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9. CEO Reactions to the Concept of BOP
Several CEO of the firm have supported & agreed the fundamentals laid down in BOP process. It demonstrate their growing interest in embracing the opportunities in BOP markets and the innovations they foster. It reflect the voices of a wide variety of firms and, more importantly, individuals. It is hope that these perspectives will motivate more CEOs.
List of Firms who have supported BOP process in the business activities:
1. Microsoft 2. Bharti Airtel 3. Thomson Reuters 4. Royal DSM 5. ING
6. GlaxoSmithKline (GSK) 7. Unilever
8. Philips Electronics 9. University of Maastricht 10. Acumen Fund
10. Making it Happen !
Let us begin with each of the principles involved in innovation for the BOP, identify the rationale for it, and analyze examples that illustrate what can be done to incorporate it.
1. Price Performance
Addressing the market opportunity at the BOP requires that we start with a radically new understanding of the price-performance relationship compared to that currently employed in developed markets. This is not about lowering prices. It is about altering the price-performance
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envelope. Price is an important part of the basis for growth in BOP markets. GSM handsets used to sell for $1,000 in India. Not surprisingly, the market was quite limited. As the average price
dropped to $300, sales started to increase. However, when Reliance, a cell phone provider, introduced its Monsoon Hungama (literally Monsoon Melee) promotion that offered 100 free minutes for a mobile, multimedia phone with an up-front payment of $10 and monthly payments of
$9.25, the company received 1 million applications in 10 days. Of course, price is a factor. Equally important is the performance associated with the price. The applications available through the Monsoon Hungama offer, for a mere $10 down payment, are quite incredible, including news, games, audio clips of movies and favorite songs, video clips, astrology and numerology, city guides, TV guides, stock quotes, and the ability to surf the Internet. The phone itself is fashionable and state of the art, using CDMA technology. Today, India is the fastest growing wireless market in the world. During the last quarter of 2003, India was adding 1.5 million new subscribers per month!
Both GSM and CDMA technologies are readily available, as are a host of features and pricing options. The regulatory process is also rapidly evolving. This milieu can be confusing at best.
However, most value-conscious consumers do not seem to be concerned. There are so many comparisons of the alternate technologies, features, and payment schemes that are debated in newspapers, on TV and radio, and in magazines, that consumers are well informed. Even those who cannot read tend to consult with others who can. Word of mouth is so powerful that the consumers seem to have found an efficient process— combining analyses offered by journalists, companies, consumer reports, and their friends—for evaluating the price-performance options available to them.
How can we provide a high level of price-performance to a consumer population that exists on less than $2 per day? The changes in price- performance that are called for must be dramatic. Let me illustrate. Consider a cataract operation. It can cost as much as $2,500 to $3,000 in the United States.
Even most of the poorest in the United States can get access to this surgery through health insurance (Medicare and Medicaid). In other developed countries such as the United Kingdom, the
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nationalized health services pay the cost. Now, consider the poor in India or Africa. For these mostly uninsured individuals to even consider cataract surgery, it would need to be priced around
$50, a fraction of what it costs in developed markets (about 50 to 75 times less than in the United States), and the quality of surgery cannot be any less. Variation in quality in restoring eyesight is unacceptable. For a successful cataract operation in BOP markets, the quality of surgery must also include postoperative care of semiliterate patients in unsanitary environments. Commitment to quality in BOP markets must be broad-based: identifying patients for surgery, most of whom have had limited medical care in the past, much less visits to the hospital; preparing them for the
procedure; performing the operation; and postoperative care. The Aravind Eye Care System, the largest eye care facility in the world, is headquartered in Madurai, India. Doctors at Aravind perform more than 200,000 state-of-the-art cataract surgeries per year. Their price is $50 to $300 per surgery, including the hospital stay and any complications in surgery. However, more than 60 percent of Aravind‘s patients get their surgeries for free with no out-of-pocket payments by patients, insurance companies, government, and so on. With only 40 percent of paying patients at such
seemingly low prices, Aravind is nevertheless very profitable. The cost of the surgery, for all the patients taken together (paying and free) is not more than $25 for a basic cataract operation with intra-ocular lens (IOL).
