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green@work : Magazine : Back Issues : Spring 2005 : WRI Report

Eradicating Poverty through Profit
World Resources Institute conference explores making business work for the poor.

By Phil Storey

Is there really a “fortune at the bottom of the pyramid,” just waiting for corporations to claim it and empower the poor? Over two-and-a-half days in December, more than 1,000 people from five continents gathered at the Renaissance Parc 55 Hotel in San Francisco to explore this question. The occasion was a conference organized by the World Resources Institute, called “Eradicating Poverty through Profit: Making Business Work for the Poor.”

The premise—that there is a significant overlap between the interests of the private sector and those of the poor in developing nations—has been developing for several years among a small group of academics and business consultants, most notably Professor C.K. Prahalad of the University of Michigan’s Ross School of Business (also a member of WRI’s board of directors), Professor Stuart Hart of the Johnson School of Management at Cornell University and Dr. Allen Hammond of WRI. This premise has been expounded in a series of articles and books, and explored in research taking place within WRI, the University of Michigan, Cornell University, the University of North Carolina (notably at the Base of the Pyramid Learning Laboratory at the Kenan-Flagler Business School) and several other organizations. Now these ideas are reaching an important stage of development. “Four years ago they were a concept,” according to Hammond. “Now a handful of companies are already doing things on an impressive scale, so the question for many companies is, ‘Why not us too?’"

An Idea Whose Time Has Come?
It’s clear from the attendance at the conference that more than a few companies are beginning to take these concepts seriously. Attendees and participants were split evenly between those from corporations and those from governments or non-governmental organizations. And keynote presenters were drawn from the top levels of a wide range of high-profile for-profits: Hewlett Packard Chairman and CEO Carly Fiorina, Visa International President and CEO Christopher Rodrigues, ChevronTexaco Vice Chairman of the Board Peter J. Robertson, and senior or group vice presidents from DuPont, Microsoft and ABN AMRO.

Elizabeth Littlefield, CEO of the World Bank’s Consultative Group to Assist the Poorest, found this to be the most remarkable aspect of the conference. “What was significant was to see so many mainstream corporations taking an interest in the opportunities at the low end of the market,” says Littlefield. “The conference was a bridge between development-oriented people who have been focusing on this market from the financial perspective, and the large corporations that have global presence but for whom the poor were hitherto beyond their reach.”

One factor that made the conference timely is the increasing interest on the part of NGOs to collaborate with for-profit corporations to address social problems. “The UN Millennium Development Goals come up for review this year, and there is virtually no progress to report,” said Dr. Hammond. “So the development community is desperate for new ideas, new approaches—and an increased role for the private sector is one of the few new ideas around.”

Those who have been pursuing market solutions to social challenges found this particularly refreshing. Scott Stefanski, founder of Bazaar Strategies, a company focused on bringing information technology applications to developing world markets, found the openness of NGOs to market approaches encouraging. “It's exciting … to finally see critical mass building for an acceptance of market principles as neither good or bad,” Stefanski said, “but as a powerful social organizing medium that is morally neutral, and that we are learning more how to work within to achieve improvements in standards of living.”

Conference Sessions
The conference included a balanced mix of plenary sessions with keynote speakers and panels, and concurrent smaller workshops and panels organized along 10 subject-based tracks. Nearly half of the concurrent tracks dealt with some aspect of financial services, with others focusing on technological connectivity, partnering strategies, energy, policy and consumer products.

Financial services was a prominent subject at the conference in part because it is so central to creating opportunities for the poor to participate in the economy. Microfinance is one financial services strategy that has been growing for decades in the developing world, successfully passing the proof-of-concept stage. “The field of microfinance is coming into its own,” according to Littlefield. “Methodologies are tested and proven, financial management is improving, new client-oriented products and services (are) being developed and financial standards (are) now being widely adopted.“

The growing commitment of large, multinational financial institutions to microfinance—described in the presentations by executives from Citigroup, Lloyds TSB and ABN AMRO Bank—was one of the encouraging developments the conference highlighted. “Today, the new commercial and state financial institutions that are beginning to see market opportunities by serving low-end retail clients promise to enable exponential growth,” Littlefield remarked. “With these institutions’ existing branch or virtual infrastructure, and new delivery technologies being developed, the dream of reaching billions of poor clients with the financial services they need may become a reality.” Hammond agreed that ”bringing in commercial banks and other financial service companies that can scale services to the poor makes sense. It’s a critical enabling tool for the poor.”

The other areas covered by the conference’s sessions are also developing and attracting large corporate interest, to varying degrees. (See insets: Health and Sanitation, Communications.) In addition to the multinational corporations represented, the sessions included participants and examples from pioneering organizations in a number of developing countries. Hammond was pleased to see the positive results of this mix. “We hoped, but couldn't really count on, that big multinationals would hear what smaller, entrepreneurial or national companies are already doing in developing countries and get religion, so to speak,” Hammond said. “And that did happen in quite a number of instances, with multinational corporations saying publicly or to me privately that, ‘We're behind, this is a serious business opportunity and we need to catch up.’"

