the base of the pyramid from the point of view of euskadi
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Executive summaryTRANSCRIPT
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Pablo Sánchez, Fernando Casado,
Jordi Vives y Juliana Mutis
Executive SummaryThe Base of the Pyramid from the point of view of Euskadi
Published by: Innobasque - 2011
Basque Innovation Agency
Bizkaia Technology Park
Laida Bidea 203, 48170 Zamudio
The contents of this book, in its current edition, will be published under the Creative
Commons licence: Attribution–Non-Commercial–No Derivative Works 3.0 Spain
(further information at: http://creativecommons.org/licenses/by-nc-nd/3.0/deed.es_CO)
Diseño: Doble Sentido
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The report entitled The Base of the Pyramid from the point of view of Euskadi
endeavours to launch a process of reflection and debate in the Basque Country
on its innovation potential for developing inclusive businesses at the Base of
the Pyramid (BoP). Identification is therefore made of a series of sectors and
countries in which greater potential has been detected for carrying out business
initiatives falling within Innobasque’s Base of the Pyramid programme. Further,
the report revises base of the pyramid and inclusive business evolution and
concepts in order to establish a common framework of action on the parameters
characterising inclusive businesses at the BoP.
The base of the pyramid and inclusive businesses concept
The Base of the Pyramid (BoP) concept has evolved significantly since its
creation, and poor communities have shaken off their initial perception to
become considered as the beneficiaries of public funds from cooperation and
official development aid, as consumers following the first BoP proposals in their
initial formula and as producers in the shape of active agents on the value chain,
until finally offering themselves as strategic allies with priority emphasis on the
eradication of poverty.
With it, evolution of the BoP concept has brought generation of the inclusive
businesses concept, in which the BoP community is showing itself to be a strategic
ally not only in the process of designing and developing the business model,
but also as regards its involvement in the company’s value chain, whether as a
producer, distributor or client. The main characteristic of inclusive businesses is
the combination of financial returns and the generation of opportunities for the
BoP population.
Over and above discrepancies between sources when defining the segment of
population represented by the BoP, there is general consensus that this segment
represents around two-thirds of humanity, who live on under 8 dollars a day and
are affected by particular characteristics which limit their development, and that it
is therefore necessary to promote initiatives incentivizing economic development
directed at guaranteeing access to basic goods and at promoting opportunities
permitting this segment to break its vicious cycle of poverty.
Innovation as central axis of the private sector in base-of-the-pyramid action
Entering the BoP is a complex process requiring a high degree of innovation
and knowledge of the local context in order to generate sustainable projects
with social, economic and environmental benefits. Achieving this objective is
only possible by engaging the selfsame BoP community as a strategic ally in the
process of co-creating the business model. Thus, inclusive businesses at the BoP
are shaped around three core elements: innovation, sustainability, co-creation/
collaboration.
Inclusive businesses therefore assign a key role to low-income communities
in the process of generating solutions directed at finding a solution to their
poverty situation. While it seems that recognition has finally been achieved for
the potential of these communities as strategic allies in inclusive business models,
we must also start to consider their essential part in innovation processes and
when generating new solutions for development. Similarly, their inclusion in the
process of designing business models and their subsequent active participation in
Executive Summary
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� Executive Summary
implementing the project is a necessary path for finding an answer to a good part
of the challenges corresponding to inclusive businesses themselves, such as the
availability, accessibility and acceptability of the goods and services directed at this
segment of the population. In this process, a decisive role is also played by social
organisations and institutions, public and private alike, which normally work
with low-income populations. On the other hand, the scalability of the business
model, another of the principal challenges of inclusive businesses, demands more
global growth strategies.
Inclusive businesses in the context of Basque economy
Despite Basque society’s innovating nature, we can see that the BoP segment
does not yet figure among the innovation priorities of the business sector. This is
largely due to the high technological capacity of the Basque Country, focussing to
a greater extent on products of high added value for developed markets. One of
the main challenges therefore lies in developing innovations directed towards the
development of new business activities, which will, in turn, demand investment
in social research and a great deal of effort as regards the innovation of business
models.
However, given to its tradition of business collaboration, public/private
alliances and the deep-rooted tendency to form cooperations and associations,
Euskadi offers favourable conditions for promoting inclusive businesses. Further,
the link between Basque management and the social domain, the territory and
the people, means greater ability to relate to local entrepreneurs working with
low-income sectors, particularly in industrial SMEs and the cooperation sector.
