iMpact
LOGIN
Link My iMpact  
Link Strategic Positioning Tool Kit  
To Executive Education
To Kresge Library

Building The Base

10/13/2009 --

Business and NGOs need a meeting of the minds to better alleviate poverty and improve the environment at the base of the economic pyramid.

ANN ARBOR, Mich. — It's been about 10 years since Ross professor C.K. Prahalad and William Davidson Institute (WDI) distinguished fellow Stuart Hart first began to seriously study conditions at the base of the economic pyramid (BoP). And while the past decade has brought more attention, innovative business ventures, and new approaches to alleviate poverty among the world's poorest citizens, success has been incremental. Little, in the grand scheme, has changed, according to the experts.

A new approach is needed, said Ross professor Ted London, who, along with Hart, was a featured guest of the WDI Speaker Series Oct. 1. More collaboration between the business world and nongovernmental organizations (NGOs) is key for efforts at the base of the pyramid to succeed, London said. He is a senior research fellow at WDI and has focused on ways NGOs and nonprofits can better measure the true impact of their ventures.

"In 20 years, not much has changed," London said. "The U.N. says deep poverty remains a stubborn and intractable problem across much of the world."

For business, the base of the pyramid represents a huge potential market -- especially now, when GDP growth in high-income countries is expected to be a mere 2.6 percent.

But the base of the pyramid has its own, unique dynamics, London said. It's an "informal" economy, and the same business processes that work in developed markets don't necessarily apply there. And selling a cheaper or simpler version of an existing product isn't necessarily the appropriate course of action.

Both NGOs working on poverty alleviation and business could have great success if they ended their "sectoral independence" and worked together, he suggested. Most important, poverty alleviation groups need a set of guiding business principles, and businesses need a better understanding of the base of the pyramid. As London put it: "I think we need a more perfect union."

One recent success story is Hindustan Unilever's Shakti program in India. It partners with hundreds of independent entrepreneurs in rural India to sell Unilever products. The company met with established self-help groups and developed local relationships. The entrepreneurs have done quite well, London said, and Unilever was able to get a foothold in a populous, though hard-to-reach, market.

"Rather than a capability, you have to be able to create a relationship," he noted.

But a venture like Unilever's has to be followed by a well-documented impact assessment that measures not only how much product was sold, but also tracks effects on other local businesses, family structures, and whether the quality of life for the area has measurably improved.

"If [the venture] just gives you a story, they're as bad as a company cooking their books," London said. "You need a tool that's dynamic and that allows you to know what's going on."

A Green Leap

For Hart, it's also important to know what's going on in the environment as new markets emerge at the BoP. Business practices must change if we are going to mitigate the negative environmental impact that comes with economic development.

"If we're going to create a sustainable world, it's crucial that we do it on a massive scale and it's going to have to happen in a different way," Hart said.

The two main paths to green technology innovation are models Hart calls "green giant" and "micro green." Green giant is large in scale, capital-intensive, and centrally planned. Green giant ventures work within the existing infrastructure. Some examples are solar farms, big wind operations, clean coal, and nuclear power.

Micro green ventures are small in scale and are typically operated on site. They are labor-intensive, self-organized, and bottom-up. Examples include fuel cells, point-of-use water, and decentralized solar power -- "disruptive technologies" that could serve the two billion people still lacking access to standard electricity.

"But the field is strongly tilted toward green giant," Hart said. "I'm not saying green giant is bad, but we're tremendously under-leveraging the opportunity with micro green. There is tremendous opportunity to take a great leap to the base of the pyramid."

For conditions to really improve at the base of the pyramid, green tech and poverty alleviation entities need to partner and stop operating as separate communities, said Hart. "The challenge comes in bringing these together."

—Terry Kosdrosky



For more information, contact:
Bernie DeGroat, (734) 936-1015 or 647-1847, bernied@umich.edu