The document discusses different types of complex operating environments for businesses: urban slums, deep rural areas, and regions of war/conflict. It outlines common challenges in these markets like lack of infrastructure, skilled labor, and legal frameworks. The key lessons from case studies of companies operating successfully in these environments include winning community buy-in through local partnerships and CSR, promoting local entrepreneurship, finding unorthodox partners like religious/political leaders, and providing unorthodox benefits like funding social programs. Implementing new business models requires separating new units from existing ones while still sharing resources, and building internal commitment by framing it as both an opportunity and necessity.
2. Introduction
Urban Market has reached saturation stage
Increase in competition
Untouched BOP market
Increasing Demand in rural market
Research showed BOP market in the potential market for growth
As the world enters a period of economic instability there is a
pressing need for companies to identify new horizons of growth
Reason
4. MARKET TYPES
Regions of War (Civil or Cross-border
Caused by Absence of Government
Institution
Lack of infrastructure and skilled people
Tension Caused by religious conflict or
ideology
High risk of physical assualt, robery,
kidnaping, blackmail
Conflict Zones
5. MARKET TYPES (CONT.)
Inhabited by economically and socially
marginalized members
Located on the land where local
inhabitants do not hold legal title
Inadequate access to safe water,
sanitation, infrastructure
People with very low income stay there to
access opportunities
Dharavi the biggest slum area in India
Urban Slums
6. MARKET TYPES (CONT.)
Poorest region on Earth
Region populated by people with average
income of less than $2 per day
Lacked with basic infrastructure such as
paved roads and electrification
People with very less awareness of the
other part of the country
Very low literacy level
Deep Rural Area
7. Understanding Complex Operating
Environments
Urban Slums
Inadequate access to safe water
Inadequate access to sanitation
Poor structural quality of housing
Overcrowding
Insecure residential status
No legal title to their land, slum
dwellers have few ways and little
incentive to improve their
surroundings.
Khayelitsha in Cape Town (South Africa): 400,000
Kibera in Nairobi (Kenya): 700,000
Dharavi in Mumbai (India): 1,000,000
Neza (Mexico): 1,200,000
Orangi Town in Karachi (Pakistan): 2,400,000
Source : Habitat
8. Deep rural areas
• Poorest regions on earth, eg. Democratic Republic of Congo (DRC), Malawi, the far
reaches of northern Nigeria etc
• Average incomes of less than US$2 per day
• Lacks basic infrastructure such as paved
roads and electrification
9. Regions of war (civil or cross-border),
insurgency, or severe lawlessness
Violence against civilians resulted in
over 5,000 deaths worldwide
Battle-related deaths numbered over
18,000
Explosion/remote violence led to more
than 4,000 deaths
Riots resulted in over 600 fatalitie
These environments pose unique challenges for firms, including very real risks
of physical assault, robbery, kidnapping, blackmail, vandalism, and theft
Conflict zones
10. Common challenges in these market places
Lack of Legal Frameworks
Private investment in mobile telecommunications
has taken place successfully even in very challenging
Conflict-affected environments, but the
establishment of a basic legal and policy framework
is still required
Absence of Key Infrastructure
Shortage of Skilled People
Creates security problems for contractors,
Lack of local human and institutional capita
Raises costs and the difficulties of implementation
11. Can Firms Do Business in Such Environments?
Is it possible to operate profitably in this environment?
To answer this question two
year research project took place
between 2006 -2008
Action based methodology was
used for analysis and testing
Assumption has been taken that
"Causation is neither linear nor
singular"
By secondary research some
companies had been identified that
had been operating successfully in
these environment
Press article says that their
business was operating
successful
Before going for personal
interview financial data was
also verified to verify the claim
12. Can Firms Do Business in Such Environments?
In depth interview were taken
place of senior management in
Africa, South Asia & Middle east
All companies approached had
reported EBITDA figures that
were above the industry average
for both 2005 and 2006
First round focused on open
ended questions , goal was to
gather as much information as
possible
In second round of interview the
questions were targeted around
specific themes that the initial
analysis of the data had produced
Study followed directives for case-
based research and was based upon
multiple sources of evidence: archival
data, industry publications, interviews,
and direct observation
Data derived from research,
interviews some lessons where
taken out which help to run
the business successfully in
these areas
13. ●As of April 2010, Bharti Airtel’s network covered 440,000 villages in India,
which, together with its
urban services, accounted for coverage of approximately 84 percent of India’s
total population.
●As of March 31, 2010, Bharti Airtel had added 9 million new customers to
reach a total of 128 million
connections. Ovum estimates that rural users accounted for 60 percent of the
company’s net subscriber
adds in that quarter.
