Profitable Business Models and Market Creation in the Context of Deep Poverty: A

Strategic View
Author(s): Christian Seelos and Johanna Mair
Source: Academy of Management Perspectives, Vol. 21, No. 4 (Nov., 2007), pp. 49-63
Published by: Academy of Management
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 2007 Seelos and Mair 49

Profitable Business Models and Market Creation in

the Context of Deep Poverty: A Strategic View

by Christian Seelos and Johanna Mair

Executive Overview
The bottom of the pyramid (BOP) in the global distribution of income has been promoted as a significant
opportunity for companies to grow profitably. Under the BOP approach, poor people are identified as
potential customers who can be served if companies learn to fundamentally rethink their existing strategies
and business models. This involves acquiring and building new resources and capabilities and forging a
multitude of local partnerships. However, current BOP literature remains relatively silent about how to
actually implement such a step into the unknown. We use two BOP cases to illustrate a strategic framework
that reduces managerial complexity. In our view, existing capabilities and existing local BOP models can
be leveraged to build new markets that include the poor and generate sufficient financial returns for
companies to justify investments.

The literature on what is termed the "bottom of to partner with multiple constituencies that often
the pyramid" (BOP), the vast, untapped mar have different strategic objectives. We believe that
ket of the world's poorest people, suggests that the complexities and potential costs involved in
multinational companies can both serve the poor these recommendations constitute severe hurdles to
and make profits. The BOP paradigm estimates a executive decision making and to realizing the fi
market potential of $13 trillion (Prahalad, 2004). nancial returns that would justify investments.
However, the fact that billions of poor people are In this article, we set out to develop a strategic
still waiting to be served while companies con perspective that is complementary to current rec
stantly look out for new profit opportunities brings ommendations for doing business at the BOP. We
to mind the story about the 20-dollar bill suppos propose a strategic framework that scales down
edly lying on the street, to which an economist many of the hurdles of implementing BOP mod
famously replied that this could not be because els. We present two examples that show how
someone would have already picked it up. If the business models can be structured across partner
BOP proposition is right, why then is the profit organizations and how those organizations suc
opportunity not picked up by companies on a large ceed in creating a symbiosis of significant eco
scale?
nomic returns and important social development
Recent research on BOP models has empha objectives. These cases demonstrate how compa
sized the need for multinationals to radically nies can leverage their existing corporate capabil
change their approach and to fundamentally re ities to provide scale to proven and already exist
think every step in their supply chains. Companies ing organizations at the BOP and how this can be
are advised to build new resources and capabilities, a platform for building commercial enterprises
to implement multiple strategies concurrently, and that create necessary financial returns. Our anal
ysis is grounded in and reflects important insights
We thank the associate editor and two anonymous reviewers for the
very constructive review process, which has greatly contributed to an from the strategy literature, in particular the re
improved version of the manuscript. source-based view (RBV) and the literature on
* Christian Seelos ([email protected]) is an Adjunct Professor, IESE Business School, Barcelona, Spain.
Johanna Mair ([email protected]) is an Associate Professor, IESE Business School, Barcelona, Spain.

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 50 Academy of Management Perspectives November

Strategie alliances. The unique context of these further emphasized the "doing good and doing
business models?characterized by deep and wide well" character of market entry in countries
spread poverty?expands our understanding of marked by deep poverty. For them, turning the
how strategic factors can be configured to create poor into consumers not only provided an effec
value. It also provides new impetus for research as tive way to fight poverty but also provided profit
well as for executive decision making to improve opportunities for MNCs through operational effi
the lives of the poor and reward companies with ciencies of size and scale. Low-income households
the financial returns necessary to justify investments. collectively constitute a very large and attractive
market, and, by framing the BOP as a business
Opportunities and Challenges at the BOP opportunity not as a philanthropic effort, this
Two questions lie at the heart of evaluating the stream of literature has offered a persuasive reason
attractiveness of doing business in underdevel for doing business in developing countries and has
oped markets: first, why and whether to do it; created the necessary incentives for action.
and second, how to do it. Undoubtedly, the original BOP literature has
Originating from a joint effort of companies helped to change perceptions about poverty. By
and academics to address these questions, a num viewing the poor as customers and not merely as
ber of articles and studies have established the recipients of charity the BOP approach has con
case for companies' serving the billions of poor tributed to shifting stifling paradigms about pov
people in developing countries. erty. Case studies used to illustrate doing business
A first set of papers, building on a research at the BOP have demonstrated that the poor are
tradition in marketing, addressed the dilemma of "willing" to consume (London & Hart, 2004; Pra
multinational corporations (MNCs) facing satu halad, 2004)* However, in contrast to developed
rated markets at home and continuous quests for markets where companies are concerned about
growth. This line of investigation suggested that the willingness of consumers to pay for products
MNCs need to overcome their imperialist mindset and services, the challenge in markets at the BOP
and consider less developed countries as potential is that customers are willing but often not able to
markets (Arnold & Quelch, 1998; Prahalad & pay. Income constraints severely limit their ability
Lieberthal, 1998). Applying the income pyramid to pay and therefore create major challenges for
as a tool to segment markets, these papers empha companies in designing products and managing
sized the untapped potential of middle-class mar costs. According to Prahalad, the unique social,
kets with income levels up to $5,000 per year in cultural, and institutional characteristics of the
more affluent countries. BOP markets imply that traditional products, ser
Only a few years later, OK. Prahalad and Stu vices, and management processes will not work
art Hart recognized that the fortune at the middle and that MNCs need to strive for new levels of
part of the pyramid might have been oversold and efficiency by radically rethinking the whole supply
proposed that MNCs should envision market en chain (Prahalad, 2004). Very recently, this mar
try at the very bottom of the income pyramid. In keting-oriented perspective on the BOP has en
a seminal paper they redefined the target group at countered criticism for viewing poor people as
the BOP in terms of incomes of less than $1,500 consumers only. Aneel Karnani, for example, ar
per year (Prahalad & Hart, 2002). MNCs were gued that any effort to alleviate poverty needs to
thought to be best positioned to face the particular consider the poor as producers and companies
challenges of selling to the poor and at the same should therefore revise their supply chains and
time fighting poverty. Because they can draw from emphasize buying from them instead of selling to
a global resource base and superior technology, them (Karnani, 2007).
MNCs are able to address local customer needs While the first articles and studies on BOP put
and develop those markets, thus stimulating eco forward strong arguments for whether and why
nomic development in poor countries (Prahalad MNCs should enter low-income markets, they
& Hart, 2002). Prahalad and Hammond (2002) remained relatively silent on how to enter. Sub

