This chapter is from the book
This chapter is from the book
This chapter is from the book
Defining BoP Business
BoP businesses (or ventures) are revenue-generating enterprises that specifically target the BoP demographic described as buyers, sellers, and entrepreneurs. They sell goods to and source products from the BoP. The two orientations can be termed “serving BoP consumer” or “serving BoP producer,” and a specific BoP venture can adopt either or both approaches. Ventures serving BoP consumers bring nonlocal products and services to BoP communities and markets. Ventures engaging BoP producers purchase goods from local producers to sell in various nonlocal domestic or international markets.
BoP business ventures typically straddle the formal and informal economies. Unlike the “underground” economy at the top of the pyramid, which is driven largely by the desire to avoid paying income taxes or to conduct illegal activities, the informal sector that characterizes most BoP marketplaces exists because of the difficulty and expense of becoming legally registered due to unreasonable costs, high levels of corruption, and archaic rules. The challenge, therefore, is to bring productive assets from the informal and formal economies together in a mutually beneficial manner. BoP ventures thus seek to combine the best of both worlds—the resources and technological capacity of the formal economy and the indigenous knowledge, human face, and local embeddedness of the informal sector.16
BoP ventures span sector and size, including initiatives by large multinational and domestic companies, local small- and medium-scale enterprises, and businesses developed by nonprofit organizations and social entrepreneurs. These ventures also often involve partnerships across different sectors, including collaborations among for-profit companies, nonprofit organizations, and development agencies.17 Furthermore, BoP ventures typically cross traditional industry boundaries. For example, at the top of the pyramid, industries such as “energy,” “health care,” and “telecommunications” make sense. When it comes to the BoP, however, given the lack of pre-existing infrastructure, ventures must often cross boundaries to be successful. A BoP health care venture, for example, may need to be premised on telemedicine and must therefore include telecommunications as an important part of its strategy. Similarly, a rural telecom venture may need to also be in the distributed energy business, given that digital power is crucial to telecommunications.
Another distinguishing feature of BoP ventures is the goal of becoming economically self-sustaining, meaning that at the least they expect to recover their ongoing operating costs. The objectives of most BoP ventures also include scalability. Economic self-sufficiency and scalability, it should be noted, do not preclude access to grants or subsidized support. Many businesses in the developed world—including those in the agriculture, energy, science, technology, aerospace, and medical industries—receive varying levels of short- and long-term support from national and local government. As is discussed in subsequent chapters, ventures serving the BoP can achieve economic self-sufficiency and scalability by combining revenues from serving BoP consumers and producers with resources and “smart subsidies” from the development community and government agencies. Conversely, without access to these types of external support, many ventures will struggle to create markets and demonstrate economic viability.