●Despite Bharti Airetel’s overall ARPU of just under $5, its mobile division’s
earnings before interest,
taxes, depreciation, and amortization (EBITDA) margin was approximately 30
percent, and its earnings
before interest and taxes (EBIT) margin was approximately 19 percent, which
indicate a healthy return on
14. KEY LESSONS
Winning Community Buy-In
Promoting Local Entrepreneurship
Corporate Social Responsibilty
Unorthodox Partners
Derived from Field Research
Unorthodox Benefits
15. WINNING COMMUNITY BUY-IN
Building partnerships
The key was to go beyond building
partnership to finding innovative
ways to become "part of the fabric"
of the local communities
Their goal was not to be perceived as
"good foreigners" doing business in
their communities but to be seen as
"one of us".
Seeking out non-traditional partners
who can provide them with
unorthodox benefits and who thus
recieves unorthodox benfits in return.
"Our message has been that we are
part of Iraqi society and we are
dynamically tied to Iraq and it's
people. We suffer what Iraq suffers
and we enjoy what Iraq enjoys."
-Ali Al Dhawi, CEO of Iraq's Zain
16. The Zain in Iraq
Celtel Nigeria
Vodafone Essar
in India
They started investing in local
sports activities including
sponsorship of the Iraq
National football team and the
Iraqi Olympic Committee
For winning community buy-in
they started working with
village-chiefs and religious
leaders to improve the local
community.
They started working with
social groups and NGOs in the
slums to sponsor healthcare,
sporting activities and cultural
events.
EXAMPLES
Examples of how different sample
firms executed this strategy for
winning community buy-in
17. PROMOTING LOCAL ENTREPRENEURSHIP
Local entrepreneurship shows great potential as an
economic development strategy for rural
communities with stagnating or declining
economies.
They were involved in promoting local
entrepreneurship and developing local individuals
as entrepreneurs that can help build their
communities in the long term and getting involved
in CSR activities in the communities.
The firms started providing the 5C's of local
entrepreneurship i.e Coaching, Capital, Connection
Culture and Climate.
18. IRAQ'S ZAIN GROUP
They were given just sixty days to
build a functioning network in Basra.
No vendor was willing to send people
into Iraq to support network planning
or roll-out.
Complete absence of knowledge of
how to build and operate a mobile
network.
EXAMPLE OF
Training Courses
Corporate University
Result
The team embarked search for local Iraqi
engineers, sent them outside the country and
trained them.
Due to their initiative they started resembling
like a corporate university that provide
education and skills required to run a business
for free.
Within 60 days, Zain had a functioning
network and today it has more tha n80%
population coverage.
19. Vodafone Essar
in India
Celtel in Nigeria
The Zain Group,
Iraq
Engaged with social groups in
the slums to sponsor culture
events and in turn was able to
learn more about the slum
communities.
They shared a percentage of
franchise revenues with the
communities, with funds
allocated in cooperation
between the franchisee and
local village authority figures.
Supported NGOs delivering
child health initiatives such as
prenatal and pediatric care,
and it helped many Iraqies to
access medical attention both
inside and outside the country.
CORPORATE
SOCIAL
RESPONSIBILITY
All the firms in the study were
engaged in CSR activities.in the
communities in which they
operated.
This allowed them to engage
with and learn about the
communities that they served.
20. UNORTHODOX PARTNERS
Instead of seeking out local businesspeople as partners, our example
companies sought out persons with religious or political prominence in the
community, as well as those who were prepared to become entrepreneurs.
They sought them out so that they could exert influence over the local
populace and/or provide security, protection, and a certain status within the
community.
The Companies created the opportunity for them to build their business.
Furthermore, they funded their social programmes, which assisted them in
becoming more important political and religious figures in their respective
areas.
21. Examples of Unorthodox Partners
Vodafone Essar in Dharavi slum district
Vodafone Essar operates in
Mumbai's Dharavi slum, among
the world's most densely
populated urban slums. hence
this is a classic example of having
unorthodox partners in urban
slums.
The company acquired business
marketers from the local
community, who then located
individuals who were already
engaged in business in the
alleyways of slum neighborhoods.
22. Examples of Unorthodox Partners
Zain Group in Iraq
After the liberation of Iraq in 2003 lifted repression
at all levels of society which was previously
prevalent during the Saddam Hussein, however
the conditions for private business remained quite
poor. Understably, the security situation for any
firm was tough.
Zain's collaboration with local entrepreneurs
showed the corporation how to protect
individuals from kidnapping and enable the free
movement of cash and other assets.
Considering safety as a highest concern, Zain first
hired two international security agencies.
However, Zain now adopts a more regional
approach, with security controlled by ten local
firms that are part of the communities where they
operate.
23. UNORTHODOX BENEFITS
The benefits enjoyed by the stakeholders employing such unorthodox
partnerships will not be the typical advantages associated with joint
ventures.
