bottom of the pyramid

bottom of the pyramid, term in economics that refers to the poorest two-thirds of the economic human pyramid, a group of more than four billion people living in abject poverty. More broadly, BOP refers to a market-based model of economic development that promises to simultaneously alleviate widespread poverty while providing growth and profits for multinational corporations (MNCs).

This concept has been increasingly adopted by firms in different industries (e.g., household goods, energy). Alleviating global poverty was identified as a top priority in the United Nations Millennium Development Goals. Unlike traditional aid-based models of economic development, BOP approaches recast poverty as an economic opportunity for MNCs. The basic argument has three premises: (1) the world’s poor constitute massive growth opportunities and profit potential for MNCs, (2) MNCs should play a leading role in unlocking the economic potential of such difficult-to-access markets, and (3) bringing the poor into the global economy will simultaneously generate fortunes for MNCs while solving the problem of global poverty.

Critics of BOP approaches note two crucial challenges, governance and sustainability; neither challenge is currently well addressed. Effective governance mechanisms and bodies are needed to regulate, monitor, and oversee the development of markets and effective competition (as well as police corruption), and like MNCs, they must transcend national sovereignties. Raising the consumption levels of the world’s poor dramatically requires radically new business models and technologies to avoid disastrous impacts on Earth’s ecosystems; governance mechanisms are needed to enforce the adoption of radical resource efficiency measures and clean technologies across a multinational playing field. Some researchers have suggested, however, that the effects of pollution and other environmental problems worldwide could be lessened by using such underdeveloped countries as inexpensive testing arenas for environmentally sustainable technologies.

Four billion poor people constitute a staggering market opportunity, but without buying power (income) and transaction capacity (credit, infrastructure, distribution systems, and other institutional frameworks), the poor are locked into poverty. BOP approaches contend that MNCs in particular have the incentive (growth opportunities), the financial resources, and the capabilities (low-cost mass production, marketing expertise, international experience) to produce and distribute appropriate affordable products at high volumes and razor-thin profit margins. Research suggests that successful BOP endeavours are characterized by communities that benefit by obtaining basic services or growing more affluent, which precipitates a cycle in which their purchasing power expands while allowing the businesses that underlie the basic services to keep growing.