Similarly, access to financial services for the poor provides a challenge to conventional wisdom.
Saving with a bank is a new idea for most people at the BOP. They have hardly any savings to begin with and whatever they have they wear it on them (as jewelry) or keep under their mattresses.
Simple steps such as saving $1 per week and starting an account with as little as $20 can provide the impetus to cultivating the savings habit among the poor. Building the savings habit and giving them access to the basic building blocks of financial services must precede providing them with access to low-cost loans or rain and crop insurance. How does a large global bank approach this market and provide world-class (if a limited range of) services starting with a $20 deposit? Citicorp started $25 deposit-based banking services, called Suvidha, in Bangalore, India. Suvidha was
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oriented toward the urban population and was entirely based on an ATM, networked, 24/7 model.
In the first year, Citibank enrolled 150,000 customers. This was the first time a global bank approached consumers with a $25 deposit option. Now several Indian banks offer similar service, both branch-based and ATM-based, in both rural and urban areas.
BOP markets, be they in telecom, personal care, health care, or financial services, impose interesting business design criteria. MNCs have to fundamentally rethink the price-performance relationship. Traditional approaches to reducing prices by 5 to 10 percent will not suffice. We should focus on an overall price-performance improvement of 30 to 100 times. This calls for a significant forgetting curve in the organization—an ability to discard traditional approaches to price- performance improvements. However, these efforts can be justified only if the markets are large and global and the returns are more than commensurate with the risks. Although the margin per unit might be low, investor interest in BOP markets is based on expectations of a large- volume, low-risk, and high-return-on-capital employed business opportunity. BOP markets represent an opportunity to create economic value in a fundamentally new way.
2. Innovation: Hybrids
The BOP market opportunity cannot be satisfied by watered-down versions of traditional
technology solutions from the developed markets. The BOP market can and must be addressed by the most advanced technologies creatively combined with existing (and evolving) infrastructure.
More than 70 million Indian children suffer from iodine deficiency disorder (IDD), which can lead to mental retardation. A total of 200 million are at risk. IDD in many parts of Africa is equally daunting. The primary source of iodine for most Indians is salt. Indians do eat a lot of salt, but only 15 percent of the salt sold in India is iodized. Iodine is added by spraying salt with potassium iodate (KIO3) or potassium iodine (KI) during manufacturing. Salt, to be effective as a carrier of iodine, must retain a minimum of 15 parts per million of iodine. Even iodized salt in India loses its iodine content during the harsh conditions of storage and transportation. Indian cooking habits account for
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further iodine loss. The challenge in India (and similar markets in Africa) is clear: How do we create iodized salt that will not lose its iodine content during storage, transportation, and cooking but will release iodine only on ingesting cooked food?
In an effort to address the immense iodine loss in Indian salt, HLL, a subsidiary of Unilever, recognized that chemicals can be protected by macro and molecular encapsulation. HLL first
attempted macro encapsulation (similar to coating medicine with a covering). Although this process kept the iodine intact, it was difficult to guarantee the exact amount of iodine as the miniscule size of the salt crystals complicated the process. HLL thus decided to try molecular encapsulation.
Called K15 (K for potassium, 15 ppm), the technology encapsulates iodate particles between inorganic layers, protecting iodine from harsh external conditions. The inorganic layers are
designed to only interact with and dissolve in highly acidic environments (that is, a pH level of 1 to 2, as in the stomach). Here, iodine is released only upon ingesting food, only negligibly before that.
The tests to validate this technology under the harsh conditions of Indian spices and cooking methods required that the researchers resort to techniques developed by the Indian Atomic Energy Agency, using radioactive tracers. The tracers did not alter the chemistry of the iodine but could detect it throughout the simulated cooking process. To be marketable, though, the iodized salt so developed must also retain its attractiveness (whiteness, texture) and, needless to say, must be priced comparable to iodized salt using the traditional methods (ineffective as a carrier of iodine) and noniodized salt. The technical breakthrough in applying molecular encapsulation of iodine in salt is now a patented process. Unilever is already leveraging this innovation from HLL to other countries such as Ghana, Ivory Coast, and Kenya, where IDD is a problem.