Ongoing Engagement
And interest in the concepts is more than just talk. There is also considerable effort going into making it easier for companies to engage with the bottom (or base) of the pyramid effectively. In one of the plenary sessions on the final day of the conference, Professor Stuart Hart of Cornell University’s Johnson School of Management and Scott Johnson of S.C. Johnson (the conference’s convening sponsor) introduced attendees to the work of a large group of companies, organizations and scholars to develop a protocol companies can use to engage effectively with bottom-of-the-pyramid markets. (See inset: Developing a Protocol.)

In the final two plenary sessions, diverse sets of panelists related their thoughts on the achievements the conference highlighted. Some of the panelists expressed skepticism about relying on the self-interest of multinational corporations to solve social challenges. Eduardo Bazoberry, CEO of Bolivia’s Prodem Private Financing Fund S.A., cautioned that “internal savings make nations free ... If we can’t build wealth locally, we don’t solve anything.” And Littlefield pointed out that microfinance is a powerful tool to help the poor, but it doesn’t reach the true bottom of the economic pyramid—the nearly one billion people who need daily sustenance, not borrowing power.

The concluding panelists also identified key activities necessary to realize the potential of the conference’s premise. Both public and private sectors will need to approach partnerships in creative ways, overcoming biases about the traditional roles and strengths of corporations and NGOs. But the panelists were in general agreement about the need for market solutions to poverty, as well as the potential for corporations to profit at the bottom of the pyramid.

The overall response to the conference was so positive that WRI is considering organizing follow-up events. You can access background and follow-up materials on the conference’s Web site, http://povertyprofit.wri.org.

Health and Sanitation: PUR Purifier of Water

Many of the survivors of December’s tsunami in south Asia have benefited from one of the products Proctor & Gamble began developing in the 1990s to serve bottom-of-the-pyramid markets, and introduced in Guatemala in 2002. The PUR Purifier of Water is a powdered water purification product made up of ingredients like those used in municipal water systems, but packaged in small sachets costing only 10 cents each. Each sachet purifies 10 liters of contaminated water, removing bacteria, viruses, parasitic cysts, heavy metals and other contaminants to produce safe and clear drinking water.

The PUR Purifier of Water was designed to address a development challenge (and market need) of enormous scale. About 1.2 billion people throughout the world lack access to safe and clean drinking water, and largely as a result of this, thousands of children die each day from diarrheal disease. Over several years of product development, P&G worked closely with the U.S. Centers for Disease Control and Prevention, including conducting clinical trials of the PUR product in developing countries, to ensure its effectiveness.

Despite the acute need for water purification, the product’s effectiveness, consumer satisfaction during market testing and its low price, the PUR product has not proven to be viable in strictly market terms. As a result, P&G has developed new marketing models in partnership with governments and non-governmental organizations. The PUR product was introduced in Haiti by the Safe Drinking Water Alliance, a public-private partnership including P&G and three NGOs— Population Services International (PSI), the Johns Hopkins University Bloomberg School of Public Health's Center for Communication Programs and CARE—with funding from the Global Development Alliance of the United States Agency for International Development, and follow-on support from the UK Department for International Development. The product was also launched in Uganda by P&G, the International Council of Nurses and PSI, which will carry out an education campaign in conjunction with the product’s launch.

The other marketing model P&G is pursuing for the PUR product is in the area of disaster relief. The product was used in Haiti in the wake of the hurricane that devastated the country in 2004, and in response to emergencies in other developing countries. But the earthquake and tsunami in south Asia created an unparalleled scale of need. Immediately after the tsunami, P&G donated more than 20 million sachets of the PUR product to NGOs responding to the disaster, four times as many as were distributed worldwide in the previous six months. Organizations and governments preparing for future emergencies could be a new market for the product.


Communications: SMART Wireless
by Linda Bolido

Not even a fifth of the Philippine population of more than 80 million scattered on the biggest of the country's 7,100 islands has access to telephones. In fact, until less than a decade ago, residents of Metro Manila had to wait as long as two years—even longer in some cases—to obtain a telephone. Traditional communication facilities required complex infrastructure that would often make conventional telephone service too expensive to be cost-effective outside large population centers. Smart Communications decided to eschew these issues and focus their business model on building a cellular phone network in the rural provinces. "Very simply, Smart met the demand for communication," said Ramon Isberto, an official with Smart. "It just makes more sense to build a wireless network."

