High-Growth Markets: Scaling Business Innovations to Grow with the Future Middle Class

Several forces are making low-income consumers in fast-growing emerging markets ripe for innovations that improve their lives. These include new technologies such as mobile phones, awareness of the economic growth accelerating in their home countries, and governments’ desire to close income gaps.

To provide these innovations, companies must develop inclusive business initiatives (IBIs). But inadequate institutions and infrastructure in emerging markets, along with difficulties gaining local communities’ trust, can make it difficult for companies to scale IBIs so that they generate both profits and societal benefits.

To scale an IBI, companies must: (1) understand six stakeholder-driven processes relevant to IBI execution, (2) identify which of these processes are most vital to scaling an IBI and (3) leverage strengths of key stakeholders linked to those scale-critical processes.

With this approach, companies can create innovations that address institutional and infrastructural deficits in low-income markets. As a result, they’ll help underprivileged consumers transition into the middle class—while fueling profitable new growth for themselves.

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A vibrant middle class is critical to nations’ economic growth. In developed markets, middle-class size and spending growth is stagnating. The opposite is true elsewhere. By 2030, fast-growing emerging markets will be home to more than two-thirds of the world’s middle class. Meanwhile, low-income consumers will start climbing the ladder of prosperity. Companies that target them with inclusive business initiatives (IBIs) now can serve the new middle class later.

But deficits in institutions (such as regulatory bodies) and infrastructure (such as transportation and IT networks) impede the exchange of information between buyers and sellers and increase the costs of doing business--preventing large companies from scaling up their innovations. Companies face additional roadblocks to scale, including mistrust from local communities. Without scale, IBIs can’t become commercially viable or deliver societal benefits (such as development of business skills) to enough people.

To overcome these challenges, companies must understand the processes vital to scale and leverage strengths of key stakeholders linked to those processes.

• Six processes are relevant to effective execution of inclusive business initiatives: (1) co-creating solutions with local low-income communities, (2) collaborating with nongovernmental organizations (NGOs) and small entrepreneurs, (3) partnering with governments, (4) fostering a balanced regulatory environment, (5) reconfiguring organizational structures and (6) gaining top leadership buy-in.

• Top leadership buy-in for an IBI is an imperative. Without it, IBIs can’t scale.

• Many of the six processes deliver robust scale only when deployed in combinations. For example, co-creating solutions with local communities works best when paired with government partnerships. Collaboration with NGOs and small entrepreneurs is most effective when complemented by reforms in organizational structure to suit an IBI’s business-model needs.

• The effectiveness of process combinations depends on location. In China, for instance, combining balanced regulation with government partnerships helps IBIs rapidly achieve scale.

• Effective deployment of these process combinations can help companies overcome institutional and infrastructural deficits and remove other roadblocks to scale.

Scalability is critical to inclusive business initiatives’ success. But efforts to achieve scale are fraught with unanticipated dangers. Even when equipped with a viable offering at the right price point, firms often fail to convince enough low-income consumers of the offering’s value. Thus they never achieve the economies of scale needed to make their IBI profitable.

However, a qualitative comparative analysis of 18 independent business initiatives across the emerging world shows that companies can scale IBIs. There is a path forward, but it’s difficult. The first step in this path is to understand the stakeholder-driven processes relevant to effective execution of IBI. Examples of these processes include co-creation of solutions with local low-income communities, collaboration with nongovernmental organizations and small entrepreneurs, and partnering with governments. Of these processes, a company must next identify which are most vital to scaling the IBI in question and determine which combinations of processes will be most powerful. Finally, companies need to design actions that leverage strengths of key stakeholders associated with those scale-critical processes.

• The leaders of an inclusive business initiative must gain the support of the company’s top leadership. They can do so by encouraging boards and senior management to have a personal stake in building an IBI’s scalability; by discouraging too much focus on the near-term bottom line (giving the IBI needed time to grow); and by persuading top leaders to bring in the talent that an IBI needs in order to thrive.

• In addition, companies should learn to use government support effectively. They can do this by collaborating with governments committed to implementing IBI-friendly decisions and using government regulation to create “win-win-win” programs that support business, social, and government goals, such as a cleaner environment.

• Finally, companies should recognize the keys to scaling with the help of NGOs and small entrepreneurs. They can do so by reforming their organizational architecture (for instance, deploying local information sources to win the community’s trust), establishing in-house platforms to help partnerships run smoothly (such as an eco-relations management department) and partnering with authentic local NGOs to build long-term relationships with local beneficiaries of an IBI.

Raghav Narsalay leads the research team in India for the Accenture Institute for High Performance. He is based in Mumbai.

Ryan T. Coffey is a senior specialist with the Accenture Institute for High Performance. He is based in Mumbai.

Leandro Pongeluppe is a research scholar with INSPER in Brazil. He is based in Sao Paolo.