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Bottom of the Pyramid Proposal

In: Business and Management

Submitted By seanhart1
Words 1326
Pages 6
Sean M. Hart
GBUS 496

Individual BOP Proposal

This paper will evaluate the potential of “bottom of the pyramid” opportunities for a multi-national electric generation and distribution company. Initially, the basic elements of strategy needed for serving this market will be examined. Next, the AAA factors will be evaluated to determine if there are advantages to be obtained by globalizing the proposal. Lastly, cultural differences that may affect the business will be examined.
Company Overview

PPL Corporation began in1920 when eight utilities serving central and eastern Pennsylvania merged into a single entity called Pennsylvania Power & Light Co., headquartered in Allentown, Pa. Today, PPL controls or owns about 19,000 megawatts of generating capacity in the United States, sells energy in key U.S. markets, and delivers electricity and natural gas to about 10 million customers in the United States and the United Kingdom. In the U.S., PPL generates and distributes electricity in PA, KY, MT, VA and TN. PPL formerly owned generation and distribution companies in Latin and South America, but has since divested itself of those interests.
Elements of Strategy

PPL is active in the multi-national electricity generation and distribution arena and has chosen to expand its business largely through the vehicle of acquisition. Since PPL’s product is a commodity, it must differentiate itself by providing greater reliability of service and lower price. Historically, the Company has staged its moves in a reactive manner dependent upon the acquisition opportunities that came on the market. PPL’s economic logic is simple: the people within its service territory are dependent upon electricity and will pay to get it.
The recent drastic reductions in natural gas prices have caused the Company shift its’ to focus from coal-fired, base-load generation to combined cycle natural gas generation. Additionally, although wind and solar power are part of PPL’s current generation portfolio, neither source is economically viable in PPL’s current markets without heavy government subsidy.
BOP Markets.

In providing electricity to the bottom of the pyramid, PPL must first consider which market it will target. Domestically, only about 1.4% of U.S. households are without electricity. Therefore, the markets in developed countries would not seem to provide the BOP opportunities that would satisfy the “better off” requirement for PPL’s entry into same.
The largest BOP market opportunity lies in providing energy access for the more than 1.2 billion people who do not have electricity. These are the poorest people on the planet and are mostly found in rural/remote areas of sub-Saharan Africa and central and southern Asia. It is interesting to note that although these people do not obtain electrical service through a distribution network from a central supplier, they do use lighting which is often provided by candles or kerosene – which consumes between 25-30% of a family’s yearly income.
BOP Strategy

The remoteness of much of this market dictates that there is no immediate economic logic in the massive expense needed to construct generation or distribution systems to needed serve these people. However, the geographic location of the market makes it ideal for solar powered electricity. Solar energy is free and the equipment used to harness it is becoming increasingly cheaper and more efficient. PPL could be the first-mover in this market by either 1) offering to rent the solar equipment and lighting fixtures to individual families at a cost less than that of kerosene; or 2) offering the same for a central community building where individuals could pool their resources if individual service is not economically viable. In either case, PPL could also offer training to local individuals on the repair and maintenance of the systems, although little is required for solar units.
Either option would benefit PPL as the members of the market become increasingly dependent on electricity. As with Tetra-Pak’s strategy in Nigeria, PPL’s ultimate desire is to use its initial introduction of solar power as a means to expand the sales of its other “products”, namely distributed power. Increased electric use could organically increase to a level that would justify the expense of expanding distributed power to these regions. However, the likelihood of this growth occurring at a rate that justifies the capital expenditure necessary for distributed power is minimal. Instead, PPL could stage this expansion in a way to correspond with the global markets’ continued desire to find ever-cheaper labor in rural markets. When a manufacturing facility is constructed in a rural market, PPL could mandate, as a condition of it supplying power to the facility, that the manufacturer also provide for construction of distributed power facilities in the surrounding villages.
AAA Factors

There is no real immediate aggregation potential of this proposal in terms of economies of scale. This is because each individual will be their own, self-contained source of generation, distribution and consumption of power. If aggregation is to occur, it will happen much later when distributed power is extended to these regions,.
Aside from many in the BOP residing in sunny climates, the main arbitrage advantage is that solar is the only practical way to provide power to many in this market and should therefore receive substantial government subsidies. There seem to be no adaptation advantages associated with this proposal as electricity is a commodity that is not capable of being tailored to a specific market. The only arguable adaption advantage is that the source of generation – the sun – is free and in plentiful supply.
CAGE Analysis

The main cultural factor implicated by this proposal is that many in the BOP market have no experience with electricity. To those that have power, it seems unthinkable that people may not want to use electricity. However, people have existed for thousands of years without it and this is a drastic change in social norms that may not be immediately adopted by the market. To lessen administrative and geographic “distance”, PPL should choose to initiate this proposal in BOP markets that were also former British colonies (i.e. India) and/or that share a common border with the US (i.e. Mexico). By the very nature of the BOP market, there seems to be few ways in which to lessen the economic distance with PPL’s domestic market.
The “Better Off” Test Would PPL be better off if it were to seek BOP opportunities as proposed herein? In the long term, yes. PPL would be introducing solar-generated electric power to a new market and thereby creating new customers. While the immediate return would be minimal if not negative, PPL would be creating a familiarity with (if not an outright dependence on) electricity in an untapped market. Further, the BOP market would provide PPL with opportunities to perfect solar generation technology. However, the real benefit would be to create a future market for distributed power in areas thought to be too remote to justify the expense. However, this is ultimately the reason this proposal with not work. It will simply take too long for the payoff to occur. It may take decades before distributed power is extended to many of the regions that make up the BOP. Furthermore, as electricity becomes more common and ubiquitous in 3rd world countries, it becomes more attractive for government takeover, especially in the totalitarian regimes that commonly arise in poor countries.

--------------------------------------------
[ 1 ]. Interestingly, while the larger US market provides few BOP avenues, nearly 14% of households on Native American reservations do not have electricity. Moreover, MT, a state in which PPL generates and distributes electricity, is home to 6 large reservations. Therefore, providing power to Native American households on reservations in MT would serve as an ideal test-market for ways in which PPL would seek to provide power to the BOP. Moreover, due to geographic advantages, MT would provide an ideal testing ground for advanced wind and solar technologies.
[ 2 ]. Furthermore, PPL’s preferred vehicle for expansion is acquisition, not through equity investment in new construction.

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