Executive Interviews: Interview with Reuben Abraham on Bottom of the Pyramid
November 2008 - By Dr. Nagendra V Chowdary

Prof. Reuben Abhraham
Reuben Abraham is a Professor and Director of the Emerging Markets Solutions Initiative (EMSI) at the Indian School of Business.

• What is BOP lab all about? Can you tell us about its origin and objectives?
  In terms of history, the BOP lab was set up at Cornell University. It's a global network of labs set up by Stuart L Hart who co-authored the original paper with CK Prahalad. There are BOP labs in India, South Africa, Mexico, Sweden, Holland and Spain. Ours was, in fact, the first lab to be set up in Asia in collaboration with ISB. I came here from Cornell to set the lab up. Over the last two years of working in this space we realized that the 'BOP connotation' is probably a bit too restrictive. So we decided to expand the scope of our work greatly, and the BOP lab has now being emerged into a larger centre called 'Emerging Market Solutions'. Emerging Market Solutions looks primarily at four areas right now, but we are looking at the possibility of developing a couple of other portfolios as well. We are looking at small businesses and finance; urbanization; healthcare and education in this regard.

  Philosophically, there are a couple of interesting points: One is we are trying to get rid of the moral argument. Too many people make moral arguments and I am saying there are strong economic arguments to be made for the expansion of the markets.

  The second point is that even people who understand the role of private sector, never talk about the capital markets and we are trying to basically talk about capital markets because if you want money that's where the money is. If you do the numbers, there is $160 tn in the capitalmarkets. So, focusing in on the small business sector is more useful for the capital markets. A lot of BOP literature has typically focused on large multinationals. We strongly and firmly believe that instead, the focus should be on the small businesses. If MNCs have to do something it's actually enabling role of MNCs rather than the customer facing role of MNCs.

  There are other players in the market who know where better returns, less cost and greater efficiency are to be found, and how to deal with these markets, who, try to take the focus away from consumption to production. Not that there is anything wrong with consumption. But I understand fully well that it's great business for HLL to sell shampoos to the poor and I am not sure what it does for the poor to consume all that shampoo. So, focus is rather on the productive activities and productive activities increase incomes. And this leads to increased consumptions by default. And the next point is, how do you do this? How do you ensure this economic growth doesn't come at the cost of wrecking the environment? These are elementarily philosophies and the philosophy of the new centre remains the philosophy of the lab.

• So far what have been the achievements of these labs across the countries?
  Typically, most of the labs have worked with large companies. So it's been in terms of strategy; it's mostly been a strategy game. It's been working with SC Johnson which is one of the largest consumer goods company in the world. It's been working with DuPont in Kenya; Solay Company in Hyderabad and Bombay; with Nike in a couple of countries and so on. So that's typically what the lab has done until now.

  What we have done here is very different.We have been working with small businesses. In fact, since beginning, our very focus has been on small business. And in small business area what we have done is, to get capital. Typically, our partners have been hedge funds including global hedge funds and our role has been to let themlook at areas that they would not conventionally look at.

  We have looked at education, waste management and a bunch of other similar areas. We have also looked at healthcare. So we have executed our transaction in education where hedge funds made 175%returns.When I say 'we executed'what Imean to say is we have helped so it's 'transaction advisory'. We have worked with a hedge fund on investing in a waste management company, which is probably headed for an IPO. It is an extremely successful organization and based on some of these activities we have gone ahead and raised a venture capital fund here, which, starts operations later in September or so. And the fund itself has George Soros, Google,Omidyar (the founder of EBay) as investors and they are looking to make early stage investment in small companies.

• What is the sales pitch to these great investors like Soros or somebody else?
  I have been into Soros because, I sit on the board of one of Mr.Soros' funds and we have been discussing this whole issue of early stage capital. We have been discussing the issue of small and medium businesses. So, there is a great deal of interest in that space globally. The whole idea was to go to them and say look, "Let's do something experimental." For them its a small amount of money which is a jump change. So the idea is to do something experimental and see if the market works. And if the market works, it is actually a great moral to port out into other countries. That's a compelling argument for them and with Soros as the anchor, it's easy to find Google and Omidyar to come on board and again we have personal relations with both of these companies.

• Coming back to India how do you characterize the BOP markets in India?
  The BOP market is one of those things I feel nobody knows much about. You have heard all sorts of numbers on what it is. Is it a dollar a day, $2 a day, is it $5 a day or is it less than $10 a day? No one knows. So rather than getting into semantics of what it involves, I just basically look at 800 million people in this country, who have not effectively participated in the growth miracle that has happened over the last 15 years. To me all of that is the BOP. Now, by definition any pyramid is also a pyramid. There is no single bracket, there are multiple brackets. So, you have a product that is aimed at the top of the pyramid, the middle of the pyramid and that's how you basically think about it. Let's not get caught upon definition and semantics because semantics just trap you.