The concept of hybrids appears in strange places. Consider that the dairy industry in India, Amul, is organized around 10,675 cooperatives from which it collects 6 million liters of milk. Amul collects milk from the farmers in villages by providing village collection centers with more than 3,000 Automatic Milk Collection System Units (AMCUS)—an integrated milk-weighing, checking (for fat content), and payment system based on electronic weighing machines, milk analyzers, and a
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PC-based accounting and banking system for members. Amul makes 10 million transactions and payments in the neighborhood of Rs. 170 million. Payments can also be made instantaneously. This integrated electronic system sits in the middle of the traditional Indian village in the milk
cooperatives. Many of the farmers feel that, for the first time, they have been treated right—the weighing and testing are honest, they are paid without delays, and they can now become part of the national milk network without leaving their villages.
3. Scale of Operations
It is easy to succeed in a limited experiment, but the market needs of 4 to 5 billion people suggest that the experiments must be commercially scalable. NGOs and other socially concerned groups are by far the lead experimenters in BOP markets. For example, we can demonstrate that a combination of photovoltaic and wind-based energy systems can be built for less than $1,000, consistently deliver the necessary power, and be acceptable as a single-family or village solution. However, how do you scale it to cover 1.5 billion people who live without access to grid-based electricity? What is involved in scaling these successful experiments? Can small local entrepreneurs and NGOs
accomplish this transfer of technology across geographies?
Scale of operations is a prerequisite for making an economic case for the BOP. Given a stringent price-performance equation and low margins per unit, the basis for returns on investment is volume.
Only a few BOP markets are large—China, India, Brazil, Mexico, and Indonesia. Most of the markets, such as the African nations, are poor and small. The prerequisite for scalability of innovations from these markets is that they are supported by organizations that have significant geographical ambitions and reach. MNCs are ideally suited for this effort. Further, size allows MNCs to make the necessary financial commitments behind potentially successful, innovative ideas.
How can HLL leverage its learning, know-how, and know-why developed in marketing salt in India and take it to Nigeria, Chad, Ivory Coast, and China?
It is clear, therefore, that pursuing the promise of BOP markets challenges the dominant logic of
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both MNCs and NGOs. MNCs can benefit from learning how to engage with NGOs and local community- based organizations to co-create new products, services, and business. NGOs can benefit from partnerships with MNCs, through which they can leverage MNC know-how and systems to scale innovations broadly.
4. Sustainable Development: Eco-Friendly
The poor as a market are 5 billion strong. This means that solutions that we develop cannot be based on the same patterns of resource use that we expect to use in developed countries. Solutions must be sustainable and ecologically friendly.
Consider the use of water. In the United States, domestic use of water per capita is around 1,932 cubic meters per person per year. In China, it is 491 cubic meters and in India, 640 cubic meters, respectively. There is not enough water available in most parts of the world to support demand.
Even if it is available, the quality of water available varies from indifferent to poor. For example, in Chennai, India, there is an attempt to collect rainwater from rooftops and store it in wells. So far, scarcity has not altered usage patterns. Water usage continues to be a critical component of high standards of living in the Western world. The question that BOP markets pose for us is this: Can we develop products that provide the same level of functionality with no or minimal use of water? For example, can we wash clothes without water? Can we refresh ourselves without a shower? Can we flush toilets without much water, as is done in airplanes? Can we recycle water for multiple uses within an apartment complex (in urban settings) and within a village (in rural settings) in a closed loop system? Can we conserve water in agriculture through innovative cultivation methods?
