1. Shuan SadreGhazi United Nations University-MERIT ghazi@merit.unu.edu Serving Low-income Markets: Re-thinking Multinational Corporations' Strategies Globelics PhD Academy, University of Tampere, Finland June 2008

2. 2 Corporate approach to Development Role of private sector in development Role of private sector in development Multinational Corporations (MNCs) ‏Multinational Corporations (MNCs) ‏ Philanthropic / Charity Philanthropic / Charity Corporate Social Responsibility (CSR) ‏ Corporate Social Responsibility (CSR) ‏ Market-based approach Market-based approach Serving low-income communitiesServing low-income communities Win- Win (?) ‏Win- Win (?) ‏

3. 3 Base of the Pyramid (BOP) debate Population (millions) ‏ Annual disposable income (Purchasing power parity $) ‏ <$1,500 $1,500 – 10,000 > $10,000 Advanced markets Emerging Markets Developing markets 500 1,500 4,000 Underserved markets (Hart and Milstein, 1999, Prahalad and Hammond, 2002; Hart and Christensen, 2002; Prahalad and Hart, 2002; ) Corporate approach to development (cont.)‏

4. 4 Challenges of low-income markets Purchasing Power Purchasing Power Fluctuating incomeFluctuating income Access to creditAccess to credit Infrastructure Infrastructure PhysicalPhysical LogisticsLogistics Education/SkillEducation/Skill Diversity Diversity locationslocations CultureCulture Institutions Institutions Different institutional structureDifferent institutional structure Weak legal enforcementWeak legal enforcement Intellectual property issuesIntellectual property issues

5. 5 Potential role of Multinational Corporations Resources. Resources. Handle resource- and management- intensive task of building a complex. Handle resource- and management- intensive task of building a complex infrastructure. Leveraging. Leveraging. knowransfer from one market to another and the solutions. knowledge transfer from one market to another and scale-up the solutions. Bridging. Bridging. Potential to act as catalysts forPotential to act as catalysts for cooperation NGOs, communities, local governments, entrepreneurs, and multilateral organizationis NGOs, communities, local governments, entrepreneurs, and multilateral organizationis Bringing development to underserved communities. Bringing development to underserved communities. (Prahalad, 2005; Hart, 2005; UNDP, 2007) ‏ Multi-sector partnership Microfinance etc Governmental Organizations Private sector NGOs Civil society

6. 6 Received literature Business & Management Literature Business & Management Literature Focused on developed marketsFocused on developed markets Limited Generalizability (Busenitz et al., 2000).Limited Generalizability (Busenitz et al., 2000).(Busenitz et al., 2000(Busenitz et al., 2000 Emerging Markets’ literature Emerging Markets’ literature Pre-occupied with strategies to overcome the lack of a Western-style business environment (Peng, 2001).Pre-occupied with strategies to overcome the lack of a Western-style business environment (Peng, 2001).Peng, 2001Peng, 2001 Targeting higher income customersTargeting higher income customers the vast majority of the people are on the outside looking in (de Soto,2000)the vast majority of the people are on the outside looking in (de Soto,2000) Appropriate Technology Appropriate Technology Technology-centricTechnology-centric Scalability – diffusion ?Scalability – diffusion ?

7. 7 Research approach Qualitative Qualitative Secondary dataSecondary data Case studies, reports, etc Case studies, reports, etc semi-structured interviewssemi-structured interviews MNCs’ managers, NGOs, Multilateral Organizations MNCs’ managers, NGOs, Multilateral Organizations Quantitative Quantitative SurveySurvey Managers involved with projects for low-income markets

8. 8 Theoretical framework Finance Partner network Value proposition Revenue streams Core Capabilities Cost Structure Distribution Channel Customer Relationship Target Customer Value Configuration INFRASTRUCTURE OFFER CUSTOMER Source: Chesbrough, H. and Rosenbloom, R.(2002) The Role of the Business Model in Capturing Value “The value a company offers to customers, and the network of partners for creating, marketing, and delivering this value” (Govindarajan and Gupta, 2001) Business Model

9. 9 Partnership with civil communities, NGOs Using local production capacity Modular design Developing scalable solutions User-innovation Diversity Local immersion local research lab local entrepreneursInstitutional Customer education viral marketing Creating dedicated distribution network adapting to existing means of transport Robust production to work in hostile environments Acknowledge endogenous solutions proper user interface Infrastructure combining financial services with the product collective payment option Small packages/sachets Increased use of labor Focus on functionality price/performance Purchasing power Distribution/PromotionProductionR&D Effect of low-income markets’ characteristic on MNC's strategies Partner with local producers

10. 10 Initial remarks Specific characteristics of low-income markets increasingly challenge the existing practices of multinational corporations Specific characteristics of low-income markets increasingly challenge the existing practices of multinational corporations A long road ahead to eventually reach the goal of mutual benefit. A long road ahead to eventually reach the goal of mutual benefit. Adapting to new business modelsAdapting to new business models Learn to create new partnerships and networksLearn to create new partnerships and networks Social embeddednessSocial embeddedness Co-creation of valueCo-creation of value Benefiting from and empowering local innovation systems Benefiting from and empowering local innovation systems

11. 11 Q & A Thank You! Thank You!

12. 12 Base of the Pyramid (BoP) debate Base of the Pyramid (BoP) debate Challenges of low-income markets Challenges of low-income markets Potential role of Multinational Corporations Potential role of Multinational Corporations Theoretical background Theoretical background Research method Research method Theoretical framework Theoretical framework Concluding remarks Concluding remarks