The Base of the Pyramid from the point of view of Euskadi

fourth sector Pablo Sรกnchez, Fernando Casado, Jordi Vives y Juliana Mutis

Executive Summary The Base of the Pyramid from the point of view of Euskadi

Published by:

Innobasque - 2011

Basque Innovation Agency

Bizkaia Technology Park

Laida Bidea 203, 48170 Zamudio

The contents of this book, in its current edition, will be published under the Creative

Commons licence: Attribution–Non-Commercial–No Derivative Works 3.0 Spain

(further information at: http://creativecommons.org/licenses/by-nc-nd/3.0/deed.es_CO)

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Executive Summary

The Base of the Pyramid from the point of view of Euskadi

fourth sector

EXECUTIVE SUMMARY

The report entitled The Base of the Pyramid from the point of view of Euskadi endeavours to launch a process of reflection and debate in the Basque Country on its innovation potential for developing inclusive businesses at the Base of the Pyramid (BoP). Identification is therefore made of a series of sectors and countries in which greater potential has been detected for carrying out business initiatives falling within Innobasque’s Base of the Pyramid programme. Further, the report revises base of the pyramid and inclusive business evolution and concepts in order to establish a common framework of action on the parameters characterising inclusive businesses at the BoP. The base of the pyramid and inclusive businesses concept

The Base of the Pyramid (BoP) concept has evolved significantly since its creation, and poor communities have shaken off their initial perception to become considered as the beneficiaries of public funds from cooperation and official development aid, as consumers following the first BoP proposals in their initial formula and as producers in the shape of active agents on the value chain, until finally offering themselves as strategic allies with priority emphasis on the eradication of poverty.

With it, evolution of the BoP concept has brought generation of the inclusive businesses concept, in which the BoP community is showing itself to be a strategic ally not only in the process of designing and developing the business model, but also as regards its involvement in the company’s value chain, whether as a producer, distributor or client. The main characteristic of inclusive businesses is the combination of financial returns and the generation of opportunities for the BoP population.

Over and above discrepancies between sources when defining the segment of population represented by the BoP, there is general consensus that this segment represents around two-thirds of humanity, who live on under 8 dollars a day and are affected by particular characteristics which limit their development, and that it is therefore necessary to promote initiatives incentivizing economic development directed at guaranteeing access to basic goods and at promoting opportunities permitting this segment to break its vicious cycle of poverty.

Innovation as central axis of the private sector in base-of-the-pyramid action

Entering the BoP is a complex process requiring a high degree of innovation and knowledge of the local context in order to generate sustainable projects with social, economic and environmental benefits. Achieving this objective is only possible by engaging the selfsame BoP community as a strategic ally in the process of co-creating the business model. Thus, inclusive businesses at the BoP are shaped around three core elements: innovation, sustainability, co-creation/ collaboration.

Inclusive businesses therefore assign a key role to low-income communities in the process of generating solutions directed at finding a solution to their poverty situation. While it seems that recognition has finally been achieved for the potential of these communities as strategic allies in inclusive business models, we must also start to consider their essential part in innovation processes and when generating new solutions for development. Similarly, their inclusion in the process of designing business models and their subsequent active participation in

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Executive Summary

fourth sector

Executive Summary

implementing the project is a necessary path for finding an answer to a good part of the challenges corresponding to inclusive businesses themselves, such as the availability, accessibility and acceptability of the goods and services directed at this segment of the population. In this process, a decisive role is also played by social organisations and institutions, public and private alike, which normally work with low-income populations. On the other hand, the scalability of the business model, another of the principal challenges of inclusive businesses, demands more global growth strategies.

Inclusive businesses in the context of Basque economy

Despite Basque society’s innovating nature, we can see that the BoP segment does not yet figure among the innovation priorities of the business sector. This is largely due to the high technological capacity of the Basque Country, focussing to a greater extent on products of high added value for developed markets. One of the main challenges therefore lies in developing innovations directed towards the development of new business activities, which will, in turn, demand investment in social research and a great deal of effort as regards the innovation of business models.

However, given to its tradition of business collaboration, public/private alliances and the deep-rooted tendency to form cooperations and associations, Euskadi offers favourable conditions for promoting inclusive businesses. Further, the link between Basque management and the social domain, the territory and the people, means greater ability to relate to local entrepreneurs working with low-income sectors, particularly in industrial SMEs and the cooperation sector.

