Transcript of Professor Stephen Lawrence Leeds School of Business University of Colorado at Boulder...
- Slide 1
- Professor Stephen Lawrence Leeds School of Business University
of Colorado at Boulder Entrepreneurship at the Bottom of the
Pyramid ESSAM 2010
- Slide 2
- Agenda Bottom of the Pyramid (BOP) defined BOP entrepreneurship
case studies Microcredit entrepreneurs Market failure and BOP
entrepreneurship BOP entrepreneurial opportunities
- Slide 3
- What is the Bottom of the Pyramid? Prahalad & Hammond,
Serving the Worlds Poor, Profitably, HBR, Sept 2002
- Slide 4
- BOP Global Distribution World Economic Forum (2009), The Next
Billions: Unleashing Business Potential in Untapped Markets, World
Economic Forum, January.
- Slide 5
- BOP Segmentation World Economic Forum (2009), The Next
Billions: Unleashing Business Potential in Untapped Markets, World
Economic Forum, January.
- Slide 6
- BOP Characteristics 1 Low, fluctuating incomes Resist large
up-front outlays, and installment plans Lack affordable credit
Opportunity: align pricing and financing that accommodate ebb and
flow of customer incomes Difficult living conditions and domestic
constraints Little space or privacy Uncertain electricity and water
(if any) Opportunity: deliver business and product solutions that
address these constraints Smart shoppers and investors Unlikely to
spend money on products they dont want But, they want high quality
and reliable products Opportunity: design high quality, reliable
products at low price World Economic Forum (2009), The Next
Billions: Unleashing Business Potential in Untapped Markets, World
Economic Forum, January.
- Slide 7
- BOP Characteristics 2 Unfamiliar with many products,
technologies, procedures Scarce communication channels; low
literacy rates Opportunity: Provide product education and
demonstrations for products (and when outsourcing as well) Seek out
trusted advice Rely on opinions of people known and trusted
Friends, family members, and direct experience strongly influence
purchase decisions Opportunity: Win over local groups to advocate
products and and services to friends and family; create educational
networks Demand respect Want to be taken seriously; treated
equitably and with dignity Opportunity: Find ways to enhance
consumer dignity; show respect Face disadvantages in the market
High prices, inferior goods BOP penalty Opportunity: Offer better
quality, lower prices than currently available; new methods of
addressing BOP market World Economic Forum (2009), The Next
Billions: Unleashing Business Potential in Untapped Markets, World
Economic Forum, January.
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- BOP Cost Premiums Prahalad & Hammond, Serving the Worlds
Poor, Profitably, HBR, Sept 2002
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- What is the entrepreneurial opportunity at the BOP? Untapped
potential 4 billion customers at the bottom Top line growth New
sources of revenue; large latent demand Reduced costs Outsourcing;
relocating service operations Innovation Hotbeds of technological
experimentation Strategies Must put aside preconceptions; become
com Prahalad & Hammond, Serving the Worlds Poor, Profitably,
HBR, Sept 2002
- Slide 11
- World Economic Forum (2009) The Next Billions: Unleashing
Business Potential in Untapped Markets World Economic Forum,
January. Addressing the BOP Marketplace
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- Deploy versus Sell Focus on high-impact features for target
market Devise new business models that allows consumers to access
new features Assess economic viability at community level rather
than individual Construct an offer that permits pooling of revenue
streams, protecting company from volatile individual income Provide
access rather than ownership (deploy vs. sell) Example: Grameen
Telecom equipped village women with mobile handsets, who rent use
of handsets to other villagers Example: Kenyan Ag Commodity
Exchange sends text msgs to farmers (20 cents) share the price;
allows better prices for farmers World Economic Forum (2009), The
Next Billions: Unleashing Business Potential in Untapped Markets,
World Economic Forum, January.
- Slide 13
- Monetize Hidden Assets Tap local knowledge in informal networks
to identify hidden assets Identify local partners with good access
to community information Identify gaps in current roles; provide
economically attractive incentives for partners Provide local
producers with expertise and tools Example: Barclays Bank partnered
with Susu collectors and moneylenders (informal financial services)
in West Africa to offer savings account and small loan services
World Economic Forum (2009), The Next Billions: Unleashing Business
Potential in Untapped Markets, World Economic Forum, January.
