How can an MNC such as Essilor penetrate the BOP market in a sustainable way?

Abstract

Today, the world’s population is estimated at 7.1 billion people. Brazil, Russia, India and China, also called BRIC countries, are the four most important emerging economies. Contrary to developed economies where demand is often saturating or even decreasing, these countries gather almost half of the world’s population and offer tremendous opportunities and sources of growth. They are very attractive for companies due to the exponential growth rate within the middle-class since purchasing power parity and disposable income are steadily growing at a rapid pace. Among the 7.1 billion people worldwide, almost 4 billion are considered as poor, living with less than $2.50 a day, including 1.2 billion people living in extreme poverty with less than $1.25 a day (450 million are Indians). So how can companies target these populations? In 2002, C.K Prahalad and Stuart L.Hart use the concept of Bottom of the Pyramid for the first time in an article called: The Fortune at the Bottom of the Pyramid. The concept was expanded upon by both of them in two books: a book by Prahalad with the same title published in 2004 and Capitalism at the Crossroads by Hart in 2005. Prahalad explains that companies are missing out a potential market of $5 trillion by overlooking the Bottom of the Pyramid population constituted of people living with less than $2.50 a day. According to Prahalad, governments and companies should start seeing the poor as creative entrepreneurs as well as value-demanding consumers. Moreover, he thinks that today’s poor people are the middle-class of tomorrow. Besides, there can also be huge social benefits if multinational firms work together with NGOs and governments to create inclusive business models answering to poor populations’ needs. Bottom of the Pyramid or Base of the Pyramid (BoP) strategies can be divided into two categories: “BoP 1.0” or “BoP 2.0”. BoP 1.0 focus on adapting the product or the service itself to the BoP population needs by answering the 4As issues (affordability, accessibility, awareness and availability) of BoP market. Firstly, targeting BoP market implies price reduction to make the product or service affordable for poor populations. Then it must also be accessible in remote and poor areas and must be available when needed. Hence the need to rethink the supply chain and the distribution channel. Finally, the benefits of the product or service must be known and understood by consumers who will not buy it otherwise. BoP 2.0 is the following step which consists in developing a business model involving local populations as business partners; it aims at driving sustainable development. However BoP population struggles to make ends meet. Many households have to take loans to face everyday expenses, and lenders charge them high fees and interest rates which impoverish them even more. That is where Prahalad saw an opportunity. If companies sold products massively to this population at a very low price, then they would secure most of the market and develop a business model based on volume, while reducing poverty. However, few companies can profitably implement

this kind of strategy without making it become a humanitarian project. So the question is: can any business implement this strategy in a profitable and sustainable way? Some companies have already tried to develop new strategies for BoP markets. But, adaptation costs and distribution challenge prevented giants like Procter and Gamble and SC Johnson from fully implementing this strategy. Danone, a French company also tried to develop a strategy involving rural women as entrepreneurs with Grameen Danone Foods project, but this did not worked as expected, forcing Danone to stop it. Essilor, another French multinational company offers lenses for spectacles. It is one of the few who really managed to have significant positive results in India, especially in healthcare which is a major issue in the country today due to huge discrepancies between urban and rural areas. In parallel to our Inclusive Business Models and Health Economics courses at the Indian Institute of Management Bangalore, we wanted to study and understand in depth the strategy of one company on the BoP market. As French students we were interested in working on the strategy of a French company, since few of them have really tried to target this market. Moreover, as business students and future managers, we are very interested in international business development strategies, and more especially in sustainable strategies involving economic and social development. These are the reasons why we have decided to work on the following topic: How can a multinational company like Essilor penetrate the BOP market in a sustainable way? To answer this question, we will first present Essilor Group and its successful global strategy based on key success factors. We will also give an overview of the Indian market and of the opportunities it offers, more especially in the BoP segment. Then, we will focus on Essilor BoP development strategy in India, before making an analysis of the challenges faced by the company. Lastly we will wonder upon the sustainability of their initiative and compare it to that of other organisations in the same industry. We will conclude by drawing insights for multinational companies trying to launch BoP strategies in India.