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 2007_Seelos and Mair_5[

sequent studies complemented the explicit mar all BOP markets, thus limiting the ability to le
keting view with a more strategic view on doing verage existing models.
business at the BOP. Building on insights from However, existing research does not provide
various literature streams, these studies emphasize insights into how all these ingredients, capabili
the need to develop new capabilities and new ties, resources, and partners should be managed
business models as well as the importance of part and assembled within a given context in order to
nerships. Refer to Table 1 for a summary of the create value. Furthermore, "selling to the poor"
recommendations derived from this body of re does not eliminate the income constraint as a
search on how to enhance value creation and major hurdle to social and economic development
reduce costs of market entry at the BOP. and the creation of more mature markets.

London and Hart (2004, p. 376), for example,

claimed that "successful pursuit of low-income Insights From the Strategy Literature
markets requires MNCs to fundamentally rethink Strategy is concerned with explaining how
their business models." Referring to the multifac above-average performance can be achieved
eted nature of these markets, they highlighted the and sustained (Barney, 1995; Rumelt, Schen
need for distinct strategies for lower and higher del, & Teece, 1991). Company performance is
income segments. These strategies require MNCs measured by financial metrics, and this is no dif
not only to rethink their resource and activity ferent in BOP markets. Indeed, from the very
configurations but also to develop and acquire beginning, the argument for BOP was to find new
new resources and capabilities and forge a multi untapped market space that satisfied the needs for
tude of relationships and alliances with local non corporations to grow profitably. Several promi
traditional BOP partners. Hart and Sharma nent BOP authors, however, argue that traditional
(2004) echoed this call for the development of views of economic development and business
radically new capabilities and proposed the use of strategy may not be applicable at the BOP (Lon
laboratories to bring about new business models don & Hart, 2004). Our perspective in this article
that account for the concerns of fringe stakehold is based on the belief that fundamental insights
ers, i.e., local customers and activist groups. from business strategy do apply at the BOP and
An important implication of this work is that can inform managerial decisions as well as high
successful models need to be developed anew for light potential hurdles and challenges. Further

Tablet
Challenges and Hurdles to BOP Recommendations Derived From the Strategy Literature

Ability to Cre?te Value Mulfiple strategiesdNned at Aff?rant HKome luck of focus ami spreading resources too thin; inadequate capabilities.

Need for new resources and capabilities. Value known only in their existing use; value in new uses, particularly
in BOP environments, unclear.

Local access of resources/capabilities. Resource scarcity and lack of factor markets.

Fundamental rethinking of business models and supply chains. Causal ambiguity of finding the right configuration; difficulty of

combining many individual factors into a complex business model.

Multiple partnerships. Alliances tend to fail; potential for conflict may limit effectiveness and

efficiency.

^^__Selling to the poor._ &eates a focus on cost cutting because income levels are not increased.

Costs Need for new resources and capabilities. May take too long to be practical; cost-benefit assessment in new uses
difficult.

Local access of resources/capabilities. Unclear what information is available to value them correctly and why

they would create profits.

Governance costs.
Multiple partnerships._

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 52_Academy ot Management Perspectives_November

more, the strategic insights derived from case studies kets. Even if they are accessible, the value of such
at the BOP enrich and expand our understanding of resources for use in new ways and unusual contexts
business strategy in various contexts. is not known ex ante and can be accurately as
The resource-based view is considered the domi sessed only where they are currently employed
nant strategy perspective explaining firm-level fi (Denrell, Fang, & Winter, 2003), Building new
nancial performance. According to the RBV, firms resources and capabilities, as has been suggested
achieve above-average performance (a) through the by BOP research, is challenged by time compres
acquisition of resources at a cost below their poten sion diseconomies (Dierickx & Cool, 1989),
tial to create financial returns and (b) by deploying which push the point of expected value creation
and configuring resources into capabilities that cre further into the future. From an investment per
ate higher than average benefits for customers and spective, these insights make resource allocation
allow owners to capture part of that value decisions difficult. Uncertainty in accurately val
(Makadok, 2001; Sirmon, Hitt, & Ireland, 2007). uing resources translates into higher discount
Much of the conceptual work of the RBV is rates. The delayed future cash flows from building
grounded in a competitive environment embedded new resources and capabilities must be discounted
in existing and mature markets. In countries with for longer time periods. This translates into po
large-scale poverty, the environment is very differ tentially low net present values of BOP business
ent. Resources from capital markets, product mar models.
kets, and labor markets are scarce and tend to be An important constraint to the managerial rel
concentrated in the hands of a few large organiza evance of the RBV is that we know little about
tions (Khanna & Palepu, 1997). Often institutions how to configure resources to realize their poten
supporting market exchange, such as property rights tial to create value in different types of context
or specialist intermediaries, are weak or absent (Priem & Butler, 2001). In a new paper, Sirmon
(Peng, 2003). As a result the natural arenas in which and colleagues (2007) put forward a framework for
entrepreneurs and companies compete to best serve thinking about how to use and create value from
people's needs?i.e. "markets"?are either poorly de resources. The authors pointed out that this pro
veloped or do not exist. As North pointed out: cess needs to be understood, particularly in less
"Third World countries are poor because the insti munificent environments where resource scarcity
tutional constraints define a set of payoffs to politi may prolong the effects of poor resource man
cal/economic activity that do not encourage produc agement choices. Nontraditional and uncertain
tive activity" (North, 1990, p. 110). Weak environments increase the difficulties in under
institutional arrangements and the absence of many standing cause-and-effect relationships and in rec
important products and services in poor countries ognizing appropriate capability configurations as
often require companies to build whole new markets well as predicting their value-creation potential in
rather than entering and competing in existing ones. new uses (Reed & DeFillippi, 1990; Sirmon et al.,
In this paper, we refer to the term BOP as countries 2007). This highlights the significant risk of get
where the majority of the population is extremely ting it wrong when building business models based
poor as measured by income levels, but where doing on new capability configurations at the BOP and
business may also leverage an opportunity to serve challenges the legitimacy of experimentation in
people at multiple income levels concurrently. such resource-constrained environments.

