Eugenia Rosca

Eugenia Rosca is a researcher and lecturer at the Department of Management, School of Economics and Management, Tilburg University, the Netherlands. Her research interests revolve around social responsibility in operations, integration of low-income consumers in value chains, in particular last-mile distribution, and circular economy solutions developed by SMEs for Base of the Pyramid. 

What about the beneficiaries? Highlights from a survey of Base of the Pyramid enterprises

30. May 2017

In order to evaluate whether existing service offerings satisfy the requirements of Base of the pyramid (BOP) enterprises it is essential to understand the landscape both from the supply and demand perspective. When talking about providers of technical assistance for BOP enterprises, there are many studies available evaluating the supply side, namely inclusive business landscape in terms of service offerings (e.g. providers, beneficiaries, type of services). The demand side in terms of needs, requirements and challenges faced by enterprises operating in BOP markets is less explored. 

Between August and November 2016 a large-scale survey of micro, small and medium sized enterprises operating in BOP markets was conducted. The aim of the study was to explore how small enterprises operate in BOP markets, namely how they design their business models and value chains in order to combine social/ecological with economic objectives. As part of the study, we selected and contacted enterprises listed on SEED Awards, Ashden Awards, Sankalp Forum, IBA Ventures, BCtA, VC4A and other online platforms for inclusive business. Entrepreneurs, founders and employees from the enterprises were asked to fill in an extensive online questionnaire. We reached out to more than 1000 enterprises, heard back from around 175 and after removing incomplete and low quality items, we used a total of 144 questionnaires for the final analysis.

About the enterprises surveyed

  • Geographical area: strong focus on Africa (41%) and Asia (34%).
  • Industries and sectors: basic needs services such as food, energy, housing and water / sanitation (60%) and essential services such as transportation, healthcare, finance and education (26%).
  • Type of enterprises: mostly free-standing enterprises (72%).
  • Size, in number of employees: micro with less than 10 employees (38%) and small enterprises with less than 25 employees (25%).
  • Age, in years since first business transaction: less than 5 years (56%) and less than 10 years (26%).

Characteristics of BOP enterprises

Enterprises operating in BOP markets are driven by a given problem in local communities, entail very strong social orientation formally embedded in the enterprise’s key policy documents and mainly driven by the founders. For 97% of the enterprises the founder and his initial vision still have a very important role in shaping the strategic direction of the company.

Challenges for BOP enterprises

  • Top 3 external challenges: lack of consumer buying power, high costs of doing business and poor infrastructure.
  • Top 3 internal challenges: insufficient internal resources and finance, high risks, low return on investment.
  • Achieving economic self-sufficiency: while the actual figures of return on investment are very low, future prospects and customer satisfaction are very high.
  • Balancing social with economic goals: while social orientation has remained constant from the early stages of venture development up to current stage (only 8% have rated a significant decrease in social orientation), economic orientation has significantly gained importance for 30% of the enterprises in our sample.

Partnerships

  • Cross-sector actors: most BOP enterprises work closely with NGOs (36%) and local community associations (30%). Collaboration with these partners occurs mainly for the following purposes: consumer awareness, education and training provision, new product/service introduction to the marker and product/service innovation. Community associations seem to be key partners for enterprises providing training and education services to rural consumers, while knowledge institutions are key partners for ventures commercializing energy solutions to urban BOP consumers.
  • Local BOP actors: BOP actors are engaged mostly for promotional activities, product/service innovation and product and service provision. Findings from advanced statistical analysis provide solid evidence that education and empowerment-driven inclusion of local BOP actors is key for BOP enterprises achieving economic, social and ecological impact.
  • Multinational Corporations (MNC): only 24% of BOP enterprises collaborate closely with MNC in order to gain financial capital, market insights, increased scalability and capabilities for strategic business development. Most of these enterprises (70%) are either during scaling stage or already mature companies. Collaboration with MNC is stronger in particular for enterprises commercializing energy solutions to rural BOP consumers.

Social and ecological impact

  • Impact measurement: 56% of surveyed enterprises employ systematic impact measurement approaches including standard metrics from internally recognized bodies (B Impact Assessment, GOOGLA, IRIS, GINI), independently set-up indicators, annual reports, impact analyses, surveys and feedback groups.
  • Social impact: BOP enterprises show superior impact across the following dimensions – overall skills level and local entrepreneurship, employment and livable wages, availability of primary life necessities. We found limited evidence that social impact positively affects economic performance.
  • Ecological impact: BOP enterprises show lower impact for ecological aspects, with the exception of energy use within the value chain and renewable energy sources. As expected, enterprises in the energy sector show superior ecological performance. Interesting enough, enterprises providing training and education services to rural BOP consumer also show superior ecological performance (beside superior social and economic performance).

Implications for practitioners

The study entails important implications especially for intermediary organizations providing advisory services and technical assistance to BOP enterprises. It shows that BOP enterprises across sectors face different challenges depending on the development stage, need different partners depending on sector and models adopted (supplier-based or consumer based models, beneficiaries targeted), have different sustainability orientations and present different performance outcomes.

In this sense, organizations providing technical assistance should customize their services for BOP enterprises specific sectors and at different stages of development. While in the early stages, BOP enterprises need guidance and support on how to match the social issues they want to address with an existing market opportunity, how to design a value proposition which is meaningful for both  customers and consumers and incorporates social and ecological aspects which are locally relevant. Later on, BOP enterprises need to find partners which can provide them with necessary knowledge, skills, capabilities and resources to replicate and scale their operations. For this purpose, intermediaries can provide support on how to find the right partners relevant for the enterprise.

Moreover, since we found solid evidence that integrating education and knowledge-related services for BOP consumers positively impacts economic, social and ecological impact, intermediaries can support BOP enterprises to integrate education, training and capacity building services as part of the core operations. Intermediaries can also diversify their service portfolios with offerings related to balancing economic, social and ecological goals in the long run and synergies development between economic, social and ecological performance outcomes.

 I would like to show my sincere appreciation for everyone who contributed to this research – all the experts who shared their experiences and valuable insights during the expert interviews series and 175+ entrepreneurs, directors, managers and employees of BOP enterprises from all around the world who filled in the online questionnaire.

This blog is a part of the June 2017 series on advisory support for inclusive businesses in partnership with USAID and the African Agricultural Fund’s Technical Assistance Facility, both of which deliver advisory support and have new analysis of it just launched (AAF’s TAF) and forthcoming (USAID).

Read the full series for more lessons from seven different providers of advisory support and stories of success from entrepreneurs.