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BUSI 854 - Innovation and Entrepreneurship

Innovation and social entrepreneurship at the bottom of the pyramid

Case Critique

Group members:

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Introduction

In viewing the case study “Innovation and Social Entrepreneurship at the Bottom

of the Pyramid - A Conceptual Framework” we first need to understand what is meant by

The Bottom of the Pyramid (BOP). The BOP is said to be a socio-economic conceptual

theory that states a vast segment of people around the world constitutes the poorest of the

world’s population (Prahalad, 2005, p. 4). This segment is termed to be an invisible and

unserved market that is faced with numerous challenges and likewise barriers that prevents

them from attaining their human potential. In fact, this potential can be beneficial—if

managed correctly—to their families and communities at large. The BOP is the people

whose spending power lies below $1,500 annually and who can barely meet their financial

commitment. The population of persons that fall at the Bottom of the economic Pyramid

around the world are within the forgoing regions, these are the Caribbean, South Asia,

Africa, Eastern Europe, and Latin American. These constitute two thirds of the world’s

population.

Summary:

The BOP refers to the over four billion persons who possess very little purchasing

power, as little as under two dollars per day. Most of these earnings were applied to the

necessities of life, with little or none remaining for investments. Another concern was

their location, they lived in rural areas and it was expensive to reach the outside world.

They also lacked the availability of space, if they produced anything, they had nowhere to

store the produce. They are considered the poorest people in the world and lives in poverty.

With such a restraint on their ability to meet financial needs, some of the multinational

companies and entrepreneurs spotted opportunities to invest while creating an avenue for
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the BOP to increase productivity and services, thereby increasing their spending power and

overall their ability to rise from the bottom of the pyramid. Some investors targeted the

consumers in the BOP, they were used as producers rather than mere consumers. Once

they were able to meet production standards, they not only had enough for personal use but

also to offer for sale to the middle class of the BOP. The poor people view themselves as

being in the lower class of the world, as being persons who do not possess innovation, they

felt they could not afford to pay for technology or business models.

In addition, to changing consumers to producers, that is using the people in the BOP,

for example as farmers, so that they could be producers and able to gain profits through

their sales. Some multinational companies created hundreds of jobs to the BOP which

increased their cash flow. The many attempts of investments in the BOP markets gave rise

to varying results. If a social benefit and an economic need was met then the investment

was considered an “economic success”, if not then it was a failure. An important criterion

used to distinguish between success and failure is how the entrepreneur engaged the BOP

by not only selling to the poor but also by involving them in the process. Most time failures

were only realized when the multinational companies got greedy and did not engage the

BOP’s. Some concerns for success highlighted are affordability, involvement of

stakeholders, availability and innovation. Companies were able to realize the benefits and

profits from tapping into the BOP markets. These markets were untouched and available

for investors to become profitable because the BOP was considered the largest but poorest

market in the world.

Conclusion
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According to Subrahmanyan and Gomes-Arias (2018), most of the persons at the

BOP are being faced with issues such as variance in their annual income which span as low

as under $2 dollars a day. Prahalad felt that the BOP was a lucrative market for

multinational companies, he also believes that multinational companies have the power to

convert the BOP market into huge profits. This he believed can be done by building on the

idea that to sustain this market, companies would be required to introduce products and

services that are affordable and accessible. One of the biggest problems that was faced in

the BOP is the operations of business in an informal economy where there was no access

to capital start up. Products could not have been sold legally. Their income was

excessively low, and they could not afford to purchase the necessary tools and equipment

to expand their business. (Bennett, 2010).

Innovation and entrepreneurship can be emerging practices within the context of

the BOP markets. They both play an important role in the BOP, they provide the basis for

companies to enter and provide employment or for individuals themselves to become self-

sufficient. They open the doors to many opportunities for those persons in the BOP to

come up with ideas and ways to earn an income and gain spending power. They also can

create goods and services that will help sustain their communities for they have a clear

understanding of their culture and needs. They will not only be consumers, but they will

play the role of producers as well. For example, Nestle of Pakistan, is the fifth-largest

producer of milk in the world, they were able to come up with innovative ways to assist

the poor farmers to reduce wastage and contamination of the milk, but it also assists ensured

that the farmers were able to reap the full reward of their labour. This venture of Nestle has

benefited both the company and the locals. While Karnani disagrees with Prahalad’s theory,
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that the BOP market is a lucrative one, he is of the belief that poverty “is a global challenge

that needs to be addressed.” (2007, p. 55). Karnani further states “…there are success

stories associated with selling to the BOP market.” (2007, p.55)

The BOP market is one that has limitless potential, but it is faced with many

challenges. These challenges can put a hold on international companies wishing to enter

the BOP market because they don’t see it as a lucrative venture due to the low incomes of

the individuals found at the BOP. The vast majority of these international companies does

not see the returns of having to change its current business model. This model is profitable

serving the upper and middle class and they conclude that it is not profitable to change to

fit the BOP. Political uncertainty or stability is also a major contributing factor when

addressing the requirements of the BOP. Nonetheless, ….... example, the Amish

community although their spending power is not heavily dependent on the global world,

they are still able sustain their needs.


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Reference(s)

Prahalad, C.K., Hart, S.L. (January 2002). The Fortune at the bottom of the pyramid.

Retrieved September 23rd, 2018, from https://www.strategy-

business.com/article/11518?gko=9a4ba

Financial Times. Lexicon. (2018, September 23rd,). Definition of bottom of the pyramid (BOP).

Retrieved September 23rd, 2018, from http://lexicon.ft.com/Term?term=bottom-of-the-

pyramid-(bop)

Prahalad, C.K. and Hammond, A. (2002, September) ‘Serving the World’s Poor, Profitably’,

Harvard Business Review. pp. 44-11 Retrieved September 23rd, 2018, from

https://hbr.org/2002/09/serving-the-worlds-poor-profitably

Retrieved September 24th, 2018 from: http://arno.uvt.nl/show.cgi?fid=120894 -Conclusion

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