The Base of the Pyramid Approaches in Providing Solutions to Climate Change, Extreme Poverty, and Human Rights - Essay Example

BASE OF THE PYRAMID APPROACHES by Introduction In global socio-economic contexts, the base/ bottom of the pyramid (BoP) regards the largest, but unfortunately, the most poorest of existing socio-economic groupings in society. This in itself portrays a grim picture, one of widespread global un-equality a key catalyst of various negative effects and impacts, when measured cumulatively. Utilized specifically in the development of new business models, the phrase is vital in the deliberate target and capture of this ‘disadvantaged’ global demography especially through utility of new technology. This paper will discuss the advantages and disadvantages of Base of the Pyramid approaches to provide solutions to a) climate change, b) extreme poverty and c) human rights and propose an alternative approach that can be used by businesses in each case. The Base of the Pyramid In defining the BoP, the global populace is categorically segmented into a pyramid-structure; portraying the three core socio-economic population segments. As portrayed by the UNDP (2014), it is those populations at the bottom of the pyramid that are generally referred to as the BoP, representing those considered as living below the globally recognized poverty line (UNDP, 2014:2). It is portrayed that globally, there are an estimated 3 billion individuals who continuously live on less than US$2.5 daily, almost half of the total global population. This is the threshold that separates them from the rest of society, comprising of the middle-class (lower and Upper), and the wealthy elite (UNDP, 2014:3). In essence, the BoP is representative of the ‘working masses’, a critical component of global production; and as has been evident over the years, a viable consumer base (UNDP, 2014:3). The segmentation portrayed in the pyramid was historically developed from the adjustment of prevailing per capita income, with regard to the aspect of purchasing power parity (PPP). London and Stuart (2010) convey that as an instrument of measure, PPP crudely, albeit effectively equates the pricing of a given quantity of identically tradable goods and/ or services (transnationally) subsequently providing a homogenous comparison of the prevailing real prices (London & Stuart, 2010:13/14). Accordingly, PPP provides a crude, albeit effective measure essential in the division of the global population into their specific income levels. To be noted however is that over time, different BoP proponents have diversely articulated the prevailing PPP lines; informed by the prevailing economic contexts. Thus, the range has gradually evolved to values between $1,500 and $3,000 annually, which translates to roughly $1 to $4 capita per day (London & Stuart, 2010:15). Historically used by U.S. President F.D. Roosevelt in his 1932 (April 7) radio address ‘The Forgotten Man’, the vital essence of the BoP could not be captured much more clearly. He aptly portrayed that as a result of the unhappy period of the time (the Great American Depression), there was need for the formulation of effective plans that were founded upon the forgotten; the BoP population segment (Wankel and Malleck, 2012:34).The segment is comprised of the requisite units of economic power (Hart, 2005:15). Thus, the proposition entails that focus should be placed upon this vital segment of society, in building them up in terms of socio-economic contexts (Hart, 2005:17). In agreement with these are Stuart L. Hart and Prahalad, C.K, who as acclaimed professionals, expanded upon the concept of the BoP. This was in their respective books – Capitalism at the Crossroads (Hart) and The Fortune at the Bottom of the Pyramid (Prahalad & Hart, 2002:12). The general propositions encompass the importance of governments, the business sector and donor agencies’ change of perception about this social stratum. Accordingly, the proposition is that instead of viewing this segment as victims, focus should be placed upon their positive aspects – resilience and creativity in terms of entrepreneurship (Kandachar & Minna, 2008:52/53). In addition, is that just as the rest of the consumer society is, this segment also requires value for the goods and services that are bought. This is especially lucrative to the international business sector, with entities that choose to serve these diverse markets (within the BoP category) gaining tremendous benefits. It is upon these aspects that enhanced collaboration between various stakeholders, can effectively contribute to pertinent BoP approaches (Kandachar & Minna, 2008:54). BoP Approaches: The Essence in Contemporary Society BoP approaches are regarded as processes, which not only understand, but also try to synthesis their contributions with the BoP population segments in terms of their daily lives, transactions and general socialization within informal market economies. Through enhanced interest in the support and development of BoP-based ventures, different ideas have crossed diverse sectors; portraying increased interest in their application (Wankel & Malleck, 2012:35). Fundamentally, these approaches require greater exploration of various poverty alleviation outcomes, based on who comprise the BoP, and how associated ventures require basic, new strategies of market entry (Karnani, 2007:24). The BoP perspective is important, in terms of unique implications concerning its general application in a variety of ways i.e. in the reduction of extreme poverty, mitigation of the negative impacts on climate change, and in the overall enhancement of human rights. a. Reduction of