Looking Ahead - Mining and the Environment: From Ore to Metal - page 864

'Bottom of the Pyramid' Theory and the Notion of
Regional Development

The term Bottom of the Pyramid (BOP) refers to the theory proposed by Prahalad (2005)
calling for global business engagement with the world's four billion plus poorest people.
Prahalad observes that the world economic pyramid consists of four tiers of relative wealth
or consumption potential of the global community, measured in terms of annual per capital
income. Tier 1 includes the 100 million or so middle and upper income earners on more
than US$ 20,000 per year, Tiers 2 and 3 include the 1.5 to 1.7 billion poor customers of
the developed countries and the aspiring middle class of the developing countries earn-
ing between US$ 1,500 and US$ 20,000 per year. Tier 4 comprises the poor at the bot-
tom, overwhelmingly in the developing or underdeveloped countries and earning less than
US$ 1,500 per year ('purchasing power parity' equivalent) which is the threshold income
considered necessary to sustain a minimalist standard of living. Of this four billion over
one billion are estimated to earn less than US$ 1 per day. On current projections Tier 4
will grow to more than six billion over the next 40 years.
The BOP theory rests on the principle that the Tier 4 population, who are currently
not able to participate in the global market economy, represents a global ethical dilemma
of immense proportions yet also a potential multi-trillion-dollar market. Critics argue
that business mistakenly overlooks the potential to engage Tier 4 successfully and proi t-
ably. The global sustainability agenda, and the potential for continuing global economic
prosperity and political stability necessitate that this challenge be met (Prahalad and Hart
2005). These are, of course, relevant arguments for the mining sector, particularly as it
becomes more active in developing countries.
In fact mining is an interesting case study because it differs in operational and func-
tional terms from many of the case studies illustrated by Prahalad (2005) and other authors
in discussing the BOP theory. Specii cally, mining activities have i xed spatial character-
istics, rather than geographically dispersed or non-spatial product markets or services.
Next, mining proponents have a very rigid sense of what constitutes the core business of
mining. Hence, the $100 million or so spent by such mining companies as PT Freeport
Indonesia on community programmes is seen principally as a 'cost of doing business', and
not a potential investment in 'non-core' but legitimate business development. Essentially,
this conventional mindset translates to business models that clearly articulate mining as
being concerned with sequential mining activities.
The core business of mining, however, does engage with local populations and com-
munities in the limited phases of the mining venture. Contact during mining explora-
tion is usually limited, but sets up expectations in the local region at both the political and
administrative level, and this interest streams down to the level of the local community.
Opportunists quickly respond, including the poor who gravitate towards mining in search
of employment and a better life. The scale and range of stakeholders that can be involved
is illustrated in Figure 22.10 , derived from a proposed mine in Indonesia. This indi-
cates stakeholders ranging from local village communities, regional populations and four
tiers of government. Even this i gure does not include diverse business interests or local,
national and international NGOs.
By embracing BOP theory and principles, mining companies have the opportunity to
turn something previously viewed as 'a cost of doing business', to a business opportunity.
The motivations for doing so differ from those driving existing practice to address the
issues of social impact management and net community benei t. The latter are statutorily
required, whilst the former are more related to the expanding sustainability agenda which
is becoming increasingly embedded in the corporate charter of a company. The former

The BOP theory rests on
the principle that the Tier 4
population, who are currently not
able to participate in the global
market economy, represents
a global ethical dilemma of
immense proportions yet also
a potential multi-trillion-dollar
market.

Mining companies have the
opportunity to turn something
previously viewed as 'a cost of
doing business', to a business
opportunity.