Mid-February was jam-packed with activity for the Opportunities for the Majority (OMJ) Initiative at the Inter-American Development Bank. On Monday, February 14, OMJ brought together more than 70 experts from multilateral institutions, investment funds, governments, NGOs, academia and private companies for its third annual Strategic Dialogue Partners' meeting to discuss leading trends and recent experiences in the Base of the Pyramid field. On Tuesday, February 15, OMJ hosted a one-day workshop at IDB headquarters where more than 20 of its private sector clients shared their experiences in reaching BOP markets and developing financially and socially sustainable business models.
The Dialogue placed a lot of emphasis on the importance of building an “ecosystem” of supporting elements to help develop a “BOP industry,” which would allow companies to gain easier access to capital and financing, but equally importantly, also gain access to knowledge. The right ecosystem will attract more and more players into the field and create the true industry that is necessary to reach scale and help improve the lives of millions of low-income people living in Latin America, the Caribbean and other regions of the developing world.
Alejandro Villanueva, Director for Programs in Latin America and the Caribbean at theThe W.K Kellogg Foundation, highlighted the need to start creating the support services that individuals and companies require to create businesses at the BOP. By way of analogy, he compared the support structure required to ensure the success of the high-tech industry: “If you have an idea on technology that is provocative in Palo Alto” he said, “you will [immediately] have almost everything that takes to develop it.” Harvard Business School professor Michael Chu compared the growing impact investment industry to the emergence of the microfinance industry 20 years ago, reminding the audience that it took many years of commercial development and a fair amount of patient capital for microfinance to growth and expand into the true industry that it is today. As a result, investors and company participants should expect a similar, longer-term time frame that it will take to fully develop an industry for impact investment.
There are an increasing number of companies realizing that it is possible to achieve good financial returns while having a positive social impact. The IDB’s President Luis Alberto Moreno has suggested moving the concept of “shared value” between companies and the societies they serve away from the more traditional notion of Corporate Social Responsibility and small scale philanthropy. President Moreno argues in favor of developing large scale sustainable business models that will engage low-income people as consumers and especially as partners to benefit substantially from the region’s recent economic growth. The models that OMJ has helped develop are a living proof of this brand of model development.
The one-day OMJ workshop on February 15th centered around a series of panel discussions and presentations by executives from the IDB’s client companies in sectors ranging from healthcare and education, information technology and basic infrastructure to small producer value chain development. The participants almost unanimously agreed that the key to success is finding the right allies and strategic partnerships in order to overcome obstacles to better reaching BOP markets. I believe the readers of this blog have long identified the main constraints a company faces when serving the poor, so I will not be repetitive, but the common limitations that emerged from the discussion across all the industrial sectors were: 1) lack of knowledge of low-income segments; 2) lack of proper distribution channels; 3) lack of confidence and trust from the consumer side; and 4) inability to lower production and operational costs.
How have companies overcome these constrains? A few of the many examples from the OMJ portfolio suggest that the right strategic alliances are a key part of the answer: Banco BCI, the third largest bank in Chile, has partnered with the local Coca-Cola bottling company, Unilever, Pepsico, Arcor and Nestle to provide microcredits to previously unbanked small entrepreneurs – using the capillarity of their distribution networks and existing relationships with their clients to reach an entirely new market segment through its Banca Emergente unit. Empresa Promotora de Servicios de Salud (“Salud a Su Alcance”) in Guatemala has partnered with Banrural, one of the biggest rural banks in Central America, to provide prepaid medical services that cover up to 5 family members for US$3/month and now reaches over 300,000 families with quality health care. FINAE, a Mexican financial institution specialized in loans for higher education, has partnered with several private universities to provide access for students who lack sufficient resources to pay for their college education.
We have learned much about BOP markets since C.K Prahalad first launched the concept, so the time is right to start sharing that knowledge with other players and stakeholders in the field. It was clear from the discussions that the private sector plays a critical role helping the poor benefit from Latin America’s momentum. In the words of OMJ manager Luiz Ros, “The private sector has a significant opportunity to enter untapped markets, create jobs, engage low-income communities into their value chains—as stakeholders, suppliers, clients, and entrepreneurs—and drive economic growth.” A joint effort from governments, business, NGOs and civil society will be necessary to create the ideal ecosystem for BoP markets to flourish.
For more information on the conference, read the summary in our News section, and watch our blog for video excerpts and more. To download the conference presentations click here.
