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Japanese firms turning to 'bottom of pyramid' in developing nations
Publication Date : 22-10-2012
An increasing number of Japanese firms are adopting a "bottom of the pyramid" (BoP) business model aimed at low-income earners in developing countries that allows them to improve living standards while reaping profits in the fledgling market.
The BoP model targets people who earn US$3,000 or less a year, of which there are about 4 billion worldwide. The market for this socioeconomic group is estimated to be as much as $5 trillion, according the International Finance Corporation, a World Bank body that offers services to promote private-sector growth in developing nations.
The IFC held a forum on BoP business in Tokyo on October 11 on the sidelines of the annual meetings of the International Monetary Fund and the World Bank. About 50 Japanese companies and affiliates attended the event along with 15 overseas firms, giving presentations on their business activities and holding various negotiations.
Mitsui & Co., one of the participants, entered India's electric payment industry last year by investing in a local service provider.
In a country with a population of about 1.2 billion, many Indians--particularly low-income earners--do not have bank accounts. Many people have difficulty paying utility bills and sending money because the banks' counters are always crowded.
Under the service led by Mitsui, personal computers were set up at about 55,000 tobacco shops and other stores. People can use the terminals to pay bills and transfer cash, just like Japanese do at convenience stores.
The service has become popular and is used by 7 million Indians a month, according to Mitsui.
Also keen to take advantage of the BoP model, Nisshin Foods Holdings Co. has started research into introducing nutritious food to the Bangladeshi market. It aims to release an instant noodle product priced at the same level as local fare in 2014 to improve nutrition among the poor.
The BoP model, which allows business operators to make social contributions while also securing profits, also has been a magnet for small and midsize firms.
N-Wave Co., a Tokyo-based software developer with 15 employees, has been helping the Bangladeshi government-run bus operator sell tickets using a special device.
The introduction of the system has made it easier for the operator to sell tickets and prevent clerks from embezzling money. As a result, the operator secured stable profits, which allowed it to introduce the latest bus models and expand its service network.
N-Wave has started a trial run of a ticketing system using smart cards.
"We want to promote these cards as also being useful for making payments at retailers," N-Wave President Akira Yahagi said.
Toshiya Masuoka, director at the IFC's Inclusive Business Models Group, said companies that want to enter the BoP business face hurdles including product development and competition with US and European companies.
"The key to success is to gather as much information as possible on local markets and to choose the right local companies as partners," he said.