Both multinationals and social entrepreneurs develop products and services for and with the base of the pyramid (BoP) to serve the demands of these poor communities. Many see social entrepreneurs as the solution to implementing more effective and inclusive innovations. But these individual entrepreneurs have limited resources and do not reach scale easily. Are social enterprises better suited to work at the base of the pyramid market than multinationals?
Global social entrepreneur network Ashoka and Dutch multinational DSM are engaged in several rounds of debate on the question of how multinational corporations (MNCs) and social enterprises work at the base of the pyramid and to what extent they should work together to create more impact.
It is now over a decade since C.K. Prahalad and Stuart Hart launched the ‘BoP’ business movement. Their groundbreaking work resulted in a large number of predominantly corporate initiatives, like Unilever’s Shakti women in India or Philips’ clean cookstoves. However, according to Hart himself, ‘many of these ventures have failed; some have been converted into philanthropic programs; a few have taken root and gathered commercial momentum.’ Questions have been raised about whether multinational corporations can or should be the main driver for innovation in low-income markets.
The BoP Innovation Center works with both multinationals and social entrepreneurs to create inclusive business models. The question of how the two can reinforce each other was at the core of the conference Accelerating Innovation for the Poor in Amsterdam on 17 October 2013. GrameenPhone founder, Iqbal Quadir, for example explained how his vision of a large-scale commercial project led him to organize a consortium involving Telenor, Norway’s leading telecommunications multinational, and micro-credit pioneer Grameen Bank in Bangladesh.
In his contribution to this debate Ashoka director Al Hammond argues that multinationals either did not understand the BoP market or did not know how to deal with it. They were too optimistic in terms of return on investment and their projects lacked a formal connection with core business activities or stakeholders in these markets, which were new to them. Multinationals need small, more innovative and flexible forces, like social entrepreneurs, to address these issues.
Robert van den Heuvel of DSM acknowledges that there are challenges for multinationals in low-income markets. However, he foresees many practical obstacles to multinationals working together with small-scale social entrepreneurs, and does not see how social entrepreneurs alone can scale up to such a point that they can sell to the poor in an effective way.
What small social businesses lack and what big businesses can offer are skills, knowledge and geographical reach to grow social enterprises sustainably and at scale. Various structures are put in place by multinationals not only to support social entrepreneurs, but also to capture their innovation capacity to do business in challenging low-income markets. This entails partnerships between small social enterprises and big commercial companies. For instance, GDF Suez, with its Rassembleurs d’Energies programme, is increasingly committed to stronger involvement with social entrepreneurs to, in the first place, leverage innovations and gain an advantage over other companies at the BoP or in other markets. Schneider Electric’s BipBoP initiative could be placed under the same umbrella, with Schneider having a stake in projects around the world. All these social business networks supported by MNCs are forming bridges between smaller entrepreneurs with the flexibility to innovate and bigger corporations looking for new business opportunities.
This debate will be encouraged here on this web page of The Broker. What are the complications of social enterprises working with multinationals and vice versa? And what initiatives are needed to go further than building bridges and support a whole range of actors, including MNCs, entrepreneurs, NGOs and governmental bodies, that can work together to make products and provide services that the poor really need.
Photo credit main picture: Jonathan Ernst / World Bank / Overlooking the central Kumasi market at closing time in Kumasi, Ghana.