- Slide 14
- Scale Out vs. Scaling Up Decide when centralize and when to
localize Where should a company and where should it scale out? Can
both be effectively balanced? How to adopt decentralization,
encourage innovation, and ensure product quality and effective
management? Example: Aravind Eye Care (India) uses local
entrepreneurs with minimal training for initial examinations; uses
email consultation with doctors; tough cases referred to regional
clinics Example: Fabindia (India) partners with 17 community- owned
companies that supply it with ethnic-chic garments World Economic
Forum (2009), The Next Billions: Unleashing Business Potential in
Untapped Markets, World Economic Forum, January.
- Slide 15
- New Design Principles Create life enhancing offering Price for
the budgets of the next billion Tailor product to address local
constraints; address quality Develop environmentally sustainable
approaches Reconfigure the product supply chain Source from local
producers Broaden reach, reduce costs by leverage local
distribution Innovate to overcome infrastructure constraints
Educate through marketing and communication Product benefits
Word-of-mouth advocacy Aim for trust and identity with branding
Collaborate with non-traditional partners Partner with communities
rather than individuals Create incentives to encourage
self-governance; share products, assets, knowledge World Economic
Forum (2009), The Next Billions: Unleashing Business Potential in
Untapped Markets, World Economic Forum, January.
- Slide 16
- Critical BPO Questions Is BOP MNC neocolonialism all over
again? Will MNCs behave differently in this space than they have in
the past? Can power be successfully decentralized and distributed?
Must there be a trade-off between doing well and doing good? How
close does BOP come to closing that gap? What skill sets are
critically needed in BOP business development? Consumer insight?
Operations management? Investment management?
http://compassioninpolitics.wordpress.com/2009/05/10/the-most-important-questions-at-the-base-of-the-pyramid-bop/
- Slide 17
- Critical BOP Perspective Its not just about making consumer
products cheaper, he says. Youve got to come up with products that
actually meet the specific needs at the bottom of the pyramid. How
do you design products that people need? You have to actually go
and find out, and so we send researchers to find out how people
live how they do their washing, their cleaning (and) what are their
problems. Peter White, Director of Global Sustainability, Procter
& Gamble
http://compassioninpolitics.wordpress.com/2009/05/10/the-most-important-questions-at-the-base-of-the-pyramid-bop/
- Slide 18
- Entrepreneurial Case Studies
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- New Solutions to Global Challenges Envirofit International,
Ltd. Dr. Bryan Willson, Tim Bauer, Nathan Lorenz and Ron Bills
- Slide 20
- Envirofit International Colorado State University Leading
University located in Fort Collins, Colorado USA World leader in
engine technologies and clean engine development Global innovation
center for Energy, Environment and Health Developed and Started
Envirofit feeds Envirofit with University developed technological
solutions Envirofit Non-Profit Organization Dedicated to the world
wide implementation of products that offer clean technologies that
reduces pollution and energy dependency, thereby yielding health
and economic improvement in developing countries Envirofit is
initially charity funded but becomes self sustaining within 2 years
of initial project implementations http://www.envirofit.org/
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- Envirofit Cook Stove Case Study http://www.envirofit.org/
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- Need for Improved Cookstoves Health impacts 1.5 million 2+
million annual deaths Leading cause of death for children under 5 2
nd leading cause of death for women Contributing factor to many
other causes of premature death: water quality, disease, etc.
Deforestation Climate Change http://www.envirofit.org/
- Slide 23
- Cookstove Benefits Indoor air pollution is one of the worst
killers in the world World Health Organization estimates that
indoor air pollution kills 1.6 million people each year In South
India, people spend an average of up to 40%of their incomes on fuel
or four to six hours a day collecting wood Envirofit cookstoves
Reduce toxic emissions, by about 80 percent Cut fuel consumption in
half Owners to save money and breathe cleaner, less polluted air.