Accessing and Configuring Resources Into Leveraging Existing Resources and

New Capabilities Capabilities
Resource scarcity at the BOP makes it difficult if Previous research has advised companies from
not impossible to acquire relevant and valu developed economies that enter countries at
able resources. Many important strategic re early stages of economic development to ex
sources may not be available or tradable in mar ploit the skills developed in their home markets

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 2007_Seelos and Moir_53

(Wright, Filatotchev, Hoskisson, & Peng, 2005). Figure 1

This can be achieved through replicating or rede Strategies and Organizational Structures off BOP
ploying capabilities, which are both vital strate Business Models
gies in putting mature capabilities to new uses
(Helfat & Peteraf, 2003; Winter & Szulanski,
2001). Replication leverages core capabilities to
deliver products or services in new geographies.
Redeployment transfers a capability to a new mar
ket for a related product or service that does not
necessarily involve a new geographic location.
Strategic moves involving replication and rede
ployment may thus be valuable in overcoming the
constraints of local resource scarcity and the un
certainty about the value of fundamentally new
hurdles highlighted in the strategy literature as
capability configurations at the BOP.
they relate to current strategic recommendations

Strategic Alliances from BOP research. We have separated the argu

ments into two aspects: ability to create value and
Because of resource scarcity and the fact that costs.
resources and capabilities developed in competi
tive markets may not be adequate for a context of
How to Serve the Poor Profitably
deep poverty, recent BOP research has empha
sized the need for partnerships (London & Hart, We present two case studies that highlight how
2004). The literature on international strategic the challenges and hurdles of BOP models (as
identified in Table 1) can be overcome and how
alliances highlights a substantial failure rate of
partnerships and a lack of knowledge about suc markets for new products and services can be
cess factors for partner selection (Hitt, Dacin, created at the BOP.1 For the analysis of the cases
we refer to the term business model as a set of
Levitas, Arregle, & Borza, 2000). Das and Teng
(2001) developed a useful framework for analyzing capabilities that is configured to enable value cre
ation consistent with either economic or social
strategic alliances. In their view, alliance perfor
mance is dependent on mechanisms to lower un strategic objectives. We look at business models
certainty around partner intentions and partner from two organizational perspectives: (a) models
abilities, and on mechanisms to control for part that already exist at the BOP at the level of a
ner behavior thus limiting the probability of un single organization, and (b) models that are struc
desired outcomes. This highlights the need to find tured by configuring the capabilities of two part
ways to build and maintain trust in partner good ner organizations into an alliance that is able to
will and competence. The nonaligned private achieve several strategic objectives concurrently.
benefits of partners and differences in their com Figure 1 shows the alliances of two commercial
petencies and organizational characteristics in companies (Telenor and Map Agro) whose over
cluding culture, norms, policies, and processes cre all strategic objective is to maximize economic
ate the potential for conflict. The challenge lies in returns from providing commercial products and
managing the complexities involved in multiple services, and two existing local BOP business
partnerships that seem required at the BOP. The
models (Grameen Bank and Waste Concern)
governance costs involved may be significant and whose strategic objectives include maximizing job
difficult to justify because putting a financial value creation and creating a clean environment
on the resources and capabilities that partners
1 Our perspective on BOP models is based on extensive field work.
provide may be difficult if not impossible (Dyer &
Over several years we have examined activities at the BOP from the
Singh, 1998). perspective of local organizations with primarily social objectives as well as

Table 1 summarizes the main challenges and MNCs and local companies.

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 54_Academy of Management Perspectives_November

(Waste Concern). Telenor and Grameen Bank Figure 2

(Case 1) as well as Map Agro and Waste Concern Financial Performance and Numbers of Mobile
(Case 2) collaborate around a clear interface in
the form of a core input into a local BOP model, 700 i-P 12.0
Subscriptions for GrameenPhone

I500} yl I f^
^H Revenues ^MEBITDA ?*?Subscriptions
either from the supply side (Telenor) or by creat
e600! WL 110.0
ing demand (Map Agro).

