Unintended Consequences of Business with 4 Billion: Lessons Learned from First Generation BOP Strategies

Unintended Consequences of Business with 4 Billion: Lessons Learned from First Generation BOP Strategies

Nancy E. Landrum (University of Arkansas at Little Rock, USA)
DOI: 10.4018/978-1-61350-332-4.ch003

Abstract

In the past, there has historically been a pursuit of profit as the motive for multinational corporation (MNC) international strategies in emerging economies. We have long known of some of the unintended and controversial consequences of MNC international strategies on emerging economies. By contrast, base of the pyramid strategies (BOP) are aimed at the poorest residents in emerging economies and seek to improve social, environmental, and economic conditions for all, ideally addressing many of the problems encountered with more traditional MNC international strategies. Anecdotal examples continue to accumulate of businesses with success in the base of the pyramid, fueled by innovation in new products, services, and/or business models. However, academic research is emerging that does not support this image of BOP success. This chapter will discuss unintended consequences or outcomes of BOP strategies which may not always result in environmental sustainability, improved lives in the BOP, and improved economic conditions. This presentation focuses specifically on the unintended consequences of base of the pyramid strategies within emerging economies. Even with the recent interest in BOP strategies, closer scrutiny of current examples of BOP successes still reveal some of the same negative unintended consequences as MNC international strategies; that is, there is still an emphasis on profit ahead of responsibility and sustainability. Literature and research reviewed in this chapter reveals that BOP strategies have resulted in the promotion of stereotypes, an anticipated increase in e-waste under already hazardous recycling conditions in India and Africa, a loss of social capital, and worsened economic conditions.
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Base Of The Pyramid Strategy

Companies have expanded outside their home country boundaries in search of increased profits by way of sales in new markets and reductions in manufacturing costs. International strategic approaches traditionally used by companies include mergers, acquisitions, direct foreign investment, exports, licensing, and joint ventures. These approaches allow companies to exploit market imperfections through factor inputs (such as labor and capital) or raw materials (such as natural resources) that can be obtained cheaper in foreign markets. However, companies have been criticized because these approaches allow for the extraction and exploitation of human, political, natural, and economic resources during their conversion to finished goods.

In response to the criticisms of globalization and the problems stemming from traditional international strategies, Prahalad and Hart (2002) envisioned an alternative approach that would provide mutual benefit to the multinational corporation and to those most exploited and negatively affected by globalization. In their seminal work, Prahalad and Hart (2002) define base of the pyramid strategies as “selling to the poor and helping them improve their lives by producing and distributing products and services in culturally sensitive, environmentally sustainable, and economically profitable ways” (p. 2). In theory, BOP strategies achieve environmental sustainability as well as improved lives and economic conditions for residents in the BOP. Subsequent work by Prahalad (2005), Hart (2005), and others have further refined the base of the pyramid strategy and interest in BOP strategies has grown in both the business school curriculum (Damast, 2007; The Aspen Institute, 2007) and the business world.

Examples continue to accumulate of businesses with success in the base of the pyramid (BOP), fueled by innovation in new products, services, and/or business models. However, this chapter will discuss unintended consequences or outcomes of BOP strategies which may not always result in environmental sustainability, improved lives in the BOP, and improved economic conditions. In the past, there has historically been a pursuit of profit as the motive for MNC international strategies in emerging economies. The focus on profit maximization and shareholder wealth has resulted in negative consequences associated with international strategies in emerging economies. Yet even with the recent interest in more responsible BOP strategic approaches, this chapter reveals current BOP examples that demonstrate some of the same negative unintended consequences as international strategies and examples that continue to put profit ahead of responsibility and sustainability. This discussion of international and BOP strategies is organized along a triple bottom line approach addressing the social impact, environmental impact, and economic impact of selected MNC base of the pyramid strategic activities.

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