This paper examines the different motivations behind strategic choice in base of the pyramid or subsistence markets. Two strategies are examined through comparative analysis: market extension and strategic intent. Using two commercial bank's micro-lending business strategies in Sri Lanka, a comparative case study suggests that strategic intent is motivated by building capabilities over time that results in successful poverty alleviation, whereas market expansion is motivated by an immediate desire to expand overall sales revenue. This conclusion may help reframe subsistence market or BoP arguments away from such false choices as appropriate size (e.g., multinational corporations versus small and medium size enterprises) toward more useful discussion on understanding why firms participate in subsistence markets and what is the motivation behind their strategic choice. By considering more than just size and scope and studying the motivations behind long-term solutions to poverty alleviation, firm success can be better understood and achieved.
The current discussion investigates to what extent firms' motivations for participating in subsistence markets informs their business strategy and ultimately results in long-term poverty alleviation. This paper analyzes the participation of a large national and multinational firm in subsistence markets. This analysis and comparison of two commercial bank's micro-lending business strategies in Sri Lanka suggests that the motivation for entering into a subsistence market has a large impact on choice of strategy, partnerships, scale, and means of entry. Firms motivated by strategic intent while engaging in subsistence markets build on past initiatives, engage and grow with the community, and create local knowledge and expertise (Hamel and Prahalad, 1989). On the other hand, firms with a market expansion strategy exploit existing pent-up demand and novelty expertise (Bang and Joshi, 2008). The contrast between the two strategies suggests that strategic intent is motivated by building capabilities over time that result in successful poverty alleviation, whereas market expansion is motivated by an immediate desire to expand overall sales revenue expertise. This case study highlights how the subsistence market needs imaginative, long-term responses to poverty alleviation to create what is possible in subsistence markets.
The paper first discusses both Hatton National Bank (HNB) and Hong Kong Shanghai Banking Corporation's (HSBC) participation in Sri Lanka's subsistence market with an introductory history of each firm. Second, the paper provides a comparative case analysis of the two firms' strategies, motivations, and outcomes. From the insights of the case analysis, a discussion and interpretation of the events focuses on the firm's strategic motivation. Motivations are defined and interpreted by two strategies — market extension and strategic intent.
Karnani (2007) posits that opportunities to sell to the poor are generally limited, and the small to medium sized local enterprises (SMEs) that are best suited for exploiting these opportunities. The author argues that the subsistence market usually does not involve economies of scale, instead he suggests that private institutions, not MNCs, should lead the way. Karnani further states, “It is interesting, and not accidental, that in spite of the BOP emphasis on MNCs, virtually all of the examples cited in Prahalad (2006) book are fairly small not-for-profit organizations or local firms, not MNCs.” Though Karnani (2007) frames the argument in terms of MNCs versus SMEs, the real argument may be in motivation and why the firm is entering into a market. Market expansion versus strategic intent could be the core of the debate. Case in point, HNB is a large national bank with global reach that found great success in Sri Lanka's subsistence market. More than just size and scope, the bank's success can be attributed to their motivations to grow with the poor and build what is possible. Through Hamel and Prahalad's framework, a new view of subsistence markets can be developed which includes a reorientation of firm strategy. This strategic reorientation does not focus on the lack of existing resources or institutions in subsistence markets, but rather on possibilities.
In summary, the current case analysis compares two traditional commercial banks, HSBC and HNB, who are providing financial services to the impoverished in Sri Lanka. Findings suggest that their motivation and intent for entering the market that really drives strategy and long-term poverty alleviation, rather than the size or scale of the firm. Firms motivated by strategic intent, such as HNB, may result in best efforts to engage in real poverty alleviation. Strategic intent is a long-term “what is possible” approach to the growth and transformation of the subsistence market. Because this approach capitalizes on the hopes, aspirations, and imaginative nature of the impoverished, firms with strategic intent engage the community and grow with them. Conversely, entrance in subsistence markets motivated by a market expansion strategy, which involves extending existing services to increase immediate sales revenue, may exploit consumers with low consumption ability and have little or negative impact on poverty alleviation. Firms should ask “why are we entering this market, what do we hope to accomplish, and what will be the long-term impact of our presence.” Further research and questioning is necessary in order to define the criteria for successful market engagement and provide a roadmap for long-term transformation of subsistence markets.