Case 1 : Creation of a New Market by

I*400! I /1?
g 300 L H H^ ^H I
Supplying a Key Input to an Existing BOP
Model?Telenor and the Grameen Bank
S H I >/^H
? 2001 J J^M^H
^MU-?
^fl I
During the 1990s Telenor, the incumbent Nor
wegian telecommunications company, faced o J-^i_^H_i_^H_1_^H--t_^H-|.
2001 2002 2003 2004 2005 2006
00
the challenge of saturation in its home mar
ket. Tormod Hermansen, then CEO of Telenor,
Telenor and Grameen led to the formation of two
received a call from the Ambassador from Ban
separate organizations (Malaviya, Singhal, &
gladesh asking him to consider building a market
Svenkerud, 2004): GrameenPhone was operated
for mobile phones in that country. Could Ban
by experienced Telenor managers with a strategic
gladesh, a country known for its overpopulation,
objective to maximize financial returns; Grameen
extreme poverty, political instability, and corrup
Telecom was set up as the administrative interface
tion, be a platform for a new growth market?
to the existing Grameen Bank BOP model of
"Frankly, we did not know. We really had no clue
providing microfinance and running microenter
when we started off," said Ole Sjulstad, Telenor's
Senior Vice President for International Mobile prises to create jobs for millions of poor people in

Communications.2 Hermansen remembered: the more than 60,000 rural villages throughout
Bangladesh. GrameenTelecom had a very differ
I went to the University of Oslo and found the expert ent strategic objective than GrameenPhone?to
on Bangladesh's history, and he could tell us that it maximize the numbers of jobs created for the rural
was really politically very unstable with a heavy prob
poor?and a very different organizational culture
lem of corruption. But the nice thing was that we had
teamed up with the only partner that was clean3 in
and management structure.
any respect, namely Dr. Yunnus and the Grameen When it started out in 1997, GrameenPhone
Bank. And the reason why I dared to follow up on the was one of four companies to receive a license to
project?because that was something that very much operate a mobile network in Bangladesh. It be
concerned me personally?was because I had a short
came profitable in 2000, passed two million sub
meeting with Dr. Yunnus and found out we can do
scribers in late 2004 and passed 6 million in Feb
business together. But not only do business but also
by teaming up with Dr. Yunnus engage ourselves in
ruary of 2006. GrameenPhone is now one of the
development. largest private companies in Bangladesh and the
second-largest taxpayer, reflecting significant
The Grameen Bank, founded in 1976 by Pro
profit levels (see Figure 2). In 2006 it had a market
fessor Muhammad Yunnus, for which he was share of over 60% in a country of 150 million
awarded the 2006 Nobel Peace Prize, provided people. The still-low penetration rate signifies the
microfinance to millions of poor in most villages
potential for further growth. By 2006, Grameen
of Bangladesh and had set up a number of other Telecom had created more than 250,000 jobs for
enterprises to create economic opportunities for
microentrepreneurs it calls "village phone ladies"
the poor. In 1997, the joint venture between (see Figure 3). Dr. Yunnus explained how poor
rural women quickly learned how to operate a
2 All quotes in cases 1 and 2 are from personal interviews by the
authors; case 1 includes quotes from recorded material available from the
mobile phone and generate income from it: "To
authors. her this is just another cow. And if that brings
3 "Clean" in this context means not being involved in corruption. money, even the most illiterate person will learn

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 2007_Seelos and Mair_55

Figure 3 erything, she tried a few times, made a few mis

Numbers ef Subscribers* ef Grameen Telecom takes. Within a week she was ready for business."
Rural Village Services. Reflecting on the company perspective, Mr. Sjul
300,000 stad said, "We did not know if there actually was
a market for Telenor. Why should poor people
who stand in flood water and search for food care
about mobile phones? But people need to commu
nicate. It allows them to develop their own busi
nesses but also to develop and enrich their social
lives." Village phone services allow people to con
tact relatives abroad, facilitate repatriation pay
ments, save on costly and lengthy trips for admin
istrative and other purposes, and provide many
other advantages. This explains the economic
2001 2002 2003 2004 2005 2006 model, according to Masud Isa, CEO of Grameen
*Subscribers run small businesses providing phone services. Telecom: "The villagers save an eight-hour travel
day costing 800 taka4 to make a call and thus have
these 10 numbers [the keys of the mobile phone]
in 10 minutes-So she looked at it, and she 4 The exchange rate for the taka to US dollar on October 10, 2007, was

said, 'how do I make money?' We explained ev 1 taka equaled 0.0146628 USD. So 1,000 taka would be $14.66. Currency

Table 2
Grameen Bank Resources and Capabilities Leveraged by Telenor

Intangible Resources e Dr. Yunrnis' r?putation as a person of impeccable integrity. To protect Telenor's reputation it was critical to find the

right partner that would resist the corruption prevalent

in poor countries.

e Yunnus' prior success and social and business experience Important local knowledge reduced uncertainty and

building the Grameen Bank and other Grameen initiatives. search costs and enabled agreement on economic and

social objectives.

e High level of awareness for and trust in the brand The name GrameenPhone was crucial to get a license

"Grameen" by both poor and middle-income people. and for marketing. Building a new brand would have
been very costly. _

Tangible Resources The Norwegian Agency for Development (NORAD) had Ability to acquire a key asset relatively cheaply
already invested in a fiber-optic network for the internal significantly reduced the investment risk.

communication of the national railway system, which was

never used to its full capacity.

The rural development strategy opened access to funding e Development organizations bear some of the market
risk in return for efforts at social and economic
provided by the Asian Development Bank, the IFC, the

_Commonwealth Development Corporation, and NORAD. development; this towered Telenor's cost of capital.

Capabilities Special skills in accessing, communicating, and working with Opportunity for integrating a vastly untapped

the rural poor in more than 60,000 villages in Banglodesli. potential rural market into the overall business model;
already drives more than 10% of the revenues of
GrameenPhone.

e Deep expertise in setting up a successful microfinance Enabled selection of appropriate phone owners and

system, providing bans ami ensuring the accountability of efficient payment collection; microfinance enabled
individual members of the rural poor. poor people to convert future earnings into current

financial ability to buy phones instead of depending

on donations.

