Four billion people live with less than 8$ per day. Stuart Hart and C.K. Prahalad describe people living in this income segment as “Base of the Pyramid”. They show that these four billion people are involved in economic processes: They consume, offer their manpower and their products on local markets and they run businesses. So far, the developed world perceived them as aid recipients. Hart and Prahalad invented the idea that multinational enterprises can approach this huge market when they invest in innovative products and enable the poor to do business and integrate them in their value chain.
By conducting three analyses the author aimed at understanding how companies involved in the eBook-reader industry can approach markets at the base of the pyramid: A country analysis to identify countries with favourable market potentials; an industry analysis to understand the main forces within the industry, and a business-strategy analysis to understand the strengths and weaknesses of four selected competitors.
Based on these findings and considering international recommendations, a strategy map has been developed for the eBook-reader industry. Companies can only successfully approach the base of the pyramid when they adapt their products and processes, invest in removing market constraints, leverage the strengths of the poor, combine resources and capabilities with others and engage in policy dialogue with governments.
According to the industry, 2010 might become the year of the eBook-reader. If produced at much lower costs than today and marketed as a tool for education, eBook-readers could become a useful product for the base of the pyramid.
This desk research gives companies a first orientation when considering markets at the base of the pyramid. According to Hart and Prahalad, an open exchange and learning process between entrepreneurs, scientists, companies, NGOs and international development organisations is key to drive innovations at the base of the pyramid.
Table of Contents
1 INTRODUCTION
1.1 Background
1.2 Aim of the Master Thesis and guiding questions
1.3 How to approach the “base of the pyramids”
1.4 The product - eBook-reader
2 ANALYSIS
2.1 Country analysis
2.1.1 Selection of countries:
2.1.2 Scoring model
2.1.3 Selection of indicators
2.1.4 Results of country ranking
2.1.5 Conclusion
2.2 Industry analysis – introduction
2.2.1 Intensity of competitive rivalry
2.2.2 Threat of substitute products
2.2.3 Entry of new competitors
2.2.4 Bargaining power of customers
2.2.5 Bargaining power of suppliers
2.2.6 Bargaining power of governments
2.2.7 Conclusion
2.3 Business strategy analysis
2.3.1 Company Strategies
2.3.2 Pricing strategy for eBook-reader and eBooks
2.3.3 Product Strategy and partnerships
2.3.4 Revenues and income
2.3.5 Conclusion
3 How can the eBook-reader industry approach BOP markets?
3.1 Adapt products and processes
3.2 Invest in removing market constraints
3.3 Combine resources and capabilities with others
3.4 Leverage the strengths of the poor
3.5 Engage in policy dialogue with government
3.6 Conclusion
3.7 Final conclusion
Research Objectives and Core Themes
The primary objective of this thesis is to investigate how companies within the eBook-reader industry can effectively enter and succeed in markets categorized as the "Base of the Pyramid" (BOP). By analyzing market environments, industry forces, and competitive strategies, the research seeks to provide a strategic framework for delivering digital educational content to underserved populations.
- Identification of favorable market conditions in BOP countries through a PEST-based scoring model.
- Analysis of competitive dynamics using an extended Porter’s five forces model.
- Evaluation of business strategies employed by key industry players (Amazon, Sony, Apple, Shanda).
- Development of a strategy map to address specific BOP market constraints.
Excerpt from the Book
1.3 How to approach the “base of the pyramids”
For the last 60 years a number of strategies have been applied by different multilateral, as well as different bilateral (non-) governmental organisations. The basic needs approach supports government and aid intervention programs to address shortages by increasing purchasing power (Sachs, 2005). The empowerment and participation approach focuses on liberation from local sources of exploitation by empowering local actors to change their situation (Sen, 2004). The New Common approach supports an ongoing creative dialogue across differences to enable new forms of human organisation while increasing mutual respect and understanding (cp. Simanis et al. 2008, p. 60).
