Closing Case: Strategy for the Base of the Pyramid
The Bottom of the Pyramid (BOP), which is defined by the low- and middle income countries, represents a huge opportunity for international oriented companies in times where the economy in already developed countries is confronted with slow growth or even stagnating markets (Emmons 2007).
Abbildung in dieser Leseprobe nicht enthalten
Exhibit 1: The economic pyramid, Source: Prahalad, C.K. and Hart, S.L. (2002). The Fortune at the Bottom ofthe Pyramid.
The portion of the pyramid has four billion people with an income less than $ 1.500, which allegorizes a significant purchasing power as Prahalad and Hart (2002) constitute "tier 4 represents a multitrillion dollar market". However many corporations do not want to enter these markets due to factors such as corruption, religious conflicts, no education or law, or underdeveloped cities. As most of the large companies are highly sceptical of wether they can operate profitably, or even find a reliable workforce in these communities, they decided to leave the challenge to serving the poor to local firms, NGOs or governmental institutions and carry on serving the middle and upper class (Anderson and Billou 2007).
But while the vast majority of these companies have seen these difficulties as indomitable barriers, other have successfully developed strategies for creating innovative products and services in order to serve the poor profitably while enabling them to do business and integrating them in their value chain (Prahalad 2004).
This paper will first outline what the more attractive industries for the base of the pyramid, in order to alleviate their poverty, are. In the next section aspects, which might determine the performance of a corporation in the emerging economies will be examined from a resource-based point of view. Moreover crucial differences in formal and informal rules between developed and emerging economies from an institution- based point of view will be illustrated. Finally the argument that aggressively investing in emerging economies is not only economically beneficial but also highly ethical in contradiction to rushing in emerging markets is reckless, will be discussed in depth.
1. What are the more attractive industries for the base of the pyramid?
According to Prahalad, corporations who are aware of the bottom of the pyramid (BOP) as a precious $1,3 trillion market also belief that even the most needy people can be good customers. As the latest information about product developments and trends also penetrate the low-income class up to the most outlying rural areas, they are also sophisticated in terms of value and price of the products and well aware of the quality of a brand despite their limited monetary possibilities (Pitta et al 2008). This school of thought recognize the significant barrier low income creates, which companies can overcome by taking the correct steps and provide adequate resources to satisfy their needs. He further constitutes that the BOP requires a commercial strategy in order to match their needs efficiently and effectively. To do so he suggests four key aspects: the creation of buying power and aspirations through customer education and product innovation, which has to be followed by enhancement of distribution and communication systems and by tailoring local solutions appropriate, which are intertwined (Prahalad 2004).
The Commercial Infrastructure at the Bottom of the Pyramid
Abbildung in dieser Leseprobe nicht enthalten
Exhibit 2: The commercial infrastructure at the bottom of the pyramid, Source: Prahalad, C.K. and Hart, S.L. (2002). The Fortune at the Bottom ofthe Pyramid.
Maslow therefore provides a framework in order to further segment the various needs of the low-income consumers in basic needs in order to assure survival, essential services for safety and security, social interaction and finer things including self-esteem and self-actualization needs (Subrahmanyan and Gomez-Arias 2008). In the literature it is widely discussed which industries are the more important in order to serve these aforementioned needs. It can be said that these are to be highlighted which are able to provide multiplier effects through innovative technologies and development, which lead to further sustainability in emerging markets. To mention one specific example out of many others, Nestle needed a reliable source of high quality milk and the poor dairy farmers in India needed a fair treatment for their efforts, which led to the creation of a flouring partnership. Nestle offered to buy the milk for a higher price than provided by current market rates and added value through educating farmers in how to increase their economical outcome by improving their agricultural performance, provided supplies and material necessary for farmers to work efficiently. The company invested in milking machines, farm cooling tanks and chilling centres and provided assistance regarding quality fodder seeds, cattle feed, veterinary medicines and procurement of bank loans. Moreover Nestle supports community development as well in terms of building drinking water and lavatory facilities in cooperation with the village administrators, parent associations and schools. It is also concerned about health issues and funds medicines for a local tuberculosis clinic situated in Moga, which treats the local inhabitants as well as from nearby villages (Nestle 2010). Nestle sought for new opportunities to further develop its business partners to active market participants by breaching cultural, societal and infrastructural barriers through the examination of the farmers' specific economic needs. In conclusion, Nestle created a win-win situation through realizing the aforementioned key aspects, which led to the development of a profitable multiplier effect for both sides.
2. From a resource-based view, what determines firm performance in emerging markets?
Multinational enterprises (MNE) will continue expansion and be forced to recognize possible obstacles and must find new ways to overcome them. Chamberlin (1933) sites that creating innovations in terms of technologies, the development of unique skill sets, and the accomplishment of patents and trademarks, which help them generating and sustaining competitive advantage (Day 1994; Hall 1992). The aforementioned boundaries of the performance of a company from a resource-based point of view lie not only in its financial, strategic, management and resource capabilities but also in the uniqueness of the attributes of its resources (Peng 2009). According to Barney resources should meet the conditions of being valuable, rare, imperfectly imitable and non- substitutable (Barney 1991), whereas Amit and Schoemaker supplementary develop the list with the conditions of low tradability, complementary, appropriatability and durability (Amit and Schoemaker 1993). Especially when entering a new market with a new product or service, there is no adaptive strategy. Each product or service has to be adjusted to the individual target group culture, society, infrastructure and economic needs and wants.
Therefore the resource has to enable the company to conceive of or apply strategies that improve its effectiveness and efficiency by satisfying the needs of its customers. Barney claims that if the attribute of a resource is not valuable or cannot enable the company to create value, it is no potential resource for generating competitive advantage (Barney 1991). This approach highlights, that not all resources are of equal significance for a corporations' attainment and that the management should carefully evaluate the strategic steps to take.
- Quote paper
- Svenja Martina Gnosa (Author), 2011, Global Business Strategy , Munich, GRIN Verlag, https://www.grin.com/document/175267