Beyond the base of the pyramid

by October 7, 2010

Kibera slum, Nairobi, Kenya: population ~1 million (Photo: Reuters)

There is by now an extensive and growing literature about how to do business profitably at “the base of the pyramid” — which is to say, among low-income consumers in developing markets. But a new article published in California Management Review (and available here for free as a late-stage draft) argues that a major segment of this market is different enough to be considered on its own, and to have its own rules for business success.

Jamie Anderson (TiasNimbas Business School, The Netherlands), Costas Markides (London Business School), and Martin Kupp (European School of Management and Technology, Berlin) write that three areas in particular make up this new segment: conflict zones, urban slums (in which live an estimated 1.1 billion people worldwide), and deep rural areas. In such places, security is weak, the rule of law is tenuous, and basic infrastructure non-existant. After two years of study and numerous interviews with businesses that have succeeded in such environments, the researchers concluded that effective practices include promoting local entrepreneurship, engaging and learning about the community through social responsibility initiatives, and working with “unorthodox” local partners:

Consider, for example, Vodafone Essar in India. The company operated in Mumbai’s Dharavi slum, one of the most populous shantytowns in the world, where it developed a micro-franchising model similar to what other companies in [base of the pyramid] markets did. The company began employing trade marketers from the local community who then set about identifying individuals who were already conducting commerce within the alleys of slum districts. In the words of Vodafone Essar’s Mumbai Managing Director Naveen Chopra: “The people we work with know the slum. They might be tailors or fancy good shop owners or outlets selling day-to-day consumables. We cannot simply walk into the slum as Vodafone and start doing business given the local intricacies. But these local business people already run a business in this market, and we trust their wisdom.”