Cost between $20 and $60.
http://media.www.collegian.com/media/storage/paper864/news/2009/02/17/News/CsuFounded.Company.Delivers.Clean.Burning.Cookstoves.To.India.video-3633604.shtml
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- Envirofit Cook Stove for IAP
http://www.youtube.com/watch?v=KCrN_R-1aCM&NR=1
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- Envirofit 2-Cycle Engine Retrofit Case Study
http://www.envirofit.org/
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- 100 million dirty 2-strokes in South Asia equals 5 billion cars
( currently only 450 million automobiles in the world) 2-Stroke
Energy Use: 10 million liters / day http://www.envirofit.org/
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- Tricycles in the Philippines 1,300,000 registered tricycles in
the Philippines Dirty 2-stroke units are high emitters of CO, HC,
and particulates (1 tricycle =>50 automobiles) A 2-stroke ban is
an unrealistic & ineffective solution: Carbureted 4-strokes
offer limited GHG emissions reduction Envirofit direct injection
2-stroke engines are cleaner than carbureted 4-stroke engines
Carbureted 4-stroke replacement is very expensive and delivers zero
economic payback to the driver Dirty 2-stroke units will merely be
transferred elsewhere! http://www.envirofit.org/
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- Economic Impact of Pollution The World Bank has determined that
PM10 exposure in Metro Manila, Davao, Cebu & Baguio annually
results in: 2,000 premature deaths resulting in an economic loss of
PHP 7 billion (US$140 million) 9,000 cases of chronic bronchitis of
chronic bronchitis resulting in an economic loss of PHP 6 billion
(US$120 million) Countless cases of related respiratory symptoms
resulting in an economic loss of PHP 8.5 billion (US$170 million)
Total annual loss exceeds PHP 21.5B (US $430M)
http://www.envirofit.org/
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- Direct Injection Pushes out burned gasses with fresh air only
Carburetion Pushes out burned gasses with raw fuel & air mix
Injection of fuel after exhaust ports close Direct Injection vs
Carburetion Color Key Fresh AirFuel / Air Mix Exhaust Products
DI-1DI-2 DI-1 Removal of spent exhaust products (scavenging) occurs
with fresh air only DI-2 Injection of fuel occurs after exhaust
ports have closed Carb-1 Carbureted engines scavenge with raw
incoming air and fuel mixture, losing 35% of the unburned mixture
in the process Carb-1 http://www.envirofit.org/
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- Carbureted 2 - Stroke Carbureted 4 - Stroke Direct Injected 2 -
Stroke * SAE Technical Paper No. 2001-01-0010 ** Envirofit Draft
Paper Pending Publication at BAQ Asia Conference 2006 *** Envirofit
2006 Field Test Results (5/06) Hydrocarbons Carbon Monoxide Fuel
Consumption Direct Injection 2-strokes are cleaner and get better
fuel economy than carbureted 4 strokes! Emissions and Fuel
Consumption Comparison http://www.envirofit.org/
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- Tricycle Financial Savings Daily Savings = 70Php ($1.33)
Monthly Savings = 1,700Php ($32.40) Annual Savings = 20,400Php
($388.00) Retrofit Cost 15,750Php ($300)
http://www.envirofit.org/
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- Summary Fantastic Opportunity for Philippines Dramatically
reduces pollution Increases daily income through savings and jobs
Improves health and social conditions Future Retrofit Markets
Philippine Expansion India China Thailand Indonesia Future
Technologies Diesel retrofits Clean cook stove development and
production http://www.envirofit.org/
- Slide 33
- Home Country Benefits Case study
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- Innovative Blowback Disruptive Management Practices from Asia
Emerging markets catalysts for change Product and process
innovation New models Localized modularization (motorcycles)
Customer-driven modularity (Cummins) Process-driven services
(Aravind Eye Care) Implications Emerging mass markets = opportunity
at home Specialize Orchestrate process networks Orchestrate
innovation networks Brown & Hagel, Innovation Blowback, The
McKinsey Quarterly, #1, 2005
- Slide 35
- Cummins Engine 2000 60% of high-output electrical generator
market in India Marginal in small (