Strategic Innovation at the Base of the Pyramid FA L L 2 0 0 7 V O L . 4 9 N O . 1 R E P R I N T N U M B E R 4 9 1 1 6 Jamie Anderson and Costas Markides Please note that gray areas reflect artwork that has been intentionally removed. The substantive content of the ar- ticle appears as originally published.

C ompanies that develop new strategies to attack competitors and enter new markets often accomplish this by introducing architectural or busi- ness-model breakthroughs. They identify gaps in how an industry is organized, go after those gaps and then find ways to turn them into profit- able markets. They find new customers (���new whos���), new products or services (���new whats���) or new ways of promoting, producing or distributing them (���new hows���). Although there has been a burst of interest in recent years in how economic growth is unfolding in the developing world, most of the research on strategic innovation is focused on developed markets. How- ever, based on our research, companies that understand the dynamics of growth at the base of the economic pyramid in emerging markets have sig- nificant opportunities to unlock value. We have studied strategic innovators in developing markets from a vari- ety of industries to understand the reasons behind their success, and to explore how the success factors differed from what we have observed about innovators in the developed world. (See ���About the Research,��� p. 85.) We found that strategic innovation in developing markets differs in three im- portant ways. First, the issue is not finding ���new whos������ indeed, assuming products are affordable, there are plenty of under- and nonconsuming cus- tomers to tap. Second, it is not about creating new product features but adapting existing products to customers who have fewer resources or a dif- ferent cultural background. And third, it is less about creating new business models or differentiating how you compete than establishing basic market ingredients such as distribution channels and customer demand from the ground up. (See ���A Framework for Strategic Innovation: The Four A���s,��� p. 84.) Companies that are able to confront theses issues have often been able to achieve strong market share and profit growth. Developing Affordable Products and Services In many cases, finding customers is not the issue. The 20 biggest emerging economies have a total of more than 700 million households earning an ag- gregate of some $1.7 trillion per year, roughly equal to the gross domestic product of Germany.1 Brazil���s poorest 25 million households have an annual income of around $73 billion per annum China���s 286 million lowest-income FALL 2007 MIT SLOAN MANAGEMENT REVIEW 83 G L O B A L B U S I N E S S Strategic Innovation at the Base of the Pyramid Jamie Anderson is a senior lecturer and member of the founding faculty at the European School of Management and Technology, in Berlin. Costas Markides is the Robert P. Bauman Professor of Strategic Leadership at London Business School. Comment on this article or contact the authors through smrfeedback@mit.edu. Innovation in developing markets has less to do with finding new customers than addressing issues of product acceptability, affordability, availability and awareness. Jamie Anderson and Costas Markides