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 56_Academy of Management Perspectives_November

higher income. The phone lady creates income Figure 4

and pays back her loan to Grameen. Everyone Business Model of the Alliance between Telenor
profits." For the phone ladies the reward exceeds (GrameenPhone) and Grameen Bank
financial benefits, as Dr. Yunnus illustrated: "She (GrameenTelecom)
understands the business and each telephone
brings her a lot of money. The whole family is
excited about it. But not only money comes; she
has enormous prestige in the family. Even the
richest person in the village has to come to her to
make a phone call." GrameenTelecom is finan
cially self-sustainable and provides more than
10% of the revenues of GrameenPhone.
Table 2 lists some of the important resources
and capabilities that Telenor could access through
the collaboration with Grameen Bank. In a sense,
Telenor was able to preempt access to these scarce
resources, thus building strong hurdles for imita
tion by competitors. The other three private com
panies that received mobile licenses in Ban
gladesh at the same time as Telenor were less
try wide coverage a prime objective. This was con
successful and failed to build a dominating market
sidered an important driver of customer satisfac
share; the second-largest provider, AKTel, had
28% of the market in 2005. tion, increasing customers' willingness to pay.
Mobile communication services are considered This clearly separated the scope and tasks of the
partner organizations, according to Hermansen:
a powerful driver of development that goes hand "GrameenPhone and GrameenTelecom have a
in hand with increased incomes.5 Creating jobs
very neat form of collaboration. They [Grameen
for the rural poor and making existing businesses
Telecom] recruit the ladies, they organize the tele
more productive helps to build the size of the
phone shops, the debt collection, and buy dis
middle class, who are the main targets for counted air time in bulk. GrameenPhone extends
GrameenPhone over time. This constitutes a pos
the network, base station after base station, to
itive feedback loop for the alliance of Telenor and
increase the capacity to allow taking on new cus
the Grameen Bank. Hermansen, then CEO of
tomers." Figure 4 summarizes how resources and
Telenor, summarized: "In Bangladesh we could
capabilities are configured to achieve the strategic
really do something that was standing on these
goals for each alliance partner and thus for the
two legs: the development of the rural areas and at overall business model.
the same time pursuing a more, say, ordinary de
velopment of a commercial activity and a market
in the urban areas among the wealthier people and Case 2: Building a New Market by Creating
the business community." Demand for an Existing BOP Model?Map
The fact that GrameenTelecom aimed to serve Agro and Waste Concern
the rural areas in Bangladesh made building coun The setting for this case is again Bangladesh, and
it reflects the opportunity for existing local
businesses or local MNC subsidiaries to create
exchange provided by www.xe.com, accessed October 10, 2007, 11:20 a.m.
EST. new markets with the help of existing BOP mod
5 For example, see Africa: The impact of mobile phones, in the els. In Dhaka, the capital of Bangladesh, with a
Vodafone Policy Paper Series, Number 2, March 2005. The report can
population of more than 11 million, about 4,000
be downloaded from the following website: http://www.vodafone.com/
etc/medialib/attachments/cr_downloads.Par.97534.File.dat/SIM_Project_ tons of waste is produced daily. Two reinforcing
download_3.pdf paradigms have, until recently, prevented effec

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 2007_Seelos and Mair_57

tive waste treatment in Bangladesh, First, the pri his business partner, Sinha, accessing key re
vate sector failed to see how waste could be ex sources was a big challenge: "The single biggest
ploited for economic gain without significant obstacle for the model was availability of land in
investment and sophisticated technology. Second, the city for such facilities. Public-private-commu
the public sector believed that it had to deal with nity partnership and the concept of the four R's
the problem through centrally managed processes. [reduce, reuse, recycle, and recovery of waste] . . .
However, despite spending almost a quarter of its were absent in Bangladesh before our interven
total annual budget on waste removal, the Dhaka tion. To get started, we secured use rights for a
City Council (DCC) dealt with less than 40% of small piece of land inside Dhaka city owned by the
the waste. As a result, waste piled up in the streets Lions Club." Waste Concern's model integrated a
and in landfill sites, creating a huge number of community-based house-to-house collection sys
serious social and health threats, including many tem for waste, composting and ultimately market
diseases, insufferable odor, leakage of pollutants ing and selling the compost as fertilizer.
into water sources, methane gas emissions, and In the beginning Waste Concern sold its prod
"waste pickers" (who were usually women and uct to home gardeners and small organic farmers.
children) being exposed to toxic and otherwise However, a measurable elimination of the waste
hazardous substances. In early 1994, two entrepre problem required access to much larger markets in
neurs, Maqsood Sinha and Iftekhar Enayetullah, order to create a pull for building scale and cost
launched Waste Concern to deal with these issues efficiency. Waste Concern approached the largest
in a holistic manner. Enayetullah described the fertilizer company in Bangladesh, Map Agro.
concept behind Waste Concern: "Waste is a prob Sinha remembered: "Initially, Map Agro was not
lem for society for which the market offers no interested. But when we sent a basket of delicious
solution. It is therefore dealt with centrally by the apples produced with organic compost to Map
government, involving capital- and technology Agro's CEO, we finally got a 'trial contract' that
intensive processes. We thought that waste could guaranteed annual sales of 200 tons of compost."
actually be a resource that can be exploited for Strong demand from farmers led Map Agro to
economic gain in a decentralized manner that invest 2.5 million taka in a purpose-built enrich
does not involve significant investment or sophis ment factory and to start selling basic and nutri
ticated technology." The two entrepreneurs had a ent-enriched organic compost on a larger scale.
simple idea: leverage the high organic content of Current sales are about 10,000 tons per year, and
waste (mainly from food remains) to turn the this generates revenues of roughly 60 million taka.
waste into compost, and sell this as a valuable The final product was distributed throughout Ban
substitute for chemical fertilizers. Every year, four gladesh, leveraging the existing dealer network.
million tons of chemical fertilizers were being This new business model constitutes what Waste
produced in Bangladesh in response to the pres Concern calls an "urban/rural symbiosis"?food is
sure to feed a burgeoning population, most of transported to cities, and its remains constitute a
them living in poverty. Overuse of chemical fer large part of waste that is turned into compost and
tilizers had drastically lowered soil quality, but used again in rural agricultural businesses. In rec
farmers had no real alternative while a market for ognition of this success Waste Concern was se
organic fertilizer remained absent. No one, how lected as outstanding social entrepreneurs by the
ever, initially believed in the idea of turning waste Schwab Foundation for Social Entrepreneurship,
into compost. Enayetullah remembered: "In 1994, founded by Klaus Schwab, President and Founder
we tried hard to convince different government of the World Economic Forum.
agencies to initiate the project by offering free The financi?is for Map Agro are attractive. It
consultancy services, but they were all skeptical. buys compost at 2,500 taka per ton (each ton of
That's why in 1995 we took the alternative course compost is equivalent to four tons of processed
of setting up a demonstration of our model to waste, or 625 taka per ton of waste), and sells pure
convince different social groups." According to compost for 6,000 taka and enriched compost for