Extreme Poverty Extreme poverty is often associated with the various global population masses that live on less than $2 a day, hence the critical importance of BoP-inclined ventures in aiding and improving the general standards of living. In this regard, the BoP perspective is founded on a premise of reciprocal value creation, where the more value created for this social segment, the greater the value that will be realized for the ventures concerned (London, 2007:7). Indeed, such approaches are expected to create acceptable societal and economic returns, not only to the ‘investing’ organizations concerned, but more so the local communities where they operate. Accordingly, the support of such a hypothesis portends to various implications, in terms of effective poverty alleviation and business strategy (London, 2007:9). It is upon such advantages that the concept behind BoP initiatives is anchored, based upon the aspect of either sourcing products from, or selling goods to, those at the base of the pyramid. This is in ways that will eventually aid in the overall improvement of their living standards (Hammond et al., 2007:27). The two key orientations portrayed can be termed as BoP as the producer and BoP as the consumer respectively. Accordingly, the major advantage is in reciprocal value creation, instrumental in the elevation of living standards (Hammond et al., 2007:28). Another advantage further lies in the ‘profitability’ aspect of a given BoP venture that adopts either, or both approaches. This is based on the fact that while such ventures most probably will result in varied alleviation outcomes, fundamentally, they are founded upon the same basic principles (Hammond et al., 2007:31). Thus, as an approach founded on general poverty alleviation, this perspective relies majorly upon the notion that serving such markets is a business strategy that is economically viable. As opposed to grant-based programs of poverty alleviation, this market-based perspective differs with regard to the fact that both services and goods provided are not free of cost/ expenses (Wankel & Malleck, 2012:46). This may be viewed differently depending on which side one belongs. It is viewed as a great advantage to the end-consumer in the BoP category as business focus is placed on the availability of quality goods and services that are priced within their economic capacity (Wankel & Malleck, 2012:47). However, on the business end, this strategy may be perceived as being of negative impact on most multi-national entities, due the size of the actual market that is capable of buying their products and services (Wankel & Malleck, 2012:47). Critics portray that towards enhanced poverty alleviation, there is need to focus on this segment as a key production entity, as opposed to its consideration as a key consumer market. This approach, as forwarded by Aneel Karnani, in criticism of Prahalad’s proposition (view of the BoP segment as not only value-demanding consumers, but also creative entrepreneurs), was later on further enhanced by Hart and Erik Simanis (Hart, 2005:12). This was through their propositional approach that focused on this vital social segment as not creative entrepreneurs, but also business partners, was to subsequently lead to the development of – the Base of the Pyramid Protocol. Accordingly, this approach has different advantages to both the business sector and the BoP social segment (Hammond et al., 2007:22). This is in terms of the development of business partnerships with various BoP communities, with the aim of ‘co-creating’ both markets and enterprises which are mutually beneficial to all concerned parties. As a unique market-based approach, the BoP perspective is critical in overall alleviation of poverty, which is different from the grant-based (aid) approach that seeks to alleviate poverty. However, the former is disadvantaged by the fact that there are cost-implications to be incurred, requiring that the gains accrued be more than the total expenses inputted (Karnani, 2007:35). On the converse, the grant-based approach (poverty alleviation programs) does not necessarily require that accrued gains be diverted to cover up for prevailing cost expenditures; which when generally viewed by the populations affected, provides a basic avenue for their development (Karnani, 2007:37). Another key disadvantage of various BoP approaches concerning sustainable development pertains to the limitations experienced in terms of growth. This is in terms of restricting extensive development of the poor, primarily when the focus is on application of Western lifestyles that are resource-intensive in nature (Hart, 2005:21). Nevertheless, as the Brundtland Commission defines, from a normative ethical standpoint, poverty alleviation continues being a basic essential aspect of continuous sustainable development. Accordingly, through ongoing research studies where these aspects are addressed, there is further widening of the BoP approach. This is towards optimal integration into existing thinking concerning the aspect of corporate social responsibility (Wankel & Malleck, 2012:51). The grant-based approach would also be effective in catering to the needs of the impoverished majority, who belong to the BoP segment. This would be through collaboration of global entities i.e. IMF, World Bank and the UN amongst others with prevailing governing administrations and business sector stakeholders (Prahalad & Hart, 2002:84). Specifically, focus would need to be placed on government initiatives as the primary source of poverty reduction, anchored on the diverse, community-specific needs of the BoP segments present. Influential is the fact that grants