In 1998, the Cemex cement manufacturing company in Mexico sent a team of managers into one of the poorest areas of the country to conduct a six-month study on how to increase sales. People with limited incomes accounted for around 40% of Cemex's cement sales so the company wanted to learn how best to serve what they suspected was a virtually untapped market. After living amongst this customer base and learning its needs, the Cemex team discovered how poor people used cement, how they could pay for it, and a host of other profitable facts, which they then used to make their products more accessible. A savings organization named ‘Patrimonio Hoy' was then set up to finance the selling of Cemex products to the company's new customer base. Sales subsequently grew 250% yearly. (Hart, Stuart, Capitalism at the Crossroads)
Cemex's story is not unique. In 2006, the Nobel Peace Prize was awarded to Mohammad Yunus, a former economics professor from Bangladesh, who invented the concept of micro-finance (giving small loans to poor people so they can start their own businesses). Although Yunus was repeatedly told by the establishment that poor people could not be trusted with money, his research (and his conscience) suggested otherwise. Yunus's solution was to help poor people help themselves by creating a new financial institution called the Grameen Bank (grameen means ‘village'). Currently, the Grameen Bank provides over $445 million in small loans each year ($10 to $50 at a time) to those who need it most. It operates by visiting its customers rather than having them come to the bank. Far from being unable or unwilling to pay back their loans, those that borrow money from the Grameen Bank pay back their borrowings at a higher rate than any other group of borrowers in the world.
Realizing that he was on to a good thing, Yunus next helped a telecom company called GrameenPhone (from an idea conceived by former investment banker Iqbal Quadir) to adapt the selling of mobile phones to fit another wasted market. Basically, GrameenPhone sells mobile phones to villages rather than individuals. Selling phones to villages helps spread the cost of the phones, thereby enabling more people to receive information about crop prices, market conditions, and other vital statistics without wasting days walking back and forth to major communication hubs. The result? Profits from the GrameenPhone project are expected to rise to over $100 million despite the fact that the company operates in a region of the world where the average yearly wage is only $286.
Meanwhile, in Central America, Corporacion Dinant is producing biodiesel from African Palm trees, which have low water needs and require intensive manpower – a situation that provides excellent opportunities for job creation (currently 2,000 small producers are involved in the project). (www.inclusivebusiness.org)
The message of BoP economics is not about selling products to people who don't need them. Rather, the point is that companies – particularly global players should not turn their backs on BoP opportunities in their search for new markets, new products, and new business partners. Businesses astute and creative enough to adapt to the needs of the world's largest collection of potential customers are currently reaping the benefit of increased profits, improved regional economic stability, and intense personal satisfaction – with little or no competition. For more information see The New Age of Innovation: Driving Co-created Value through Global Networks by C.K. Prahalad and M.S. Krishnan (McGraw-Hill, 2008) and Capitalism at the Crossroads: Aligning Business, the Earth, and Humanity by Stuart Hart (Wharton School Publishing, 2007, 2nd edition).