Intro
Main business solutions
Example: Access to Telecoms
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There are certain essential needs and services, basic means by which to live, that are universally considered to be a human right. These include the right to food, healthcare and medication; where the lack of access is often associated with poverty. Ensuring access to basic and essential goods and services is thus vital to facilitate the eradication of poverty. The World Resources Institute and International Finance Corporation have estimated that the 'Base of the Pyramid' (BOP) consumer market – which includes four billion people worldwide with incomes below USD 3,000 in local purchasing power – is currently worth approximately USD 5 trillion. It is thus clear that certain products and services are more inherently geared to providing solutions to the BOP demographic, and the ability to be successful in serving BOP markets regardless of the sector of operation is to find innovative ways to overcome poor infrastructure and dispersed low-income populations. Successful strategies allow for larger market share gains, and the establishment of brand and customer loyalty to ensure the viability of products and services in the long-term.
Estimated BOP market by sector, USD 5 trillion
(source: WRI/IFC, April 2007)
The BOP market of affordable food and nutrition has currently the largest market potential, with the market estimated to be worth USD 2,895 billion. This is not a major surprise as food clearly dominates BOP household budgets. Income remains the factor with the greatest influence over dietary changes. Therefore, it can be seen that as incomes rise, the share spent on food declines, while the proportion of spending on transport and telecoms grows rapidly. Multinational companies have long been pioneers, especially in food and consumer products, while large national companies have proved to be among the most innovative in meeting the needs of BOP consumers and producers, especially in such sectors as housing, agriculture, consumer goods, and financial services.1
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Main business solutions serving BOP needs:
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Affordable Healthcare: companies that consider public health and those creating low-cost business models (e.g. generics) in emerging and developing markets
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Affordable Food & Nutrition: food and beverages companies which target lower-income consumers
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Affordable Finance: financial service companies with a significant client base in emerging and developing countries which are involved in lending to SMEs and/or the public sector; microfinance activities or community banking
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Access to Telecoms: companies providing telecom infrastructure services (fixed line and wireless) in emerging and developing countries, particularly those countries with low ICT penetration rates, as well as telecom/Internet service providers with low-cost business models in emerging and developing markets
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Access to Transport: companies which facilitate affordable mobility for people and goods
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Access to Energy: companies that provide low-cost energy solutions in emerging and developing markets
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Fairtrade Systems: companies that are able to demonstrate their commitment to the sourcing and supply of fairtrade or similarly branded products
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Business Solution: Access to Telecoms
Perhaps the most interesting BOP success story is that of telecoms. With the spread of the Internet and mobile technologies, existing knowledge is increasingly accessible for larger parts of the population, as well as the marketplace. Mobile telephony is offering new and critical communication opportunities to regions that used to be without access to ICT. For example, in Sub-Saharan Africa, while fixed telephone line penetration continues to be approximately 1%, mobile penetration has exceeded 30%. Africa remains the only continent that still has potential to increase wireless penetration significantly. Overall, developing countries have achieved 68% of mobile cellular penetration rates at the end of 2010. The growth of the Internet worldwide has also been sizeable. However, while 71% of the population in developed countries are online, only 21% of the population in developing countries are online.2 Thus, opportunities are available for companies which seek to provide telecommunication and ICT solutions in these markets, particularly to customers in remote areas. According to WRI/IFC, the BOP market size for ICT is estimated to be USD 51 billion.
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Digital Inclusion Index 2011
(source: Maplecroft, 2011)
The Digital Inclusion Index ranks countries according to their level of, or lack of, ‘digital inclusion’- the ability to use and access information communication technologies (ICT) such as computers, the Internet and mobile phones.
An interesting player in this area is Millicom International Cellular (MIC), which offers mobile telephony and cable services in 13 emerging markets in Central and South America, Africa and Asia. While MIC operates in countries with low GDP/capita, it is financially very successful. Its main strategy is to offer mobile telephony services to lower-income retail segments, mostly through prepaid services with low denomination charges. In addition, billing is on a per-second basis to make it attractive to the low budget user, and its unique distribution system is designed to reach remote rural areas. Affordability programmes such as these will play a major role in Africa, where mobile penetration is among the lowest in the world. This successful strategy is evidenced by the fact that in 12 out of 13 markets, MIC falls within the top two operators in terms of market share. During Q4 2010, the number of customers was up 14% and organic revenue growth was double digit versus Q4 2009. Additionally, market share is stable in all regions while churn is a respectable 4.9%. Revenue growth is expected to remain double digit for the next couple of years.
1 World Resources Institute, 2007, ‘The Next 4 Billion – market size and business strategy at the base of the pyramid’
2 ITU, October 2010, ‘The World in 2010 – ICT Facts and Figures’