do not entail any costs in the undertaking of initiatives, but rather are provided on the basis of good will and support for the general populations at large (Prahalad & Hart, 2002:86/7). b. Enhancement of Basic Human Rights Irrespective of the fact that it is based fundamentally on the greater reduction of poverty across board, with regard to the global BoP population segment, the concept of BoP approaches is also influential in terms of human rights. Principally, while global corporations continue venturing on an international scale, they are collective being confronted with various challenges concerning human rights (Mena et al., 2010:166/7). Accordingly, this necessitates the adequate development of optimal avenues through which such challenges can be addressed within corporate endeavours. This is informed by the fact that prevailing traditional mechanisms of governance are not consistently able to effectively tackle such challenges. Hence, different viewpoints are required, pertinent to the relationship between human rights and business entrepreneurship (Mena et al., 2010:169). As innovative solutions, these viewpoints are founded upon the aspects of constructive engagement, dialogue and general empowerment (Hart & London, 2005:30) convey. Through the various approaches present, there is a highlight on the emerging trend, where multi-national corporations are taking a more active role in the general protection of human rights (Hart & London, 2005:30). Fundamentally, all approaches are based on the presence of effective dialogue between all pertinent stakeholders in various ventures, engaging not only the communities and corporations, but also the civil societies and governing institutions present. This subsequently sets the foundation for various facets of empowerment, which is a critical factor with regard to both the respect and subsequent protection of human rights (Prahalad, 2004:57). These facets are primarily categorized into three: - the empowerment of the poor majority, enhancement of communities and social settings, and the development of the consumer-category in general. In addition, as presented by the UN (2006), due to the insight provided when engaged in such complex relationships the advantages of the BoP approaches are clearly portrayed (UN, 2006:24). This can be achieved through an emphasis on the critical value of stakeholder dialogue as well as general empowerment all of which are positive contributions to the greater development of global populations. Informative in this regard is that poverty also refers to the lack of basic freedoms and rights, in terms of limitations on individual and/ or group choices and actions (UN, 2006:27). A bona-fide advantage exists in the form of enhanced corporate responsibility that is based upon the presence of both inclusive business ventures and social enterprise. Through corporate responsibility, both public and private enterprises engage in various programmes, projects, activities and donations, which enhance overall social good. This is without the prospect of gaining any direct or indirect financial returns as such; activities are not required by existing law (Wankel & Malleck, 2012:52). Rather, such activities engage the ethical foundation of various enterprises, as concerned stakeholders in the preservation of optimal market arenas. This is hence effectively advantageous to concerned stakeholders, with enterprises benefiting from enhanced reputations, and increased financial performance (Prahalad, 2004:44). These are essential in amongst others their securing of social license to effectively operate, the attraction of both employees and customers, and in earning positive publicity. On the other hand, advantages exist in the form of benefits to the community in terms of enhancement of greater skills development, communal empowerment, provision of basic support and auxiliary services, and the creation of employment opportunities (Mena et al., 2010:164). Notably is that these are effective foundation blocks on which greater universal enhancement of human rights can be adequately achieve. However, a great disadvantage exists, in reference to the need for the existing administrative governments to also be acknowledgeable of their need to not only understand and respect, but also protect basic human rights (Hart, 2005:111). Thus, in case contexts where various business entities and civil societies amongst other stakeholders, are focused on enhancement of such rights, while the prevailing governments are less democratic; there is a general decline of any advancements made. This is especially so if the prevailing policy formulation and implementation measures are non-democratic (i.e. in military states led by military juntas, communist/ socialist entities and police states) with human rights being limited or under restriction (Karnani, 2007:77). Under such contexts, the gains made could unfortunately be erased at any given moment, due to the prevailing ‘uneasiness’ that is characteristic of non- or semi-democratic state entities. The alternative approach with regard to the enhancement of human rights would be through increased input of pertinent civil societies, global entities such as the UNHRC, and party entities present in a given jurisdiction. Business enterprises would mainly contribute by way of positively engaging with those governments that are pro-human rights, through continuous enhancement of public-private sector collaboration (UNDP, 2014:4). This would be achievable by way of the private sector’s role-play, in stressing the need for greater respect and protection of human rights by government as a prerequisite for the initiation