Instead of partnering to recover missing corporate assets, our sample
firms aimed at partners who might assist them in navigating through
local mafias and providing security and protection from blackmail and
kidnapping.
Conversely, the local firms anticipated more than merely a business
partnership. They wanted our example enterprises to fund them and
help them grow as local entrepreneurs and leaders.
24. Celtel Nigeria was the second largest
mobile telecom provider in the Nigerian
market in mid-2007, with a 28% share of
the market and an estimated 8 million
subscribers. The organization had
achieved a great deal of success
operating in Nigeria's cities and larger
towns.
THE CELTEL
NIGERIA EXAMPLE
BACKGROUND
25. Contracting for mobile transmitter sites, as well as managing the sites once they
were erected, presented distinct challenges.
In many parts of Nigeria, village heads and religious leaders commanded
considerable power. Even with government approval, the corporation had to
negotiate with tribal chiefs before rolling out its network infrastructure, which
sometimes included paying "tribute," even for the entry of Celtel personnel into
tribal territories to maintain the network.
Some traditional marketing tactics were also tricky as billboards were readily stolen
and recycled for building materials or fencing, and it was unsafe for Celtel employees
to go in some places.
THE CELTEL NIGERIA EXAMPLE:CHALLENGES
26. THE CELTEL NIGERIA EXAMPLE:CHALLENGES
Because the Nigerian power infrastructure was
unreliable, generators were needed for all of
Celtel's rural base station installations, which
consumed more than 70 million gallons of diesel
each year.
Access roads are required to be kept in good
condition.
Vandalism and theft of base-station equipment
were prevalent, necessitating the installation of
armed guards at rural sites by Celtel.
With very low levels of mobile phone ownership
in the majority of rural communities, the cost of
telecommunications outages did not appear to
outweigh the benefits of stealing and selling
Celtel equipment.
27. This initiative was launched in mid-2007. It was a micro-franchising concept that
attempted to engage with local communities to drastically boost the 4As of
Celtel's services rather than trying to address the inherent constraints of rural
areas.
They discovered and hired local businesspeople to work as trade partners, dubbed
them Associate Distributors (AD). These entrepreneurs were regarded as
commercially driven small business owners with a good reputation in the
community.
They were also in charge of base-station security and routine upkeep.
THE CELTEL NIGERIA EXAMPLE:
Rural Acquisition Initiative
28. By the end of 2009, Celtel had established a
network of over 900 franchisees in Nigeria's
most remote rural districts.
Franchisees' recharge voucher sales surpassed
early business plan projections by over 120%.
Compared to non-franchised rural sites,
franchised sites have seen a tripling of airtime
sales and a doubling of payphone use.
In places where there is a high level of
franchisee site monitoring, vandalism and theft
have virtually disappeared.
THE CELTEL NIGERIA EXAMPLE:
Rural Acquisition Initiative-Results
29. Implementing new business models was
necessary as the research shows that
existing models won’t work well in BOP
market. Creativity was not the issue but
implementation was. The new business
models need to be implemented in
inhospitable areas and then scaled up in
peaceful co-existence with existing
business models.
IMPLEMENTING
NEW BUSINESS
MODELS
Three implantation area that play a key
role in determining the success
How to compete with two business
models simultaneously.
How to build commitment and
enthusiasm for the venture internally.
How to use local partners to implement
the new business model.
30. The two business
models could conflict
with one another.
The risk of paying the
huge straddling costs
and degrading the
value of the existing
activities
The successful
company have
created a seperate
unit but also find
ways to support it
with assets and
expertise from the
parent
Competing with Two
Business Models
The solution is to
physically separate
the two business
models, but this
results in a loss of
opportunity to exploit
any synergies existed
between two models
31. Allow the unit to differentiate itself by adopting a few of its own value-chain activities but at
the same time exploit synergies by ensuring that some value-chain activities are shared.
Give the unit operational autonomy but exercise strong central strategic control.
Allow the unit to borrow the brand name, physical assets, and expertise from the parent.
Assign a common general manager between the main and the new business.
Hire "outsiders" to run the unit together with a mixture of "insiders."
Allow different cultures to develop but unite them through a strong shared vision and
strong shared values.
Staff the unit with individuals that have cross-functional expertise.
Give the unit enough power to fight its own corner.
Identify measurement and evaluation metrics that are specific to the unit.
HOW THE SEPARATE UNIT WAS INTEGRATED WITH THE
PARENT FIRM
32. Vodafone Essar
Celtel in Nigeria
Bharti Airtel
Vodafone uses its marketing
manager as one main point of
contact. She takes care of
network engineers and
pushes them to meet the
rollout for the month. She
reports directly to Naveen
Chopra
They developed a new rural
marketing and distribution
team whose main focus is to
keep everything simple. Every
employee, distributor, and
retailer keeps it simple for
rural areas. They use local
languages such as simple
Hindi for communication .
