Innovation at the bottom-of-the-pyramid: the case of India
Aditya Gurtu, MPhil Candidate, University of Cambridge
Roughly four billion people on the planet earn less than $8 per day. These people can be classified as making up the ‘Bottom-of-the-economic-Pyramid’ (BoP). The role of private sector businesses in engaging the BoP is a topic that has come under increasing debate within academia and industry over the past several years. Proponents of ‘BoP Theory’ claim that there are substantial profits to be made by businesses in this widely untapped BoP market; with a massive potential for doing social good at the same time.
In fact, a handful of major western corporations have already begun to invest significant resources in pursuing business opportunities at the BoP (eg Microsoft, IBM, Nokia, Unilever, etc). Many of these BoP projects are implemented in India, owing to its hundreds of millions of aspiring BoP members living in slums and remote rural locations.
This dissertation examines the emerging themes of for-profit companies engaging the BoP in India. In particular, the transfer of these innovations ‘up-the-pyramid’ (from the BoP into higher income markets) is examined.
After conducting eight case studies with companies who have innovated in order to engage the Indian BoP, 17 emerging themes were identified and new theories developed. Some of the key findings relate to – disruptive innovation at the BoP, trickle-up innovation strategies, wealth creation models for the BoP, practical corporate engagement and market segmentation of those in poverty, as well as patterns found linking the ease of innovation transfer with innovation type, proportion of female BoP employees, and corporate BoP experience.
These findings have significant practical implications for the strategies of companies seeking to rapidly transfer innovations ‘up-the-pyramid’, suggesting that firms would be wise to remain cautious about rushing into such BoP engagement. Evidence found suggests a more gradual, long-term innovation transfer strategy is required for success. The findings also have significant theoretical implications – doubting the fundamental proposition of ‘BoP Theory’ that for-profit businesses can fight poverty through profits. Evidence suggests this proposition requires refinement to clarify its applicability only to the $8 to $2/day BoP segment where the real ‘fortune at the bottom-of-the-pyramid’ lies.
The application of econometric methods in microfinance and health-related topics
Thilo Klein, PhD Candidate, University of Cambridge
Why India’s Urban Poor Choose to Go Private: Health Policy Simulations in Slums of Hyderabad
It is well known that in many developing countries even the abjectly poor show marked preferences for privately provided health services compared to public offerings. This is so even though the private health sector is more expensive and generally employs less qualified professionals, who are demonstrably more responsive to patients’ perceived rather than actual medical needs.
Thilo Klein’s MPhil dissertation is based on data for maternity services which he collected in the slums of Hyderabad. The empirical analysis provides evidence that the risk of possibly having to buy drugs on the expensive private spot market, if they are not available publicly, is a significant factor. The empirically inferred higher risk aversion of the poor leads to a higher propensity to avoid this risk by buying a private package up-front. The dissertation also offers a simulation, based on empirically inferred willingness to pay, to illustrate how the public packages need to be changed to make them attractive to the poorer population.
Visit Thilo Klein’s website to find out more