research@hec - Issue #21 - (Page II)

Rethinking Business Models To Fight Poverty Bernard Garrette research BIOGRAPHY Bernard Garrette (H85, D91) is a professor of Strategy and Business Policy at HEC Paris. He has held the Atos-Origin chair in Growth Strategies and Integration Management since January 2006 and has been associate dean at the HEC MBA since January 2011. His research focuses mainly on strategic alliances between multinational firms as well as “bottom of the pyramid” strategies. Garrette’s interest in this topic started a few years ago when two of his students pointed out to him that “half of humanity is outside the scope of today’s educational research in strategy and marketing.” Indeed, despite the publication in 2004 of C.K. Prahalad’s book The Fortune at the Bottom of the Pyramid, business education programs continue to ignore the world’s poorest consumers. Instead, meeting the needs of poor populations is generally left to charity organizations. The problem: when left entirely in the hands of NGOs, research and development is necessarily limited, due to insufficient funding. This lack of interest is surprising, given the huge market potential of this market, which represents a full half of the world population — especially in consideration of the saturation of developed markets. Why, then, are companies still struggling to get a foothold at “the bottom of the pyramid”? Bernard Garrette is interested in the business models of large multinationals trying to get a foothold at the “bottom of the pyramid” in emerging countries. Karnani, suggests that companies should rethink their whole approach when local distribution networks. REHABILITATING PROFITABILITY On the basis of their analysis, Garrette and Karnani conclude that the established range of actions in response to poor populations is too small, notably because the zone of contact with them is dominated by NGOs, who do not seek to turn a profit and thus have a limited capacity to act as dynamic forces for progress and change. The “social business” approach, inspired by Muhammad Yunus’s microfinance model, is not a solution either: that model seeks equilibrium (avoiding losses to ensure that the organization can continue functioning), but, like NGOs, does not yield returns on invested capital His analysis, performed in collaboration with the University of Michigan’s Aneel entering emerging markets, refocusing their efforts on business fundamentals like profits, market creation, and partnerships with actors who are familiar with hec and thus ultimately suffers from under-financing. According to Garrette, the most “socially useful” actions for the poor are those that provide a return on invested capital. And, indeed, the way to grow quickly is to create value in order to be able to reinvest. FORGET WESTERN-STYLE MARKETING Does this mean that private enterprise is inherently more suited than NGOs to conquer markets at the “bottom of the pyramid”? Not necessarily: all three of the multinationals that Garrette studied experienced great difficulties with their projects. But these companies clung to their former Western approach, attempting only to adapt, rather than recreate, their usual business model, which can be summarized as using marketing to create needs within existing markets. As it turns out, however, there are no established markets at the “bottom of the pyramid” (yet). There are clear and pressing needs, but no market, because individuals within this group do not have the means to satisfy their needs. “You have to forget about marketing and come back to the basic reason for trade: creating a market where there is a need,” Garrette says. To do this, companies must observe people’s behavior and ask themselves: “how do the poorest people try to meet their needs? Why don’t they succeed? These questions make it possible to detect embryonic markets.” For example, when Essilor discovered a pseudo-market for the rental of eyeglasses in India (one rupee for 15 minutes), they understood that poor customers were prepared to II research@hec • June-July 2011 http://www.hec.edu/Faculty-and-Research/Faculty/GARRETTE

Table of Contents for the Digital Edition of research@hec - Issue #21

Cover & Contents
Rethinking Business Models To Fight Poverty
Call Centers: A Robust Method for Workforce Optimization
Corporate Venture Capital: The Factors Behind Successful Investments
HEC PARIS Actuality

research@hec - Issue #21