Similarly, policies fostering innovation within the Basque Government’s 20102013 Business Competitiveness Plan and the 2010 Science, Technology and Innovation Plan are solid foundations on which to promote the innovation of inclusive businesses at the BoP. Despite the fact that, in Euskadi, entrepreneurial experiences related to inclusive businesses at the BoP remain scarce, there is a significant number of social companies with international reach which could be taken as exemplary models of the application of inclusive businesses. Logically, these initiatives can also be extended to other kinds of companies, such as the innovating SMEs which develop technological solutions responding to social challenges or environmental problems, or big companies and multinationals with corporate social responsibility programmes in their strategies and with vocation in developing countries.

Economic sectors and regions with greater innovating potential at the base of the pyramid

Seven economic sectors have been identified – health, energy, environment, food, education, ICT and housing – with a high innovation potential for carrying out actions at the BoP, whether due to their specific weight within the economic context of the Basque Country, their R&D&I potential or due to the existence of coordinated business structures, such as strategic clusters. Of these, the health, energy and environment sectors are those to have received greater appraisal by the experts consulted, with a more detailed analysis of their opportunities being given in the report.

Within the activities with greatest weight in the traditional Basque economy, the

industrial sectors of energy, food and water and sanitation show a favourable position to the development of initiatives at the BoP. In the services sectors, the most outstanding areas fall on activities related to health, education and telecommunications.

There is high demand and opportunities at the BoP associated to these seven sectors, given the great number of unsatisfied needs in the areas of food, energy, health, education, housing, water, communication, etc. The food sector is the one which has, with difference, the greatest market dimension, with almost 3 billion dollars (purchasing power parity, hereinafter ppp), given that the largest proportion of BoP expenditure goes to food. Energy, housing and health come next in size, with over 400 billion, 300 billion and 158.4 billion dollars (ppp) respectively. The telecommunications sector has a smaller market dimension (51 billion ppp), although it is one of the most dynamic, growing sectors. As far as the environment sector is concerned, the only available data are on water and sanitation (20.1 billion, ppp), although waste management absorbs most of the municipal budgets in developing countries.

On the contrary, traditional sectors of the Basque economy with intense R&D activity, such as metallurgy, metal articles, machinery and transport, are not a priori particularly given to undertaking initiatives at the BoP given their high dependence on large capital investments. The only possible exception are cases in which the existence of medium technologies in these sectors were easily adaptable to the BoP. The international position of the Basque economy is highly concentrated in the Euro Zone and other developed countries. Exports and foreign direct investment (FDI) in emerging countries in the period 2004-2009 came to 12% and 7% of total exports and FDI respectively. Given that the poles of greatest growth lie precisely in these economies, the diversification and entry in these countries through BoP initiatives represents a strategy now and in the future.

Mexico, Brazil and India obtained higher appraisal from the experts consulted when assessing other countries with greater potential for carrying out initiatives at the BoP. In the case of Mexico and Brazil, these are moreover emerging economies with which the Basque Country already maintains a solid economic relationship. Mexico is the first emerging country to receive Basque exports and Brazil the fourth. These countries also figure among the five first emerging countries to receive FDI from the Basque Country. There are similarly historical and cultural affinities with both countries, particularly Mexico. In the case of India, despite being among the 10 top developing countries to receive Basque exports, trading relations and cultural affinity is lower. However, given the volume of its BoP market, the market structures and economic growth rates experienced mean that this is a country deemed to be of great strategic interest within the Asian continent.

In addition to these three countries, high potential has also been detected in another group of countries largely located in Latin America. These are specifically Chile, Peru, Colombia, Ecuador and Uruguay. In some of these countries, like Chile, there are already a number of first and incipient inclusive business initiatives by Basque companies and cooperatives. Outside the American continent, potential is also perceived in China, the other big Asian giant; and in Morocco and Angola on the African continent.

fourth sector

Executive Summary

fourth sector

Executive Summary

The report ends with a series of recommendations directed at fostering changes in the perception of BoP in Euskadi by means of training and educational activities, improving information systems and the social context of the BoP and promoting new policies and actions at government level to boost this promising field of action.

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