In the United States, each person generates 4.62 pounds of waste per day. If everyone in China adopted Western standards of waste per capita, there would be more than 5.5 billion pounds of waste per day. There are not enough places to dump this amount of garbage. Packaging can play a crucial role in the sustainable development of markets in the BOP. With 5 billion potential users, per-capita consumption of all resources, including packaging materials, can be crucial. Even
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recycling systems might not be practical as the rural markets are dispersed and waste collection for recycling might not be economically viable. At the same time, packaged goods are one way of ensuring product safety. The dilemma is real. So far, MNCs and others have not suggested a practical solution to the packaging problem, nor do we have a comprehensive approach to energy and water use. Water might get the attention of MNCs sooner than energy as the availability of quality water, even for human consumption, is becoming difficult in BOP markets and, in some cases, developed markets as well. The growth of bottled water is an indication of this trend.
The goal here is not to be alarmists. The BOP will force us to come to terms with the use of resources in ways that we have not so far. Whether it is in the use of fossil fuels for energy and transportation, water for personal cleanliness, or packaging for safety and aesthetics, ecological sensitivity will become paramount. I believe that more innovative, sustainable solutions will increasingly emerge from serving the BOP markets than from the developed markets.
5. Identifying Functionality: Is the BOP Different from Developed Markets?
Recognizing that the functionality required in products or services in the BOP market might be different from that available in the developed markets is a critical starting point. In fact, developers must start from this perspective and look for anomalies from their prior expectations based on their experiences with developed markets. Take prosthetics as an example. The artificial limb, as a business and good medical practice, is not new. It has been around for a long time and every war, starting with the American Civil War, has given a boost to its usage. Lost limbs due to accidents, polio, or war are common. India is no exception: There are 5.5 million amputees and about 25,000 to 30,000 are added each year. However, most of the patients needing prosthetics are poor and illiterate. For a poor Indian, regaining the ability to walk does not mean much if he or she cannot squat on the floor, work in the field, walk on uneven ground, and not wear shoes. As Mr. Ram Chandra, talented artist, sculptor, and inventor of the Jaipur Foot, the Indian alternative to
traditional prosthetics, said, Indians do not wear shoes to the temple or in the kitchen. Jaipur Foot‘s
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design considerations are based on unique functionality, specific to this market, and are easy to recognize, as shown in table below. The design requirements can be divided into two parts. Design must take into account the technical and medical requirements for various foot movements, but this is not enough. We can build a prosthetic that can perform all the functions required. However, if it is not within reach of the target customer—here the BOP patient—it does not help. Therefore, we need to superimpose the business requirements, not just appropriate prices, but how the individual is likely to use the prosthetic.
Table – 8 (Jaipur Foot: Design Considerations) Activity Technical
Requirements Functionality 1
Business
Requirements Functionality 2
Squatting Need for dorsiflexion Work needs, poverty, lack of trained manpower, time for fitting Sitting cross-legged Need for transverse rotation Work needs, poverty, lack of
trained manpower, time for fitting Walking on uneven
ground
Need for inversion and eversion
Barefoot walking Need for natural look
The design considerations isolated by the design team of the Jaipur Foot were uniquely oriented to BOP problems (for example, in India, Afghanistan, Bangladesh, Pakistan, Cambodia, Congo, and Vietnam) in fitting prosthetics and are not the problems that designers would contend with in the United States. Functionality 1 describes the technical requirements that are unique to BOP consumers in India. Contrary to popular assumptions, this set of design parameters increased the
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required functionality of prosthetics compared to what is available in the United States or Europe.
Functionality 2 describes the additional unique requirements at the BOP level. For example, farmers in the BOP must work in standing water in paddy fields for about eight hours every day. Vendors in the BOP must walk long distances (about 8 to 10 km per day). Therefore, prosthetics for consumers in the BOP must be comfortable, painless, and durable. The poor cannot afford frequent
replacements or hospital visits. They travel from all over India with their families to get treatment at Jaipur Foot but cannot afford boarding and lodging, much less stay for an extended time in a new location. The prosthetics must be custom-fitted in a day. From the perspective of Jaipur Foot, the
replacements or hospital visits. They travel from all over India with their families to get treatment at Jaipur Foot but cannot afford boarding and lodging, much less stay for an extended time in a new location. The prosthetics must be custom-fitted in a day. From the perspective of Jaipur Foot, the