However, in general the poverty penalty remained very high. Reasons for this situation are monopolistic business structures, weak infrastructure, corrupt governments, low sales volume due to fragmented purchasing power and limited access to credits.
To change the focus from further “help” and “development-aid support” to a more “business-orientated thinking”, Prahalad developed the “Base of the Pyramid” approach (2005). Prahalad assumes that the combined yearly purchasing power of about 4 billion people at the bottom of the pyramid sums up to five trillion US$. Figure 1 (next page) shows the global income (pyramid) distribution of the four billion people living with less than 3,000$ in local purchasing power per year in six different segments. The biggest group lives from 1,000 to 1,500 $ per year.
Prahald concludes that by targeting this untapped purchasing power, Multinational Enterprises (MNE) can make significant profits as well as help to reduce poverty. Based on a number of case studies Prahalad and others have shown that the cooperation between different stakeholders and the introduction of innovative technologies and business concepts can reduce the poverty penalty. For example, the availability of affordable mobile telecommunication has enabled low-income families in many BOP-markets to start or improve their own business.
Chapter Summary
1 INTRODUCTION: Defines the core problem of poverty, the role of education as a driver for development, and introduces the potential of eBook-readers as a tool for the BOP.
2 ANALYSIS: Evaluates potential market entry locations, analyzes competitive industry forces using Porter’s framework, and scrutinizes the business strategies of major companies like Amazon, Sony, Apple, and Shanda.
3 How can the eBook-reader industry approach BOP markets?: Proposes a strategy map based on BOP 2.0 protocols, focusing on product adaptation, partnership development, and policy dialogue to navigate market constraints.
Keywords
Base of the Pyramid, BOP, eBook-reader, digital education, market entry, business strategy, Porter’s five forces, ICT infrastructure, poverty penalty, innovation, cost leadership, emerging markets, content distribution, micro-payment, publishing industry.
Frequently Asked Questions
What is the core focus of this master thesis?
The research examines how companies in the eBook-reader industry can successfully enter and navigate markets at the "Base of the Pyramid" by adapting their business models to low-income environments.
What are the central themes of the analysis?
The thesis explores the potential of digital educational tools to reduce the "poverty penalty," analyzes favorable geographic markets, and investigates how companies can overcome infrastructure and affordability barriers.
What is the primary research goal?
The objective is to determine how firms can build sustainable business strategies that allow the poor to access affordable digital content, thereby creating win-win scenarios for companies and communities.
Which scientific methods are applied?
The author uses a PEST-based point-scoring model for country analysis, Porter’s five forces model for industry analysis, and a comparative analysis of corporate business strategies.
What does the main part of the thesis cover?
The main section evaluates specific country conditions, identifies competitive rivalry, assesses the bargaining power of suppliers, buyers, and governments, and develops a comprehensive strategy map for BOP engagement.
Which keywords characterize this work?
Key terms include Base of the Pyramid (BOP), eBook-readers, digital education, business strategy, and cost-leadership models.
Why was Shanda Literature included in the study?
Unlike Western MNEs, Shanda Literature successfully utilizes a micro-payment business model in China, which is highly relevant for addressing the low-disposable income reality of the BOP.
How does the author address the issue of low purchasing power?
The author suggests that companies must adopt "less is more" strategies, focusing on low-cost devices (below 90 USD) and innovative content delivery systems, such as sales by chapter or ad-supported reading.
What role does the government play in the proposed strategy?
Governments are viewed as critical partners; the author advocates for engaging in policy dialogues to reduce VAT on educational books and to promote digital textbooks in schools.
What is the significance of the "strategy map" in Chapter 3?
The strategy map serves as a practical guide for companies to match specific constraints (like weak ICT) with appropriate actions (such as cooperating with mobile operators or leveraging local SMEs).
- Citar trabajo
- Peter Rave (Autor), 2009, How to approach the "Base of the Pyramid", Múnich, GRIN Verlag, https://www.grin.com/document/142744
