Boom times provide companies with abundant short-term opportunities. During downturns, however, opportunities seemingly “dry up” and managers need to explore new strategies to enact future business success.

Unfortunately, we do not have good recipes for building the right organisational competencies that fit and support strategic positions in tomorrow’s markets. An alternative approach is to replicate and rejuvenate existing competencies in emerging economies using “symbiotic business models” and thereby create new markets. This article provides some practical strategic pointers on how this can be done.

In some countries, particularly those with large-scale poverty, there may be no existing market to enter. Thus, a decision might hinge more on how to build markets and the necessary institutional structures.

In these circumstances, institutions supporting market exchange, such as property rights or specialist intermediaries, are often weak or absent. As a result, the conventional sectors in which entrepreneurs and companies compete are either poorly developed or lacking. As economist Douglass North has pointed out: “Third world countries are poor because the institutional constraints define a set of pay-offs to political/economic activity that do not encourage productive activity.”

But recent research by myself and Johanna Mair has revealed the important role of “social entrepreneurs”. These are individuals who help build institutions and innovative business models in emerging economies – the basis for competitive and productive markets and sustainable development. Social entrepreneurs have often worked for decades to build the resources and competencies needed to overcome the obstacles associated with serving the poor efficiently. But because these leaders focus primarily on social objectives, their resources and competencies are often under valued from an economic or business perspective.

In contrast to the traditional “bottom of the pyramid” (BoP) perspective, we propose that companies are better off partnering with social entrepreneurs and providing scale to the business models already being used by them. This approach allows companies to access valuable local resources, leading to profitable market positions and encouraging long-term development. This model creates profits that are generated by combining local resources with existing corporate competencies to serve the growing middle-class or other higher-income customers locally and internationally.

The banking industry believed it was impossible to make money through the provision of micro-loans to the poor, but the Grameen Bank, founded in Bangladesh by Muhammad Yunus in 1976, proved the industry wrong. For 2006, the year Mr Yunus received the Nobel Peace Prize, Grameen reported $725m in disbursed loans and $20m profits. Microfinance institutions such as Compartamos Banco in Mexico have reported returns on equity of as high as 40 per cent, sparking debate over the legitimacy of such profit levels from serving the poor.

In the 1990s, when the telecommunications industry believed it was impossible to make money serving poor customers in Bangladesh, the Norwegian telecoms business Telenor banded together with Mr Yunus to prove the industry wrong again.

GrameenPhone, a commercial company, was operated by experienced Telenor managers with the aim of maximising financial returns by exploiting their competencies of building mobile telephony infrastructure and marketing to middle- and higher-income customers in urban centres.

GrameenTelecom was set up to manage the interface between Telenor and Grameen’s microfinance business model to scale up Grameen’s capacity to create jobs for the rural poor. This was necessary because the real bottleneck to scale for Grameen was not the capacity to provide finance, but to create opportunities for productive jobs to enable the poor to make good use of the loans.

GrameenPhone began operating in 1997, was profitable by 2000 and had passed 6m subscribers and held 60 per cent of market share by 2006. It is now one of Bangladesh’s biggest private companies and creates significant profits for Telenor.

Meanwhile, by 2006, GrameenTelecom had created more than 250,000 jobs for micro entrepreneurs whom it calls “Village Phone Ladies”, poor rural women who generate income by providing a village phone service.

The joint venture with Grameen was critical for Telenor for a number of reasons: it safeguarded the company’s reputation against the widespread corruption in Bangladesh; it provided Telenor with the trusted and widely known Grameen brand, facilitating marketing efforts and establishing local legitimacy in a short time and at very low cost; and the decision to provide scale to Grameen’s model of job creation for the poor, instead of just serving urban middle class customers, allowed Telenor to access development funds that absorbed much of the financial risk and enabled fast country-wide proprietary infrastructure development at a low cost – a strong basis for sustained competitive advantage.

Of course, economic success depends on the ability of managers to integrate resources into a business model that creates greater value than the cost of the resources. Organisations with primarily social objectives, such as those led by social entrepreneurs, can be a source of economically undervalued resources and capabilities.

The case of Telenor demonstrates how a company can provide scale to these organisations, generating greater social value from established business models that work in a local context. In return, social entrepreneurs can provide companies with valuable resources to build the for-profit side and achieve the corporate partner’s financial strategic objectives.

Symbiotic business models

Managing the social and for-profit elements in separate organisations eliminates confusion over non-aligned strategic objectives and the potential mismatch of competencies and organisational cultures.

Every partner in this model is better off if the other partner maximises their private benefit. Thus, Telenor gains revenues and potential consumers from the efforts of Grameen to build jobs, which helps Telenor to maximise its financial returns. Similarly, Grameen can create more jobs when Telenor builds up its business model quickly and is able to sustain provision of discounted connectivity to Grameen. Hence, “symbiotic business models”: the joint value created is far greater than the sum of the two organisations operating in isolation.

The Telenor/Grameen case also demonstrates how several of the strategic challenges of traditional BoP recommendations can be overcome. The inherent complexity for large companies of having to create multiple strategies for different income levels is avoided by having two separate organisations utilising different business models. The for-profit model is largely based on replicating or redeploying existing corporate capabilities rather than building new ones.

The table below summarises some practical and conceptual pointers for developing business models that satisfy corporate needs for growth and returns as well as the needs of the poor.

Inspired corporate strategy means “shaping a desired future” not just reacting to short-term changes. Market positions that explicitly target the challenges of sustainable development can thereby become an essential part of corporate strategies.

Christian Seelos is adjunct professor of strategic management at Iese Business School.
cseelos@iese.edu