Markets
Prepared in collaboration with The Boston Consulting Group
World Economic Forum January 2009
people at the BOP remain beneath the radar of most conventional business models. Companies that find new ways to overcome constraints and tap opportunities can gain insights. While it is highly diversified. earning US$ 8a per day or less. Successful business models can substantally improve BOP incomes and livelihoods. a The US$ 8/day income threshold is in Purchasing Power Parity (PPP) dollars. spending largely on essentials. yet many remain focused on the high-income populations in those countries. new approaches to sourcing and distribution.1 billion earn US$ 2-8 per day and – while still considered poor – are beginning to generate significant discretionary income. earning under US$ 1 per day. an underutilized productive sector. About 1. as well as untapped demand for products and services. Therefore. and was defined by the World Resources Institute report. 2| . drive the BOP to be smart shoppers and risk-averse investors. Africa and Latin America. Engaging the “next billions” at the BOP as producers. this market represents a substantial growth opportunity. often forced to rely on informal markets and substandard products.7 billion people are largely excluded from formal markets. market share and customer or supplier loyalty. The first step for companies seeking to engage the next billions as producers and consumers is to overcome traditional stereotypes and mindsets about who they are and what they can accomplish.3 trillion a year that has grown at 8% in recent years. The Next 4 Billions. As a result. income levels vary. much of the BOP represents a fast-growing consumer market. with 60% of the BOP concentrated in India and China. and often struggle to meet basic needs (all figures in PPP$). consumers and entrepreneurs is therefore key to both reducing poverty and driving broader economic growth. 1. The Opportunity Globally. Success requires creative. Companies that manage to overcome these challenges can generate both commercial benefit and sustainable livelihoods for the poor. Understanding the BOP Within the BOP group. Yet. people at the BOP share several characteristics that companies need to understand to do business with them effectively: • Financial constraints: Low and fluctuating incomes. and suggests design principles that companies and partners can use when devising their own approaches.Overview Companies around the world are increasing their engagement in emerging markets. comprises the “base of the pyramid” (BOP) in terms of income levels. With an annual income of US$ 2. the world’s low-income population (the so-called “base of the pyramid”. Historically. challenges in the operating environment have deterred companies from engaging in this market. challenges in the business operating environment often limit the success of standard business models in the BOP market. and limited access to credit or insurance. This group. In fact. and a source of untapped entrepreneurial energy. or BOP) represents considerable productive and entrepreneurial potential. product design and partnerships. This report presents an overview of the opportunity at the BOP. Although their needs are diverse and vary by culture.6 billion earn between US$ 1-2 per day. the BOP market offers a meeting ground where corporate economic benefit and social impact can be achieved together. outlines strategies that a number of companies have adopted to generate both commercial and social benefit in this market. largely in Asia. and will secure a strong position in this growing market. In the mid-range. One billion people live in extreme poverty. People at these income levels are found worldwide. 3. improving access to essential goods and services while catalyzing economic multipliers and reducing inequality.
finding ways to leverage them into business opportunities. and developing environmentally sustainable approaches. Scaling out involves leveraging local assets – manufacturing. Companies can reframe the problems encountered in BOP markets. entrepreneurs. businesses can partner with other organizations to implement innovative solutions that benefit everyone. it must look beyond its traditional business approaches and – in collaboration with governments and local organizations – develop innovative new models suited to BOP needs and capabilities. large-scale production can increase costs and fail to meet localized needs in BOP markets. and finding creative ways to overcome infrastructure constraints. Bridging the gap in public goods through private enterprise: To overcome both hard and soft infrastructure constraints. and therefore rely more heavily on trusted sources or demonstrations to make buying decisions. Such new perspectives include the following: Affording access rather than ownership: Companies should consider how they can shift from a “selling” mode to one that deploys products for use without requiring ownership. and underutilized assets. • Quality Standards: BOP consumers and workers conduct their lives with dignity and demand both respect and quality from service providers and employers. Scaling out versus scaling up: Standard production models are often ineffective at the BOP.• Life challenges: Domestic constraints. • New Customers: BOP consumers lack information on many commercial products. and high prices for often substandard products or services are among the daily challenges at the BOP. Adopting New Perspectives Once a company understands the BOP market on its own terms. leveraging existing local distribution channels. Monetizing hidden assets: BOP communities contain “hidden assets” such as undocumented capital. Educate through marketing communication: Design marketing programs that contain educational as well as persuasive messages about product benefits. companies can draw upon five design principles outlined below. businesses should combine scaling out with scaling up. Companies can seek out such assets within communities and work to leverage their value. |3 . producers – to adapt and replicate business models according to local conditions. tailoring products to address local constraints. Create life-enhancing offerings: Develop offerings that improve the livelihoods of the BOP by pricing for their budgets. institutions and brands to build consumer loyalty. Design Principles for Successful Business Models Companies can translate new perspectives on the BOP into new business models. In seeking to develop effective business models. The focus should be on the community rather than individuals. Centralized. Companies can reduce the need for costly monitoring by aligning the interests of the employees with those of the company. Governing through influence rather than authority: Flexibility and decentralization are crucial for adapting to local changes and controlling costs. difficult living conditions. Reconfigure the product supply chain: Create a cost-efficient distribution system by sourcing from local producers. community and personal resources. Instead. Leverage trusted people.
However. incentives and accountability systems – to support. Companies can establish a footprint in this growing market. Invest in local talent and create incentives that encourage self-governance. Framework for innovation: Design principles for success fe -e of nha fe rin nci gs ng ed ur ly ig pp nf su co ct ns Re du hai o c pr Li Creative collaboration Educational marketing and communication Unshackled organization For more information please visit our website www. partner with local producers and consumers. the base of the pyramid is likely to be a source of continued economic growth. even in the face of global economic challenges. donors and governments can combine organizational capacities in ways that benefit all. Such partners bring key capacities to enable or support BOP business models through complementary action. success in BOP markets often requires collaboration with other companies or stakeholders. • Companies can collaborate across industries and among stakeholders to leverage shared resources and capabilities. Raising the visibility of successful BOP business initiatives can catalyze learning and broader adoption by companies. and share learnings to accelerate momentum. Examples in the telecom and agriculture sectors have shown how policy reform can catalyze increased local investment and service provision. • Governments can strengthen policy and tax incentives for BOP business engagement. • All stakeholders can work to identify viable business models.Collaborate in non-traditional partnerships: To lower costs and broaden distribution. measure and reward long-term success in business initiatives targeting the BOP New Alliances: Priorities for Stakeholders The innovative approaches described in this report can form the foundation of new growth opportunities for companies that are bold enough to experiment. while also investing in the communities that will lead and drive its expansion. The net result will substantially improve livelihoods. Partnering with NGOs. as well as other companies. while generating economic growth for companies and communities alike. Over the next decade. monitor and evaluate their impacts.org/nextbillions 4| .weforum. Unshackle the organization: Design corporate organizational structures – including metrics.
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