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日本語

Japan

BOP Market Development and Administrative Innovation for Corporations in Society

Takafumi Ikuta, Senior Research Fellow

February 14, 2012 (Tuesday)

1. BOP Markets in the Spotlight

Base of the Pyramid (BOP) business, which chiefly targets people with low-incomes in emerging and developing countries, has become the center of attention. The BOP, which is made up of those earning less than $3000 annually, totals some 4.5 billion people, or more than 70% of the world population, and is estimated to have a market value of approximately $5 trillion. As developing and emerging countries experience economic growth, the BOP, which was once treated as a target for international support, is now considered to be a new volume zone and the “next market” in the global economy. Some global companies from western countries began forming partnerships with international institutions, governments, and NPOs and developing BOP markets as early as ten years ago. In Japan, too, METI’s establishment of the BOP Business Support Center in October 2010 shows that interest is on the rise.

In order to develop BOP markets, Japanese companies will have to change their way of thinking from the business development of the high-end markets in which they have shown their potency and the middle-end markets in which they have been actively endeavoring in recent years. The BOP suffers a great many social issues as a result of its poverty. Consequently, it can be regarded as a market with great demand for businesses which will help solve these social issues. Furthermore, because market infrastructure is lacking, it will be very important to create business models which can adapt to the conditions of each region. In order to ensure smooth production, distribution, and sales, as well as all-important market access, companies will have to carefully consider cooperation with local partners.

2. Tying together BOP Business Development and CSR

Establishing a sustainable BOP business requires solving the social issues of the target region and securing the minimal profits necessary to guarantee the continuation of business. A company’s actions which contribute to the solving of social issues are also called Corporate Social Responsibility (CSR) activities. The key to developing BOP markets lies in whether or not a business succeeds in reforming administration by strategically linking business with CSR.

Overseas, active development continues of indices which evaluate CSR cost-effectiveness by taking into account effects on both society and business, and more and more companies are beginning to use these indices. The concept of Creating Shared Value (CSV), which aims to simultaneously maximize a company’s profits and create value for society, is also promoted by many.

 Figure 1: Basic concept for creating a BOP business model

CSR activities are thriving among Japanese companies as well. According to the Keidanren, Japanese companies allotted an average of \385 million, or 1.8% of current profits to social contribution in 2010. More than half of these companies contributed to activities which targeted the BOP. However, approximately 80% of these BOP-targeted activities were charity programs, which were not strongly tied to the companies’ main businesses. The vast majority of Japanese companies have not strategically linked CSR and BOP business, and they have failed to use company resources effectively.

3. BOP Market Development an Opportunity for Administrative Reform

In order to strategically connect CSR with BOP business development, it will be necessary for Japanese companies to reconsider current activities at both the individual project level and at the company level.

At the project level, it will be necessary to verify the compatibility of the need for solving social issues in the target region and the potential for developing products which make use of company resources. It will similarly be necessary to confirm the relationship between CSR activities and the company’s business and strengths. Following the results of this reconsideration, it will be necessary to introduce a system to evaluate such reorganized, social-problem-solving BOP businesses (or CSR activities closely tied to the company’s main business domain) from the viewpoints of company value and regional social value. In this instance, “company value” does not simply mean financial performance, but it includes elements such as accumulation of know-how, brand recognition, and improved image as well; i.e. it evaluates the impact of entering the market. Social value refers not only to dealing with health, safety, energy, and other basic needs of the BOP, but it also evaluates contributions such as increasing income through education and creating business opportunities.

The advancement of BOP business at the company level brings with it the need to reform the administration so that the balance of social value and company value becomes the main issue. It is essential to clarify a company policy with CSR based on the company’s main business at its core. Creating closer ties between departments within the company, e.g. corporate planning, global business, and CSR, is also desirable. It would also be advisable to introduce an index to evaluate social value and company value across the whole company, to reflect the results in action plans, and consider introducing an administrative system which includes the PDCA cycle. Finally, the company should consider its communications strategy for communicating these efforts to its stakeholders.

As we can see, considering BOP business means thinking about not simply developing emerging markets, but reforming administration in order to achieve a balance between corporate profit and solving social problems. Japanese companies should consider BOP market development as a singular opportunity to undertake administrative reforms and create a global and universal business model, and thereby maintain their long-term competitive power as a company with a meaningful existence within society.