Barriers & Niche Strategies for Scaling-Up Technology Firms at the Base of Pyramid

Abstract

There are 4 billion people with income less than $3000 per year, which belong to the Base of Pyramid (BoP) market segment. These people share similar characteristics such as experiencing health problems, lack of education and poor living conditions. This state is realized by several entrepreneurs as potential business opportunities, which come in form of technology solutions such as solar lanterns, drinking-water purifiers, and biomass cook stoves. Through the provision of these technologies, entrepreneurs focusing on the BoP aim at getting profit, while at the same time consciously provide technologies that can solve the aforementioned issues. On the other hand, even though there is an increasing trend and influx of investment by these social enterprises, many companies still find it difficult to scale their solution to the poor. For example, many technologies are only sold in constrained geographic markets and unable to be replicated to other markets or regions to achieve an appropriate scale of business. Thus, the research aims to understand on how technology firms focusing on BoP can solve the barriers of scaling and implementing niche strategies to grow their business. To understand the matter, the research will identify and analyze barriers, strategies and also the linkage between them. In addition, the research also establishes the relative importance of each barrier and strategy that is relevant in the BoP market. From the research, it is understood that the issue of scaling from these BoP companies can be approached by using niche concept. Niche is defined as an application of technology to small number of people that precedes the diffusion of these products to a mass-market. The approach is known to be used for analyzing technology introduction in the western market. This research aims to extend the application of the niche concept in the new field at the BoP. The research is conducted in three steps; the first phase is the theoretical gap identification from the previous studies of strategic niche management, high-technology diffusion and BoP literatures. Second phase is the identification on barriers and strategies, in which a draft list of barriers and strategies is identified and validated by conducting interviews with BoP experts and desk research of secondary case studies. The last phase is the validation of barriers and strategies & identification of their relative importance. In this last phase, six primary case studies are conducted through interviews with companies that sell three kinds of products: solar lantern, drinking water purifier and biomass cook stove. The final outcome of the research is a total of identified 21 barriers, which are grouped into three categories: market, consumer and company barriers. Out of 21 barriers that have been identified, 9 barriers are categorized as essential barriers at the BoP: Financial Capital, Affordability, Consumer’s Awareness, Institutional aspects, Knowledge of Application, Production system, Consumer's Demand, Natural Resources Labor & Employee and Infrastructure. From the aforementioned barriers, the financial capital is found to be the most important barrier as companies require funding for working capital in the form of credit for their partners, material for their products and also marketing funding for promotion to consumers. Moreover, 15 niche strategies are also identified, with 8 of them are considered to be essential niche strategies: partner network strategy, access to finance, education approach, demo experiment and develop, explore multiple markets, geographic approach, technology complementary strategy and upper-income BoP market segment approach. ? From the aforementioned strategies, partner network strategy is identified as the most important strategy. Partners can come in different forms such as distributors, resellers, NGOs and local organizations. Partners are required due to the need for the company to access local market. For example, several companies require cooperation with local entrepreneurs or informal organizations to help promote and sell their product to local society. Partners also provide flexibility, as one region may require different approaches in relation to the condition or consumer preference. In this research, the linkage between barriers and strategy is obtained. In most situations, it is found that a strategy can solve more than one barrier. For example, partner network strategy is found to be relevant to help solve the essential barrier of financial capital and affordability. These linkages also indicate geographic approach as an important strategy as its implementation can solve several barriers of government policy, consumer’s demand and natural resources & labor. In addition, from the six study cases, the notion of context-specific barriers & strategies is known. The notion indicates that barriers and strategies can be affected by the context of company, region, products and time. Those factors give the notion of dynamic barriers, which means that barriers are changing over time depending on the condition of the company and market. This revelation thus can affect the kind of strategies that company needs to develop overtime. The research extends this notion by identifying several possible stages that companies need to go through in their quest to pursue a large-scale market. The implication of findings is important for both managers and academic society. From managerial perspective, the findings of the research are important as tools to help managers identify a solution for specific barrier that companies encounter in the BoP market. From an academic perspective, this research enriches the application of strategic niche management theory by applying it in the new domain of the Base of Pyramid market. In addition, it is found that the notion of the dynamic barriers, which is still not quite covered in this research, will be an important step for further research. Understanding and predicting the stages and development of barriers that a company encounters can shed light for many companies to scale their product in this market. Next, the need of universal product design that may be relevant for different markets can be crucial in company’s attempt to achieve a large-scale market. Lastly, the understanding of the current BoP firms operation extends the idea for the companies to implement global scale niche market strategy, in which firms operate by selling small number of products in number of countries to develop their product and market.