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 58_Academy of Management Perspectives_November

12,000 taka per ton (equivalent to 1,500 and Figure 6

3,000 taka per ton of waste, respectively). The Business Model of the Alliance between Map Agro
economic value created in this model compares and Waste Concern
favorably to the cost of roughly 2,000 taka per ton
of waste treated by the old DCC process (see
Figure 5). Already, the new organic fertilizer busi
ness constitutes about 25% of Map Agro's overall
revenues.

The new business model as shown in Figure 6,

extending from waste produced in urban areas to
selling compost to rural farmers, created a number
of new jobs for the poorest at the community level
and lowered their exposure to health threats. This
enabled Waste Concern to obtain important stra
tegic resources including funding and technical
expertise and support from international organi
zations for both the pilot phases and for scaling up
the numbers and capacities of its composting
plants. Waste Concern helped the government
deal with a seemingly insurmountable social prob
lem, and in return, the land for housing the com
post plants was donated by the government?an
was able to access resources and capabilities at a
important cost driver for the project. Enayetullah
cost that did not fully reflect their economic value
commented: "There are three major components
(see Table 3). Sinha explained:
to how we replicated the small-scale composting
sites. The technology and know-how is supplied It is very unlikely that the government would have
given land to a business. Land is very expensive, and
by Waste Concern. The funding comes from the
no one believed that composting would earn the
Bangladeshi government and UNICEF. The mar
opportunity cost of the land. But opportunity cost
keting of the final product comes from the private was lowered by eliminating pressure on the govern
sector." Through collaboration with Waste Con ment budget for waste handling, reduction of neces
cern, the private sector in the form of Map Agro sary landfill sites, and better satisfaction of house
holds with their living environment, which translates
into happier voters and improving the value of waste
Figure 5 free land.
Comparison off Economie Value Destroyed (Old
Recent developments have provided additional
Centralized Waste Management Process) and
funding to the business model. Under the clean
Created Through a New Private-Sector Value
Chain development mechanism (CDM), Waste Concern
has set up a new partnership with the Dutch
company World Wide Recycling BV (WWR) to
~mm'.- .?^.?-.. WTOBOTieift f : -..-' *
. vp?erHrutzsa? . ,-... Mk^nl '"" - ' -Ci&?MM?fa:
.. ^' ':..?ii?._ _ ,....j.. , ;*^HHH||^^HHn - - ij>""""">
jointly develop a landfill gas recovery site. They
developed a new methodology to calculate the
reduction of methane emissions by composting,
r ' ^?^?^-^M^fp>..^ : :;. ' i; : > %p: -: which was approved by the United Nations
fairlniMiir tuUutfcl - ' ^ JBBBPr^'i- .". ' . \ !**P ** ? .:. Framework Convention on Climate Change.
Enayetullah explains their new project, which also
. ' .^?1^ ::/-^* y : has the backing of two Dutch development banks:
"We will start processing 700 tons per day of
organic waste collected from different vegetable

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 2007_Seelos and Mair_59

markets of Dhaka city. Within two years time we evolution of the system does not hinge upon the
plan to market 50,000 tons of compost per day chance event that all necessary components
from this CDM-based composting project. This emerged simultaneously in the right combina
will be a new dimension in waste-related business tion."
where international banks and a private company The two cases presented in this paper indicate
came into a partnership with us and invested in an opportunity for companies to assemble existing
our project. An important point is that they are building blocks into a new overall business model
taking the role of a social business enterprise, not that is able to serve the poor, increase their in
carrying out a conventional CSR [corporate social comes, and create profits. We see this as an ex
responsibility] project." tension of traditional BOP thinking with its focus
on fundamental change of existing business mod
Discussion and Conclusions els and value chains as well as a constructive
reflection on the recent call for models that em
Denrell and colleagues (2003), drawing from
the work of Herbert Simon, made the follow phasize income generation opportunities for the
ing statement on the challenges for companies poor as basis for poverty alleviation efforts by
in recognizing market opportunities: "A complex companies (Karnani, 2007). Furthermore, we
system is unlikely to emerge if it requires that highlight a different BOP perspective where com
numerous elements are simultaneously combined. panies do not serve the poor directly but only
It is much more likely to emerge if it can be indirectly by employing company capabilities to
assembled via existing subsystems. In this case, the provide scale to an already existing BOP business

Table 3
Waste Concern Resources and Capabilities Leveraged by Map Agro

Intangible Resources Waste Concern managers have fine-tuned the supply side For Map Agro, uncertainty about economic potential was
business model over many years. removed, making business investment less risky.

Waste Concern was exposed to public scrutiny through There were incentives to be a predictable and reliable

membership in Schwab Foundation and funding by partner not engaged in corruption.

development organizations.

Company gained goodwill from the government for solving a This ensured license to operate and secured Ministry

huge social problem. approval for agricultural use of compost, which was

essential for Map Agro._

Tangible Resources Budgetary pressures on government for waste collection and Donated land for housing the composting plants

numbers of required landfill sites were relieved. removed a key financial obstacle.

The social value created in this project attracted funding and This lowered the total cost of financing and contributed

expertise from organizations including lions Club, UNDP, to Map Agra's ability to buy compost cheaply.

