iBAN | The BoP in Asia – Innovation and Challenges

In the past years, Asia has gained importance for multi-national companies, NGOs and local corporations alike. Of special interest for scholars and practitioners in business and civil society is the Bottom of the Pyramid (BoP), embracing the poorest of the poor of related societies. This often-large group has unmet needs in basic areas ranging from education and health to financial service as well as energy supply. The BoP-literature suggests that these needs can be fulfilled by both local stakeholders and external agents, ideally leading to an improvement in quality of living, higher employment and financial gain for all involved stakeholders.

In the following we summarize some of the problems and their solutions, taken from the recently published book Base of the Pyramid Markets in Asia – Innovation and Challenges to Sustainability that contains exciting cases and interviews with BoP experts from science and practice.

The reasons and specificities of BoP populations vary according to region and country. Possible causes embrace a lack or mismanagement of natural resources including mineral deposits and water resources as well as corruption and misappropriation. In addition, unregulated political influence on the economy and/ or excessive privatization may lead to high concentration of wealth – and on the flip side high concentration of poverty. Lastly, high unemployment due to structural shifts towards non-labor-intensive work, and poor working conditions and unfair remuneration may lead to an unfair distribution of wealth.

Amongst others, the BoP faces challenges due to insufficient access to services. This becomes especially clear through the example of banking services: as of today, 1.7 billion adults worldwide still do not have a banking account! Partly, this could also be linked to a gender problem, as 56% of the population without access to financial services are female. Besides mobile banking, including transfer of money via mobile phones, agent banking seems to be a promising solution. Agent banking or agency banking involves the cooperation between financial institutions and external agents – for example shopkeepers or retail outlets – in remote areas. These agents provide financial services, for example cash transaction, withdrawal and deposit of money and registration of banking accounts, for people living in rural areas. To reap the benefits of such solutions, still some barriers have to be removed.

First of all, banks in the developing economies have to identify the BoP as an important target group needing attention and support. By building new divisions with the aim to win the poorest as customer group, banks can get a competitive advantage. For this, staff has to be trained, in order to help bank agents communicate more effectively, as bank employees tend to talk differently than the BoP population. Furthermore, the assignment of female agents is key, as female customers often build a better relationship to female peers. In addition, high illiteracy rate as well as missing ID cards and missing trust in the banking agents often prevent BoP population to register for a banking account. On the side of agents, the profitability of the business model needs revisiting: payment for their service – which lies around 0.2 % of the transaction – is often seen as too low to be profitable. In addition, maintenance of the required technical devices and commutes to training seminars were perceived as too expensive. This leads to the necessity of adapting the business models and to look for novel unique selling points to ensure the survival of banking service businesses in BoP-markets.

In general, there are different contingency variables that determine whether a business aiming to help the BoP succeeds. One key factor is the existence of institutional voids and how business tackle them. Although sometimes criticized as harmful for business and competition, strategic responses to institutional voids can help multinational companies gain a competitive advantage and/ or help poor populations. By pro-actively filling voids and acting as change agents in a sense of institutional entrepreneurs, firms in emerging markets can not only make money, but, in addition, contribute crucially to sustainable development. Keeping informal contact and managerial ties with other companies and government officials can help to reduce adverse repercussions of unexpected changes in regulations. Furthermore, a comprehensive understanding of the voids, as well as knowledge on how to deal with them – and perhaps bridge them – is key to survive in emerging markets. Educational institutional voids, like missing qualified talents, can partly be mitigated by the assignment of third country individuals. Otherwise management training, could fill related knowledge gaps. In case of infrastructural voids, firms can provide means of transportation in form of cheap taxis or rental cars for their employees and hence enhance mobility for the general public and support the local job market.

In addition, collaboration between firms and other stakeholders can fill institutional voids and low degrees law enforcement. Collaboration is key to not just survive in BoP markets, but gain a direct access to local markets, and thus, help the poor in a better tailored manner. There is some evidence that inter-organizational collaboration can especially improve corporate social performance – including improvements in health and safety issues as well as better compliance to workers’ rights – and therefore contribute to social sustainability. In turn, higher social performance leads to higher innovation performance, and consequently can help to boost performance of the firm more generally thus establishing a virtual cycle.

Although some of those challenges may appear overwhelming at times, there is no reason to dismiss the fight for a better quality of living of the bottom segment of society and equal opportunities for all people worldwide. The avenues outlined above for enhancing the quality of life of BoP population crucially have to involve civic society, including religious and secular groups, NGOs, scholars and students as well as local stakeholders like politicians and local businesses.

Learn more

Source: Business Action Network (iBAN), 20 July 2020