The strategy paid off. Although Smart acquired the bottom of the telecommunications market, the sheer volume of subscribers more than made up for the loss of more affluent customers. As of June, Smart reported a total subscriber base of 12.47 million, up 53 percent over the 8.14 million customers last year. Getting its clients connected in and outside Metro Manila cost money, of course, but the large number of subscribers more than made up for the cost.

Smart started its prepaid service with phone cards with the lowest denomination of 300 pesos (about $5.50), sold in the neighborhood sari-sari (variety) stores where the poor buy much of what they need. The company has gradually diversified its product, launching Pure Text cards to satisfy Filipinos' passion for sending text messages. But with the Smart e-load facility available from the sari-sari store, not only did the phone company make it easier for people to buy additional airtime, but mobile phone users can also buy at rates that their budgets would allow—from a minimum of two pesos (about $0.03).

Smart also pioneered the pasa, or pass-on load, which allows the caller to give the recipient a certain amount of airtime in order to ensure that the recipient is able to respond. Apparently, the pasa load has become such a convenience that there are reports that people are now even using it in lieu of gratuity, or even to pay taxi fare.

(Story provided by WRI Features. Executive Editor: Adlai J. Amor. Managing Editor: Peter Denton.)

DEVELOPING A PROTOCOL

Work began last summer to develop “A Protocol for Strategic Initiatives as the Base of the Pyramid.” The project is a collaboration between the Center for Sustainable Global Enterprise at Cornell University’s Johnson School of Management; the Base of the Pyramid Learning Laboratory at the University of North Carolina’s Kenan-Flagler Business School; the University of Michigan Business School; the World Resources Institute; and the Johnson Foundation, with support from S.C. Johnson, DuPont, Hewlett Packard and Tetrapak. The project co-directors are Dr. Stuart L. Hart, Samuel C. Johnson Professor of Sustainable Global Enterprise at the Johnson School of Management at Cornell University; Dr. Gordon A. Enk, principal of Partners for Strategic Change and the president of the Research and Decision Center; and Erik Simanis, PhD candidate at the Kenan-Flagler Business School at the University of North Carolina at Chapel Hill.

The purpose of this ambitious project is two-fold:

  • To create a validated “protocol” for engaging the base of the pyramid in a manner that provides them with lasting value by deeply understanding their needs, perspectives and capabilities.
  • To provide insight into the processes by which firms can identify and develop sustainable new products and business models in partnership with base-of-the-pyramid customers.

Phase One: Workshop
Planned as a two-year project, the first phase began with a three-day workshop held last October at the Johnson Foundation’s Wingspread Conference Facility in Racine, WI. The aim of the workshop was to create a draft protocol businesses could use for engaging base-of-the-pyramid markets and consumers. The workshop was designed to incorporate a broad array of stakeholder views, and the 35 participants represented an impressive variety of sectors and spheres of influence, from both developed and developing countries—representatives from multinational corporations and regional businesses, anthropologists, social workers, economic geographers, designers, development sociologists, business professors, and members of development and sustainability NGOs.

Phase Two: Preparing the Draft Protocol
At press time, the project team was working on the second phase: preparing the draft protocol from the workshop for release to the public domain as a joint product of the workshop participants. The structure of the protocol is divided into three areas of activity:

  1. Opening Up—Launch non-business specific immersion guided by two-way dialogue and humility, to generate competitive “imagination.”
  2. Building the Ecosystem—Generate a network of relationships among multinational corporations and local actors that supports co-creation and win-win strategies.
  3. Enterprise Creation—Pilot test, evaluate and scale out business experiments that generate triple-bottom-line value for all constituencies.

All activities in each of these areas function through the creation of mutual value chains in pursuit of a common vision, to ensure that the process creates value for all participants—multinational corporations and local actors. The entire protocol rests on a foundation of operating guidelines (such as “start small,” and “recognize the positive”) to help overcome common biases, and a code of conduct to ensure that the results are equitable and sustainable.

Phases Three & Four: Field Test Workshop and Ongoing Collaboration
The project team is already planning the third phase, which will include a field test of the draft protocol using a major initiative of one of the project's sponsoring corporations at the base of the pyramid. This phase will also include a second international workshop, scheduled for next fall, to review the results of the field test, identify key lessons learned and revise the draft protocol. The project team will also prepare a report containing the lessons learned from the field test and make it publicly available. Ongoing collaboration between the project team and sponsoring corporations to adapt and apply the protocol will be the project’s fourth phase.

In addition to making the results of the main phases available, the project team hopes to develop a series of action-training-oriented executive education sessions addressing the base of the pyramid. Faculty from universities not currently involved in the project could also participate in the education sessions, to spread the capacities widely.

You can follow the progress of the project, and access the draft protocol beginning this spring, on the project’s Web site at www.bop-protocol.org.


Discuss these concepts and learn more at www.nextbillion.net, WRI's Development through Enterprise community Web site.

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