Business at the Base of the Pyramid - Sustainable Business Approaches to Combat Malnutrition
by Tobias Stahel
Malnutrition is one of the most severe problems in the developing world and is closely interlinked with poverty. It is especially disastrous among infants because it can lead to irreparable damages on health and cognitive damages. This affects the income potential and poverty negatively and leads to a vicious cycle of malnutrition and poverty.
This study by Tobias Stahel compares the approaches of Danone-Grameen Bank with the popular yoghurt in Bangladesh and Antenna Foundation's Spirulina programme in Madurai. Although both approaches are still in an early stage and not yet fully viable and scalable, the study shows the major challenges to produce a product to combat malnutrition and reaching the base of the pyramid customers.
Executive Summary
Nine years after the Millennium summit the achievements are ambiguous and most of the development countries will certainly fail to meet the MDGs. On the one hand, the recent crises, such as the food, the financial and real economy crises add their share to such future failures. On the other hand, the classical top down development aid regime is under pressure.
First, the official development assistance is decreasing. Second, critiques challenge the Top Down concept and the effectiveness of official development assistance in its fundamentals. There is a growing belief that private imitative and business can do more by making development from the bottom up.
In this context emerged the “the Bottom of the Pyramid” [BOP] approach. Prahalad’s proposition estimates that there is a great potential at the BOP, which can successfully worked by Multinational Corporations [MNC]. In order to do so, MNCs should alter their assumptions of the BOP and perceive people at the BOP as consumers. Furthermore, MNCs have to reformulate their business models radically to be capable of working these markets successfully because the challenges at the BOP are enormous. These markets usually lack basic infrastructure, such as transport system, media coverage, legal frameworks and so forth. By working BOP markets MNCs are not only supposed to make profit through high volume businesses, they are also supposed help to improve the situation of the poor at the BOP. By bringing them more and higher quality products, integrating them in supply chains and making products more affordable, MNCs help to alleviate poverty.
Prahalad’s proposition received an enormous feedback. Critiques pointed at flaws in calculations of market sizes at BOP and therefore questioned attractiveness of such markets per se. Serious doubts have been raised about the evidence, which Prahalad uses to back up his proposition. There are hardly any cases, which bear up under close scrutiny. However, such debates and critiques haven not resulted in a cul-de-sac, but lead to broad activism in research and theory, as well as in practice. In consequence, the BOP concept evolved to a second generation. It changed from a top down sales-focused concept to a system of “co-creating” and “co-venturing” embedded in local circumstances, which focus on the people at the BOP more as productive business partners than as consumers. This new focus on partnership and conceptual equalisation found expression in the reformulation to base of the pyramid because of the negative connotation of bottom. The altered concept is also called
BOP version 2.
The paper features two case studies of BOP business that aim to combat malnutrition. The joint venture between the Bangladeshi Grameen Bank and the French Danone has been one of the most celebrated examples of two MNCs marrying their capabilities to work the BOP market. Danone brought in its expertise as one of the world leaders in fresh dairy products. Grameen had already the knowledge how to reach the Bangladeshi BOP market and an established network of sales women to rely on. The resulting Grameen Danone Food Ltd [GDFL] was established in 2006 in Bangladesh in a 50:50 partnership. The business model is based on proximity. The core idea is to have various small factories, which rely on a deskilled production technology. On the one hand, this should create local labour. On the other hand, the production tries to rely on local resources, such as locally produced milk or molasses. The proximity is supposed to overcome the challenge of a missing cooling system and deliver the product, a micronutrient enriched yoghurt, without any spoiling through its net of sales ladies. Hence, GDFL created a holistic value chain.
Although GDFL looks very promising, it has still to prove that it is able to combat malnutrition on sustainable grounds. The venture has not yet been financially successful. The Bangladeshi food crisis raised input costs significantly and led GDFL to increase its consumer prices. This in turn led to a break down in the, by then growing, consumer demand. GDFL had to redesign its product and price policy. It also changed its strategy to more expansion in order to reach other markets and use its overcapacity. This expansion targets, in consequent, also more urban markets. The GDFL management aims to be profitable by 2010. Hence, although very promising, GDFL has still to proof its financial stability and impact on malnutrition.
The second case study is on Antenna Nutritec [ANT]. It is an Indian branch of the Swiss based NGO Antenna Foundation, Geneva, that aim to bring technologies to the developing world in a form that is tailored to local needs and circumstances. In order to combat malnutrition it advocates Spirulina, an algae very rich in the most needed micronutrients. The business model foresees that ANT acts as a marketing company for Spirulina producers to ensure their production. It also adds value to the Spirulina by processing the raw material to products such as tablets, capsules and candies and more. It sells to three different markets including the BOP market of rural poor with focus on children and women. The other two markets are supposed to create a more sustainable demand and be so profitable to cross subsidy the activities at the BOP.
ANT aims to reach the BOP by the already established network of NGOs and SHGs of an Antenna sister organisation that work with micro credits. The SHGs ladies are not only a means to sell Spirulina; they also represent a primary target group. The idea is that sales ladies can promote Spirulina from peer to peer and generate inter and intra group sales. ANT recently developed a nutritious candy, which can be the missing link to successfully reach the poor. It has a predetermined price, which is limited by its symbolic of 1 INR for a sweet. It is therefore competitive and very affordable and therefore might represent a business opportunity for the SHG sales ladies. However, although the candy is very promising, ANT has not yet achieved to design production processes that are profitable. The ANT management believes to be capable of making the candy profitable by increasing the sales volumes due to effects of economy of scale. Furthermore, ANT faces the challenge to create markets for its Spirulina candy. Therefore it has to educate potential consumers in the first place. In the face of poor media coverage and very poor literacy rates, ANT cannot rely on traditional media. It conducts awareness programs and cultural campaigns. First trials show that it is promising to reach rural poor through such means, which aim to spread their messages emotionally. ANT recently partnered with a local NGO and established a framework that aims to create a market and set up trained SHGs to take up the Spirulina business. Past sales figures on BOP products do not draw a clear picture yet if sales efforts are fruitful. Furthermore, it is too early to assess if the candies or the more structural partnership can reach the BOP segment on a financially sustainable base.
Therefore the paper concludes that there is not yet a clear picture to draw if there are sustainable business approaches to combat malnutrition among BOP consumers. However, it shows the unique challenges. It does so on theoretical base, but also gives insights on two cases, which are at the forefront in the combat against malnutrition
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