UNICEF, and the Canadian International Development

Agency.

Greenhouse gas emissions were reduced. Access to additional revenues as part of the Clean

Development Mechanism under the Kyoto protocol

enables buildup of scale and keeps product costs low.

Happy residents were exposed to less stench and waste and This increased the willingness to pay for collection
fewer health hazards, which increased the quality of life and services, making the compost supply chain financially

the real estate value of people's properties.

Capabilities Poor community workers were orchestrated into a waste The jobs created in this system drive commitment,

collection and sorting task force. efficiency, and scale, and are a very low-cost supply of
raw material (organic waste).

Process for decentralized composting was optimized. This extends possible range of short shelf-life compost

delivery thus expanding potential market size.

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 60_Academy of Management Perspectives_November

model Entrepreneurial organizations that have partners with different organizational characteris
created business models to serve the poor may tics and strategic objectives. Using the framework
encounter bottlenecks that limit their scale. Com of Das and Teng (2001) we show that in both
panies that employ their capabilities to remove cases conflict and the need to build goodwill trust
these bottlenecks enable BOP business models to is avoided because (a) alliance partners are man
better fulfill their strategic objectives* In ex aged totally independently based on their unique
change, companies may gain the necessary trust to processes, culture, and norms, and (b) the partners
get preferential access to the resources and capa explicitly go about maximizing their own private
bilities of these organizations at the BOP. Com benefits. Telenor gets revenues and additional po
panies can leverage this relationship to build their tential future consumers from the efforts of
own business models, serving higher income cus Grameen to build jobs, which helps achieve Tele
tomers with whom their capabilities are better nor's objective of maximizing financial returns.
aligned. Grameen can create more jobs when Telenor
We see this with Telenor, which replicated the builds up its business model quickly and is thus
capabilities of deploying mobile networks that it able to sustain provision of discounted connectiv
had already developed in several countries and ity to Grameen. The interface, mobile connec
provided the handsets and connectivity to give tions per minute against revenues, is easy to mea
scale to Grameen Bank's business model of creat sure and requires no sophisticated governance and
ing jobs for the rural poor. Similarly, Map Agro control structures to align partner interests. Com
provided an important demand-side factor that petence uncertainty is limited because the respec
was limiting Waste Concern's business model?it tive competencies can be observed ex ante and
created a new market for organic fertilizer by re the alliance structure allows Grameen and Tele
deploying its capabilities to market and sell to nor to continue doing what they do best. This is
farmers. also an important argument for donor support as
Organizations like Grameen Bank and Waste the outcome uncertainty of funding development
Concern are part of a phenomenon described as projects is limited. The same set of arguments
"social entrepreneurship" (Seelos & Mair, 2005). explains the efficiency and simplicity of the col
They overcome significant hurdles in order to laboration between Map Agro and Waste Con
serve the poor and build resources and capabilities cern. Waste Concern can employ more people to
to achieve primarily social objectives. These re clean up waste if Map Agro sells more organic
sources and capabilities are relevant to the local fertilizer. And the more Map Agro can afford to
BOP context and are often undervalued from an invest in compost enrichment capacities and build
economic perspective. It is the latter point that up sales channels, the larger the scale and the
makes them strategically important for companies more public benefits Waste Concern can provide
that may be considering building a presence in as this ensures the low cost of the compost. Our
those countries where such entrepreneurs operate. cases indicate that maximizing the separate pri
The Grameen brand, loans from development vate benefits of alliance partners can create a true
agencies, and existing microfinance capabilities symbiosis rather than a potential for conflict.
removed important financial hurdles and risk for The cases also demonstrate how several of the
Telenor. The compost that Map Agro buys from strategic challenges of BOP recommendations can
Waste Concern is subsidized through several be overcome. The need for companies to orches
mechanisms, including government-donated land, trate multiple strategies aimed at different income
funds provided by development organizations, and levels is avoided by having two separate organiza
revenues from the CDM, and thus has large eco tions operating the pro-poor business model and
nomic potential that translates into significant the higher income business model respectively.
financial returns for Map Agro. Providing scale to existing BOP models and lever
The cases also contribute to our understanding aging existing company capabilities avoids the
of how to structure effective alliances between dilemmas of having to access and configure mul