Implementation
of Two Business
Models
They have to develop new
processes and approaches for
deep rural communities. They
have to change their
marketing and customer care
as the mindset and literacy
level were at a very different
stage of development
33. How to convince rest of the organization that there is a business oppuetunity there.
How to convince key personnel to work in and sometimes move to these areas,
often with their families.
Considerable internal Skepticism as the area was one of the most economically
backward in the country and affected by violent insurrgency and criminality
Primary healthcare, primary education and poverty levels weer amongst the worst
in the world.
Law and order situation was very unstable and penetration of mobile telephony
was very low.
Companies that compete incomplex operating environments face two interrelated
challenges-
Airtel expanding into Jharkhand and Bihar
Building Internal Enthusiasm
34. Airtel expanding into Bihar and Jharkhand
Identify qucik win-Kaul convinced his superiors to pilot test
the validity of the business oppurtunity. He also realized
quick wins are important for building wider committment to
scaling up new business oppurtunities. This allowed people
to know about the possible oppurtunities
Frame the venture as both oppurtunity and threat- Airtel
framed the entry into these markets as both an oppurtunity
and a threat-an oppurtunity to reach new customers and also
a threat if a competitor were to gain a first mover advantage
Provide visibility and development oppurtunities- Senior
managers communicated that managers willing to work in
these markets will have a brighter career in Airtel. Rajnish
Kaul who was the Marketing Director for Bihar and
Jharkhand became COO of Andhra Pradesh
In order to generate support for the new venture managers
such as Rajnish Kaul followed a number of tactics-
35. Emphasize soft as well as hard objectives-In order to
build enthusiasm for managers to take these roles
managers not only emphasized on the commercial
benefits for the company but also on important role
the company could play in delivering economic
empowerment and social development
Get the right people- Airtel recognized that
managers that acquired experience in stable urban
markets might not be the right people for
complexmarkets, in terms of both midset and
fuctional skill. It sought individuals with cross-
functional experience. Company needed people with
a track record of adapatability and cross functional
knowledge
36. Implementing with Local Help
In complex operating environments, successful companies develop a deep understanding of the
local socio-cultural and business environment
Managers need to value knowledge of the local environment held by a diversity of partners and
learn from them in an efficient way.
Mantaining openness to learning, organizations can allow local partners , who are more familiar
with the local customer behavior and environment risk to innovate proactively.
Firms should avoid designing and implementing strategy based on overcoming challenges in the
local environment and should develop their own understanding oflocal environment.
Celtel Nigeria
Linked with entrepreneurs who co-developed management practices under
Rural Acquisition initiative.
First phase of RAI involved a pilot rial with 25 entrepreneurs where the
company's franchisee's managed the business
Their main activity involved distribution of mobile start up packs, low cost
mobile phones and low denomination recharge vouchers.
Franchisees also started to offer installment financing and barter trade to
their local customers
37. Vodafone Essar
Unable to acheive coverage inside the slum or
densely packed houses.
Difficulty in putting up mobile transmitters in
places that was unauthorized and possibility of
vandalism and theft
Gvernment agencies having very little real
athourity within th slum communities
In Mumbai, Naveen Chopra and his team
encountered following problems in serving urban
slum-
Solution-
Locate large retail outlets and hoist mini transmitters above their shop
The shop owner will be responsible forretail distribution, security and basic manteinanceof mini- transmitter
Many daily wage labourers see mobile as an essential tool tofacilitate economic activity
38. Makes firm vulnerable to external
shocks.
Insulates the valuable information
that exists outside of network
Makes the firm vulnerable to "selfish"
partners.
HOW TO OVERCOME
PROBLEMS OF
SOCIAL
EMBEDDEDNESS
Long-term Relationship
Building trust
Open Attitude and Willingness to
learn
The firm need to continuously remind their
partners that theirs is long term relationship.
Relationship can be strengthened by building
trust with the local partners.
The trust can also be enhanced by investing in
improving partners skills continuously.
Accurate knowledge about the potential
customers can be collected by employing
three steps:
Dedicating internal resource to understand
the complexities of new market, recruiting
local people and supporting business partners.
39. In order to succeed
in this market,
companies need to
work with local
partners, win
community trust
and community
buy-in
Companies need to
develop new
business models
specific to this BOP
environment and
should successfully
implement it.
Companies that adapt
to doing business in
complex environment
area can earn big
profits and can use
their experience to
expand in similar
regions of other parts
of world
Companies need to
partner with the
local people who
better understand
the complex
environment and
must work with
these people to
develop sustainable
energies.
Strategies needed to succeed in these
market is different from strategies for other
BOP market !