Similarly, policies fostering innovation within the Basque Government’s 2010-
2013 Business Competitiveness Plan and the 2010 Science, Technology and
Innovation Plan are solid foundations on which to promote the innovation of
inclusive businesses at the BoP.
Despite the fact that, in Euskadi, entrepreneurial experiences related to
inclusive businesses at the BoP remain scarce, there is a significant number of
social companies with international reach which could be taken as exemplary
models of the application of inclusive businesses. Logically, these initiatives can
also be extended to other kinds of companies, such as the innovating SMEs which
develop technological solutions responding to social challenges or environmental
problems, or big companies and multinationals with corporate social responsibility
programmes in their strategies and with vocation in developing countries.
Economic sectors and regions with greater innovating potential
at the base of the pyramid
Seven economic sectors have been identified – health, energy, environment, food,
education, ICT and housing – with a high innovation potential for carrying out
actions at the BoP, whether due to their specific weight within the economic
context of the Basque Country, their R&D&I potential or due to the existence of
coordinated business structures, such as strategic clusters. Of these, the health,
energy and environment sectors are those to have received greater appraisal by
the experts consulted, with a more detailed analysis of their opportunities being
given in the report.
Within the activities with greatest weight in the traditional Basque economy, the
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Executive Summary
industrial sectors of energy, food and water and sanitation show a favourable
position to the development of initiatives at the BoP. In the services sectors,
the most outstanding areas fall on activities related to health, education and
telecommunications.
There is high demand and opportunities at the BoP associated to these seven
sectors, given the great number of unsatisfied needs in the areas of food, energy,
health, education, housing, water, communication, etc. The food sector is the
one which has, with difference, the greatest market dimension, with almost 3
billion dollars (purchasing power parity, hereinafter ppp), given that the largest
proportion of BoP expenditure goes to food. Energy, housing and health come
next in size, with over 400 billion, 300 billion and 158.4 billion dollars (ppp)
respectively. The telecommunications sector has a smaller market dimension (51
billion ppp), although it is one of the most dynamic, growing sectors. As far as
the environment sector is concerned, the only available data are on water and
sanitation (20.1 billion, ppp), although waste management absorbs most of the
municipal budgets in developing countries.
On the contrary, traditional sectors of the Basque economy with intense
R&D activity, such as metallurgy, metal articles, machinery and transport, are not
a priori particularly given to undertaking initiatives at the BoP given their high
dependence on large capital investments. The only possible exception are cases in
which the existence of medium technologies in these sectors were easily adaptable
to the BoP.
The international position of the Basque economy is highly concentrated
in the Euro Zone and other developed countries. Exports and foreign direct
investment (FDI) in emerging countries in the period 2004-2009 came to 12%
and 7% of total exports and FDI respectively. Given that the poles of greatest
growth lie precisely in these economies, the diversification and entry in these
countries through BoP initiatives represents a strategy now and in the future.
Mexico, Brazil and India obtained higher appraisal from the experts
consulted when assessing other countries with greater potential for carrying
out initiatives at the BoP. In the case of Mexico and Brazil, these are moreover
emerging economies with which the Basque Country already maintains a solid
economic relationship. Mexico is the first emerging country to receive Basque
exports and Brazil the fourth. These countries also figure among the five first
emerging countries to receive FDI from the Basque Country. There are similarly
historical and cultural affinities with both countries, particularly Mexico. In the
case of India, despite being among the 10 top developing countries to receive
Basque exports, trading relations and cultural affinity is lower. However, given
the volume of its BoP market, the market structures and economic growth rates
experienced mean that this is a country deemed to be of great strategic interest
within the Asian continent.
In addition to these three countries, high potential has also been detected in
another group of countries largely located in Latin America. These are specifically
Chile, Peru, Colombia, Ecuador and Uruguay. In some of these countries, like Chile,
there are already a number of first and incipient inclusive business initiatives by
Basque companies and cooperatives. Outside the American continent, potential
is also perceived in China, the other big Asian giant; and in Morocco and Angola
on the African continent.
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8 Executive Summary
The report ends with a series of recommendations directed at fostering changes in
the perception of BoP in Euskadi by means of training and educational activities,
improving information systems and the social context of the BoP and promoting
new policies and actions at government level to boost this promising field of
action.