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 2007_Seelos and Mair_M

tiple new resources and capabilities into value recently started to engage with other companies in
creating models. Our framework focuses less on Bangladesh to diversify its "customer base" and
fundamentally rethinking company value chains create downstream competition in the value
and building business models from radically new chain. Waste Concern's strategic shift to mas
ingredients. Instead, in line with the view of Den sively increase its compost production, which is
rell et al. (2003) quoting Simon, as stated above, driven by a new agreement under the CDM, has
the cases suggest that combining large subsystems, also created the need for demand-side capacity
in this case viable existing BOP models and the beyond what Map Agro currently provides. This
mature capability sets of companies, is potentially points to an important success factor: that of pro
much more efficient and effective than putting actively understanding and coordinating around
together a large number of individual factors to the long-term strategies of alliance partners. Map
form a coherent whole. Agro could, for example, invest in enough capac
ity to provide a disincentive to the entry of com
Implications for Research petitors. Another strategic move could be trans
This study contributes to the evolving research forming the current arm's-length relationship
on how to manage resources and capabilities in with Waste Concern to a real value-added rela
various contexts (Sirmon et al., 2007). Fur tionship where joint activities and shared social
thermore, we show how resources and capabilities and economic objectives could build the trust and
can be configured across separate organizational benefits necessary to overcome the reservations
structures into an overall business model that Waste Concern might have over a monopoly pro
achieves the respective strategic objectives of the vider for its products. More research is necessary
partners involved. Understanding how value can to understand the long-term dynamics of the mod
be created from resources in new configurations els we have described in this paper.
should enable better informed decisions about re
source allocations.
The cases also contribute to a better under Implications for Practitioners
Economic success depends on the ability of man
standing of how to structure relationships between
agers to integrate resources into a business
"strange bedfellows" (London, Rondinelli, & model that creates more value than the cost of
O'Neill, 2005) and the potential limits and chal
the resources. Organizations with primarily social
lenges of such relationships. Dyer and Singh
strategic objectives can constitute a source for
(1998) pointed out the need for creating rela
economically undervalued resources and capabil
tional rents that are more than just arm's-length
ities. The cases show that providing scale to these
market relationships. Telenor and the Grameen
organizations creates more social value from their
Bank have invested in relationship-specific assets
resources and at the same time may enable com
by adopting the Grameen brand name and a joint
pany partners to leverage economic value. However,
equity stake in GrameenPhone. Today, Telenor is
the numbers of adequate partners with BOP business
still the preferred and exclusive partner supplying
models and their capacity and willingness to interact
mobile connectivity to Grameen. However, we
with multiple companies may be limited. Muham
provide only a snapshot in time because the busi
mad Yunnus, founder of the Grameen Bank, reflect
ness model is still evolving and will require further
ing on his search in the early 1990s for the right
research to understand areas of conflict that may
GrameenPhone partner company, said:
emerge with time. In fact, the Grameen Bank is
currently in a dispute with Telenor about the We went around, discussed with many companies?
existing equity structure that allows Telenor to American companies, Thai companies, Indian com
panies, Japanese companies. We were looking for
capture most of the economic value. In contrast,
somebody who will understand us. Because we knew
the alliance between Map Agro and Waste Con this was a business plus. If people come with only
cern has no attributes significantly different from business in mind they don't understand our language.
mere market relationships. Waste Concern has What was amazing with Telenor, it immediately

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62 Academy of Management Perspectives November

Table 4
Recommendations for Companies Evaluating BOP Strategies

Scan prospective countries or regions for Number and types of organizations may indicate Organizations such as Ashoka or the Schwab
organizations with business models able to crucial institutional and structural aspects of the Foundation that promote social entrepreneurship

serve the poor, particularly if the product or environment (e.g., homogeneity of culture or provide useful information; poverty reduction

service can be linked to achieving Millennium language); link to MDGs may indicate strategy papers (World Bank) may also help to
Development Goals (MDGs).6 opportunities for accessing development understand country development and funding

resources and funds._ priorities._

Understand the strategic objectives, culture, and Identify those who may be potential partners due to Social entrepreneurship is now taught in many

organizational structures of these attributes such as size, scope, or longevity; learn business schools; case study collections (e.g.,
organizations. to speak their language and respect their identity www.caseplace.org) are helpful; many

to overcome their potential lack of trust in organizations are present at the World Economic
corporate intentions. Forum at Davos or participate in various

conferences._

Build relationships with a number of Help to build up scale and scope; build mutual trust These organizations provide opportunities for hands

organizations as early as possible. in partner intentions and competencies. on training and employee-development
programs; they could constitute a portfolio of

small investments as options for building new

markets._

Identify important bottlenecks in your model Providing capacity to an existing model eliminates The business modeling technique used for the case

that prevent you from achieving strategic managerial complexity and provides for an easy studies in this paper is useful to understand

goals, and build your business model around interface between partners; the centrality of the resource configurations of partner organizations;

providing the constraining element. bottleneck element to the business models of both models ab help to identify bottlenecks and

partners aligns intentions and enables easy design the overall model across partner

performance measures._ organizations._

Start your business model design by thinking Existing capabilities allow foster time to market and Corporations create real benefits from their unique

about replicating your existing competencies eliminate complexity and uncertainty; they resources and capabilities because?by

to support building markets in foreign naturally fit higher-income customers to generate definition?this is what they do best; being clear

countries or redeploying competencies by revenues while efficiently eliminating the whether and which competencies allow you to act

existing country organizations to build new bottleneck in your partners' strategy. at the BOP is a healthy reality check and may

product markets. avoid experiments with limited chances for

Ensure that the business model supports an Increase in real income supports positive Try to include job creation explicitly as a positive

increase in the real income of people. development spirals that improve the ability of element and development driver in your business
the poor to make consumption choices and model design; work with organizations whose core

expand the customer base for companies. strategic objective is job creation._

Monitor the dynamics of the environment and/ Recognize and address emerging threats to the Corporate intelligence functions and gathering

or the development of the partner's overall sustainabilHy of the alliance; evaluate the feedback from diverse stakeholders may help

model and strategic objectives. possibility of building relationship-specific assets monitor relevant developments in the political,

or asset configurations; do not become a social, technical, and environmental environment;

bottleneck to your partner's future growth and share insights with your partners in joint strategy

clicked. They had tremendous respect for what we Adequate BOP partners may thus constitute
were saying and went along with us. Even the scarce resources, and identifying them early may
president of Telenor came to Bangladesh for the
enable companies to preempt market access and
opening ceremony. Because he had his heart at
this. reap first-mover advantages.
We also wish to highlight opportunities created
6 For a list of examples see Seelos, C, Ganly, K., & Mair, J. (2006). by the global efforts to reach the Millennium
Social entrepreneurs directly contribute to global development goals. In J.
Mair, J. Robinson, & K. Hockerts (Eds.), Social Entrepreneurship (pp.
Development Goals. More than $106 billion was
235-354). Hampshire, UK: Palgrave Macmillan. provided as official development assistance in 2005

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 2007_Seelos and Mair_63

to developing and least developed countries (United source-based view: Capability lifecycles. Strategic Man
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Nations, 2006). These funding mechanisms may
Hitt, M., Dacin, M., Levitas, E., Arregle, J. L, & Borza, A.
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thus constitute significant strategic resources to com market contexts: Resource-based and organizational
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Karnani, A. (2007). Fortune at the bottom of the pyramid:
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