and continuous engagement in economic activities. Furthermore, as great contributors to national economic development, the private sector would need to be adamant about its call for enhancement of human rights (Hammond et al., 2007:88). c. Mitigation of Negative Impacts on Climate Change Climate change affects all societies in the global setting abate differently, as informed by the prevailing capacities to counter such negative effects. To be noted however, is that due to the differential nature of different segments of society, as influenced by their respective economic abilities; climate change impacts are of varying influences (Aron et al., 2009:17). Because the BoP population segment does not have access to electricity, the primary means of energy used include biomass, charcoal and firewood (Aron et al., 2009:19). Unfortunately, this portends to serious implications and consequences on the populations affected, in terms of their education, health, optimal development and general well-being. Crucial to be noted is that these forms of energy, while providing avenues of optimal application to the BoP segment, consequently negatively affect the environment (Aron et al., 2009:19/20). Primarily, the essence of adequate responses to the needs of this social segment is best elaborated by way of not only developing services and products that are both need- and cost-efficient; but also through the continuous optimization of the existing human capital resource. The basis of such optimization would be concerning the prevailing solidarities between these populations, their social networks and their organizational skill-sets (Modi et al., 2005:36/7). In addition, by educating these masses on the essence of forest-cover conservation and development, the private sector would be enhancing the mitigation of negative climate change (Wilson et al., 2009:1). This would be effectively founded on their corporate social responsibilities, programmes, and activities, i.e. tree planting and development of seedling-growing activities, the development and unveiling of proper health and sanitation approaches. Others include the presentation of alternative energy sources, and education of the masses on the critical importance of tree or forest cover amongst other measures vital in the conservation of the environment (Wilson et al., 2009:2). Furthermore, BoP approaches would also focus on the production and mass-supply of affordable alternative energy sources, as the best means of enhancing the BoP segment in the fight against negative impacts on climate and the environment (Wilson et al., 2009:2/3). A major disadvantage of these approaches is presented through the fact that while this segment entails the largest part of the global social strata, it should be noted that it is not the major contributor to negative climate change. Rather as Kandachar and Minna, (2008) notes, it is the developed world, in terms of their industrial output, which is fundamentally responsible for the increased negative effects on the environment (Kandachar & Minna, 2008:102/3). Accordingly, these approaches would be limited in terms of their impact, if the major global producers of environmental pollution did not also enhance their means of production, hence reducing overall pollution during the various production or manufacturing processes (Kandachar & Minna, 2008:104). In terms of alternative approaches, as Wilson et al. (2008) presents, the business sector could enhance the fight against negative climate change by way of producing en-masse, products that are energy efficient, while being pocket-friendly (Wilson et al., 2008:65). Instrumental in this regard, would be greater focus on solar-powered and wind-enabled products; items that would generate sufficient electricity for use at the local settings of the populations falling under the BoP segment (Wilson et al., 2008:67). Additionally, there would need to be greater collaborative alliance with other pertinent stakeholders such as government agencies, environmental conservation groups, global entities i.e. the UNDP and the UNEP etc. this would be towards enhancing the complimentary role-play of each stakeholder, all which would necessarily have to be inclusive and involving of the BoP population segment (Wilson et al., 2008:70). Conclusion The various BoP approaches are essential in terms of the positive influences on general society. This is informed by the fact that while major focus is placed upon the BoP population segment, the overall benefits of such processes do permeate throughout the society in general. Thus, with enhanced processes aimed at the alleviation of poverty, the benefits would also enhance the requisite changes vital to gradual reduction of negative climate change. Furthermore, the protection of human rights would also be greatly enhanced if the diverse problems existing because of widespread poverty could be tackled. Thus, through target of this population segment, various BoP approaches would be positively impactful on different business enterprises. Reference List Aron, J. et al. 2009, Access to Energy for the Base of the Pyramid, (Report). Paris, France/ Washington DC, USA: HYSTRA & ASHOKA. Hammond, A. et al. 2007, The Next Four Billion: Market size and business strategy at the base of the pyramid. Washington DC: World Resources Institute and International Finance Corporation. Hart, S L 2005 Capitalism at the Crossroads. Wharton School Publishing. Hart, S L & London, T 2005, Developing native capability: What multi-national corporations can learn from the base of the pyramid. Stanford Social Innovation Review, 3(2): 28-33. 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