Five strategies for scaling up inclusive business at the base of the pyramid
By Tomohiro Nagasaki and Lara Sinha
As with any business venture, inclusive business initiatives seek to scale up once they get their initial business models right. Scaling inclusive business initiatives means driving further commercial growth as well as reach to a greater number of people at the base of the pyramid (BoP).
However, there is no silver bullet for scaling up an inclusive business model. Breaking Through, BCtA’s flagship report, analyses 94 inclusive business initiatives and identifies five key strategies that companies are implementing to achieve scale. These include; carefully-chosen partnerships, creating greater willingness to pay, using ICT to unlock new opportunities, turning regulation into a positive force, and securing appropriate finance and internal buy-in.
The right partnership that actually works
Partnership is a widely used strategy by inclusive businesses, and it is certainly not a new way of doing business at the BoP. Companies find partners to overcome challenges that arise when engaging with low income people – whether as suppliers or consumers.
Like many others in this field, BCtA members form partnerships with companies and non-traditional partners such as NGOs or government agencies. What is clear from their experience though is the extent to which they are being careful about forming partnerships to get them right. Companies are choosing their partners carefully, and if they cannot find the right match, they sometimes walk away from them.
So what makes a good partner in inclusive business? Given the importance of maintaining quality, partners need to share the same quality standards. Trust needs to be developed, as does a good balance in sharing risks and potential rewards between partners.
For example, to expand their local distribution networks, Envirofit partnered with Kaluworks, the major East African brand in kitchenware, which will enable rapid expansion for their institutional and household clean stoves. Sumitomo Chemical, on the other hand, decided to focus on their existing factory production in East Africa instead of entering the West African market due to lack of an appropriate partner in the region.
Building demand, and willingness to pay at the base of the pyramid
A key question that BCtA members ask is whether the low-income consumers will be willing to pay for the product. The answer to this depends on product price, demand, financing and distribution mechanisms, and much more. We see companies developing a range of strategies to increase demand and customers’ willingness to pay.
For example, BASF India provides ‘high touch’ services to low-income farmers in India to ensure correct usage of their crop protection and other agricultural inputs. SolarNow emphasises product quality and offers to sell their solar home systems on installments to reduce upfront costs for consumers.
Another strategy looks for other actors to pay for the product instead of customers themselves. MicroEnsure offers its life insurance products based on its ‘freemium’ models through partnering with mobile phone operators. Under this model, the mobile network partner pays the premium on behalf of the customer and the level of insurance relates to the number of airtime minutes used. This partnership creates a win-win situation where MicroEnsure tackles the issue of people not willing to pay, and the mobile company benefits from increased customer loyalty in a very competitive market.
Using ICT to unlock opportunities
Inclusive businesses are increasingly recognising that using mobile and other information technology in their business models can open up opportunities at the BoP that simply didn’t exist before. It allows access to hard to reach markets, reduces transaction costs and allows reach on a scale that used to be unthinkable. Approximately a quarter of the initiatives in the BCtA portfolio are using ICT in their business models, mostly in the finance, healthcare and education sectors.
In the health sector, initiatives are using mobile technology to provide reliable health information and quality medical care to patients in remote areas who do not otherwise have easy, reliable access to healthcare. ClickMedix have developed a mobile application that translates a clinical protocol into a series of questions on a smart phone or tablet that can be used by a semi-skilled health worker. The health worker is trained to use the protocol with patients and can then relay the information and images to an expert medical professional in a clinic elsewhere for diagnosis.
Turning regulation into a positive force
Government regulation is often seen as an impediment to growth for new businesses, particularly for start-ups working at the BoP. While this is still occurring in some cases, there are many examples of BCtA initiatives actually benefiting from positive government support. This support includes public sector tendering and procurement, subsidised provision of goods and services, waivers of taxes, and regulations requiring improvements in standards that increase demand for inclusive business services.
Initiatives in India, in particular, have been helped by favorable regulation. DataWind’s initiative to provide low-cost data tablets in India has been boosted by the government’s subsidisation of mobile tablets in an effort to improve the quality of and access to education. The government makes up around 20% of DataWind’s sales and has been an important catalyst in building the consumer market. For supply to students, the government not only waives duties and taxes, but also subsidises the cost by 50% for the Aakash 1 tablet, the first edition of DataWind’s educational tablet. A critical factor in the success of Ziqitza Health Care (ZHL)’s ambulance business in India has been its public-private partnership with the government that it won through a tender. This was the first such tender, and the demonstration effect of ZHL’s business helped make the case for such an approach.
Resourcing the initiative
Securing the right internal structure, be it leadership, skills or company finance, is crucial for the long term success of any inclusive business. The kind of resourcing necessary depends on the type of company running the business.
For emerging and maturing companies - where BoP is core to the entire business - leadership commitment is not an issue, because the company is centered on BoP market opportunities. The core issue is about accessing finance. External investment – particularly venture capital – is opening doors to new growth and helping emerging companies become market leaders. But equally lack of investment, and the search for it, is a major challenge. For a number of BCtA member companies in the energy sector, venture capital (Series A, B or beyond) is driving expansion.
Large and established companies, on the other hand, have less trouble financing their initiative but have to spend more time securing company buy-in. In the survey conducted for the flagship report, 17 respondents from large and well established companies ranked commercial viability and low return on investment as their two top challenges. Securing adequate internal resources and finding the right partners internally followed in joint third. Taken together, these challenges suggest a broader, encompassing challenge of securing corporate buy-in. Initiatives that are able to do this successfully have been able to grow quickly.
About ‘Breaking Through’
Breaking Through: Inclusive Business and the Business Call to Actio... is authored by Caroline Ashley and Suba Sivakumaran, in conjunction with Tomohiro Nagasaki, Lara Sinha, Suzanne Krook and Tom Harrison. Joe Shamash conducted the online survey and led the data analysis. Five years on since BCtA was launched, it reviews progress made by BCtA members and the strategies they are adopting. The report covers BCtA members’ 94 initiatives and draws heavily on surveys and interviews conducted with 49 initiatives during mid-2014. Join our discussion on social media using #BCtABreakingThrough
Tomohiro Nagasaki is the impact measurement consultant at BCtA and Lara Sinha is the manager of the Practitioner Hub for Inclusive Business.