Creating mutual value: Lessons learned from ventures serving base of the pyramid producers

Abstract

The base of the pyramid (BoP) literature is grounded in the proposition of mutual value creation, an important but not yet well-tested relationship between business development and poverty alleviation. This paper begins to address this gap by assessing how business ventures serving BoP producers address local constraints and create mutual value. Using a case study methodology, sixty-four ventures are analyzed to identify the constraints faced by BoP producers. These are classified into productivity and transactional constraints. While the former set of constraints inhibits local value creation, the latter severely diminish the value capture potential of BoP producers. An in-depth analysis of eleven agricultural ventures provides insight into the strategies that ventures use to address constraints and enhance value creation and capture by BoP producers. The findings also indicate that alleviating constraints creates value not only for local producers, but also for the ventures themselves.

Introduction

Over the past several years, the concept of designing economically viable ventures to serve the base of the pyramid (BoP) has gained considerable prominence (Prahalad and Hart, 2002, Prahalad, 2004). More for-profit and non-governmental organizations (NGOs) are developing ventures that serve BoP producers and consumers, and development agencies are increasingly supporting these efforts (Commission on the Private Sector and Development, 2004, Gardetti, 2007, Hammond et al., 2007, London et al., 2007, Growing Inclusive Markets Initiative, 2008). Furthermore, an increasing number of authors across a variety of disciplines are addressing this topic (Rangan et al., 2007, Rosa and Viswanathan, 2007, Kandachar and Halme, 2008, Viswanathan et al., 2008a).

Driving this interest is the view that pursuing business ventures designed to serve the BoP offers new insights on both market opportunities and poverty alleviation (Prahalad and Hammond, 2002, Hart, 2005). In theory, ventures targeting this socio-economic segment operate under the proposition of mutual value creation, which suggests that creating more value for the BoP creates more value for the venture (London, 2008). Although presenting a new and intriguing perspective on the relationship between venture performance and poverty alleviation, this view of mutual value creation still remains a proposition in need of deeper assessment (London, 2009).

Furthermore, although the BoP have unmet needs as both consumers and producers, the focus has been on the former (Hammond and Prahalad, 2004, Karnani, 2007, Viswanathan et al., 2009). To date, most of the related discourse has centered on how business ventures can create the new capabilities and business models to serve new markets (London and Hart, 2004, Hart, 2005). Although valuable, this work has yet to address the specific constraints that BoP producers face and approaches used by ventures to address these challenges.

The goal of this study is to narrow the gap in understanding of the constraints faced by BoP producers and the strategies that ventures use to address these constraints. In particular, the purpose is to explore how business ventures serving BoP producers can generate mutual value. This work moves the BoP domain from a primary focus on “consumers and capabilities” to incorporating a greater understanding of “producers and constraints.” In doing so, the study will contribute to a more holistic appreciation of the various roles that market-based ventures can play in serving the needs of the BoP (Growing Inclusive Markets Initiative, 2008).

This paper begins with a review of the BoP literature, including the need for a greater assessment of the proposition of mutual value creation and an increasing focus on producers at the BoP. Next, the discussion focuses on the methodology used to assess business ventures serving BoP producers. The following sections discuss the findings from this analysis, including creating a framework that categorizes the constraints faced by BoP producers and identifying the strategies that ventures employ in alleviating these constraints. The last section of the paper summarizes the lessons learned from this study and offers direction for future research that will further improve understanding of the opportunities for business ventures to create mutual value with BoP producers.